PRINCIPLES OF

AUSTRALIAN CONTRACT LAW

Fifth Edition
 PRINCIPLES OF
AUSTRALIAN CONTRACT LAW
Fifth Edition

JOHN GOOLEY
BA, LLB (Syd), LLM (Hons) (Syd), Dip Ed (SCAE)
Barrister, 153 Phillip Barristers

PETER RADAN
BA, LLB, PhD (Syd), Dip Ed (SCAE)
Honorary Professor of Law, Macquarie Law School, Macquarie University
Fellow of the Australian Academy of Law

ILIJA VICKOVICH
BA (Hons), LLB (Syd), LLM (Macq)
Roll of Legal Practitioners, New South Wales
Lecturer, Macquarie Law School, Macquarie University

LexisNexis
Australia
2021
 LexisNexis
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 CONTENTS
Detailed Contents vii
Preface to the Fifth Edition xv
Table of Cases xvii
Table of Statutes xcv

1 Introduction 1

PART I: HISTORY AND THEORY 13

2 History of Contract Law 15
3 Contract Theory 25

PART II: FORMATION OF A CONTRACT 39

4 The Fact of Agreement 41
5 The Requirements of Certainty and Completeness 74
6 Consideration 93
7 Intention to Create Legal Relations 119
8 The Requirement of Writing 135
9 Capacity 148

PART III: TERMS OF A CONTRACT 169

10 Express Terms 171
11 Implied Terms 198
12 Construction of Contractual Terms 221
13 Construction of Exclusion Clauses 248

PART IV: VITIATING FACTORS 263

14 Misrepresentation 265
15 Misleading or Deceptive Conduct 286
16 Mistake 325
17 Duress 363
18 Undue Influence 379
19 Unconscionable Transactions 405

v
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

20 Contracts Review Act 431

21 Unfair Contracts 457

PART V: DISCHARGE 473

22 Discharge by Performance 475
23 Discharge by Agreement 491
24 Discharge by Breach 516
25 Discharge by Frustration 560

PART VI: ILLEGALITY 591

26 Statutory Illegality 593
27 Common Law Illegality 613
28 Effect of Illegality 659

PART VII: REMEDIES BASED ON CONTRACT 673

29 Damages for Breach of Contract 675
30 Actions for a Fixed Sum and Debt 730
31 Specific Performance 750
32 775
33 Equitable Damages 782
34 Rectification 788
35 Rescission 799

PART VIII: OTHER BASES OF RELIEF 811

36 Equitable Estoppel 813
37 Liability in the Law of Torts 835
38 Restitution 854

PART IX: THIRD PARTY RIGHTS 897

39 Privity of Contract 899
40 Assignment of Contractual Rights and Liabilities 916

Index 931

vi
 DETAILED CONTENTS
Preface to the Fifth Edition xv
Table of Cases xvii
Table of Statutes xcv

1 Introduction 1
The definition of ‘contract’ 1
The significance of contract law 3
The aim of this book 4
Sources of contract law principles 5
Classification of contracts 8
The structure of this book 10

PART I: HISTORY AND THEORY 13

2 History of Contract Law 15
Introduction 15
Assumpsit 18
Consideration 19
Developments in the 19th century 23
3 Contract Theory 25
Introduction 25
General contract theory 25
General contract theory and the analytic question 26
General contract theory and the normative question 31
Critiques of contract law 35

PART II: FORMATION OF A CONTRACT 39

4 The Fact of Agreement 41
Introduction 41
The offer 43
The acceptance 60
Alternatives to offer and acceptance 71

vii
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

5 The Requirements of Certainty and Completeness 74

Introduction 74
Completeness 75
Certainty 78
Agreements subject to contract 84
Contracts subject to finance 91
6 Consideration 93
Introduction 93
What is consideration? 95
Consideration must be bargained for 96
Only a party providing consideration can enforce a promise 99
‘Past consideration’ is not consideration 100
Consideration cannot be illusory 101
Consideration need not be adequate — it must be sufficient 102
When is consideration sufficient? 104
Deeds and consideration 116
7 Intention to Create Legal Relations 119
Introduction 119
Family, social, and domestic agreements 121
Commercial agreements 124
Ermogenous and the role of presumptions 125
Intention in some specific contexts 131
Intention and consideration 134
8 The Requirement of Writing 135
Introduction 135
Contracts relating to land 136
The enforcement in equity of contracts unenforceable at law 142
9 Capacity 148
Introduction 148
Minors 148
Persons suffering a mental disability 159
Bankrupts 163
Corporations 163
Aliens 166
Married women 167

viii
 DETAILED CONTENTS­

PART III: TERMS OF A CONTRACT 169

10 Express Terms 171
Introduction 171
Terms and representations 173
Incorporation of terms by signature 175
Incorporation of terms by notice 179
Incorporation of terms by prior dealings 184
The parol evidence rule 188
Collateral contracts 191
11 Implied Terms 198
Introduction 198
Implication of terms on the facts of the case 199
Implication of terms by law 208
Implication of terms by custom 212
Implied terms of good faith 213
12 Construction of Contractual Terms 221
Introduction 221
The importance of intention 222
The objective determination of intention 225
Principles of construction 232
The use of dictionaries 238
The parol evidence rule and the construction of contracts 239
Exclusion clauses and extrinsic evidence 244
Legal drafting and the construction of legal documents 245
13 Construction of Exclusion Clauses 248
Introduction 248
General approach to construction of exclusion clauses 249
Other relevant principles of construction 257
Exclusion clauses and legislation 259

PART IV: VITIATING FACTORS 263

14 Misrepresentation 265
Introduction 265
Elements of misrepresentation 265
The issue of materiality 283
Exclusion clauses and misrepresentation 284

ix
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

15 Misleading or Deceptive Conduct 286

Introduction 286
The meaning of ‘in trade and commerce’ 288
The meaning of ‘engage in conduct’ 290
The meaning of ‘misleading or deceptive’ 300
Exclusion clauses and disclaimers 316
Remedies 320
16 Mistake 325
Introduction 325
Common mistake 326
Mutual mistake 349
Unilateral mistake 350
17 Duress 363
Introduction 363
Duress to the person 373
Duress of goods 374
Economic duress 374
Remedies in relation to duress 377
18 Undue Influence 379
Introduction 379
The nature of undue influence 380
Categories of undue influence 381
Actual undue influence 381
Presumed undue influence 382
Rebuttal of undue influence 388
General equitable defences 393
Undue influence and third parties 394
Undue influence and third party guarantees 394
Remedies 404
19 Unconscionable Transactions 405
Introduction 405
Elements of unconscionable transactions 406
Defences 417
Remedies 418
Statutory unconscionability pursuant to the Australian Consumer Law 418

x
 DETAILED CONTENTS­

20 Contracts Review Act 431

Introduction 431
The operation of the Contracts Review Act 1980 (NSW) 432
Applications for relief under s 7 of the Contracts Review Act 1980 (NSW) 435
Relief under the Contracts Review Act 440
Factors contributing to a contract being determined to be unjust 448
21 Unfair Contracts 457
Introduction 457
Australian Consumer Law 458
The Industrial Relations Act 470

PART V: DISCHARGE 473

22 Discharge by Performance 475
Introduction 475
Time for the performance of obligations 475
The order of performance of contractual obligations 478
The level of performance required to discharge a contract 484
23 Discharge by Agreement 491
Introduction 491
Discharge by abandonment 491
Discharge pursuant to a term of the original contract 493
Discharge by subsequent agreement 497
Waiver 511
24 Discharge by Breach 516
Introduction 516
Failure to perform contractual obligations 522
Repudiation 535
Termination and its effects 544
Restrictions on a party’s ability to terminate a contract 546
25 Discharge by Frustration 560
Introduction 560
The effect of frustration 579
Is the doctrine of frustration necessary? 589

xi
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

PART VI: ILLEGALITY 591

26 Statutory Illegality 593
Introduction 593
Contracts prohibited by statute 599
27 Common Law Illegality 613
Introduction 613
Contracts made with the intention of acting unlawfully 618
Contracts prejudicial to the administration of justice 619
Contracts to oust the jurisdiction of the courts 620
Contracts promoting or causing conflict between one’s public duty
and private interest 622
Contracts that promote sexual immorality and/or prejudice
the status of marriage 622
Contracts with enemy aliens 624
Contracts in restraint of trade 624
28 Effect of Illegality 659
Introduction 659
Independent cause of action 663
Parties not equally at fault 665
Severance 667

PART VII: REMEDIES BASED ON CONTRACT 673

29 Damages for Breach of Contract 675
Introduction 675
Nominal and substantial damages 677
The compensatory nature of damages 677
The once and for all lump sum principle 682
Date for assessment of damages 683
Interests reflected in a damages award 685
Causation 703
The plaintiff ’s negligence 706
Remoteness 707
Mitigation 716
Loss of use of money and interest on damages 724
Alternative methods of assessment 725

xii
 DETAILED CONTENTS­

30 Actions for a Fixed Sum and Debt 730

Introduction 730
Liquidated damages 730
Actions for debt 742
31 Specific Performance 750
Introduction 750
Nature of specific performance 751
Jurisdictional factors precluding an order for specific performance 754
Discretionary factors for refusing an order for specific performance 760
The effect of an order for specific performance 774
32 Injunctions 775
Introduction 775
Negative contractual obligations 776
Restraints of trade in personal services contracts 776
33 Equitable Damages 782
Introduction 782
Jurisdiction to award equitable damages 784
The discretionary nature of equitable damages 785
Equitable damages in addition to specific relief 785
Equitable damages in lieu of specific relief 785
The continuing significance of Lord Cairns’ Act damages 787
34 Rectification 788
Introduction 788
Rectification for common mistake 791
Rectification for unilateral mistakes 797
35 Rescission 799
Introduction 799
The meaning of restitutio in integrum 800
The nature of the remedy of rescission 803
Limitations on the right to rescind 804

PART VIII: OTHER BASES OF RELIEF 811

36 Equitable Estoppel 813
Introduction 813
Common law estoppel 814

xiii
 The development of equitable estoppel 819
Elements of equitable estoppel 822
Relief based upon equitable estoppel 832
37 Liability in the Law of Torts 835
Introduction 835
Deceit 836
Negligence 839
Inducing a breach of contract 845
38 Restitution 854
Introduction 854
Elements of restitution 863
Contract and availability of restitution 865
Ineffective contracts 867
Recovery of money paid under a mistake 880
Defences to restitution claims 886

PART IX: THIRD PARTY RIGHTS 897

39 Privity of Contract 899
Introduction 899
Privity and its relationship to the doctrine of consideration 900
Remedies against a promisor in breach of obligations to a third party 900
The decision in Trident General Insurance v McNiece Bros Pty Ltd 904
‘Exceptions’ to the doctrine of privity of contract 907
40 Assignment of Contractual Rights and Liabilities 916
Introduction 916
Contractual rights 917
Non-assignable contractual rights 918
Prohibitions against assignment 920
Assignment of contractual rights at common law and equity 921
Assignment of contractual rights pursuant to statute 923
Involuntary assignment 927
Assignment of the right to litigate for breach of contract 927
Index931

xiv
 PREFACE TO THE FIFTH EDITION

Since the publication of the fourth edition of this book there have been significant developments
in a variety of areas in contract law that have been incorporated into this fifth edition.
All chapters have of this edition have been updated and reviewed.

This edition of the book is based upon materials available to us in Sydney on 11 August 2020.

As with the previous editions, the completion of this edition of the book could not have
been achieved without the support and encouragement of our families, friends, and colleagues.
In particular, we acknowledge the love, support, encouragement, and most of all understanding
of our families: Sylvia, Andrew, Nathan, and Mitchell Gooley (John would also like to
acknowledge the valuable research work and proofing undertaken for him for this edition by
Mitchell Gooley); Sybil, Rade, Ellie, Andrija, and Aleksandra Radan; and Aleks, Daniel, and
Damien Vickovich.

At LexisNexis we wish, in particular, to thank our Commissioning Editor, Jocelyn Holmes,

and Book Editor, Kalhari Jayaweera, for the skill, care, efficiency, and patience with which
they turned our manuscript into a book.

John Gooley
Peter Radan
Ilija Vickovich
11 August 2020

xv
 TABLE OF CASES
References are to paragraph numbers
127 Hobson Street Ltd v Honey Bees Preschool
Ltd [2020] NZSC 53 …. 30.8, 30.15, 30.21,
30.25, 30.26
3Meg.com Pty Ltd v TM & SM Pike Pty Ltd
(2012) 43 WAR 350 …. 20.15
400 George Street (Qld) Pty Ltd v BG
International Ltd [2012] 2 Qd R 302
…. 6.83
A of Australasia Ltd (2008) 21 VR 351
A & A Martins Pty Ltd v Liu [2018]
ACTSC 102 …. 38.19
A & A Property Developers Pty Ltd v MCCA
Asset Management Ltd [2017] VSCA 365
…. 12.40
A v Hayden (No 2) (1984) 156 CLR 532; 56
ALR 82 …. 27.16, 27.18
— v N [2012] NSWSC 354 …. 17.14
AAI Ltd v 92 Lichfield Street Ltd (in rec and in
liq) [2015] NZCA 559 …. 12.66
Aalders v PA Putney Finance Australia Pty Ltd
[2011] NSWSC 756 …. 22.15
Aarons v Advance Commercial Finance Ltd
(1995) NSWConvR 55-746 …. 31.83
Abbar v Saudi Economic & Development
Company (Sedco) Real Estate Ltd [2013]
EWHC 1414 (Ch) …. 29.23
Abbott, Re; Ex parte Trustee of the Property
of the Bankruptcy v Abbott [1983] 1 Ch 45
…. 31.15
ABN Amro Bank NV v Bathurst Regional
Council (2014) 224 FCR 1; 309 ALR 445
…. 37.21
Aboody v Ryan [2012] NSWCA 395 …. 19.1,
18.36
xvii
A Buckle & Sons Ltd v McAllister (1986) 4
NSWLR 426 …. 27.119
Accounting Systems 2000 (Developments) Pty
Ltd v CCH Australia Ltd (1993) 42 FCR 470
…. 15.17
ACE Insurance Ltd v Trifunovski (2013) 209
FCR 146; 295 ALR 407 …. 40.9
ACN 074 971 109 (as trustee for the Argot Unit
Trust) v National Mutual Life Association
…. 36.67, 36.73
Acorn Consolidated Pty Ltd v Hawkslade
Investments Pty Ltd (1999) 21 WAR 425
…. 12.22
ACT Land Pty Ltd (in liq), Re [2019] NSWSC
1860 …. 29.7
Actionstrength Ltd v International Glass
Engineering In Gl En SpA [2003] 2 AC 544;
[2003] 2 All ER 615 …. 8.9
Actrol Parts Ltd v Coppi (No 2) [2015] VSC
694 …. 24.66
Adami v Maison de Luxe Ltd (1924) 35 CLR
143 …. 11.38
Adams v Lindsell (1818) 106 ER 250 …. 2.32
Adamson v New South Wales Rugby League
Ltd (1991) 27 FCR 535; 100 ALR 479
…. 27.68, 27.110
— v — (1991) 31 FCR 242 …. 27.54
Adani Abbot Point Terminal Pty Ltd v Lake
Vermont Resources Pty Ltd [2020] QSC 260
…. 19.67
Adaz Nominees Pty Ltd v Castleway Pty Ltd
[2020] VSCA 201 …. 11.39
Addenbrooke Pty Ltd v Duncan (No 2) (2017)
348 ALR 1 …. 35.2
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Adderley v Dixon (1824) 57 ER 239 …. 31.19,
31.25
Addis v Gramophone Co Ltd [1909] AC 488
…. 29.47
Adicho v Dankeith Homes Pty Ltd [2012]
NSWCA 316 …. 7.26, 8.6
ADM v FDGK [2018] NSWSC 442 …. 36.56
Adnow Pty Ltd v Greenwells Wollert Pty Ltd
[2016] VSCA 282 …. 5.10
Adoko v Freeserve.Com.Plc [2002] EWCA 869
…. 21.28
Adrenaline Pty Ltd v Bathurst Regional
Council (2015) 322 ALR 180; 97 NSWLR
207 …. 38.24, 38.68, 38.94
Advanced National Services Pty Ltd v Daintree
Contractors Pty Ltd [2019] NSWCA 270
…. 24.18
AECI Australia Pty Ltd v Convey [2020] QSC
207 …. 37.43
AFC Holdings Pty Ltd v Shiprock Holdings Pty
Ltd [2010] NSWSC 985 …. 12.7
AGA Assistance Australia Pty Ltd v Tokody
[2012] QSC 176 …. 27.106
Alexander v Rayson [1936] 1 KB 169 …. 27.14
AGC (Advances) Ltd v McWhirter (1977)
1 BPR 9454 …. 4.26, 4.27
AGC Industries Pty Ltd v Karara Mining Ltd
[2019] WASC 140 …. 15.92, 22.21
AGL Victoria Pty Ltd v SPI Networks (Gas) Pty
Ltd [2006] VSCA 173 …. 5.10
Agricultural & Rural Finance Pty Ltd
v Atkinson [2010] NSWSC 635 …. 20.12,
20.18, 20.28, 20.40
— v — (No 2) [2014] NSWSC 1397 …. 20.27,
20.35
— v Gardiner (2008) 238 CLR 570; 251 ALR
322 …. 8.6, 12.65, 23.34, 23.64, 23.70,
24.112, 29.4
Angell v Duke (1875) LR 10 QB 174 …. 8.7
Agripay Pty Ltd v Byrne [2011] 2 Qd R 501
…. 18.65, 18.76
Agtan Pty Ltd v Caltex Australia Petroleum Pty
Ltd [2018] VSCA 169 …. 4.52
AH McDonald & Co Pty Ltd v Wells (1931) 45
CLR 506 …. 35.5
xviii
Ahmad v Secret Garden (Cheshire) Ltd [2013]
EWCA Civ 1005 …. 34.6
AIC Ltd v ITS Testing Services (UK) Ltd
‘The Kriti Palm’ [2006] EWCA Civ 1601
…. 14.17
— v — [2007] 1 Lloyd’s Rep 555 …. 37.9
Ailakis v Olivero (No 2) [2014] WASCA 127
…. 6.64, 7.32, 7.34, 24.110, 33.21
Air Great Lakes Pty Ltd v K S Easter
(Holdings) Pty Ltd (1985) 2 NSWLR 309
…. 5.43, 23.6
AJ Lucas Operations Pty Ltd v Gladstone Area
Water Board [2015] QCA 287 …. 5.28
Akins v National Australia Bank (1994) 34
NSWLR 155 …. 18.59
Akron Securities Ltd v Iliffe (1997) 41 NSWLR
353 …. 15.99
Al Achrafi v Topic [2016] NSWSC 1807
…. 12.43
Al Azhari v 27 Scott Street Pty Ltd [2017] VSC
600 …. 5.33
Al Maha Pty Ltd v Coplin [2017] NSWCA 318
…. 20.23
Alati v Kruger (1955) 94 CLR 216 …. 24.2,
35.2, 35.7, 35.20, 35.21
Albacruz (Cargo Owners) v Albarzera
(Owners) (The Albazero) [1977] AC 774;
[1976] 3 All ER 129 …. 31.37
Albazero, The [1977] AC 774; [1976] 3 All ER
129 …. 29.3, 39.9, 39.14, 39.15
Alcan (NT) Alumina Pty Ltd v Commissioner
of Territory Revenue (NT) (2009) 239 CLR
27; 260 ALR 1 …. 4.52
Alderslade v Hendon Laundry Ltd [1945] KB
189; [1945] 1 All ER 244 …. 13.18, 13.19,
13.20
Aldous v State of New South Wales [2018]
NSWCA 261 …. 19.29
Al-Dowaisan v Al-Salam [2019] EWHC 301
(Ch) …. 34.7
— v Cambridge Credit Corporation Ltd (1987)
9 NSWLR 310 …. 29.93, 29.95, 29.96,
29.101, 29.119, 29.121
Alexander v Cambridge Credit Corporation
Ltd (1987) 9 NSWLR 310 …. 37.29

— v West Bromwich Mortgage Company
[2017] 1 All ER 942 …. 12.42
Alfred McAlpine Capital Projects Ltd v Tilebox
Ltd [2005] EWHC 281 (TCC) …. 30.13,
30.30
Alfred McAlpine Construction Ltd v Panatown
Ltd [2001] 1 AC 518; [2000] 4 All ER 97
…. 39.16, 39.17, 39.18, 39.21
AMEV-UDC Finance Ltd v Austin (1986) 162
CLR 170; 68 ALR 185 …. 30.3, 30.5, 30.8,
30.21, 30.27, 30.28, 30.33
ALH Group Property Holdings Pty Ltd
v Chief Commissioner of State Revenue
(NSW) (2012) 245 CLR 338; 286 ALR 1
…. 23.28
Ali v Petroleum Company of Trinidad and
Tobago (Trinidad and Tobago) [2017]
UKPC 2 …. 11.14
Allcard v Skinner (1887) 36 Ch D 145 …. 18.6,
18.8, 18.11, 18.18, 18.46
Allcars Pty Ltd v Tweedle [1937] VLR 35 …. 5.18
Allco Equity Partners v Allco Equity Partners
Management Pty Ltd [2008] NSWSC 1401
…. 24.20
Allen v Dodd & Co Ltd [2020] EWCA Civ 258
…. 37.43, 37.51
Allen Fabrications Ltd v ASD Ltd [2012]
EWHC 2213 (TCC) …. 10.42
Allied Maples Group Ltd v Simmons &
Simmons (a firm) [1995] 4 All ER 907
…. 29.45
Allison v Tuna Tasmania Pty Ltd [2018] TASFC
5 …. 5.5, 5.9, 5.25
Allnutt v Wilding [2007] EWCA Civ 412
…. 34.11, 34.28
Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd
(2009) 178 FCR 57 …. 24.100
Allstate Life Insurance Co v Australian &
New Zealand Banking Group Ltd (1995) 58
FCR 26; 130 ALR 469 …. 37.45, 37.52
Alma Hill Constructions Pty Ltd v Onal (2007)
16 VR 190 …. 40.23
Almond Investors Ltd v Kualitree Nursery Pty
Ltd [2011] NSWCA 198 …. 24.37, 24.67,
24.101
xix
TABLE OF CASES­
Alonso v SRS Investments (WA) Pty Ltd [2012]
WASC 168 …. 7.5, 7.29
Alpha Wealth Financial Services Pty Ltd
v Frankland River Olive Co Ltd [2008]
WASCA 119 …. 36.19
Alstom Ltd v Yokogawa Australia Pty Ltd
(No 7) [2012] SASC 49 …. 11.66, 36.46
Altan Mehmet v Nikitas Kesidis [2009] NSWSC
1087 …. 24.104
Amalgamated Investment & Property Co
v John Walker & Sons [1977] 1 WLR 164
…. 25.57
Amalgamated Pest Control Pty Ltd v SM & SE
Gillece Pty Ltd [2016] QCA 260 …. 32.3
Amaya v Everest Property Holdings Pty Ltd
[2010] NSWCA 315 …. 24.97
AMCI(IO) Pty Ltd v Aquila Steel Pty Ltd
[2009] QSC 139 …. 5.24
Amoco Australia Pty Ltd v Rocca Bros
Motor Engineering Co Pty Ltd (1973) 133
CLR 288; 1 ALR 385 …. 27.44, 27.54, 27.55,
27.58, 27.59, 27.63, 27.67, 27.68, 27.105
Amos v Citibank Ltd [1996] QCA 129 …. 6.74
Ampurius Nu Homes Holdings v Telford
Homes [2013] 4 All ER 377 …. 24.76
Anaconda Nickel Ltd v Tarmoola Australia Pty
Ltd (2000) 22 WAR 101 …. 5.38
Ancient Order of Foresters in Victoria Friendly
Society Ltd v Lifeplan Australia Friendly
Society Ltd (2018) 265 CLR 1; 360 ALR 1
…. 14.46, 37.15
Anderson v Anderson [2013] QSC 8 …. 18.21,
18.36
— v McPherson (No 2) [2012] WASC 19
…. 18.7, 19.9, 19.17
Anderson Ltd v Daniel [1924] 1 KB 138
…. 26.26, 26.45, 26.46, 26.47
Andre & Cie v Ets Michel Blanc & Fils [1979] 2
Lloyd’s Rep 427 …. 14.4
Andrews v Australia and New Zealand Banking
Group Ltd (2011) 288 ALR 611 …. 30.5
— v — (2012) 247 CLR 205; 290 ALR 595
…. 24.2, 30.4, 30.17
— v Hopkinson [1957] 1 QB 229; [1956] 3 All
ER 422 …. 10.85
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Andrews Advertising Pty Ltd v Andrews [2014]
NSWSC 318 …. 27.86
Androvitsaneas v Members First Broker
Network [2013] VSCA 212 …. 11.52, 11.54
Ange v First East Auction Holdings Pty Ltd
(2011) 284 ALR 638; [2011] VSCA 335
…. 10.24, 25.55
Anglia Television Ltd v Reed [1972] 1 QB 60;
[1971] 3 All ER 690 …. 29.69, 29.70
Anglican Development Fund Diocese of
Bathurst, Re (2015) 336 ALR 372 …. 6.32,
7.37, 7.41
Anictomatis v Northern Territory of Australia
(2008) 23 NTLR 55 …. 7.44
Ankar Pty Ltd v National Westminster Finance
(Australia) Ltd (1987) 162 CLR 549; 70 ALR
641 …. 24.25, 24.28
Anning v Anning (1907) 4 CLR 1049 …. 40.36
Anozira Pty Ltd v Hunt [2002] ACTCA 10 …. 17.5
Ansett Transport Industries (Operations) Ltd
v Australian Federation of Pilots [1991] 1
VR 637 …. 37.58
Antaios Compania Naviera SA v Salen
Rederierna AB [1985] AC 191; [1984] 3 All
ER 229 …. 12.45
Antonovic v Volker (1986) 7 NSWLR 151
…. 20.8, 20.54
Antons Trawling Co Ltd v Smith [2003] 2
NZLR 23 …. 6.57, 6.61
Antov v Bokan [2018] NSWSC 1474 …. 36.30
ANZ Executors & Trustees Ltd v Humes Ltd
[1990] VR 615 …. 31.18, 31.58
Apotex Pty Ltd v Warner-Lambert Company
LLC (No 3) [2017] FCA 94 …. 4.21
Apple and Pear Australia Ltd v Pink Lady
America LLC (2016) 343 ALR 112; [2016]
VSCA 280 …. 4.79, 12.28, 12.40
Appleby v Myers (1867) LR 2 CP 651 …. 22.36,
25.63
Aprile SPA v Elin Maritime Ltd [2019] EWHC
1001 (Comm) …. 13.17
APT Finance Pty Ltd v Bajada [2008] WASCA
73 …. 40.22, 40.27
Apvodedo NV v Collins [2008] EWHC 775
(Ch) …. 16.19
xx
Arab Bank Australia Ltd v Sayde Developments
Pty Ltd (2016) 93 NSWLR 231 …. 30.13,
30.15, 30.20, 30.21
Araci v Fallon 2011] EWCA Civ 668 …. 31.19
Arbuthnot v Norton (1846) 18 ER 565 …. 40.14
Atwell v Roberts (2013) 43 WAR 507 …. 40.4
Archbolds (Freightage) Ltd v S Spanglett
Ltd [1961] 1 QB 374; [1961] 1 All ER
417…. 26.4, 26.27, 26.28, 26.29, 26.30,
28.1, 28.2
Archibald v Powlett (2017) 53 VR 645
…. 29.48, 29.105
Arcos Ltd v EA Ronaasen & Son [1933] AC 470
…. 22.29
Astea (UK) Ltd v Time Group LTD [2003]
EWHC 725 (TCC) …. 22.8
Ardizzone v Valentino Nominees Pty Ltd
[2019] WASC 55 …. 15.24, 24.18, 24.37
Arfaras v Vosnakis [2016] NSWCA 65 …. 7.31,
36.48
Argy v Blunts & Lane Real Estate Pty Ltd
(1990) 26 FCR 112; 94 ALR 719 …. 15.16
Aribisala v St James Homes (Grosvenor Dock)
Ltd [2007] EWHC 1694 (Ch) …. 27.30
Aristoc Industries Pty Ltd v RA Wenham
(Builders) Pty Ltd [1965] NSWR 581
…. 31.22, 31.24
Armada Balnaves Pte Ltd v Woodside Energy
Julimar Pty Ltd (No 2) [2020] WASC 14
…. 24.102
Arnold v Britton [2015] AC 1619; [2016] 1 All
ER 1 …. 12.5, 12.48, 12.51
— v National Westminster Bank plc [1991] 2
AC 93; [1991] 3 All ER 41 …. 36.10
A Roberts & Co Ltd v Leicestershire County
Council [1961] Ch 555 …. 16.86
Arthur Murray Dance Studios of Cleveland
Inc v Witter 105 NE (2d) 685, 706 (1951)
…. 27.99, 27.100
ASC AWD Shipbuilder Pty Ltd v Ottoway
Engineering Pty Ltd (2017) 129 SASR 122
…. 11.9, 11.14
A Schroeder Music Publishing Co Ltd
v Macaulay [1974] 3 All ER 616 …. 27.67,
27.107

Ashbury Railway Carriage & Iron Co v Riche
(1875) LR 7 HL 653 …. 9.64
Ashcroft v Barnsdale [2010] EWHC 1948 (Ch)
…. 34.31
Ashington Piggeries Ltd v Christopher Hill
Ltd [1972] AC 441; [1971] 1 All ER 847
…. 12.4
Ashton v Australian Cruising Yacht Co Pty Ltd
[2005] WASC 192 …. 7.32
— v Pratt (2015) 88 NSWLR 281; 318 ALR 260
…. 7.4, 7.31, 23.49, 36.30, 36.64
— v — (No 2) [2012] NSWSC 3 …. 27.35, 27.36
Ashworth v The Royal National Theatre [2014]
4 All ER 238 …. 31.40
Associated British Ports v Ferryways NV [2009]
1 Lloyd’s Rep 595 …. 7.40
Associated Japanese Bank (International) Ltd
v Credit du Nord SA [1988] 3 All ER 902
…. 16.8, 16.16, 16.17, 16.18, 16.45
Associated Newspapers Ltd v Bancks (1951) 83
CLR 322 …. 24.29
Astley v Austrust Ltd (1999) 197 CLR 1; 161
ALR 155 …. 29.104, 37.25, 37.26, 37.30,
37.31, 37.33
Astor Management AG v Atalaya Mining Plc
[2017] EWHC 425 (Comm) …. 11.59
Atanaskovic v Birketu Pty Ltd [2019] NSWSC
1006 …. 15.48
Atco Controls Ltd (in liq) v Newtronics Pty Ltd
(recs & mgrs apptd) (in liq) (2009) 25 VR
411 …. 7.49
ATF Services Pty Ltd v Chapman [2011]
NSWSC 1024 …. 27.59
Atlantic Lottery Corp Inc v Babstock [2020]
SCC 19 …. 29.13, 29.14, 29.17
Attorney General v Blake [2001] 1 AC 268;
[2000] 4 All ER 385 …. 29.13, 31.36
Attorney-General (Cth) v Adelaide Steamship
Co Ltd [1913] AC 781 …. 27.59, 27.68
Attorney-General (NSW) v World Best
Holdings Ltd (2005) 63 NSWLR 557; 223
ALR 346 …. 19.9, 19.67, 20.22
Attorney-General for England and Wales v R
[2002] 2 NZLR 91 …. 6.4, 6.27, 6.34
— v — [2004] 2 NZLR 577 …. 17.3
xxi
TABLE OF CASES­
Attorney-General of Botswana v Aussie
Diamond Products Pty Ltd (No 3) [2010]
WASC 141 …. 22.44
Attorney-General of Canada v Fairmont Hotels
Inc [2016] 2 SCR 720 …. 34.16
Attorney-General of the Virgin Islands v Global
Water Associates Ltd [2020] UKPC 18
…. 29.110, 29.117
Attrill v Dresdner Kleinwort Ltd [2013] 3 All
ER 607 …. 5.20
Attwood v Lamont [1920] 2 KB 146 …. 28.30
— v — [1920] 3 KB 571 …. 27.55, 28.29, 28.30,
28.31, 28.32
Au Domain Administration Ltd v Domain
Names Pty Ltd (2004) 207 ALR 521
…. 15.63, 15.64
AU Future Health Pty Ltd v Ecmoho
(Hong Kong Ltd) [2017] VSCA 380 …. 29.4
Auburn Shopping Village Pty Ltd v Nelmeer
Hoteliers Pty Ltd (2017) 324 FLR 378
…. 6.2
Aurel Forras Pty Ltd v Graham Karp
Developments Pty Ltd [1975] VR 202
…. 25.60, 25.69
Aurizon Network Pty Ltd v Glencore Coal
Queensland Pty Ltd [2019] QSC 163
…. 11.49, 11.55
Aussie Home Loans v X Inc Services [2005]
NSWSC 285 …. 27.68
Austin v United Dominions Corporation Ltd
[1984] 2 NSWLR 612 …. 30.5
Austino Wentworthville Pty Ltd v Metroland
Australia Ltd [2013] NSWCA 59 …. 40.33,
40.34
Austotel Pty Ltd v Franklins Selfserve Pty Ltd
(1989) 16 NSWLR 582 …. 36.33, 36.43,
36.48, 36.58
Australasian College of Dermatologists (2008)
168 FCR 44; 248 ALR 267 …. 7.31
Australasian Medical Insurance Ltd v CGU
Insurance Ltd (2010) 271 ALR 142 …. 12.67
Australia and New Zealand Banking Group
Ltd v Compagnie D’Assurances Maratimes
Aeriennes Et Terrestres [1996] 1 VR 561
…. 12.58
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
— v Frost Holdings Pty Ltd [1989] VR 695
…. 5.5, 5.8
— v Fuller [2004] NSWSC 305 …. 18.71
— v James (No 3) [2019] NSWSC 832 …. 15.31
— v Karam (2005) 64 NSWLR 149 …. 17.2,
17.12, 17.13, 17.14, 17.18, 17.19, 17.32
— v Manasseh [2016] WASCA 41 …. 23.24
— v Tiricovski [2012] NSWSC 1304 …. 20.12
— v Westpac Banking Corporation (1988) 164
CLR 662; 78 ALR 157 …. 38.3, 38.7, 38.10,
38.11, 38.19, 38.68, 38.70, 38.76, 38.81,
38.88, 38.89, 38.90, 38.92
— v Widin (1990) 102 ALR 289 …. 8.13
Australia Capital Financial Management Pty
Ltd v Linfield Developments Pty Ltd [2017]
NSWCA 99 …. 30.21
Australia Estates Pty Ltd v Cairns City Council
[2005] QCA 328 …. 16.33, 16.39, 16.39,
16.42, 16.43, 16.44, 16.45, 16.46, 16.47,
16.48, 16.49
Australia Media Holdings Pty Ltd v Telstra
Corporation Ltd (1998) 43 NSWLR 104
…. 22.23
Australian and International Pilots Association
v Qantas Airways Ltd [2008] FCA 1972
…. 5.38
Australian Bank Ltd v Stokes (1985) 3 NSWLR
174 …. 20.11, 20.12, 20.13
Australian Broadcasting Commission
v Australasian Performing Right
Association Ltd (1973) 129 CLR 99 …. 12.4,
12.9, 12.39, 12.42, 27.49
Australian Broadcasting Corporation
v Redmore Pty Ltd (1989) 166 CLR 454; 84
ALR 199 …. 26.13
— v XIVth Commonwealth Games Ltd (1988)
18 NSWLR 540 …. 12.4
Australian Building and Construction
Commissioner v Construction, Forestry,
Mining and Energy Union [2017] FCA 157
…. 17.3, 17.5, 17.11, 17.16, 37.43, 37.52
— v Hall (2018) 261 FCR 347 …. 17.5
— v Molina (No 2) [2019] FCA 1014 …. 17.5
Australian Competition and Consumer
Commission v ACN 117 372 915 Pty
xxii
Ltd (in liq) (formerly Advanced Medical
Institute Pty Ltd) [2015] FCA 368 …. 19.10,
21.14, 21.15, 21.20, 21.26
— v Allphones Retail Pty Ltd (No 2) (2009) 253
ALR 324 …. 21.1
— v Australian Safeway Stores Pty Ltd (No 2)
[2001] FCA 1861 …. 15.48
— v Ashley & Martin Pty Ltd [2019] FCA 1436
…. 20.37, 21.20, 21.21, 21.23, 21.33
— v — (No 2) [2019] FCA 1739 …. 21.33
— v Baxter Healthcare Pty Ltd (2007) 232 CLR
1; 237 ALR 512 …. 26.36, 28.1
— v Breast Check Pty Ltd (No 2) [2014] FCA
1068 …. 21.33
— v CG Berbatis Holdings Pty Ltd (2003) 214
CLR 51; 197 ALR 153 …. 19.10, 19.14,
19.49 19.56, 19.57, 19.58, 19.59, 19.60
— v Chrisco Hampers Australia Ltd (2015) 239
FCR 33; 334 ALR 309 …. 21.21, 21.22, 21.27
— v CLA Trading Pty Ltd [2016] FCA 377
…. 21.19, 21.20, 21.24
— v Clinica Internationale Pty Ltd (No 2)
[2016] FCA 62 …. 21.1
— v Coles Supermarkets Australia Pty Ltd
(2014) 317 ALR 73 …. 15.7, 15.38, 15.39,
15.62
— v — [2014] FCA 1405 …. 21.1
— v Dataline.Net.au Pty Ltd [2006] FCA 1427
…. 19.74
— v Dateline Imports Pty Ltd [2015] FCAFC
114 …. 15.42, 15.49
— v Dukemaster Pty Ltd [2009] FCA 682
…. 15.38, 19.73
— v Geowash Pty Ltd (Subject to a Deed of
Company Arrangement) (No 3) (2019) 368
ALR 441 …. 11.60
— v JJ Richards & Sons Pty Ltd [2017] FCA
1224 …. 21.19, 21.20, 21.21, 21.23
— v Keshow [2005] FCA 558 …. 19.70
— v Lux Distributors Pty Ltd [2013] FCAFC 90
…. 21.1
— v Mandurvit Pty Ltd [2014] FCA 464
…. 21.33
— v Medibank Private Ltd [2018] FCAFC 235
…. 19.66

— v Mitolo Group Pty Ltd [2019] FCA 1257
…. 21.20
— v Multimedia International Services Pty Ltd
(2016) 243 FCR 392 …. 21.1
— v Origin Energy Electricity Ltd [2015]
FCA 278 …. 21.1
— v Radio Rentals Ltd (2005) 146 FCR 292
…. 19.1
— v Ramsay Health Care Australia Pty Ltd
[2020] FCA 308 …. 15.48
— v Samton Holdings Pty Ltd (2002) 117 FCR
301; 189 ALR 76 …. 19.13, 19.49, 19.54,
19.55, 19.56, 19.60
— v Servcorp Ltd [2018] FCA 1044 …. 21.21,
21.23
— v TPG Internet Pty Ltd (2013) 250 CLR 640;
304 ALR 186 …. 15.3, 15.39
— v — (2019) 375 ALR 537; [2019] FCA 1677
…. 21.19, 21.20
— v — [2020] FCAFC 130 …. 15.41, 15.42,
15.44, 15.61, 15.66
— v viagogo AG [2019] FCA 544 …. 15.30,
15.36, 15.37
— v Valve Corporation (No 3) (2016) 337 ALR
647 …. 4.102
— v We Buy Houses Pty Ltd [2017] FCA 915
…. 14.7
Ali v Petroleum Company of Trinidad and
Tobago (Trinidad and Tobago) [2017]
UKPC 2 …. 11.27
Australian Crime Commission v Gray [2003]
NSWCA 318 …. 36.37
Australian Energy Ltd v Lennard Oil NL [1986]
2 Qd R 216 …. 4.79
Australian Federation of Air Pilots
v Jetstar Airways Pty Ltd [2014] FCA 15
…. 23.14
Australian Financial Services and Leasing
Pty Ltd v Hills Industries Ltd (2014) 253
CLR 560; 307 ALR 512 …. 36.14, 36.64,
38.2, 38.3, 38.4, 38.10, 38.11, 38.17, 38.77,
38.78, 38.86, 38.91, 38.92
Australian Goldfields NL (in liq) v North
Australian Diamonds NL (2009) 40 WAR
191 …. 5.1, 5.2, 39.18
xxiii
TABLE OF CASES­
Australian Guarantee Corporation Ltd
v McClelland (1993) ASC 56-230 …. 20.41
Australian Gypsum Ltd v Hume Steel Ltd
(1930) 45 CLR 54 …. 34.2
Australian Hardwoods Pty Ltd v Commissioner
for Railways [1961] 1 All ER 737 …. 31.9
Australian Olympic Committee v Telstra
Corporation Ltd [2016] FCA 857 …. 15.3,
15.41, 15.47, 15.51, 15.65, 15.66
Australian Regional Credit v Mula [2009]
NSWSC 325 …. 18.77
Australian Regional Wholesalers v Stafford
[2007] NSWSC 572 …. 27.122
Australian Regional Wholesalers Pty Ltd
v Gardiner [2014] WASC 439 …. 6.82
Australian Securities and Investments
Commission v Bendigo and Adelaide Bank
Ltd [2020] FCA 716 …. 21.19, 21.27
— v Edwards (2005) 220 ALR 148
…. 5.37
— v Fortescue Metals Group Ltd (2011) 190
FCR 364; 274 ALR 731 …. 11.52, 15.70
— v Kobelt (2019) 368 ALR 1 …. 19.1, 19.56,
19.64, 19.65, 19.67, 19.71
— v National Exchange Pty Ltd (2003) 202
ALR 24 …. 15.63
— v National Exchange Pty Ltd (2005) 148
FCR 132 …. 19.64
— v PFS Business Development Group Pty Ltd
[2006] VSC 192 …. 15.31
Australian Securities Commission v ASC
Timber Pty Ltd (1996) 20 ACSR 457
…. 25.69
Australian Special Opportunity Fund LP
v Equity Trustees Wealth Services Ltd
(2015) 298 FLR 147; 323 ALR 570 …. 12.2,
23.64
Australian Trade Commission v Solarex Pty Ltd
(1987) 78 ALR 439 ….4.96, 40.36
Australian Woollen Mills Pty Ltd v The
Commonwealth (1954) 92 CLR 424 …. 1.1,
6.12, 6.16, 6.18, 6.21
— v — (1955) 93 CLR 546 …. 6.17
Australian Zircon NL v Austpac Resources
NL (No 2) [2011] WASC 186 …. 40.18
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Australis Media Holdings Pty Ltd v Telstra
Corporation Ltd (1998) 43 NSWLR 104
…. 11.39
Autobake Pty Ltd v Budd (1986) 8 IPR 435
…. 21.38
Autoclenz Ltd v Belcher [2009] EWCA Civ
1046 …. 10.8
Automasters Australia Pty Ltd v Bruness Pty
Ltd [2002] WASC 286 …. 11.62
Automatic Fire Sprinklers Pty Ltd v Watson
(1946) 72 CLR 435; ALR 390 …. 22.16,
24.20, 27.87, 30.37, 30.39, 30.45
Automotive Holdings Group Ltd v Prime
Constructions Australia Pty Ltd [2018]
NSWSC 1960 …. 38.77, 38.80, 38.86
Avtex Airservices Pty Ltd v Bartsch (1992) 107
ALR 539 …. 23.73
Awad v Australian Sales & Leasing Pty Ltd
[2018] VSC 627 …. 5.6
— v Twin Creeks Properties Pty Ltd [2012]
NSWCA 200 …. 15.99
Axa Sun Life Services Plc v Campbell Martin
Ltd [2011] EWCA Civ 133 …. 10.28,
14.55
Axelsen v O’Brien (1949) 80 CLR 219 …. 31.55
B …. 4.45, 4.51
B & R Stevens Transport Pty Ltd v Burkitt
[2016] NSWCA 259 …. 10.73
B v IVF Hammersmith Ltd (R, third party)
[2020] QB 93 …. 37.29
Baburin v Baburin (No 2) [1991] 2 Qd R 240
…. 35.29, 35.31
Bacchus Marsh Concentrated Milk Co Ltd
v Joseph Nathan & Co Ltd (1919) 26 CLR
410 …. 10.56, 12.67
Badat v DTZ Australia (WA) Pty Ltd [2008]
WASCA 83 …. 23.70
Badenach v Calvert (2016) 257 CLR 440; 331
ALR 48 …. 15.92, 29.42, 29.45
BAE Systems Australia Ltd v Cubic Defence
New Zealand Ltd (2011) 285 ALR 596
…. 11.41
Bagnall v National Tobacco Corporation of
Australia Ltd (1934) 34 SR (NSW) 421
…. 23.51
xxiv
Baguley v Lifestyle Homes Mackay Pty Ltd
[2015] QCA 75 …. 29.31
Baird Textile Holdings Pty Ltd v Marks &
Spencer Plc [2001] EWCA Civ 274 …. 4.113
Baird v Magripilis (1925) 37 CLR 321 …. 26.23
— v Smee [2000] NSWCA 253 …. 7.10
Bakarich v Commonwealth Bank of Australia
[2007] NSWCA 169 …. 20.22
Baker v Affoo [2014] QSC 46 …. 18.35, 18.36
— v Lintott (1980) 54 CPR (2d) 200 …. 27.61
— v — (1981) 70 CPR (2d) 107 …. 27.61
— v Paul [2013] NSWCA 426 …. 31.5
Bakers Investment Group (Australia) Ltd
v Caason Investments Pty Ltd (No 2) [2014]
VSC 598 …. 10.61
Balanced Securities Ltd v Dumayne Property
Group Ltd (2017) 53 VR 14 …. 23.24
Baldwin v Icon Energy Ltd [2016] 1 Qd R 397
…. 5.27
Balfour & Clark v Hollandia Ravensthorpe NL
(1978) 18 SASR 240 …. 14.9, 14.10, 35.13
Balfour v Balfour [1919] 2 KB 571 …. 6.11, 7.3,
7.10, 7.12, 7.13, 7.14, 7.33
Ballantyne v Phillott (1961) 105 CLR 379
…. 23.49, 23.51
Ballas v Theophilos (No 2) (1957) 98 CLR 193
Balmoral Group Ltd v Borealis (UK) Ltd [2006]
EWHC 1900 (Comm) …. 10.45
Baltic Shipping Co v Dillon (1991) 22
NSWLR 1 …. 10.33
— v — (1993) 176 CLR 344; 111 ALR 289
…. 25.68, 25.70, 29.47, 29.48, 29.49, 29.52,
29.53, 29.54, 29.74, 29.75, 29.76, 29.78,
29.119, 38.54, 38.56, 38.58, 38.59
— v — (The Mikhail Lermontov) (1993) 176
CLR 344; 111 ALR 289 …. 11.52, 22.35,
22.39
Baltic Shipping Company, The Mikhail
Lermontov v — (1991) 22 NSWLR
1 …. 20.2, 20.6, 20.26, 20.35, 20.49,
20.51, 20.53
— v — (Unreported, High Court of Australia,
7 February 1992) …. 20.19
Banco de Portugal v Waterlow and Sons Ltd
[1932] AC 452 …. 29.135, 29.143, 29.146

Banditt v R (2005) 224 CLR 262; 223 ALR 633
…. 37.7
Bank Line Ltd v Arthur Capel & Co [1919] AC
435 …. 25.61
Bank of Credit and Commerce International
SA v Ali [2002] 1 AC 251; [2001] 1 All ER
961 …. 12.30
Bank of New South Wales v Commonwealth
(1948) 76 CLR 1 …. 15.12, 19.48
— v Rogers (1941) 65 CLR 42 …. 18.52, 18.53,
18.54, 18.57
Bank of Queensland Ltd v Banjanin [2017]
QSC 209 …. 19.35
Bank of Queensland v Edwards [2017] QSC
191 …. 18.65
Bank of Tokyo-Mitsubishi UFJ, Ltd v Baskan
Gida Sanayi VE Pazarlama AS [2009]
EWHC 1276 (Ch) …. 37.15
Bank of Western Australia Ltd v Primanzon
[2010] NSWSC 862 …. 20.12
— v Tannous [2010] NSWSC 1319 …. 20.32
Banks v Williams (1912) 12 SR (NSW) 382
…. 4.11
Banksia Mortgage Ltd v Croker [2010] NSWSC
1447 …. 20.53
Bankway Properties Ltd v Pensfold-Dunsford
[2001] 1 WLR 1369 …. 12.67
Banque Brussels Lambert SA v Australian
National Industries Ltd (1989) 21 NSWLR
502 …. 7.37, 7.38, 7.39, 7.42
Barbados Trust Company v Bank of Zambia
[2007] 1 Lloyd’s Rep 495 …. 40.18
Barbagallo v Clifton Fletcher Pty Ltd [2004]
NSWSC 699 …. 5.19
Barbudev v Eurocom Cable Management
Bulgaria Eood [2012] EWCA Civ 548 …. 5.15
Barclays Bank Ltd v W J Simms Son & Cooke
(Southern) Ltd [1980] QB 677; [1979] 3 All
ER 522 …. 38.92
Barclays Bank Plc v O’Brien [1994] 1 AC 180;
[1993] 4 All ER 417 …. 18.8, 18.17
— v Unicredit Bank Ag [2014] EWCA Civ 302
…. 10.74
Barker v Midstyle Nominees Pty Ltd [2014]
WASCA 75 …. 26.20
xxv
TABLE OF CASES­
Bar-Mordecai v Hillston [2004] NSWCA 65
…. 18.18, 18.19, 18.34
Barnes v Alderton [2008] NSWSC 107 …. 36.25
— v Forty Two International Pty Ltd (2014) 316
ALR 408 …. 11.9, 11.28
Barnes (as former Court Appointed Receiver)
v Eastenders Group [2015] AC 1; [2014] 3
All ER 1 …. 38.60
Barport Pty Ltd v Baum [2019] VSCA 167
…. 36.34, 36.36
Barr v Gibson (1838) 150 ER 1196 …. 16.14,
16.15
Barrak Corporation Pty Ltd v Jaswil Properties
Pty Ltd [2016] NSWCA 32 …. 24.53, 24.97,
24.119
Barry v Carlisle [2016] NZCA 551 …. 19.9
— v Davies [2001] 1 All ER 944 …. 4.28, 4.29,
4.30, 6.31
Bartercard Ltd v Myallhurst Pty Ltd [2000]
QCA 445 …. 30.30
Bartlett v Australia and New Zealand Banking
Group Ltd (2016) 92 NSWLR 639
…. 29.161
Bartolo v Hancock [2010] SASC 305 …. 4.66
Barton v Armstrong [1973] 2 NSWLR 598;
[1976] AC 104 …. 17.14, 17.25, 17.26
— v Gwyn-Jones [2019] EWCA Civ 1999
…. 38.28
— v Official Receiver (1986) 161 CLR 75; 66
ALR 355 …. 31.15
Bate v Aviva Insurance UK Ltd [2014] EWCA
Civ 334 …. 14.53
Bateman v Hunt [1904] 2 KB 530 …. 40.37
Bates and others v Post Office Ltd [2019]
EWHC 606 (QB) …. 11.54, 11.65
Bathurst Resources Ltd v L & M Coal
Holdings Ltd [2020] NZCA 113 …. 12.4,
12.13, 12.66
Batterham v QSR Ltd (2006) 225 CLR 237; 227
ALR 212 …. 21.38
Batts Combe Quarry Ltd v Ford [1943] Ch 51
…. 27.103, 37.53
Baulkham Hills Private Hospital Pty Ltd v GR
Securities Pty Ltd (1986) 40 NSWLR 622
…. 5.35, 5.36
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Baume v The Commonwealth (1906) 4 CLR 97
…. 20.6
Baxter v Obacelo Pty Ltd (2001) 205 CLR 635
…. 23.64
Baylis v Bishop of London [1913] 1 Ch 127
…. 38.3
BB Australia Pty Ltd v Karioi Pty Ltd (2010)
278 ALR 105 …. 27.50, 27.67, 27.106
BDO Group Investments (NSW-Vic) Pty Ltd
v Ngo [2010] VSC 206 …. 27.50
Beach Petroleum NL v Johnson (1993) 43
FCR 1 …. 15.22
BearingPoint Australia Pty Ltd v Hillard [2008]
VSC 115 …. 27.87
Beasley v Munt [2006] EWCA Civ 370
…. 34.19
Beaton v McDivitt (1987) 13 NSWLR 162
…. 6.2, 6.9, 6.19
Beattie v Lord Ebury (1872) LR 7 Ch App 777
…. 14.8, 14.12
Bedroff Pty Ltd v Rennie [2002] NSWSC 928
…. 12.43
Beefeater Sales International Pty Ltd v MIS
Funding No 1 Pty Ltd [2016] NSWCA 217
…. 13.8
Behn v Burness (1863) 122 ER 281 …. 10.11
Beil v Mansell (No 2) [2006] 2 Qd R 499
…. 30.18
Belflora Pty Ltd v Vinflora Pty Ltd [2020]
NSWSC 1229 …. 10.61, 23.5, 27.74
Bell v Lever Brothers Ltd [1932] AC 161
…. 14.25, 16.5, 16.14, 16.17, 16.18, 16.21,
16.22, 16.23, 16.30, 16.32, 16.33, 16.36,
16.42, 16.45, 16.46
Bell Group Ltd (in liq) v Westpac Banking
Corporation (No 9) (2008) 225 FLR 1
…. 4.79, 24.112, 24.113, 31.15, 31.16, 31.69,
36.43, 39.60, 39.72
Bellgrove v Eldridge (1954) 90 CLR 613
…. 29.82, 29.85, 29.87, 29.89
Bembridge v Just Spectacles Pty Ltd [2006]
WASC 185 …. 14.7
Bendigo & Adelaide Bank Ltd v Torbay
Enterprises Pty Ltd [2014] WASC 191
…. 18.74
xxvi
Bendigo and Adelaide Bank Ltd v Karamihos
[2014] NSWCA 17 …. 20.18
— v Pickard [2019] SASC 123 …. 6.83
Bend-Tech Group (A Firm) v Beek [2015]
WASC 491 …. 28.32
Benedetti v Sawiris [2010] EWCA Civ 1427
…. 38.5
Beneficial Finance Corporation Ltd v Comer
(1991) ASC 56-042 …. 20.48
— v Karavas (1991) 23 NSWLR 256 …. 20.8,
20.50, 20.51, 20.53, 20.54
Benourad v Compass Group plc [2010] EWHC
1882 (QB) …. 5.44
Benson v Rational Entertainment Enterprises
Ltd (2018) 97 NSWLR 798; 355 ALR 671
…. 30.35, 38.22, 39.33
Berezovsky v Abramovich [2011] EWCA Civ
153 …. 17.40
Berkerly Pty Ltd v Millbrook Finance Pty Ltd
[2018] VSC 213 …. 38.68
Berkley Community Villages Ltd v Pullen
[2007] EWHC 1330 (Ch) …. 5.27
Berry v Berry [1929] KB 316 …. 23.34
— v CCL Secure Pty Ltd (2020) 381 ALR 427
…. 29.159, 29.161
Berryman v Zurich Australia Ltd (2016) 310
FLR 108 …. 40.4
Bester v Perpetual Trustee Co Ltd [1970] 3
NSWR 30 …. 18.32, 18.36, 18.39, 18.41,
18.47, 19.41
Beswick v Beswick [1968] AC 58; [1967] 2 All
ER 1197 …. 31.19, 31.36, 31.37, 39.20
Bettini v Gye [1876] 1 QBD 183 …. 24.21, 24.32
BH Australia Constructions Pty Ltd v Kapeller
(2019) 100 NSWLR 367; 375 ALR 159
…. 12.67
Bhasin v Nrynew [2014] 3 SCR 494 …. 11.57
BHP Petroleum (Australia) Pty Ltd v Sagasco
South East Inc [2001] WASCA 159 …. 12.55
Bibald Consulting Pty Ltd v Miles Special
Builders Pty Ltd (2005) 226 ALR 510
…. 6.72
Bibby Financial Services Australia Pty Ltd
v Sharma [2014] NSWCA 37 …. 24.90,
24.105

Bicheno Investments Pty Ltd v Winterbottom
[2017] NSWSC 536 …. 12.53
Bilbie v Lumley (1802) 102 ER 448 …. 38.3, 38.92
Bilta (UK) Ltd (in liq) v Nazir (No 2) [2016]
AC 1; [2015] 2 All ER 1083 …. 27.4
Biotechnology Australia Pty Ltd v Pace (1988)
15 NSWLR 130 …. 6.31
Birch v Birch [2020] QCA 31 …. 18.35, 18.36,
18.37
Birdanco Nominees Pty Ltd v Money (2012) 36
VR 341 …. 27.48
Birla Nifty Pty Ltd v International Mining
Industry Underwriters Ltd (2014) 47 WAR
522 …. 36.14, 36.61
Bis Industries Ltd v Toll Holdings Ltd [2012]
NSWSC 1427 …. 28.32
Bishop v Financial Trust Ltd [2008] NZCA 170
…. 40.36
Bishopgate Insurance Australia Ltd
v Commonwealth Engineering (NSW) Pty
Ltd [1981] 1 NSWLR 429 …. 34.19
Bisognin v Hera Project Pty Ltd [2016] VSC 75
…. 12.21, 12.38
Bisset v Wilkinson [1927] AC 177 …. 14.16
Black Box Control Pty Ltd v Terravision Pty Ltd
[2016] WASCA 219 …. 12.6, 12.56
BMA Special Opportunity Hub Finance Ltd
and others v African Minerals Finance Ltd
[2013] EWCA Civ 416 …. 12.51
Blacker v National Australia Bank Ltd [2000]
NSWSC 805 …. 20.35
Blackler v New Zealand Rugby Football League
Inc [1968] NZLR 547 …. 27.40
Blackley Investments Pty Ltd v Burnie
City Council (No 2) (2011) 21 Tas R 98
…. 31.74, 31.80, 36.36
— v — (No 3) [2013] TASFC 12 …. 33.9
— v — (No 3) [2013] TASSC 14 …. 33.9
Blackpool & Fylde Aero Club v Blackpool
Borough Council [1990] 3 All ER 25
…. 4.35, 4.36
Blair v Curran (1939) 62 CLR 464 …. 36.8, 36.11
Blankley v Central Manchester and Manchester
Children’s University Hospitals NHS Trust
[2014] EWHC 168 (QB) …. 25.34
xxvii
TABLE OF CASES­
Blomley v Ryan (1956) 99 CLR 362 …. 19.8,
19.15, 19.17, 19.33, 19.38, 19.41, 19.44,
19.53
Bloomingdale Holdings Pty Ltd v 63 Buckley
Street Pty Ltd [2008] VSC 168 …. 17.21
Blue v Ashley [2017] EWHC 1928 (Comm)
…. 4.1, 4.10, 5.1, 6.2, 6.56, 6.61, 7.1, 8.2
Blue Manchester Ltd v North West Ground
Rents Ltd [2019] EWHC 142 (TCC)
…. 31.48
Blue Moon Grill Pty Ltd v Yorkey’s Knob
Boating Club Inc [2006] QCA 253 …. 23.49
Blyth Chemicals Ltd v Bushnell (1933) 49 CLR
66 …. 11.38
BM Auto Sales Pty Ltd v Budget Rent A Car
System Pty Ltd (1976) 12 ALR 363 …. 31.65
BMIC Ltd v Chinnakannan Sivasankaran Siva
Ltd [2014] EWHC 1880 (Comm) …. 10.68
BMW Australia Finance Ltd v Miller &
Associates Insurance Broking Pty Ltd
[2009] VSCA 117 …. 15.22
Bobux Marketing Ltd v Raynor Marketing Ltd
[2002] 1 NZLR 506 …. 11.54
Bofinger v Kingsway Group Ltd (2009) 239
CLR 269; 260 ALR 71 …. 38.92
Bojczuk v Gregorcewicz [1961] SASR 128
…. 9.8, 9.11, 9.12
Bolton v Mahadeva [1972] 2 All ER 1322
…. 22.48
Bombardier Inc v Avwest Aircraft Pty Ltd
[2020] WASCA 2 …. 4.84, 4.88
Boncristiano v Lohmann [1998] 4 VR 82
…. 29.46, 29.50, 29.51
Bond v Rees Corporate Advisory Pty Ltd
[2013] VSCA 13 …. 27.88
Bonham v Iluka Resources Ltd [2015] FCA 713
…. 15.74
Bony v Kacou [2017] EWHC 2146 (Ch)
…. 4.113
Booker Industries Pty Ltd v Wilson Parking
(Qld) Ltd (1982) 149 CLR 600; 43 ALR 68
…. 5.8, 5.9, 5.11, 5.21
Borchert v Terry [2009] WASC 322 …. 9.48
Boreland v Docker [2007] NSWCA 94
…. 4.76
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Borough of Milton Keynes v Viridor
(Community Recycling MK) Ltd (No 2)
[2017] EWHC 239 (TCC) …. 31.69
Borrelli v Ting (Bermuda) [2010] UKPC 21
…. 17.35
Borzi Smythe Pty Ltd v Campbell Holdings
(NSW) Pty Ltd [2008] NSWCA 233
…. 15.87
Bot v Ristevski [1981] VR 120 …. 30.40
Boucaut Pay Co Ltd v The Commonwealth
(1927) 40 CLR 98 …. 30.3
Boulder Consolidated Ltd v Tangaere [1980] 1
NZLR 560 …. 4.110
Boulton v Jones (1857) 157 ER 232 …. 16.63,
16.64
Bowen v Alsanto Nominees Pty Ltd [2011]
WASCA 39 …. 5.38, 23.64
Bowmakers Ltd v Barnet Instruments Ltd
[1945] KB 65 …. 28.17, 28.18
Boyarsky v Taylor [2008] NSWSC 1415
…. 31.30, 31.57
Boyd v Ryan (1947) 48 SR (NSW) 163 …. 31.76
BP Exploration Operating Co Ltd v Chevron
Transport (Scotland) [2003] 1 AC 197
…. 14.51
BP Oil International Ltd v Target Shipping Ltd
[2013] EWCA Civ 196 …. 11.9
BP Refinery (Westernport) Pty Ltd v Shire of
Hastings (1977) 180 CLR 266; 16 ALR 363
…. 11.8, 11.13, 11.23, 11.29, 23.12
Braam v BBC Hardware Ltd [2020] VSCA 164
…. 17.2
Brace v Calder [1895] 2 QB 253 …. 29.141
Bradford Third Equitable Benefit Building
Society v Borders [1941] 2 All ER 205
…. 37.6, 37.8, 37.11
Bradstock’s Case (1371) 44 Edw III, M f 42
…. 2.5
Braganza v BP Shipping Ltd [2015] 4 All ER
639 …. 29.168
Brambles Holdings Ltd v Bathurst City Council
(2001) 53 NSWLR 153 …. 4.79, 4.103,
4.110, 4.111, 12.67
Branca v Corbarro [1947] KB 854; [1947] 2 All
ER 101 …. 5.30
xxviii
Break Fast Investments Pty Ltd v PCH
Melbourne Pty Ltd (2007) 20 VR 311
…. 33.1
Breen v Williams (1996) 186 CLR 71; 138 ALR
259 …. 11.4, 11.6, 11.31, 11.46
Bremer v Vanden [1978] 2 Lloyd’s Rep 109
…. 24.18, 24.19
Brennan v Bolt Burdon [2005] QB 303; [2004]
EWCA Civ 1017 …. 14.5, 16.4, 16.7
Bressan v Squires [1974] 2 NSWLR 460
…. 4.96
Brett v Barr Smith (1918) 26 CLR 87
…. 12.11
Brewarrina Shire Council v Beckhaus Civil Pty
Ltd [2006] NSWCA 361 …. 29.83
Brewer v Mann [2010] EWHC 2444 (QB)
…. 10.12
Bride v Shire of Katanning [2016] FCA 65
…. 15.15
Bridge v Campbell Discount Co Ltd [1962]
AC 600; [1962] 1 All ER 385 …. 30.14
— v Deacons [1984] AC 705; [1984] 2 All ER
19 …. 27.52, 27.78, 27.107
Bridge Stockbrokers Ltd v Bridges (1985) 57
ALR 401 …. 15.67
Bridge Wholesale Acceptance Corporation
(Australia) Ltd v Burnard (1992) 27
NSWLR 415 …. 31.7, 31.8
Bridgewater v Leahy (1998) 194 CLR 457; 158
ALR 66 …. 18.4
Brien v Dwyer (1978) 141 CLR 378; 22 ALR
485 …. 30.40
Briess v Woolley [1954] AC 333; [1954] 1 All
ER 909 …. 37.6
Briggs v Gleeds (Head Office) [2014] EWHC
1178 (Ch) …. 14.5
Brighton v Australian and New Zealand
Banking Group Ltd [2011] NSWCA 152
…. 20.11
Brighton Australia Pty Ltd v Multiplex
Constructions Pty Ltd (2018) 56 VR 557
…. 14.3, 14.31, 15.77, 15.78, 15.79, 15.80,
15.82, 15.83
Brimelow v Casson [1924] 1 Ch 302
…. 37.60

Brinkibon Ltd v Stahag Stahl und
Stahlwarenhandelsgesellschaft mbH [1983]
2 AC 34 …. 4.92, 4.102
Brisbane v Dacres (1813) 128 ER 641
…. 38.92
Brisbane City Council v Group Projects Pty Ltd
(1979) 145 CLR 143 …. 25.21
British Airways v Taylor [1976] 1 All ER 65
…. 14.15
British and Beningtons Ltd v N W Cachar Tea
Co Ltd [1923] AC 48 …. 23.33
British Cash and Parcel Conveyers Ltd
v Lamson Store Service Co Ltd [1908]
1 KB 1006 …. 40.45
British Empire Films Pty Ltd v Oxford Theatres
Pty Ltd [1943] VLR 163 …. 6.33
British Movietonews Ltd v London and District
Cinemas Ltd [1952] AC 166; [1952] 2 All
ER 617 …. 25.14
British Telecommunications plc v Telefónica 02
UK Ltd [2014] 4 All ER 907 …. 29.167
British Westinghouse Electric and
Manufacturing Co Ltd v Underground
Electric Railway Co of London Ltd [1912]
AC 673 …. 29.10, 29.130, 29.132, 29.146
Broadley Construction Pte Ltd v Alacran
Design Pte Ltd [2018] SGCA 25 …. 14.24,
14.45
Brogden v Metropolitan Railway Co (1877) 2
App Cas 666 …. 4.81, 4.82
Bromley v Smith [1909] 2KB 235 …. 9.25
Brookfield Australia Investments Ltd v Lucas
Stuart Pty Ltd [2012] NSWSC 1130 …. 4.76
Brooks v Burns Philp Trustee Co Ltd (1969)
121 CLR 432 …. 27.108
— v Wyatt (1994) 99 NTR 12 …. 33.4
Broomhead v Graham [2007] NSWSC 609
…. 27.123
Broughton v B & B Group Investments Pty Ltd
[2017] VSCA 227 …. 29.31
Brown v Barber [2020] WASC 84 …. 18.3, 18.4,
18.6, 18.8, 18.35, 18.37, 18.40
— v Brown [1980] 1 NZLR 484 …. 27.40
— v Drake International Ltd [2004] EWCA Civ
1629 …. 13.16
xxix
TABLE OF CASES­
— v Dream Homes SA Pty Ltd (2008) 102
SASR 93 …. 29.152
— v Gould [1972] Ch 53; [1971] 2 All ER 1505
…. 5.2, 5.8
— v Heffer (1967) 116 CLR 344 …. 31.1
— v Jam Factory Pty Ltd (1981) 53 FLR 340; 35
ALR 79 …. 15.33
— v New South Wales Trustee and Guardian
[2011] NSWSC 1203 …. 18.18, 18.21
— v Smitt (1924) 34 CLR 160 …. 35.12, 35.18
— v Tavern Operator Pty Ltd (2018) 98
NSWLR 586 …. 6.82
Browning v ACN 149 351 413 Pty Ltd (in liq)
[2016] QCA 169 …. 36.19
Brownlie v Campbell [1880] 5 App Cas 925
…. 14.31
— v Four Seasons Holdings Incorporated
[2016] 1 WLR 1814 …. 4.101
Bruce v IAG New Zealand Ltd [2019] NZCA
590 …. 29.89
— v Tyley (1916) 21 CLR 277 …. 11.42, 24.18
Brunton v Hennessy [2020] NSWSC 972
…. 29.7
Brusewitz v Brown [1923] NZLR 1106
…. 18.36
Bryant v Commonwealth Bank of Australia
(1995) 57 FCR 287 …. 36.12
Buccoliero v Commonwealth Bank of Australia
[2011] NSWCA 371 …. 20.53, 20.54
Buckenara v Hawthorn Football Club Ltd
[1988] VR 39 …. 32.11
Buckley v Tutty (1971) 125 CLR 353 …. 27.43,
27.56, 27.59, 27.67, 27.68, 27.69, 27.70
Building Workers’ Industrial Union of Australia
v Odco Pty Ltd (1991) 99 ALR 735 …. 37.56
Bull v Australian Quarter Horse Association
[2015] NSWCA 354 …. 11.8
Bullabidgee Pty Ltd v McCleary [2011]
NSWCA 259 …. 15.99
Buller v Harrison (1777) 98 ER 1243 …. 38.3
Bullhead Pty Ltd v Brickmakers Place Pty Ltd
(in liq) (2018) 58 VR 91; [2018] VSCA 316
…. 23.49, 31.63
Bullion Minerals Ltd v Fewster [2007] WASC
100 …. 5.42
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Bundanoon Sandstone Pty Ltd v Centric Group
Pty Ltd (2019) 373 ALR 591 …. 12.67, 23.38
Bunge v Tradax [1981] 1 WLR 711 …. 24.18,
24.19, 24.30, 24.31
Bunge Corporation, New York v Tradax Export
SA, Panama [1981] WLR 711 …. 22.5
Bunge SA v Nidera BV [2015] 3 All ER 1082
…. 24.78, 29.133
Buono v Mazzella [2016] NSWSC 659
…. 7.31
Burger King Corp v Hungry Jack’s Pty Ltd
(2001) 69 NSWLR 558 …. 11.50, 11.54,
11.58, 11.63, 11.65, 24.58, 24.60, 24.117
Burkett v Bendigo & Adelaide Bank Ltd (No2)
[2018] VSC 723 …. 6.82
Burns v MAN Automotive (Aust) Pty Ltd
(1986) 161 CLR 653; 69 ALR 11 …. 29.119,
29.137
Burton v Palmer [1980] 2 NSWLR 878
…. 22.12
Bush v National Bank Ltd (1992) 35 NSWLR
390 …. 34.14
Business and Professional Leasing Pty Ltd
v Akuity Pty Ltd [2008] QCA 215 …. 22.7
Butcher v Lachlan Elder Realty Pty Ltd (2005)
218 CLR 592; 212 ALR 357 …. 15.3, 15.30,
15.47, 15.52, 15.53, 15.55, 15.56, 15.57,
15.58, 15.59, 15.65, 15.68, 15.69, 15.78,
15.87
Butler v Fairclough (1917) 23 CLR 28 …. 29.15
— v Vavladelis [2012] VSC 186 …. 19.35
Butler Machine Tool Co v Ex-Cell-O Corp
(England) Ltd [1979] 1 All ER 965 …. 4.8,
4.105
Butt v Long (1953) 88 CLR 476 …. 27.48, 27.52,
27.67, 27.75
— v M’Donald (1896) 7 QLJ 68 …. 11.39, 22.20
Butters v BBC Worldwide Ltd [2009] EWHC
1954 (Ch) …. 5.27
Butts v O’Dwyer (1952) 87 CLR 267 …. 11.42
BV Nederlandse Industrie Van Eiprodukten
v Rembrandt Enterprises, Inc. [2019] 4 All
ER 612 …. 14.46, 37.13, 39.17
Byers v Dorotea Pty Ltd (1986) 69 ALR 715; 79
ALR 83 …. 15.77, 35.40
xxx
Byrne v Australian Airlines Ltd (1995) 185 CLR
410; 131 ALR 422 …. 11.8, 11.13, 11.14,
11.29, 11.33, 11.35, 11.38, 11.44, 11.46,
31.41
— v Macquarie Group Services Australia Pty
Ltd [2011] NSWCA 68 …. 12.65
— v Van Tienhoven (1880) 5 CPD 344 …. 4.55
Byrnes v Kendle (2011) 243 CLR 253; 279
ALR 212 …. 12.2, 12.4, 12.13, 12.18,
12.61, 39.57
C
C & S Constructions Pty Ltd v Dawson (1991)
ATPR 41-148 …. 27.78
CA & CA Ballan Pty Ltd v Oliver Hume
(Australia) Pty Ltd (2017) 55 VR 62
…. 28.28, 34.1, 34.3, 34.29
Cactus Imaging Pty Ltd v Peters (2006) 71
NSWLR 9 …. 27.68, 27.82, 27.100
Cadbury Schweppes Pty Ltd v Darrell Lea
Chocolate Shops Pty Ltd (2007) 159 FCR
397 …. 15.40
Cadgroup Australia Pty Ltd v Snowball [2016]
NSWSC 22 …. 27.114
Cahill v Kiversun Pty Ltd [2017] VSC 641
…. 11.52
Callaghan v O’Sullivan [1925] VLR 664
…. 27.17
Camellia Properties Pty Ltd v Wesfarmers
General Insurance Ltd [2013] NSWSC 1975
…. 29.44
Campbell v Backoffice Investments Pty
Ltd (2009) 238 CLR 304; 257 ALR 610
…. 15.17, 15.19, 15.31, 15.39, 15.43,
15.47, 15.50, 15.52, 15.65, 15.69, 15.71,
15.78, 15.93
— v Backoffice Investments Pty Ltd [2008]
NSWCA 95 …. 15.68
— v Jones (1796) 101 ER 708 …. 22.13
— v TL Clacher No 2 Pty Ltd [2019] QSC 218
…. 18.18
Campomar Sociedad, Limitada v Nike
International Ltd (2000) 202 CLR 45; 169
ALR 677 …. 15.41, 15.44, 15.61, 15.63,
15.64

Canada (Attorney General) v Fairmont Hotels
Inc [2016] 2 SCR 720 …. 34.3
Canada Steamship Lines Ltd v R [1952] AC
192; [1952] 1 All ER 305 …. 13.14, 13.15,
13.21, 13.22, 13.24, 13.26, 13.27, 16.29,
16.30
Canary Wharf (BP4) Ltd v European Medicines
Agency [2019] EWHC 335 (Ch) …. 25.8,
25.12, 25.42
Canberra Advance Bank Ltd v Benny (1992) 38
FCR 427; 115 ALR 207 …. 22.5
Canberra Hire Pty Ltd v Koppers Wood
Products Pty Ltd [2013] ACTSC 162
…. 12.67
Canning v Temby (1905) 3 CLR 419 …. 22.11,
24.46
Cannon v Hartley [1949] Ch 213; 1 All ER 50
…. 6.79, 31.17
Cantor Fitzgerald International v Horkulak
[2004] EWCA Civ 1287 …. 29.167, 29.168,
29.169
Canty v PaperlinX Australia Pty Ltd [2014]
NSWCA 309 …. 20.16, 20.45
Cao v Zhu [2020] NSWSC 321 …. 19.58
Cape Breton Company, Re (1885) 29 Ch D 795
…. 35.25
Capita (Banstead 2011) Ltd v RFIB Group Ltd
[2014] EWHC 2197 (Comm) …. 13.25
Capital One Securities Pty Ltd v Soda
Kids Holdings Pty Ltd [2014] VSC 168
…. 18.75
Capitanio v PPG Developments Pty Ltd [2018]
SASC 54 …. 24.103, 24.104
Capron v Government of Turks & Caicos
Islands [2010] UKPC 2 …. 36.32
Car & Universal Finance Co Ltd v Caldwell
[1965] 1 QB 525; [1964] 1 All ER 290
…. 35.3
Carantinos v Magafas [2008] NSWCA 304
…. 31.63
Carbone v Metricon Pty Ltd [2018]
NSWCA 296 …. 24.2
Caringbah Investments Pty Ltd v Caringbah
Business and Sports Club Ltd (in liq) [2016]
NSWCA 165 …. 34.12, 36.55
xxxi
TABLE OF CASES­
Carlill v Carbolic Smoke Ball Co [1893] 1 QB
256 …. 4.12, 4.20, 4.43, 4.85, 4.88, 6.18,
6.19, 7.3
Carlisle & Cumberland Banking Company
v Bragg [1911] 1 KB 489 …. 16.89
Carlow Castle Pty Ltd v Aztec Resources Ltd
[2013] NSWSC 188 …. 34.4
Carpenter International Ltd, Re (2016) 307 FLR
37 …. 23.14
Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
…. 24.9, 24.68
Carrapetta v Rado [2012] NSWCA 202
…. 24.52
Carter v Boehm (1766) 97 ER 1162 …. 14.26
— v Hyde (1923) 33 CLR 115 …. 4.77
Casey’s Patents, Re; Stewart v Casey [1892] 1
Ch 104 …. 6.29
Casquash Pty Ltd v NSW Squash Ltd (No 2)
[2012] NSWSC 522 …. 16.61
Castle Constructions Pty Ltd v Fekala Pty Ltd
(2006) 65 NSWLR 648 …. 29.140
Castlemaine Tooheys Ltd v Carlton & United
Breweries Ltd (1987) 10 NSWLR 468
…. 11.5, 11.36
Caterpillar of Australia Pty Ltd v Industrial
Court of New South Wales (2009) 78
NSWLR 43 …. 21.41
Cathay Pacific Airways Ltd v Lufthansa Technik
AG [2020] EWHC 1789 (Ch) …. 11.54,
11.55, 11.65
Causer v Browne [1952] VLR 1 …. 10.37
Cavallari v Premier Refrigeration Co Pty Ltd
(1952) 85 CLR 20 …. 22.6
Cavendish Square Holding BV v El Makdessi
[2016] AC 1172; [2016] 2 All ER 519
…. 30.10, 30.17, 30.18, 30.20, 30.21
CCP Australian Airships Ltd v Primus
Telecommunications Pty Ltd (2005)
ATPR 42-042 …. 15.27, 15.28, 15.29
C Czarnikow Ltd v Centrala Handlu
Zagranicznego Rolimpex (Polish Sugar
case) [1979] AC 351; [1978] 2 All ER 1043
…. 25.44
Ceccon Transport Pty Ltd v Tomazos Group
Pty Ltd [2017] NTSC 25 …. 37.43, 37.45
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Cedar Meats (Aust) Pty Ltd v Five Star Lamb
Pty Ltd [2014] VSCA 32 …. 23.2, 23.7
Cehave NV v Bremer Handelsgesellschaft mbH
(The Hansa Nord) [1976] QB 44 …. 1.15,
24.18, 24.19, 24.38, 24.41
Celestial Church of Christ, Edward Street
Parish (A Charity) v Lawson [2017] EWHC
97 (Ch) …. 7.25
Cellulose Acetate Silk Co Ltd v Widnes
Foundry (1925) Ltd [1933] AC 20
…. 30.30
Celthene Pty Ltd v WKJ Hauliers Pty Ltd
[1981] 1 NSWLR 606 …. 39.49
Cenric Group v TWT Property Group [2018]
NSWSC 1570 …. 23.38
Central Exchange Ltd v Anaconda Nickel Ltd
(2002) 26 WAR 33 …. 11.50, 11.65
Central London Property Trust Ltd v High
Trees House Ltd [1947] 1 KB 130
…. 36.23, 36.24
Century Financial Holdings Ltd v Jamtoff
Trading Ltd [2018] EWHC 3135 (Comm)
…. 14.36
Cervo v Kingsley’s Pty Ltd (2018) 13 ACTLR 60
…. 36.10
CF Asset Finance Ltd v Okonji [2014] EWCA
Civ 870 …. 5.54, 16.90
CGI Glass Lewis Pty Ltd v Vasey [2019]
NSWSC 794 …. 27.115
CGM Investments v Chelliah (2003) 196
ALR 548 …. 23.6
CGU Workers Compensation (NSW) Ltd
v Garcia (2007) 69 NSWLR 680 …. 11.53,
11.58
CH Giles & Co Ltd v Morris [1972] 1 All ER
960 …. 31.41, 31.43
CH Real Estate Pty Ltd v Jainran Pty Ltd [2010]
NSWCA 37 …. 15.87
Chaggar v Chaggar [2018] EWHC 1203 (QB)
…. 5.22, 17.21, 17.34, 17.36
Chai Sau Yin v Lieu Kwee Sam [1962] AC 304
…. 26.20
Chakki v United Yeast Co Ltd [1982] 2 All ER
446 …. 25.34
Chalik v Wales [2005] NSWSC 877 …. 5.46
xxxii
Chamberlain Early Learning Centre Pty Ltd
v Precious 1 Pty Ltd in its own right and as
trustee for 4 Chamberlain Holdings Family
Trust [2017] NSWSC 189 …. 40.27
Champerslife Pty Ltd v Manojlovski (2010) 75
NSWLR 245 …. 36.12
Chand v Commonwealth Bank of Australia
[2015] NSWCA 181 …. 29.133
Chandler v Webster [1904] 1 KB 493
…. 25.69
Chapleton v Barry Urban District Council
[1940] 1 KB 532; [1940] 1 All ER 356
…. 4.21
Chaplin v Hicks [1911] 2 KB 786 …. 29.2,
29.41, 29.44
Chapman v Luminis Pty Ltd (No 4) (2001) 123
FCR 62 …. 40.50
— v Taylor [2004] NSWCA 456 …. 25.13,
25.36, 25.37
Chapmans Ltd v Australian Stock Exchange Ltd
(1996) 67 FCR 402; 137 ALR 433 …. 12.6
Chappell & Co Ltd v Nestle Co Ltd [1960] AC
87 …. 6.36
Chapple v Cooper (1844) 153 ER 105 …. 9.9
Chartbrook Ltd v Persimmon Homes Ltd
[2009] 1 AC 1101; [2009] 4 All ER 677
…. 12.4, 12.15, 12.38, 12.61, 34.21, 34.23,
34.24, 34.25
Chatfield v Elmstone Resthouse Ltd [1975] 2
NZLR 269 …. 22.15
Cheall v Association of Professional Executive
Clerical and Computer Staff [1983] 2
AC 180 …. 27.88
Cheltenham Borough Council v Laird [2009]
EWHC 1253 (QB) …. 37.14
Chen v Ng [2017] UKPC 27 …. 6.76
— v Song [2005] NSWSC 19 …. 20.11
Cherry v Steele-Park (2017) 96 NSWLR 548;
351 ALR 521 …. 12.26, 12.28
Chetwynd v Rose [2020] NSWSC 111
…. 15.48
Cheverney Consulting Ltd v Whitehead Mann
Ltd [2006] EWCA Civ 1303 …. 5.44
Chidiac v Maatouk [2010] NSWSC 386
…. 7.18, 7.31

Chief Constable of the Greater Manchester
Police v Wigan Athletic AFC Ltd [2009]
1 WLR 1580 …. 6.43, 38.9
Chinatex (Australia) Pty Ltd v Bindaree Beef
Pty Ltd [2018] NSWCA 126 …. 25.20, 30.37
Chou v AWAP SGT 26 Investment Ltd (No 3)
[2018] WASC 383 …. 38.53, 38.61
Christiani and Nielsen Pty Ltd v Goliath
Portland Cement Company Ltd [1993]
TASSC 156 …. 38.24
Christofidellis v Zdrilic [1999] FCA 39
…. 15.48
Chwee Kin Keong v Digilandmall.com Pte Ltd
[2005] 1 SLR 502 …. 16.51, 16.52
Ciaglia v Ciaglia (2010) 269 ALR 175 …. 8.25
Ciavarella v Balmer (1983) 153 CLR 438
…. 24.115
— v Polimeni [2008] NSWSC 234 …. 8.26,
8.43
CIC Insurance Ltd v Bankstown Football Club
Ltd (1997) 187 CLR 384 …. 21.10
Circle Freight International Ltd v Medeast
Gulf Exports Ltd [1998] 2 Lloyd’s Rep 427
…. 10.45
CIT Credit Pty Ltd v Keable [2006] NSWCA
130 …. 20.30
Citicorp Australia Ltd v O’Brien (1996) 40
NSWLR 398 …. 20.8
Citigroup Pty Ltd v National Australia Bank
Ltd (2012) 82 NSWLR 391; 294 ALR 779
…. 38.71, 38.72, 38.73, 38.82
Civic Video Pty Ltd v Paterson [2016] WASCA
69 …. 37.36, 37.39, 37.46
Civil Service Co-operative Society of Victoria
Ltd v Blyth (1914) 17 CLR 601 …. 14.8
Clarence City Council v The Commonwealth
[2020] FCAFC 134 …. 39.3, 39.35
Clark Equipment Australia Ltd v Covcat Pty
Ltd (1987) 71 ALR 367 …. 15.80, 15.83
Clark v Macourt (2013) 253 CLR 1; 304 ALR
220 …. 29.8, 29.9, 29.29, 29.30, 29.38,
29.135, 29.145
Clarke v Dunraven [1897] AC 59 …. 4.113
Clarkson Williams Partners Pty Ltd v Vaughan
[2016] ACTCA 1 …. 15.29
xxxiii
TABLE OF CASES­
Clasic International Pty Ltd v Lagos (2002) 60
NSWLR 241 …. 14.5, 16.4, 16.37, 16.38,
16.39
Claude Neon Ltd v Hardie [1970] Qd R 93
…. 25.55
Clayton (Lacy) v Kynaston (1701) 88 ER 1510
…. 23.63
Clea Shipping Corporation v Bulk Oil
International Ltd (The Alaskan Trader)
[1984] 1 All ER 129 …. 30.56
Cleary v Kocatekin & Seven Network
(Operations) Ltd [2012] NSWSC 692
…. 37.45
Clegg v Wilson (1932) 32 SR (NSW) 109
…. 28.26, 28.27
Clifford v Watts (1870) LR 5 CP 577 …. 16.14
Clifton v Palumbo [1944] 2 All ER 497 …. 4.17
Clifton (Liq) v Kerry J Investment Pty Ltd t/as
Clenergy [2020] FCAFC 5 …. 23.2, 23.70
Clippens Oil Company Ltd v Edinburgh and
District Water Trustees [1907] AC 291
…. 29.137
Close v Wilson [2011] EWCA Civ 5 …. 38.51,
38.52
Clough v London and North Western Railway
Co (1871) LR 7 Exch 26 …. 35.34
Club Cape Schanck Resort Co Ltd v Cape
Country Club Pty Ltd (2001) 3 VR 526
…. 34.4, 34.27, 34.29
Clubb v Edwards (2019) 366 ALR 1 …. 28.32
Clydebank Engineering and Shipbuilding
Co Ltd v Don Jose Ramos Yzquierdo y
Castaneda [1905] AC 6 …. 30.21
Clyne v Deputy Commissioner of Taxation
(1981) 150 CLR 1; 35 ALR 567 …. 40.33
— v New South Wales Bar Association (1960)
104 CLR 186 …. 27.20
CNM Estates (Tolworth Tower) Ltd v VeCREF
I SARL [2020] EWHC 1605 (Comm)
…. 13.14, 13.15, 13.17
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd
(1991) 24 NSWLR 1 …. 5.23, 5.24, 5.26
Coast Corp Pacific Pty Ltd v Stockland
Development Pty Ltd [2018] QSC 305
…. 10.71, 10.79
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Coastal Estates Pty Ltd v Melevende [1965] VR
433 …. 35.25, 35.26, 35.27, 35.28, 35.29,
35.30, 35.31
Cockburn v Alexander (1848) 136 ER 459
…. 29.159
Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales (1982) 149
CLR 337; 41 ALR 367 …. 10.54, 10.58, 11.6,
11.8, 11.9, 11.13, 11.18, 11.21, 11.22, 11.23,
12.16, 12.18, 12.19, 12.26, 12.31, 12.35,
12.60, 12.67, 22.24, 25.24, 25.25, 25.26,
25.27, 25.41, 25.45, 25.64
Cohen & Co v Ockerby & Co Ltd (1917) 24
CLR 288 …. 24.94
Cohen v Cohen (1929) 42 CLR 91 …. 7.3
— v iSoft Group Pty Ltd [2012] FCA 1071
…. 23.6
— v Teseo Properties Ltd [2014] EWHC 2442
(Ch) …. 12.71
Colchester Borough Council v Smith [1991]
Ch 448 …. 14.55
— v — [1992] Ch 421; [1992] 2 All ER 561….
14.55
Cole v Raykir Holdings Pty Ltd [2019] NSWSC
1017 …. 24.53
Colin R Price & Associates Pty Ltd v Four Oaks
Pty Ltd (2017) 251 FCR 404; 349 ALR 100
…. 39.57
Collier v Morlend Finance Corporation (Vic)
Pty Ltd (1989) ASC ¶55-176; 6 BPR 13,337
…. 20.51, 20.54
— v P & MJ Wright (Holdings) Ltd [2007]
EWCA Civ 1329 …. 6.70, 6.72
Collins v Godefroy (1831) 109 ER 1040
…. 6.40, 6.41
— v Parker (Unreported, Supreme Court of
New South Wales, Lee J, 11 May 1984)
…. 20.13
Colman v Sarrel (1789) 30 ER 225 …. 31.13
Colonial Ammunition Co v Reid (1900) 21
LR (NSW) 338 …. 4.40
Combe v Combe [1951] 2 KB 215 …. 36.24
Comité Interprofessionnel du Vin de
Champagne v Powell (2015) 330 ALR 67;
[2015] FCA 1110 …. 15.35, 15.41
xxxiv
Comlin Holdings Pty Ltd v Metlej
Developments Pty Ltd [2018] NSWSC 761
…. 8.5
Commerce Commission v Home Direct Ltd
[2019] NZHC 2943 …. 21.19, 21.22, 21.24
Commercial Bank of Australia Ltd v Amadio
(1983) 151 CLR 447; 46 ALR 402 …. 17.13,
18.6, 18.62, 19.4, 19.6, 19.12, 19.18, 19.19,
19.20, 19.29, 19.31, 19.38, 19.41, 19.42,
19.44, 19.53
— v Younis [1979] 1 NSWLR 444 …. 38.86
Commercial Banking Co of Sydney Ltd
v Pollard [1983] 1 NSWLR 75 …. 20.12
— v RH Brown & Co (1972) 126 CLR 337
…. 10.64
Commission for the New Towns v Cooper
(Great Britain) Ltd [1995] Ch 259; 2 All
ER 929 …. 34.35
Commissioner of Fair Trading v Jonval
Builders Pty Ltd [2019] NSWSC 1893
…. 19.12
Commissioner of Stamp Duties (NSW)
v Carlenka Pty Ltd (1995) 41 NSWLR 329
…. 34.1, 34.4
Commissioner of State Revenue (Vic) v Royal
Insurance Australia Ltd (1994) 182 CLR 51;
126 ALR 1 …. 38.92
— v Snowy Hydro Ltd (2012) 43 VR 109
…. 12.2
Commissioner of State Taxation of the State of
South Australia v Cyril Henschke Pty Ltd
(2010) 242 CLR 508; 272 ALR 440 …. 40.4
Commissioner of Taxation v Murry (1998) 193
CLR 605; 155 ALR 67 …. 27.72
— v Orica Ltd (1998) 194 CLR 500; 154 ALR 1
…. 23.45, 23.63
— v Racing Queensland Board (2019) 374 ALR
241 …. 4.88, 4.113
— v Reliance Carpet Co Pty Ltd (2008) 236
CLR 342; 246 ALR 448 …. 24.3, 30.41
— v Sara Lee Household & Body Care
(Australia) Pty Ltd (2000) 201 CLR 520; 172
ALR 346 …. 23.23, 23.24
— v Trustee for the Michael Hayes Family Trust
[2019] FCAFC 226 …. 12.28

Commissioner of Taxation of the
Commonwealth of Australia v Thomas
(2018) 264 CLR 382; 357 ALR 445
…. 36.17
Commissioners of Inland Revenue v Muller &
Co Margarine [1901] AC 217 …. 27.74
Commonwealth v Amann Aviation Pty Ltd
(1991) 174 CLR 64; 104 ALR 1 …. 24.59,
29.1, 29.2, 29.8, 29.9, 29.31, 29.36, 29.40,
29.44, 29.45, 29.57, 29.59, 29.61, 29.62,
29.63, 29.64, 29.65, 29.66, 29.67, 29.69,
29.70, 29.72, 29.107, 29.119, 29.161, 37.27,
38.91
— v Australian Commonwealth Shipping
Board (1926) 39 CLR 1 …. 9.60
— v Verwayen (1990) 170 CLR 394; 95 ALR
321 …. 15.79, 15.82, 23.64, 23.66, 23.69,
36.1, 36.46, 36.50, 36.51, 36.53, 36.60, 36.70,
36.71, 36.73, 36.74, 38.91
Commonwealth Bank v Munro [2011] NSWSC
128 …. 20.18, 20.22, 20.40, 20.53
Commonwealth Bank of Australia v Barker
(2014) 253 CLR 169; 312 ALR 356
…. 11.33, 11.34, 11.36, 11.38, 11.39, 11.49,
11.50, 11.52
— v Carotino (2011) 111 SASR 573 …. 7.41
— v Carotino (Australia) Pty Ltd [2011] SASC
42 …. 36.54
— v Dinh [2019] WASC 456 …. 15.18, 15.82
— v Kojic (2016) 249 FCR 421; 341 ALR 572
…. 19.64
— v Mehta (1991) 23 NSWLR 84 …. 15.26
— v Roubas (unreported, Supreme Court of
New South Wales, Hunter J, 27 March 1997)
…. 20.12
— v Serobian [2009] NSWSC 302 …. 8.2
— v Starrs [2012] SASC 222 …. 18.62
— v TLI Management Pty Ltd [1990] VR 510
…. 7.41
Commonwealth Bank Officers Superannuation
Corporation Pty Ltd v Beck (2016) 334 ALR
692 …. 36.30
Compania Colombiana de Seguros v Pacific
Steam Navigation Co [1965] 1 QB 101;
[1964] 1 All ER 216 …. 40.54
xxxv
TABLE OF CASES­
Concrete Constructions (NSW) Pty Ltd
v Nelson (1990) 169 CLR 594; 92 ALR 193
…. 15.8, 15.12, 15.13, 15.14, 15.15, 19.48
Concut Pty Ltd v Worrell (2000) 176 ALR 693
…. 11.38, 14.23, 24.59
Conference & Exhibition Organisers Pty Ltd
v Johnson [2016] NSWCA 118 …. 36.12
Cong Xu v Austino Property Developments Pty
Ltd [2013] NSWSC 1177 …. 24.107
Conlan v Registrar of Titles (2001) 24 WAR 299
…. 31.14
Conley v Commonwealth Bank of Australia
[2000] NSWCA 101 …. 20.27
Conlon v Simms [2007] 3 All ER 802
…. 14.25
Consolidated Credit Network v Illawarra
Retirement Trust (No 2) [2005] NSWSC
1007 …. 31.80
Consolidated Trust Co Ltd v Naylor (1936) 55
CLR 423 …. 40.36, 40.37
Con-Stan Industries of Australia Pty Ltd
v Norwich Winterthur Insurance
(Australia) Ltd (1986) 160 CLR 226; 64 ALR
481 …. 11.19, 11.45, 11.46, 36.17
Continental C & G Rubber Co Pty Ltd,
Re (1919) 27 CLR 194 …. 25.60, 25.66
Cook v Benson (2003) 214 CLR 370; 198 ALR
218 …. 31.15
Cooma Clothing Pty Ltd v Create Invest
Develop Pty Ltd (2013) 46 VR 447 …. 5.41
Coomber, Re [1911] Ch 723 …. 18.23
Cooney v Burns (1922) 30 CLR 216; 28 ALR
181 …. 8.32, 8.42
Cooper v Hobbs [2013] NSWCA 70 …. 12.67
— v Phibbs (1867) LR 2 HL 149 …. 16.42
Co-operative Insurance Society Ltd v Argyll
Stores (Holdings) Ltd [1998] AC 1; [1997]
3 All ER 297 …. 31.45, 31.50, 31.51, 31.52,
31.53, 31.54
Coote v Sproule (1929) 29 SR (NSW) 578
…. 27.99
Cope v Rowlands (1836) 150 ER 707 …. 26.42,
26.43
Coppage v Safety Net Security Ltd [2013]
EWCA Civ 1176 …. 27.50
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Copper Resources Pty Ltd v Newcrest
Operations Ltd [2013] NSWSC 345 …. 29.7
Cordon Investments Pty Ltd v Lesdor
Properties Pty Ltd [2012] NSWCA 184
…. 11.65, 22.45, 24.86, 29.89
Corporation of the City of Adelaide v India Pty
Ltd [2018] SASC 154 …. 28.37
Corrick v Silich [2018] NZCA 221 …. 4.98
Costa Vraca Pty Ltd v Berrigan Weed & Pest
Control Pty Ltd (1998) 155 ALR 714
…. 15.26
Couldery v Bartrum (1881) 19 Ch D 394
…. 6.69, 6.72
Coulls v Bagot’s Executor & Trustee Co Ltd
(1967) 119 CLR 460 …. 6.25, 6.26, 31.21,
31.35, 39.1, 39.5, 39.8, 39.11, 39.20
Council of the City of Sydney v West (1965)
114 CLR 481 …. 13.35
County Ltd v Girozentrale Securities [1996] 3
All ER 834 …. 29.99
County Securities Pty Ltd v Challenger Group
Holdings Pty Ltd [2008] NSWCA 193
…. 10.8, 12.65, 12.67
Courtney & Fairbairn Ltd v Tolaini Brothers
(Hotels) Ltd [1975] 1 WLR 297 …. 5.25
Courtney v Powell [2012] NSWSC 460 …. 18.18
Couturier v Hastie (1852) 155 ER 1250 (Court
of Exchequer) …. 16.9, 16.10, 16.11, 16.14,
16.15
— v — (1856) 10 ER 1065 …. 16.9, 16.10,
16.11, 16.13, 16.14, 16.15
Covanta Energy Ltd v Merseyside Waste
Disposal Authority [2013] EWHC 2922
(TCC) …. 32.2
Cowan v O’Connor (1888) 20 QBD 640 …. 4.90
CPB Contractors Pty Ltd v Rizzani De Eccher
Australia Pty Ltd [2017] NSWSC 1798
…. 36.48
CPC Group Ltd v Qatari Diar Real Estate
Investment Co [2010] EWHC 1535 (Ch)
…. 5.27
CPL Ltd v CPL Opco (Trinidad) Ltd [2017]
EWHC 3399 (Ch) …. 10.76
Crabb v Arun District Council [1976] Ch 179;
[1975] 3 All ER 865 …. 38.91
xxxvi
Crago v McIntyre [1976] 1 NSWLR 729
…. 9.50
Craine v Colonial Mutual Fire Insurance Co
Ltd (1920) 28 CLR 305 …. 23.64, 24.113
Cramaso LLP v Ogilvie-Grant [2014] AC 1093;
[2014] 2 All ER 270 …. 14.30, 14.32, 37.24
Crane Distribution Ltd v Yang [2016] NSWSC
620 …. 20.34
Crawford Fitting Co v Sydney Valve & Fitting
Pty Ltd (1988) 14 NSWLR 438 …. 23.11
Crawley v Short (2009) 262 ALR 654 …. 31.66,
31.67
Cream v Bushcolt Pty Ltd [2004] WASCA 82
…. 27.43, 27.50, 27.67, 27.77, 27.78
Crescendo Management Pty Ltd v Westpac
Banking Corporation (1988) 19 NSWLR 40
…. 17.11, 17.31
Cresswell v Creswell [2017] VSCA 272
…. 36.74
Crest Nicholson (Londinium) Ltd v Akaria
Investments Ltd [2010] EWCA Civ 1331
…. 4.10
Croser v Focus Genetics Ltd Partnership [2020]
NZCA 367 …. 5.33, 7.4, 7.29
Crossman v Sheahan [2016] NSWCA 200
…. 10.74, 31.66, 31.67
Crouch and Lyndon (a firm) v IPG Finance
Australia Pty Ltd [2014] 1 Qd R 512
…. 10.13
Crowe Horwath (Aust) Pty Ltd v Loone (2017)
54 VR 517 …. 27.90
Crowe-Maxwell v Frost (2016) 91 NSWLR 414
…. 4.82
Crown Aluminium Ltd v Northern & Western
Insurance Company Ltd [2011] EWHC
1352 …. 35.29
Crown Melbourne Ltd v Cosmopolitan Hotel
(Vic) Pty Ltd (2016) 260 CLR 1; 333 ALR
384 …. 5.1, 10.70, 10.73, 14.3, 14.21, 36.31,
36.40, 36.41
CSR Ltd v Adecco (Australia) Pty Ltd [2017]
NSWCA 121 …. 4.79, 4.83
— v Amaca Pty Ltd [2016] VSCA 320 …. 31.64
CSS Investments Pty Ltd v Lopiron Pty Ltd
(1987) 16 FCR 15; 76 ALR 463 …. 22.27

CTI Group Inc v Transclear SA (The Mary
Nour) [2008] 2 Lloyd’s Rep 526 …. 25.23
CTN Cash and Carry Ltd v Gallaher Ltd [1994]
4 All ER 714 …. 17.2, 17.5, 17.7, 17.34
Cubic Transportation Systems v State of
New South Wales [2002] NSWSC 656
…. 4.38
Cudgen Rutile (No 2) v Chalk [1975] AC 520;
(1974) 4 ALR 438 …. 5.8
Cukurova Finance Ltd v Alfa Telecom Turkey
Ltd (Nos 3 to 5) [2015] 2 WLR 875
…. 24.118, 24.120
Cummings v Claremont Petroleum NL (1996)
184 CLR 124; 137 ALR 1 …. 40.46
— v Lewis (1993) 41 FCR 559; 113 ALR 285
…. 15.75
Cummings Engineering Holdings Pty Ltd,
Re [2014] NSWSC 250 …. 6.82
Cundy v Lindsay (1878) 3 App Cas 459
…. 16.65, 16.66, 16.67, 16.74, 16.75
Cunliffe v Harrison (1851) 155 ER 813 …. 22.32
Current Images Pty Ltd v Dupack Pty Ltd
[2012] NSWCA 99 …. 12.40
Currie v Currie (No 2) [2019] WASCA 2
…. 36.49
Curro v Beyond Productions Pty Ltd (1993) 30
NSWLR 337 …. 27.59, 27.63, 27.67, 27.82,
32.12
Curtis v Chemical Cleaning & Dyeing Co
[1951] 1 KB 805; [1951] 1 All ER 631
…. 10.27, 10.28, 10.30
Cutter v Powell (1795) 101 ER 573 …. 22.32,
22.34, 22.35, 22.41
D 337 …. 31.55
D & C Builders Ltd v Rees [1966] 2 QB 617;
[1965] 3 All ER 837 …. 23.55, 23.56
Da Silva v Rosa Construtores [2018] IEHC 732
…. 29.46
Dabbs v Seaman (1925) 36 CLR 538 …. 36.6
Dadourian Group International Inc v Simms
[2009] 1 Lloyd’s Rep 601 …. 14.36, 37.14
Daebo Shipping Company Ltd v The Ship Go
Star (2012) 207 FCR 220; 294 ALR 635
…. 37.43
xxxvii
TABLE OF CASES­
Dainford Ltd v Smith (1985) 155 CLR 342; 58
ALR 285 …. 12.40
Daley, Re; Ex parte National Australia Bank Ltd
(1992) 37 FCR 390 …. 40.49
Dalgetty Wine Estates Pty Ltd v Rizzon (1979)
141 CLR 552; 26 ALR 355 …. 32.5
Damco Nominees Pty Ltd v Moxham [2012]
VSC 79 …. 24.124
Dana Gas PJSC v Dana Gas Sukuk Ltd [2017]
EWHC 2928 (Comm) …. 16.8, 16.36
Danbol Pty Ltd v Swiss Re International Se
[2020] VSC 23 …. 1.37, 4.1
Daniel, Re [1917] 2 Ch 405 …. 29.78
Darlington Borough Council v Wiltshier
Northern Ltd [1995] 3 All ER 895 …. 29.3,
39.9, 39.11
Darlington Futures Ltd v Delco Australia
Pty Ltd (1986) 161 CLR 500; 68 ALR 385
…. 13.5, 13.6, 13.10, 13.13, 13.22, 13.23,
13.24, 13.26, 13.27, 13.28, 13.29, 13.31
Darzi Group Pty Ltd v Nolde Pty Ltd (2019)
100 NSWLR 394 …. 5.28, 5.40
Dasreef Developments Pty Ltd v Velkovski
(2017) 96 NSWLR 318 …. 30.40
Daulia Ltd v Four Millbank Nominees Ltd
[1978] Ch 231; [1978] 2 All ER 557 …. 4.62
Daunt v Daunt [2015] VSCA 58 …. 18.21
Daventry District Council v Daventry &
District Housing Ltd [2012] 1 WLR 1333
…. 34.34
Davey v Baker [2016] 3 NZLR 776 …. 34.6
David Clarke Airconditioning Pty Ltd v Quann
(No 3) [2017] WASC 91 …. 15.49
David Jones Ltd v Perpetual Ltd [2006] QSC
David Securities Pty Ltd v Commonwealth
Bank of Australia (1992) 175 CLR 353; 109
ALR 57 …. 14.4, 25.68, 38.3, 38.10, 39.12,
38.13, 38.15, 38.24, 38.68, 38.73, 38.76,
38.79, 38.80, 38.83, 38.84, 38.85, 38.86,
38.88, 38.91, 38.92
Davies v Collins [1945] 1 All ER 247 …. 24.18
— v Davies (1919) 26 CLR 348 …. 15.79
— v — [2016] EWCA Civ 463 …. 36.64
Davis v Mason (1793) 101 ER 69 …. 27.65
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
— v Pearce Parking Station Pty Ltd (1954) 91
CLR 642 …. 13.14
Davis Contractors Ltd v Fareham Urban
District Council [1956] AC 696; [1956] 2
All ER 145 …. 24.76, 25.6, 25.7, 25.8, 25.9,
25.47
Davison v McCorquodale (1955) 55 SR (NSW)
181 …. 26.20
Day v Womble Bond Dickinson (UK) LLP
[2020] EWCA Civ 447 …. 1.8
Day Ashley Francis v Yeo Chin Huat Anthony
[2020] SGHC 93 …. 4.78
Day Morris Associates v Voyce [2003] EWCA
Civ 189 …. 4.71
DC Thomson & Co Ltd v Deakin [1952]
Ch 646 …. 37.52
DCT Projects Pty Ltd v Champion Homes Pty
Ltd [2016] NSWCA 117 …. 24.12
DD Growth Premium 2X Fund v RMF Market
Neutral Strategies (Master) Ltd (Cayman
Islands) [2017] UKPC 36 …. 38.51
De Belin v Australian Rugby League
Commission Ltd [2019] FCA 688 …. 19.66,
37.43, 37.56
De Cesare v Deluxe Motors Pty Ltd (1996) 67
SASR 28 …. 29.87
De Francesco v Barnum (1890) 45 Ch D 430
…. 9.19, 9.20, 31.40
De Lassalle v Guildford [1901] 2 KB 215
…. 10.65, 10.67
Decro-Wall International SA v Practitioners
in Marketing Ltd [1971] 1 WLR 361
…. 24.76
Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd
[2010] NSWCA 374 …. 24.88
Delaforce v Simpson-Cook (2010) 78 NSWLR
483 …. 36.26, 36.61, 36.65, 36.75
Demagogue Pty Ltd v Ramensky (1992) 39 FCR
31; 110 ALR 608 …. 14.29, 15.21, 15.22,
15.26, 15.28, 15.30, 15.31
Demetrios v Gikas Dry Cleaning Industries Pty
Ltd (1991) 22 NSWLR 561 …. 14.51
Denny, Mott & Dickson Ltd v James B Fraser &
Co Ltd [1944] AC 265; [1944] 1 All ER 678
…. 25.13
xxxviii
Deposit Protection Board v Dalia [1994] 2 AC
367; [1994] 2 All ER 577 …. 40.34
Deputy Commissioner of Taxation v Gashi
(No 3) [2011] VSC 448 …. 31.4, 31.6
Dering v Earl of Winchelsea (1787) 29 ER 1184
…. 31.63
Derry v Peek (1889) 14 App Cas 337 …. 35.6,
37.7, 37.10, 37.11, 37.19
Desir v Alcide [2015] UKPC 24 …. 18.14
Despot v Registrar General of New South Wales
[2016] NSWCA 5 …. 31.82
Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd
(1993) 113 ALR 225 …. 40.9, 40.13
Devereaux Holdings Pty Ltd v Pelsart
Resources NL (No 2) (1985) 9 ACLR 956
…. 6.29
Devon v Madgwicks (A Firm) [2016] FCA 875
…. 36.12
Dewes v Fitch [1920] 2 Ch 159 …. 27.68, 27.99
Dewhirst v Edwards [1983] 1 NSWLR 34
…. 31.63
DHJPM Pty Ltd v Blackthorn Resources Ltd
(2011) 83 NSWLR 728; 285 ALR 311
…. 36.2, 36.22, 36.48
Di Giovanni v Dark Horse Developments Pty
Ltd (in liq) [2014] WASCA 188 …. 10.67,
23.27
Diagnostic X-Ray Services Pty Ltd v Jewel Food
Stores Pty Ltd [2001] 4 VR 632 …. 31.54
Dick Bentley Productions Ltd v Harold Smith
(Motors) Ltd [1965] 2 All ER 65 …. 10.15,
10.16
Dickinson v Burrell (1866) LR 1 Eq 337
…. 40.51
— v Dodds (1876) 2 Ch D 463 …. 4.50, 4.56,
4.57
Dickson v Pharmaceutical Society of Great
Britain [1970] AC 403 …. 27.56
Dies v British and International Mining
and Finance Corp Ltd [1939] 1 KB 724
…. 38.67
Diesen v Samson [1971] SLT 49 …. 29.50
Diestal v Stevenson [1906] 2 KB 345 …. 30.30
Digi-Tech (Australia) Ltd v Brand [2004]
NSWCA 58 …. 15.76

Dillon v Nash Properties Pty Ltd [1950] VLR
293 …. 33.7
Dillwyn v Llewelyn [1862] All ER 384 …. 36.26
Dimmock v Hallett (1866) LR 2 Ch App 21
…. 14.28
Dimskal Shipping Co SA v International
Transport Workers Federation (The Evia
Luck No 2) [1992] 2 AC 152 …. 17.1, 17.2
Dinan v Harper [1922] VLR 49 …. 8.12
Dinh v Dang [2007] QSC 3 …. 8.43
Diploma Construction Pty Ltd v Marula Pty
Ltd [2009] WASCA 229 …. 24.64, 24.71
Director General of Fair Trading v First
National Bank plc [2000] QB 672 …. 21.22
— v — [2002] 1 AC 481 …. 21.20
Director of Consumer Affairs Victoria v AAPT
Ltd [2006] VCAT 1493 …. 21.9, 21.20,
21.22
— v Backloads.com Pty Ltd [2009] VCAT 754
…. 21.28
— v Scully (2013) 303 ALR 168 …. 19.69
— v Trainstation Health Clubs Pty Ltd [2008]
VCAT 2092 …. 21.28
Director of Public Prosecutions for Victoria
v Le (2007) 232 CLR 562; 240 ALR 204
…. 6.5, 6.35, 6.55, 31.14
Dixon v Barton [2011] NSWSC 1525 …. 31.33
— v Blindley Health Investments Ltd [2016] 4
All ER 490 …. 36.17
DJ Hill & Co Pty Ltd v Walter H Wright Pty
Ltd [1971] VR 749 …. 10.25, 10.48, 10.49,
10.50, 10.51
DKB Investments Pty Ltd v Belcote Pty Ltd
(1991) 105 FLR 429 …. 10.74
Dlakic v Vaughan [2018] NSWSC 1455
…. 20.45
DNFS Pty Ltd v De Neefe Signs Pty Ltd [2008]
VSC 424 …. 13.16
Dobbs v National Bank of Australasia Ltd
(1935) 53 CLR 643 …. 27.26
Dockpride Pty Ltd v Subiaco Redevelopment
Authority [2005] WASC 211 …. 4.32, 4.36,
11.50
Dodds v Kennedy (No 2) (2011) 42 WAR 16
…. 12.40
xxxix
TABLE OF CASES­
Doggett v Commonwealth Bank of Australia
(2015) 47 VR 302 …. 17.17
Doherty v Allman (1878) 3 App Cas 709
…. 27.84, 32.5
— v Fannigan Holdings Ltd [2018] EWCA Civ
1615 …. 22.13
Dome Resources NL v Silver (2008) 72 NSWLR
693 …. 29.127
Don King Productions Inc v Warren [2000]
Ch 291; [1998] 2 All ER 608 …. 40.18
Donaldson v Natural Springs Australia Ltd
[2015] FCA 498 …. 37.50
Donau Pty Ltd v ASC AWD Shipbuilder Pty
Ltd [2019] NSWCA 185 …. 22.6
Donis v Donis (2007) 19 VR 577 …. 36.64
Donoghue v Stevenson [1932] AC 562 …. 37.19
Doolan v Renkon Pty Ltd (2011) 21 Tas R 156
…. 29.42
Doppstadt Australia Pty Ltd v Lovick & Son
Developments Pty Ltd [2014] NSWCA 158
…. 15.74
Doueihi v Construction Technologies Australia
Pty Ltd (2016) 92 NSWLR 247; 333 ALR
151 …. 36.18, 36.26, 36.43, 36.49
Dougan v Ley (1946) 71 CLR 142 …. 31.19,
31.25, 31.26, 31.30
Douglass Automated Laboratories & Allied
Services Pty Ltd Sonic Technology Australia
Ltd (1994) 16 ATPR (Digest) 46-129
…. 27.118
Dover v Lewkovitz [2013] NSWCA 452
…. 40.45
Dover Beach Pty Ltd v Geftine Pty Ltd [2008]
21 VR 442 …. 26.5, 26.6, 26.19, 26.36
Dowdell v Knispel Fruit Juices Pty Ltd [2003]
FCA 851 …. 7.32
Dowdle v Pay Now For Business Pty Ltd [2012]
QSC 272 …. 18.74
Downe v Sydney West Area Health Service
(No 2) (2008) 218 FLR 268 …. 31.44
Downer EDI Ltd v Gillies [2012] NSWCA 333
…. 24.89
Downs v Chappell [1997] 1 WLR 426 …. 14.52,
37.14
Dowsett v Reid (1912) 15 CLR 695 …. 31.55
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Dr Jones Yeovil Ltd v The Stepping Stone
Group Ltd [2020] EWHC 2308 (TCC)
…. 39.17
Druin Pty Ltd v Corbin [2014] NSWSC 510
…. 7.5, 7.6
DSND Subsea v Petroleum Geo-Services [2000]
BLR 530 …. 17.28
D’Souza v Wedgewood Road Hallam No 1 Pty
Ltd [2010] FCA 765 …. 15.26
DTR Nominees Pty Ltd v Mona Homes Pty Ltd
(1978) 138 CLR 423; 19 ALR 223 …. 23.2,
23.5, 24.11, 24.27, 24.74, 24.97
Du Buisson Perrine v Chan (2016) 49 WAR 432
…. 24.45, 30.40
Duncuft v Albrecht (1841) 59 ER 1104
…. 31.23
Dundoen Pty Ltd v Richard Wills (Real Estate)
Pty Limited [2020] NSWSC 15 …. 27.68
Dunhill v Burgin [2014] 2 All ER 364 …. 9.48
Dunkirk Colliery Co v Lever (1878) 9 Ch D 20
…. 29.136
Dunlop v Higgins (1848) 1 HLC 381; 9 ER 805
…. 4.76
Dunlop Pneumatic Tyre Co Ltd v New Garage
& Motor Co Ltd [1915] AC 79 …. 30.5,
30.11, 30.20, 30.21, 30.22, 30.26
Dunlop Pneumatic Tyre Co Ltd v Selfridge &
Co Ltd [1915] AC 847 …. 6.3, 6.12, 6.23,
39.2, 39.5
Dunmore v Alexander (1830) 9 SH (Ct of Sess)
190 …. 4.96
Dunn v Disc Jockey Unlimited (1978) 20 OR
(2d) 122 …. 29.50
Dunton v Dunton (1892) 18 VLR 114 …. 6.37
Dunworth v Mirvac Queensland Pty Ltd [2012]
1 Qd R 207 …. 31.83
Dura (Australia) Constructions Pty Ltd v Hue
Boutique Living Pty Ltd [2012] VSC 99
…. 11.55
— v — (2013) 41 VR 636 …. 5.10, 12.8
Durham Bros v Robertson [1898] 1 QB 765
…. 40.32
Durham Tees Valley Airport Ltd v BMI Baby
Ltd [2010] EWCA Civ 485 …. 5.13
— v — [2011] 1 Lloyd’s Rep 68 …. 29.166
xl
Durrant v Ecclesiastical Commissioners (1880)
6 QBD 234 …. 38.3
Duval v 11–13 Randolph Crescent Ltd [2020]
2 WLR 1167 …. 11.15
Dysart Timbers Ltd v Nielsen [2009] 3 NZLR
160 …. 4.10, 4.65, 4.66
E
E v English Province of our Lady of Charity
[2013] QB 722; [2012] 4 All ER 1152
…. 7.25
Eads v Williams (1854) 43 ER 671
…. 31.64
Eaglesfield v Marquis of Londonderry (1876) 4
Ch D 693 …. 14.6
Eastern Health v MIA Victoria Pty Ltd (2009)
22 VR 502 …. 5.2
Eastern Services Ltd v No 68 Ltd [2006] 3
NZLR 335 …. 31.71, 31.73
Eastwood v Kenyon (1840) 113 ER 482 …. 2.24,
6.5, 6.6, 6.9
Easyfind (NSW) Pty Ltd v Paterson (1987) 11
NSWLR 98 …. 16.86
EC Dawson Investments Pty Ltd v Crystal
Finance Pty Ltd (No 3) [2013] WASC 183
…. 40.36
Eco 3 Capital Ltd v Ludsin Overseas Ltd [2013]
EWCA Civ 413 …. 37.8
Ecolibrium Biologicals Ltd v Biotelliga
Holdings Ltd [2019] NZHC 2628
…. 23.40
Ecosse Property Holdings Pty Ltd v Gee Dee
Nominees Pty Ltd (2017) 261 CLR 544; 343
ALR 58 …. 12.4, 12.13, 12.45, 12.72
Edenham Pty Ltd v Meares [2016] WASC 301
…. 31.63
Edge v Boileau (1884) 16 QBD 117 …. 22.15
Edge Development Group Pty Ltd v Jack Road
Investments [2019] VSCA 91 …. 5.33,
5.38
Edgeworth Capital (Luxembourg) SARL
v Aabar Investments PJS [2018] EWHC
1627 (Comm) …. 8.2
Edgington v Fitzmaurice (1885) 29 Ch D 459
…. 14.13, 14.14, 14.36, 14.46

Edington v Board of Trustees of the State Public
Sector Superannuation Scheme [2016]
QCA 247 …. 7.4
Edward Street Properties Pty Ltd v Collins
[1977] Qd R 399 …. 33.7
Edwards v Chesterfield Royal Hospital NHS
Foundation Trust [2012] 2 AC 22; [2012] 2
All ER 278 …. 11.38
— v Skyways Ltd [1964] 1 All ER 494 …. 7.20,
7.22
— v Sydney Building Group Pty Ltd [2011]
NSWCA 154 …. 38.94
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2
Pty Ltd (2010) 41 WAR 23 …. 11.39
Edwin Hill & Partners v First National Finance
Corp plc [1988] 3 All ER 801 …. 37.59
Edwinton Commercial Corporation v Tsavliris
Russ (Worldwide Salvage & Towage) Ltd
(The ‘Sea Angel’) [2007] 2 Lloyd’s Rep 517
…. 25.12
E E Caledonia Ltd v Orbit Valve Co Plc [1995]
1 All ER 174 …. 13.17
Egan v Egan [2018] NSWSC 202 …. 20.31, 20.53
Egis Consulting Australia Pty Ltd v First
Dynasty Mines Ltd [2001] WASC 22
…. 4.92
Egon Zehnder Ltd v Tillman [2020] AC 154;
[2020] 1 All ER 477 …. 27.39, 28.30, 28.31
Ehrman v Bartholomew [1898] 1 Ch 671
…. 32.20
E Johnson & Co (Barbados) Ltd v NSR Ltd
[1997] AC 400 …. 33.17
EK Nominees Pty Ltd v Woolworths Ltd [2006]
NSWSC 1172 …. 36.46
El Ali v Tritton [2019] NSWCA 111 …. 29.31
Elders Rural Finance Ltd v Smith (1996) 41
NSWLR 296 …. 20.8, 20.51
Elders Trustee & Executor Co Ltd v E G Reeves
Pty Ltd (1987) 78 ALR 193 …. 34.19
Electric Life Pty Ltd v Unison Finance Group
Pty Ltd [2015] NSWCA 394 …. 13.5
Electricity Generation Corporation v Woodside
Energy Ltd (2014) 251 CLR 640; 306 ALR
25 …. 12.13, 12.26, 12.40, 12.45, 12.46,
22.24, 22.25, 24.18
xli
TABLE OF CASES­
Electricity Generation Corporation v Woodside
Energy Ltd [2013] WASCA 36 …. 17.17,
17.21, 17.35
Electronic Industries Ltd v David Jones Ltd
(1954) 91 CLR 288 …. 22.9, 22.10, 22.18
Elizabeth Bay Developments Pty Ltd v Boral
Building Services Pty Ltd (1995) 36
NSWLR 709 …. 5.24
Elizabeth City Centre Pty Ltd v Corralyn Pty
Ltd (1994) 63 SASR 235 …. 4.96, 4.98
Elkerton v Milecki [2018] NSWCA 141
…. 11.17
Elkofairi v Permanent Trustee Co Ltd [2002]
NSWCA 413 …. 18.62, 19.34, 20.8, 20.27,
20.51, 20.53
Ellenborough, Re; Towry Law v Burne [1903] 1
Ch 697 …. 6.80
Ellis v Torrington [1920] 1 KB 399 …. 40.51
Ellis’s Town House Pty Ltd v Botan Pty Ltd
[2017] NSWCA 20 …. 3.32, 29.38, 29.83
Ellison v Vukicevic (1986) 7 NSWLR 104
…. 20.13
Ellul v Oakes (1972) 3 SASR 377 …. 10.12,
10.13, 10.16
El-Mir v Risk [2005] NSWCA 215 …. 23.45,
23.61, 23.62
Elsafty Enterprises Pty Ltd v Mermaids
Cafe & Bar Pty Ltd [2007] QSC 394
…. 4.52
Elsley v JG Collins Insurance Agencies Ltd
[1978] 2 SCR 916 …. 30.8, 30.9
Elsmore Resources Ltd, Re [2016] NSWSC 856
…. 15.18, 15.30, 15.31, 20.11, 20.12, 20.18,
20.23, 20.28, 20.34, 20.37
Elston v King [2020] EWHC 55 (Ch) …. 16.7,
16.34
Embiricos v Sydney Reid & Co [1914] 3 KB 45
…. 25.45, 25.46
Emeco International Pty Ltd v O’Shea (No 2)
[2012] WASC 348 …. 28.31
Emerald Construction Co Ltd v Lowthian
[1966] 1 All ER 1013 …. 37.45
Empirnall Holdings Pty Ltd v Machon Paul
Partners Pty Ltd (1988) 14 NSWLR 523
…. 4.45, 4.78, 4.79, 4.83, 10.41
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Enterprise ICT Pty Ltd v Pham (No 2) [2018]
NSWCA 185 …. 6.40
Entores v Miles Far East Corporation [1955]
QB 327; [1955] 2 All ER 493 …. 4.58, 4.101,
4.102
EPS Constructions Pty Ltd v Mass Holdings
Pty Ltd [2015] NSWCA 317 …. 4.110
Equitable Life Assurance Society v Hyman
[2002] 1 AC 408; [2000] 3 All ER 961
…. 11.9
Equititrust Ltd (formerly Equitiloan Ltd)
v Franks (2009) 259 ALR 388 …. 36.22
Equity Access Pty Ltd v Westpac Banking
Corporation (1990) ATPR 40-994 …. 15.35,
15.36, 15.41, 15.42
Equuscorp Pty Ltd v Antonopoulos [2008]
VSCA 179 …. 5.6
— v Belperio [2006] VSC 14 …. 5.6
— v Glengallan Investments Pty Ltd (2004) 218
CLR 471; 211 ALR 101 …. 10.19
— v Haxton (2012) 246 CLR 498; 286 ALR 12
…. 15.79, 26.14, 26.52, 26.53, 28.1, 28.15,
28.16, 38.3, 38.10, 38.16, 38.28, 38.53, 38.60,
38.62, 38.63, 38.65, 38.66, 38.83, 38.92,
40.23, 40.27, 40.28
Erlanger v New Sombrero Phosphate Co
(1878) 3 App Cas 1218 …. 17.36, 31.65,
35.7, 35.9
Ermogenous v Greek Orthodox Community
of SA Inc (2002) 209 CLR 95; 187 ALR 92
…. 6.76, 7.1, 7.5, 7.8, 7.23, 7.24, 7.26, 7.27,
7.29, 7.31, 7.32, 7.33, 7.34, 7.35, 10.13
Errat v Grills [2015] NSWSC 594 …. 11.56
Errichetti Nominees Pty Ltd v Paterson
Group Architects Pty Ltd [2007] WASC 77
…. 16.3, 16.48, 16.53
Errington v Errington & Woods [1952] 1 KB
290 at 295; [1952] 1 All ER 149 …. 4.62
Ertel Bieber & Co v Rio Tinto Co [1918] AC
260 …. 27.37
Esanda Finance Corporation Ltd v Plessnig
(1989) 166 CLR 131; 84 ALR 99 …. 30.28,
30.29
— v Tong (1997) 41 NSWLR 482 …. 20.27,
20.33, 20.51
xlii
Eslea Holdings Ltd v Butts (1986) 6 NSWLR
175 …. 36.18, 39.61
Essex County Council v UBB Waste (Essex) Ltd
[2020] EWHC 1581 (TCC) …. 10.75
Esso Petroleum Co Ltd v Commissioners of
Customs and Excise [1976] 1 All ER 117
…. 7.46
— v Harper’s Garage (Stourport) Ltd (1968) AC
269; [1967] 1 All ER 699 …. 27.43, 27.54,
27.55, 27.60, 27.67
— v Mardon [1976] QB 801; [1976] 2 All ER 5
…. 37.24
— v Southern Pacific Petroleum NL [2005]
VSCA 228 …. 11.48, 11.55
Etna v Arif [1999] 2 VR 353 …. 11.28
European Bank Ltd v Evans (2010) 240 CLR
432; 264 ALR 1 …. 29.105
Evans v Robocorp Pty Ltd [2015] 2 Qd R 111
…. 31.57
— v Secretary, Department of Families,
Housing, Community Services and
Indigenous Affairs (2012) 289 ALR 237
…. 7.31
— v Teamsters Local Union No 31 [2008] 1
SCR 661 …. 29.142
Evans Marshall & Co Ltd v Bertola SA [1973] 1
All ER 992 …. 31.20, 32.2
EWC Payments Pty Ltd v Commonwealth Bank
of Australia (No 2) [2014] VSC 4 …. 40.48
Ex turpi causa non oritur action [1936] 1 KB
169 …. 27.14
Experience Hendrix Llc v PPX Enterprises Inc
[2003] EWCA Civ 323 …. 29.23
Export Credits Guarantee Department
v Universal Oil Products Co [1983] 2 All
ER 205 …. 30.16
EzyDVD Pty Ltd v Lahrs Investments Qld Pty
Ltd [2010] 2 Qd R 517 …. 27.106
F
F & C Alternative Investments (Holdings)
Ltd v Barthelemy (No 2) [2012] Ch 613
…. 11.58
F & G Sykes (Wessex) Ltd v Fine Fare Ltd
[1967] 1 Lloyd’s Rep 53 …. 5.7

FA Tamplin Co Steamship Co Ltd v Anglo-
Mexican Petroleum Products Co Ltd [1916]
2 AC 397 …. 25.8
Fabcot Pty Ltd v Port Macquarie-Hastings
Council [2011] NSWCA 167 …. 15.30,
15.31
Fadu Pty Ltd v ACN 008 112 196 Pty Ltd as
Trustee of the International Linen Service
Unit Trust [2007] FCA 1965 …. 27.75
FAI General Insurance Co Ltd v Ocean
Marine Mutual Protection & Indemnity
Association (1997) 41 NSWLR 117
…. 12.6
Fair Work Ombudsman v Maritime Union of
Australia [2014] FCA 440 …. 17.5
— v National Jet Systems Pty Ltd [2012] FCA
243 …. 17.3, 17.5, 17.11, 17.12, 17.16
Falcke v Gray (1859) 62 ER 250 …. 31.25,
31.60, 31.61
Falconer v Wilson [1973] 2 NSWLR 131
…. 24.53
Famatina Development Corporation Ltd,
Re [1914] 2 Ch 271 …. 11.38
Famestock Pty Ltd v Body Corporate for No 9
Port Douglas Road (No 2) [2012] QSC 339
…. 11.50
Far Horizons Pty Ltd v McDonald’s Australia
Ltd [2000] VSC 310 …. 11.50
Farah Constructions Pty Ltd v Say-Dee Pty Ltd
(2007) 230 CLR 89; 236 ALR 209 …. 38.10,
38.13, 38.92
Farley v Skinner [2002] 2 AC 732; [2001] 4 All
ER 801 …. 29.48, 29.50, 29.51
Farmer v Honan (1919) 26 CLR 183 …. 12.65
Farmers Co-operative Executors & Trustees Ltd
v Perks (1989) 52 SASR 399 …. 18.14
Farquhar v Butler Bros Supplies Ltd (1988) 23
BCLR (2d) 89 …. 29.142
Farrant v Leburn [1970] WAR 179 …. 30.40
Farrar v Rylatt [2019] EWCA Civ 1864 …. 5.41
Fast Fix Loans Pty Ltd v Samardzic [2011]
NSWCA 260 …. 19.34, 20.24, 20.53
Fazio v Fazio [2012] WASCA 72 …. 12.67, 23.4
FC Shepherd & Co Ltd v Jerrom [1987] QB 301
…. 25.50
xliii
TABLE OF CASES­
Federal Airports Corporation v Makucha
Developments Pty Ltd (1993) 115 ALR 679
…. 24.124
Federal Commerce v Molena Alpha (The
Nanfri, Benfri and Lorfri) [1979] AC 757
…. 24.64, 24.67, 24.76
Federal Commissioner of Taxation v Wade
(1951) 84 CLR 105 …. 29.27
Federal Republic of Nigeria v JP Morgan Chase
Bank, NA [2019] EWHC 347 (Comm)
…. 11.28
Feldman v GNM Australia Ltd [2017] NSWCA
107 …. 5.40, 5.44
Fell v NSW Oil & Shale Co (1889) 10 LR
(NSW) Eq 255 …. 31.9
Fels v Rural Bank [2020] WASCA 151
…. 36.67
Felthouse v Bindley (1862) 142 ER 1037
…. 4.78
Fender v St John-Midmay [1938] AC 1
…. 27.32
Fibrosa Spolka Akcyjna v Fairbairn Lawson
Combe Barbour Ltd [1943] AC 32; [1942]
2 All ER 122 …. 25.30, 25.61, 25.69, 25.70,
25.71, 25.72, 25.78, 29.75, 38.4
Fidler v Sun Life Assurance Company of
Canada [2006] 2 SCR 3 …. 29.54
Fightvision Pty Ltd v Onisforou (1999) 47
NSWLR 473 …. 23.26, 37.45, 37.46
Film Financial Consultants Ltd v Becker Group
Ltd [2006] NSWSC 319 …. 37.54
Financial Ombudsman Services Ltd v Utopia
Financial Services Pty Ltd [2016] WASC 55
…. 31.63
Financings Ltd v Stimson [1962] 3 All ER 386
…. 5.54, 5.64
Findex Group Limited v McKay [2019] FCA
2129 …. 27.68
Fink v Fink (1946) 74 CLR 127 …. 29.2, 29.44
First National Securities Ltd v Jones [1978]
Ch 109; [1978] 2 All ER 221 …. 6.77
First Mortgage Managed Investments Pty Ltd
v Pittman [2012] NSWSC 1332 …. 20.32,
20.52, 20.53
— v — [2014] NSWCA 110 …. 20.32
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Firstpost Homes Ltd v Johnson [1995] 4 All ER
355 …. 8.20
Fischer v Nemeske Pty Ltd (2016) 257 CLR 615;
330 ALR 1 …. 36.17
Fish v Solution 6 Holdings Ltd (2006) 225 CLR
180; 227 ALR 241 …. 21.38
Fisher v Brooker [2009] 4 All ER 789 …. 31.70
Fishlock v Campaign Palace Pty Ltd [2013]
NSWSC 531 …. 12.67
Fitch v Dewes [1921] 2 AC 158 …. 27.55, 27.57
Fitness First Australia Pty Ltd v Fenshaw Pty
Ltd (2016) 92 NSWLR 128; 341 ALR 607
…. 12.8
— v McNicol [2013] QSC 212 …. 31.5
Fitzgerald v CBL Insurance Ltd [2014] VSC 493
…. 34.29
— v FJ Leonhardt Pty Ltd (1997) 189 CLR 215;
143 ALR 569 …. 26.15, 26.16, 26.17, 26.50,
26.51, 28.1, 28.8, 28.9, 28.11
— v Masters (1956) 95 CLR 420 …. 5.16, 23.3,
23.5, 23.12, 31.68, 34.8
Fitzroy v Cave [1905] 2 KB 364 …. 40.19, 40.44
FJ & PN Curran Pty Ltd v Almond Investors
Land Pty Ltd [2019] VSCA 236 …. 36.19,
36.30, 36.43
Flamingo Park Pty Ltd v Dolly Dolly Creation
Pty Ltd (1986) 65 ALR 500 …. 29.19, 29.46
Fleming Bros (Monaro Agencies) Pty Ltd
v Smith (1983) 5 ATPR 40-389 …. 27.121
Fletcher v Nextra Australia Pty Ltd (2015) 229
FCR 153 …. 15.14
Fletcher Challenge Energy Ltd v Electricity
Corporation of New Zealand Ltd [2002] 2
NZLR 433 …. 5.3
Flexopack SA Plastics Industry v Flexopack
Australia Pty Ltd [2016] FCA 235 …. 15.32,
15.35, 15.37, 15.38, 15.39, 15.40, 15.41,
15.42, 15.43, 15.44, 15.45, 15.46
Flourentzou v Spink [2019] NSWCA 315
…. 15.48
Flowers v Vescio [2006] NSWCA 342 …. 23.59,
23.60
Flying Music Company Ltd, The v Theater
Entertainment SA [2017] EWHC 3192
(QB) …. 25.62
xliv
Flynn v Breccia [2017] IECA 74 …. 11.57
FMT Aircraft Gate Support Systems v Sydney
Ports Corporation [2010] NSWSC 1108
…. 19.10
Foakes v Beer (1884) 9 App Cas 605 …. 6.62,
6.71, 6.73, 6.74
Foley v Classique Coaches Ltd [1934] 2 KB 1
…. 5.5, 5.7
Fong v Cilli (1968) 11 FLR 495 …. 5.68
Fons Hf (in liquidation) v Corporal Ltd [2014]
EWCA Civ 304 …. 12.51
Foote v Acceler8 Technologies Pty Ltd [2012]
NSWSC 635 …. 6.7
Foran v Wight (1989) 168 CLR 385; 88
ALR 413 …. 22.17, 24.6, 24.80, 24.81, 24.94,
24.97, 29.4, 29.74
Forbes Engineering (Asia) Pty Ltd v Forbes
(No 4) [2009] FCA 675 …. 6.29
Ford v Beech (1848) 11 QB 852; 116 ER 693;
[1848] EngR 10 …. 23.50
— v Perpetual Trustees Victoria Ltd (2009) 75
NSWLR 42; 257 ALR 658 …. 9.50, 16.89,
16.93, 16.94, 16.95, 20.7, 20.11, 20.14, 20.43,
38.94, 38.95, 38.96
Ford-Hunt v Raghbir Singh [1973] 2 All ER 700
…. 33.13
Forklift Engineering Australia Pty Ltd
v Powerlift (Nissan) Pty Ltd [2000] VSC 443
…. 24.117
Forsgren NZ Ltd v Restaurant Brands Ltd
[2020] NZCA 254 …. 12.15
Forslind v Bechely-Crundall [1922] SC (HL)
173 …. 24.69, 24.70, 24.76
Forster & Sons Ltd v Suggett (1918) 35 TLR 87
…. 27.95
Foster v Mackinnon (1869) LR 4 CPD 704
…. 9.50
Fowler v Commissioner of Taxation (2013) 212
FCR 149 …. 23.14
— v Fowler (1859) 45 ER 97 …. 34.4
Fox Entertainment Precinct Pty Ltd
v Centennial Park and Moore Park Trust
[2004] NSWSC 214 …. 34.32
Francis v Francis [1952] VLR 321
…. 8.43

— v New South Wales Egg Producers
Co-Operative Pty Ltd (Unreported,
Federal Court of Australia, Tamberlin J,
10 March 1995) …. 5.41
Franklins Pty Ltd v Metcash Trading Ltd (2009)
76 NSWLR 603; 264 ALR 15 …. 12.30, 12.65,
16.54, 34.2, 34.4, 34.10, 34.32, 36.46, 36.68
Franknelly Nominees Pty Ltd v Abrugiato
[2013] WASCA 285 …. 34.3, 34.30
Fraser v NRMA Holdings Ltd (1995) 55
FCR 452 …. 15.30
Fraser Turner Ltd v Pricewaterhousecoopers
LLP [2018] EWHC 1743 (Ch) …. 11.9,
11.14, 11.24
Frederick v State of South Australia (2006) 94
SASR 545 …. 18.13
Frederick E Rose (London) Ltd v William H
Pim Junior & Co Ltd [1953] 2 QB 450; 2 All
ER 739 …. 34.26
Freedom v AHR Constructions Pty Ltd [1987]
1 Qd R 59 …. 30.40
Freeman v Cooke (1848) 154 ER 652
…. 36.35
Frontlink Pty Ltd v Feldman [2017] VSCA 319
…. 23.24
FSHC Group Holdings Ltd v GLAS Trust
Corporation Ltd [2020] 1 All ER 505
…. 34.1, 34.19, 34.25
Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd
[2018] NSWCA 282 …. 5.43, 23.28
Fuge v Commonwealth Bank of Australia
[2019] FCA 1621 …. 20.17, 20.19, 20.22
Futuretronics.com.au Pty Limited v Graphix
Labels Pty Ltd [2007] FCA 1621 …. 11.29
Fysh v Page (1956) 96 CLR 233 …. 31.70
G R 256 …. 27.74, 27.75, 27.79
G & A Lanteri Nominees Pty Ltd v Fishers
Stores Consolidated Pty Ltd [2005] VSC
336 …. 29.7
Gabriel v Little [2013] EWCA Civ 1513
…. 37.8, 37.11
Gagner Pty Ltd v Canturi Corporation Pty
Ltd (2009) 236 FLR 401; 262 ALR 691
…. 29.31
xlv
TABLE OF CASES­
Gaia Ventures Ltd v Abbeygate Helical
(Leisure Plaza) Ltd [2018] EWHC 118 (Ch)
…. 22.26
Galafassi v Kelly (2014) 87 NSWLR 119
…. 24.71, 24.74, 24.115, 24.116
Gall v Mitchell (1925) 35 CLR 222 …. 31.56
Gamerco SA v ICM/Fair Warning (Agency) Ltd
[1995] 1 WLR 1126 …. 25.29
Gandy v Gandy (1885) 30 Ch D 57 …. 39.56
Garcia v National Australia Bank Ltd (1998)
194 CLR 395; 155 ALR 614 …. 3.48, 18.60,
18.61, 18.62, 18.63, 18.65, 18.68, 18.69,
18.74, 18.75, 18.77, 18.78
Gard Marine and Energy Ltd v China National
Chartering Co Ltd [2018] 1 All ER 832
…. 39.12
Gardam v George Wills & Co Ltd (1988) 82
ALR 415 …. 15.57
Gardenisle Pty Ltd v Johnson [2019] WASC 271
…. 23.38
Gardiner v Agricultural and Rural Finance Pty
Ltd [2007] NSWCA 235 …. 12.20
— v Westpac New Zealand Ltd [2015] 3 NZLR
1 …. 18.56
Garry Rogers Motors (Aust) Pty Ltd v Subaru
(Aust) Pty Ltd (1999) FCA 903 …. 24.117
Garside v Black Horse Ltd [2010] EWHC 190
…. 35.29
Gator Shipping Corporation v Trans-Asiatic
Oil Ltd SA and Occidental Shipping
Establishment (The Odenfield) [1978] 2
Lloyd’s Rep 357 …. 30.54
Gay Choon Ing v Loh Sze Ti Terence
Peter [2009] 2 SLR 332; [2009] SGCA 3
…. 6.61
GBAR (Australia) Pty Ltd v Brown [2017] 2 Qd
GE Mortgage Solutions Ltd v Fassos [2012]
NSWSC 1446 …. 20.13
GEC Marconi Systems Pty Ltd v BHP
Information Technology Pty Ltd (2003) 128
FCR 1 …. 11.52, 11.66, 22.35, 22.39, 22.40,
23.23, 23.38
General Billposting Company Ltd v Atkinson
[1908] 1 Ch 537 …. 27.87
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
— v — [1909] AC 118 …. 27.87, 27.89
General Trading Company (Holdings) Ltd
v Richmond Corporation Ltd [2008] 2
Lloyd’s Rep 475 …. 30.6
Generator Developments Ltd v Lidl UK GmbH
[2018] EWCA Civ 396 …. 5.41
George v Roach (1942) 67 CLR 253 …. 5.9,
23.17
George 218 Pty Ltd v Bank of Queensland Ltd
(No 2) (2016) 313 FLR 287 …. 36.18
George Hudson Holdings Ltd v Rudder (1973)
128 CLR 387 …. 4.98
George Wimpey UK Ltd v VI Construction
Ltd [2005] EWCA Civ 77 …. 34.32, 34.34,
34.35
Gerace v Auzhair Supplies Pty Ltd (2014) 87
NSWLR 435; 310 ALR 85 …. 31.66, 31.67
Geraghty v Minter (1979) 142 CLR 177
…. 27.79, 27.89, 27.107
Gerrard v Wang [2015] WASC 173 …. 29.32
Gerraty v McGavin (1914) 18 CLR 152
…. 5.52
Gestmin SGPS SA v Credit Suisse (UK) Ltd
[2013] EWHC 3560 (Comm) …. 8.2
GetUp Ltd v Electoral Commissioner (2010)
189 FCR 165 …. 8.21
Geys v Société Générale, London Branch
[2013] 1 AC 523; [2013] 1 All ER 1061
…. 12.42, 31.40
GHSP Inc v AB Electronic Ltd [2011] 1 Lloyd’s
Rep 432 …. 4.112
Giasoumi v Ribbera [2017] VSC 631 …. 6.31
Gibaud v Great Eastern Railway Company
[1921] 2 QB 427 …. 13.16
Gibbons v Wright (1954) 91 CLR 423 …. 9.48,
9.50, 9.54
Gibbons Holdings Ltd v Wholesale Distributors
Ltd [2008] 1 NZLR 277 …. 12.66
Gibson v Manchester City Council [1979] 1 All
ER 972 …. 4.13
Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd
(1957) 59 SR (NSW) 122 …. 4.52, 4.98
Gilbert-Ash (Northern) Ltd v Modern
Engineering (Bristol) Ltd [1974] AC 689;
[1973] 3 All ER 195 …. 30.6
xlvi
Gilbert-Ash (Northern) Ltd v Modern
Engineering (Bristol) Ltd [1974] AC 689
…. 22.39
Giles v Royal National Institute for the Blind
[2014] EWHC 1373 (Ch) …. 34.31
— v Thompson [1994] 1 AC 142; [1993] 3 All
ER 321 …. 40.45
Gilford Motor Co Ltd v Horne [1933] Ch 935
…. 27.101, 27.102
Gilgandra Marketing Co-Operative Ltd
v Australian Commodities & Merchandise
Pty Ltd [2011] NSWSC 16 …. 31.20
Gill v Garrett [2020] NSWSC 795 …. 9.48
Gillies v Downer EDI Ltd [2011] NSWSC 1055
…. 1.15
Gipps v Gipps [1978] 1 NSWLR 454 …. 14.41
Gippsreal Ltd v Registrar of Titles (2007) 20 VR
157 …. 1.37
Giumelli v Giumelli (1999) 196 CLR 101; 161
ALR 473 …. 36.3, 36.25, 36.69, 36.71, 36.72,
36.76
GL Nederlands (Asia) Pty Ltd v Expertise
Events Pty Ltd [1999] NSWCA 62 …. 13.22
Gladman Developments Ltd v Sutton [2016]
EWHC 1597 (Ch) …. 8.2
Gladstone Area Water Board v A J Lucas
Operations Pty Ltd [2014] QSC 311
…. 12.28
Glamorgan Coal Co Ltd v South Wales Miners’
Federation [1903] 2 KB 545 …. 37.58
Glasbrook Brothers Ltd v Glamorgan County
Council [1925] AC 270 …. 6.42
Glegg v Bromley [1912] 3 KB 474 …. 40.45,
40.46, 40.47
Glencore Coal Queensland Pty Ltd v Aurizon
Network Pty Ltd [2020] QCA 182 …. 11.49
Glenmont Investments Pty Ltd v O’Loughlin
(No 2) (2000) 79 SASR 185 …. 13.22
Global Advanced Metals Pty Ltd v Metallurg
Inc [2017] WASCA 188 …. 31.62
Global Asset Capital, Inc v Aabar Block SARL
[2017] 4 WLR 163 …. 4.2
Global Flood Defence Systems Ltd v Johann
Van Den Noort Beheer BV [2016] EWHC
99 (IPEC) …. 14.22, 14.40

Global Sportsman Pty Ltd v Mirror Newspapers
Ltd (1984) 2 FCR 82; 55 ALR 25 …. 15.42
Globe Motors, Inc v TRW Lucas Varity
Electric Steering Ltd [2016] EWCA Civ 396
…. 11.54, 11.57, 12.58, 12.59
Globex Foreign Exchange Corp v Kelcher
(2011) 337 DLR (4th) 207 …. 27.87, 27.89
Gloria Jean’s Coffee v Western Export Services
Inc [2011] NSWCA 137 …. 12.40
Gnych v Polish Club Ltd (2015) 255 CLR 414;
320 ALR 489 …. 26.14, 26.58, 26.60, 28.1
Godecke v Kirwan (1973) 129 CLR 629; 1 ALR
457 …. 5.11, 5.32, 5.40
Gold Group Properties Ltd v BDW Trading Ltd
[2010] EWHC 1632 (TCC) …. 5.27
Golden Key Ltd (in rec), Re [2009] EWCA 636
…. 12.45
Golden Ocean Group Ltd v Salgaocar Mining
Industries PVT Ltd [2011] EWHC 56
(Comm) …. 8.21
— v — [2012] 3 All ER 842 …. 8.13, 8.21
Golden Strait Corpo v Nippon Yusen Kubishika
Kaisha [2007] 2 AC 353; [2007] 3 All ER 1
…. 29.30, 29.163, 29.164
Golding v Vella [2001] NSWSC 567 …. 30.41
Goldsborough, Mort & Co Ltd v Quinn (1910)
10 CLR 674 …. 4.50, 4.52, 16.60
Goldsoll v Goldman [1914] 2 Ch 603 …. 28.30
Goldsworthy v Brickell [1987] Ch 378; [1987] 1
All ER 853 …. 18.7
Gomes v Higher Level Care Ltd [2018] 2 All ER
740 …. 29.47
Goodlife Foods Ltd v Hall Fire Protection Ltd
[2018] EWCA Civ 1371 …. 10.38
Goodman v Cospak [2004] NSWSC 704
…. 4.107
Google Inc v Australian Competition and
Consumer Commission (2013) 249 CLR
435; 294 ALR 404 …. 15.17, 15.39, 15.41
Gosper v Sawyer (1985) 160 CLR 548; 58 ALR
13 …. 12.2
Goss v Chilcott [1996] 3 NZLR 385; [1996] AC
788 …. 25.68, 25.69
— v Lord Nugent (1833) 5 B & Ad 58; 110 ER
713 …. 8.5, 8.6, 10.54, 23.33
xlvii
TABLE OF CASES­
Gould v Gould [1970] 1 QB 275; [1969] 3 All
ER 728 …. 7.7
— v Vaggelas (1984) 157 CLR 215; 56 ALR 31
…. 14.40, 14.46, 29.3
G Percy Trenthan Ltd v Archital Luxfer [1993]
1 Lloyd’s Rep 25 …. 5.7
GPG (Australia Trading) Pty Ltd v GIO
Australia Holdings Ltd (2001) 117 FCR 23;
191 ALR 342 …. 19.56, 19.60
GR Mailman & Associates Pty Ltd v Wormald
(Aust) Pty Ltd (1991) 24 NSWLR 80
…. 24.44
GR Securities Pty Ltd v Baulkham Hills Private
Hospital Pty Ltd (1986) 40 NSWLR 631
…. 5.35, 5.40, 5.41
Grace v Grace [2012] NSWSC 976 …. 18.21
Graham v Freer (1980) 35 SASR 424 …. 35.39
Grainger & Son v Gough [1896] AC 325
…. 4.18
Gramotnev v Queensland University of
Technology [2019] QCA 108 …. 24.89
Grand China Logistics Holding (Group) Co Ltd
v Spar Shipping AS [2016] EWCA Civ 982
…. 24.16, 24.18, 24.19, 24.30, 24.33, 24.75,
24.76
Grange v Quinn [2013] EWCA Civ 24 …. 29.36
Grant v Australian Knitting Mills Ltd [1936]
AC 85 …. 29.80
— v John Grant & Sons Pty Ltd (1954) 91
CLR 112 …. 23.73
Gray v Latter [2014] NSWSC 122 …. 20.3
— v Motor Accident Commission (1998) 196
CLR 1; 158 ALR 485 …. 29.15
Great North Eastern Railway Ltd v Avon
Insurance plc [2001] 2 Lloyd’s Rep 649
…. 12.67
Great Northern Railway Co v Witham (1873)
LR 9 CP 16 …. 1.37
Great Peace Shipping Ltd v Tsavliris Salvage
(International) Ltd [2003] QB 679; [2002]
4 All ER 689 …. 16.5, 16.14, 16.30, 16.33,
16.34, 16.35, 16.36, 16.37, 16.39, 16.42,
16.43, 16.45, 16.46, 16.47, 16.48, 16.50,
16.51, 16.53, 16.78
Green v Green [2017] 2 NZLR 321 …. 18.3
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
— v Somerville (1979) 141 CLR 594; 27
ALR 351 …. 31.79
— v Wilden Pty Ltd [2005] WASC 83 …. 5.9
Greencapital Aust Pty Ltd v Pasminco Cockie
Creek Smelter Pty Ltd [2019] NSWCA 53
…. 12.6, 12.65, 22.6, 25.20
Greenshell NZ Ltd (in receivership) v Kennedy
Bay Mussel Co (NZ) Ltd [2016] 2 NZLR 44
…. 24.119, 24.123
Greer v Kettle [1938] AC 156 …. 36.6
Grey v Australian Motorists & General
Insurance Co Pty Ltd [1976] 1 NSWLR 669
…. 40.36
Griffin v Mercantile Bank (1890) 11 LR (NSW)
Eq 231 …. 33.7
Griffiths v LMM Holdings Pty Ltd [2017] FCA
1212 …. 22.6
Griffiths & Beerens Pty Ltd v Duggan [2008]
VSC 201 …. 27.57
Grincelis v House (2000) 201 CLR 321; 173
ALR 564 …. 29.155
Grocon Constructors (Victoria) Pty Ltd v APN
DF2 Project 2 Pty Ltd [2015] VSCA 190
…. 11.14
Grogan v ‘The Astor’ Ltd (1925) 25 SR (NSW)
409 …. 35.37
Groves v Groves [2013] QSC 277 …. 18.63, 18.75
Grundt v Great Boulder Proprietary Gold Mines
Ltd (1937) 59 CLR 641 …. 36.13, 36.29
Grundy v Cassar [2010] WASC 409 …. 8.8
G Scammell & Nephew Ltd v Ouston [1941]
AC 251 …. 5.12, 5.18
Gu v Hong [2018] NSWSC 1330 …. 5.38
Gujarat NRE India Pty Ltd v Wollongong Coal
Ltd [2017] NSWSC 209 …. 12.2
— v — [2018] NSWSC 1459 …. 11.56
Gumland Property Holdings Pty Ltd v Duffy
Bros Fruit Market (Campbelltown) Pty Ltd
(2008) 234 CLR 237; 244 ALR 1 …. 24.17,
29.159
Gunns Finance Pty Ltd v Braham and Ludekens
[2009] TASSC 69 …. 16.82
Gunns Finance Pty Ltd (recs and mgrs apptd)
(in liq) v Sithiravel [2016] NSWSC 1543
…. 20.7, 20.16, 20.51
xlviii
Gunton v Richmond-upon-Thames London
BC [1981] Ch 448; [1980] 3 All ER 577
…. 30.53
Gustav & Co Ltd v Macfield Ltd [2008] 2 NZLR
735 …. 19.11
Gutnick v Indian Farmers Fertiliser
Cooperative Ltd (2016) 49 VR 732; 306
FLR 386 …. 35.5, 35.9, 35.17
GW Plowman & Son Ltd v Ash [1964] 1 WLR
568; [1964] 2 All ER 10 …. 27.99
H
HA Stephenson & Son Ltd (in liq) v Gillanders
Arbuthnot & Co (1931) 45 CLR 476
…. 9.65
Habitat 1 Pty Ltd v Formby (No 2) [2017]
WASC 331 …. 28.32
Hadgkiss v Blevin [2004] FCA 697
…. 15.48
Hadley v Baxendale (1854) 156 ER 145
…. 29.106, 29.107, 29.108, 29.109, 29.110,
29.111, 29.112, 29.113, 29.114, 29.115,
29.116, 29.117, 29.118, 29.119, 29.122,
29.125, 29.126, 29.127
Haines v Bendall (1991) 172 CLR 60; 99 ALR
385 …. 29.9, 29.156
— v Carter [2001] 2 NZLR 167 …. 17.3
Halford v Halford (No 3) [2020] WASC 207
…. 31.70
Halikos Hospitality Pty Ltd v INPEX
Operations Australia Pty Ltd [2020]
NTCA 4 …. 7.31, 8.2
Hall v Busst (1960) 104 CLR 206 …. 8.14
— v Walland (1621) 79 ER 528 …. 2.17, 2.18
Hall, Re [1941] 2 All ER 358 …. 23.73
Halloran v Minister Administering National
Parks and Wildlife Act (2006) 229 CLR 545;
224 ALR 79 …. 8.25
Halpern v Halpern (No 2) [2006] 3 All ER 1139
…. 17.36
— v — (Nos 1 & 2) [2008] QB 195; [2007] 3 All
ER 478 …. 17.36, 35.14
Hamer v Sidway 124 NY 538 (1891) …. 6.11
Hamilton Jones v David & Snape [2004] 1 All
ER 657 …. 29.50

Hamilton v Lethbridge (1912) 14 CLR 236; 18
ALR 222 …. 9.20, 9.26
Hamlin v Great Northern Railway Co (1856)
ER 1261 …. 29.47, 29.48, 29.54
Hammond & Co v Bussey (1887) 20 QBD 79
…. 29.80
Hampton v BHP Billiton Minerals Pty Ltd (No 2)
[2012] WASC 285 …. 19.16, 19.56, 19.60
Hancock Family Memorial Foundation
v Fieldhouse (No 5) [2013] WASC 121
…. 36.18
Hancock Prospecting Pty Ltd v Wright
Prospecting Pty Ltd (2012) 45 WAR 29; 294
ALR 550 …. 12.35, 40.30
Hand v District Council of Barunga West
[2013] SASC 182 …. 11.38
Handley v Gunner [2008] NSWCA 113
…. 22.6, 22.7
Hankinson v Brookview Holdings Pty Ltd
[2004] WASCA 279 …. 27.78
Hanna v OAMPS Insurance Brokers Ltd [2010]
NSWCA 267 …. 27.63, 27.67
— v Raoul [2018] NSWCA 201 …. 9.48, 19.8,
19.41
Harbour Port Consulting v NSW Maritime
[2011] NSWSC 813 …. 15.48
Harbutt’s Plasticine Ltd v Wayne Tank and
Pump Co Ltd [1970] 1 QB 447; [1970] 1 All
ER 225 …. 29.92
Hardy v Griffiths [2015] Ch 417 …. 30.40
Hare v Murphy Brothers [1974] 3 All ER 940
…. 25.34
Harker-Mortlock v Commonwealth Bank of
Australia [2019] NSWCA 56 …. 34.7
Harlow Property Consultants Pty Ltd v Byford
[2005] NSWSC 658 …. 27.68
Harold R Finger & Co Pty Ltd v Karellas
Investments Pty Ltd [2016] NSWCA 123
…. 5.25, 5.38, 29.39, 29.146
Harrigan v Brown [1967] 1 NSWR 342
…. 32.5
Harris v Digital Pulse Pty Ltd (2003) 56
NSWLR 298 …. 16.42, 29.15
— v K7@Surry Hills Pty Ltd [2019] VSC 551
…. 24.2
xlix
TABLE OF CASES­
— v Nickerson (1873) LR 8 QB 286 …. 4.26,
4.28
— v Rickett (1859) 157 ER 734 …. 10.59
— v Sheffield United Football Club Ltd [1988]
QB 77; [1987] 2 All ER 838 …. 6.43
— v Smith [2008] NSWSC 545 …. 34.6
Harrison v Harrison [2013] VSCA 170
…. 36.61, 36.73
Harro Group Pty Ltd v Aspire Pty Ltd [2019]
QSC 189 …. 38.61
Harrop Engineering Australia Pty Ltd
v Beauville Pty Ltd [2016] VSC 17 …. 34.5
— v Burbidge [2013] EWHC 1628 (Ch)
…. 18.80
— v MacDonald (1910) 10 CLR 417 …. 11.28
— v O’Connor [1985] AC 1000; [1985] 2 All ER
880 …. 9.51, 9.52, 9.53
Hart Security Australia Pty Ltd v Boucousis
(2016) 339 ALR 659 …. 29.42, 29.43
Hartigan v International Society for Krishna
Consciousness Inc [2002] NSWSC 810
…. 18.22, 18.47, 18.80
Hartley v Ponsonby (1857) 119 ER 1471
…. 6.49
Hartleys Ltd v Martin [2002] VSC 301 …. 27.85
Hartog v Colin & Shields [1939] 3 All ER 566
…. 16.76, 16.79, 16.81
Harvela Investments Ltd v Royal Trust Co of
Canada (CI) [1986] 1 AC 207; [1985] 2 All
ER 966 …. 4.26, 4.31
Harvey v Edwards Dunlop & Co (1927) 39 CLR
302 …. 8.13, 8.14
— v Facey [1893] AC 552 …. 4.14, 4.15
Harvy v Stone (1539) KB 27/III2, m65 …. 2.22
Hasham v Zenab [1960] AC 316 …. 31.1
Hastie v Couturier (1853) 156 ER 43 …. 16.14,
16.15
Hatcher v White (1953) 53 SR (NSW) 285
…. 28.20
Hatfield v TCN Channel Nine Pty Ltd (2010)
77 NSWLR 506 …. 32.2
Haugesund Kommune v Depfa ACS Bank
[2011] 1 All ER 190 …. 38.86
Havyn Pty Ltd v Webster [2005] NSWCA 182
…. 30.40, 30.41
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Hawcroft General Trading Co Pty Ltd
v Hawcroft [2017] NSWCA 91 …. 23.34,
23.38
Hawcroft v Hawcroft General Trading Co Pty
Ltd [2016] NSWSC 555 …. 16.48, 16.49
Hawker Pacific Pty Ltd v Helicopter Charter
Pty Ltd (1991) 22 NSWLR 298 …. 6.36,
17.27, 36.64
Hawkes v Saunders (1782) 98 ER 1091
…. 6.5
Hawkins v Clayton (1988) 164 CLR 539; 78
ALR 69 …. 11.29, 37.25, 37.33
Hawthorn Football Club Ltd v Harding [1988]
VR 49 …. 32.10
Haxton v Equuscorp Pty Ltd (2010) 28 VR 499;
265 ALR 335 …. 39.12
Hayle Holdings Pty Ltd v Australian
Technology Group Ltd [2000] FCA 1242
…. 15.48
Hays Personnel Services (Australia) Pty Ltd
v Motorline Pty Ltd [2008] QCA 375
…. 10.49
Haysman v Mrs Rogers Films [2008] EWHC
2494 (QB) …. 29.50
Hayward v Zurich Insurance Co plc [2016] 4
All ER 628 …. 14.46, 14.52
Haywood v Newcastle upon Tyne Hospitals
NHS Foundation Trust [2018] 4 All ER 467
…. 11.54
Hazard Systems Pty Ltd v Car-Tech Services
Pty Ltd (in liq) [2013] NSWCA 314
…. 40.37, 40.53
Head v Tattersall (1871) LR 7 Ex 7 …. 23.21
Health & Case Management Ltd
v Physiotherapy Network Ltd [2018]
EWHC 869 (QB) …. 5.27
Healthcare Australia Pty Ltd v Randstad Pty
Ltd [2016] NSWSC 1407 …. 12.8
Hedley Byrne & Co Ltd v Heller & Partners
Ltd [1964] AC 465; [1963] 3 All ER 575
…. 37.19
Heilbut Symons & Co v Buckleton [1913]
AC 30 …. 10.67, 10.71
Heilpern v Anasco [2010] NSWSC 317 …. 20.7,
20.18
l
Heimann v The Commonwealth (1938) 38 SR
(NSW) 691 …. 11.5
Helicopter Sales (Aust) Pty Ltd v Rotor-Work
Pty Ltd (1974) 132 CLR 1; 4 ALR 77
…. 11.36
Helmos Enterprises Pty Ltd v Jaylor Pty Ltd
[2005] NSWCA 235 …. 5.38, 5.41, 7.31
Helton v Allen (1940) 63 CLR 691 …. 15.48
Henjo Investments Pty Ltd v Collins
Marrickville Pty Ltd (No 1) (1988) 39 FCR
546; 79 ALR 83 …. 10.64, 15.17, 15.20,
15.22, 15.34, 15.77
Henry Kendall & Sons v William Lillico & Sons
Ltd [1969] 2 AC 31; [1968] 2 All ER 444
…. 10.44, 10.45, 10.46, 10.48
Hensley v Reschke (1914) 18 CLR 452
…. 29.4
Henthorn v Fraser [1892] 2 Ch 27 …. 4.89, 4.96
Henville v Walker (2001) 206 CLR 459; 182
ALR 37 …. 14.46, 15.83, 15.92
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230
…. 38.94
Hepworth Manufacturing Co Ltd v Ryott
[1920] 1 Ch 1 …. 27.83
Hera Project Pty Ltd v Bisognin [2016] VSC
591 …. 31.57
— v — (No 3) [2017] VSC 268 …. 22.27
Herbert Morris Ltd v Saxelby [1916] 1 AC 688
…. 27.54, 27.55, 27.59, 27.67, 27.68, 27.96,
27.97, 27.99
Hercules Motors Pty Ltd v Schubert (1953) 53
SR (NSW) 301 …. 6.67
Herdegen v Federal Commissioner of Taxation
(1988) 84 ALR 271 …. 40.21
Herne Bay Steamship Company v Hutton
[1903] 2 KB 683 …. 25.42
Heron v Port Huon Fruitgrowers’ Co-operative
Association Ltd (1922) 30 CLR 315
…. 27.53, 27.55
Heugh v Central Petroleum Ltd (No 5) [2014]
WASC 311 …. 29.141
Heydon v NRMA Ltd (2000) 51 NSWLR 1
…. 15.70
Heyman v Darwins Ltd [1942] AC 356 …. 24.2,
24.9, 24.84

Heywood v Wellers [1976] QB 446; [1976] 1 All
ER 300 …. 38.59
Hicklane Properties Ltd v Bradbury
Investments Ltd [2008] EWCA Civ 691
…. 34.15
Hickman v Turn and Wave Ltd [2011] 3 NZLR
318 …. 11.1
Hide & Skin Trading Pty Ltd v Oceanic
Meat Traders Ltd (1990) 20 NSWLR 310
…. 12.64
Higgins & Co Lawyers Ltd v Evans [2020] 1
WLR 141 …. 10.38
Highfield Property Investments Pty Ltd
v Commercial & Residential Developments
(SA) Pty Ltd [2012] SASC 165 …. 24.4
Highmist Pty Ltd v Tricare Ltd [2005] QCA 357
…. 22.49
HIH Casualty and General Insurance Ltd
v Chase Manhattan Bank [2003] 2 Lloyd’s
Rep 61 …. 13.24
— v New Hampshire Insurance Company
[2001] 2 Lloyd’s Rep 161 …. 10.31
Hill v Forteng Pty Ltd [2019] FCAFC 105
…. 6.55
Hillam v Iacullo (2015) 90 NSWLR 422
…. 22.13, 22.14, 22.15, 23.24
Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503
…. 5.2
Hills Industries Ltd v Australian Financial
Services and Leasing Pty Ltd (2012) 295
ALR 147; [2012] NSWCA 380 …. 38.10.
38.74, 38.76, 38.82, 38.92
Hirachand Punamchand v Temple [1911] 2 KB
330 …. 6.72
Hirji Mulji v Cheong Yue Steamship Ltd [1926]
AC 497 …. 25.1, 25.60, 25.61
Hirsch v Zinc Corp Ltd (1917) 24 CLR 34; 23
ALR 388 …. 27.38
Hitchcock v Coker (1837) 112 ER 167
…. 27.55, 27.73
Ho v Adelekun [2019] EWCA Civ 1988 …. 4.10
Hochster v De La Tour (1853) 2 E & B 678
…. 24.78
Hocking Stuart (Hawthorn) Pty Ltd v Vernea
[2005] VSCA 129 …. 29.33
li
TABLE OF CASES­
Hodgson v Besters [2018] NSWSC 21 …. 38.94
Hodson v Hodson [2006] EWHC 2878 (Ch)
…. 18.34
Hoenig v Isaacs [1952] 2 All ER 176 …. 22.32,
22.39, 22.46, 22.47
Hoffman v Cali [1985] 1 Qd R 253 …. 29.34
Hoffman, Re; Ex parte Worrell v Schilling
(1989) 85 ALR 145 …. 35.29
Holgyl’s Case (1535) 27 Hen VIII, M f 29
…. 2.7
Holland v Wiltshire (1954) 90 CLR 409 …. 24.2
Hollier v Rambler Motors (AMC) Ltd [1972] 2
QB 71; [1972] 1 All ER 399 …. 10.44, 10.46,
13.18
Holman v Johnson (1775) 98 ER 1120 …. 27.3,
27.4, 27.5, 27.7
Holmes v Jones (1907) 4 CLR 1692; 14 ALR 89
…. 14.42
Holroyd v Marshall (1862) 11 ER 999 …. 40.39
Holt v Bunney [2020] SASCFC 89 …. 4.1, 4.4,
4.10, 4.71
Holwell Securities Ltd v Hughes [1974] 1 All
ER 161 …. 4.96
Holyoake v Candy [2017] EWHC 3397 (Ch)
…. 17.25
Homburg Houtimport BV v Agrosin Private
Ltd (The Starsin) [2004] 1 AC 715; [2003] 2
All ER 785 …. 12.40, 12.43, 39.51
HomeSec Finance Express Pty Ltd
v Richardson [2012] NSWSC 1375
…. 20.13
Honeychurch Management Pty Ltd v Deloitte
Touche Tohmatsu [2005] TASSC 13
…. 1.10, 37.35
Hongkong Fir Shipping Co Ltd v Kawasaki
Kisen Kaisha Ltd [1962] 2 QB 26; 1 All ER
474 …. 24.33, 24.34, 24.64, 24.67, 24.76
Honner v Ashton [1979] 1 BPR 9478 …. 24.64
Hood v Anchor Line (Henderson Brothers) Ltd
[1918] AC 837 …. 10.35
Hookway v Hookway [2020] TASSC 36 …. 5.1
Hooper v Oates [2014] Ch 287; [2013] 3 All ER
211 …. 29.31
Hopcroft & Edwards v Edmonds (2013) 116
SASR 191 …. 12.67
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Hope v RCA Photophone of Australia Pty Ltd
(1937) 59 CLR 348 …. 10.63, 11.28, 12.67
Hornsby Building Information Centre Pty Ltd
v Sydney Building Information Centre Ltd
(1978) 140 CLR 216; 18 ALR 639 …. 15.32
Hospital Products Ltd v United States Surgical
Corporation (1984) 156 CLR 41; 55 ALR
417 …. 10.13, 10.59, 10.70, 11.8, 14.21,
22.25
Hospitality Group Pty Ltd v Australian Rugby
Union (2001) 110 FCR 157 …. 29.14, 29.15,
29.19, 37.4, 37.45
Hounga v Allen [2014] 4 All ER 595 …. 27.4,
27.5, 27.12, 28.2
Household Fire & Accident Insurance Co
v Grant (1879) LR 4 Ex D 216 …. 4.95, 4.96
Houtimport BV v Agrosin Private Ltd (The
Starsin) [2004] 1 AC 714; [2003] 2 All ER
785 …. 8.14
Howard F Hudson Pty Ltd v Ronayne (1972)
126 CLR 449 …. 6.76, 27.56
Howard Smith & Co Ltd v Varawa (1907) 5
CLR 68 …. 12.65
Howe v Smith (1884) 27 Ch D 89 …. 30.40
— v Teefy (1927) 27 SR (NSW) 301 …. 29.44
Howie v Anderson (1848) 10 D 355 …. 24.78
Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133
…. 10.54, 10.69, 10.73, 10.80, 10.81, 10.82,
10.83, 10.86, 36.3
H Parsons (Livestock) Ltd v Uttley Ingham &
Co Ltd [1978] QB 791; [1978] 1 All ER 525
…. 29.121, 37.29, 37.32
HP Mercantile Pty Ltd v Hartnett [2016]
NSWCA 342 …. 12.6, 12.8
Hu v Blue Whale Entertainment Pty Ltd [2020]
NSWSC 562 …. 31.33
Huang v Chen [2017] NSWSC 1699 …. 31.41
Hughes v St Barbara Ltd [2011] WASCA 234
…. 4.53, 6.20, 12.67
Huguenin v Baseley (1807) 33 ER 526 …. 18.34
Humphries v The Proprietors ‘Surfers Palms
North’ Group Titles Plan 1955 …. 9.60
Hungerfords v Walker (1989) 171 CLR 125; 84
ALR 119 …. 21.39, 29.115, 29.158
Hunt v Hunt (1862) 31 LJ Ch 161 …. 15.79
lii
Hunt & Hunt v Mitchell Morgan Nominees
Pty Ltd (2012) 247 CLR 613; 296 ALR 3
…. 29.93, 29.94
Hunter v Koulouris [2011] NSWSC 887
…. 27.107, 27.115
Hunter BNZ Finance Ltd v C G Maloney Pty
Ltd (1988) 18 NSWLR 420 …. 35.31, 35.32
Hunter Valley Caravan Sales Pty Ltd v Vukatan
Pty Ltd (1983) NSW ConvR 55-151
…. 16.49
Huntingdale Village Pty Ltd (recs and mgrs
appd) v Corrs Chambers Westgarth [2018]
WASCA 90 …. 6.29
— v — (A Firm) (No 3) [2016] WASC 366
…. 6.29
Hunyor v Tilelli (1997) 8 BPR 15,629 …. 22.27
Huppert v Stock Options of Australia Pty Ltd
(1965) 112 CLR 414 …. 29.154
Hussain v Haynoum Developments Pty Ltd
[2015] NSWCA 420 …. 17.21
— v New Taplow Paper Mills Ltd [1988] AC
514; [1988] 1 All ER 541 …. 29.147
Hussey v Eels [1990] 2 QB 227; [1990] 1 All ER
449 …. 29.150, 29.151, 29.152
— v Horne-Payne (1878) 4 App Cas 311
…. 4.2
Hutchence v South Sea Bubble Company Pty
Ltd (1986) 64 ALR 330 …. 15.85
Hutchinson v Scott (1905) 3 CLR 359 …. 27.14
HWG Holdings Pty Ltd v Fairlie Court Pty Ltd
(2015) 302 FLR 230 …. 16.45, 16.46
Hyatt Australia Ltd v LTCB Australia Ltd
[1996] 1 Qd R 260 …. 4.5
Hyde v Wrench (1840) 49 ER 132 …. 4.47,
4.49
Hyde Park Residence Ltd v Yelland [1999] RPC
655 …. 29.7
Hyder v McGrath Sales Pty Ltd [2018] NSWCA
223 …. 15.87
Hydrofibre Pty Ltd v Australian Prime Fibre
Pty Ltd [2013] QSC 163 …. 12.70
Hylton v Hylton (1754) 28 ER 349 …. 18.18
Hyman v Hyman [1929] AC 601 …. 27.28,
27.29
— v Rose [1912] AC 623 …. 24.118

Hyundai Heavy Industries Co Ltd
v Papadopoulos [1980] 2 All ER 29; [1980]
1 WLR 1229 …. 22.39, 38.57
I [2019] NSWSC 1505 …. 27.117
I & L Securities Pty Ltd v HTW Valuers
(Brisbane) Pty Ltd (2002) 210 CLR 109; 192
ALR 1 …. 15.68, 37.35
Iannello v Sharpe (2007) 69 NSWLR 452
…. 30.40
ICT Pty Ltd ICT Pty Ltd v Sea Containers Ltd
(1995) 39 NSWLR 640 …. 27.102, 27.117
Idya Pty Ltd v Anastasiou [2008] NSWCA 102
…. 12.52
Iezzi Constructions Pty Ltd v Watkins Pacific
(Qld) Pty Ltd [1995] 2 Qd R 350 …. 38.30
IF Asia Pacific Pty Ltd v Galbally [2003] VSC
192 …. 27.67, 28.38
Igloo Homes Pty Ltd v Sammut Constructions
Pty Ltd [2005] NSWCA 280 …. 34.32
Illawong Village Pty Ltd v State Bank of New
South Wale [2004] NSWSC 18 …. 23.57,
23.58
Immer (No 145) Pty Ltd v Uniting Church in
Australia Property Trust (NSW) (1993) 182
CLR 26; 112 ALR 609 …. 24.102, 24.107,
24.109, 35.3
Impact Funding Solutions Ltd v AIG Europe
Insurance Ltd [2016] 3 WLR 1422
…. 13.28
Imperial Land Company of Marseilles,
Re (1872) LR 7 Ch App 587 …. 4.96
Imperial Loan Co v Stone [1892] 1 QB 599
…. 9.49
Imperial Mercantile Credit Association, Re;
Williams’ case (1869) 9 LR Eq 225 …. 14.51
Inche Noriah v Shaik Allie Bin Omar [1929]
AC 127 …. 18.37
Independent Oil Industries Ltd v Shell Co of
Australia Ltd (1937) 37 SR (NSW) 394
…. 37.56
Independent Trustee Services Ltd v GP Noble
Trustees Ltd [2012] EWCA Civ 195 …. 35.1
Inderby Pty Ltd v Qinert (1995) ATPR (Digest)
46-141 …. 15.22
liii
TABLE OF CASES­
Industrial Rollformers Pty Ltd v Ingersoll-
Rand (Australia) Ltd [2001] NSWCA 111
…. 4.79, 27.115
Infinity Gym Sports & Health Pty Ltd v Ageev
Informax International Pty Ltd v Clarius Group
Ltd (2011) 192 FCR 210; 272 ALR 495
…. 27.98, 27.100
ING Bank (Australia) Ltd v O’Shea [2010]
NSWCA 71 …. 24.122
Inghams Enterprises Pty Ltd v Hannigan (2020)
379 ALR 196 …. 29.1
Ingot Capital Investments Pty Ltd v Macquarie
Equity Capital Markets (No 6) [2007]
NSWSC 124 …. 11.65
Ingram v Little [1961] 1 QB 31; [1960] 3 All
ER 332 …. 16.73
Inion Pty Ltd v Celli SpA [2017] NSWSC 569
…. 32.7
Inntrepreneur Pub Company (GL) v East
Crown Ltd [2000] 2 Lloyd’s Rep 611
…. 10.75
Insight Oceania Pty Ltd v Philips Electronics
Australia Ltd [2008] NSWSC 710
…. 11.52
Insurance Co v Lloyd’s Syndicate [1995] 1
Lloyd’s Rep 272 …. 32.20
Integrated Group Ltd v Dillon [2009] VSC 361
…. 27.108, 28.30
Interactive E-Solutions JLT & v O3b Africa Ltd
[2018] EWCA Civ 62 …. 13.4
Interchase Corporation Ltd (in liq) v Grosvener
Hill (Qld) Pty Ltd (No 3) [2003] 1 Qd R 26
…. 29.157
Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd [1989] QB 433; [1988] 1
All ER 348 …. 10.38, 10.40
Interlink Australia Pty Ltd v Lowe [2015] QCA
211 …. 11.4
International Advisor Systems Pty Ltd v XYYX
Pty Ltd [2008] NSWSC 2 …. 16.84, 16.85,
16.86, 33.11, 34.13, 34.34
International Air Transport Association
v Ansett Australia Holdings Ltd (2008) 234
CLR 151; 242 ALR 47 …. 12.13, 12.45
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
International Fina Services AG v Katrina
Shipping Ltd (The Fina Samco) [1995] 2
Lloyd’s Rep 344 …. 12.10
International Petroleum Investment Company
v Independent Public Business Corp of
Papua New Guinea [2015] NSWCA 363
…. 12.40
Invercargill City Council v Sutherland Indoor
Leisure Centre Charitable Trust [2017] 2
NZLR 650 …. 29.90
Investec Bank (Channel Islands) Ltd v Retail
Group plc [2009] EWHC 476 (Ch)
…. 17.1
Investec Bank (UK) Ltd v Zulman [2010]
EWCA Civ 536 …. 5.44
Investors Compensation Scheme Ltd v West
Bromwich Building Society [1998] 1 All ER
98 …. 12.14, 12.15, 12.34, 12.49, 40.19
Ipex ITG Pty Ltd (in liq) v State of Victoria
[2010] VSC 480 …. 4.34
— v — [2012] VSCA 201 …. 4.34
Ipex Software Services Pty Ltd v Hosking
[2000] VSCA 239 …. 5.2
Ipstar Australia Pty Ltd v APS Satellite Pty Ltd
(2018) 356 ALR 440 …. 19.67
Ipswich Town Football Club Co Ltd v Chief
Constable of Suffolk Constabulary [2017]
EWCA Civ 1484 …. 6.43, 6.44
IRAF Pty Ltd v Graham [1982] 1 NSWLR 419
…. 27.120
Irvani v Irvani [2000] 1 Lloyd’s Rep 412 …. 9.57
Irvine v Kirkpatrick (1850) 7 Bell App 186
…. 14.30
Isaac v Dargan Financial Pty Ltd (2018) 98
NSWLR 343 …. 27.63, 27.67, 27.68, 27.79
Isabella Shipowner SA v Shagang Shipping Co
Ltd [2012] EWHC 1077 (Comm) …. 30.51,
30.57
Islington London Borough Council v Uckac
[2006] 1 WLR 1303 …. 1.41
Issa v Berisha [1981] 1 NSWLR 261 …. 34.3
Italform Pty Ltd v Sangain Pty Ltd [2009]
NSWCA 427 …. 15.84, 15.92
IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA
205 …. 4.54
liv
J
J & A Developments v Edina Manufacturer Ltd
[2006] NIQB 85 …. 4.39
Jackson v Goldsmith (1950) 81 CLR 446
…. 36.11
— v Horizon Holidays [1975] 3 All ER 92
…. 39.13
— v Royal Bank of Scotland [2005] 1 WLR 377;
[2005] 2 All ER 71 …. 29.111
— v Union Marine Insurance Co Ltd (1873) LR
8 CP 572 …. 25.3
— v — (1874) LR 10 CP 125 …. 25.45
Jackson Nominees Pty Ltd v Hanson Building
Products Pty Ltd [2006] QCA 126 …. 22.23
JAD International Pty Ltd v International
Trucks Australia Ltd (1994) 50 FCR 378
…. 35.14
Jaddcal Pty Ltd v Minson (No 3) [2011] WASC
362 …. 27.40, 37.53
Jafari v 23 Developments Pty Ltd [2019] VSCA
201 …. 23.3, 23.23
Jaggard v Sawyer [1995] 2 All ER 189 …. 29.23
Jakobkiewicz v Dickson Catering Pty Ltd
[2002] ACTSC 107 …. 7.32
Jamal v Moolla Dawood, Sons & Co [1916] AC
175 …. 29.29
James Elliot Construction Ltd v Irish Asphalt
Ltd [2014] IESC 74 …. 10.43
James Finlay & Co Ltd v NV Kwik Hoo Tong
Handel Maatschappij [1929] 1 KB 400
…. 29.138
Jamieson v Renwick (1891) 17 VLR 124 …. 6.37
Jams 2 Pty Ltd v Stubbings [2016] VSC 711
…. 20.51
— v — (No 4) (2019) 59 VR 1 …. 35.23
— v — [2020] VSCA 200 …. 19.34, 19.35,
19.65, 19.67, 20.53
Janos v Chama Motors Pty Ltd [2011] NSWCA
238 …. 29.164
Janson v Janson [2007] NSWSC 1344 …. 18.19,
18.26, 18.36
Jardin and Jardin Investments Pty Ltd
v Metcash Ltd (2011) 285 ALR 677
…. 27.115
Javad v Aqil [1991] 1 All ER 243 …. 11.2

Jawhite Pty Ltd v Trabme Pty Ltd [2019]
QCA 7 …. 31.34
JC Scott Constructions v Mermaid Waters
Tavern Pty Ltd [1984] 2 Qd R 413
…. 26.20
JC Williamson Ltd v Lukey (1931) 45 CLR 282
…. 8.38, 31.7, 31.46, 31.80
J-Corp Pty Ltd v Mladenis [2009] WASCA 157
…. 30.3, 30.30, 30.31
Je Maintiendrai Pty Ltd v Quaglia (1980) 26
SASR 101 …. 36.63
JEB Fasteners Ltd v Marks Bloom & Co [1983]
1 All ER 583 …. 14.49
JEB Recoveries LLP v Binstock [2015] EWHC
1063 (Ch) …. 40.45
Jefferys v Jefferys (1841) 41 ER 443 …. 6.80
Jenkins v Visualeyes Pty Ltd [2005] VSC 218
…. 40.24
Jenyns v Public Curator Qld (1953) 90 CLR 113
…. 18.36
Jetstar Airways Pty Ltd v Free [2008] VSC 539
…. 21.19, 21.20, 21.24
Jeune v Queens Cross Properties Ltd [1974]
Ch 97; [1973] 3 All ER 97 …. 31.48
Jimmy’s Recipe Pty Ltd (No 2), Re [2020]
NSWSC 632 …. 34.4
Jingalong Pty Ltd v Todd [2015] NSWCA 7
…. 23.45
Jireh International Pty Ltd v Western Export
Services Inc [2011] NSWCA 137 …. 12.51
Jiwunda Pty Ltd v Trustees of the Travel
Compensation Fund [2006] NSWSC 741
…. 8.19
JJ Savage & Sons Pty Ltd v Blakney (1970) 119
CLR 435 …. 10.16, 10.70, 10.72
JKC Australia LNG Pty Ltd v CH2M Hill Co
Ltd (No 2) [2020] WASCA 112 …. 12.6,
12.9
J Lauritzen AS v Wijsmuller BV (The Super
Servant Two) [1990] 1 Lloyd’s Rep 1
…. 25.19
JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237
…. 29.2
J N Hipwell & Son v Szurek [2018] EWCA Civ
674 …. 10.64, 10.76, 11.14
lv
TABLE OF CASES­
Jobern Pty Ltd v BreakFree Resorts (Victoria)
Pty Ltd [2007] FCA 1066 …. 11.61
John Dorahy’s Fitness Centre Pty Ltd v Buchanan
(New South Wales Court of Appeal,
18 December 1996, unreported) …. 13.46
John Fairfax Publications Pty Ltd v Birt [2006]
NSWSC 995 …. 27.82, 27.100, 27.116
John G Glass Real Estate Pty Ltd v Karawi
Constructions Pty Ltd [1993] FCA 431
…. 15.87
John Grimes Partnership Ltd v Gubbins [2013]
EWCA Civ 37 …. 29.126
John Holland Group Pty Ltd v Automotive,
Food, Metals, Engineering, Printing and
Kindred Industries Union [2010] VSC 322
…. 25.83
John White & Sons Pty Ltd v Changleng (1985)
2 NSWLR 163 …. 12.53
Johnson v Agnew [1980] AC 367; [1979] 1 All
ER 883 …. 24.2, 24.111, 29.32, 31.52, 33.7,
33.17
— v Brightstars Holding Co Pty Ltd [2014]
NSWCA 150 …. 12.67
— v Buttress (1936) 56 CLR 113 …. 18.10,
18.15, 18.18, 18.23, 18.25, 18.29, 18.30,
18.31, 18.34, 18.35, 18.37
— v Gore Wood & Co [2002] 2 AC 1; [2001] 1
All ER 481 …. 36.7
— v Hallam [2015] WASC 149 …. 4.33
— v Humphrey [1946] 1 All ER 460 …. 8.15
— v Perez (1988) 166 CLR 351; 82 ALR 587
…. 29.25, 29.31
— v Smith [2010] NSWCA 306 …. 18.3
Johnson Tiles Pty Ltd v Esso Australia Ltd
(1999) 45 IPR 453 …. 15.26
— v — (2000) 104 FCR 564 …. 15.30
Johnson Property Group Pty Ltd v Thornton
[2015] NSWSC 1389 …. 10.79
Jones v Dumbrell [1981] VR 199 …. 14.30,
14.31
— v Kaney [2011] 2 AC 398; [2011] 2 All ER
671 …. 1.8
— v Padavatton [1969] 2 All ER 616 …. 7.11,
7.12, 7.16
— v Schiffmann (1971) 124 CLR 303 …. 29.44
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Joscelin v Shelton (1557) 74 ER 503 …. 2.22
Joscelyne v Nissen [1979] 2 QB 86; [1970] 1 All
ER 1213 …. 34.19
Joseph Constantine SS Line Ltd v Imperial
Smelting Corp Ltd [1942] AC 154
…. 25.51
J Pereira Fernandes SA v Mehta [2006] 2 All ER
891 …. 8.21
JP Morgan Chase Bank NA v Federal Republic
of Nigeria [2019] EWCA Civ 1641 …. 13.9,
13.25
JR Marine Systems Pty Ltd v Wavemaster
International Pty Ltd (in liq) [2011]
WASCA 16 …. 23.4
JSC BM Bank v Kekhman [2018] EWHC 791
(Comm) …. 37.14
JSC BTA Bank v Ablyazov (No 15) [2017] 1
WLR 603 …. 36.8
Juniper Property Holdings No 15 Pty Ltd
v Caltabiano (No 2) [2016] QSC 5 …. 15.94,
15.95
Just Group Ltd v Peck (2016) 344 ALR 162
…. 28.32
— v — [2016] VSC 614 …. 28.38
K Kennedy & Hunt v Griffiths [2011] QSC 369
KA & C Smith Pty Ltd v Ward (1998) 45
NSWLR 702 …. 27.122
Kai Ling (Australia) Ltd v Rosengreen [2019]
NSWCA 3 …. 23.28
Kakara Estate Ltd v Savvy Vineyards 3552 Ltd
[2013] 3 NZLR 297 …. 40.6
Kakavas v Crown Melbourne Ltd (2013) 250
CLR 392; 298 ALR 35 …. 19.2, 19.7, 19.10,
19.16, 19.17, 19.26, 19.30, 19.39, 19.40
Karacominakis v Big Country Developments
Pty Ltd [2000] NSWCA 313 …. 20.13,
29.135
Karam v Varga [2019] QCA 82 …. 23.25
Karl Suleman Enterprises Pty Ltd (in liq)
v Babanour [2004] NSWCA 214 …. 28.10,
28.11
Karsales v Wallis [1956] 1 WLR 936 …. 13.3
Kashemije Stud Pty Ltd v Hawkes [1978] 1
NSWLR 143 …. 11.38
lvi
Kason Kek-Gardner Ltd v Process Components
Ltd [2017] EWCA Civ 2132 …. 11.28
Kation Pty Ltd v Lamru Pty Ltd (2009) 257
ALR 336 …. 31.63
Kaufman v McGillicuddy (1914) 19 CLR 1
…. 27.87, 27.89
Kay v Payup Australia Pty Ltd [2020] NSWCA
33 …. 30.17
KBL Mining Ltd v Kidman Resources Ltd
[2015] NSWSC 515 …. 34.4, 34.9, 34.14
KD Kanopy Australasia Pty Ltd v Insta Image
Pty Ltd [2007] FCA 481 …. 23.38
KDR Victoria Pty Ltd v JC Decaux Pty Ltd
[2020] VSC 390 …. 12.4
Kearney v Crepaldi [2006] NSWSC 23 …. 27.68
Keen Mar Corporation Pty Ltd v Labrador
Park Shopping Centre Pty Ltd (1989) ATPR
(Digest) 46-048 …. 15.86
Kell v Haris (1915) 15 SR (NSW) 473 …. 31.76
Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233
…. 30.18
Kendells (NSW) Pty Ltd (in liq) v Sweeney
[2005] QSC 064 …. 11.50
Kennedy v Vercoe (1960) 105 CLR 521
…. 11.42, 24.74
…. 7.31
Kenneth Wright Distributors Pty Ltd (in liq),
Re; WJ Vine Pty Ltd v Hall [1973] VR 161
…. 40.51
Kerr v Australian Executor Trustees (SA) Ltd
[2019] NSWSC 1279 …. 10.38
Key Infrastructure Australia Pty Ltd v Bensons
Property Group Pty Ltd [2019] VSC 522
…. 11.55
Keynes v Rural Directions Pty Ltd (2010) 186
FCR 281 …. 29.1
Khan v Khan (2004) 62 NSWLR 229 …. 18.18
Khoury v Government Insurance Office of
New South Wales (1984) 165 CLR 622; 54
ALR 639 …. 11.8, 14.26
— v Khouri (2006) 66 NSWLR 241 …. 8.34,
8.42
Kidd v State of Western Australia [2014] WASC
99 …. 12.12, 12.34

Killarney Investments Pty Ltd v Macedonian
Community of WA (Inc) [2007] WASCA
180 …. 29.4, 30.5
Kimberley v Jennings (1836) 58 ER 621
…. 32.8
Kimberley NZI Finance Ltd v Torero Pty Ltd
[1989] ATPR (Digest) 46-054 …. 15.30
King v Locke (1663) 83 ER 1030 …. 2.18
King Investment Solutions Pty Ltd v Hussain
[2005] NSWSC 1076 …. 30.18
King Tide Co Pty Ltd v Arawak Holdings Pty
Ltd [2017] QCA 251 …. 4.1, 4.4, 4.70, 4.79
Kirk v Ashdown [1999] 2 Qd R 1 …. 30.40,
30.41
Kirwan v Cresvale Far East Ltd (in liq) [2002]
NSWCA 395 …. 35.14
Kisimul Holdings Pty Ltd v Simms [2016]
NSWSC 814 …. 5.31
Kitching v Phillips (2011) 278 ALR 551
…. 11.27
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184
CLR 281; 131 ALR 363 …. 15.98, 37.16
Kleinwort Benson Ltd v Lincoln City Council
[1999] 2 AC 349; [1998] 4 All ER 513
…. 14.5, 38.91
— v Malaysia Mining Corp Berhad [1989] 1 All
ER 785 …. 7.36, 7.38, 7.39
Kleinwort, Sons, and Co v Dunlop Rubber Co
(1907) 97 LT 263 …. 38.3
Knezevic v Perpetual Trustees Victoria Ltd
[2013] NSWCA 199 …. 20.53
Knight v Beyond Properties Ltd (2007) 242
ALR 586 …. 15.41
Knights Quest Pty Ltd v Daiwa Can Company
(2018) 366 ALR 557 …. 11.59, 22.24
Knogo Corp v Halligan (1984) 6 ATPR 40-060
…. 27.121
Knott Investments Pty Ltd v Winnebago
Industries Inc (2013) 299 ALR 74
…. 31.72
Knowles v Fuller (1947) 48 SR (NSW) 243
…. 26.18
Kodros Shipping Corp of Monrovia v Empresa
Cubana de Fletes (The Evia) (No 2) [1983] 1
AC 736; [1982] 3 All ER 350 …. 25.46
lvii
TABLE OF CASES­
Kone Elevators Pty Ltd v McNay (1997) ATPR
41-564 …. 27.68
Koompahtoo Local Aboriginal Land Council
v Sanpine Pty Ltd (2007) 233 CLR 115; 241
ALR 88 …. 24.10, 24.11, 24.13, 24.20, 24.33,
24.35, 24.36, 24.76
Koops Martin Financial Services Pty Ltd
v Reeves [2006] NSWSC 449 …. 27.48,
27.50, 27.68, 27.82, 27.85, 27.99, 27.100
Kop-Coat New Zealand Ltd v Incodo Ltd
[2018] NZCA 430 …. 5.3, 29.136
Kosho Pty Ltd v Trilogy Funds Management
Ltd [2013] QSC 135 …. 11.53, 11.58
Koufos v C Czarnikow Ltd [1969] 1 AC 350;
[1967] 3 All ER 686 …. 29.110, 29.114,
29.119, 29.120, 37.28, 37.33
Koutsourais v Metledge & Associates [2004]
NSWCA 313 …. 23.53
Kowalczuk v Accom Finance Pty Ltd (2008) 77
NSWLR 205; 252 ALR 55 …. 19.35, 20.18,
20.19, 20.35, 20.42, 20.53, 20.54, 30.19
Kowalski v Bourne [2017] SASCFC 24
…. 36.10
— v Mitsubishi Motors Australia Staff
Superannuation Fund Pty Ltd [2018]
SASCFC 44 …. 16.88, 39.56, 39.59
KR Peters Real Estate Pty Ltd v Hickey [2020]
VSC 531 …. 27.82
Kraguljac v A & B Property Developments Pty
Ltd (No2) [2012] SASC 1 …. 24.8, 24.28
Krakowski v Eurolynx Properties Ltd (1995)
183 CLR 563; 130 ALR 1 …. 14.28
Kramer v McMahon [1970] 1 NSWLR 195
…. 35.22
Krell v Henry [1903] 2 KB 740 …. 25.39, 25.41,
25.42
Kriketos v Livschitz [2009] NSWCA 96
…. 4.71, 4.79
Krishell Pty Ltd v Nilant (2006) 204 FLR 182
…. 40.52
Kuligowski v Metrobus (2004) 220 CLR 363;
208 ALR 1 …. 36.8
Ku-ring-gai Co-operative Building Society
(No 12) Ltd, Re (1978) 36 FLR 134; (1978)
22 ALR 621 …. 15.11, 19.48
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Kurt Keller Pty Ltd v BMW Australia Ltd
[1984] 1 NSWLR 353 …. 32.7
Kurth v McGavin [2007] 3 NZLR 614 …. 9.57,
31.59
Kuzmanovski v New South Wales Lotteries
Corporation (2010) 270 ALR 65 …. 4.88
Kyle Bay Ltd v Underwriters subscribing under
Policy No 019057/08/01 [2007] EWCA Civ
57 …. 16.36
L Larner v George Weston Foods Ltd [2014]
La Mela v Franklexis Pty Ltd [2020] WASCA 83
…. 4.10, 6.6, 6.8, 6.20
La Rosa v Nudrill Pty Ltd [2013] WASCA 18
…. 10.50, 10.51, 10.52, 10.53
La Trobe Capital & Mortgage Corporation Ltd
v Hay Property Consultants Pty Ltd (2011)
190 FCR 299; 273 ALR 774 …. 29.44,
29.148
Lade & Co Pty Ltd v Black [2006] 2 Qd R 531
…. 31.5
Laemthong International Lines Co Ltd v Artis
(The Laemthong Glory) (No 2) [2005] 1
Lloyd’s Rep 632 …. 31.20
Lahoud v Lahoud [2009] NSWSC 623 …. 22.6,
23.25
Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009]
NSWCA 44 …. 4.79, 4.82, 5.38
Laing O’Rourke v Transport Infrastructure
[2007] NSWSC 723 …. 5.24
Lamare v Dixon (1873) LR 6 HL 414
…. 31.10
Lamotte v Lamotte (1942) 42 SR (NSW) 99
…. 18.35
Lampet’s case (1612) 77 ER 994 …. 40.20
Lamport & Holt Lines Ltd v Coubro & Scrutton
(M & I) Ltd [1982] 2 Lloyd’s Rep 42
…. 13.17
Lampson (Australia) Pty Ltd v Fortescue
Metals Group Ltd (No 3) [2014] WASC 162
…. 38.2, 38.17, 38.23, 38.25
Lamshed v Lamshed (1963) 109 CLR 440
…. 31.68, 31.71, 31.73
Lancashire Loans Ltd v Black [1934] 1 KB 380
…. 18.18, 18.35
lviii
Land Enviro Corp Pty Ltd v HTT Huntley
Heritage Pty Ltd [2012] NSWSC 382
…. 35.29
Lansat Shipping Co Ltd v Glencore Grain BV
(The ‘Paragon’) [2009] 2 Lloyd’s Rep 688
…. 30.15
Lark v Outhwaite [1991] Lloyd’s Rep 132
…. 4.76
Larmer v Power Machinery Pty Ltd (1977) 29
FLR 490; 14 ALR 243 …. 15.10
VSCA 62 …. 10.13
Larrinaga & Co Ltd v Société Franco-
Americaine des Phosphates de Medulla,
Paris (1922) 29 Com Cas 1 …. 25.41
LARS SA v Bone China Pty Ltd [2015] NSWSC
730 …. 14.8
Latec Finance Pty Ltd v Knight [1969] 2 NSWR
79 …. 4.84
Laurinda Pty Ltd v Capalaba Park Shopping
Centre Pty Ltd (1989) 166 CLR 623; 85
ALR 183 …. 24.9, 24.63, 24.64, 24.67, 24.68,
24.69, 24.70
Lauvan v Bega (2018) 330 FLR 1 …. 20.8, 20.27,
20.45
Lavarack v Woods of Colchester Ltd [1967] 1
QB 278; [1966] 3 All ER 683 …. 29.149,
29.166, 29.167
Lavery v Pursell (1888) 39 Ch D 508 …. 33.22
Lavigne v Kumar [2020] NSWSC 1120
…. 22.17, 24.53
Lawrence v Ciantar [2019] NSWSC 464 …. 12.67
— v — [2020] NSWCA 89 …. 12.67
— v Fen Tigers Ltd [2014] AC 822; [2014] 2 All
ER 62 …. 33.19
Laybutt v Amoco Australia Pty Ltd (1974) CLR
57; 4 ALR 482 …. 4.52, 40.43
LB RE Financing No 3 Ltd v Excalibur Funding
No 1 Plc [2011] EWHC 2111 (Ch) …. 12.49
Leach Nominees Pty Ltd v Walter Wright Pty
Ltd [1986] WAR 244 …. 4.92
Leading Synthetics Pty Ltd v Adroit Insurance
Group Pty Ltd [2011] VSC 467 …. 36.60
Leaf v International Galleries [1950] 2 KB 86;
[1950] 1 All ER 693 …. 16.24, 35.35

Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2
NSWLR 381 …. 35.37
Lecdor Construction Ltd v Northbridge
Indemnity Insurance Co [2016] 2 SCR 23
…. 21.13
LED Technologies Pty Ltd v Roadvision Pty Ltd
(2012) 199 FCR 204; 287 ALR 1 …. 37.39,
37.45, 37.46
Lederberger v Mediterranean Olives Financial
Pty Ltd (2012) 38 VR 509 …. 12.65
Lee v Muggeridge (1813) 128 ER 599 …. 6.5
— v Showmen’s Guild of Great Britain [1952]
2 QB 329 at 342; [1952] 1 All ER 1175
…. 27.27
Leeda Projects Pty Ltd v Zeng [2020] VSCA
192 …. 29.2, 29.36
Leeder v Stevens [2005] EWCA Civ 50
…. 18.25
Leeds United Football Club Ltd v Chief
Constable of West Yorkshire Police [2014]
QB 168 …. 6.43
Lefkowitz v Great Minneapolis Surplus Store 86
NW 2d 689 (1957) …. 4.19
Legal & General Life Australia Ltd v A
Hudson Pty Ltd (1985) 1 NSWLR 314
…. 5.10
Legione v Hateley (1983) 152 CLR 406; 46 ALR
1 …. 24.120, 24.133, 24.134, 36.23, 36.34
Leibler v Air New Zealand Ltd (No 2) [1999] 1
VR 1 …. 34.33
Leni Gas & Oil Investments Ltd v Malta Oil Pty
Ltd [2014] EWHC 893 (Comm) …. 14.47,
14.50
Leonard v Booth (1954) 91 CLR 452 …. 6.76
Leonie’s Travel Pty Ltd v International Air
Transport Association (2009) 255 ALR 89
…. 12.43
Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020]
NSWCA 155 …. 12.6, 12.8
Les Laboratoires Servier v Apotex Inc [2015]
AC 430; [2015] 1 All ER 671 …. 27.3, 27.4,
27.5, 27.7
Lesters Leather and Skin Co Ltd v Home and
Overseas Brokers Ltd (1948) 64 TLR 569
…. 29.138
lix
TABLE OF CASES­
L’Estrange v F Graucob Ltd [1934] 2 KB 394
…. 10.17, 10.18, 10.26
Leveraged Equities Ltd v Goodridge (2011) 191
FCR 71; 274 ALR 655 …. 4.96, 23.29, 40.36
Levingston v Levingston [2017] WASCA 91
…. 4.10
Lewis v Australian Capital Territory (2020) 381
ALR 375 …. 29.6, 29.8
— v Averay [1972] 1 QB 198; [1971] 3 All ER
907 …. 16.70, 16.71, 16.72, 16.75
Lex Group Holding Pty Ltd v De Ren Xu [2019]
VSC 238 …. 29.145
Lexane Pty Ltd v Highfern Pty Ltd [1985] 1 Qd
R 446 …. 30.41
Lexmead (Basingstoke) v Lewis [1982] AC 225
…. 29.100, 29.102
LG Thorne & Co Pty Ltd v Thomas Borthwick
& Sons (Australasia) Ltd (1955) 56 SR
(NSW) 81…. 10.60, 10.65
Li v So [2019] VSC 515 …. 28.28
Liberty Investing Ltd v Sydow [2015] EWHC
608 (Comm) …. 11.9
Libra Collaroy Pty Ltd v Bhide [2017] NSWCA
196 …. 11.38
Lieberman v Morris (1944) 69 CLR 69
…. 15.79
Liebosch Dredger v SS Edison [1933] AC 449
…. 29.105
Lien v Clontarf Residential Pty Ltd [2019] 1 Qd
R 107 …. 29.66
Life Insurance Co of Australia Ltd v Phillips
(1925) 36 CLR 60; 31 ALR 206 …. 5.15,
12.1, 16.57, 35.40
Lifesavers (Australasia) Pty Ltd v Frigmobile
Pty Ltd [1983] 1 NSWLR 431 …. 39.49,
39.50
Lifestyle Equities CV v Sportsdirect.Com Retail
Ltd [2018] EWHC 728 (Ch) …. 37.51
Lifoon Pty Ltd v Gillard [2006] NSWCA 182
…. 8.12
Lighting By Design (Aust) Pty Ltd
v Cannington Nominees Pty Ltd (2008) 35
WAR 520 …. 8.37, 31.7
Liggins v Park Trent Properties Group Pty Ltd
[2020] NSWSC 1113 …. 6.64
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Lim Poh Choo v Camden and Islington Area
Health Authority [1980] AC 174; [1979] 2
All ER 910 …. 29.25
Lim Zhipeng v Seow Suat Thin [2020] SGCA
89 …. 6.77
Linden Gardens Trust Ltd v Lenesta Sludge
Disposals Ltd [1994] 1 AC 85; [1993] 3 All
ER 417 …. 39.15, 40.12, 40.17
Lindner v Murdock’s Garage (1950) 83
CLR 628 …. 27.54, 27.59, 27.63, 27.67,
27.85, 27.92, 27.99, 27.111
Lindsay v Noble Investments Ltd [2015] NZCA
588 …. 12.51
Lindsay Petroleum Co v Hurd (1874) LR 5 PC
221 …. 31.65, 31.69
Ling v Pan Pac Investment Pty Ltd [2015]
NSWSC 850 …. 20.27
Linwar Securities Pty Ltd v Christopher Savage
[2006] NSWSC 786 …. 27.68
Lion White Lead Ltd v Rogers (1918) 25 CLR
533 …. 24.95
Lionsgate Australia Pty Ltd v Macquarie Private
Portfolio Management Ltd [2007] NSWSC
371 …. 31.25
Lipkin Gorman v Karpnale Ltd [1991] 2 AC
548; [1992] 4 All ER 512 …. 38.87, 38.91,
38.92
Lister v Romford Ice and Cold Storage Co Ltd
[1957] AC 555; 1 All ER 125 …. 11.4
Lithgow State Mine Railway Ltd v City of
Greater Lithgow Mining Museum Inc (No
2) [2019] NSWSC 1468 …. 31.16
Littlewoods Organisation Ltd v Harris [1977]
1 WLR 1472 …. 27.52
Liu v A & A Martins Pty Ltd [2019] ACTCA 8
…. 38.39
Liverpool City Council v Irwin [1977] AC 239;
[1976] 2 All ER 39 …. 11.37
LJ Korbetis v Transgrain Shipping BV [2005]
EWHC 1345 (QB) …. 4.96
Lloyd v Belconnen Lakeview Pty Ltd (2019)
377 ALR 234 …. 38.19, 38.28, 38.69
Lloyd’s v Harper (1880) 16 Ch D 290 …. 39.61
Lloyd’s Bank, Re; Bomze v Momze [1931] 1
Ch 289 …. 18.25
lx
Lloyd’s Ships Holdings Pty Ltd v Davros Pty Ltd
(1987) 17 FCR 505 …. 27.78
LMI Australasia Pty Ltd v Baulderstone
Hornibrook Pty Ltd [2003] NSWCA 74
…. 29.2
Loan Investment Corporation of Australasia
v Bonner [1970] NZLR 724 …. 31.27, 31.33
Lochgelly Iron & Coal Co v M’Mullan [1934]
AC …. 37.17
Lockhart v Osman [1981] VR 57 …. 14.32
Lockyer v Freeman (1877) 2 App Cas 519
…. 36.11
Lodge Partners Pty Ltd v Pegum (2009) 255
ALR 516 …. 12.67
Loftus (dec’d), Re [2006] 4 All ER 1110
…. 31.67
Loftus v Roberts (1902) 18 TLR 532 …. 6.31
Lombard North Central Plc v European Skyjets
Ltd [2020] EWHC 679 (QB) …. 30.18
Lord Strathcona Steamship Co Ltd
v Dominion Coal Co Ltd [1926] AC 108
…. 39.59
Lordsvale Finance plc v Bank of Zambia [1996]
QB 752; [1996] 3 All ER 156 …. 30.18
Lottoland Australia Pty Ltd v Australian
Communications and Media Authority
(2019) 100 NSWLR 328; 348 FLR 118
…. 12.53
Louinder v Leis (1982) 149 CLR 509; 41
ALR 187 …. 24.51
Louth v Diprose (1992) 175 CLR 621; 110
ALR 1 …. 18.25, 19.9, 19.12, 19.21, 19.22,
19.23, 19.24, 19.32, 19.38, 19.40, 19.42
Love & Stewart Ltd v S Instone & Co Ltd (1917)
33 TLR 475 …. 5.36
Love v Simmons [2016] WASCA 176 …. 31.80
Low v Bouverie [1891] 3 Ch 82 …. 36.34
Lowe v Hope [1970] Ch 94 …. 30.40
Lowry v Bourdieu (1780) 99 ER 299 …. 38.3
L Schuler AG v Wickman Machine Tool Sales
Ltd [1974] AC 235; [1973] 2 All ER 39
…. 12.37, 24.18
LSKF Holdings Pty Ltd v Shield Lifestone
Holdings Pty Ltd [2018] NSWCA 129
…. 6.31

LSREF III Wright Ltd v Millvalley Ltd [2016]
EWHC 466 (Comm) …. 34.5
Lucas & Tait (Investments) Pty Ltd v Victoria
Securities Ltd [1973] 2 NSWLR 268
…. 27.30
Lucas Stuart Pty Ltd v Hemmes Hermitage Pty
Ltd [2010] NSWCA 283 …. 31.18, 32.1,
32.2, 32.3
Lucke v Cleary (2011) 111 SASR 134 …. 5.38
Lucy v The Commonwealth (1923) 33 CLR 229
…. 30.45
— v Walwyn (1561–63) KB 27/II98, m183
…. 2.23
Lumbers v W Cook Builders Pty Ltd (in
liq) (2008) 232 CLR 635; 247 ALR 412
…. 38.10, 38.24, 38.44, 38.45, 38.46, 38.47,
38.48, 38.49
Lumley v Gye (1853) 118 ER 749 …. 37.37
— v — (1854) ER 1083 …. 37.37, 37.38, 37.42
— v Ravenscroft [1895] 1 QB 683 …. 31.76
— v Wagner (1852) 42 ER 687 …. 32.8, 32.9,
32.10, 32.13, 32.15, 32.17, 37.37
Luna Park (NSW) Ltd v Tramways Advertising
Pty Ltd (1938) 61 CLR 286 …. 29.4
Luo v Zhai [2015] FCA 350 …. 38.59
Luu v Sovereign Developments Pty Ltd [2006]
NSWCA 40 …. 30.40, 30.41
Luxer Holdings Pty Ltd v Glentham Pty Ltd
(2007) 35 WAR 254 …. 29.32, 29.143
Lyle & Scott Ltd v Scott’s Trustees [1959] AC
763; [1959] 2 All ER 661 …. 40.1
Lym International Pty Ltd v Marcolongo [2011]
NSWCA 303 …. 12.67
M …. 12.45, 27.64
MA & J Tripodi Pty Ltd v Swan Hill Chemicals
Pty Ltd [2019] VSCA 46 …. 29.42
MAAG Developments Pty Ltd v Oxanda
Childcare Pty Ltd [2018] VSCA 289 …. 34.8
MacCormick v Nowland (1988) ATPR 40-852
…. 15.42
MacDonald v Kavshan Pty Ltd; Villarica [2016]
NSWSC 731 …. 12.43
— v Shinko Australia Pty Ltd [1999] 2 Qd R
152 …. 10.74, 10.75, 34.5
lxi
TABLE OF CASES­
MacDonald, Dickens & Macklin (A Firm)
v Costello [2012] QB 244 …. 38.28, 38.29,
38.49
Mace v Mace [2015] NSWSC 1659 …. 18.21
MacInnes v Gross [2017] EWHC 46 (QB)
…. 7.28
Mackay v Dick (1881) 6 App Cas 251 …. 11.39,
22.19, 22.23
— v Wilson (1947) 47 SR (NSW) 315 …. 4.52
Mackenzie v Coulson (1869) LR 8 Eq 368
…. 34.3
Mackinlay v Derry Dew Pty Ltd (2014) 46
WAR 247 …. 28.33
Mackintosh v Johnson (2013) 37 VR 301
…. 19.25
Macquarie Generation v Peabody Resources
Ltd [2000] NSWCA 361 …. 14.51, 14.53
Macquarie International Health Clinic Pty Ltd
v Sydney South West Area Health Service
[2010] NSWCA 268 …. 11.58, 11.59, 14.26
MacRobertson Miller Airline Services
v Commissioner of State Taxation (Western
Australia) (1975) 133 CLR 125; 8 ALR 131
…. 4.8
Madden v Keverski [1983] 1 NSWLR 305
…. 33.9
Maddison v Alderson (1883) 8 App Cas 467
…. 8.32
Magann v Trustees of the Roman Catholic
Church of the Diocese of Parramatta [2019]
NSWSC 1453 …. 20.23, 20.27
Magee v Mason [2017] NZCA 502 …. 14.18
Maggbury Pty Ltd v Hafele Australia Pty
Ltd (2001) 210 CLR 181; 185 ALR 152
Magill v Magill [2005] VSCA 51 …. 14.19
— v — (2006) 226 CLR 551; 231 ALR 277
…. 4.103, 14.20, 37.5, 37.6, 37.7
Maguire v Makaronis (1996) 188 CLR 449; 144
ALR 727 …. 35.16, 35.23
Mahmoud & Ispahani, In re [1921] 2 KB 716
…. 26.20, 26.21, 26.22, 28.5
Mahon v Mahon [2016] NZCA 642 …. 18.7
Mahoney v Purnell [1996] 3 All ER 61
…. 18.80
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Ma Hongjin v SCP Holdings Pte Ltd [2019]
SGHC 277 …. 6.2
Mainieri v Cirillo (2014) 47 VR 127 …. 10.13,
10.69, 36.76
Mainstream Properties Ltd v Young …. 37.63
Mainteck Services Pty Ltd v Stein Heurtey
SA (2014) 89 NSWLR 633; 310 ALR 113
…. 12.25, 12.26, 12.27, 12.28, 12.70
Makdessi v Cavendish Square Holdings BV
[2013] EWCA Civ 1539 …. 30.15
Malhotra v Choudhury [1980] Ch 52; [1979] 1
All ER 186 …. 33.12
Malik v Bank of Credit and Commerce
International SA (in liq) [1998] AC 20;
[1997] 3 All ER 1 …. 11.38
Malt Case, The Y B Mich, 20 Hen VII f 8 (1505)
…. 2.14
Malthouse Ltd v Rangatira Ltd [2018] NZCA
621 …. 12.15
Man Financial (S) Pte Ltd v Wong Bark Chuan
David [2007] SGCA 53 …. 27.62
Management Services Australia Pty Ltd
v PM Works Pty Ltd [2019] NSWCA 107
…. 12.28
Manassen Holdings Pty Ltd v Commercial &
General Corporation Pty Ltd [2019] SASC
171 …. 36.2, 36.48
Manchester Diocesan Council for Education
v Commercial & General Investments Ltd
[1969] 3 All ER 1593 …. 4.46, 4.98
Mango Boulevard Pty Ltd v Mio Art Pty Ltd
[2016] QCA 148 …. 40.34, 40.36, 40.37
Mango Credit Pty Ltd, Re Application of [2016]
NSWSC 199 …. 30.18
Mann v Paterson Constructions Pty Ltd (2019)
373 ALR 1 …. 38.28, 38.30, 38.43
Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd [1997] AC 749; [1997] 3
All ER 352 …. 12.47, 24.88
Manning Motel Pty Limited v DH MB Pty Ltd
[2013] NSWSC 1582 …. 10.86
Manton v Parabolic Pty Ltd (1985) 2 NSWLR
361 …. 6.77
Manufacturers House Pty Ltd v Ashington No
147 Pty Ltd [2005] NSWSC 767 …. 24.53
lxii
Manufacturers Mutual Insurance Ltd v Withers
(1988) 5 ANZ Ins Cases 75,336 …. 12.24
Manwelland Pty Ltd v Dames & Moore Pty Ltd
[2001] QCA 436 …. 29.151, 29.152
Maple Leaf Macro Volatility Master Fund
v Rouvroy [2009] EWCA Civ 1334 …. 7.4
Maradelanto Compania Naviera SA v Bergbau-
Handel GmbH (The Mihalis Angelos)
[1971] 1 QB 164; [1970] 1 All ER 673
…. 29.160, 29.162, 29.163
Maralinga Pty Ltd v Major Enterprises Pty Ltd
(1973) 128 CLR 336 …. 34.1, 34.17, 34.18
Marathon Asset Management LLP v Seddon
[2017] EWHC 300 (Comm) …. 29.22
March v E & MH Stramare Pty Ltd (1991) 171
CLR 506; 99 ALR 423 …. 29.93, 29.94
Margaronis Navigation Agency Ltd v Henry
W Peabody & Co of London Ltd [1965] 2
QB 430; [1964] 3 All ER 333 …. 22.44
Maritime National Fish Ltd v Ocean Trawlers
Ltd [1935] AC 524 …. 25.41, 25.48, 25.53
Marks v GIO Australia Holdings Ltd (1998) 196
CLR 494 …. 15.99
— v Jolly (1938) 38 SR (NSW) 351 …. 28.27
Marks and Spencer PLC v BNP Paribas
Securities Services Trust Co (Jersey)
Ltd [2016] AC 742; [2016] 4 All ER 441
…. 11.9, 11.13, 11.14
Markulin v Drew (Unreported,
New South Wales Supreme Court, Young J,
12 August 1993) …. 27.35
Marler v Wilmer (1539) KB 27/IIII, m64
…. 2.22
Marles v Trant (Phillip) & Sons Ltd [1954] 1
QB 29; [1953] 1 All ER 651 …. 28.24
Marmax Investments Pty Ltd v RPR
Maintenance Pty Ltd (2015) 237 FCR 534;
327 ALR 45 …. 11.39, 11.59
Marme Inversiones 2007 SL v Natwest Markets
Plc [2019] EWHC 366 (Comm) …. 14.24,
35.29
Marquis of Cholmondeley v Lord Clinton
(1820) 37 ER 527 …. 12.11
Marshall v Marshall [1999] 1 Qd R 173
…. 38.84

Martyn v Glennan [1979] 2 NSWLR 234
…. 8.16
Mason v Provident Clothing & Supply
Company Ltd [1913] AC 724 …. 27.50,
27.59, 27.87, 28.30
Masonic Homes Ltd v Oppedisano & Platinum
Property Retirement Pty Ltd [2016] SASC
196 …. 5.6
Master Education Services Pty Ltd v Ketchell
(2008) 236 CLR 101; 249 ALR 44 …. 26.8,
26.9, 26.10, 28.1
Masters v Cameron (1954) 91 CLR 353 …. 5.29,
5.30, 5.32, 5.33, 5.34, 5.35, 5.41, 5.44, 5.45,
5.46
Masters Home Improvement Australia Pty Ltd
v North East Solution Pty (2017) 372 ALR
440 …. 11.58
Masterton Homes Pty Ltd v Palm Assets Pty
Ltd (2009) 261 ALR 382 …. 8.31, 10.59,
10.61
Mastronardo v Commonwealth Bank of
Australia [2018] NSWCA 136 …. 19.67
Mathews v Lotus Stones (SA) Pty Ltd [2017]
SASC 27 …. 36.10
Matouk v Matouk (No 2) [2015] NSWSC 74
…. 18.21
Matthews v ACP Publishing Pty Ltd (1998) 157
ALR 564 …. 33.4
Maurice Tarabay v Fifty Property Investments
Pty Ltd [2009] NSWSC 617 …. 37.39
Mavaddat v HSBC Bank Australia Ltd (No 2)
[2016] WASCA 94 …. 18.24, 18.65
Maxcon Constructions Pty Ltd v Vadasz (No 2)
[2017] SASCFC 2 …. 26.3, 26.4, 26.19, 28.1
May & Butcher Ltd v R [1934] 2 KB 17 …. 5.5,
5.8
May v Brahmbhatt [2013] NSWCA 309
…. 20.19, 20.38
Mayberry v Atlantic Union Oil Co Ltd (1953)
89 CLR 507 …. 10.73
Maynard v Goode (1926) 37 CLR 529 …. 12.65
Mayo v W & K Holdings (NSW) Pty Ltd (in
liq) (No 2) [2015] NSWCA 119 …. 34.2
Mbakwe v Sarkis [2009] NSWCA 330 …. 14.30,
14.48, 14.49
lxiii
TABLE OF CASES­
MBF Investments Pty Ltd v Nolan (2011) 37
VR 116 …. 15.77
MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657;
98 ALR 193 …. 29.155
Mbuzi v Griffith University (2014) 323 ALR
248 …. 21.1
McBride v Sandland (1918) 25 CLR 69 …. 8.32,
8.33, 8.36, 8.37
McCasker v Lovett (1995) 12 BCL 146 …. 25.69
McCormack v Grogan (1869) LR 4 HL 82
…. 8.25
McCourt v Cranston [2012] WASCA 60
…. 12.21
McCrohon v Harith [2010] NSWCA 67
…. 29.31, 29.44, 29.45, 37.27, 37.34
McCulloch v Fern [2001] NSWSC 406
…. 18.22, 18.80
McCutcheon v David MacBrayne Ltd [1964] 1
All ER 430; [1964] 1 WLR 125 …. 10.44
McDermott v Black (1940) 63 CLR 161
…. 5.12, 23.48, 23.50, 23.54, 23.71
McDonald v Dennys Lascelles Ltd (1933) 48
CLR 457 …. 24.2, 24.3, 24.91, 29.78, 30.37,
30.39, 30.40, 30.42, 30.44, 35.1
— v Dunscombe [2018] VSC 283 …. 36.40
McDonald Murholme Pty Ltd v Victorian Radio
Network Pty Ltd [2018] VSC 434 …. 22.15
McDonald’s Australia Holdings Ltd v Industrial
Relations Commission of NSW (2005) 223
ALR 78 …. 21.40
McEllistrim v Ballymacelligott Co-operative
Agricultural & Dairy Society Ltd [1919]
AC 548 …. 27.53, 27.55
McFarlane v Daniell (1938) 38 SR (NSW) 337
…. 5.15, 28.21, 28.34, 28.35
McGee Group Ltd v Galliford Try Building Ltd
[2017] EWHC 87 (TCC) …. 13.4
McGill v Sports and Entertainment Media
Group [2017] 1 WLR 989 …. 29.45
McGrath v Australian Naturalcare Products
Pty Ltd (2008) 165 FCR 230; 246 ALR 514
…. 15.74
— v Sturesteps; Sturesteps v HIH Overseas
Holdings Ltd (in liq) (2011) 81 NSWLR
690; 284 ALR 196 …. 12.34, 12.40
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
McHugh v Australian Jockey Club Ltd (2014)
314 ALR 20 …. 27.54
McHugh Holdings Pty Ltd v Newtown Colonial
Hotel Pty Ltd (2008) 73 NSWLR 53
…. 12.40, 27.82
McIntyre v Gye (1994) 51 FCR 472; 122 ALR
289 …. 40.37, 40.42
— v Nemesis DBK Ltd [2010] 1 NZLR 463
…. 17.22
McIvor v Westpac Banking Corporation [2012]
QSC 404 …. 18.36
McLarnon v McLarnon (1968) 112 Sol J 419
…. 17.14
McLaughlin v Darcy (1918) 18 SR (NSW) 585
…. 9.14, 9.15
— v Duffill [2010] Ch 1 …. 8.18
McLeary v Swift [2012] NSWSC 1403
…. 39.18
McLennan v Clapham [2019] ACTSC 1
…. 15.18, 15.39
McMahon v Ambrose [1987] VR 817 …. 33.10,
33.12
— v National Foods Milk Ltd (2009) 25
VR 251; 259 ALR 20 …. 10.77, 10.78, 10.79,
27.103
McRae v Commonwealth Disposals
Commission (1951) 84 CLR 377 …. 16.5,
16.13, 16.14, 16.15, 16.36, 16.45, 16.48,
29.37, 29.56, 29.60, 29.61, 29.66, 29.73,
29.116
McWilliam v McWilliams Wines Pty Ltd (1964)
114 CLR 656 …. 11.42
Mealey v Mountains Development Group Pty
Ltd [2003] NSWSC 830 …. 24.18
Meares Nominees Pty Ltd v Permanent
Custodians Ltd [2009] NSWCA 235
…. 23.19
Measures v Measures Brothers Ltd [1910] 2
Ch 248 …. 27.87, 27.89
Media Entertainment & Arts Alliance, Re; Ex
Parte Hoyts Corp Pty Ltd (No 1) (1993) 178
CLR; 115 ALR 321 …. 12.42
Medlin v State Government Insurance
Commission (1995) 182 CLR 1; 127 ALR
180 …. 29.97
lxiv
Meehan v Jones (1982) 149 CLR 571; 42 ALR
463 …. 5.48, 5.49, 5.50, 12.9, 23.22
Mehmet v Benson (1963) 81 WN (Pt 1) (NSW)
188 …. 30.41
— v — (1965) 113 CLR 295 …. 24.45, 31.79,
31.81
Meiners v Gunn [2020] WASC 18 …. 18.23
Melachrino v Nickoll [1920] 1 KB 693
…. 29.34
Melbourne Linh Son Buddhist Society Inc
v Gippsreal Ltd [2017] VSCA 161 …. 30.21,
30.25
Melnikov v Vainer [2019] VSCA 283 …. 29.44
Menegazzo v Pricewaterhousecoopers (a firm)
[2016] QSC 94 …. 16.46, 16.47
Mentink v Olsen [2020] NSWCA 182 …. 18.4,
19.12, 19.15
Mercanti v Mercanti (2016) 50 WAR 495; 340
ALR 290 …. 12.2, 12.6, 18.10
Mercato Sports (UK) Ltd v Everton Football
Club Company Ltd [2018] EWHC 1567
(Ch) …. 4.113
Meredith v Commonwealth of Australia (No 2)
(2013) 280 FLR 385 …. 37.21
Meretz Investments NV v ACP Ltd [2008]
Ch 244 …. 37.43, 37.54
Meriton Apartments Pty Limited v The Owners
of Strata Plan No 72381 [2015] NSWSC 202
…. 30.50
Merritt v Merritt [1970] 2 All ER 760 …. 7.10
Meshumar v Otmy (2018) 97 NSWLR 615
…. 8.25
Metal Fabrications (Vic) Pty Ltd v Kelcey
[1986] VR 507 …. 29.132
Metcash Ltd v Jardim (2010) 273 ALR 407
…. 27.40, 27.47, 27.82, 27.85, 27.102,
27.112
MetLife Insurance Ltd v RGA Reinsurance
Company of Australia Ltd [2017]
NSWCA 56 …. 12.6
— v Visy Board Pty Ltd [2007] NSWSC 1481
…. 34.6, 34.7
Metropolitan Gas Co v Federated Gas
Employees’ Industrial Union (1925) 35
CLR 449 …. 12.6

Metropolitan Water Board v Dick Kerr & Co
Ltd [1917] 2 KB 1 …. 25.43, 25.56, 25.101
— v — [1918] AC 119 …. 25.43, 25.56, 25.101
Meudell v Mayor of Bendigo (1900) 26
VLR 158 …. 4.31
Meyers v Casey (1913) 17 CLR 90 …. 31.62
MFM Restaurants Pte Ltd v Fish & Co
Restaurants Pte Ltd [2010] SGCA 36
…. 29.127
Mhanna v Sovereign Capital Limited [2004]
FCA 1252 …. 22.27
Micarone v Perpetual Trustees Australia Ltd
(1999) 75 SASR 1 …. 19.29
Michael Realty Pty Ltd v Carr [1977] 1 NSWLR
533 …. 22.17, 24.46, 24.55, 24.56
Mid Essex Hospital Services NHS Trust
v Compass Group UK and Ireland Ltd
[2013] EWCA Civ 200 …. 5.27, 11.57, 11.65
Mid-City Skin Cancer & Laser Centre
v Zahedi-Anarak (2006) 67 NSWLR 569
…. 40.11
Middleton v AON Risk Services Australia Ltd
[2008] WASCA 239 …. 14.17
Midland Silicones Ltd v Scruttons Ltd [1962]
AC 446; [1962] 1 All ER 1 …. 39.43, 39.50,
39.52
Midstyle Nominees Pty Ltd v Jordon [2013]
WASC 85 …. 26.19
Mifsud v MacMillan Bathurst Inc (1989) 70 OR
(2d) 701 …. 29.142
Mighell v Gargoura [2009] NSWSC 248 …. 20.22
Mihaljevic v Eiffel Tower Motors Pty Ltd [1973]
VR 545 …. 10.13
Miki Shoko Co Ltd v Merv Brown Pty Ltd
[1988] ATPR 40-858 …. 15.40
Milchas Investments Pty Ltd v Larkin (1989) 96
FLR 464 …. 19.77
Miles v Genesys Wealth Advisers Ltd [2009]
NSWCA 25 …. 27.47, 27.114
Miles v New Zealand Alford Estate Co (1886)
32 Ch D 266 …. 6.66
Miller & Associates Insurance Broking Pty Ltd
v BMW Australia Finance Ltd (2010) 241
CLR 357; 270 ALR 204 …. 15.19, 15.22,
15.23, 15.24, 15.30, 15.31, 15.32, 15.39
lxv
TABLE OF CASES­
Miller v Miller (2011) 242 CLR 446; 275 ALR
611 …. 26.10, 26.19, 26.53, 28.1, 38.65
Miller Paving Ltd v B Gottardo Construction
Ltd (2007) 285 DLR (4th) 568 …. 16.50
Mills v Dunham [1891] 1 Ch 576 …. 27.52
Milne v Municipal Council of Sydney (1921) 14
CLR 54 …. 11.42
Milner v Carnival plc [2010] 3 All ER 701
…. 29.49
Milroy v Lord (1862) 45 ER 1185 …. 40.41,
40.42
Mimmo v Fernando [2016] VSC 510 …. 22.16,
30.45
Mineralimportexport v Eastern Mediterranean
Maritime Ltd (The Golden Leader) [1980] 2
Lloyd’s Rep 573 …. 13.15
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017]
FCAFC 55 …. 12.2, 36.19
— v — (No 13) [2016] WASC 403 …. 28.33
— v — (No 16) [2017] WASC 340 …. 28.33
— v — (No 6) (2015) 329 ALR 1 …. 11.52,
12.67, 36.19, 36.30
Ministry of Sound (Ireland) Ltd v World Online
Ltd [2003] EWHC 2178 (Ch) …. 30.52
Mir Steel UK Ltd v Morris [2012] EWCA Civ
1397 …. 13.14
Misiaris v Saydels Pty Ltd (1989) NSW Conv R
55-474 …. 16.86, 34.34
Mister Figgins Pty Ltd v Centrepoint Freeholds
Pty Ltd (1981) 36 ALR 23 …. 15.98
Mitchell v Leafs Gully Farm Pty Ltd [2016]
NSWCA 92 …. 4.98
— v Pacific Dawn Pty Ltd [2011] QCA 98
…. 17.28
— v Valherie (2005) 93 SASR 76 …. 14.7
Mitsu Construction Co Ltd v The Attorney-
General of Hong Kong [1986] UKPC 6
…. 12.71
Mitsubishi Motors Australia Ltd v Kowalski
(2019) 134 SASR 1 …. 16.88
Mitsui Construction Co Ltd v The Attorney-
General of Hong Kong (1986) 33 BLR 1
…. 12.72
Miwa Pty Ltd v Siantan Properties Pty Ltd
[2011] NSWCA 29 …. 12.40
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Mizzi v Reliance Financial Services Pty Ltd
[2007] NSWSC 37 …. 39.57, 40.18
MJ Leonard Pty Ltd v Bristrol Custodians Ltd
(in liq) [2013] NSWSC 1734 …. 8.31
MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd
[2005] NSWCA 39 …. 23.15
Mobil Oil Australia Ltd v Lyndel Nominees
Pty Ltd (1998) 81 FCR 475; 153 ALR 198
…. 1.37, 4.62, 4.63, 36.47, 36.73
Moda International Brands Ltd v Gateley LLP
[2019] EWHC 1326 (QB) …. 29.138
Modahl v British Athletic Federation Ltd
[2002] 1 WLR 1192 …. 4.1
Moffatt Property Development Group Pty Ltd
v Hebron Park Pty Ltd [2009] QCA 60
…. 5.40, 5.41
Molonglo Group (Australia) Pty Ltd v Cahill
[2018] VSCA 147 …. 5.38, 5.39, 5.40
Monarch Airlines Ltd v Luton Airport Ltd
[1998] 1 Lloyd’s Rep 403 …. 13.15
Monarch Steamship Co Ltd v Karlshamns
Oljefabriker [1949] AC 196 …. 29.10
Monde Petroleum SA v Westernzagros Ltd
[2016] EWHC 1472 (Comm) …. 11.57
Monroe Schneider Associates (Inc) v No 1
Raberem Pty Ltd (1991) 33 FCR 1; 104 ALR
397 …. 29.146
Monzer Tabbouch v Devlin [2008] NSWSC 600
…. 24.57
Moody v Cox and Hatt [1917] 2 Ch 71
…. 31.63
Moorcock, The (1889) 14 PD 64 …. 11.16
Moore & Co and Landauer & Co, Re [1921] 2
KB 519 …. 22.33
Moore v Collins [1937] SASR 195 …. 40.9
— v National Mutual Life Association of
Australasia Ltd [2011] NSWSC 416
…. 35.29
— v Scenic Tours Pty Ltd (2020) 377 ALR 209
…. 29.8, 29.48, 29.52, 29.53
Moorgate Capital (Corporate Finance) Ltd
v HIG European Capital Partners LLP
[2019] EWHC 1421 (Comm) …. 38.41
Moratic Pty Ltd v Gordon [2007] NSWSC 5
…. 36.19
lxvi
Morgan v Manser [1947] 2 All ER 666 …. 25.34
Morleand Finance Corporation (Vic) Pty Ltd
v Westendorp [1993] 2 VR 284 …. 14.39
Morley v Boothby (1825) 130 ER 455 …. 6.76
Morris-Garner v One Step (Support) Ltd [2019]
AC 649; [2018] 3 All ER 659 …. 29.1, 29.2,
29.24, 29.44, 29.51, 33.1, 33.10
Morrison v Town of Victoria Park [2007]
WASCA 164 …. 29.136
Morton Seed & Grain Pty Ltd v Phillbourne
Manufacturing Pty Ltd [2018] WASC 386
…. 15.11, 15.12, 15.17, 15.39, 15.43, 15.48,
15.49, 15.65
Moses v Macferlan (1760) 97 ER 676 …. 2.27,
38.2, 38.3, 38.4, 38.16, 38.23, 38.92
Motium Pty Ltd v Arrow Electronics Australia
Pty Ltd [2011] WASCA 65 …. 29.7
Motor Oil Helas (Corinth) Refineries SA
v Shipping Corporation of India (The
Kanchenjunga) [1990] 1 Lloyd’s Rep 391
…. 23.67, 23.68, 24.114
Mould v Canale [2017] VSC 793 …. 31.55
Mount Bruce Mining Pty Ltd v Wright
Prospecting Pty Ltd (2015) 256 CLR 104;
325 ALR 188 …. 12.13, 12.18, 12.32, 12.46,
24.18
MSC Mediterranean Shipping Company SA
v Cottonex Anstalt [2016] EWCA Civ 789
…. 11.48, 30.55
MSD Securities Pty Ltd v MFB Properties (NQ)
Pty Ltd (No 2) [2018] 2 Qd R 51 …. 31.83
Multiplex Constructions Pty Ltd v Abgarus Pty
Ltd (1992) 33 NSWLR 504 …. 30.15
Munce v Vinidex Tubemakers Pty Ltd [1974] 2
NSWLR 235 …. 29.131
Mungalsingh v Juman [2015] UKPC 38
…. 31.27
Muriti v Prendergast [2005] NSWSC 281
…. 34.14, 34.15
Murphy v Overton Investments Pty Ltd (2004)
216 CLR 388; 204 ALR 26 …. 15.99
Murray Holdings Ltd v Oscatello Investments
Ltd [2018] EWHC 162 (Ch) …. 34.7
Musca v Astle Corporation Pty Ltd (1988) 80
ALR 251 …. 37.4

Muschinski v Dodds (1985) 160 CLR 583; 62
ALR 429 …. 25.68
Museprime Properties Ltd v Adhill Properties
Ltd (1991) 61 P & CR 111 …. 14.53
Mushroom Composters Pty Ltd v I S & D E
Robertson Pty Ltd [2015] NSWCA 1 …. 5.5
Musumeci v Winadell Pty Ltd (1994) 34
NSWLR 723 …. 6.54, 6.55
Mutual Finance Ltd v John Wetton & Sons
Ltd [1937] 2 All ER 657; [1937] 2 KB 389
…. 17.7, 18.14
MWB Business Exchange Centres Ltd v Rock
Advertising Ltd [2016] 3 WLR 1519 …. 6.73
— v — [2019] AC 119; [2018] 4 All ER 21
…. 6.62, 6.73, 10.63, 23.35, 23.36, 23.37, 23.38
MWH Australia Pty Ltd v Wynton Stone
Australia Pty Ltd (in liq) (2010) 31 VR 575
…. 13.22, 15.17, 15.66, 15.68
N NE Perry Pty Ltd v Judge (2002) 84 SASR 86
Nadilo v Souris [2019] NSWSC 108 …. 7.33
Nadinic v Drinkwater (2017) 94 NSWLR 518
…. 35.1, 35.7, 35.11, 35.24
Napier v National Business Agency Ltd [1951]
2 All ER 264 …. 28.39
Narain v Euroasia (Pacific) Pty Ltd (2009)
VR 387 …. 18.62
Nash v Inman [1908] 2 KB 1 …. 9.17
Nassif v Fahd [2007] NSWCA 269 …. 10.68
National Australia Bank v McCourt [2010]
WASC 237 …. 11.54
National Australia Bank Ltd v Clowes [2013]
NSWCA 179 …. 12.40, 12.41, 34.8
— v Dionys (as Trustee for the Angel Family
Trust) [2016] NSWCA 242 …. 10.42
— v Savage [2013] NSWSC 1718 …. 18.63
— v Sayed (No 4) [2015] NSWSC 420 …. 36.9
— v Wehbeh [2014] VSC 431 …. 18.66
National Carriers Ltd v Panalpina (Northern)
Ltd [1981] AC 675; [1981] 1 All ER 161
…. 25.7, 25.16, 25.17, 25.22, 25.23, 25.46,
25.47, 25.50
National Commercial Banking Corporation of
Australia Ltd v Batty (1986) 160 CLR 251;
65 ALR 385 …. 38.96
lxvii
TABLE OF CASES­
National Exchange Pty Ltd v Australian
Securities and Investments Commission
[2004] FCAFC 90 …. 15.44
National Mutual Property Services (Australia)
Pty Ltd v Citibank Savings Ltd (1995) 132
ALR 514 …. 40.48
National Private Air Transport Services
Company (National Air Services) Ltd
v Creditrade Llp [2016] EWHC 2144
(Comm) …. 11.57
National Tertiary Education Industry Union
v Commonwealth of Australia (2002) 117
FCR 114 …. 17.5
Nationwide News Pty Ltd v Rush [2020]
FCAFC 115 …. 29.44
Nayyar v Sapte [2009] EWHC 3218 (QB)
…. 27.14
NCON Australia Ltd v Spotlight Pty Ltd (No 7)
[2014] VSC 25 …. 29.7
…. 27.106
Neal v Murnain [2017] NSWSC 1039
…. 31.75
Neale v Bank of Western Australia Ltd [2014]
NSWSC 315 …. 18.3, 19.1
Neeta (Epping) Pty Ltd v Phillips (1974) 131
CLR 286; 3 ALR 151 …. 24.50
Neill v Hewens (1953) 89 CLR 1 …. 8.22
Nelson v Nelson (1995) 184 CLR 538; 132 ALR
133 …. 26.7, 26.10, 26.11, 26.48, 26.49,
26.53, 26.54, 26.55, 26.56, 28.1, 28.6, 28.7,
28.9, 28.11
Nemeth v Australian Litigation Funders Pty Ltd
[2014] NSWCA 198 …. 20.18, 20.23, 20.25,
20.39
Neocleous v Rees [2019] EWHC 2462 (Ch)
…. 8.21
Net Parts International Pty Ltd v Kenoss Pty
Ltd [2008] NSWCA 324 …. 24.95
Netglory Pty Ltd v Caratti [2013] WASC 364
…. 6.82
Netline Pty Ltd v QAV Pty Ltd (No 2) [2015]
WASC 113 …. 31.51
Network Ltd v Speck [2009] VSC 235
…. 11.55
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Network Ten Pty Ltd v Seven Network
(Operations) Ltd [2014] NSWSC 692
…. 37.39
New Brunswick and Canada Rly and Land
Co Ltd v Muggeridge (1859) 62 ER 263
…. 31.75
New South Wales Lotteries Corporation Pty
Ltd v Kuzmanovski (2011) 195 FCR 234
…. 4.88, 12.39
New South Wales Medical Defence Union Ltd
v Transport Industries Insurance Co Ltd
(1986) 6 NSWLR 740 …. 34.1
New Testament Church of God v Stewart
[2007] EWCA Civ 1004 …. 7.25
New Zealand Industrial Park Ltd v Stonehill
Trustee Ltd [2019] NZCA 147 …. 39.53
New Zealand Local Authority Protection
Disaster Fund v Auckland Council [2013]
NZHC 1858 …. 6.57
New Zealand Pelt Export Company Ltd v Trade
Indemnity New Zealand Ltd [2004] VSCA
163 …. 36.60
New Zealand Shipping Co Ltd v AM
Satterthwaite & Co Ltd (The Eurymedon)
[1975] AC 154; [1974] 1 All ER 1015
…. 39.44, 39.45, 39.46
— v Societe des Ateliers et Chantiers de France
[1919] AC 1 …. 22.27
Newall v Tomlinson (1871) LR 6 CP 405
…. 38.3
Newbigging v Adam (1886) 34 Ch D 582
…. 35.2
Newbon v City Mutual Life Assurance Society
Ltd (1935) 52 CLR 723 …. 24.104, 36.16
Newcastle upon Tyne Hospitals NHS
Foundation Trust v Haywood [2018] 4 All
ER 467 …. 4.96
Newcombe v Newcombe (1934) 34 SR (NSW)
446 …. 22.14
Newey v Westpac Banking Corporation [2014]
NSWCA 319 …. 12.32, 34.2, 34.17
Newman v Gylbert (1549) Kiralfy 176 …. 2.22
Newtown Management Pty Ltd v Owners
of Strata Plan 67219 [2009] NSWSC 150
…. 31.41
lxviii
Neylon v Dickens [1987] 1 NZLR 402 …. 33.7
Ng v Chong [2005] NSWSC 385 …. 29.7
— v Filmlock Pty Ltd (2014) 88 NSWLR 146
…. 29.31, 29.38
Ngoi v Wen [2017] NZCA 519 …. 4.84, 4.98
Nguyen v SM & T Homes Ltd [2017] 3 NZLR
281 …. 8.9
— v Taylor (1992) 27 NSWLR 48 …. 20.8,
20.32, 20.51, 20.53
NHS Commissioning Board (Known as NHS
England) v Vasant [2019] EWCA Civ 1245
…. 5.7, 10.64, 23.35
Nicholas v Thompson [1924] VLR 554
…. 14.52
Nicholson v Hilldove Pty Ltd (No 4) [2013]
VSC 578 …. 29.7
Nickoll & Knight v Ashton, Edridge & Co
[1901] 2 KB 126 …. 25.32
Niesmann v Collingridge (1921) 29 CLR 177
…. 5.32
Niru Battery Manufacturing Co v Milestone
Trading Ltd [2004] QB 985 …. 38.87
Nobahar-Cookson v Hut Group Ltd [2016]
EWCA Civ 128 …. 13.3, 13.4, 13.8, 13.9
Noble v Edwardes (1877) 5 Ch D 378
…. 24.43
Nokes v Doncaster Amalgamated Collieries
Ltd [1940] AC 1014; [1940] 3 All ER 549
…. 40.9
Noor Al Houda Islamic College Pty Ltd
v Bankstown Airport Ltd (2004) 215 ALR
625 …. 15.25
Nordenfelt v Maxim Nordenfelt Guns and
Ammunition Co Ltd [1894] AC 535
…. 27.40, 27.41, 27.43, 27.46, 27.51, 27.54,
27.67, 27.68, 27.69, 27.87, 28.39
Normalec Ltd v Britton [1983] 9 FSR 318
…. 27.99
Norman v FEA Plantations Ltd (2011) 195
FCR 97; 280 ALR 470 …. 7.1, 7.32, 7.41
— v Federal Commissioner of Taxation (1963)
109 CLR 9 …. 6.80, 40.25, 40.31, 40.36
North East Equity Pty Ltd v Proud Nominees
Pty Ltd (2010) 269 ALR 262 …. 15.74
— v — (2012) 285 ALR 217 …. 15.74

North Ocean Shipping Co Ltd v Hyundai
Construction Co Ltd [1979] 1 QB 705;
[1978] 3 All ER 1170 …. 17.29, 17.36
North v Marra Developments Ltd (1981) 148
CLR 42; 37 ALR 341 …. 28.3, 28.4
Northern Tablelands Insurance Brokers
v Howell [2009] NSWSC 426 …. 27.49
North-Western Salt Co Ltd v Electrolytic
Alkali Co Ltd [1914] AC 461 …. 27.59,
27.68
Norton v Angus (1926) 38 CLR 523 …. 11.42,
33.15
Norton Property Group Pty Ltd v Ozzy States
Pty Ltd (in liq) [2020] NSWCA 23 …. 4.53,
14.16
NRM Corporation Pty Ltd v Australian
Competition and Consumer Commission
[2016] FCAFC 98 …. 21.1, 21.21, 21.27
NRW Contracting Pty Ltd v Cliffs Asia Pacific
Iron Ore Pty Ltd [2020] WASCA 107
…. 29.2
NT Power Generation Pty Ltd v Power and
Water Authority (2001) 184 ALR 481
…. 11.28
Nu Line Construction Group Pty Ltd v Fowler
[2012] NSWSC 587 …. 38.2, 38.24, 38.53
Nunin Holdings Pty Ltd v Tullamarine Estates
Pty Ltd [1994] 1 VR 74 …. 4.96
Nurdin & Peacock plc v DB Ramsden & Co Ltd
[1999] 1 EGLR 119 …. 31.14
Nurisvan Investment Ltd v Anyoption Holdings
Ltd [2017] VSCA 141 …. 5.38, 5.40, 6.83,
31.25
NWC Finance Pty Ltd v Borsellino [2018]
NSWSC 134 …. 20.2, 24.4
NZI Insurance Limited v Baryzcka (2003) 85
SASR 497 …. 8.14
O Olivaylle Pty Ltd v Flottweg GMBH & KGAA
Oakacre Ltd v Claire Cleaners (Holdings) Ltd
[1982] Ch 197 …. 33.10
OBG Ltd v Allan [2008] 1 AC 1; [2007] 4 All
ER 545 …. 37.36, 37.39, 37.40, 37.41, 37.42,
37.44, 37.45, 37.46, 37.48, 37.51, 37.54,
37.55, 37.61, 37.62, 37.63
lxix
TABLE OF CASES­
O’Brien v Smolonogov (1983) 53 ALR 107
…. 15.16
Occidental Worldwide Investment
Corporation v Skibs A/S Avanti (The
Siboen and the Sibotre) [1976] 1 Lloyd’s
Rep 293 …. 17.27
Ocean Tramp Tankers Corp v V/O Sovfracht
(The Eugenia) [1964] 2 QB 226 at 239;
[1964] 1 All ER 161 …. 25.64
Oceanbulk Shipping & Trading SA v TMT Asia
Ltd [2011] 1 AC 662; [2010] 4 All ER 1011
…. 12.32
Oceanic Sun Line Special Shipping Co Inc
v Fay (1988) 165 CLR 197; 79 ALR 9
…. 4.70, 10.33, 10.38
Ochroid Trading Ltd v Chua Siok Liu [2018]
SGCA 5 …. 26.61, 27.9, 28.25, 28.28
O’Connor v SP Bray Ltd (1936) 36 SR (NSW)
248 …. 23.64, 24.102
O’Connor v The Commissioner for
Government Transport (1954) 100 CLR 225
…. 11.38
O’Dea v Allstates Leasing System (WA) Pty Ltd
(1983) 152 CLR 359; 45 ALR 632 …. 30.2,
30.7, 30.18
Official Trustee in Bankruptcy v Tooheys Ltd
(1993) 29 NSWLR 641 …. 31.63
Ogle v Comboyuro Investments Pty Ltd (1976)
136 CLR 444; 9 ALR 309 …. 24.74, 24.111,
29.154
Okedina v Chikale [2019] EWCA Civ 1393
…. 27.1
O’Keefe v Williams (1910) 11 CLR 171 …. 32.4
Old UGC Inc v Industrial Relations
Commission (2006) 225 CLR 274; 227 ALR
190 …. 21.38
Old v Hodgkinson [2009] NSWSC 1160
…. 38.50
(No 4) (2009) 255 ALR 632 …. 4.93
Olley v Marlborough Court Ltd [1949] 1 All ER
127; [1949] 1 KB 532 …. 10.33
Olsen v Mentink [2019] NSWSC 1299 …. 18.4
Olsson v Dyson (1969) 120 CLR 365 …. 23.28,
23.29
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Omega Air Inc v CAE Australia Pty Ltd [2015]
NSWSC 802 …. 15.82
Ooh! Media Roadside Pty Ltd v Diamond
Wheels Pty Ltd (2011) 32 VR 255 …. 25.20,
25.21, 25.23, 25.27, 25.28, 25.41, 25.53
Openwork Ltd v Forte [2018] EWCA Civ 783
…. 5.13
OPR WA Pty Ltd v Marron [2016] WASC 395
…. 21.20
Optical 88 Ltd v Optical 88 Pty Ltd (No 2)
(2010) 275 ALR 526; [2010] FCA 1380
…. 15.37, 15.51
Oracle New Zealand Ltd v Price Waterhouse
Administration Ltd [2010] 1 NZLR 553
…. 5.28
Orakpo v Manson Investments Ltd [1978]
AC 95; [1977] 3 All ER 1 …. 9.27
Organ v Dandwell [1921] VLR 622 …. 8.25
Orica Investments Pty Ltd v McCartney [2007]
NSWSC 645 …. 37.39
— v — [2010] NSWSC 488 …. 29.46
Ormwave Pty Ltd v Smith [2007] NSWCA 210
…. 4.101
Orton v Melman (1981) 1 NSWLR 583
…. 27.68, 27.114, 27.117, 27.120
Osborn v McDermott [1998] 3 VR 1 …. 23.46,
23.47, 23.52
Oscar Chess Ltd v Williams [1957] 1 All ER 325
…. 10.14, 10.15
O’Toole v Kent [2015] VSC 470 …. 35.3
Ottoway Engineering Pty Ltd v Westpac
Banking Corporation (No 3) [2017]
FCA 1500 …. 19.49
Outback Energy Hunter Pty Ltd v New
Standard Energy Pel 570 Pty Ltd [2018]
SASC 8 …. 29.40
Overlook Management BV v Foxtel
Management Pty Ltd [2002] NSWSC 17
…. 11.59, 11.61
Overseas Tankship (UK) Ltd v Morts Dock &
Engineering Co Ltd (The Wagon Mound)
[1961] AC 388; [1961] 1 All ER 404
…. 37.17
OVM Petrom SA v Glencore International
AG [2016] EWCA Civ 778 …. 37.15, 37.16
lxx
Owerhall v Bolton & Swan Pty Ltd [2016]
VSC 91 …. 19.12
Owners of SS ‘Mediana’ v Owners of SS ‘Comet’
[1900] AC 113 …. 29.6
Owners of Strata Plan 5290 v CGS & Co Pty
Ltd (2011) 81 NSWLR 285; 281 ALR 575
…. 40.16, 40.20, 40.45
Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd
R 124 …. 22.39
Owston Nominees No 2 Pty Ltd v Clambake
Pty Ltd (2011) 248 FLR 193 …. 15.28,
15.29
OXS Pty Ltd v Sydney Harbour Foreshore
Authority [2016] NSWCA 120 …. 5.38,
15.30, 15.31
Oz Minerals Holdings Pty Ltd v AIG Australia
Ltd [2015] VSCA 346 …. 13.8
P
P & O Nedlloyd BV v Arab Metals Co (No 2)
[2007] 1 WLR 2288 …. 31.68
Paal Wilson & Co A/S v Partenreederei Hannah
Blumenthal [1983] AC 854; [1983] 1
All ER 34 …. 4.70
Pacer v Westpac Banking Corporation
(unreported, Supreme Court of
New South Wales, Santow J, 2 August 1996)
…. 16.49
Pacific Brands Sport & Leisure Pty Ltd
v Underworks Pty Ltd [2005] FCA 288
…. 11.52, 11.65
— v — (2006) 149 FCR 395 …. 23.29, 23.65,
40.7
Paciocco v Australia and New Zealand Banking
Group Ltd (2015) 236 FCR 199; 321 ALR
584 …. 11.59, 19.67, 20.22, 21.1, 21.19
— v — (2016) 258 CLR 525; 333 ALR 569
…. 19.9, 19.67, 21.19, 30.3, 30.8, 30.12,
30.17, 30.20, 30.21, 30.24
Pakenham Upper Fruit Company Ltd v Crosby
(1924) 35 CLR 386 …. 31.9
Page v Healthscope Operations Pty Ltd [2016]
NSWSC 1608 …. 1.2
Page One Records Ltd v Britton [1967] 3 All ER
822 …. 32.16, 32.17

Pagnan SpA v Tradax Ocean Transportation SA
[1987] 3 All ER 565 …. 12.42, 12.44
Palasty v Parlby [2007] NSWCA 345 …. 29.118
Palmer v Bank of New South Wales [1973] 2
NSWLR 244 …. 5.14
— v — (1975) 133 CLR 150; 7 ALR 671
…. 5.14
Pan Ocean Shipping Co Ltd v Creditcorp Ltd
[1994] 1 All ER 470 …. 38.47
Pang v Byhand Holdings Pty Ltd [2010]
NSWCA 175 …. 8.13
Pankhania v Hackney [2002] EWHC 2441 (Ch)
…. 14.5
Pao On v Lau Yiu Long [1980] AC 614; [1979]
3 All ER 65 …. 6.29, 6.64, 17.20, 17.30,
17.34
Papas v Bianca Investments Pty Ltd (2002) 82
SASR 581 …. 16.70
Papastravou v Gavan [1968] 2 NSWR 286
…. 27.67
Paper Reclaim Ltd v Aotearoa International Ltd
[2006] 3 NZLR 188 …. 29.18
Papua New Guinea, Administration of the
Territory of v Daera Guba (1973) 130 CLR
353 …. 12.65
— v Leahy (1961) 105 CLR 6 …. 7.45
Paradine v Jane (1648) 82 ER 897 …. 25.2, 25.3
Parkdale Custom Built Furniture Pty Ltd
v Puxu Pty Ltd (1982) 149 CLR 191; 42
ALR 1 …. 15.39, 15.42, 15.51
Parker v South Eastern Railway Co (1877) 2
CPD 416 …. 10.17, 10.35, 10.36
ParkingEye Ltd v Beavis [2016] AC 1172;
[2016] 2 All ER 519 …. 30.23
— v Somerfield Stores Ltd [2013] QB 840
…. 27.6, 27.8, 27.14, 27.21, 27.22, 27.24,
27.25
Parkinson v College of Ambulance [1925] 2 KB
1 …. 27.10, 28.20, 28.28
Parkview Qld Pty Ltd v Commonwealth Bank
of Australia [2013] NSWCA 422 …. 39.59
Parramatta City Council v Lutz (1988) 12
NSWLR 293 …. 37.24
Partridge v Crittenden [1968] 2 All ER 421
…. 4.17
lxxi
TABLE OF CASES­
P’Auer AG v Polybuild Technologies
International Pty Ltd [2015] VSCA 42
…. 4.79, 11.29
Patel v Ali [1984] Ch 283; [1984] 1 All ER 978
…. 31.58
— v Mirza [2017] AC 467; [2017] 1 All ER 191
…. 26.24, 26.47, 27.1, 27.2, 27.4, 27.5, 27.7,
27.8, 27.10, 28.28
Patrick Stevedores Operations (No 2) Pty Ltd
v Port of Melbourne Corp [2016] VSC 528
…. 34.17
Patrick Stevedores Operations No 2 Pty Ltd
v Maritime Union of Australia (No 3)
(1998) 195 CLR 1; 153 ALR 643 …. 31.53,
31.54
Patterson v Dolman [1908] VLR 354 …. 4.56
Pattinson v Flack [2002] EWCA Civ 1820
…. 14.45
Pattison v Mann (1975) 13 SASR 34 …. 4.15
Paul v Pavey & Matthews Pty Ltd (1985) 3
NSWLR 114 …. 2.15
Pavey & Matthews Pty Ltd v Paul (1987) 162
CLR 221; 69 ALR 577 …. 2.15, 22.37, 38.3,
38.6, 38.7, 38.11, 38.28, 38.30, 38.36, 38.37,
38.38, 38.48, 38.69
Pavlovic v Universal Music Australia Pty Ltd
(2015) 90 NSWLR 605 …. 5.40, 5.43, 12.67
Payne v Cave (1789) 100 ER 502 …. 4.26, 4.27
Payzu Ltd v Saunders [1919] 2 KB 581
…. 29.136, 29.139, 29.140
Pazta Company Pty Ltd v Idelake Pty Ltd
[2008] NSWSC 941 …. 36.59
Pearce v Brooks (1866) LR 1 Exch 213
…. 27.32
Pearl Mill Co Ltd v Ivy Tannery Co Ltd [1919]
1 KB 78 …. 23.3
Pearson v HRX Holdings Pty Ltd (2010) 205
FCR 187 …. 27.106
Peek v Gurney (1873) LR 6 HL 377 …. 14.37
Peekay Intermark Ltd v Australia and
New Zealand Banking Group Ltd [2006]
EWCA Civ 386 …. 10.19, 10.23, 14.45,
14.55
Peet Ltd v Richmond (2011) 33 VR 465
…. 38.41
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Peeters v Schimanski [1975] 2 NZLR 328
…. 9.57
Pell Frischmann Engineering Ltd v Bow Valley
Iran Ltd [2011] 1 WLR 2370 …. 29.24
Photo Production Ltd v Securicor Transport
Ltd [1980] AC 827; [1980] 1 All ER 556
…. 29.1, 29.6
Penrith Whitewater Stadium Ltd v Lesvos Pty
Ltd [2007] NSWCA 176 …. 8.26
Percy v Board of National Mission of the
Church of Scotland [2006] 2 AC 28; [2006]
4 All ER 1354 …. 7.24
Peregrine Systems Ltd v Steria Ltd [2005]
EWCA Civ 239 …. 22.8
Performing Right Society Ltd v London
Theatre of Varieties Ltd [1924] AC 1
…. 40.22
Permanent Mortgages Pty Ltd v Vandenbergh
(2011) 41 WAR 353 …. 18.21, 18.78
Permanent Trustee Australia Ltd v FAI
General Insurance Company Ltd (in
liq) (2003) 214 CLR 514; 197 ALR 364
…. 14.26
Perpetual Custodians Pty Ltd v IOOF
Investment Management Ltd (2013) 278
FLR 49; 304 ALR 436 …. 12.55
Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98
…. 12.40, 34.1, 34.16
Perpetual Trustee Co Ltd v Khoshaba [2006]
NSWCA 41 …. 19.34, 20.7, 20.8, 20.16,
20.17, 20.18, 20.19, 20.21, 20.26, 20.27,
20.29, 20.36, 20.42, 20.53
— v Papantoniou [2012] NSWSC 1415 …. 20.29
Perpetual Trustees Australia Ltd v Heperu Pty
Ltd (2009) 76 NSWLR 195 …. 38.72
Perpetual Trustees Victoria Ltd v Burns [2015]
WASC 234 …. 35.9
Perri v Coolangatta Investments Pty Ltd Pty Ltd
(1982) 149 CLR 537; 41 ALR 441 …. 23.13,
23.14, 23.16
Perry v Anthony [2016] NSWCA 56 …. 6.6
— v Gao [2019] NSWSC 1022 …. 18.7
— v Suffields [1916] 2 Ch 187 …. 4.2
Persimmon Homes Ltd v Arup & Partners Ltd
[2015] EWHC 3573 (TCC) …. 13.23
lxxii
Personal Touch Financial Services Ltd
v Simplysure Ltd [2016] EWCA Civ 461
…. 24.24
Personnel Concepts WA Pty Ltd v Adam [2019]
NSWSC 301 …. 4.72
Pet Tech Pty Ltd v Batson [2013] NSWSC 1954
…. 27.89
Petelin v Cullen (1975) 132 CLR 355; 6 ALR
129 …. 16.88, 16.89, 16.92, 16.94
Peter Bodum A/S v DKSH Australia Pty Ltd
(2011) 280 ALR 639 …. 15.44
Peter Turnbull and Company Pty Ltd v Mundus
Trading Co (Australasia) Pty Ltd (1954) 90
CLR 235 …. 24.20
Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375
…. 15.77
Peters v Fleming (1840) 151 ER 314 …. 9.8
Peters (WA) Ltd v Petersville Ltd [1999] FCA
1245 …. 27.58
— v — (2001) 205 CLR 126; 181 ALR 337
…. 11.39, 27.40, 27.47
Peters American Delicacy Co Ltd v Patricia’s
Chocolates and Candies Pty Ltd (1947) 77
CLR 574 …. 27.44, 27.55
Peters Properties Maddington Pty Ltd v Keen
[2019] WASC 138 …. 15.17
Pethybridge v Stedikas Holdings Pty Ltd [2007]
NSWCA 154 …. 12.65
Petromec Inc v Petroleo Brasileiro SA Petrobras
[2006] 1 Lloyd’s Rep 121; [2005] EWCA Civ
891 …. 5.27
Peyman v Lanjani [1985] Ch 457; [1984] 3 All
ER 703 …. 35.29
PGA v R (2012) 245 CLR 355; 287 ALR 599
…. 6.74
PH Hydraulics & Engineering Pte Ltd
v Airtrust (Hong Kong) Ltd [2017] SGCA
26 …. 29.18
Pharmaceutical Society of Great Britain v Boots
Cash Chemists (Southern) Ltd [1952] 2 QB
795 …. 4.25
— v — [1953] 1 QB 401; [1953] 1 All ER 482
…. 4.21, 4.22, 4.24, 4.25
Pharmacy Care Systems Ltd v Attorney-
General (2004) 2 NZCCLR 187 …. 17.20

Philips Electronique Grand Public SA v British
Sky Broadcasting Ltd [1995] EMLR 472
…. 11.11
Phillips v Brooks Ltd [1919] 2 KB 243 …. 16.68,
16.69, 16.72, 16.75
— v Ellinson Brothers Pty Ltd (1941) 65 CLR
221 …. 8.6, 22.39, 23.34
Phoenix Commercial Enterprises Pty Ltd v City
of Canada Bay Council [2010] NSWCA 64
…. 12.11
Phoenix Court Pty Ltd v Melbourne
Central Pty Ltd [1997] FCA 1101
…. 15.72
Phoenix General Insurance Co of Greece
SA v Halvanon Insurance Co Ltd [1988]
QB 216; [1987] 2 All ER 152 …. 26.36
Photo Production Ltd v Securicor Transport
Ltd [1980] AC 827; [1980] 1 ALL ER 556
…. 12.72, 13.3, 13.12, 13.28, 13.29
Phung v Phung [2019] NSWSC 117 …. 8.43,
31.61
Pianta v National Finance & Trustees Ltd
(1964) 180 CLR 146 …. 31.29
Piazza Trevi v Cromwell BT Pty Ltd [2017]
NSWSC 794 …. 36.40
Pickering v Thoroughgood (1533) Spelman’s
Rep …. 2.14
Pinnel’s Case (1602) 77 ER 237 …. 36.3
Pico Holdings Inc v Wave Vistas Pty Ltd (2005)
214 ALR 392 …. 6.24
Pigram v Attorney General for the State of
New South Wales (1975) 132 CLR 216; 6
ALR 15 …. 30.30
Pilbara Iron Ore Pty Ltd v Ammon [2020]
WASCA 92 …. 11.29
Pilgrim v Wendy’s Supa Sundaes Pty Ltd [2002]
NSWIR Comm 238 …. 21.38
Pilkington v Wood [1953] Ch 770 …. 29.138
Pinnel’s Case (1602) 77 ER 237 …. 6,69, 6.70,
6.72, 6.73, 6.74, 6.78
Pioneer Concrete Services Ltd v Galli [1985]
VR 675 …. 27.78, 27.103
Pioneer Shipping Ltd v BTP Tioxide Ltd (The
Nema) [1982] AC 724; [1981] 2 All ER 1030
…. 25.15, 25.18, 25.53
lxxiii
TABLE OF CASES­
Pipe Networks Pty Ltd v 148 Brunswick Street
Pty Ltd (Trustee) (2019) 371 ALR 627
…. 26.23, 26.53
Pipikos v Trayans (2018) 265 CLR 522 at 558;
359 ALR 210 …. 8.29, 8.30, 8.31, 8.32, 8.38,
8.39, 8.40, 8.41, 8.42
Pirie v Saunders (1961) 104 CLR 149 …. 8.16
Pirt Biotechnologies Pty Ltd v Pirtferm Ltd
[2001] WASCA 96 …. 7.34
Pitcher Partners Consulting Pty Ltd v Neville’s
Bus Service Pty Ltd (2019) 271 FCR 392;
371 ALR 480 …. 37.15
PKT Technologies Pty Ltd v Peter Vogel
Instruments Pty Ltd (2019) 376 ALR 55
…. 29.66
Placer (Granny Smith) Pty Ltd v Thiess
Contractors Pty Ltd (2003) 196 ALR 257
…. 29.1
Placer Development Ltd v The Commonwealth
(1969) 121 CLR 353 …. 6.31, 7.9
Planet Kids Ltd v Auckland Council [2014] 1
NZLR 149 …. 25.1, 25.8, 25.12, 25.17
Plankton Australia Pty Ltd v Rainstorm Dust
Control Pty Ltd [2018] FCA 174 …. 8.2
Plant v Bourne [1897] 2 Ch 281 …. 5.2
Playboy Club London Ltd v Banca Nazionale
del Lavoro SPA [2019] 2 All ER 478
…. 37.21
Playford Vineyard Pty Ltd v Wishford
Nominees Pty Ltd [2018] SASC 84
…. 5.31
— v — [2019] SASCFC 99 …. 5.31, 24.11
Plevin v Paragon Personal Finance Ltd [2014]
UKSC 61 …. 21.21
PNC Lifestyle Investments Pty Ltd v REW08
Projects Pty Ltd (No 2) [2017] NSWSC 993
…. 33.9
Polish Club Ltd v Gnych (2014) 86 NSWLR 650
…. 26.59
Port Jackson Stevedoring Pty Ltd v Salmond
and Spraggon Pty Ltd; ‘The New York Star’
(1978) 139 CLR 231; 18 ALR 333 …. 39.46,
39.47
— v — (1980) 144 CLR 300; 30 ALR 588 (Privy
Council) …. 39.46
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Port Macquarie-Hastings Council v Diveva
Pty Ltd [2017] NSWCA 97 …. 29.44,
29.161
Port of Melbourne Authority v Anshun Pty Ltd
(1981) 147 CLR 589; 36 ALR 3 …. 36.12
Porter v Latec Finance (Qld) Pty Ltd (1964) 111
CLR 177 …. 16.69, 38.84
Poseidon Ltd v Adelaide Petroleum NL (1991)
105 ALR 25 …. 15.22
Positive Endeavour Pty Ltd v Madigan (2009)
105 SASR 109 …. 27.49, 27.108, 28.38
Poulet Frais Pty Ltd v Silver Fox Company Pty
Ltd (2005) 220 ALR 211 …. 15.86
Pourzand v Telstra Corporation Ltd [2012]
WASC 210 …. 39.18
Powell v Lee (1908) 99 LT 284 …. 4.84
— v Powell [1900] 1 Ch 243 …. 18.36
Powercell Pty Ltd v Cuzeno Pty Ltd [2003]
NSWSC 600 …. 8.7
Powierza v Daley [1985] 1 NZLR 588
…. 4.48
PRA Electrical Pty Ltd v Perseverance
Exploration Pty Ltd (2007) 20 VR 487
…. 4.79
Prasad v Sangha [2012] NSWCA 92 …. 38.68,
38.76
Premiership Investments Pty Ltd v White
Diamond (1995) 61 FCR 178; 133 ALR 64
…. 40.43
Prenn v Simmonds [1971] 3 All ER 237
…. 12.58, 12.61
Prestcold (Central) Ltd v Minister of Labour
[1969] 1 All ER 69 …. 12.8
Preston (formerly Moore) v President of the
Methodist Conference [2013] 2 AC 163;
[2013] 4 All ER 477 …. 7.24, 7.25
Pretorius Pty Ltd v Muir & Neil Pty Ltd (1976)
1 NSWLR 213 …. 26.44
Price v Neal (1762) 97 ER 871 …. 38.3
— v Southern Cross Television (TNT9) Pty Ltd
[2014] TASSC 70 …. 7.27
— v Strange [1978] Ch 337; [1977] 3 All ER 371
…. 31.77
Priestley v Priestley [2017] NSWCA 155
…. 36.31, 36.51, 36.54, 36.61
lxxiv
Primary Flooring Pty Ltd v Australian
Comfort Group Pty Ltd [2019] VSC 104
…. 22.24
Primary Health Care Limited v Commissioner
of Taxation (2010) 186 FCR 301; 267 ALR
648 …. 11.10
Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd
[2012] WASC 443 …. 33.8
Principal Properties Pty Ltd v Brisbane Broncos
Leagues Club Ltd [2018] 2 Qd R 584
…. 29.42
Pritchard v Racecage Pty Ltd (1997) 72 FCR
203; 142 ALR 527 …. 40.50
Private Mortgages Australia Pty Ltd ACN
600 628 813 as trustee for the PMA Trust
v Stever [2019] NSWSC 462 …. 20.23,
20.39, 20.45, 20.54
Priyanka Shipping Ltd v Glory Bulk Carriers
Pte Ltd [2019] 1 WLR 6677 …. 29.24, 32.5,
32.20
Proactive Sports Management Limited
v Rooney [2011] EWCA Civ 1444 …. 27.45,
27.46
Process Minerals International Pty Ltd
v Consolidated Minerals Pty Ltd [2011]
WASCA 219 …. 12.67
Professional Services of Australia Pty Ltd
v Computer Accounting and Tax Pty Ltd
(No 2) (2009) 261 ALR 179 …. 15.96
Proform Sports Management Ltd v Proactive
Sports Management Ltd [2007] 1 All ER
542 …. 9.16, 9.21, 9.24
Progress Bulk Carriers Ltd v Tube City IMS
LLC [2012] EWHC 273 (Comm) …. 17.7,
17.20, 17.33, 17.34, 17.35
Progressive Mailing House Pty Ltd v Tabali
Pty Ltd (1985) 157 CLR 17; 57 ALR 609
…. 24.64, 29.39
Project 28 Pty Ltd (Formerly Narui Gold
Coast Pty Ltd) v Barr [2005] NSWCA 240
…. 40.48
Property Alliance Group Ltd v Royal Bank
of Scotland Plc [2016] EWHC 3342 (Ch)
…. 11.57
— v — [2018] 1 WLR 3529 …. 37.20

Property Investors Alliance Pty Ltd v Qi [2018]
NSWSC 977 …. 27.115
Proprietors of Wakatu v Attorney-General
[2015] 2 NZLR 298 …. 31.68
Prosperity Advisers Pty Ltd v Secure
Enterprises Pty Ltd [2012] NSWCA 192
…. 29.43
Prosser v Edwards (1835) 160 ER 196 …. 40.45
Provident Capital Ltd v Papa (2013) 84 NSWLR
231 …. 20.23, 20.53
Provincial Insurance Australia Pty Ltd
v Consolidated Wood Products Pty Ltd
(1991) 25 NSWLR 541 …. 12.53
Prudential Assurance Co Ltd v Health Minders
Pty Ltd (1987) 9 NSWLR 673 …. 4.51
Prudential Trust Co Ltd v Cugnet [1956] SCR
914 …. 16.89
PSAL Ltd v Kellas-Sharpe [2012] QSC 31
…. 30.19
PT Ltd v Spuds Surf Chatswood Pty Ltd [2013]
NSWCA 446 …. 19.17
Public Curator of Queensland v Union Trustee
Company of Australia (1922) 31 CLR 66
…. 39.59
Public Service Association and Professional
Officers’ Association Amalgamated
Union of New South Wales v Zoological
Parks Board of New South Wales [2007]
NSWIRComm 1080 …. 11.47
Public Trustee (WA) v Brumar Nominees Pty
Ltd [2012] WASC 161 …. 9.48
Public Trustee v Taylor [1978] VR 289 …. 14.6
Purcell v Tullett Prebon (Aust) Pty Ltd [2010]
NSWCA 150 …. 27.112
Putsman v Taylor [1927] 1 KB 637 …. 27.67
Puxu Pty Ltd v Parkdale Custom Built
Furniture Pty Ltd (1980) 31 ALR 73
…. 15.60
Pym v Campbell (1856) 119 ER 903 …. 10.65
Q — v Ron Engineering & Construction
QCoal Pty Ltd v Cliffs Australia Coal Pty Ltd
[2010] QSC 479 …. 6.29
Quadling v Robinson (1976) 137 CLR 192; 10
ALR 319 …. 4.77
lxxv
TABLE OF CASES­
Quantum Advisory Ltd v Quantum Actuarial
LLP [2020] EWHC 1072 (Comm) …. 27.55,
27.67
Quantum Service Logistics Pty Ltd v Schenker
Australia Pty Ltd [2019] NSWSC 2
…. 27.82, 27.115
Queensland Insurance Co Ltd v Australian
Mutual Fire Insurance Society Ltd (1941)
41 SR 195 …. 40.5
QuestCrown Pty Ltd v Insignia Towers
(Southport) Pty Ltd [2007] QCA 378
…. 26.4, 26.41, 28.1
Quijiao Liu v Yuqing Xiao [2020] NSWSC 289
…. 10.59
Quikfund (Australia) Pty Ltd v Airmark
Consolidators Pty Ltd (2014) 222 FCR 13;
312 ALR 254 …. 20.3, 20.8, 20.12, 38.94
Quin v Mutual Acceptance Co Ltd (1968) 1
NSWR 122 …. 28.21
Quinn Villages Pty Ltd v Mulherin [2006] QCA
433 …. 23.15
Quinn v Irish Bank Resolution Corporation
Ltd (in Special Liquidation) [2015]
IESC 29 …. 26.8, 26.10, 26.15, 26.24, 26.32,
27.4, 27.5
— v Jack Chia (Australia) Ltd [1992] 1 VR 567
…. 29.136
— v Overland [2010] FCA 799 …. 31.43
Quoine Pte v B2C2 Ltd [2020] SGCA(I) 02
…. 16.77, 16.81, 16.82, 16.83
R
R v Attorney-General of England and Wales
[2003] UKPC 22 …. 17.3
— v Clarke (1927) 40 CLR 227 …. 4.72, 4.73,
4.74, 6.22
— v Darling Island Stevedoring and Lighterage
Co Ltd; Ex parte Halliday and O’Sullivan
(1938) 60 CLR 601 …. 11.38
— v Dawood [1976] 1 WWR 262 …. 4.25
(Eastern) Ltd [1981] 1 SCR 111; 119 DLR
(3d) 267 …. 4.34
R & A Cab Co Pty Ltd v Kotzman 2008]
VSCA 68 …. 24.11
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Radaich v Smith (1959) 101 CLR 209 …. 8.11
Radford v De Froberville [1978] 1 All ER 33
…. 29.31
Rafferty v Madgwicks (2012) 203 FCR 1
…. 15.23
Raffles v Wichelhaus (1864) 159 ER 375
…. 16.56, 16.57
Raguz v Sullivan (2000) 50 NSWLR 236 …. 4.8
Rahme v Benjamin & Khoury Pty Ltd (2019)
100 NSWLR 550 …. 18.36
Raiffeisen Zentralbank Osterreich AG v Royal
Bank of Scotland Plc [2011] 1 Lloyd’s Rep
123 …. 14.47, 14.50
Rainy Sky SA v Kookmin Bank [2012] 1 All ER
1137 …. 12.45, 12.51
Rakic v Johns Lyng Insurance Building
Solutions (Victoria) Pty Ltd (Trustee)
[2016] FCA 430 …. 15.74
Ram Narayan s/o Shankar v Rishad Hussain
Shah s/o Tusaduq Hussain Shah [1979]
1 WLR 1349 …. 8.15
Ramadan v ACN 098 408 176 Pty Ltd (2018)
129 SASR 584 …. 18.63, 18.74
Ramsden v Dyson (1866) LR 1 HL 129
…. 36.26
Ramsey v Annesley College [2013] SASC 72
…. 29.68
— v Hartley [1997] 2 All ER 673 …. 40.27
Ran Bi v Yingde Investments Pty Ltd [2019]
VSC 324 …. 10.61
Rann v Hughes (1778) 101 ER 1014 …. 6.76
Rasch Nominees Pty Ltd v Bartholomaeus
[2013] SASCFC 23 …. 15.12
Rava v Logan Wines Pty Ltd [2007] NSWCA 62
…. 13.8
Ravennavi SpA v New Century Shipbuilding
Co Ltd [2007] EWCA Civ 58 …. 10.64
Ray v Davies (1909) 9 CLR 160 …. 11.42
Razdan v Westpac Banking Corporation [2014]
NSWCA 126 …. 19.56
RCR Tomlinson Ltd v Russell [2015] WASCA
154 …. 34.1, 34.4, 34.28
— v — [2017] WASCA 129 …. 34.16
Read v Brown (1888) 22 QBD 128 …. 40.28
Reade v Bullocke (1543) 73 ER 125 …. 2.4
lxxvi
Realm Resources Ltd v Aurora Place
Investments Pty Ltd [2019] NSWSC 379
…. 4.54
Reardon Smith Line Ltd v Yngvar Hansen-
Tangen [1976] 1 WLR 989 …. 1.15, 12.26
Reardon v Morley Ford Pty Ltd (1980) 49 FLR
401; 33 ALR 417 …. 4.10, 4.21
Red Hill Iron Ltd v API Management Pty Ltd
[2012] WASC 323 …. 4.79
Red Pepper Property Group Pty Ltd v S3 Sth
Melb Pty Ltd [2019] VSC 41 …. 24.20
Redgrave v Hurd (1881) 20 Ch D 1 …. 14.38,
14.44, 15.20
Redman v Permanent Trustee Co of
New South Wales Ltd (1916) 22 CLR 84
…. 31.14
Redmond Family Holdings v GC Access Pty
Ltd [2016] NSWSC 796 …. 15.18
Redowood Pty Ltd v Mongoose Pty Ltd [2005]
NSWCA 32 …. 4.5, 4.77
Reed Business Information v Seymour [2010]
NSWSC 790 …. 27.114
Reef & Rainforest Travel Pty Ltd
v Commissioner of Stamp Duties [2002] 1
Qd R 683 …. 31.13
Rees v Rees [2016] VSC 452 …. 16.48, 16.49
— v Windsor-Clive [2020] EWCA Civ 816
…. 13.9
Regent v Millett (1976) 133 CLR 679; 10 ALR
496 …. 8.32, 8.34
Reichman v Beveridge [2006] EWCA Civ 1659
…. 30.46, 30.55
Reid v Moreland Timber Co Pty Ltd (1946) 73
CLR 1 …. 22.6
Reigate v Union Manufacturing Co
(Ramsbottom) Ltd [1918] 1 KB 592
…. 11.18
Reilly v Reilly [2017] NSWSC 1419 …. 18.48
Reinhold v New South Wales Lotteries Corp
[2008] NSWSC 5 …. 13.36
Reitano v Reitano [2012] NSWSC 1127 …. 7.32
Rema Tip Top Asia Pacific Pty Ltd v Grüterich
[2019] NSWSC 1594 …. 38.13
Remax Developments Pty Ltd v Chamwell Pty
Ltd [2011] NSWSC 695 …. 24.2

Renard Constructions (ME) Pty Ltd v Minister
for Public Works (1992) 26 NSWLR 234
…. 11.49, 24.117, 38.30, 38.42
Renold Australia Pty Ltd v Fletcher Insulation
(Vic) Pty Ltd [2007] VSCA 294 …. 40.7
Rentokil Pty Ltd v Lee (1995) 66 SASR 301
…. 27.49, 27.108, 28.40
Reveille Independent LLC v Anotech
International (UK) Ltd [2016] EWCA Civ
443 …. 4.99
Reynolds v Atherton (1921) 125 LT 690 …. 4.69
RHG Mortgage Securities v BNY Trusts
Company [2009] NSWSC 1432 …. 24.121
Rhodia International Holdings Limited
v Huntsman [2007] EWHC 292 (Comm)
…. 22.26
Rhone-Poulenc Agrochimie SA v UIM
Chemical Services Pty Ltd (1986) 12 FCR
477 …. 14.34
Richard West & Partners (Inverness) Ltd v Dick
[1969] 2 Ch 424; [1969] 1 All ER 943
…. 31.3
Richardson, Re; Ex parte Governors of St
Thomas’s Hospital [1911] 2 KB 705 …. 31.1
Riches v Hogben [1985] 2 Qd R 292 …. 36.3,
36.25
Richmond v Moore Stephens Adelaide Pty Ltd
[2015] SASCFC 147 …. 24.2, 27.89
Rick Dees Ltd v Larsen [2007] 3 NZLR 577
…. 24.128
Rickard v Testel Pty Ltd (2019) 133 SASR 1
…. 29.14
Rinehart v Hancock Prospecting Pty Ltd (2019)
366 ALR 635 …. 24.18
Ringrow Pty Ltd v BP Australia Pty Ltd (2005)
224 CLR 656; 222 ALR 306 …. 30.8, 30.20,
30.21
Ringstad v Gollin & Co Pty Ltd (1924) 35 CLR
303 …. 25.10
Ringsted v Lady Lanesborough (1783) 99 ER
610 …. 38.92
Risi Pty Ltd v Pin Oak Holdings Pty Ltd [2017]
VSCA 317 …. 36.75
Ritchie v Atkinson (1808) 103 ER 787
…. 22.13
lxxvii
TABLE OF CASES­
Ritter v Keatley Real Estate Pty Ltd (2013) 116
SASR 53 …. 12.20
— v North Side Enterprises Pty Ltd (1975) 132
CLR 301; 6 ALR 125 …. 14.15
Riverlate Properties Ltd v Paul [1975] Ch 133
…. 16.83
Riz v Perpetual Trustee Australia Ltd [2007]
NSWSC 1153 …. 20.18, 20.36, 20.53
RJR Holdings Pty Ltd v Balleroo Pty Ltd (1991)
56 SASR 151 …. 22.5
RKR Dance Studios Inc v Makowski Superior
Court, Judicial District of Hartford, Docket
No CV 084035468 (46 Conn L Rptr 389)
(September 12, 2008) …. 27.100
Roadshow Entertainment Pty Ltd v ACN 053
006 269 Pty Ltd (1997) 42 NSWLR 462
…. 24.101
Roback v University of British Columbia (2007)
277 DLR (4th) 601 …. 4.39
Robb Evans & Associates v European Bank
(2009) 255 ALR 171 …. 29.127
Robbins v Federal Commissioner of Taxation
(1974) 129 CLR 332 …. 12.8
Roberts v Gray [1913] 1 KB 520 …. 9.13, 9.18
— v Rodier [2006] NSWSC 282 …. 29.90
Robertson v Kern Land Pty Ltd (1989) 96 FLR
217 …. 10.72
— v Unique Lifestyle Investments Pty Ltd
[2007] VSCA 29 …. 6.29
Robinson v Harman (1848) 154 ER 363
…. 29.8, 29.9, 29.10, 29.36, 29.70, 29.72,
29.129
Robophone Facilities Ltd v Blank [1966] 3 All
ER 128 …. 29.115
Robshaw Brothers Ltd v Mayer [1957] 1
Ch 125; [1956] 3 All ER 833 …. 8.10
Rochefoucauld v Boustead (1897) 1 Ch 196
…. 8.25
Rock Advertising Ltd v MWB Business
Exchange Centres Ltd [2019] AC 119;
[2018] 4 All ER 21 …. 5.41
Rock Refrigeration Ltd v Jones [1997] 1 All ER
1 …. 27.87, 27.89
Rockcote Enterprises Pty Ltd v F S Architects
Pty Ltd [2008] NSWCA 39 …. 29.7
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Rocky Castle Finance Pty Ltd v Taylor (2014)
118 SASR 349 …. 6.30
Roderick v Washington H Soul Pattinson
& Company Ltd [2020] NSWSC 1224
…. 23.25
Rodolico v Rodolico [2020] VSC 535 …. 17.18,
19.12
Roehlen v Mikhail [2018] VSC 121 …. 5.6
Rogers v Head (1610) 79 ER 226 …. 2.12
— v R (1991) 181 CLR 251; 123 ALR 417
…. 36.9
Rolfe v Katunga Lucerne Mill Pty Ltd [2005]
NSWCA 252 …. 29.100
Rolled Steel Products (Holdings) Ltd v British
Steel Corporation [1986] Ch 246 …. 9.61,
9.62, 9.63
Roman Catholic Trusts Corporation v Van
Driel Ltd [2001] VSC 310 …. 39.18
Romero v Farstad Shipping (Indian Pacific)
Pty Ltd (2014) 231 FCR 403; 315 ALR 243
…. 24.65
Roper v Johnson (1863) LR 8 CP 167
…. 29.145
Roscorla v Thomas (1842) 114 ER 496
…. 6.28
Rose & Frank Co v JR Crompton & Bros Ltd
[1923] 2 KB 261 (CA) …. 7.1, 7.21, 7.22
— v — [1925] AC 445 (HL) …. 7.21, 7.22
Rosebridge Nominees Pty Ltd
v Commonwealth Bank of Australia (No 6)
[2014] WASC 203 …. 40.50
Ross v IceTV Pty Ltd [2010] NSWCA 272
…. 25.47, 27.40, 27.63, 27.67, 27.114
Ross River Ltd v Cambridge City Football Club
Ltd [2008] 1 All ER 1004 …. 37.13
Ross T Smyth & Co Ltd v TD Bailey Son & Co
[1940] 3 All ER 60 …. 24.63, 24.73, 24.76
Roufos v Brewster (1971) 2 SASR 218
…. 7.11
Routledge v Grant (1828) 130 ER 920 …. 4.50
Row v Dawson (1749) 27 ER 1064 …. 40.21
Roxborough v Rothmans of Pall Mall Australia
Ltd (2001) 208 CLR 516; 185 ALR 335
…. 11.10, 25.68, 25.70, 25.71, 31.13, 31.14,
38.2, 38.3, 38.10, 38.60, 38.61, 38.92
lxxviii
Royal Bank of Scotland v Etridge (No 2) [2002]
2 AC 773; [2001] 4 All ER 449 …. 18.11,
18.19, 18.38, 18.72
Royal Bank of Scotland plc v Highland
Financial Partners LP [2013] EWCA Civ
328 …. 36.10
Royal Botanic Gardens and Domain Trust
v South Sydney Council (2002) 240 CLR 45;
186 ALR 289 …. 11.50, 12.2, 12.18
Rozenblit v Vainer [2019] VSC 316 …. 38.31,
38.65, 38.77, 38.78
RPR Maintenance Pty Ltd v Marmax
Investments Pty Ltd [2014] FCA 409
…. 11.54
RTS Flexible Systems Ltd v Molkerei Alois
Müller Gmbh & Co KG (UK Productions)
[2010] 3 All ER 1 …. 4.2, 4.80, 5.7, 5.41
Rural Press Ltd v Australian Competition
and Consumer Commission (ACCC)
(2002) 118 FCR 236; 193 ALR 399
…. 21.22
Russ Australia v Benny [2006] NSWSC 1118
…. 27.117
Russell v Trustees of the Roman Catholic
Church for the Archdiocese of Sydney
(2008) 72 NSWLR 559 …. 29.153
Rutherford v Seymour Pierce Ltd [2010]
EWHC 375 (QB) …. 29.169
Ruthol Pty Ltd v Tricon (Australia) Ltd [2005]
NSWCA 443 …. 29.145, 29.146, 29.147
Rutland’s (Countess) Case [1572] 77 ER 89
…. 10.56
Rutter v Palmer [1922] 2 KB 87 …. 13.3, 13.16,
13.17
Ruxley Electronics and Constructions Ltd
v Forsyth [1996] AC 344; [1995] 3 All ER
268 …. 29.44, 29.48, 29.50, 29.88
RV Pty Ltd v Connector Park Pty Ltd (No 2)
[2017] TASSC 22 …. 24.46
Ryan v Mutual Tontine Westminster
Chambers Association [1893] 1 Ch 116
…. 31.47
— v Ryan [2016] TASSC 4 …. 36.51, 36.72
Ryanair Ltd v SR Technics Ireland Ltd [2007]
EWHC 3089 (QB) …. 10.76

Ryder v Frohlich [2004] NSWCA 472 …. 23.5,
24.83, 24.84, 24.88
— v Wombwell (1868) LR 4 Exch 32 …. 9.17
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69
NSWLR 603 …. 10.65, 12.67, 16.54, 34.5,
34.16, 34.17, 34.19, 34.20, 34.29, 36.18,
36.19
S Sattva Capital Corporation v Creston Moly
S & K Investments Pty Ltd v Cerini [2016]
WASC 233 …. 10.62
Sacher Investments Pty Ltd v Forma Stereo
Consultants Pty Ltd [1976] 1 NSWLR 5
…. 29.135
Sadler v Evans (1766) 98 ER 34 …. 38.3
Safeway Stores Ltd v Twigger [2011] 2 All ER
841 …. 27.14
Sagacious Procurement Pty Ltd v Symbion
Health Ltd [2008] NSWCA 149 …. 5.42
Saleh v Romanous (2010) 79 NSWLR 453
…. 6.2, 10.81, 10.82, 36.30
Salib v Gakas [2010] NSWSC 505 …. 38.13
Salienta Pty Ltd v Clancy [1999] NSWSC 916
…. 36.50
Samarenko v Dawn Hill House Ltd [2012] 2 All
ER 476 …. 22.5, 24.49
SAMM Property Holdings Pty Ltd v Shaye
Properties Pty Ltd (2017) 345 ALR 633
…. 34.1, 34.2, 34.4
San Sebastian Proprietary Ltd v Minister
Administering the Environmental Planning
and Assessment Act 1979 (1986) 162 CLR
340; 68 ALR 161 …. 37.22
Sanders v Snell (1998) 196 CLR 329; 157
ALR 491 …. 37.41
Sancterra Pty Ltd v Selby St Pty Ltd [2020]
WASC 321 …. 34.6
Sandpiper Kooragang Pty Ltd v Fortis Products
Pty Ltd [2020] NSWSC 1256 …. 24.50,
24.52, 33.13
Sanpine Pty Ltd v Koompahtoo Local
Aboriginal Land Council [2006]
NSWCA 291 …. 24.72
Sanpoint Pty Ltd v V8 Supercars Holding Pty
Ltd [2019] NSWCA 5 …. 29.42
lxxix
TABLE OF CASES­
SAP Australia Pty Ltd v Sapient Australia Pty
Ltd (1999) 169 ALR 1 …. 15.36, 15.37,
15.39, 15.41
SAR Petroleum v Peace Hills Trust Company
[2010] NBCA 22 …. 37.36, 37.49, 37.61
Sargent v ASL Developments Ltd (1974) 131
CLR 634; 4 ALR 257 …. 10.17, 24.61, 24.62,
24.102, 24.106, 24.113, 35.25, 35.29
Corporation [2014] 2 SCR 633 …. 12.34
Saunders v Milsome (1866) LR 2 Eq 573 …. 23.63
Saunders (Executrix of Will of Gallie) v Anglia
Building Society [1971] AC 1004; [1970] 3
All ER 961 …. 9.50, 16.91
Saxby Soft Drinks Pty Ltd v George Saxby
Beverages Pty Ltd [2009] NSWSC 1486
…. 12.40
Saxon v Saxon [1976] 4 WWR 300 …. 17.14
Sayers v Collyer (1884) 28 Ch D 103 …. 33.12
Scaffidi v Chief Executive Officer, Department
of Local Government and Communities
(2017) 52 WAR 368 …. 6.5
— v Perpetual Trustees Victoria Ltd (2011) 42
WAR 59 …. 23.45, 23.49, 23.63
Scanlan’s New Neon Ltd v Tooheys Ltd (1943)
67 CLR 169 …. 25.41, 25.49
Scarborough v Sturzaker (1905) 1 Tas LR 117
…. 9.17
Scarf v Jardine (1882) 7 App Cas 345 …. 23.29,
40.5
Schebsman, Re [1944] Ch 83 …. 39.56
Schipp v Cameron [1998] NSWSC 997
…. 19.44
Schultz v Bank of Queensland Ltd [2014] QSC
305 …. 18.63, 18.66
— v — [2016] 2 Qd R 86 …. 18.63, 18.65, 18.66,
18.69
— v Ocean Accident & Guarantee Corp Ltd
(1923) 23 SR (NSW) 153 …. 27.19
Schulz v McArthur Ridge Investments Ltd
[2015] NZCA 298 …. 5.24
Schwarstein v Watson (1987) 3 NSWLR 134
…. 2.15
Schwartz v Hadid [2013] NSWCA 89
…. 12.40
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Schwartz Family Co Pty Ltd v Capital Carpets
Pty Ltd [2019] NSWSC 238 …. 16.48
Scotson v Pegg (1861) 158 ER 121 …. 6.64
Scott & Scott (No 3) [2019] FamCA 936
…. 17.15
Scott v Avery (1856) 5 HL Cas 811 …. 27.26
Scott Carver Pty Ltd v SAS Trustee
Corporation [2005] NSWCA 42 …. 29.83,
29.87
Screenco Pty Ltd v RL Dew Pty Ltd (2003) 58
NSWLR 720 …. 29.156
Scriven Bros & Co v Hindley & Co [1913] 3 KB
564 …. 16.58, 16.59
Sea Master Shipping Inc v Arab Bank
(Switzerland) Ltd [2020] EWHC 2030
(Comm) …. 11.27
Sealed Air Australia Pty Ltd v Aus-Lid
Enterprises Pty Ltd (2020) 375 ALR 324
…. 37.43, 37.51, 37.52
Sear v Invocare Australia Pty Ltd [2007]
WASC 30 …. 27.98
Searle v The Commonwealth (2019) 100
NSWLR 55; 376 ALR 512 …. 6.40, 6.42
Sears v Minco plc [2016] EWHC 433 (Ch)
…. 14.51
Secure Parking Pty Ltd v Woollahra Municipal
Council [2016] NSWCA 154 …. 15.77
Secure Parking (WA) Pty Ltd v Wilson (2008)
38 WAR 350 …. 12.65, 39.59, 40.18
Secured Income Real Estate (Australia) Ltd
v St Martin’s Investments Pty Ltd (1979) 144
CLR 596; 26 ALR 567 …. 11.8, 11.39, 11.40,
22.19, 22.20, 22.23
Seddon v North Eastern Salt Co [1905] 1
Ch 326 …. 35.36, 35.37
Segboer v A J Richardson Properties Pty Ltd
[2012] NSWCA 253 …. 22.13
Seidler v Schallhofer [1982] 2 NSWLR 80
…. 27.33, 27.34
Seivewright v Brennan [2005] NSWSC 216
…. 4.27
Seiwa Australia Pty Ltd v Beard [2009]
NSWCA 240 …. 7.29
Sekisui Rib Loc Australia Pty Ltd v Rocla Pty
Ltd (2012) 291 ALR 140 …. 4.51, 34.8
lxxx
Selected Seeds Pty Ltd v QBEMM Pty Ltd
(2010) 242 CLR 336; 271 ALR 484 …. 13.5
Selectmove Ltd, In re [1995] 2 All ER 531
…. 6.62, 6.73
Sellars v Adelaide Petroleum NL (1994) 179
CLR 332; 120 ALR 16 …. 15.92, 38.91,
29.42, 29.43, 29.45
Semelhago v Paramadevan [1996] 2 SCR 425
…. 31.32
Sempra Metals Ltd v Inland Revenue
Commissioners [2008] 1 AC 561; [2007] 4
All ER 657 …. 38.5
Senanayake v Cheng [1966] AC 63; [1965] 3 All
ER 296 …. 14.43
Sensis Pty Ltd v McMaster-Fay [2005] NSWCA
163 …. 29.44
Sentinel Countrywide Retail Ltd v PC Emerald
(Qld) Pty Ltd [2015] QSC 348 …. 31.51
Servcorp WA Pty Ltd v Perron Investments
Pty Ltd (2016) 50 WAR 226; [2016]
WASCA 79 …. 11.13, 11.15, 11.24, 11.27,
11.28, 22.22
Serventy v Commonwealth Bank of Australia
(No 2) [2016] WASCA 223 …. 19.3, 19.30,
19.35
Service Station Association Ltd v Berg Bennett
& Associates Pty Ltd (1993) 45 FCR 84; 117
ALR 393 …. 11.50
Settlement Group Pty Ltd v Purcell Partners
[2013] VSCA 370 …. 36.33
Seven Network (Operations) Ltd
v Communications, Electrical, Electronic,
Energy, Information, Postal, Plumbing and
Allied Services Union of Australia (2001)
109 FCR 378; 184 ALR 65 …. 17.5
— v Warburton (No 2) [2011] NSWSC 386
…. 5.13
Seventh Shar Nominees Pty Ltd v Hortico Pty
Ltd [2000] VSC 155 …. 5.33
Seymour Whyte Construction Pty Ltd
v Ostwald Bros Pty Ltd (in liq) (2019) 99
NSWLR 317 …. 12.40, 34.2, 34.4, 34.8
SH Lock (Australia) Ltd v Kennedy (1988) 12
NSWLR 482 …. 20.32, 20.55
Shadwell v Shadwell (1860) 142 ER 62 …. 6.64

Sharjade Pty Ltd v The Commonwealth (2009)
NSWCA 373 …. 22.17, 24.101
Sharman v Kunert [1985] 1 NSWLR 225
…. 20.44
Sharp v Anderson (1994) 6 BPR 97,510 …. 7.16
Sharpe v Bishop of Worcester [2015] EWCA
Civ 399 …. 7.25
Shaw v Hilton [2020] TASSC 2 …. 36.18, 36.19
— v State of New South Wales [2012] NSWCA
102 …. 11.36
Sheahan v Thompson (No 2) [2015] NSWSC
871 …. 35.6
Sheikh Tahnoon Bin Saeed Bin Shakhboot Al
Nehayan v Kent [2018] EWHC 333 (Comm)
…. 11.54, 11.57, 17.2, 17.5, 17.8, 17.40
Shelfer v City of London Electrical Lighting Co
[1895] 1 Ch 287 …. 33.18, 33.19
Shell (UK) Ltd v Lostock Garage Ltd [1977] 1
All ER 481 …. 11.25
Shephard v Galea [2020] WASCA 152 …. 18.4,
18.6, 18.21, 18.36
Shepherd v Commissioner of Taxation of the
Commonwealth of Australia (1965) 113
CLR 385 …. 40.40
— v Felt & Textiles of Australia Ltd (1931) 45
CLR 359 …. 11.39, 24.89
Shepperd v The Council for the Municipality of
Ryde (1952) 85 CLR 1 …. 10.68, 10.72
Shevill v Builders Licensing Board (1982) 149
CLR 620; 42 ALR 305 …. 24.9, 24.64, 24.67,
29.39, 30.29
Shiloh Spinners Ltd v Harding [1973] AC 691;
[1973] 1 All ER 90 …. 24.119, 24.120
Shindler v Northern Raincoat Co Ltd [1960] 2
All ER 239 …. 29.136
Shirlaw v Southern Foundries (1926) Ltd
[1939] 2 KB 206; [1939] 2 All ER 113
…. 11.18
Shogun Finance Ltd v Hudson [2004] 1
AC 919; [2004] 1 All ER 215 …. 10.55,
16.74, 16.75
Shone v Davies [2012] WASCA 83 …. 24.25,
24.28
Short v City Bank (1912) 12 SR (NSW) 186
…. 37.52
lxxxi
TABLE OF CASES­
— v City Bank of Sydney (1912) 15 CLR 148
…. 37.36, 37.44, 37.46
Shortall v White [2007] NSWCA 372 …. 7.10,
7.31
Shree Shirdi Sai Sansthan Sydney Ltd v Nirmal
Taluja [2014] NSWSC 1825 …. 33.16
Shrestha v Minister for Immigration and
Border Protection (2017) 251 FCR 143
…. 14.14
Shuey v United States 92 US 73 (1875) …. 4.61
Sidameneo (No 456) Pty Ltd v Alexander
[2011] NSWCA 418 …. 27.67
Sidhu v Van Dyke (2014) 251 CLR 505; 308
ALR 232 …. 36.1, 36.51, 36.55, 36.72, 36.75
Siemens Building Technologies FE Ltd
v Supershield Ltd [2010] 1 Lloyd’s Rep 349
…. 29.126
Siemens Gamesa Renewable Energy Pty Ltd
v Bulgana Wind Farm Pty Ltd [2020] VSC
126 …. 12.28
Silent Vector Pty Ltd v Squarcini [2008] WASC
246 …. 30.31
Silverbrook Research Pty Ltd v Lindley [2010]
NSWCA 357 …. 29.40, 29.168
Silversea Cruises Australia Pty Ltd v Abellanoza
[2018] NSWSC 1565 …. 38.94
Simantob v Shavleyan [2019] EWCA Civ 1105
…. 6.66
Simcevski v Dixon (No 2) (2017) 53 VR 357
…. 30.40
Simic v New South Wales Land and Housing
Corporation (2016) 260 CLR 85; 339
ALR 200 …. 12.13, 12.18, 34.1, 34.2, 34.4,
34.12, 34.17, 34.21, 34.22, 34.23, 34.24, 34.25
Simmons v Simmons [2019] NSWSC 1050
…. 20.7, 38.94
Simon v Metivier (1766) 96 ER 347 …. 4.26
Simonius Vischer & Co v Holt & Thompson
[1979] 2 NSWLR 322 …. 29.132, 29.137
Sinclair v Brougham [1914] AC 398 …. 38.3
Sinclair, Scott & Co Ltd v Naughton (1929) 43
CLR 310 …. 5.35, 8.14
Singh v Ali [1960] AC 167; [1960] 1 All ER 269
…. 28.19
— v Lugondela [2020] VSC 544 …. 29.33
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Singh (Sugadar) v Nazeer [1979] Ch 474 at 480;
[1978] 3 All ER 817 …. 31.82
Singularis Holdings Ltd (in liq) v Daiwa Capital
Markets Europe Ltd [2019] 3 WLR 997
…. 27.4
Sion v NSW Trustee and Guardian [2013]
NSWCA 337 …. 7.4, 7.11, 7.15, 7.31
Sirius International Insurance Co (Publ) v FAI
General Insurance Ltd [2005] 1 All ER 191
…. 12.10
Skanska Rashleigh Weatherfoil Ltd
v Somerfield Stores Ltd [2006] EWCA Civ
1732 …. 12.34, 12.50
Skids Programme Management Ltd v McNeill
[2013] 1 NZLR 1 …. 27.40
Skyrise Consultants Pty Ltd v Metroland Funds
Management Ltd [2011] NSWCA 406
…. 10.73
Slade’s Case (1602) 76 ER 1072 …. 2.16, 2.17
Slee v Warke (1949) 86 CLR 271 …. 34.16, 34.17
Smada Group Ltd v Miro Farms Ltd [2007]
NZCA 568 …. 7.29
Small v Gray [2004] NSWSC 97 …. 20.51, 20.53
Smith v Chadwick (1884) 9 App Cas 187
…. 14.39, 37.11
— v Clay (1767) 27 ER 419 …. 31.64
— v Hughes (1871) LR 6 QB 597 …. 4.2, 14.23,
14.24, 14.34, 16.76, 16.77
— v Jenkins (1970) 119 CLR 397 …. 27.4
— v Land & House Property Corporation
(1884) 28 Ch D 7 …. 14.18
— v Leveraged Equities Ltd [2020] WASCA 122
…. 6.38
— v MacGowan (1938) 159 LT 278 …. 8.15
— v Mapleback (1786) 99 ER 1186 …. 23.63
— v Mawhood (1845) 153 ER 552 …. 26.25
— v Woods [2014] VSC 646 …. 4.68
Smith and Snipes Hall Farm Ltd v River
Douglas Catchment Board [1949] 2 KB 500;
[1949] 2 All ER 179 …. 39.54
Smith New Court Securities Ltd v Citibank
NA [1997] AC 254; [1996] 4 All ER 769
…. 29.31, 37.15, 37.16
Smoothseas Pty Ltd v Lawloan Mortgagees Pty
Ltd [2007] QCA 445 …. 4.96
lxxxii
Smythe v Thomas (2007) 71 NSWLR 537
…. 4.42
S Nevanas & Co v Walker & Foreman [1914] 1
Ch 413 …. 28.30
Snowden v Australian Mortgage Assist Pty Ltd
[2019] NSWSC 1799 …. 15.48
Societe Generale, London Branch v Geys
[2011] EWCA Civ 307 …. 11.14
Socimer International Bank Ltd (in liq)
v Standard Bank London Ltd [2008] EWCA
Civ 116 …. 29.168
Software Integrators Pty Ltd v Roadrunner
Couriers Pty Ltd (1997) 69 SASR 288
…. 15.18
Solle v Butcher [1949] 2 All ER 1107; [1950] 1
KB 671…. 16.5, 16.14, 16.17, 16.26, 16.27,
16.28, 16.29, 16.30, 16.32, 16.33, 16.37,
16.38, 16.39, 16.41, 16.42, 16.43, 16.45,
16.46, 16.47, 16.51, 25.58
Solution 6 Holdings Ltd v Industrial Relations
Commission of NSW (2004) 60 NSWLR
558 …. 21.40
Sopov v Kane Constructions Pty Ltd (2007) 20
VR 127 …. 24.11, 24.67, 24.71
— v — (No 2) (2009) 24 VR 510; 257 ALR 182
…. 38.30, 38.41, 38.42
Soulsbury v Soulsbury [2008] 2 WLR 834
…. 4.62, 27.29
South Dowling v Cody Outdoor Advertising
[2005] NSWSC 391 …. 24.28
South Parklands Hockey and Tennis Centre Inc
v Brown Faulkiner Group Pty Ltd [2004]
SASC 81 …. 29.83
South Sky Investments Pty Ltd v Luppi [2012]
QSC 27 …. 29.32
South Sydney Council v Royal Botanic Gardens
[1999] NSWCA 478 …. 12.21
South Tyneside Metropolitan Borough Council
v Svenska International plc [1995] 1 All ER
545 …. 38.88
Southage Pty Ltd v Vescovi (2015) 321 ALR 383
…. 38.93
Southdown Publications Pty Ltd v ACP
Magazines Pty Ltd [2003] NSWCA 347
…. 16.73

Southern Cross Computer Systems Pty Ltd
v Palmer (No 2) [2017] VSC 460 …. 27.78
Southern Cross Mine Management Pty Ltd
v Ensham Resources Pty Ltd [2005] QSC
233 …. 35.29
Southern Equity Pty Ltd v Timevale Pty Ltd
[2012] NSWSC 15 …. 12.53
Southern Response Earthquake Services Ltd
v Dodds [2020] NZCA 395 …. 14.5
Southern Waste Resourceco Pty Ltd
v Adelaide Hills Region Waste
Management Authority (No 3) [2019]
SASC 192 …. 15.11, 15.17
Southland Frozen Meat & Produce Export Co
Ltd v Nelson Brothers Ltd [1898] AC 442
…. 27.48
SPAR Licensing Pty Ltd v MIS Qld Pty Ltd
(2014) 314 ALR 35 …. 15.74
Spartafield Ltd v Penten Group Ltd [2016]
EWHC 2295 (TCC) …. 5.7
Specialist Diagnostic Services Pty Ltd
v Healthscope Ltd [2010] VSC 443
…. 27.67
— v — (2012) 41 VR 1; 305 ALR 569 …. 11.52,
11.55
Spence v Crawford [1939] 3 All ER 271
…. 35.1, 35.11
Spencer v Harding (1870) LR 5 CP 561 …. 4.17
Spies v Commonwealth Bank of Australia
(1991) 24 NSWLR 691 …. 6.66
Spina v Permanent Custodians Ltd [2009]
NSWCA 206 …. 20.20, 20.22, 20.37, 20.53
Spira v Commonwealth Bank of Australia
(2003) 57 NSWLR 544 …. 11.43
Spong v Spong (1914) 18 CLR 544 …. 18.6,
18.41
Sportsbet Pty Ltd v Carpanini [2014] VSC 166
…. 28.32
Sprint Communications Company v APPC
Services Inc 554 US 269 (2008) …. 40.21
SS Ardennes (Cargo Owners) v SS Ardennes
(Owners) [1951] 1 KB 55 …. 29.79
SST Consulting Services Pty Ltd v Rieson
(2006) 225 CLR 516; 228 ALR 417
…. 26.36, 28.21, 28.36, 28.37
lxxxiii
TABLE OF CASES­
St George Bank Ltd v Trimarchi [2004]
NSWCA 120 …. 20.17, 20.53
ST Investments Pty Ltd v Geng [2020] NSWSC
329 …. 30.41
St John Shipping Corporation v Joseph Rank
Ltd [1957] 1 QB 267; [1956] 3 All ER 683
…. 26.4, 26.5, 26.24, 26.39, 26.40
Stacey v Autosleeper Group Ltd [2014] EWCA
Civ 1551 …. 29.98
Stacks/Taree v Marshall (No 2) [2010] NSWSC
77 …. 27.67, 27.68, 27.85, 27.115, 27.123
Standard Chartered Bank v Pakistan National
Shipping Corporation [2003] 1 AC 959;
[2003] 1 All ER 173 …. 14.45
Standish v Ross (1849) 154 ER 954 …. 38.3
Stanley v Layne Christensen Company [2006]
WASCA 56 …. 39.18, 39.57
Starlink International Group Pty Ltd v Coles
Supermarkets Australia Pty Ltd [2011]
NSWSC 1154 …. 11.52
State Bank of New South Wales Ltd v Chia
(2000) 50 NSWLR 587; [2000] NSWSC 552
…. 18.65, 18.71
State Lotteries Office v Burgin (unreported,
New South Wales Court of Appeal, Kirby P,
23 April 1993, 19 May 1993) …. 12.39
State of New South Wales v Shaw (2015) 97
NSWLR 169 …. 24.88
— v Stevens (2012) 82 NSWLR 106 …. 29.7
State of South Australia v Holder [2019]
SASCFC 135 …. 29.15
State of Victoria v Construction, Forestry,
Mining and Energy Union (2013) 218 FCR
172 …. 17.5
State of Western Australia v Fazaldean (No
2) (2013) 211 FCR 150; 299 ALR 180
…. 36.10
State Rail Authority of New South Wales
v Heath Outdoor Pty Ltd (1986) 7 NSWLR
170 …. 10.60, 10.65
State Trading Corporation of India v M Golodetz
Ltd [1989] 2 Lloyd’s Rep 277 …. 24.99
State Transit Authority of New South Wales
v Australian Jockey Club [2003] NSWSC
726 …. 4.38
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Statoil ASA v Louis Dreyfus Energy Services LP
[2008] 2 Lloyd’s Rep 685 …. 16.77, 16.78
Steadman v Steadman [1976] AC 536; [1974] 2
All ER 977 …. 8.42
Stealth Enterprises Pty Ltd v Calliden Insurance
Ltd [2017] NSWCA 71 …. 14.26
Steele v Tardiani (1946) 72 CLR 386 …. 22.39,
22.50, 38.40, 38.47
Steel Wing Co Ltd, Re [1921] 1 Ch 349
…. 40.24, 40.34
Stepping Stones Child Care Centre (ACT) Pty
Ltd v Early Learning Services Ltd [2013]
ACTSC 173 …. 22.23
Stern v McArthur (1988) 165 CLR 489; 81 ALR
463 …. 24.119, 24.124
Stevenson v Regents Park Sporting &
Community Club Ltd [2012] NSWSC 424
…. 10.63
Stevenson Jacques & Co v McLean (1880) 5
QBD 346 …. 4.49, 4.97
Stickney v Keeble [1915] AC 386 …. 24.43,
24.54
Stilk v Meyrick (1809) 170 ER 1168 …. 6.48,
6.56, 6.57
Stirling v Maitland (1864) 122 ER 1043
…. 11.39, 11.41
Stirnemann v Kaza Investments Pty Ltd [2011]
SASCFC 77 …. 5.31, 12.67
Stock v Frank Jones (Tipton) Ltd [1978] 1 All
ER 948 …. 12.3
Stocznia Gdanska SA v Latvian Shipping Co
[1996] 2 Lloyd’s Rep 132 …. 30.54
— v — [1998] 1 All ER 883 …. 38.57
Stocznia Gdynia SA v Gearbulk Holdings Ltd
[2010] QB 27 …. 13.7, 24.23, 24.24, 24.93,
24.94
Stone & Rolls Ltd (in liq) v Moore Stephens
(a firm) [2009] 1 AC 1391; [2009] 4 All
ER 431 …. 28.2
Stone v Chappel (2017) 128 SASR 165
…. 29.82, 29.84
— v Registrar of Titles [2012] WASC 21 …. 18.21
— v Wythipol (1588) 78 ER 383 …. 2.23
Storer v Manchester City Council [1974] 3 All
ER 824 …. 4.13
lxxxiv
Strack v Grey (2019) 20 NZCPR 408; [2019]
NZCA 432 …. 5.50, 29.32, 29.40
Strait Colonies Pte Ltd v SMRT Alpha Pte Ltd
[2018] SGCA 36 …. 35.29
Straits Exploration (Australia) Pty Ltd
v Murchison United NL (2005) 31 WAR
187 …. 27.26
Strand Music Hall Co Ltd, Re (1865) 55 ER 853
…. 12.6
Stratton Finance Pty Ltd v Webb (2014) 314
ALR 166 …. 12.28
Streeter v Western Areas Exploration Pty Ltd
(No 2) (2011) 278 ALR 291 …. 31.72
Strickland v Turner [1852] Eng R 199; [1852] 7
Exch 208 …. 16.42
Strive Shipping Corporation v Hellenic Mutual
War Risks Association (The Grecia Express)
[2002] 2 Lloyd’s Rep 88 …. 35.25
Strongman (1945) Ltd v Sincock [1955] 2 QB
525; [1955] 3 All ER 90 …. 28.21
Strzelecki Holdings Pty Ltd v Cable Sands Pty
Ltd (2010) 41 WAR 318 …. 11.58
— v Jorgensen [2016] WASCA 177 …. 24.2
Stuart Pty Ltd v Condor Commercial Insulation
Pty Ltd [2006] NSWCA 334 …. 29.117
Sturlyn v Albany (1587) 78 ER 327 …. 6.34
Suisse Atlantique Societe d’Armement Maritime
SA v NV Rotterdamsche Kolen Centrale
[1967] 1 AC 361 …. 24.64
Sukkar v Sukkar [2019] NSWSC 691 …. 17.15,
17.19, 20.23, 20.25, 20.34, 20.37
Sullivan v Sullivan [2006] NSWCA 312
…. 36.64
Sultman v Bond [1956] St R Qd 180
…. 9.17
Summers v Cocks (1927) 40 CLR 321
…. 24.44
— v The Commonwealth (1918) 25 CLR 144
…. 23.2, 23.8
Sumpter v Hedges [1898] 1 QB 673 …. 22.50,
38.39, 38.40
Sun Link Group Pty Ltd v Lui [2019] NSWSC
803 …. 4.71, 12.6
Sun World Inc v Registrar, Plant Variety Rights
(1977) 148 ALR 447 …. 8.10

Sunbird Plaza Pty Ltd v Maloney (1988) 166
CLR 245; 77 ALR 205 …. 24.89, 29.39,
31.52, 31.82, 31.83
Suncorp Metway Insurance Ltd v Owners
Corporation SP 64487 [2009] NSWCA 223
…. 4.101
Sundararajah v Teachers Federation Health Ltd
(2011) 283 ALR 720 …. 11.59
Sunlight Nominees Pty Ltd v Zotti & Zotti
[2017] SASC 176 …. 29.83
Sunrise Brokers LLP v Rodgers [2014] EWCA
Civ 1373 …. 32.7, 32.20
Sunwater Ltd v Drake Coal Pty Ltd [2017] 2 Qd
R 109 …. 38.35
Supabarn Supermarkets Pty Ltd v Cotrell Pty
Ltd (No 3) [2020] ACTSC 53 …. 29.2
Surfstone Pty Ltd v Morgan Consulting
Engineers Pty Ltd [2016] 2 Qd R 194
…. 10.35, 10.42
Surplice v Farnsworth (1844) 135 ER 232
…. 22.15
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
…. 23.14, 23.15
Svanosio v McNamara (1956) 96 CLR 186
…. 16.20, 16.48, 16.49
Swain v Law Society [1983] 1 AC 598 at 611;
[1982] 2 All ER 827 …. 39.1
Sweet & Maxwell Ltd v Universal News Services
Ltd [1964] 2 QB 699 …. 24.11
Swynson Ltd v Lowick Rose LLP (in liq) [2018]
AC 313; [2017] 3 All ER 785 …. 29.3, 39.12,
39.17
Sydall v Castings Ltd [1967] 1 QB 302 …. 12.11
Sydney Attractions Group Pty Ltd v Schulman
[2013] NSWSC 858 …. 12.11, 22.14
Sydney Medical Service Co-operative Ltd
v Lakemba Medical Services Pty Ltd [2016]
FCA 763 …. 15.35, 15.41, 15.42, 15.88
Sydney West Area Health Service v Staracek
(2008) 73 NSWLR 68 …. 31.39
Sykes v Reserve Bank of Australia (1998) 88
FCR 511 …. 15.74
Symbion Medical Centre Operations Pty Ltd
v Thomco (No 2113) Pty Ltd (2009) 103
SASR 354 …. 5.33
lxxxv
TABLE OF CASES­
Synavant Aust Pty Ltd v Harris [2001] FCA
1517 …. 27.111
Syzmanska v Syzmanski (No 2) [2015] SASC
191 …. 8.43
Sze Tu v Lowe (2014) 89 NSWLR 317 …. 36.17,
36.19
T
Tabcorp Holdings Ltd v Bowen Investments Pty
Ltd (2009) 236 CLR 272; 253 ALR 1 …. 3.32,
29.8, 29.81, 29.82, 29.83, 29.86, 29.87
Tabet v Gett (2010) 240 CLR 537; 265 ALR 227
…. 29.2, 29.44, 29.93
Taco Co of Australia Inc v Taco Bell Pty Ltd
(1982) 42 ALR 177 …. 15.41, 15.50, 15.60
TA Dellaca Pty Ltd v PDL Industries Ltd [1992]
3 NZLR 88 …. 8.35
Tadrous v Tadrous [2010] NSWSC 1388
…. 7.29, 7.32
— v — [2012] NSWSCA 16 …. 36.76
Taheri v Vitek (2014) 87 NSWLR 403; 320 ALR
555 …. 14.51, 35.9
Ta Lee Investment Pty Ltd v Antonios [2019]
NSWCA 24 …. 8.6
TAL Life Ltd v Shuetrim (2016) 91 NSWLR
439; 332 ALR 507 …. 12.54
Tallerman & Co Pty Ltd v Nathan’s
Merchandise (Vic) Pty Ltd (1957) 98 CLR
93 …. 4.96, 8.6, 23.24, 23.33, 23.34
Taluja v Shree Shirdi Sai Sansthan Sydney Ltd
[2016] NSWCA 158 …. 5.2, 5.6, 5.7, 5.8
Tameeka Group Pty Ltd v Landan Pty Ltd
(No 3) [2016] FCA 733 …. 11.52, 11.61
Tanwar Enterprises Pty Ltd v Cauchi (2003)
217 CLR 315; 201 ALR 359 …. 6.80, 19.5,
24.120, 24.124, 24.126, 24.129, 24.130,
24.132, 24.133
Taouk v Assure (NSW) Pty Ltd [2017] NSWCA
227 …. 12.28
— v — [2017] NSWSC 534 …. 8.2
Tartsinis v Navona Management Co [2015]
EWHC 57 (Comm) …. 34.5
Tasman Capital Pty Ltd v Sinclair (2008) 75
NSWLR 1; [2008] NSWCA 248 …. 5.40,
29.132
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Taylor v Caldwell (1863) 122 ER 309
…. 16.14, 25.2, 25.3, 25.31, 25.32, 25.33,
25.42, 25.51
— v Foster (1599) 78 ER 1034 …. 2.12
— v Johnson (1983) 151 CLR 422; 45 ALR 265
…. 16.5, 16.43, 16.44, 16.45, 16.46, 16.48,
16.49, 16.61, 16.79, 16.80, 16.81, 16.82,
16.86, 16.87
— v Webb [1937] 2 KB 283 …. 22.15
TC Industrial Plant Pty Ltd v Robert’s
Queensland Pty Ltd (1963) 180 CLR 130
…. 29.71, 29.131
TCN Channel 9 Pty Ltd v Hayden Enterprises
Pty Ltd (1989) 16 NSWLR 130 …. 29.162
Teat v Willcocks [2014] 3 NZLR 129 …. 6.57
Technocrats International v Fredic Ltd [2004]
EWHC 692 (QB) …. 40.35
Technomin Australia Pty Ltd v Xstrata Nickel
Australasia Operations Pty Ltd (2014) 48
WAR 261 …. 5.38, 10.54, 10.58, 12.23,
12.28, 12.67
Technotrade Ltd v Larkstore Ltd [2006]
1 WLR 2926 …. 40.7
Técnicas Reunidas SA v Andrew [2018]
NSWCA 192 …. 23.2
Teheran-Europe Co Ltd v S T Belton (Tractors)
Ltd [1968] 2 QB 545; [1968] 2 All ER 886
…. 39.37
Tekdata Interconnections Ltd v Amphenol Ltd
[2010] 1 Lloyd’s Rep 357 …. 4.104, 4.107,
4.108, 4.112
Tele2 International Card Co SA v Post Office
Ltd [2009] EWCA Civ 9 …. 23.67, 24.114
Telstra Corporation Ltd v First Netcom Pty
Ltd (1997) 78 FCR 132; 148 ALR 202
…. 31.80
Tenji v Henneberry & Associates Pty Ltd (2000)
98 FCR 324; 172 ALR 679 …. 35.25
Teoco UK Ltd v Aircom Jersey 4 Ltd [2018]
EWCA Civ 23 …. 13.9
Tepko Pty Ltd v Water Board (2001) 206 CLR 1;
178 ALR 634 …. 37.20
Tercon Contractors Ltd v British Columbia
(Transportation and Highways) (2010) 315
DLR (4th) 385 …. 4.32
lxxxvi
Tern Minerals NL v Kalbara Mining NL (1990)
3 WAR 486 …. 5.38
Terrell v Mabie Todd & Co Ltd (1952) RPC 234
…. 22.25
Terrex Resources NL v Magnet Petroleum Pty
Ltd (1988) 98 FLR 328 …. 25.69
Territory Sheet Metal Pty Ltd v Australia and
New Zealand Banking Group Ltd (2010)
237 FLR 197 …. 27.6
Terry Cross Financial Services v Michael Misiti
[2008] NSWSC 1365 …. 37.47
Testel Australia Pty Ltd v KRG Electrics Pty Ltd
[2013] SASC 91 …. 27.71, 27.106
Thai Airways International Public Company
Ltd v KI Holdings Co Ltd [2015] EWHC
1250 (Comm) …. 29.134
Thaluntha Pty Ltd v Citic Pacific Mining
Management Pty Ltd [2019] WASC 196
…. 25.56
The ‘Asia Star’ [2010] 2 Lloyd’s Rep 121
…. 29.131, 29.136
Then There Were Three Pty Ltd v Douglas
[2014] NSWSC 1011 …. 27.50
Thiess v Collector of Customs (2014) 250 CLR
664; 306 ALR 594 …. 12.54
Thirkell v Cambi [1919] 2 KB 590 …. 8.12
Thoday v Thoday [1964] P 181 …. 36.10
Thomas v Mowbray (2007) 233 CLR 307; 237
ALR 194 …. 37.56
— v National Australia Bank Ltd [2000] 2 Qd R
448 …. 40.23
— v Thomas (1842) 114 ER 330 …. 6.4, 6.36
Thomas Bates & Son Ltd v Wyndham’s
(Lingerie) Ltd [1981] 1 All ER 1077; [1981]
1 WLR 505 …. 16.86, 34.5, 34.33, 34.35
Thomas Brown & Sons Ltd v Fazal Deen (1962)
108 CLR 391 …. 28.35
Thomas National Transport (Melbourne) Pty
Ltd v May & Baker (Australia) Pty Ltd
(1966) 115 CLR 353 …. 13.3, 13.8, 13.32
Thompson v Australian Capital Television
Pty Ltd (1996) 186 CLR 574; 141 ALR 1
…. 23.45, 23.63
— v Palmer (1933) 49 CLR 507 …. 36.62
Thomson v McInnes (1911) 12 CLR 562 …. 8.13

Thorby v Goldberg (1964) 112 CLR 597 …. 5.1,
5.5, 6.31
Thorne v Kennedy (2017) 263 CLR 85; 350
ALR 1 …. 17.2, 17.18, 17.19, 18.3, 18.4,
18.8, 18.23, 18.25, 18.33, 18.35, 19.2, 19.10,
19.17, 19.27, 19.28, 19.30, 19.36
— v Motor Trade Association [1937] AC 797;
[1937] 3 All ER 157 …. 17.2, 17.5, 17.7
Thornton v Shoe Lane Parking Ltd [1971] 2 QB
163; [1971] 1 All ER 686 …. 10.34, 10.39
Thors v Weekes (1989) 92 ALR 131 …. 25.55
Tillett v Varnell Holdings Pty Ltd 2009]
NSWSC 1040 …. 18.35
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd
[2010] NSWSC 828 …. 38.41
Timbercorp Finance Pty Ltd (in liq) v Collins
(2016) 259 CLR 212; 339 ALR 11 …. 36.12
Timbu Kolian v R (1968) 119 CLR 47 …. 29.93
Times Travel (UK) Ltd v Pakistan International
Airlines Corporation [2017] EWHC 1367
(Ch) …. 17.9
— v — [2019] 3 WLR 445; [2019] EWCA Civ
828 …. 17.9, 17.10, 18.3
Timmins v Moreland Street Property Co Ltd
[1958] Ch 110; [1957] 3 All ER 265 …. 8.13
Timothy’s Pty Ltd, Re [1981] 2 NSWLR 706
…. 40.49
Timpar Nominees Pty Ltd v Archer [2001]
WASCA 430 …. 29.7
Tinn v Hoffman & Co (1873) 29 LT 271
…. 4.84
Tinyow v Lee [2006] NSWCA 80 …. 6.55
Tipperary Developments Pty Ltd v Western
Australia (2009) 38 WAR 488; 258 ALR 124
…. 7.1, 8.28, 14.27, 34.29
Tito v Waddell (No 2) [1977] Ch 106; [1977] 3
All ER 129 …. 31.48
Tiuta International Ltd (in liq) v De Villiers
Surveyors Ltd [2018] 2 All ER 203 …. 29.10
Tiverton Estates Ltd v Wearwell Ltd [1975]
Ch 146; [1974] 1 All ER 209 …. 8.16
TMA Australia Pty Ltd v Indect Electronics &
Distribution GmbH [2015] NSWCA 343
…. 11.13, 11.20, 19.64, 36.19
Toben v Jones (2012) 298 ALR 203 …. 15.14
lxxxvii
TABLE OF CASES­
Todd v Alterra at Lloyd’s Ltd (2016) 239 FCR
12; 330 ALR 454 …. 12.27
— v Nicol [1957] SASR 72 …. 7.16
Todorovic v Waller (1981) 150 CLR 402; 37
ALR 481 …. 37.2
Todrell Pty Ltd v Finch (No 1) [2008] 1 Qd R
540 …. 8.13, 8.15
Toikan International Insurance Broking Pty Ltd
v Plasteel Windows Australia Pty Ltd (1989)
15 NSWLR 641 …. 23.29
Tolhurst v Associated Portland Cement
Manufacturers (1900) Ltd [1903] AC 414
…. 40.10, 40.24
— v — [1903] AC 414 …. 24.18
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd
(2004) 219 CLR 165; 211 ALR 342 …. 4.2,
10.20, 10.21, 10.22, 10.26, 12.4, 12.13
Tomac v Papp; Estate of Tomac [2016] NSWSC
1472 …. 20.18, 20.32, 20.47
Tomkins v Knowsley Primary Care Trust
[2010] EWHC 1194 (QB) …. 10.64
Tomlak Pty Ltd v Westpac Banking Corp
[2020] VSC 79 …. 15.71
Tomlinson v Ramsey Food Processing Pty Ltd
(2015) 256 CLR 507; 323 ALR 1 …. 37.7,
37.8, 36.12
Tonitto v Bassal (1992) 28 NSWLR 564 …. 8.13
Tonna v Mendonca [2019] NSWSC 1849
…. 15.48
Tonto Home Loans Australia Pty Ltd v Tavares
[2011] NSWCA 389 …. 19.17, 19.45, 19.67,
19.69, 20.8, 20.19, 20.26, 20.53, 39.36
Torkington v Magee [1902] 2 KB 427 …. 40.4
Torre Asset Funding Ltd v Royal Bank of
Scotland plc [2013] EWHC 2670 (Ch)
…. 11.24
Toscano v Holland Securities Pty Ltd (1985) 1
NSWLR 145 …. 20.6, 20.11, 20.13
Tote Tasmania Pty Ltd v Garrott (2008) 17 Tas
R 320 …. 11.52, 11.53, 11.55
Toteff v Antonas (1952) 87 CLR 647 …. 37.15
Tournier v National Provincial and Union Bank
of England [1924] 1 KB 461 …. 11.37
Townsend v Roussety & Co (WA) Ltd (2007) 33
WAR 321 …. 37.26
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Toyota Motor Corp Australia Ltd v Ken
Morgan Motors Pty Ltd [1994] 2 VR 106
…. 4.110, 7.41
Trade Practices Commission v Mobil Oil
Australia Ltd (1984) 4 FCR 296 …. 21.33
— v Radio World Pty Ltd, Re [1989] FCA 353
…. 13.41
Traderight (NSW) Pty Ltd v Bank of
Queensland Ltd [2014] NSWSC 55
…. 15.76, 15.84, 19.64
— v — [2015] NSWCA 94 …. 15.30
Tradigrain SA v Intertek Testing Services (ITS)
Canada [2007] EWCA Civ 154 …. 13.4
Tradition Australia Pty Ltd v Gunson [2006]
NSWSC 298 …. 31.44
Traffic Calming Australia Pty Ltd v CTS
Creative Traffic Solutions Pty Ltd [2015]
VSC 741 …. 37.39
Trampoline Enterprises Pty Ltd v Fresh
Retailing Pty Ltd [2019] VSCA 74 …. 29.93
Tramways Advertising Pty Ltd v Luna Park
(NSW) Ltd (1938) 38 SR (NSW) 633
…. 24.25, 24.26
Trani v Trani [2018] VSC 274 …. 34.27
Trans Petroleum (Australia) Pty Ltd v White
Gum Petroleum Pty Ltd [2012] WASCA
165 …. 11.65
Transerve Pty Ltd v Blue Ridge WA Pty Ltd
[2015] FCA 953 …. 19.72
Transfield Shipping Inc v Mercator Shipping Inc
[2009] AC 61; [2008] 4 All ER 159 …. 29.107,
29.122, 29.124, 29.125, 29.126, 29.127
Transit New Zealand v Pratt Contractors Ltd
[2002] 2 NZLR 313 …. 4.33
Transmotors Ltd v Robertson, Buckley & Co
Ltd [1970] 1 Lloyd’s Rep 224 …. 4.109
Transpacific Fish Exports Pty Ltd v Austmarine
Pty Ltd [2005] SASC 147 …. 39.18
Trawl Industries of Australia Pty Ltd v Effem
Foods Pty Ltd (1992) 27 NSWLR 326
…. 12.22, 24.74
Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222
…. 4.52
Trendtex Trading Corporation v Credit Suisse
[1982] AC 679; [1981] 3 All ER 520 …. 40.48
lxxxviii
Tribe v Tribe [1996] Ch 107; [1995] 4 All ER
236 …. 28.27
Tricontinental Corporation Ltd v HDFI Ltd
(1990) 21 NSWLR 689 …. 23.19
Trident General Insurance Co Ltd v McNiece
Bros Pty Ltd (1988) 165 CLR 107; 80 ALR
574 …. 38.21, 38.22, 39.5, 39.23, 39.24,
39.26, 39.27, 39.28, 39.29, 39.30, 39.32, 39.34,
39.35, 39.59, 39.60, 39.63, 39.68, 39.70,
Trimis v Mina [1999] NSWCA 140 …. 38.29
Triple Seven Msn 27251 Ltd v Azman Air
Services Ltd [2018] EWHC 1348 (Comm)
…. 16.7, 16.8, 16.36
Tripple A Pty Ltd v WIN Television Qld Pty Ltd
[2018] QCA 246 …. 4.52
Trustee for the Salvation Army (NSW)
Property Trusts v Becker [2007] NSWCA
136 …. 18.5
Trustee Solutions Ltd v Dubery [2007] 1 All ER
308 …. 40.35
Tsakiroglou & Co v Noblee [1962] AC 93;
[1961] 2 All ER 179 …. 25.22
TSG Franchise Management Pty Ltd v Cigarette
& Gift Warehouse (Franchising) Pty Ltd
(No 2) (2016) 340 ALR 230 …. 37.45
Tufton v Sperni [1952] 2 TLR 516 …. 18.7
Tuggeranong Town Centre Pty Ltd v Brenda
Hungerford Pty Ltd (No 2) [2017] ACTSC
88 …. 15.29
Tullett Prebon (Australia) Pty Ltd v Purcell
[2008] NSWSC 852 …. 32.3, 32.7
— v Simon Purcell [2008] NSWSC 852
…. 27.87, 27.114
Tullett Prebon Group Ltd v El-Hajjali [2008]
EWHC 1924 (QB) …. 30.21
Tulloch (deceased) v Braybon (No 2) [2010]
NSWSC 650 …. 18.28
Tuncel v Renown Plate Co Pty Ltd [1976] VR
501 …. 29.132
Turner v Australasian Coal & Shale Employees
Federation (1984) 55 ALR 635 …. 31.42,
31.43
— v Bladin (1951) 82 CLR 463 …. 31.1, 31.30
— v MyBudget Pty Ltd [2018] FCA 1407
…. 21.20, 21.21

— v Windever [2003] NSWSC 1147 …. 19.37
— v Windever [2005] NSWCA 73 …. 19.12,
19.37
Turner Kempson & Co Pty Ltd v Camm [1922]
VLR 498 …. 4.76
Tutt v Doyle (1997) 42 NSWLR 10 …. 34.32
TUV v Chief of New Zealand Defence Force
[2020] NZSC 47 …. 9.52
TW Hedley (Investments) Pty Ltd v Richardson
Plant Hire Pty Ltd [2005] QSC 99 …. 4.42
Twenty Ninth Macorp Nominees Pty Ltd
v George [2017] VSC 136 …. 18.63
Tzaneros Investments Pty Ltd v Walker Group
Constructions Pty Ltd [2016] NSWSC 50
…. 29.90
U Technologies (UK) Co Ltd [2020] UKSC 37
Udall v Capri Lighting (in liq) [1988] QB 907;
[1987] 3 All ER 262 …. 31.75
UK Learning Academy Ltd v Secretary of State
for Education [2018] EWHC 2915 (Comm)
…. 4.91
Ukraine v Law Debenture Trust Corporation
plc [2019] QB 1121 …. 11.10, 11.40
Union Eagle Ltd v Golden Achievement
Ltd [1997] AC 514; [1997] 2 All ER 215
…. 24.127, 24.128, 24.130, 24.131, 31.31
Union Fidelity Trustee Co of Australia Ltd
v Gibson [1971] VR 573 …. 18.23, 18.37,
18.40
Unique International College Pty Ltd v Australian
Competition and Consumer Commission
(2018) 266 FCR 631; 362 ALR 66 …. 19.66
United Australia Ltd v Barclays Bank Ltd
[1941] AC 1 …. 23.64
United Dominions Corp Ltd v Brian Pty Ltd
(1985) 157 CLR 1; 60 ALR 741 …. 14.24
United Group Rail Services Ltd v Rail
Corporation New South Wales (2009) 74
NSWLR 618 …. 5.15, 5.25, 5.26
United Gulf Developments Ltd v Iskandar
(2004) 235 DLR (4th) 609 …. 31.32
United Pacific Finance Pty Ltd (Recs and Mgrs
Appd) v Govindasamy [2020] NSWSC 128
…. 6.83, 30.35
lxxxix
TABLE OF CASES­
United Petroleum Pty Ltd v Pentaco Oil (Aust)
Pty Ltd [2016] FCA 118 …. 36.68
Unity Insurance Brokers Pty Ltd v Rocco
Pezzano Pty Ltd (1998) 192 CLR 603; 154
ALR 361 …. 29.135
Universal Cargo Carriers Corporation v Citati
[1957] 2 QB 401; [1957] 2 All ER 70
…. 24.71, 24.85
Universe Tankships Inc of Monrovia
v International Transport Workers Federation
(The Universe Sentinel) [1983] 1 AC 366;
[1982] 2 All ER 67 …. 17.1, 17.2, 17.3, 17.4,
17.5, 17.7, 17.8, 17.22, 17.34, 17.35
University of Western Australia v Gray (2009)
179 FCR 346; 259 ALR 224 …. 11.4, 11.33
Unwired Planet International Ltd v Huawei
…. 31.54
Upper Hunter County District Council
v Australian Chilling & Freezing Co Ltd
(1968) 118 CLR 429 …. 5.2, 5.12, 27.49
Upside Property Group Pty Ltd v Tekin [2017]
NSWCA 336 …. 29.4
Uranium Equities Ltd v Fewster (2008) 36
WAR 97 …. 5.37
Urban 1 (Blonk Street) Ltd v Ayres [2014] 1
WLR 756 …. 24.43
Uren v Uren (2018) 359 ALR 518 …. 23.64
UTB LLC v Sheffield United Ltd [2019] EWHC
2322 (Ch) …. 11.54, 16.77
V
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995)
184 CLR 102; 130 ALR 570 …. 24.2, 35.7,
35.15, 35.16
Valilas v Januzaj [2014] EWCA Civ 436
…. 24.36, 24.76
Vancouver Malt and Sake Brewing Co Ltd
v Vancouver Breweries Ltd [1934] AC 181
…. 27.76
Vandepitte v Preferred Accident Insurance
Corporation of New York [1933] AC 70
…. 39.57
Vantage Systems Pty Ltd v Priolo Corp Pty Ltd
(2015) 47 WAR 547 …. 5.38, 7.4, 34.3, 34.33
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Varty v British South Africa Co [1965] Ch 508;
[1964] 2 All ER 975 …. 4.52
Vector Gas Ltd v Bay of Plenty Energy Ltd
[2010] 2 NZLR 444 …. 12.13, 12.63
Velik v Steingold [2013] NSWCA 303 …. 24.11
Vella v Altadonna [1980] Qd R 606 …. 26.20
Vella v Wah Lai Investment (Australia) Pty Ltd
[2004] NSWSC 748 …. 36.67
Venerdi Pty Ltd v Anthony Moreton Group
Funds Management Ltd [2015] 1 Qd R 214
…. 15.77, 15.80, 15.81
Verduci v Golotta [2010] NSWSC 506 …. 18.4,
18.48, 20.18, 20.53, 20.54
Verint Systems (Australia) Pty Ltd v Sutherland
[2019] NSWSC 882 …. 27.67, 27.68, 27.79
Verrall v Great Yarmouth Borough Council
[1981] QB 202; [1980] 1 All ER 839
…. 31.28
Verrocchi v Direct Chemist Outlet Pty Ltd
(2016) 247 FCR 570 …. 15.37
Verrocchi v Messinis [2016] VSC 490 …. 5.43
Victoria v Tatts Group Ltd (2016) 328 ALR 564
…. 12.27
Victoria Laundry (Windsor) Ltd v Newman
Industries Ltd [1949] 2 KB 528; [1949] 1 All
ER 997 …. 29.113, 29.116, 29.119
Video Ezy International Pty Ltd v Sedema Pty
Ltd [2014] NSWSC 143 …. 11.54
Vievers v Cordingley [1989] 2 Qd R 278 …. 4.62
Vimig Pty Ltd v Contract Tooling Pty Ltd
(1986) 9 NSWLR 731 …. 35.37
Violet Homes Loans Pty Ltd v Schmidt (2013)
44 VR 202; 300 ALR 770 …. 19.35
Vision Eye Institute Ltd v Kitchen [2014] QSC
260 …. 27.50, 27.67, 27.75, 27.77, 27.79
Vitol SA v Norelf Ltd [1996] AC 800; [1996] 3
All ER 193 …. 24.94
Vivian v Koningsveld [2010] EWHC 3961 (Ch)
…. 34.31
Vlahos Pty Ltd v Vlahos [2017] VSCA 166
…. 8.34
Vodafone Pacific Ltd v Mobile Innovations Ltd
[2004] NSWCA 15 …. 11.52
Volonakis v Erceg [2019] NSWSC 1875
…. 15.48
xc
Vorvis v Insurance Corporation of British
Columbia [1989] 1 SCR 1085 …. 29.17
Vroon BV v Foster’s Brewing Group Ltd [1994]
2 VR 32 …. 4.8, 5.2
W
W & J Investments Ltd v Bunting [1984] 1
NSWLR 331 …. 30.32
W & J Sharp v Thomson (1915) 20 CLR 137
…. 16.55
W & K Holdings (NSW) Pty Ltd v Mayo [2013]
NSWSC 1063 …. 6.55, 20.23
W & R Pty Ltd v Birdseye (2008) 102 SASR 477
…. 36.18
Waddell v Waddell (2012) 292 ALR 788
…. 36.22
Wagdy Hanna & Associates Pty Ltd v Gavagna
[2016] ACTCA 64 …. 1.44, 7.31
Wakeham v MacKenzie [1968] 2 All ER 783
…. 8.27
Wakeling v Ripley (1951) 51 SR (NSW) 183
…. 7.11, 7.16, 7.17
Waldorf Australia Pty Ltd v Elias Construction
Group Pty Ltd [2010] NSWSC 164 …. 34.4
Walford v Miles [1992] 2 AC 128; [1992] 1 All
ER 453 …. 5.22, 5.24, 5.25, 5.27
Walker v Andrew [2002] NSWCA 214
…. 29.168
— v ANZ Banking Group Ltd (No 2) [2001] 39
ACSR 557 …. 24.117
— v Citigroup Global Markets Australia Pty
Ltd (2006) 233 ALR 687 …. 29.162
— v Salomon Smith Barney Securities Pty Ltd
[2003] FCA 1099 …. 4.84
Walker as trustees for the Walker
Superannuation Fund v Clough Property
Claremont Pty Ltd [2009] WASC 367
…. 26.36
Walker Group Constructions Pty Ltd
v Tzaneros Investments Pty Ltd (2017) 94
NSWLR 108 …. 29.82, 29.87, 29.90
Wallera Pty Ltd v CGM Investments Pty Ltd
[2003] FCAFC 279 …. 23.2, 23.7
Wallingford v Mutual Society (1880) 5 App Cas
685 …. 30.18

Wallis v Pratt & Hayes [1910] 2 KB 1003
…. 24.20
— v — [1911] AC 394 …. 13.7
Wallis Nominees (Computing) Pty Ltd v Pickett
[2012] VSC 82 …. 27.63, 27.67
— v — (2013) 45 VR 657 …. 27.63, 27.67, 28.32
Walsh v Kinnear (1876) SCR (NSW) 434
…. 22.39
— v Walsh [2012] NSWCA 57 …. 36.64
Walter & Sullivan Ltd v J Murphy & Sons
Ltd [1955] 2 QB 584; [1955] 1 All ER 843
…. 40.34
Walters v Morgan (1861) 45 ER 1056 …. 14.21
Walton v Walton [2015] NSWSC 218 …. 18.21
Walton Harvey Ltd v Walker & Homfrays Ltd
[1931] Ch 274 …. 25.52
Waltons Stores (Interstate) Ltd v Maher (1988)
164 CLR 387; 76 ALR 513 …. 8.32, 10.80,
36.16, 36.18, 36.20, 36.25, 36.27, 36.28,
36.29, 36.30, 36.31, 36.42, 36.47, 36.51,
36.52, 36.54, 36.58, 36.59, 36.65, 36.70,
36.73, 39.62
Warburton v Whiteley (1989) 5 BPR 97,388
…. 18.59
Ward v Byham [1956] 1 All ER 318 …. 6.45,
6.46
Wardle v Agricultural and Rural Finance Pty
Ltd [2012] NSWCA 107 …. 4.94, 4.96
Wardley Australia Ltd v Western Australia
(1992) 175 CLR 514; 109 ALR 247 …. 15.68
Warlow v Harrison (1859) 120 ER 925 …. 4.28
Warman International Ltd v Dwyer (1995) 182
CLR 544 at 559; 128 ALR 201 …. 31.64
Warming’s Used Cars Ltd v Tucker [1956]
SASR 249 …. 10.25
Warner Bros Pictures Inc v Nelson [1937] 1 KB
209 …. 32.10, 32.13, 32.14, 32.17, 32.19,
32.20
Warner Capital Pty Ltd v Shazbot Pty Ltd
[2020] NSWCA 121 …. 27.72
Warren v Mendy [1989] 3 All ER 103 …. 32.13,
32.18, 32.20
Warwick Entertainment Centre Pty Ltd
v Alpine Holdings Pty Ltd (2005) 224 ALR
134 …. 15.98
xci
TABLE OF CASES­
Waters Motors Pty Ltd v Cratchley (1963) 80
WN (NSW) 1165 …. 35.32
Waterways Authority of New South Wales
v Coal & Allied (Operations) Pty Ltd
[2007] NSWCA 276 …. 31.9, 31.18,
33.10, 33.11
Watkins v Combes (1922) 30 CLR 180 …. 18.7
Watson v Foxman (1995) 49 NSWLR 315
…. 8.2, 15.48, 15.49
Watt v Westhoven [1933] VLR 458 …. 35.38
Watts v Morrow [1991] 4 All ER 937 …. 29.48
Webster, Re (1975) 132 CLR 270; 6 ALR 65
…. 4.14
Weily v Williams (1895) 16 LR (NSW) Eq 190
…. 33.12
Weitman v Katies (1977) 29 FLR 336 …. 15.50,
15.64
Wellesley Partners LLP v Withers LLP [2016]
Ch 529 …. 29.45, 37.33
Wellington v Huaxin Energy (Aust) Pty Ltd
[2019] QSC 18 …. 11.15, 11.24
Wellington City Council v Body Corporate
51702 (Wellington) [2002] 3 NZLR 486
…. 5.24
Wells v Devani [2019] 3 All ER 379 …. 5.2,
11.12
Welsh v Gatchell [2009] 1 NZLR 241 …. 8.20
Wenczel v Commonwealth Bank of Australia
[2006] VSC 324 …. 18.74
Wenham v Ella (1972) 127 CLR 454 …. 29.8,
29.10, 29.119
Wenkart v Pitman (1998) 46 NSWLR 502
…. 29.143
Wenkheim v Arndt (1873) 1 JR 73 …. 4.96
Wenning v Robinson [1964–5] NSWR 614
…. 5.19
Wentworth v Woollahra Municipal Council
(1982) 149 CLR 672; 42 ALR 69 …. 33.6,
33.11
Wertheim v Chicoutimi Pulp Co [1911] AC
301 …. 29.8
West v AGC (Advances) Ltd (1986) 5 NSWLR
610 …. 20.2, 20.8, 20.18, 20.25, 20.36,
20.37, 20.45, 20.46, 20.47, 20.48, 20.50,
20.51
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
— v Quayside Trustee Ltd (in receivership and
in liquidation) [2012] NZCA 232 …. 14.12
Western Export Services Inc v Jireh
International Pty Ltd [2010] NSWSC 622
…. 7.30
— v — (2011) 282 ALR 604 …. 12.18, 12.26
Western Wagon and Property Co v West [1892]
1 Ch 271 …. 31.33
Westerton, Re [1919] 2 Ch 104 …. 40.27, 40.30
Westgem Investments Pty Ltd
v Commonwealth Bank of Australia Ltd
(No 6) [2020] WASC 302 …. 4.73, 11.52,
11.55, 19.35, 19.67
Westgyp Pty Ltd v Northline Ceilings Pty Ltd
[2018] WASC 244 …. 15.19
— v — (No 2) [2019] WASCA 145 …. 4.79
Westina Corporation Pty Ltd v BGC
Contracting Pty Ltd (2009) 41 WAR 263
…. 39.72
Westlawn Finance Ltd v Tagg [2018] NSWSC
1491 …. 20.45
Westmelton (Vic) Pty Ltd v Archer & Shulman
[1982] VR 305 …. 18.18, 18.35
Westpac Banking Corp v Tanzone Pty Ltd
[2000] NSWCA 25 …. 12.40
Westpac Banking Corporation v Bell Group Ltd
(in liq) (No 3) (2012) 44 WAR 1; 270 FLR 1
…. 36.39
— v Cockerill (1998) 152 ALR 267 …. 17.20
— v Diagne [2014] NSWSC 822 …. 18.66
— v Haynes [2017] SASC 23 …. 29.104
— v Newey [2013] NSWSC 847 …. 12.69
— v Zilzie Pty Ltd [2017] 2 Qd R 214 …. 19.77
Westpork Pty Ltd v Bio-Organics Pty Ltd
[2018] WASC 291 …. 16.46
Westralian Farmers Ltd v Commonwealth
Agricultural Service Engineers Ltd (in liq)
(1936) 54 CLR 361 …. 30.38
Westwood v Secretary of State for Employment
[1985] AC 20; [1984] 1 All ER 874
…. 29.153
Wetherell v Jones (1832) 110 ER 82 …. 27.3
Wheeler v Ecroplot [2010] NSWCA 61 …. 29.83
Whelan v Cigarette & Gift Warehouse Pty Ltd
[2017] FCA 1534 …. 11.54
xcii
White v Australian and New Zealand Theatres
Ltd (1943) 67 CLR 266 …. 12.67
— v Blackmore [1972] 2 QB 651; [1972] 3 All
ER 158 …. 13.16
— v Bluett (1853) 23 LJ (Exch) 36 …. 6.37
— v John Warwick & Co Ltd [1953]
1 WLR 1285; [1953] 2 All ER 1021
…. 13.19, 13.20, 13.21
— v Phillips Electronics Australia Ltd [2019]
NSWCA 115 …. 23.39
— v Wills [2014] NSWSC 1160 …. 18.23, 18.41,
20.34
White and Carter (Councils) Ltd v McGregor
[1962] AC 413; [1961] 3 All ER 1178
…. 30.46, 30.47, 30.48, 30.49, 30.51, 30.52,
30.54, 30.55
Whitecap Leisure Ltd v John H Rundall Ltd
[2008] EWCA Civ 429 …. 5.13
Whiten v Pilot Insurance Co [2002] 1 SCR 595
…. 29.17
Whitlock v Brew (1968) 118 CLR 445 …. 5.6, 5.17
Whittaker v Child Support Registrar [2009]
FCA 188 …. 37.39
Whitwood Chemical Co v Hardman [1891] 2
Ch 416 …. 32.4, 32.15, 32.20
Wichals v Johns (1599) 78 ER 938 …. 2.23
Widodo v Hamdan [2008] WASCA 113 …. 1.3
Wigan v Edwards (1973) 1 ALR 497 …. 6.47,
6.66, 6.68
Wight v Haberdan Pty Ltd [1984] 2 NSWLR
280 …. 31.33
Wilaci Pty Ltd v Torchlight Fund No 1 LP (in
rec) [2017] 3 NZLR 293 …. 30.5, 30.21
Wilby v St George Bank Ltd (2001) 80 SASR
404 …. 18.21
Wilh. Wilhelmsen Investments Pty Ltd v SSS
Holdings Pty Ltd [2019] NSWCA 32
…. 36.51, 36.57
Wilkie v Gordian Runoff Ltd (2005) 221 CLR
522; 214 ALR 410 …. 12.6
Wilkinson v Osborne (1915) 21 CLR 89
…. 27.11, 27.31
William Brandt’s Sons & Co v Dunlop Rubber
Company Ltd [1905] AC 454 …. 40.27,
40.35, 40.40

William Robinson & Co Ltd v Heuer [1898] 2
Ch 451 …. 32.20
William Sindall Plc v Cambridgeshire County
Council [1994] 1 WLR 1016 …. 16.51
Williams v Auckland Council [2015] NZCA
479 …. 31.64
— v Roffey Bros & Nicholls (Contractors) Ltd
[1991] 1 QB 1; [1990] 1 All ER 512 …. 6.51,
6.54, 6.55, 6.56, 6.57, 6.61, 6.62, 6.73, 6.74
Willshee v Westcourt Ltd [2009] WASCA 87
…. 29.50, 29.85
Wilson v Arwon Finance Pty Ltd [2020]
WASCA 137 …. 36.31, 36.34, 36.43, 36.50,
36.55, 36.64
— v Darling Island Stevedoring (1956) 95 CLR
43 …. 39.41, 39.42
— v Dodd [2012] EWHC 3727 (Ch)
…. 14.33
— v Northampton and Banbury Junction
Railway Company (1874) LR 9 Ch App 279
…. 31.19
— v Strugnell (1881) 7 QBD 548 …. 28.27
— v Wilson (1854) 5 HL Cas 40 …. 34.8
Wilson Pastoral International Pty Ltd v George
Street Steel Pty Ltd [2020] SASCFC 54
…. 6.29, 6.34, 6.65, 38.30
Wilton v Farnworth (1948) 76 CLR 646
…. 10.19
WIN Corporation Pty Ltd v Nine Network
Australia Pty Ltd (2016) 341 ALR 467
…. 11.33, 12.27
Wingecarribee Shire Council v Lehman
Brothers Australia Ltd (in liq) (2012) 301
ALR 1 …. 15.74
Winn v Bull (1877) 7 ChD 29 …. 5.41
Winter v Nemeth [2018] NSWSC 644 …. 7.4
Winterton Constructions Pty Ltd v Hambros
Australia Ltd (1991) 101 ALR 363 …. 39.34,
39.60
— v — (1992) 39 FCR 97; 111 ALR 649
…. 15.23, 15.31
With v O’Flanagan [1936] Ch 575; [1936] 1 All
ER 727 …. 14.32
Withers v General Theatre Corporation [1933]
2 KB 536 …. 29.159
xciii
TABLE OF CASES­
WMC Resources Ltd v Leighton Contractors
Pty Ltd (1999) 20 WAR 489 …. 5.10
Wolfe v Permanent Custodians Ltd [2012] VSC
275 …. 6.74, 11.48
— v — [2013] VSCA 331 …. 11.39, 11.40,
19.69, 22.21
Wollondilly Shire Council v Picton Power
Lines Pty Ltd (1994) 33 NSWLR 551
…. 30.6
Wollongong Coal Ltd v Gujarat NRE India Pty
Ltd (2019) 100 NSWLR 432; 372 ALR 165
…. 39.1, 39.5
Wolseley Investments Pty Ltd v Gillespie [2007]
NSWCA 358 …. 31.1
Wolverhampton & Walsall Railway Co
v London & North West Railway Company
(1873) LR 16 Eq 433 …. 31.7, 32.4
Wong v Van Vlymen [2016] NSWSC 161
…. 31.25
Wood v Capita Insurance Services Ltd [2017]
AC 1173; [2017] 4 All ER 615 …. 12.10
Woodar Investment Development Ltd
v Wimpey Construction UK Ltd [1980] 1
All ER 571 …. 24.73, 24.74, 24.77
Woodtree Pty Ltd v Zheng (2007) 164 FCR 369
…. 15.40
Woolcorp Pty Ltd v Rodger Constructions Pty
Ltd [2017] VSCA 21 …. 4.79
Woollahra Municipal Council v Secure Parking
Pty Ltd [2015] NSWSC 257 …. 4.98, 15.31
Woolworths Ltd v Kelly (1991) 22 NSWLR 189
…. 3.7, 6.39
— v Olson [2004] NSWCA 372 …. 27.68,
27.79, 27.115
Workers Trust and Merchant Bank Ltd v Dojap
Investments Ltd [1993] AC 573; [1993] 2
All ER 370 …. 30.40, 30.41
WorkPac Pty Ltd v Rossato (2020) 378 ALR 585
…. 12.65, 12.67
Workplace Access and Safety Pty Ltd v Mackie
[2014] WASC 62 …. 28.32
World Best Holdings Ltd v Sarkar [2010]
NSWCA 24 …. 12.65
Worldwide Salvage & Towage Ltd (The ‘Sea
Angel’) [2007] 2 Lloyd’s Rep 517 …. 25.53
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
WPS Enterprises Pty Ltd v Radford (2009) 22
VR 1; 253 ALR 596 …. 27.47, 27.48
Wright v Gasweld Pty Ltd (1991) 22 NSWLR
317 …. 27.68, 27.93, 27.115
Wroth v Tyler [1973] 1 All ER 897 …. 33.9
Wrotham Park Estate Company Ltd v Parkside
Homes Ltd [1974] 2 All ER 321 …. 29.20,
29.21, 29.23
W Scott Fell & Co Ltd v Lloyd (1906) 4 CLR
572 …. 15.22
Wu v Ling [2016] NSWCA 322 …. 19.9, 19.12
WWF — World Wide Fund for Nature v World
Wrestling Federation Entertainment Inc
[2008] 1 WLR 445 …. 29.23
X Zaccardi v Caunt [2008] NSWCA 202…. 24.48
XL Insurance Co SE v BNY Trust
Company Australia Ltd [2019] NSWCA 215
…. 12.7
Y Zamet v Hyman [1963] 3 All ER 933 …. 18.25
Yam Seng PTE Ltd v International Trade
Corporation Ltd [2013] EWHC 111 (QB)
…. 11.57, 11.59
Yango Pastoral Co Pty Ltd v First Chicago
Australia Ltd (1978) 139 CLR 410; 21 ALR
585 …. 26.5, 26.6, 26.8, 26.19, 26.20, 26.25,
26.31, 26.32, 26.33, 26.34, 26.35, 26.36,
26.37, 26.38, 26.39, 28.1
Yaroomba Beach Development Co Pty Ltd
v Coeur de Lion Investments Pty Ltd (1989)
18 NSWLR 398 …. 27.15, 27.23
Yarra Capital Group Pty Ltd v Sklash Pty Ltd
[2006] VSCA 109 …. 30.8, 30.18
Yarrabee Chicken Company Pty Ltd v Steggles
Ltd [2010] FCA 394 …. 36.68
Yates v Boen (1738) 93 ER 1060 …. 9.50
Yeoman’s Row Management Ltd v Cobbe
[2008] 4 All ER 713 …. 36.32
Yerkey v Jones (1939) 63 CLR 649 …. 18.24,
18.57, 18.58, 18.59, 18.60, 18.61, 18.62,
18.63, 18.64, 18.67, 18.68, 18.72, 18.74,
18.75, 18.76, 18.77
Yetton v Eastwoods Froy Ltd [1966] 3 All
ER 353 …. 29.141
xciv
Yogesh Enterprises Pty Ltd v Jury [2011]
NSWSC 131 …. 24.108
York Air Conditioning & Refrigeration
(Australasia) Pty Ltd v The Commonwealth
(1949) 80 CLR 11 …. 5.7
Yorke v Lucas (1985) 158 CLR 661; 61 ALR 307
…. 15.29, 15.66
Young v Queensland Trustees Ltd (1954) 99
CLR 560 …. 30.35, 30.36
— v Young (2014) 23 Tas R 76 …. 8.25
Young & Conway v Chief Executive Officer,
Housing [2020] NTSC 59 …. 29.45
Yuan v O’Neill [2020] SASC 49 …. 39.18
Z
Zachariadis v Allforks Australia Pty Ltd (2009)
26 VR 47 …. 30.13
Zagora Management Ltd v Zurich Insurance
plc [2019] EWHC 140 (TCC) …. 14.36
Zenith Engineering Pty Ltd v Qld Crane
and Machinery Pty Ltd [2000] QCA 221
…. 30.7
Zhang v ROC Services (NSW) Pty Ltd (2016)
93 NSWLR 561 …. 12.29, 12.45, 13.8
— v VP302 SPV Pty Ltd (2009) 223 FLR 213
…. 20.15
Zhu v Snell [2014] NSWSC 468 …. 31.55
— v Treasurer of the State of New South Wales
(2004) 218 CLR 530; 211 ALR 159 …. 12.26,
31.21, 37.4, 37.43, 37.56, 37.57, 37.59
Zierholz@UC Pty Ltd v University of Canberra
[2019] ACTSC 310 …. 7.32
Zomojo Pty Ltd v Hurd (No 2) (2012) 299 ALR
621 …. 27.94
Zorom Enterprises Pty Ltd (in liq) v Zabow
(2007) 71 NSWLR 354 …. 29.1, 29.44
Zugic v Vesuvius Australia Pty Ltd [2020]
NSWSC 106 …. 36.43
Zurich Australian Insurance Ltd v Metals &
Minerals Insurance Pty Ltd (2009) 240 CLR
391; 261 ALR 468 …. 39.71
Zurich Insurance Co plc v Hayward [2017]
AC 142; [2016] 4 All ER 628 …. 37.6, 37.12
 TABLE OF STATUTES
References are to paragraph numbers

COMMONWEALTH ss 20–21 …. 19.75

Acts Interpretation Act 1901 ss 20–22A …. 19.45
s 15AA …. 21.10 s 20(1) …. 19.51, 19.52
s 15AB …. 21.10 s 20(2) …. 19.51
Australian Consumer Law …. 1.27, 6.39, 9.53, s 21 …. 11.62, 12.76, 19.51, 19.61, 19.62,
11.32, 13.38, 14.15, 14.57, 15.1, 15.4, 19.65, 19.66, 19.73
15.5, 15.6, 15.10, 15.12, 15.17, 15.77, 19.4, s 21(1) …. 19.50, 19.61, 19.63, 19.64
19.45, 19.46, 19.47, 19.49, 19.50, 19.59, s 21(1)(a) …. 19.68, 19.69, 19.70, 19.71
21.1, 21.2, 21.4, 21.5, 21.6, 21.7, 21.11, s 21(1)(b) …. 19.72, 19.73, 19.74
21.13, 21.30, 21.31, 21.33, 21.34, 29.52, s 21(2) …. 19.62
30.19, 31.72, 40.50 s 21(3) …. 19.63
Ch 2 Pt 2-3 …. 21.8 s 21(4) …. 19.64
Ch 5 …. 14.2, 15.8, 15.89, 19.75 s 21(4)(a) …. 19.64
Pt 2-2 …. 11.62 s 22 …. 11.62, 12.76, 19.67, 19.72
Pt 2-3 …. 21.33 s 22(1) …. 19.68
Pt 3-2 Div 1 Subdiv B …. 13.44 s 22(2) …. 19.72
s 2 …. 15.9, 15.77, 19.47, 21.9 s 23 …. 21.8, 21.29
s 2(1) …. 21.9 ss 23–28 …. 13.29, 21.8
s 2(2) …. 15.17, 15.26 s 23(1) …. 21.8, 21.32
s 2(2)(a) …. 15.17, 15.26 s 23(2) …. 21.8, 21.32
s 2(2)(c) …. 15.18, 15.26 s 23(3) …. 21.9, 21.10
s 3 …. 13.42, 15.8, 21.11 s 23(4)(b) …. 21.33
s 4 …. 15.73 s 24 …. 21.16, 21.21
s 4(1) …. 15.73 s 24(1) …. 21.19, 21.22
s 4(2) …. 15.28, 15.73 s 24(1)(a) …. 21.21
s 4(2)(a) …. 15.17 s 24(1)(a)–(c) …. 21.21
s 4(3) …. 15.73 s 24(1)(b) …. 21.21
s 11 …. 21.9 s 24(1)(c) …. 21.21, 21.26
s 18 …. 10.83, 13.41, 14.2, 14.15, 14.24, 14.28, s 24(2) …. 21.17, 21.26
15.1, 15.2, 15.3, 15.4, 15.7, 15.14, 15.15, s 24(2)(a) …. 21.21
15.22, 15.23, 15.24, 15.26, 15.30, 15.32, s 24(3) …. 21.18, 21.26
15.34, 15.35, 15.41, 15.42, 15.43, 15.46, s 25 …. 21.17, 21.21
15.50, 15.53, 15.56, 15.64, 15.65, 15.66, s 25(1) …. 21.27, 21.28
15.67, 15.68, 15.69, 15.72, 15.77, 15.84, s 25(1)(j) …. 21.28
15.86, 15.88, 15.89, 15.90, 15.91, 15.92, s 25(1)(k) …. 21.28
15.96, 19.73, 21.5, 29.151, 35.40, 40.50 s 26(1) …. 21.13, 21.29
s 18(1) …. 15.8, 15.9, 15.12, 15.13, 15.16, s 27 …. 21.14
15.24, 15.26, 15.33 s 27(1) …. 21.12
s 20 …. 19.50, 19.51, 19.52, 19.53, 19.54, s 27(2) …. 21.13, 21.15
19.55, 19.56, 19.57, 19.58, 19.59, 19.60 s 28 …. 21.30
xcv
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Australian Consumer Law – cont’d Australian Securities and Investments

s 29 …. 13.41 Commission Act 2001 …. 13.40, 21.31,
s 50 …. 17.38 30.19
s 51 …. 13.39 Pt 2 Div 2 Subdiv BA …. 21.2
ss 51–62 …. 11.32, 13.39 s 12BA …. 21.2
s 52 …. 13.39, 15.17, 15.92 s 12BAA …. 21.2, 21.31
s 53 …. 13.39 s 12BAB …. 21.2, 21.31
s 54 …. 13.39 s 12BF …. 21.2
ss 54–64A …. 11.32 s 12BG …. 21.2
s 55 …. 13.39 s 12BH(1) …. 21.2
s 56 …. 13.39 s 12BI …. 21.2
s 57 …. 13.39 s 12BK …. 21.2
s 58 …. 13.39 s 12CA …. 19.45
s 59 …. 13.39 s 12CB …. 19.45, 19.65, 19.71
s 60 …. 13.40 s 12CC …. 19.45, 19.65
ss 60–62 …. 13.40 s 12DA …. 15.1, 15.4, 21.2
s 61 …. 13.40 s 12DB …. 21.2
s 62 …. 13.40 s 12GA …. 21.2
s 63 …. 13.40 s 12GBA …. 21.2
s 64 …. 13.37, 13.38, 13.39, 13.41, 13.43, s 12GBB …. 21.2
13.44 s 12GLA …. 21.2
s 64A …. 13.37 s 12GLB …. 21.2
s 64A(1) …. 13.43 s 12GND …. 21.2
s 64A(2) …. 13.43 s 102 …. 21.2
s 64A(3) …. 13.43 Banking Act 1959 …. 26.31
s 64A(4) …. 13.43 s 8 …. 26.31, 26.33
s 152 …. 17.38 Bankruptcy Act 1966 …. 6.72
s 224(1)(a)(i) …. 19.79 s 58 …. 9.58, 40.43
s 232 …. 17.38, 19.75, 21.33 s 269 …. 9.58
ss 232–236 …. 15.90 Bills of Exchange Act 1909
s 232(6) …. 21.33 s 32(1)(b) …. 6.30
s 234 …. 17.38 ss 36–43 …. 39.67
s 236 …. 15.31, 15.80, 15.81, 15.91, 15.92, Cheques Act 1986
17.38, 19.76, 21.34 s 73 …. 39.67
s 236(2) …. 15.80, 15.82 Companies Code …. 26.53
s 237 …. 15.31, 21.34 s 170 …. 26.52
s 237(1) …. 17.38 s 174 …. 26.52
s 238(1) …. 17.38 Competition and Consumer Act 2010 …. 15.1,
ss 239–240 …. 21.33 15.77, 19.45, 21.8, 27.109, 40.43, 40.50
s 239(1) …. 17.38 Pt IV …. 27.109
s 243 …. 15.98, 17.38, 19.77, 19.78, 35.37 s 51(2) …. 27.109
s 243(1) …. 15.97 s 51(2)(a) …. 27.110
s 250 …. 21.33 s 51(2)(b) …. 27.111
s 250(2) …. 21.33 s 51AD …. 26.8
s 275 …. 29.52 s 131 …. 21.6

xcvi
 TABLE OF STATUTES­

s 131(1) …. 15.5, 19.46 Life Insurance Act 1995

s 131A …. 21.31 s 199(2) …. 9.2, 9.3
s 131A(1) …. 15.4, 19.45 Life Insurance Act 1999
s 139A …. 13.37, 13.44, 13.45 ss 200–203 …. 40.29
s 139A(1) …. 13.45 Marine Insurance Act 1909
s 139A(3) …. 13.45 ss 56–57 …. 40.29
Sch 2 …. 13.37, 15.1, 19.45, 20.1, 21.5 National Consumer Credit Protection Act 2009
Copyright Act 1968 s 184 …. 12.76
ss 196–197 …. 40.29 Patents Act 1990
Corporations Act 2001 …. 9.60, 28.10, 28.11 s 14 …. 40.29
Pt IV Div 6 …. 38.66 Trade Marks Act 1995
s 9 …. 21.31 ss 106–111 …. 40.29
s 124 …. 9.60, 9.66 Trade Practices Act 1974 …. 15.1, 15.10, 15.99,
s 125 …. 9.60, 9.66 17.13, 19.45, 21.4, 26.8, 26.9, 31.72
s 125(1) …. 9.66, 9.67 Pt IVB …. 26.8
s 125(1)–(2) …. 9.67 Pt VI …. 26.8, 26.9
s 125(2) …. 9.66, 9.67 s 51AA …. 17.13, 19.45, 19.53
s 182 …. 27.81 s 51AB …. 17.13, 19.45
s 183 …. 27.81 s 51AC …. 11.62, 17.13, 19.45
s 601EB …. 28.10 s 51ACA(1) …. 26.8
s 601ED …. 28.10 s 51AD …. 26.8, 26.9
s 1311(1)(c) …. 28.11 s 51A …. 15.73, 15.75, 15.76
Defence Service Homes Act 1918 …. 26.54, s 52 …. 15.1, 15.27, 15.30, 15.33, 15.48, 21.5,
26.55, 26.56 29.151
Electronic Transactions Act 1999 s 68B …. 13.45
s 14(3) …. 4.60 s 82 …. 15.99
s 14(4) …. 4.60 s 87 …. 15.97, 15.99
Fair Work Act 2009 Trade Practices Regulations 1974 …. 21.4
s 343 …. 17.12
s 347(b)(iv) …. 17.5 AUSTRALIAN CAPITAL TERRITORY
s 348 …. 17.5, 17.12 Age of Majority Act 1974 …. 9.2
Federal Court Act 1976 …. 33.4 Civil Law (Property) Act 2006
s 5(2) …. 33.4 Pt 2.3 Div 1 …. 6.82
s 22 …. 33.4 s 4 …. 31.15
s 23 …. 33.4 s 204(1) …. 8.4, 8.24
ss 51A–52 …. 29.155 s 204(2)(c) …. 8.29
Income Assessment Act 1936 s 205 …. 40.26
s 261 …. 38.79 s 205(1) …. 40.26, 40.44
Independent Contractors Act 2006 …. 19.45, 20.1 s 250 …. 22.42
Insurance Contracts Act 1984 s 501 …. 24.47
s 15 …. 21.31 Civil Law (Wrongs) Act 2002 …. 29.103
ss 21–22 …. 14.26 ss 101–102 …. 29.104, 37.31
s 45(1) …. 39.71 s 151A …. 27.20
s 48 …. 36.69, 39.70, 39.71 s 173(b)(ii)–(iii) …. 35.37
s 48(1) …. 39.69 s 174 …. 14.2

xcvii
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Civil Law (Wrongs) Act 2002 – cont’d 20.22, 20.26, 20.27, 20.32, 20.34, 20.36,
s 175 …. 35.41 20.41, 20.42, 20.44, 20.45, 20.46, 20.47,
s 176 …. 35.40 20.48, 20.50, 20.51, 20.53, 20.54, 21.2, 21.4,
Court Procedures Act 2004 21.7, 30.19, 31.74
s 80 …. 40.15 s 4 …. 20.7, 20.19, 20.23
Court Procedures Rules 2006 s 5 …. 20.10
r 1616 …. 29.155 ss 5–6 …. 20.9
Electronic Transactions Act 2001 s 6(1) …. 20.11
s 13(3) …. 4.60 s 6(2) …. 20.11, 20.12, 20.13, 20.14, 20.15
s 13(4) …. 4.60 s 7 …. 13.46, 20.16, 20.18, 20.23, 20.29,
Land Titles Act 1925 20.31, 20.34, 20.51, 20.53
s 57(1) …. 8.23 s 7(1) …. 20.7, 20.16, 20.19, 20.28, 20.30, 20.32,
Limitation Act 1985 20.33, 20.34, 20.42, 20.45, 20.53, 20.54
s 11(1) …. 29.28 s 7(1)(b) …. 20.53
s 13 …. 29.28 s 8 …. 20.31, 38.97
Married Persons’ Property Act 1986 …. 9.69 s 9 …. 20.23, 20.49, 20.51
Mercantile Law Act 1962 s 9(1) …. 20.16, 20.26, 20.35, 20.37, 20.42
s 15 …. 9.7, 9.46 s 9(2) …. 20.16, 20.37, 20.38, 20.39, 20.49,
Sale of Goods Act 1954 20.50, 20.54
s 7 …. 9.10 s 9(2)(a) …. 17.13, 20.45
s 11 …. 16.9 s 9(2)(d) …. 20.45
ss 17–20 …. 11.32 s 9(2)(e) …. 20.45
s 32 …. 22.17 s 9(2)(f) …. 20.45
s 52(2) …. 22.15 s 9(2)(g) …. 12.76, 20.45
s 60 …. 4.26 s 9(2)(i) …. 20.45
s 62(1) …. 35.38 s 9(2)(j) …. 17.39, 20.45
s 62(2) …. 35.39 s 9(2)(l) …. 20.42
Sale of Goods (Vienna Convention) Act 1987 s 9(4) …. 20.16, 20.37
…. 4.9 s 14 …. 20.5
Supreme Court Act 1933 s 15 …. 20.5
s 26 …. 33.4 s 17 …. 20.9
Conveyancing Act 1919
NEW SOUTH WALES Pt 3 Div 1 …. 6.82
Builders Licensing Act 1971 …. 38.38 s 7(1) …. 8.10
s 45 …. 38.36, 38.37, 38.38 s 12 …. 40.26, 40.33, 40.38
Civil Liability Act 2002 …. 29.53 s 13 …. 24.47
s 16 …. 29.52 s 23B(1) …. 6.81, 8.23
Sch 2 cl 2 …. 40.45 s 54A …. 8.19
Civil Procedure Act 2005 s 54A(1) …. 8.4, 8.8, 8.24
s 100 …. 29.155 s 54A(2) …. 8.29
Commercial Arbitration Act 1984 …. 23.61 s 55(2A) …. 10.81, 27.30, 30.41
Contracts Review Act 1980 …. 6.39, 9.53, s 144(1) …. 22.42
10.23, 13.37, 13.46, 16.95, 17.13, 19.45, s 170 …. 40.36
20.1, 20.2, 20.3, 20.4, 20.5, 20.6, 20.7, 20.8, Crimes Act 1900
20.9, 20.10, 20.11, 20.19, 20.20, 20.21, Sch 3 cl 5 …. 40.45

xcviii
 TABLE OF STATUTES­

Crown Land Act 1884 …. 27.14 Local Government Act 1919

Electronic Transactions Act 2000 Pt XIIA …. 24.61
s 13(3) …. 4.60 s 309 …. 24.61
s 13(4) …. 4.60 Maintenance, Champerty and Barratry
Fair Trading Act 1987 Abolition Act 1993
s 42 …. 15.30, 15.48 ss 3–4 …. 27.20
Fair Trading (Unfair Contract Terms) Act 2010 Married Persons (Equality of Status) Act 1996
…. 21.6 …. 9.69
Frustrated Contracts Act 1978 …. 25.72, 25.73, Minors (Property and Contracts) Act 1970
25.74 …. 9.2, 9.28, 9.29, 9.30, 9.31, 9.34, 9.35,
s 6(1)(a) …. 25.73 9.36, 9.37
s 6(1)(b) …. 25.73 s 6 …. 9.28
s 6(1)(c) …. 25.73 s 17 …. 9.36
s 6(1)(d) …. 25.73 s 18 …. 9.29
s 6(1)(e) …. 25.73 s 19 …. 9.30, 9.34
s 6(2) …. 25.73 s 20 …. 9.31, 9.35
s 7 …. 25.74 s 21 …. 9.31
s 8 …. 25.74 s 23 …. 9.31
s 9 …. 25.75, 25.76 s 24 …. 9.36
ss 9–13 …. 25.81 s 26 …. 9.32, 9.33
s 10 …. 25.75 s 26(1) …. 9.32
s 11 …. 25.76 s 26(5) …. 9.33
s 12 …. 25.77, 25.80 s 27 …. 9.31
s 13 …. 25.78, 25.79, 25.80 s 28 …. 9.34
s 15 …. 25.81 ss 28–29 …. 9.31
Gaming and Betting Act 1912 s 29 …. 9.34
s 16 …. 28.12 s 30 …. 9.36
Industrial Relations Act 1996 …. 20.1, 21.2, s 43 …. 9.34
21.4, 21.35, 21.37, 21.39 Police Act 1990
s 105 …. 21.36 s 208 …. 6.43
s 106 …. 19.45, 21.35, 21.36, 21.38, Police Regulation 2015
21.40, 21.41 reg 144 …. 6.43
s 106(2A) …. 21.37, 21.41, 21.42 Real Property Act 1900 …. 24.61
s 106(2A)(b) …. 21.42 s 41(1) …. 8.23
Judgment Creditors’ Remedies Act 1901 …. 2.34 Restraints of Trade Act 1976 …. 27.68, 27.112,
Law Reform (Miscellaneous Provisions) Act 27.116, 27.119, 27.120, 28.41
1965 …. 29.103 s 4(1) …. 27.68, 27.112, 27.114, 27.115,
ss 8–9 …. 29.104, 37.31 27.116, 27.117
Limitation Act 1969 s 4(3) …. 27.113, 27.114, 27.116, 27.122,
s 14(1) …. 29.28 27.123
s 16 …. 29.28 Retail Leases Act 1994 …. 16.37
Liquor Act 2007 …. 26.59, 26.60 s 16(1)–(2) …. 16.37
s 92(1)(d) …. 26.58, 26.60 s 16(3) …. 16.37
s 139(3)(d) …. 26.58 Sale of Goods Act 1923 …. 9.47, 38.55
s 141(2) …. 26.58 s 4(2) …. 35.38

xcix
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Sale of Goods Act 1923 – cont’d s 212(1) …. 22.42

s 4(2A)(a) …. 35.39 s 219 …. 40.36
s 4(2A)(b) …. 35.37 Law of Property Act 2009
s 4(5) …. 24.38 s 9(1) …. 6.81
s 7 …. 9.10, 9.47 Law Reform (Miscellaneous Provisions) Act
s 11 …. 16.9 1956 …. 29.103
ss 17–20 …. 11.32 ss 15–16 …. 29.104, 37.31
s 31 …. 22.17 Limitation Act 1981
s 51(2) …. 22.15 s 12(1)(a) …. 29.28
s 55 …. 38.55 s 14 …. 29.28
s 57 …. 11.32 Married Persons (Equality of Status) Act 1989
s 60 …. 4.26 …. 9.69
s 64 …. 11.32 Personal Injuries (Liabilities and Damages)
Sale of Goods (Vienna Convention) Act 1986 Act 2003
…. 4.9 s 27 …. 29.52
Securities Industry Act 1970 Supreme Court Act 1979
s 70 …. 28.3, 28.4 s 62 …. 33.4
State Planning Authority Act 1963 …. 24.61 ss 84–85 …. 29.155
Strata Schemes Management Act 2015 …. 20.11 Sale of Goods Act 1972
Supreme Court Act 1970 s 4(2) …. 35.38
s 68 …. 33.4, 33.5 s 7 …. 9.10
s 68(a) …. 33.5 s 10 …. 16.9
Therapeutic Goods and Cosmetics Act 1972 ss 17–20 …. 11.32
…. 26.44 s 31 …. 22.17
Uniform Civil Procedure Rules 2005 s 51(2) …. 22.15
Pt 7 Div 4 …. 9.48 s 57 …. 11.32
r 7.13 …. 9.48 s 60 …. 4.26
Unlawful Gambling Act 1998 Sale of Goods (Vienna Convention) Act 1987
s 56 …. 38.51 …. 4.9
Water Act 1992 …. 26.15
NORTHERN TERRITORY s 56 …. 26.15
Age of Majority Act 1981 …. 9.2
Electronic Transactions Act 2000 QUEENSLAND
s 11(3) …. 4.60 Age of Majority Act 1974 …. 9.2
s 11(4) …. 4.60 Civil Proceedings Act 2011
Land Title Act 2000 s 8 …. 33.4
s 184 …. 8.23 Electronic Transactions Act 2001
Law of Property Act 2000 s 24(1) …. 4.60
Pt 6 Div 1 …. 6.82 s 24(2) …. 4.60
s 4 …. 8.10 Land Title Act 1994
s 5(c) …. 8.29 s 181 …. 8.23
s 9(1) …. 8.23 Law Reform Act 1995 …. 29.103
s 56 …. 39.73 s 5 …. 29.104, 37.31
s 62 …. 8.4, 8.24 s 10 …. 29.104, 37.31
s 65 …. 24.27 Leases to Aliens Restriction Act 1912
s 182 …. 40.26 …. 26.23
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 TABLE OF STATUTES­

Limitation of Actions Act 1974 Electronic Transactions Act 2000

s 10(1)(a) …. 29.28 s 13(3) …. 4.60
s 10(3) …. 29.28 s 13(4) …. 4.60
Police Service Administration Act 1990 Frustrated Contracts Act 1988 …. 25.84, 25.85,
s 10.16 …. 6.43 25.86, 25.88, 25.91, 25.98
Property Law Act 1974 s 3 …. 25.84, 25.87, 25.88, 25.89,
Pt 6 Div 1 …. 6.82 25.90, 25.92
s 6(d) …. 8.29 s 3(2) …. 25.90
s 10(1) …. 6.81, 8.23 s 3(3) …. 25.91
s 55 …. 39.73 s 3(4) …. 25.92
s 59 …. 8.4, 8.24 s 4(1)(a) …. 25.84
s 62 …. 24.47 s 4(1)(b) …. 25.84
s 199 …. 40.26 s 4(2) …. 25.85
s 232 …. 22.42 s 4(3) …. 25.84
s 347 …. 40.36 s 5 …. 25.86
Sch 6 …. 8.10 s 6 …. 25.87
Sale of Goods Act 1896 s 6(2) …. 25.87
s 5 …. 9.10 s 7 …. 25.95, 25.96, 25.97
s 9 …. 16.9 s 7(1) …. 25.88, 25.94
ss 15–18 …. 11.32 s 7(2) …. 25.88, 25.94
s 30 …. 22.17 s 7(3) …. 25.93
s 50(2) …. 22.15 s 7(4) …. 25.94
s 56 …. 11.32 s 7(5) …. 25.95
s 59 …. 4.26 s 7(6) …. 25.96
s 61(2) …. 35.38 s 7(7) …. 25.97
Sale of Goods (Vienna Convention) Act 1986 s 8 …. 25.98
…. 4.9 Law of Property Act 1884
Supreme Court Act 1995 s 7 …. 8.10
ss 47–48 …. 29.155 Law of Property Act 1936
Workplace Health and Safety Regulation 1997 …. 9.69
…. 26.41 s 7 …. 8.10
s 73 …. 26.41 s 15 …. 40.26
s 73(1) …. 26.41 s 16 …. 24.47
s 26(1) …. 8.4, 8.24, 8.39
SOUTH AUSTRALIA s 26(2) …. 8.29
Age of Majority (Reduction) Act 1971 s 28(1) …. 6.81, 8.23
…. 9.2 s 41 …. 6.82
Civil Liability Act 1936 s 64 …. 22.42
s 52 …. 29.52 s 112 …. 40.36
Criminal Law Consolidation Act 1935 Law Reform (Contributory Negligence and
s 1 …. 40.45 Apportionment of Liability) Act 2001
s 3 …. 40.45 …. 29.103
Sch 11 …. 40.45 s 3 …. 37.31
Sch 11 s 1 …. 27.20 s 4 …. 29.104
Sch 11 s 3 …. 27.20 s 7 …. 29.104, 37.31

ci
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Limitation of Actions Act 1936 Electronic Transactions Act 2000

s 34 …. 29.28 s 11(3) …. 4.60
s 35(a) …. 29.28 s 11(4) …. 4.60
Minors Contracts (Miscellaneous Provisions) Land Titles Act 1980
Act 1979 …. 9.7, 9.39 s 39(1) …. 8.23
s 4 …. 9.40 Limitation Act 1974
s 5 …. 9.41 s 4(1)(a) …. 29.28
s 6 …. 9.42 s 4(3) …. 29.28
s 7 …. 9.43 Minors Contracts Act 1988 …. 9.7, 9.45
s 8 …. 9.44 s 4 …. 9.45
Misrepresentation Act 1971 Sale of Goods Act 1896
s 6(1)(b) …. 35.37 s 5(2) …. 35.38
s 7 …. 35.41 s 7 …. 9.10
s 8 …. 14.2, 35.40 s 11 …. 16.9
Real Property Act 1886 ss 17–20 …. 11.32
s 67(1) …. 8.23 s 33 …. 22.17
Sale of Goods Act 1895 s 53(2) …. 22.15
s 2 …. 9.10 s 59 …. 11.32
s 6 …. 16.9 s 62 …. 4.26
s 7 …. 25.84 Sale of Goods (Vienna Convention) Act 1987
ss 12–15 …. 11.32 …. 4.9
s 28 …. 22.17 Supreme Court Civil Procedure Act 1932
s 48(2) …. 22.15 s 11(7) …. 24.47
s 54 …. 11.32 s 11(13) …. 33.4
s 57 …. 4.26 s 34 …. 29.155
s 59(2) …. 35.38 s 165 …. 29.155
Sale of Goods (Vienna Convention) Act 1986 Wrongs Act 1954 …. 29.103
…. 4.9 s 2 …. 29.104, 37.31
Supreme Court Act 1935 s 4 …. 29.104, 37.31
s 30 …. 33.4
s 30C …. 29.155 VICTORIA
s 114 …. 29.155 Age of Majority Act 1977 …. 9.2
Australian Consumer Law and Fair Trading
TASMANIA Act 2012 …. 25.82
Age of Majority Act 1973 …. 9.2 Pt 3.2 …. 25.83
Apportionment Act 1871 s 24 …. 35.37
s 2 …. 22.42 s 35(1) …. 25.83
Civil Liability Act 2002 s 35(2) …. 25.83
s 27 …. 29.52 s 35(3) …. 25.83
Conveyancing and Law of Property Act 1884 s 36 …. 25.83
…. 9.69 s 36(1) …. 25.83
Pt 11 Div 1 …. 6.82 s 36(2) …. 25.83
s 36(1) …. 8.4, 8.24 s 37 …. 25.83, 25.83
s 36(2) …. 8.29 s 38(1) …. 25.83
s 60(1) …. 6.81, 8.23 s 38(2) …. 25.83
s 86 …. 40.26 s 38(3) …. 25.83
cii
 TABLE OF STATUTES­

s 38(4) …. 25.83 ss 73–73A …. 6.82

s 39 …. 25.83 s 134 …. 40.26
s 40 …. 25.83 Sale of Goods (Vienna Convention) Act 1987
s 41 …. 25.83 …. 4.9
s 42 …. 25.83 Supreme Court Act 1986
Crimes Act 1958 s 38 …. 33.4
s 322A …. 27.20, 40.45 s 49 …. 9.38
Electronic Transactions Act 2000 ss 49–50 …. 9.7
s 13(3) …. 4.60 s 50 …. 9.38
s 13(4) …. 4.60 s 51 …. 9.38
Fair Trading Act 1999 s 54 …. 22.42
s 3 …. 21.9 s 60 …. 29.155
s 32Y …. 21.7 s 101 …. 29.155
ss 32ZF–32ZO …. 25.82 Transfer of Land Act 1958
s 320A(1) …. 35.39 s 40(1) …. 8.23
Fair Trading Amendment (Unfair Contract Victoria Police (Fees and Charges)
Terms) Act 2010 …. 21.6 Regulations 2014
Frustrated Contracts Act 1959 …. 25.82 reg 4 …. 6.43
Goods Act 1958 Wrongs Act 1958 …. 29.103
s 4(2) …. 35.38 ss 25–26 …. 29.104, 37.31
s 7 …. 9.10 s 28G …. 29.52
s 9 …. 16.9 s 32 …. 27.20, 40.45
s 12 …. 25.83
ss 17–20 …. 11.32 WESTERN AUSTRALIA
s 35 …. 22.17 Age of Majority Act 1972 …. 9.2
s 37 …. 25.83 Civil Liability Act 2002
s 38 …. 25.83 s 9 …. 29.52
s 40 …. 25.83 Electronic Transactions Act 2003
s 55(2) …. 22.15 s 13(3) …. 4.60
s 61 …. 11.32 s 13(4) …. 4.60
s 64 …. 4.26 Law Reform (Contributory Negligence and
Instruments Act 1958 Tortfeasors’ Contribution) Act 1947
s 126(1) …. 8.4, 8.24 …. 29.103
Limitations of Actions Act 1958 ss 3A–4 …. 29.104, 37.31
s 5(1)(a) …. 29.28 Law Reform (Statute of Frauds) Act 1962
s 5(3) …. 29.28 s 2 …. 8.4, 8.24
Marriage Act 1958 …. 9.69 Limitation Act 2005
Property Law Act 1958 s 13 …. 29.28
s 18(1) …. 8.10 s 18 …. 29.28
s 28B …. 9.4, 9.5, 9.6 Police Act 1892
s 41 …. 24.47 s 39G …. 6.43
s 49(2) …. 10.81, 27.30, 30.41 Property Law Act 1969 …. 9.69
s 52(1) …. 6.81, 8.23 Pt 2 …. 6.82
s 53(1)(a) …. 8.4, 8.24 s 7 …. 8.10
s 55(d) …. 8.29 s 11(2) …. 39.72

ciii
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Property Law Act 1969 – cont’d Creditors Remedies Act 1839, 3 Vict No 18
s 11(3) …. 39.72 …. 2.34
s 20 …. 40.26 Debt Abolition Act 1846, 10 Vict No 7 …. 2.34
s 20(3) …. 40.26, 40.34 Debtors Relief Act 1832, 2 Wm 4 No 11 …. 2.34
s 21 …. 24.47 Equality Act 2010
s 33(1) …. 6.81, 8.23 Pt 5 Ch 3 …. 7.24
s 36(d) …. 8.29 Fertilisers and Feeding Stuffs Act 1906
s 124 …. 38.92 …. 26.45, 26.46
s 125 …. 38.92 Gaming Act 1845
s 131 …. 22.42 s 18 …. 38.51, 38.52
Sale of Goods Act 1895 Insolvency Act 1830, 11 Geo 4 No 7 …. 2.34
s 2 …. 9.10 Insolvent Act 1841, 5 Vict No 17 …. 2.34
s 6 …. 16.9 Law of Property (Miscellaneous Provisions)
ss 12–15 …. 11.32 Act 1989
s 28 …. 22.17 s 2(1) …. 8.42
s 48(2) …. 22.15 New South Wales Act 1823, 4 Geo 4 c 96
s 54 …. 11.32 …. 2.34
s 57 …. 4.26 Police Act 1966
s 59(2) …. 35.38 s 25 …. 6.43
Sale of Goods (Vienna Convention) Act 1986 Property Qualifications Act 1711 …. 8.9
…. 4.9 Road and Rail Traffic Act 1933 …. 26.28
Supreme Court Act 1935 Sale of Goods Act 1979
s 25(10) …. 33.4 s 35 …. 23.68
s 32 …. 29.155 Seeds Act 1920 …. 28.24
s 142 …. 29.155 Sex Discrimination Act 1975 …. 7.24
Transfer of Land Act 1893 Statute of Frauds 1677 …. 1.26, 8.4, 8.5,
s 58(1) …. 8.23 8.24, 8.31
s 4 …. 8.4, 8.24, 38.48
NEW ZEALAND Statute of Frauds Amendment Act 1828,
Age of Majority Act 1970 9 Geo iv c 14
s 4(1) …. 9.2 s 5 …. 9.46
Judicature Act 1908 Supreme Court of Judicature Act 1873 …. 1.29,
s 94A …. 38.92 33.3, 33.20
s 94B …. 38.92 s 3 …. 1.29
Judicature Amendment Act 1958 …. 38.92 s 24 …. 1.29
Property Law Act 2007 s 25(6) …. 40.26
s 18(1) …. 6.80 Supreme Court of Judicature Act 1875
s 2 …. 1.29
UNITED KINGDOM
Appellate Jurisdiction Act 1976 …. 1.29 INTERNATIONAL
Chancery Amendment Act 1858 …. 33.2, 33.3, UNIDROIT Principles for International
33.4, 33.6, 33.7, 33.9, 33.13, 33.14, 33.17, Commercial Contracts …. 1.32
33.20, 33.21 United Nations Convention on Contracts
Constitutional Reform Act 2005 for the International Sale of Goods 1980
s 40 …. 1.29 …. 1.32, 4.9

civ
 1
INTRODUCTION

THE DEFINITION OF ‘CONTRACT’

1.1 In the seminal case of Australian Woollen Mills Pty Ltd v The Commonwealth,1 the
High Court said:
It is of the essence of contract, regarded as a class of obligations, that there is a voluntary
assumption of a legally enforceable duty.

Although this statement places contract law within the broader topic of legally enforceable
obligations, it does not define the word ‘contract’. If the word ‘definition’ can be taken to mean
a form of words by which the nature of a thing or meaning of a word is accurately or precisely
described, the word ‘contract’ lacks an adequate and succinct definition. All succinct definitions
of contract sacrifice accuracy. However, they are useful in getting a general idea of the meaning
of the word, sufficient to appreciate why the content of the ensuing chapters is found in a book
on contract law.
1.2 The word ‘contract’ is derived from the Latin word contrahare, which means to draw
together. Succinct definitions of contract are of two broad types, each with its own problems.
The first type sees contract in terms of a promise or set of promises. Thus, Pollock2 defines a
contract as ‘a promise or set of promises which the law will enforce’.
1.3 There are two problems associated with Pollock’s definition. First, is its implication
that the only promises that can be enforced are those contained in a contract. However, as
McClure JA observed in Widodo v Hamdan,3 ‘[c]ontract is not now the only means of enforcing
a promise’. For example, a promise outside the scope of a contract can be enforced pursuant to
the principles of equitable estoppel.4 Second, an oral promise made in the context of a sale of
land can give rise to a valid contract, but the promise will be unenforceable at common law due
to the lack of writing evidencing the promise.5

1. (1954) 92 CLR 424 at 457.

2. P S Atiyah, An Introduction to the Law of Contract, 5th ed, Clarendon Press, Oxford, 1995, p 35. See Page
v Healthscope Operations Pty Ltd [2016] NSWSC 1608 at [49].
3. [2008] WASCA 113 at [23].
4. See Chapter 36.
5. See Chapter 8.
1
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

1.4 The second type of definition sees contract in terms of an agreement. Thus, Treitel6 states:
A contract is an agreement giving rise to obligations which are enforced or recognised by
law. The factor that distinguishes contractual from other legal obligations is that they are
based on the agreement of the contracting parties.

1.5 There are two problems associated with Treitel’s definition. First, a contract can exist in
the absence of actual agreement between the parties. This is because the law takes an objective,
rather than subjective, view of the facts when assessing whether an agreement exists. In so
doing, a court will look at what the parties have said and done rather than what they actually
think. Thus, an agreement can exist, despite the relevant parties’ beliefs to the contrary. Second,
not all agreements giving rights to obligations are contracts. Unless the agreement is intended
by the parties to be legally binding, a contract does not exist.7
1.6 Despite the problems with Pollock’s and Treitel’s definitions of contract, they do
nevertheless describe key aspects of a contract. As set out in later chapters of this book, two key
elements of a contract relate to the fact of agreement8 and the requirement of consideration.9
The principles relating to the fact of agreement stipulate that for a contract to exist there must
be an agreement between the parties. The principles relating to consideration have at their
heart the notion of promise, in that an agreement reached between the parties must generally
be one that involves the parties promising something of some value to each other.
1.7 Regardless of which of these two definitions one may prefer, both of them talk about
enforcement, be it of a promise that is set out in the agreement. Thus, at this stage a brief note
of the means of enforcement is appropriate.
1.8 In a contract between A and B, if A fails to carry out his or her promise to B, the crucial
issue for both parties will be the nature of the legal rights or remedies that B (the plaintiff) has
against A (the defendant). The right to a remedy for a breach of contract, or indeed any non-
criminal wrong, has been described as the cornerstone of any system of justice.10
1.9 On the assumption that A has committed a breach of contract, B can seek one of two
remedies against A. The primary remedy is that of damages for breach of contract.11 This
remedy gives B a right to seek an order from the court fixing a sum of money to be paid by A
to B as compensation for A’s breach. In addition to damages for breach of contract, in some
cases, B may be able to terminate the contract for the breach.12 Alternatively, B may be able to
establish that it is appropriate in the circumstances of the case for the court to force A to carry
out his or her promise. Where the promise is one that requires A to perform some positive act,
the appropriate remedy is an order for specific performance.13 If the promise is one that requires

6. E Peel, Treitel: The Law of Contract, 14th ed, Sweet & Maxwell, London, 2015, p 1.
7. See Chapter 7.
8. See Chapter 4.
9. See Chapter 6.
10. Jones v Kaney [2011] 2 AC 398 at 433; [2011] 2 All ER 671 at 701; Day v Womble Bond Dickinson (UK) LLP
[2020] EWCA Civ 447 at [25]–[27].
11. See Chapter 29.
12. See Chapter 24.
13. See Chapter 31.

2
 CHAPTER 1: INTRODUCTION­

A to refrain from doing some act, the appropriate remedy is an order for an injunction.14 The
remedies mentioned above are the only ones available in contract law to a plaintiff against a
defendant in relation to a breach of contract between the plaintiff and defendant.
1.10 However, there are also alternative principles, not based upon a breach of contract, upon
which a plaintiff can seek a remedy against a defendant who has failed to carry out his or her
promise. Thus, a defendant’s failure to carry out his or her promise may give rise to claims for
relief based upon the principles of equitable estoppel,15 or misleading or deceptive conduct,16 or
the tort of negligence.17 In pursuing such claims, the fact that the promise may be contractual
in nature is irrelevant. In practice it is increasingly common for a plaintiff to pursue his or her
claim against a defendant by pleading some combination of claims in the alternative based
upon breach of contract, misleading or deceptive conduct, equitable estoppel, or negligence.
For example, in Honeychurch Management Pty Ltd v Deloitte Touche Tohmatsu,18 a purchaser
of shares in a travel agency sued its accountants who had provided it with professional services
relating to the purchase. The action included claims, in the alternative, based upon breach of
contract, misleading or deceptive conduct, and negligence.

THE SIGNIFICANCE OF CONTRACT LAW

1.11 Contract law is one of the pillars of Australian law. The significance of contract law can
be measured by the frequency with which individuals are involved in relationships governed by
the principles of contract law. Some of the most important examples include:
• contracts for the sale of goods and services;
• contracts for the performance of work;
• contracts for the deposit with, or borrowing from, banks and other financial institutions;
• contracts for the purchase or leasing of land; and
• contracts of insurance.

1.12 These examples point to the fundamental role played by contract law in the conduct
of commercial activity within Australia’s market economy, be it with relationships between
business enterprises or between a business enterprise and a consumer. As Robert Reich19
has observed, ‘[i]f property and market power lie at the heart of capitalism, contracts are its
lifeblood — the means by which trades are made and enforced’. Indeed, many of the general
principles of contract law are justified or rationalised on the basis of what is, or is perceived to
be, the most reasonable for the efficient conduct of commercial activity.
1.13 The varied nature of transactions governed by contract law is matched by the variation
in the manner in which they are created. Some contracts are entered into very informally, often
without the parties to them being consciously aware that they are entering into a contract.
A simple illustration is the purchase of a loaf of bread from a supermarket. Other contracts

14. See Chapter 32.

15. See Chapter 36.
16. See Chapter 15.
17. See Chapter 37.
18. [2005] TASSC 13.
19. R Reich, Saving Capitalism, Icon Books Ltd, London, 2015, p 48.

3
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

are the product of negotiations between the parties who often engage legal practitioners to
provide expert legal advice. Such contracts are usually written and contain detailed provisions
governing the transaction. A common illustration is a contract for the sale of land.

THE AIM OF THIS BOOK

1.14 The aim of this book is to set out the general principles of contract law in Australia
in a manner suitable for a student undertaking an accredited program of study in law at an
Australian university or other equivalent institution. Usually the study of contract law is a
subject studied in the early stages of the relevant law program, at a time when students are often
not completely familiar with the legal language and the methods of legal reasoning. Students
often find the materials that have to be read — be it a textbook, a scholarly journal article, a
judgment written by a judge, or legislation — impenetrable. This book is written in a manner
and style that is accessible to students, while at the same time introducing them to the relevant
language that is specific to contract law.

A law of contract or the law of contracts?

1.15 This book aims to set out the basic principles of contract law that are relevant to all or,
at least, most contracts. As such, it deals with what is often described as the ‘general principles’
of contract law. It assumes that there are principles common to all types of contract. Such an
assumption has its origins in treatises on the general principles of contract law produced by
scholars such as Pollock and Anson in the 1870s and is generally accepted by the courts.20 These
works provided the so-called classical model of contract law that has been maintained to this
day by many scholars.
1.16 However, some scholars have challenged the notion of the existence of general principles
of contract law or suggested that such a notion is, at least, increasingly irrelevant. McKendrick,21
in arguing that there is an increasing fragmentation of the legal regulation of various contracts,
states:
A contract of employment is, in many respects, radically different from a contract to purchase
a chocolate bar. The considerations applicable to a contract between commercial parties of
equal bargaining power may be very different from those applicable to a contract between a
consumer and a multinational supplier.

1.17 This process of fragmentation raises the question of whether we have a law of contract
or a law of contracts. A persuasive argument can be mounted in favour of the latter. In recent
decades significant legislation has been enacted regulating specific types of contracts. Thus,
many principles relevant to a contract of employment have no relevance to a contract for the

20. See, for example, Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44 at 71;
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 998; Gillies v Downer EDI Ltd [2011]
NSWSC 1055 at [159].
21. E McKendrick, Contract Law, 13th ed, Red Globe Press, London, 2019, p 2.

4
 CHAPTER 1: INTRODUCTION­

sale of goods. However, this fragmentation does not negate the value of a book setting out the
general principles of contract law. As McKendrick22 observes:
The principal value [of such a book] is that many of the detailed rules relating to specific
contracts have been built upon the foundation of the common law principles. So it remains
important to have an understanding of the general principles before progressing to study
the detailed rules which have been applied to particular contracts. The general principles …
apply to all contracts, subject to statutory qualification. These principles remain ‘general’, but
only ‘by default’.

1.18 In studying the general principles of contract law, students using this book should be
aware that its content is a building block for later subjects in their law studies. The specific
principles applicable to particular types of contracts are studied after the completion of a
program of study involving general principles of contract law. These later subjects will typically
include the specific principles relating to contracts covering a vast array of commercial
transactions in fields such as the sale of goods and services, conveyancing, insurance, banking
and finance, money lending, and employment.

SOURCES OF CONTRACT LAW PRINCIPLES

1.19 The rules and principles that form the totality of contract law have their origins in one
of the following three bodies of legal principles:
• the common law;
• equity; and
• legislation (statute).

1.20 The core general principles of contract law are primarily derived from the common law,
the roots of which go back to the period of English history following the Norman Conquest of
England in 1066. The Normans did not attempt to transplant French law into England. Rather,
they sought to develop and centralise existing English law, which over time emerged into what
we today call the common law.
1.21 An important initial reference point in the historical development of the common
law in England is the reign of the Norman King, Henry II (1154–89), who centralised the
administration of justice in England into the hands of the Curia Regis, or King’s Council. The
council consisted of the king’s tenants-in-chief and such other persons as he chose to appoint.
It was responsible for all three branches of government, namely, the legislature, the executive,
and the judiciary.23 By the reign of Edward I (1272–1307) the administration of justice began
to be distributed between the three common law courts that developed out of, and eventually
separated from, the King’s Council. The three common law courts were Common Pleas, King’s
Bench, and Exchequer. It was the judges of these courts who, through their decisions, developed
the principles of the common law.

22. McKendrick, Contract Law, note 21 above, p 2.

23. O F Robinson, T D Fergus & W M Gordon, European Legal History, 2nd ed, Butterworths, London, 1994,
pp 132–7.

5
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

1.22 During the early period of its development, the common law was characterised by its
capacity to innovate and maintain flexibility to meet changed circumstances. This was a natural
consequence of the fact that the legal system in England was in its infancy and appropriate
responses to problems took time to settle. The common law courts retained their discretionary
powers to grant remedies, and relief was granted on the basis of principles of abstract justice,
rather than by following earlier decisions involving similar circumstances.
1.23 However, as time progressed, the interests of precision in the legal system began to
outweigh the concern for the universal redress of wrongs. By the end of the 14th century the
common law had become static and ceased to respond to changed social conditions. The
common law courts abandoned their discretionary powers and became increasingly bogged
down by a near slavish adherence to precedent and a morass of procedural technicalities. The
resultant formalism and insistence on technicalities removed the inherent equitable principles
from the common law and necessitated a new system that could respond to the changing
demands of society. Initially, litigants who were dissatisfied with the common law courts began
to petition the king directly. By the terms of the medieval coronation oath, the king swore ‘to do
equal and right justice and discretion in mercy and truth’.24 The king in medieval times was thus
seen as having the power and duty to right a wrong for which there was no existing remedy.
These petitions sought the king’s intervention on a petitioner’s behalf. They had no prescribed
form and were usually submitted by letter or, at times, were even made orally. No fee attached
to the petition. The procedural simplicity and lack of expense stood in stark contrast to existing
common law procedures.25
1.24 By the middle of the 14th century the increasing number of petitions saw the king
delegate his authority to deal with them to the Lord Chancellor, the king’s principal legal officer
and ‘keeper of the king’s conscience’. By the end of the 14th century the Lord Chancellor’s
authority to deal with such petitions was firmly entrenched and, by no later than 1473, the
Chancellor was issuing decrees in his own name.26 This led to the emergence of the Court of
Chancery. It was this court that developed and administered the principles of equity.
1.25 It must be kept in mind that, in developing its principles, the Chancery Court always
presupposed the existence of common law principles and rights. Indeed, the equitable
principles that emerged were fundamentally concerned with the manner by which parties
exercised their common law rights. Thus, equity’s principles acted as a gloss on the common
law, contributing principles to the general body of law where the common law was either
defective or deficient. For example, the common law remedy for a breach of contract was an
award of damages. In effect this remedy gave the defendant the right not to perform his or her
contractual obligations, although on the basis that he or she compensated the plaintiff for losses
suffered as a result. The common law had no remedy to force the defendant to carry out his or
her promise. The Chancery Court remedied this deficiency in the common law by developing
the remedy of specific performance. This remedy required the defendant to carry out his or her
contractual obligations.

24. Quoted in D R Coquillette, The Anglo-American Legal Heritage, Introductory Materials, Carolina Academic
Press, Durham NC, 1999, p 185.
25. W L Carne, ‘A Sketch of the History of the High Court of Chancery from its Origin to the Chancellorship
of Wolsey’ (1926–27) 15 Georgetown Law Journal 426 at 442–4.
26. Robinson, Fergus & Gordon, European Legal History, note 23 above, p 144.

6
 CHAPTER 1: INTRODUCTION­

1.26 Historically, the Chancery Court followed a similar path to those of the common
law courts, in that it too became less receptive to changed circumstances. Furthermore,
proceedings in the Chancery Court became technical and slow by the early 19th century.
This led to increasing criticism of the way it operated. With the increased formalism of the
Chancery Court, the demands of changing and developing the law increasingly became the
task of Parliament through legislation. A very early example of this in England was the Statute
of Frauds, passed in 1677, which prescribed that certain contracts had to be in written form to
be enforceable.
1.27 Today, the continued evolution of contract law principles is achieved through the
continued evolution and development of common law and equity principles. However,
legislation is the source of the most significant changes to contract law. This has been a feature of
contract law over the last century or so. Undoubtedly, the most important and recent legislative
intervention with respect to contract law is to be found in the Australian Consumer Law (ACL),
which came into force in 2010. Although many of its provisions had been introduced during
the latter decades of the 20th century, the ACL also brought into effect many new principles,
some of which will be covered by this book.
1.28 Of these three sources of law — the common law, equity, and legislation — there is a
clear hierarchy in the sense that legislation prevails over any conflicting rules of common law
and equity, and equitable rules prevail over any conflicting common law rules.
1.29 As a final point on this brief background to the sources of contract law, it can be noted
that, by the middle of the 19th century in England, the existence of separate courts of common
law and equity, and the problems associated with the administration of justice in those courts,
led to a widespread push for reform that was supported not only by the legal profession, but
also by Great Britain’s industrial, commercial, and financial interests. The question of reform
was eventually addressed with the enactment of the Supreme Court of Judicature Act 1873
(UK), which abolished the historic courts of common law and equity and in s 3 provided for the
establishment of ‘one supreme court of judicature in England’. This new court had two parts.
The first part was the High Court of Justice that was divided into a number of divisions, the
main ones being the Queen’s (or King’s) Bench Division and the Chancery Division. Section 24
of the Supreme Court of Judicature Act 1873 empowered judges of the High Court of Justice
to give effect to both common law and equitable principles, irrespective of the division of the
court to which they were assigned. The second part of the new court was the Court of Appeal,
which heard appeals from the High Court of Justice. The right of a further appeal to the House
of Lords was confirmed by the Appellate Jurisdiction Act 1976 (UK). By the provisions of s 2
of the Supreme Court of Judicature Act 1875 (UK), the new court system came into effect on
1 November 1875. By the provisions of s 40 of the Constitutional Reform Act 2005 (UK), the
appellate jurisdiction of the House of Lords was transferred to the Supreme Court of the United
Kingdom as from 1 October 2009.
1.30 The introduction of the so-called judicature system was quickly adopted in Australia,
with the exception of New South Wales, which waited until 1972 to introduce it.
1.31 Although the general principles of contract law are sourced in the common law, equity,
and statute law of England, their further development in Australia is now firmly entrenched in
the hands of Australian courts and parliaments. Developments in English contract law remain
influential in Australia, but this influence is not as great as it once used to be. One reason for
7
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

this trend has been Australia’s emergence as a state fully independent from its former colonial
master. Another reason is found in the fact that English law itself was affected by the United
Kingdom’s period of membership of the European Union, giving rise to developments in English
law that were not relevant to Australia. Although Australian courts and parliaments continue
to accord significant respect to developments in England, they are increasingly prepared to
consider developments in other jurisdictions, such as Canada, New Zealand, and the United
States, when considering the development of contract law in Australia.
1.32 It must also be recognised that the process of internationalisation of contract law affects
contract law in Australia. Although this aspect of contract law is beyond the scope of this book,
McKendrick27 observes that this process has two dimensions, namely, the production of ‘non-
binding statements of principle or model contracts’ and ‘the attempt to impose mandatory
uniform rules on the international community’. As a significant example of the former,
McKendrick refers to the UNIDROIT Principles for International Commercial Contracts, and as
the most notable example of the latter, he refers to the United Nations Convention on Contracts
for the International Sale of Goods, usually referred to as the Vienna Convention.

CLASSIFICATION OF CONTRACTS
1.33 A contract can be classified in a number of ways. Some of the more significant
classifications are set out below.

Simple and formal contracts

1.34 The classification of a contract as either formal or informal reflects its form or means
of creation. At common law, a simple or informal contract can be entered into orally and/or
in writing. In some cases, statute may require that the contract be evidenced in writing to be
enforceable.28 A formal contract is one in which the agreement between the parties is entered
into in a particular form of writing known as a deed.29 A contract entered into in deed form is
also known as an agreement under seal or specialty contract.

Bilateral and unilateral contracts

1.35 The classification of a contract as either bilateral or unilateral reflects a distinction as to
which of the parties to it has obligations to perform at the time the contract comes into existence.
1.36 A bilateral contract is one in which both parties to it have obligations to perform at the
time it comes into existence. It is constituted by an exchange of promises between the parties.
Thus, if the contract is one in which A agrees to sell his or her car to B for $1000, at the time
of its formation, it consists of a promise by A to transfer title in the car to B in return for B’s
promise to pay A the sum of $1000. At the time of formation, neither party has yet carried
out their promises. At this stage, their promises are said to be executory. The great majority of
contracts are bilateral contracts.

27. McKendrick, Contract Law, note 21 above, p 8.

28. See Chapter 8.
29. See 6.75.

8
 CHAPTER 1: INTRODUCTION­

1.37 A unilateral contract is one in which only one party has obligations to perform at the
time it comes into existence. A unilateral contract is constituted by an exchange of a promise
for the performance of an act.30 Thus, if A promises that he or she will pay B if B performs some
act, a contract arises when B performs the act. At the time of formation, only A has to perform
his or her promise, as B has already performed or executed his or her obligation.31

Void, voidable, unenforceable and illegal contracts

1.38 The classification of a contract as void, voidable, or unenforceable relates to its
effectiveness. In some cases, a void contract will have no effect at all, such as in some, but not
all, contracts where one or both of its parties has entered into it as the result of a mistake.32
However, if property has been passed from one party to the other pursuant to such a contract,
remedies are available in tort for the recovery of the property or for a monetary sum reflecting
its value. If money has passed, it will be generally recoverable in an action for restitution.33
1.39 In other cases a void contract may have legal effects. Thus, a contract that is void for
illegality may be still enforced if one of the parties is innocent of any illegal intent.34 Furthermore,
it may be that only part of a contract is void, in which case the rest of the contract is enforceable
by the parties. An example is a contractual term which is an unreasonable restraint of trade.35
1.40 A voidable contract is one whose validity is called into question because of a defect in the
quality of the consent given by one, and in some cases both, of the parties upon entering into it.
As a consequence, that party may be able to rescind (set aside) the contract.36 Factors that affect
the quality of consent include misrepresentation,37 mistake,38 duress,39 undue influence,40 and
unconscionability.41 However, the fact that one of these vitiating factors is established does not
necessarily entitle the affected party to rescind the contract. The right to rescind is not available
in certain circumstances, in which case the affected party will be left to pursue alternative
causes of action, if available.
1.41 If a contract is validly rescinded, ‘it is treated as if it never had effect’.42 However, until
and unless it is rescinded, the contract is as valid as if there was no factor giving rise to a
possible right of rescission.

30. Great Northern Railway Company v Witham (1873) LR 9 CP 16 at 19; Gippsreal Ltd v Registrar of Titles
(2007) 20 VR 157 at 167.
31. Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 81 FCR 475 at 500; 153 ALR 198 at 222; Danbol
Pty Ltd v Swiss Re International Se [2020] VSC 23 at [47].
32. See Chapter 16.
33. See Chapter 38.
34. See Chapter 28.
35. See Chapter 27.
36. See Chapter 35.
37. See Chapter 14.
38. See Chapter 16.
39. See Chapter 17.
40. See Chapter 18.
41. See Chapter 19.
42. Islington London Borough Council v Uckac [2006] 1 WLR 1303 at 1311.

9
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

1.42 An unenforceable contract is one that is, in all respects, valid, but cannot be enforced
by one or either of the parties. The principal basis for unenforceability is the absence of writing
evidencing the contract where such writing is required by statute. An important example of
such a requirement relates to contracts involving the sale of land or an interest in land.43
1.43 An illegal contract is one that is prohibited either by statute or because it is contrary to
public policy at common law. Generally, neither party to such a contract is entitled to enforce
it or recover property that may have passed pursuant to its terms.44 For example, a contract for
the murder of a person is illegal at common law, as it is contrary to public policy.

THE STRUCTURE OF THIS BOOK

1.44 This book is divided into nine parts that set out the general principles relevant to most
courses dealing with the study of contract law in Australia. Although there is a great deal of
uniformity in the principles of contract law in the various Australian jurisdictions, differences
do exist. This book deals with these differences where they arise.
• Part I deals with the historical development of contract law, as well as the main theoretical
interpretations of contract law.
• Part II deals with the formation of a contract — a topic which the Court of Appeal in Wagdy
Hanna & Associates Pty Ltd v Gavagna45 noted was ‘fundamental’, but also one that ‘[did]
not commonly arise in litigation’. This part looks at the requirements that must be present
before it can be said that a contract exists, as well as the issues of limitations on the capacity
of certain groups of persons to enter into a contract and the matter of whether a contract
needs to be in written form.
• Part III focuses on the content of the contract entered into between its parties and the
principles by which courts resolve disputes about the meaning of the words used by the
parties when setting out its terms — in particular, clauses seeking to exclude the liability of
a contract breaker for breach of contract.
• Part IV deals with factors that go to the quality of the consent to the contract given by one
or all of its parties. Under the general law these factors relate to principles dealing with
misrepresentation, mistake, duress, undue influence, and unconscionable transactions.
When established, these principles generally give rise to a voidable contract, which means
that there arises a prima facie right to rescind it, although in some cases of mistake the
contract is void ab initio. However, in particular types of contracts statutory provisions
relating to misleading or deceptive conduct, statutory unconscionability, unjust contracts,
and unfair terms, which often overlap with existing general law principles, provide a greater
variety of remedies.
• Part V analyses the various ways in which a contract can be discharged, in the sense that the
parties to the contract are no longer liable in law to one another in relation to any or some
of the obligations set out in the contract.

43. See Chapter 8.

44. See Chapter 28.
45. [2016] ACTCA 64 at [26].

10
 CHAPTER 1: INTRODUCTION­

• Part VI deals with the topic of when a contract will not be enforced because the formation
or the purpose of the contract is illegal by statute or at common law on grounds of public
policy.
• Part VII details the remedies for breach of contract. These remedies relate to enforcement
of a contract either by the common law remedy of damages or the equitable remedies
of specific performance and injunction. In addition, the remedies of rectification and
rescission are examined.
• Part VIII explores other bases of relief that are not based upon the enforcement of a
contract, but depend upon other legal doctrines and institutions. In most cases these claims
do not depend upon the existence of any contract and often arise in circumstances where
a contract was anticipated, but has not arisen, or where an agreement is for some reason
unenforceable.
• Part IX deals with the rights of persons who are not parties to the contract in relation
to benefits that they expect to derive from the contract. It also examines the transfer of
contractual rights from an original party to the contract to a person who was not an original
party to the contract.

11
 Part I:
History and Theory
 2
HISTORY OF CONTRACT LAW

INTRODUCTION
2.1 This chapter will provide a broad introductory overview in relation to the historical
development of contractual obligations, including some of the key contractual doctrines such
as consideration. The principal purpose is to portray the fact that contract law has evolved
and adapted to new situations over time, sometimes in a slow fashion and sometimes in an
unpredictable way.
2.2 The modern law of contract has developed essentially around an action known as
assumpsit. The origin of assumpsit can be traced back to the 14th century. However, according
to Simpson,1 it was not until the 16th century that it achieved a prominence as a remedy for
agreements which had been breached, and it was not until the 17th century that it became a
regular common law action. However, before the development of assumpsit, medieval courts
had developed a large jurisdiction in regard to privately negotiated agreements, from which
assumpsit developed.
2.3 According to Anson,2 by the end of the 13th century two main forms of action for
enforcing rights had taken definite shape. These forms were the action of covenant and the
action of debt.

Covenant
2.4 Covenant (conventio) means agreement.3 By the 13th century, claims made by what were
known as writs of covenant had developed. These claims arose out of particular transactions
that were in default and were compensatory actions in nature. However, they were not causes of
action in themselves. Rather, they were claims made by the device known as a writ of covenant
and were not limited to contractual claims in the sense that we use that expression today.
2.5 It was arguable that the first form of covenant could only be used when it concerned
land, such as in an action for breach of a lease of property. However, by the early 14th century,
there existed a large variety of actions based upon a covenant, including actions to recover
unliquidated damages for wrongful or tortious breach of covenant, actions based upon building

1. A W B Simpson, A History of the Common Law of Contract, Clarendon Press, Oxford, 1975, p 3.
2. A G Guest, Anson’s Law of Contract, 25th ed, Clarendon Press, Oxford, 1979, p 9.
3. Reade v Bullocke (1543) 73 ER 125.

15
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

contracts, suits of court, and actions requiring something to be done. Despite these widespread
circumstances whereby a covenant could be used, by the middle of the 14th century plaintiffs
could use the writ of covenant only after they produced a sealed instrument that grounded their
claim. The sealed instrument was known as a ‘specialty’. Failure to produce the specialty meant
that any court action would fail.4 There can be no doubt that the presence of the specialty made
it easier for an agreement to be enforced. But simplicity was not its only aim, for importantly
courts had adopted the view that only those agreements under seal could form the proper basis
for an action.
2.6 To understand what these actions based upon a covenant involved, it is convenient to
look at some of the early cases to see how plaintiffs made out their claims in this area. From
those cases it appears that there were three main types of covenant actions. First, there were
claims made by parties who alleged that the defendant had demised certain land to them for
a term of years, that the party had been seized of the land under that demise, and that the
defendant had ousted him or her. In this type of case, the plaintiff was making what really was
a proprietary claim. In a second type of claim, a plaintiff asserted that he or she had entered
into an agreement with the defendant and that the defendant had breached that agreement.
This was a contractual claim based upon a special obligation made by the defendant to the
plaintiff that had been breached by the defendant. The third type of claim involved the plaintiff
asserting that he or she and the defendant had entered into an agreement that called for the
defendant to convey to him or her land in freehold or fee, but that the defendant had failed to
make the conveyance. With this type of claim it was unclear whether it was a proprietary claim
or a claim of obligation.
2.7 An illustration of how an action of covenant worked in this period appears in Holgyl’s
Case,5 where the following occurred:
William Holgyl, Master of the Hospital of the Savoy, brought a writ of covenant against JS
because the said JS covenanted with the plaintiff that he was the very owner and possessor of
certain lands in E in the County of Middlesex called Huddon’s Close, and that he would make
a sure and sufficient estate of the same lands to the plaintiff before the festival of Easter. Note
that in the declaration he recited all the indenture, which contained many other covenants
besides these. And after, he showed how the defendant was not the very owner and possessor
of the same close, and that he had not made estate to the plaintiff. The defendant said that
he was the very owner and possessor of the same close, and had made estate to the plaintiff.
And on this they were at issue. And now at the distress the jury appeared at the bar, and on
evidence given on the day it appeared that the defendant had made estate to the plaintiff
of certain lands call Huddon’s Close, and that the defendant was very owner and possessor
of this close, and this was well proved by substantial witnesses (or ‘evidence’). Thereupon
Fitzherbert J said to the plaintiff ’s counsel, ‘What do you say to all this, for if it be true
you have no cause of action?’ Brown, who was counsel for the plaintiff: The truth is that
we have had an estate made to us by the defendant of certain lands called Huddon’s Close,
but this land is not so valuable as the land to which he is bound by his covenant, for his
covenant is that he ought to make us an estate before such a festival according to a schedule
annexed to the same indenture, which schedule among other things contains this — ‘Item,
certain lands called Huddon’s Close to the annual value of £10’. The land that we have is only

4. Bradstock’s Case (1371) 44 Edw III, M f 42.

5. (1535) 27 Hen VIII, M f 29.

16
 CHAPTER 2: HISTORY OF CONTRACT LAW­

worth five pounds a year, and so the close that we have cannot be understood as the close
in the schedule; consequently he has broken his covenant with us. And the indenture was
examined, and it had the schedule annexed, and it was as Brown said. Fitzherbert J to Brown:
Now that what you are saying becomes clear, it is obvious that this action is not maintainable
when brought in the form in which you have brought it.

2.8 When defendants were faced with a writ of covenant, questions arose as to what defences
they could raise. From time to time defendants raised the enforceability of oral discharges or
oral variation to agreements made between parties as a defence. However, it appeared that an
oral discharge could not form the basis of a defensive plea to a writ of covenant based on a
specialty unless they were able to show that the specialty was not a deed at all or that they had
a release under seal from any obligation that the plaintiff pleaded. In medieval times, defences
that were based on mistake or fraud were not admitted. Despite this, some excuses for failing
to perform contractual obligations were acceptable — for example, where the failure was due
to impossibility of performance or where the failure was due to a third party not performing
what they were obliged to do.
2.9 Where a plaintiff claimed a specific amount of money and based that claim upon an
instrument under seal, the correct writ to use was a writ of debt, not a writ of covenant.
The particular debt used was called debt sur obligation. Courts developed a watchful eye in
separating writs of covenant and writs of debt.

Debt
2.10 The most commonly used of the early contractual actions was the writ of debt. This
writ was used to recover contract debts that were regarded as a sum certain, and not to recover
unliquidated or uncertain amounts. It had its origins in the 12th century and Simpson6 has
said that the early evolution of an action of debt was connected with conflict between church
and state. Importantly, and unlike writs of covenant, the action was not restricted to formal
transactions.
2.11 The writ of debt was originally related to detinue and was brought whenever it was
alleged that a person was unjustly detaining something of value. In this sense it was similar
to detinue and, over time, debt became the proper action for recovery of money and detinue
became the proper action for the recovery of goods. Where a plaintiff claimed a specific sum of
money, the correct writ was a writ of debt, not a writ of covenant. Uncertain sums could not be
claimed and quantum meruit7 was not available to claim any uncertain sum. Importantly, the
Statute of Wales in 1284 prescribed different forms for claims for money and claims for chattels,
with the form of the writ made to depend on the subject matter of the claim. This had the effect
of separating detinue claims from writs of debt.
2.12 In the late 16th century it was accepted that the action of assumpsit8 would lie with
respect to promises to pay uncertain sums of money. This had an effect on an action for debt
and a similar rule was applied to those actions for uncertain sums. Thus, from this time, a writ

6. Simpson, A History of the Common Law of Contract, note 1 above, p 54.

7. As discussed at 38.34–38.50.
8. See 2.13–2.19.

17
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

of debt could be used to enforce contracts that were not specific as to the amount due.9 The
basis for the enforcement was not so much permitting a plaintiff to claim an uncertain sum in
contract, but rather acknowledging that a plaintiff was entitled to be paid on a quantum meruit
because of the particular agreement between the parties. Problems in this regard developed in
relation to instalment debts, as it was often the case that a party needed to wait until after the
last instalment was due before they could take action to recover the whole sum.10 A similar
restriction emanated from the rule that only one action could be brought for a debt. This had
the effect of preventing any apportionment of contractual obligations, as such obligations were
seen as entire obligations.

ASSUMPSIT
2.13 Assumpsit developed out of the action of trespass and the action of deceit, and was used
for the non-performance of a promise. It seems that at first assumpsit was allowed only in cases of
nonfeasance where a party had paid money under an agreement. However, over time it was enough
if that person suffered detriment which involved something other than the payment of money.
2.14 By the 16th century, courts began to allow parties to choose between debt and assumpsit,
which led to assumpsit being used in cases where debt was the traditional remedy.11 In addition,
at around the same time, courts began to allow assumpsit to be brought for nonfeasance of
promises where money had been paid. This eventually changed to allow the action to be
brought where a party suffered a detriment other than a payment of money12 and assumpsit
was utilised to enforce separate and subsequent promises to pay debts.
2.15 By the early 17th century, indebitatus assumpsit had become the most convenient
common law procedure to recover moneys paid. This form of action was based on an implied
promise to pay in circumstances where no express contractual basis to a claim existed.13 One
species of the indebitatus action was the action for ‘money had and received’. This included a
wide range of claims to recover money previously paid by the plaintiff to the defendant, which,
in justice, the defendant ought to repay. According to Jackson14, by the mid-17th century the
indebitatus assumpsit action was also used to recover money paid by mistake.
2.16 In Slade’s Case,15 John Slade had asserted that he had sold a quantity of wheat and corn
to Humphrey Morley, who had promised to pay £16 for the produce. Morley failed to pay. In
the Full Court of Exchequer Chamber, it was held that Slade could elect to maintain either an
action in debt or an action in assumpsit. According to the court, ‘[e]very contract executory

9. Rogers v Head (1610) 79 ER 226.

10. Taylor v Foster (1599) 78 ER 1034.
11. Pickering v Thoroughgood (1533) Spelman’s Rep.
12. The Malt Case (1505) Y B Mich, 20 Hen VII f 8.
13. A detailed analysis of the growth of the indebitatus assumpsit action appears in Lord Goff of Chieveley
and G Jones, The Law of Restitution, 4th ed, Sweet & Maxwell, London, 1993, pp 5–11. The historical
development of indebitatus assumpsit is also discussed in Paul v Pavey & Matthews Pty Ltd (1985) 3 NSWLR
114 at 121–7; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 223–5; 69 ALR 577 at 585–9; and
Schwarstein v Watson (1987) 3 NSWLR 134 at 143–7.
14. R M Jackson, The History of Quasi Contract in English Law, University Press, Cambridge, 1936, p 89.
15. (1602) 76 ER 1072.
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 CHAPTER 2: HISTORY OF CONTRACT LAW­

imports in itself an Assumpsit, for one agrees to pay money or to deliver anything, thereby he
assumes or promises to pay or deliver it’. The effect of this case was summarised by Anson16 as
follows:
It may be said that this is the most important in the whole history of contractual obligations
in English Law, for the action of Assumpsit was now able to emerge as a general contractual
action, freed from the inhibiting forms and limitations on the mediaeval writs.

2.17 Not long after Slade’s Case17 courts began allowing assumpsit to be used in cases where
services had been rendered or goods supplied in circumstances that made it clear they were to
be paid for, even though the amount of the payment had not been expressly stated.18 It was not
long before the courts developed the general rule that when one party completed work which
he or she had contracted with another party to perform, and the other party failed to pay what
was agreed, the party who did the work was entitled prima facie to sue for what was owing
either on the contract or on the debt which arose on performance of the contract. In order for
indebitatus assumpsit to work, the courts had to invoke the use of a fiction to the effect that
there was a separate and subsequent promise to pay a debt. In such cases, it was held that an
action lay for damages for breach of the fictional subsequent promise to pay the debt.
2.18 Over time, the action of indebitatus assumpsit substantially replaced the action of debt.
At first, both actions lay to recover only debts in a fixed amount, but, in the course of the 17th
century, the action of indebitatus assumpsit was held to lie when the remuneration or price to
be paid for the doing of work or the supply of goods had been left indeterminate.19
2.19 In the late 17th or early 18th centuries, indebitatus assumpsit allowed recovery on a
quantum meruit for work done as well as for actions in which the element of contract was
purely fictitious — for example, where the obligation was imposed by law on the defendant and
had nothing contractual about it.20 From that point forward the action of indebitatus assumpsit
embraced both actions founded on debts arising out of executed contracts and actions which
were not contractual but quasi-contractual.

CONSIDERATION
2.20 One of the major developments relating to contract law occurred in the 16th and 17th
centuries in relation to the doctrine of consideration. According to Baker:21
No other doctrine in English law can compete with consideration for the greatest diversity
and complexity of historical explanations. Most of these explanations can be seen as attempts

16. Guest, Anson’s Law of Contract, note 2 above, p 15.

17. Slade’s Case (1602) 76 ER 1072.
18. Hall v Walland (1621) 79 ER 528.
19. Hall v Walland (1621) 79 ER 528; King v Locke (1663) 83 ER 1030.
20. Sir William Holdsworth, History of English Law, vol VIII, A L Goodhart and H G Hanbury (eds), Methuen
and Co, London, 1966 (reprint), pp 96–7.
21. J H Baker, ‘Origins of the “Doctrine” of Consideration, 1535–1585’, in M S Arnold, T A Green, S A Scully
and S D White (eds), On the Laws and Customs of England, Essays in the Honor of Samuel E Thorne,
University of North Carolina Press, Chapel Hill, 1981, p 336.

19
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

to answer two groups of questions. Was ‘consideration’ an unbroken development of a

single idea from medieval times; or was there a break with medieval thought, and perhaps
a combination of different ideas? Second was it a wholly indigenous development; and, if so,
was it an incidental consequence of the exigencies of the forms of action or a direct result of
juristic speculation about contractual liability? Alternatively, was it something reflected or
borrowed from the canon law or the civil law? And, if so, was the influence brought to bear
on the common law directly through Renaissance humanism, or indirectly by way of the
canonist chancellors or ecclesiastical judges?

2.21 In the context of informal promises, consideration came to be regarded as the testing
criterion for their enforceability, and it came to be recognised that mutual promises between
parties could be regarded as binding if the consideration given was sufficient.22 Yet there was a
long and, at times, unclear road that was taken in order to get to that seemingly straightforward
position. This can be shown by how the doctrine was perceived by the courts over time.
2.22 By the mid-16th century, a need had developed for a connecting link between a recited
bargain and an undertaking to perform it. This was illustrated in Marler v Wilmer,23 where the
plaintiff alleged that he had sold goods for a sum to be paid on request and that payment had
not been made. One of the arguments raised against the enforceability of the particular promise
was that it did not appear for what cause the undertaking to pay was made, and therefore it
should be regarded as nudum pactum. In the mid-16th century, consideration was found in
assumpsit cases24 and in cases when action was taken for nonfeasance. Importantly, practice
dictated the need to explain in pleadings the undertaking or promise and, to this end, a number
of drafting techniques were adopted to fulfil this role. According to Baker,25 the most common
technique or device was the use of the quid pro quo clause, which became commonly used in
actions to recover the price of goods. In such cases, plaintiffs would often allege that there
was a sale of goods for a certain sum of money, ‘for which goods’ the defendant undertook
to pay. In other words, the goods were treated as the quid pro quo for the undertaking to pay.
Baker26 states that for over 20 years (from or around 1640), the quid pro quo clause dominated
assumpsit. Later ‘in consideration’ clauses were used to fulfil the same function. For example,
in Harvy v Stone27 it was argued that the defendant’s wife, prior to her marriage, had been
indebted to the plaintiff for board, lodging, and a loan and that the defendant, in consideration
of his upcoming marriage, and for a sum of money paid to him, undertook to pay off the debt,
which he had not done. Baker28 says that in the decade after 1540, there are at least 32 instances
of consideration clauses in the King’s Bench Rolls, and in nearly all the cases the consideration
was used to explain a promise to pay money.
2.23 By the 1580s, it appears that consideration had to be of value and could not be past, or
insufficient, or inadequate. These ‘restraints’ on consideration ultimately formed the basis of
rules developed by the courts. An enormous body of case law soon developed as to the rules

22. See 6.34–6.74.

23. (1539) KB 27/IIII, m64.
24. Newman v Gylbert (1549) Kiralfy 176; Joscelin v Shelton (1557) 74 ER 503.
25. Baker, ‘Origins of the “Doctrine” of Consideration’, note 21 above, p 340.
26. Baker, ‘Origins of the “Doctrine” of Consideration’, note 21 above, p 340.
27. (1539) KB 27/III2, m65.
28. Baker, ‘Origins of the “Doctrine” of Consideration’, note 21 above, p 341.

20
 CHAPTER 2: HISTORY OF CONTRACT LAW­

relating to consideration, with such case law focusing on whether or not there was sufficient
reason to render informal promises actionable.29 As part of those rules, courts dealt with
mutual promises30 and the need for reciprocity of promises. According to Baker,31 by the 1580s
the reports are full of discussions about consideration, and in assumpsit declarations it was
common by that time to see challenges based on there being a want of consideration. In some
cases promises were held to be actionable, whereas in other cases the promises failed. As the
process of determination took place, rules developed in order to weigh the reasons.32
2.24 In the late 18th century consideration endured an attack. This came from Lord Mansfield,
who refused to recognise consideration as essential to contracts, and for a time consideration
was seen as intertwined with a moral obligation. It was not until the decision in Eastwood
v Kenyon33 that this view was abandoned.
2.25 In the 17th and 18th centuries some development occurred in the law of contract. First,
there was the development of the relief against penalties. Second, with the passing of the Statute
of Frauds,34 a requirement of writing was introduced for specific types of contracts. Third,
assumpsit was extended by the development of indebitatus assumpsit discussed above.35
2.26 Some argue that the most distinctive feature of 18th century contract law is the
subordination of contract to the law of property.36 Such a view finds its base in reflections
upon Blackstone’s Commentaries, where it is noted that contract receives little emphasis, and
where it is classified primarily with other ways of transferring title to property. One can find
very few instances involving claims in contract for expectation damages that came before
the courts in the 18th century.37 The view can also be particularly found in the writings of
Professor Morton J Horwitz,38 who takes the position (mainly based upon American cases
and experiences) that the private law of the 18th century in England and America was benign,
reflecting the assumptions of a pre-market economy, and that its function was to impose a
natural and objectively just order upon society.39 The resulting system, according to Horwitz,
was the development of a theory of contract that was ‘essentially antagonistic to the interests of
commercial classes’40 and that was later to be replaced by an approach more suited to the needs
of a commercial market economy.41 These views, as will be seen,42 are not without critics.

29. Wichals v Johns (1599) 78 ER 938.

30. Lucy v Walwyn (1561–63) KB 27/II98, m183.
31. Baker, ‘Origins of the “Doctrine” of Consideration’, note 21 above, p 337.
32. See, for example, Stone v Wythipol (1588) 78 ER 383.
33. (1840) 113 ER 482. See 6.5–6.6.
34. See 8.4–8.5, 8.24.
35. See 2.18–2.19.
36. M J Horwitz, ‘The Historical Foundations of Modern Contract Law’ (1974) 87 Harvard Law Review 917
at 920.
37. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 920.
38. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 920.
39. A W B Simpson, ‘The Horwitz Thesis and the History of Contracts’ (1979) 46 The University of Chicago
Law Review 533.
40. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 927 (note I).
41. Simpson, ‘The Horwitz Thesis and the History of Contracts’, note 39 above.
42. See 2.28–2.31.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

2.27 Further, there is a view that up until the end of the 18th century, contract law was
dominated by a title theory of exchange according to which a contract was seen as a function
to enable title to be transferred.43 Horwitz asserts that at that time, there were no extensive
markets and there was an absence of appreciation that exchange could be conceived of in terms
of future monetary return. In addition, the 18th century saw what could be described as the
introduction of an equitable limitation on contractual obligation. There is some evidence to
suggest that an emphasis on fairness of the underlying exchange developed at the expense of
a system based on the enforceability of the actual bargain that may have been made by the
parties. In other words, an emphasis was seen to be placed upon the convergence of wills of the
contracting parties. Horwitz develops this thesis by pointing out that in the late 18th and early
19th centuries, courts:
• began refusing to enforce contracts where consideration was inadequate;44
• started to more readily recognise executory contracts (especially where there was part
performance);45
• accepted a ‘substantive doctrine of consideration’;46
• implied a warranty of quality where the price was at least the normal price paid for the
goods;47
• allowed the joining of counts in express and implied contract;48 and
• introduced a notion of fairness into damages awards (even if founded upon quasi-contract)
— this was illustrated in Moses v Macferlan,49 where it was held that the defendant was
obliged ‘by the ties of natural justice and equity to refund the money’.

2.28 These views, however, should be considered in the light of the actual economic
developments that were occurring in Great Britain in the 18th century. Economic historians note
that the English economy had been transformed out of all recognition between 1740 and 1840,
with the population trebling and the total value of economic activity more than quadrupling in a
space of roughly three generations.50 Further, the rate of population growth accelerated to about
7 per cent in the 1750s, and this was maintained around that average to the 1770s. Significantly,
the statistical evidence also suggests that national output (both industrial and agricultural) kept
pace with the growth in the population. The output of export industries expanded by about
three quarters between 1740 and 1770, as English industry began to take a major role in the
development of a worldwide multilateral system of trade. This economic development included
the growth of a sophisticated mercantile community, which developed greater commercial
and industrial infrastructure, as well as new techniques and methods designed to facilitate
larger markets and to reduce the uncertainties and costs of that trade — both regional and
foreign. The utilisation of intermediaries such as ship’s husbands, shipbrokers, underwriters,
specialised agents, and packers, and the rapid growth of London-based insurers such as Lloyds,

43. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 920.
44. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 924.
45. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 929–31, 936.
46. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 924.
47. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 926–7.
48. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 934–5.
49. (1760) 97 ER 676 at 68.
50. P Deane, ‘The Industrial Revolution in Great Britain’, in C Cipolla (ed), Fontana Economic History of Europe
— The Emergence of Industrial Societies, Collins Books, Great Britain, 1973, p 166.

22
 CHAPTER 2: HISTORY OF CONTRACT LAW­

together with the increased trade in commodities and the specialisation in banking and foreign
exchange transactions, all contributed to the economic revolution in the 18th century and to
the adoption of a more sophisticated commercial system. The question in this context was
whether the legal system was developing to meet the ever-changing commercial landscape.
Horwitz argues that the demise of the title theory ‘roughly corresponded to the beginnings of
organised markets and the transformation of an economic system that had used contract as
simply one means of transferring specific property’.51 This may not necessarily be correct, as
the economic evidence tends to show that the English economy had developed considerably by
the early 18th century.
2.29 Further, Simpson argues that Horwitz’s account of the dramatic transformation of
contract law is ‘oversimplified’,52 as it is based upon two dubious assumptions: the first concerns
the interpretation of the growth in scale and elaboration of contract law, whereby one body
of substantive law replaces another; the second concerns the relationship between various
doctrines and the exploitation of the poorer and weaker members of society. The reality
appears to be that neither a new replacement system of law was introduced nor one which
fundamentally altered oppression.

DEVELOPMENTS IN THE 19TH CENTURY

2.30 According to Seddon, Bigwood, and Ellinghaus:53
The nineteenth century is usually regarded as the classical age of English contract law, and
this is for two reasons. The first is that the century witnessed an extensive development of
the principles and structure of contract law into essentially the form that exists today, and
this process appears to modern lawyers more significant when linked to the belief (which is
perhaps too readily accepted) that until the industrial revolution contract law was somewhat
crude and inadequate. The second involves a change in the attitude of thinking lawyers to
contract. In previous years, in so far as they troubled themselves at all, lawyers conceived of
contract law primarily as an adjunct to property law. In the nineteenth century a powerful
school of thought, originating in the work of Adam Smith, saw in the extension of voluntary
social co-operation through contract law, and in particular through freedom of contract, a
principal road to social improvement and human happiness, and one distinct from the static
conditions involved in the possession of private property. …

Second, an increase in the moral dignity of contract encouraged thinking lawyers to feel that
contract law was of central significance in the scheme of civilized legal regulation.

2.31 Similar views have been expressed by Horwitz,54 who asserts that modern contract law
is fundamentally a creature of the 19th century, and which arose as a reaction to and a criticism
of the medieval tradition of substantive justice that had remained a vital part of 18th century

51. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 923.
52. Simpson, ‘The Horwitz Thesis and the History of Contracts’, note 39 above, at 600.
53. N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract, 11th Aust ed, LexisNexis Butterworths,
Sydney, 2017, p 1329.
54. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 917.

23
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

legal thought. To Horwitz, ‘only in the nineteenth century did judges and jurists finally reject
the long-standing belief that the justification of contractual obligation is derived from the
inherent justice or fairness of an exchange’.55
2.32 The 19th century witnessed the growth of a bilateral concept of promises. As part of this
development, the doctrines of offer and acceptance emerged.56 In addition, the requirement of
intention to contract was enunciated, and developments occurred relating to the doctrine of
mistake and implied terms.
2.33 It could therefore be argued that one of the consequences of these developments was
the establishment of more certain and independent criteria that needed to be satisfied for there
to be an enforceable contract. This doctrinal development helped regularise this area of law,
giving market certainty on the necessary criteria needed to constitute an enforceable obligation
such that a court judgment could be obtained more readily for breach. That said, the methods
of enforcing such judgments were decidedly underdeveloped.
2.34 Although outside the scope of this book, the most common method of enforcing
judgment debts was to arrest a debtor and leave him or her in prison until the debt was satisfied.
If a debtor had available resources that he or she could use to satisfy the judgment debt, then the
funds obtained from the realisation of those resources could be applied against the judgment
debt and thereby secure release from prison. If the debtor did not have such assets, he or she
remained in prison. It was not until the 19th century that significant reforms were enacted in
the enforcement of judgment debts.57

55. Horwitz, ‘The Historical Foundations of Modern Contract Law’, note 36 above, at 917.
56. Adams v Lindsell (1818) 106 ER 250.
57. See, for example, the New South Wales Act 1823 4 Geo 4 c 96 (Imp), which widened the means available
for enforcing debts; the Insolvency Act 1830 11 Geo 4 No 7; the Debtors Relief Act 1832 2 Wm 4 No 11;
the Creditors Remedies Act 1839 3 Vict No 18 that enabled sheriffs to realise assets and courts to charge
stocks and shares in companies; the Insolvent Act 1841 5 Vict No 17; the Imprisonment for Debt Abolition
Act 1846 10 Vict No 7; and, the Judgment Creditors’ Remedies Act 1901 (NSW). Also, see generally, J P
Bryson QC, ‘Debtors’ Prison and the Rules of the Prison’, Barnews, Summer 2019, p 58.

24
 3
CONTRACT THEORY

INTRODUCTION
3.1 This book’s primary aim is to provide a doctrinal analysis of general principles of
Australian contract law. This focus does not, however, deny the importance of theoretical
analyses of contract law which are the subject of this chapter. In examining contract law theory,
this chapter is divided into two parts. The first part examines general theories of contract law
whose purpose is to provide an explanation of the nature of, and justification for, contractual
obligations. This essentially interpretative analysis of contract law purports ‘to show that
contract law has an internal logic and that the logic is normatively based’.1 The second part
examines critiques of contract law. These critiques do not seek to normatively justify contract
law. Rather, they seek, in the case of the Critical Legal Studies movement, to deconstruct
contract law with a view to exposing its assumptions and inconsistencies, and, in the case of
feminism, to expose the way in which contract law contributes to gender inequality.

GENERAL CONTRACT THEORY

3.2 General contract theory has, in recent decades, attracted a great deal of scholarly attention,
generating a rich body of literature that exhibits a variety of approaches and opinions. This has
led Atiyah to conclude that contract theory ‘is a mess’.2 Gordley3 observes that ‘[t]oday, we have
no generally recognized theory of contract’, and refers to the fact that ‘[m]any jurists are now
pessimistic about the very possibility of discovering general principles or doctrines that can
explain the rules of positive law’. Notwithstanding the apparent messy state of contract theory,
Smith4 identifies a number of broad theoretical categories into which most of the literature
can be placed. This chapter’s treatment of general contract theory is largely based upon Smith’s
categorisation and analysis.
3.3 Smith’s5 categorisation is based upon the belief ‘that contract theories … address two
quite different sorts of questions, and so must be categorized according to two criteria’. The first

1. E A Posner, ‘Contract Theory’, in M P Golding and W A Edmunson (eds), The Blackwell Guide to the
Philosophy of Law and Legal Theory, Blackwell Publishing, Oxford, 2005, p 138.
2. B Coote, ‘The Essence of Contract’ (1988) 1 Journal of Contract Law 91 at 94.
3. J Gordley, The Philosophical Origins of Modern Contract Doctrine, Clarendon Press, Oxford, 1991, pp 230–1.
4. S A Smith, Contract Theory, Oxford University Press, Oxford, 2004, pp 24–9.
5. Smith, Contract Theory, note 4 above, pp 43, 46–7.
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

is what he refers to as ‘the analytic question’, which he defines as a ‘what’ question, the answer
to which tells us ‘what sorts of events give rise to a contractual obligation and what the content
of the obligation thus created is’. In answer to the analytic question, Smith identifies three
categories of theories, namely, promissory theories, reliance theories, and transfer theories.
Smith’s second criterion is what he refers to as the ‘normative question’, which he defines as
a ‘why’ question, the answer to which provides a justification for maintaining the institution
of contract. On the basis of the normative question, he identifies two categories of contract
theories, namely, utilitarian theories and rights-based theories.
3.4 In relation to the link between the analytic and normative questions, Smith6 notes the
following:
The main reason for distinguishing analytic from normative questions is that the answer
to one does not determine, at least in a straightforward way, the answer to the other. Thus,
two theorists might agree that contracts are promises, but then disagree as to whether the
justification for enforcing promises is utilitarian or rights-based. Similarly, two theorists
might agree that contractual obligations are justified on rights-based grounds, but then
disagree as to whether those obligations arise from promises, reliance, or transfers. In short,
any combination of answers to the respective questions is possible in principle.

GENERAL CONTRACT THEORY AND THE ANALYTIC QUESTION

3.5 Smith’s analytic question fundamentally deals with the nature of contract law. Each of the
three categories he identifies in accordance with the analytic question will be discussed in turn.

Promissory theories
3.6 According to Smith,7 promissory theories ‘regard contractual obligations as obligations
that have been created by the parties through promises or a related kind of self-imposed
obligation, such as an agreement’. These theories focus on contract as a reflection of the intention
or will of its parties. Contractual obligations are therefore voluntary or self-imposed, and arise
when a person expresses an intention to perform the obligation or to be bound by his or her
commitment. Given the emphasis on freely assumed promises, enforcement of contractual
promises is not justified if promises are not freely and voluntarily made. This logically leads
one to an inquiry as to the subjective state of mind of the person making the promise.
3.7 Promissory theories are undoubtedly relevant in explaining significant aspects of contract
law. According to Smith,8 there are four prominent examples of this. First, they are consistent
with the notion of an individual’s freedom to enter into, or not enter into, a contract. The
rules relating to offer and acceptance as a means of ascertaining the existence of an agreement9
determine whether communications made by an individual constitute a contractual obligation.
Second, promissory theories are consistent with the notion that the parties to a contract have

6. Smith, Contract Theory, note 4 above, p 48.

7. Smith, Contract Theory, note 4 above, p 54.
8. Smith, Contract Theory, note 4 above, pp 59–60.
9. See Chapter 4.

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the freedom to determine the content of contractual obligations. For example, in Woolworths
Ltd v Kelly,10 Kirby P referred to freedom of contract as a reason for the law not being concerned
with whether or not, for example, the price that parties agree is to be paid for property reflects
the property’s true value.11 Third, the principal remedies for a breach of contract are consistent
with promissory theories. The remedy of specific performance requires the promisor to do
the very thing he or she has promised to do. The remedy of damages for breach of contract
requires the promisor, if he or she does not carry out the promise, to pay compensation, which
is determined by putting the promisee (the person to whom a promise is made), in so far as
money can do so, in the position that the promisee would have been in had the promise been
performed.12 Fourth, because promises are personal and owed only to those to whom they have
been made, promissory theories are consistent with the doctrine of privity13 which does not
allow other persons to enforce the contract.
3.8 Nevertheless, promissory theories are subject to criticism, two of which can be noted.
First, as Smith14 points out:
[P]romissory theories … are inconsistent with the objective approach that the common law
adopts for determining the existence and content of a contractual obligation. … [C]ontract
law aims to enforce not those obligations that the parties intend to impose upon themselves,
but instead those obligations that the parties outwardly appear to impose upon themselves.

3.9 Second, promissory theories sit uncomfortably with principles of contract law relating to
the implication of terms, especially terms implied by law.15 It is hard to see how terms implied
by the law can be viewed as reflective of the subjective intention of the contracting parties.
Indeed, in some instances, legislation implies terms into some contracts and makes it quite
clear that they will apply, even if this is contrary to the express intention of the parties to the
contract.16
3.10 A significant promissory theory is that articulated by Fried.17 The normative foundations
of Fried’s theory are individual autonomy and trust, with promise being the device by which
trust is given its ‘sharpest, most palpable form’.18 For Fried, promising is a ‘general convention’
that commits a person to future action, thereby enabling people to co-operate with each other
to accomplish various purposes. A promise is binding because it gives the promisee moral
grounds to expect performance of the promise. To break a promise is to betray the trust and
respect for individual autonomy on which Fried’s ‘general convention’ of promising is founded.19

10. (1991) 22 NSWLR 189 at 193–4.

11. See 6.39.
12. See 29.9. Shiffrin differs from Smith in her approach to damages on this point. She correctly notes the
dominance of damages over specific performance (see 31.21) and does not see damages as being consistent
with the moral imperative of promise: S V Shiffrin, ‘The Divergence of Contract and Promise’ (2007) 120
Harvard Law Review 709 at 722–3.
13. See Chapter 39.
14. Smith, Contract Theory, note 4 above, pp 60–1.
15. See 11.30–11.43.
16. See 11.32.
17. C Fried, Contract as Promise: A Theory of Contractual Obligation, Harvard University Press, Cambridge, 1981.
18. Fried, Contract as Promise: A Theory of Contractual Obligation, note 17 above, pp 8, 16.
19. Fried, Contract as Promise: A Theory of Contractual Obligation, note 17 above, pp 7–17.

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3.11 Fried concedes that his theory does not provide the basis for resolving all contractual
disputes. Thus, disputes cannot be resolved on the basis of Fried’s theory where mutual mistake
occurs in the formation of a contract.20 For Fried, principles of tort law and restitution, and not
contract law, offer the way to resolve such disputes. The problem of terms implied by law would
also be resolved by withdrawing such implied terms from the scope of contract law. While this
approach serves to protect the integrity of Fried’s theory, it significantly excludes principles that
are generally regarded by lawyers as integral parts of contract law.21

Reliance theories
3.12 Reliance theories are based upon the consequences of a promise. A promise is binding
if it induces reasonable reliance. If a promisee is induced to rely upon the promise, he or she
cannot be made worse off as a result of such reliance. The promisor (the person who makes
the promise) is fixed with a duty, which is described by Smith22 not as a duty to carry out the
promise, ‘but rather to reimburse the other party for [his or] her reliance costs in cases in which
the promised action is not performed’.
3.13 Although it is true that contracts often do induce reliance and that, when breached,
such contracts leave those who have relied upon them worse off as a result,23 Smith identifies a
number of objections to reliance theories. First, reliance theories are unable to explain the rules
relating to the formation of contracts. Contractual liability rests upon a promise or agreement,
rather than any ‘failure to take account of induced reliance’.
3.14 Second, reliance theories define breach of contract as a failure to reimburse the
promisee for his or her expenses incurred in reliance on the contract, rather than as the failure
to carry out the promise. However, lawyers generally see the carrying out of the promise as the
primary contractual obligation, with the obligation to pay compensation in the event of not
doing so only as a secondary obligation.24 The strength of this objection to reliance theories
is weak, as it merely provides a different theoretical perspective on the content of contractual
promises, rather than being of any significant practical consequence. For both promissory and
reliance theories, a contractual promise will attract a remedy of monetary compensation if the
promise is not carried out.
3.15 Third, and most importantly, reliance theories hold that the compensation payable for
breach of contract is a sum of money that covers costs and expenses incurred by the innocent
party in relation to acts undertaken in reliance on the contract, often referred to as ‘reliance
loss’.25 This flies in the face of repeated assertions by the courts that the generally understood

20. See 16.55–16.60.

21. For discussions of Fried’s theory, see P S Atiyah, Essays on Contract, Clarendon Press, Oxford, 1986,
pp 121–49; A Robertson and J Paterson, Principles of Contract Law, 6th ed, Thomson Reuters (Professional)
Australia Ltd, Pyrmont, 2020, pp 10–13; P Benson, ‘Contract’, in D Patterson (ed), A Companion to Philosophy
of Law and Legal Theory, 2nd ed, Wiley-Blackwell, USA, 2010, pp 41–4; D Kimel, From Promise to Contract:
Towards a Liberal Theory of Contract, Hart Publishing, Oxford, 2003, pp 7–14; C Bridgeman, ‘Liberalism and
Freedom from the Promise Theory of Contract’ (2004) 67 Modern Law Review 684 at 686–90.
22. Smith, Contract Theory, note 4 above, p 85.
23. Smith, Contract Theory, note 4 above, pp 90–6.
24. See 29.1.
25. See 29.55–29.72.

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principle of compensation results in an order that the contract breaker pay a sum of money
that reflects the value of what was promised, but not delivered, to the innocent party.26 This
is often referred to as ‘expectation damages’.27 Although courts do, in appropriate cases, assess
compensation on the basis of the value of expenses and costs incurred in reliance upon
the contract, they nevertheless stress that such compensation is reflective of the generally
understood principle of compensation.28
3.16 Fourth, given that the promisor has a duty to reimburse the other party for reliance loss,
rather than carry out his or her promise, reliance theories offer no satisfactory reason as to why
specific performance of a contract should ever be ordered. As Smith29 points out, ‘[s]pecific
performance is an order to do something that, according to reliance theories, defendants did
not have a duty to do in the first place’.
3.17 Atiyah is a prominent proponent of reliance theory. He30 rejects the notion that
contractual liability is rooted in the intentions of the parties and that promises generate
enforceable obligations. He suggests that contractual liability arises, not because of the parties’
intentions, but rather as a consequence of their conduct. On Atiyah’s view, a promise only gives
rise to enforceable obligations when a benefit has been conferred or when reasonable reliance
on that promise has taken place. Thus, unlike in promissory theories, the promise is not a
substantive basis of liability — rather, it primarily serves an evidentiary purpose. For example,
in the case of a transfer of property from A to B, the promise will clarify if the transaction is one
of gift or one in which payment by B to A is required.
3.18 A consequence of Atiyah’s theory is that compensation for a breach of contract is not
determined by the principle that a promisee is to be put in the same position that he or she
would have been in if the contract had been carried out — rather, in cases of benefits conferred
by the promisor, the promisee recovers the value of the benefit conferred, in which case the
promise to pay for it is evidence of that value. In cases of detrimental reliance induced by
the promisor, the promisee recovers costs and expenses reasonably incurred in acting on the
promise. These calculations represent assessment of damages on a reliance loss basis, rather
than an expectation damages basis.
3.19 Atiyah’s theory can be sustained in the context of contracts that have been wholly
or partly carried out because in such cases there has been conduct in the form of either the
conferring of a benefit or the incurring of detrimental reliance. However, as he recognises,
purely executory contracts in which neither party has done anything in performance or
acted in reliance raise problems for his theory. Although he concedes that the law does order
compensation for breach of purely executory contracts on the basis of expectation damages,
his response to the issue is to minimise the significance of purely executory contracts. Atiyah31
puts his case as follows:
Executory contracts do not remain executory for very long. Even if made well before the
time for performance, the whole purpose of making them is frequently to enable the parties

26. See 29.8.

27. See 29.38–29.54.
28. See 29.44.
29. Smith, Contract Theory, note 4 above, p 94.
30. Atiyah, Essays on Contract, note 21 above.
31. Atiyah, Essays on Contract, note 21 above, pp 30–1.
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

to make preliminary arrangements in confident reliance on reciprocal performance. Thus

action in reliance is likely to follow hard on the heels of the making of most executory
contracts. … If this is correct, it is not difficult to see how, even in the case of wholly executory
arrangements, the principal functions of the promise are evidentiary, as they are in the case
of the executed or part-executed arrangement. For when the parties begin to carry through
the exchange which they have contracted about, obligations would anyhow arise even in the
absence of contract.

3.20 With respect to contracts, ‘where there is no reliance of any kind at all’ or ‘where there
has been no payment, no benefit rendered or received’, Atiyah32 suggests that there is no
satisfactory argument for them to be upheld. If these purely executory contracts are not upheld,
then, according to Atiyah,33 distinctions between contract, on the one hand, and restitution and
tort, on the other, ‘surely come crashing to the ground’. This is because compensation orders
in relation to all three are determined essentially upon the basis of compensating the plaintiff
for the value of benefits conferred, or to recover costs and expenses incurred when acting in
reliance on the obligation.34

Transfer theories
3.21 Transfer theories are based upon the idea of contracts effecting a transfer of rights.
When a contract is entered into, from the moment of contracting an existing intangible right
is transferred to the other party. Benson argues that such theories are governed by the concept
of liberal justice in transactions in which the contracting parties are regarded as free and equal
persons and are accorded respect as such.35 For example, if A contracts to sell his or her watch
to B for $100 with delivery and payment to take place in 10 days’ time, A transfers a right to B
at the time the contract is formed. This right is not a right to the watch, but rather the right to
the performance of a future act, namely, the delivery of the watch by A to B. Thus, the essence
of a contract, according to transfer theories, ‘is the transfer of an existing performance right’.36
3.22 The strengths and weaknesses of promissory theories are, generally speaking, equally
relevant to transfer theories. This, however, should not be taken to mean that transfer theories
are the same as promissory theories. Smith37 states as follows:
It is true that, like promissory theories, transfer theories regard contracting parties as
‘owning’ rights to the performance of relevant contractual undertakings. Moreover, in each
theory, a contractual right is a right that the other contracting party do the very thing that
[he or] she said [he or] she would do. But there is a fundamental difference in the way that
each theory explains how contracting parties come to own those rights. In transfer theories,
the explanation is that the contract brings about the transfer of an already existing right. A
contractual transaction, in this view, concerns dealings with things that the parties already

32. Atiyah, Essays on Contract, note 21 above, pp 30–1.

33. Atiyah, Essays on Contract, note 21 above, pp 31–9.
34. Atiyah, Essays on Contract, note 21 above, pp 40–1. For discussions of Atiyah’s theory see Benson, ‘Contract’,
note 21 above, pp 34–7; P Birks, ‘Restitution and Freedom of Contract’ (1983) Current Legal Problems 141.
35. P Benson, Justice in Transactions: A Theory of Contract Law, The Belknap Press of Harvard University
Press, Cambridge, 2019, 366–94.
36. Smith, Contract Theory, note 4 above, p 98.
37. Smith, Contract Theory, note 4 above, pp 98–9.

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own or have rights to. By contrast, it is of the essence of a promissory explanation that it
regards contracts as creating new rights. Promissory rights (assuming they exist) are rights
created by a promise.

3.23 According to Smith,38 the major conceptual problem with transfer theories is that ‘the
rights that transfer theories suppose are transferred by contracts do not exist prior to the
making of contracts’. Thus, in the above example, A has a right to give or not to give the watch
to B in 10 days’ time. However, the contract between A and B cannot be seen as transferring
that right to B. In other words, A is not transferring to B the right for B to decide what A will
or will not do in 10 days’ time. As Smith points out, for transfer theories to make sense, what is
being transferred to B at the time of contract is the right to demand that A hand over the watch
in 10 days’ time. This, however, is not a right owned by A at the time. All that A owns at that
time is the right to decide what he or she will do in 10 days’ time.
3.24 Barnett,39 a prominent transfer theorist, argues that the contractual liability of a promisor
rests on a foundation of a manifested intention to transfer his or her rights to another person.
Crucial to his conception is the element of consent because what is being transferred, prior to a
contract being formed, vests in the promisor and it is only the promisor who can decide if the
right can be transferred. A promisor’s consent to the transfer gives rise to an implication to be
legally bound and thereby provides the basis for the enforcement of his or her promise. Consent
is objectively determined. Were it otherwise and the issue of intent determined subjectively, the
interests and liberty of the promisee would be seriously restricted because he or she would not
be able to rely on things as they were presented by the promisor.40

GENERAL CONTRACT THEORY AND THE NORMATIVE QUESTION

3.25 Smith’s normative question deals with the justifications, if any, for the existence of
contract law. The two categories of normative analysis — utilitarian and rights-based — are
outlined below.

Utilitarian theories
3.26 Smith41 defines a utilitarian theory as follows:
A contract theory is utilitarian … if it justifies contract law on the basis that contract law
promotes utility — understood here as any conception of, or aspect of, human well-being,
whether it be increased wealth, welfare, autonomy, closer relationships, etc. According to this
view, contract law promotes utility (however defined) by establishing incentives for people
to act in ‘utility-promoting’ ways or (less importantly as it turns out) by supporting judicial
orders that command individuals directly to act in utility-promoting ways (say by ordering
that an object be transferred to a person who values it more than the current owner).

38. Smith, Contract Theory, note 4 above, p 101.

39. R Barnett, ‘A Consent Theory of Contract’ (1986) 86 Columbia Law Review 269.
40. For discussions of Barnett’s theory, see Benson, ‘Contract’, note 21 above, pp 47–9; Robertson and Paterson,
Principles of Contract Law, note 21 above, pp 14–17.
41. Smith, Contract Theory, note 4 above, p 106.

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3.27 Smith’s definition, it must be conceded, is somewhat different to the understanding of

utilitarianism by moral philosophers, who define it in terms of producing the greatest good
for the greatest number of people. Utilitarian theories, as understood by Smith, can be broken
up into various types based upon what ‘good’ thing is being promoted by contract law. These
‘good’ things include efficiency, distributive justice, special relationships, and autonomy.

Efficiency theories
3.28 The most prominent of the utilitarian theories are those that see contract law as
promoting efficient behaviour. Economics is at the heart of these theories. Efficiency theorists
see a legal rule or decision as efficient ‘if it promotes behaviour of a kind that leads to an
overall increase in the satisfaction of individual preferences — of human welfare’.42 Efficiency is
promoted by establishing appropriate incentives and disincentives.
3.29 At its most basic level, efficiency theory can be illustrated by the simple example of A
transferring his or her car to B in exchange for $10,000, where both parties act voluntarily.
Efficiency is achieved here because both A and B are better off as a result of the transaction.
That this is so is based on the assumptions that A regards $10,000 as more valuable than the
car, and that B regards the car as more valuable than $10,000. If so, both parties are better off
and the transaction is thus efficient. As Smith43 points out, contract law is not necessary in
cases where such exchanges are simultaneous. However, contract law is necessary in what he
refers to as non-simultaneous transactions or deferred exchanges. A simple illustration of such
a transaction is A agreeing to build a boat for B for $10,000, with B having to pay the full price
in advance. A contract is necessary here to protect B against the risk that A may not build the
boat and simply keep the money.
3.30 In relation to the rules of contract law, efficiency theorists view the rules from the
perspective of the means by which they lead to voluntary and mutually beneficial agreements.
Thus, rules relating to contract formation and vitiating factors are seen as means by which such
agreements are reached.
3.31 In relation to remedies for breach of contract, an important aspect of efficiency theories
is the notion of ‘efficient breach’. By this is meant that in some cases it may be more efficient
for the contract not to be performed. For example, if A contracts to sell his or her car to B
for $10,000, but after the contract A is offered a job that requires him or her to have a car,
the contract is no longer efficient. Now A wants to keep the car so that he or she can take
up the offered job. To allow for efficient breach, one response would be to expand the scope
and doctrines of mistake44 and frustration,45 but as Smith46 observes, such an approach leads
to making contracts easier to avoid and thus dissuades people from contracting in the first
place. The alternative approach would be to make damages the fundamental remedy for
breach, and to relegate the availability of specific performance to cases where the assessment of
damages is too difficult and costly to assess. In this way, parties would not be forced to carry out

42. Smith, Contract Theory, note 4 above, p 109.

43. Smith, Contract Theory, note 4 above, p 112.
44. See Chapter 16.
45. See Chapter 25.
46. Smith, Contract Theory, note 4 above, p 117.

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inefficient contracts, but the contract breaker would be required to pay damages for the breach.
The obligation to pay damages on an expectation loss basis would act as an incentive for the
contract to be performed, except in cases where it was not efficient to do so — that is, in cases
where the measure of damages to be awarded is less than the benefit that would accrue to the
contract breaker in breaching the contract.
3.32 A common objection to efficiency theories is their underlying assumption that
individuals act rationally and in their own self-interest. As Smith47 observes, ‘[m]any contracting
parties will not contemplate breaching a contract, even if it would be in their self-interest to
do so, because they believe that they have a moral obligation to perform’. A further objection is
that efficiency (and indeed all utilitarian) theories fail to take individual rights seriously. Their
focus on the general good of society ‘may lead to the individual being abused or disregarded’.48
In this respect, one can note that in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd,49 the
High Court of Australia rejected the application of efficient breach theory in the context of the
measure of damages payable in relation to indemnity losses occasioned by a breach of contract.
In that case, the defendant breached a ‘no alteration’ clause in relation to leased premises, and
argued unsuccessfully that the measure of damages should be based upon the diminution of
market value to the leased premises, which was less than the assessment of damages based
upon the cost of reinstating the premises and lost rent while such works were completed.50
The High Court noted that the efficient breach theory ignored the availability of the equitable
remedies of specific performance and injunction and, in any event, was incompatible with the
guiding principle for the assessment of damages, which states that damages should be assessed
on the basis that the plaintiff is to be put in the same position, in so far as money can do it, as
if the contract had been performed.51

Distributive justice theories

3.33 Kronman52 has suggested that some contracts can be understood as promoting a
conception of distributive justice designed to promote a fair division of wealth and power
among individual members of society. Such a theory is similar to efficiency theories, except that
instead of promoting overall welfare, it promotes the welfare of economically disadvantaged
segments of society. But, as Smith53 argues, this ‘is a poor tool for altering existing distributions
of wealth’ because ‘[c]ontract law rules can affect the distribution of wealth only insofar as
people agree to make contracts’.

47. Smith, Contract Theory, note 4 above, p 126.

48. Smith, Contract Theory, note 4 above, p 129. For further discussion of efficiency theories see Benson,
‘Contract’, note 21 above, pp 54–60; N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract,
11th Aust ed, LexisNexis Butterworths, Australia, 2017, pp 1346–57; Robertson and Paterson, Principles of
Contract Law, note 21 above, pp 17–22.
49. (2009) 236 CLR 272 at 286–2; 253 ALR 1 at 5–6. See also Ellis’s Town House Pty Ltd v Botan Pty Ltd [2017]
NSWCA 20 at [33], [50]–[54].
50. See 29.79–29.89.
51. See 29.8.
52. A T Kronman, ‘Contract Law and Distributive Justice’ (1980) 89 Yale Law Journal 472.
53. Smith, Contract Theory, note 4 above, p 137. For a discussion of Kronman’s theory see Benson, ‘Contract’,
note 21 above, pp 51–4.

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Special relationship theories

3.34 Special relationship theories justify contract law on the basis of its promotion of special
and valuable relationships between individuals, rather than on the material consequences
of contracting. The relationships formed by contracts are special because they require the
contracting parties to treat the interests of each other as special and distinct. One such theorist
is Raz,54 who argues that a promise is only binding if it is voluntarily made. Essential to this
notion is the moral dimension of the promisor’s intention. A promise will be made voluntarily
only if it is the object of the promisor’s actual intention. This moral dimension of the promise
is what is protected by contract law. Benson55 succinctly describes the essence of Raz’s theory
as follows:
A promise purports to create a special bond between promisor and promisee, obliging the
former to view the latter’s claim as having peremptory force and not just as one of the many
claims that persons may have, in general, to his respect and aid. The moral bindingness
of a promise presupposes that this kind of relationship and the fact that it is voluntarily
created and shaped by the choice of the parties are valuable. People have a normative power
to bind themselves and invest others with rights because this is a form of life deemed to
be intrinsically desirable. This is a moral presupposition of the obligation conception of
promising.

Autonomy theories
3.35 Autonomy is the ‘good’ promoted by autonomy theories. Contract law is justified by
promoting an expanded range of options to individuals. As Smith56 puts it, ‘[c]ontract law
increases choice, and choice is good because autonomy is good’. Central to autonomy theories
is the availability of a range of options from which a real choice can voluntarily be made. The
absence of a range of options means that meaningful autonomy cannot be exercised. Autonomy
theorists value a range of options because ‘this increases the possibility of autonomous action —
regardless of the material or utilitarian consequences of taking up those options’.57

Rights-based theories
3.36 Rights-based theories focus on the individual rights of the contracting parties. Smith,58
a rights-based theorist himself, states:
[C]ontractual obligations are obligations not to infringe the rights of others, and contract law
gives force to such rights either directly, by ordering that they not be infringed, or indirectly,
by enforcing duties to repair losses caused by rights infringements. … [T]he most important
examples of rights-based theories all regard contractual rights as classical ‘negative-liberty’
rights to non-interference with one’s person or property.

54. J Raz, ‘Promises in Morality and Law’ (1985) 95 Harvard Law Review 916.
55. Benson, ‘Contract’, note 21 above, p 39. For a critique of Raz’s theory see M G Pratt, ‘Promises, Contracts
and Voluntary Obligations’ (2007) 26 Law and Philosophy 531.
56. Smith, Contract Theory, note 4 above, p 139.
57. Smith, Contract Theory, note 4 above, p 139.
58. Smith, Contract Theory, note 4 above, p 107.

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3.37 Depending on which of the categories any particular theory falls into from the
perspective of the analytic question discussed above, a rights-based theory provides a different
answer to the question of the nature of the contractual right that cannot be interfered with.
Promissory theories see the right as the right to performance of a promise. Reliance theories
see the right as the right to compensation for losses suffered. Transfer theories see the right as
the right to property.59
3.38 Rights-based theories emphasise the preference for specific performance over damages
as the appropriate remedy for a breach of contract on the basis that this is usually the appropriate
way to ensure the protection of the right. However, this is inconsistent with the contract law
rule that stipulates that specific performance is only available if common law damages is an
inadequate remedy.60 This rule means that common law damages is the primary remedy for
breach of contract. In so far as the remedy of common law damages is concerned, rights-based
theories support assessment on an expectation loss basis. This is because a breach of contract,
in infringing upon the innocent party’s rights, results in harm to that party. Corrective justice
principles require the rectification of that harm and expectation damages best reflect the
principles of corrective justice.61
3.39 However, in relation to common law damages, the law’s refusal to award exemplary
or punitive damages62 does not fit well with rights-based theories. Intentional wrongdoing is
not punishable in contract law. From a rights-based theoretical perspective, this means that
intentional infliction of harm by breach of contract goes unpunished, whereas intentional
infliction of harm is normally punished in criminal law and tort law. As Smith63 notes, ‘the
law’s refusal to punish deliberate breach of contract remains a puzzle for rights-based theories
of contract’.

CRITIQUES OF CONTRACT LAW

3.40 Critiques of contract law do not seek to explain contract law in the sense of trying to
explain its nature and offer normative justifications for it. Rather, they seek to analyse the law
from particular ideological perspectives. Two important critiques are those offered by critical
legal scholars and feminists.

Critical legal studies and contract law

3.41 The major thrust of the Critical Legal Studies (CLS) movement has been to expose
the hidden agenda of contract law, namely, its support of the existing economic and social
order and the suppression of communitarian and collective interests.64 Not surprisingly, the

59. Smith, Contract Theory, note 4 above, p 142.

60. See 31.18.
61. Smith, Contract Theory, note 4 above, pp 146–7.
62. See 29.15.
63. Smith, Contract Theory, note 4 above, p 156.
64. Robertson and Paterson, Principles of Contract Law, note 21 above, pp 22–3.

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most notable CLS slogan has been ‘Law is politics’,65 with contract law being ‘grounded in …
struggles for power among competing groups’.66
3.42 CLS analysis of contract law adopts the tool of deconstruction by exposing the dualities
found in the law in the form of competing interests such as markets versus the community,
individualism versus altruism, the self versus the other, and form versus substance. According
to CLS scholars, in each case contract law favours the former of these dichotomous poles.
This favouritism stems from contract law reflecting the dominance of forces representing
the established political, social, and economic structures. Although it is recognised that the
disfavoured poles do play a part in contract law, this is often explained away on the basis that such
recognition is granted to pre-empt fundamental reform, thereby propping up existing power
structures. Such recognition is seen in the principles of equitable estoppel, unconscionability,
and duress, which Unger67 argues are merely ‘vague slogans’ with limited impact on the central
core of contract law.
3.43 CLS scholars argue that the dualities referred to above, although managed so as to
preserve the favoured poles, nevertheless bring to light deep divisions in the law, so much so
that it is essentially incoherent and, in the practical sphere, indeterminate in the sense that a
variety of outcomes in any legal dispute is possible. This indeterminacy thesis effectively enables
judges to decide cases in whichever way they please because they are able to legally ‘stitch up’
any decision by using existing legal materials to establish any legitimate legal argument. The
strong version of the indeterminacy thesis — one that attracts little support — states that legal
rules can be used to produce any outcome in any case. The weak version of the thesis states that
rules can be used to produce any outcome in ‘hard’ cases only. Given that most CLS scholars
have come from the left or progressive side of politics, they have called for judges, who are
generally more representative of the right or conservative side of politics, to give recognition to
the disfavoured poles.
3.44 Although it offers valuable insights into contract law and its application, CLS scholarship
has been criticised. One significant criticism is that it has focused on appellate court decisions,
which tend to deal with ‘hard’ cases, and ignored the great bulk of contractual disputes that are
either settled or easily resolved by the courts because the law is sufficiently determinate and
therefore the result is entirely predictable.68

Feminism and contract law

3.45 Feminist analyses of contract law offer two major approaches based upon ideas of
difference and subordination.69 However, these divergent approaches have in common a
general concern to achieve gender equality.

65. M V Tushnet, ‘Critical Legal Theory’, in M P Golding & W A Edmunson (eds), The Blackwell Guide to the
Philosophy of Law and Legal Theory, Blackwell Publishing, Oxford, 2005, p 80.
66. Posner, ‘Contract Theory’, note 1 above, p 80.
67. R Unger, ‘The Critical Legal Studies Movement’ (1983) 96 Harvard Law Review 561, pp 629–30.
68. R A Hillman, The Richness of Contract Law: An Analysis and Critique of Contemporary Theories of Contract
Law, Kluwer Academic Publishers, Dordrecht, 1997, p 209.
69. Robertson and Paterson, Principles of Contract Law, note 21 above, pp 23–5.

36
 CHAPTER 3: CONTRACT THEORY­

3.46 The difference approach starts from the proposition that men and women are different
and that equality between men and women can only be achieved when the law takes these
differences into account. Robertson and Paterson70 state:
Feminists [who adopt the difference approach] criticise the law as reflecting a masculine
viewpoint and neglecting a feminist perspective. In relation to contract law, such feminists
criticise the almost exclusive use of the abstract, rule-oriented and apparently neutral style
of analysis. Feminists argue that this style of analysis relies on characteristics associated with
the cultural stereotype of men. A more contextualised approach to contract law would give
voice to a ‘feminine’ viewpoint. … It might emphasise the role of values such as reliance,
co-operation, respect for the other and compromise in contract law.

3.47 The subordination approach locates gender inequality in terms of the subordination
of women to men. Accordingly, legal practices must be evaluated to determine if they tend to
perpetuate this subordination. In the context of contractual disputes, this essentially requires
the law to transcend formalism and examine the reality of power relationships between the
parties to the dispute.
3.48 A particular area of contract law susceptible to a feminist critique is the principle of
undue influence, in particular in cases such as the High Court of Australia decision in Garcia
v National Australia Bank Ltd,71 which dealt with the protection afforded to wives who
guarantee their husbands’ business loans.72 Although this principle entails sexual stereotyping,
proponents of the difference approach view the decision as appropriate, given that in situations
such as these ‘women are often influenced by factors other than their own economic interests
… [and] may be influenced by the bonds of relationship, trust and reliance’.73 Proponents of the
subordination approach can support the High Court’s decision on the basis that it protects the
woman ‘from the disparities of power that may exist between a husband and wife. … [B]ecause
of the subordinated position of many married women, a woman’s guarantee of her husband’s
debts cannot be presumed to have been given freely’.74

70. Robertson and Paterson, Principles of Contract Law, note 21 above, p 24.
71. (1998) 194 CLR 395; 155 ALR 614.
72. See 18.60–18.62.
73. Robertson and Paterson, Principles of Contract Law, note 21 above, pp 26–7.
74. Robertson and Paterson, Principles of Contract Law, note 21 above, p 27.

37
 Part II:
Formation of a Contract
 4
THE FACT OF AGREEMENT

INTRODUCTION
4.1 The existence of a contract between particular persons depends on there being an
agreement between them. This agreement must, as detailed in Chapter 5, be sufficiently certain
and complete. However, such an agreement does not create a contract. For an agreement to be
a contract, it must be one for consideration — a matter that is discussed in Chapter 6. Finally,
the parties to an agreement must intend it to be legally binding, in the sense that it can be
enforced by one of the parties in the event that it is breached by the other. This aspect of the
formation of a contract is discussed in Chapter 7. Thus, as was stated by Mance LJ in Modahl
v British Athletic Federation Ltd,1 ‘[f]or there to be a contract, there must be (a) agreement on
essentials of sufficient certainty to be enforceable, (b) an intention to create legal relations and
(c) consideration’.
4.2 The existence of a contract is objectively determined.2 In ascertaining whether a contract
has been made during the course of negotiations a court will look at the whole course of those
negotiations.3 However, once it is established that a contract has been entered into, any further
negotiations between the parties cannot alter or end the contract unless agreed to by all the
parties to it.4
4.3 This chapter deals with the requirement that, for a contract to exist, there must be an
agreement between its parties.
4.4 It should be noted that, in many cases, whether an agreement exists will not be a matter
of any dispute. Thus, if A and B execute a detailed document prepared by their respective legal
advisers, the fact of agreement will rarely be disputed by either of them. However, in cases
where the existence of an agreement is in question, the traditional method for resolving it is to

1. [2002] 1 WLR 1192 at 1221. See also Blue v Ashley (No 2) [2017] EWHC 1928 (Comm) at [49]; King Tide
Co Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251 at [13]; Danbol Pty Ltd v Swiss Re International Se
[2020] VSC 23 at [39]; Holt v Bunney [2020] SASCFC 89 at [137].
2. Smith v Hughes (1871) LR 6 QB 597 at 607; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR
165 at 179; 211 ALR 342 at 351–2; RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Co KG
(UK Productions) [2010] 3 All ER 1 at 22.
3. Hussey v Horne-Payne (1878) 4 App Cas 311 at 316; Global Asset Capital, Inc v Aabar Block SARL [2017]
4 WLR 163 at [29]–[31].
4. Perry v Suffields [1916] 2 Ch 187 at 192.

41
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

apply the rules of offer and acceptance. One looks at the negotiations between the parties and
asks whether one of them (the offeror) has made an offer to the other (the offeree) and whether
the latter has subsequently accepted the offer.5
4.5 Offer and acceptance analysis will work reasonably well in situations where there have
been negotiations between A and B that involve communications between them that have
reached a point where one of them claims an agreement has been reached and the other disputes
that claim. In such cases one simply goes through the communications in chronological order
in search of, first, an offer, and second, an acceptance of that offer. For an agreement to arise
pursuant to the process of offer and acceptance, the ‘offer and acceptance must precisely
correspond’ and ‘any departure by the acceptance from the terms of the offer results in the
purported acceptance being ineffective’.6
4.6 However, it must be kept in mind that, although statements made during negotiations
may not result in the parties reaching an agreement, those statements may give rise to claims
based on the principles of equitable estoppel7 and/or misleading or deceptive conduct.8 Such
claims do not depend on the existence of a contract between the parties.
4.7 The rules of offer and acceptance tell us the following things about any contract that
results:
• when the contract was entered into — this can be an important matter because the time for
performance of obligations is often determined by reference to the date of the contract;9
• where the contract was entered into — this is important in cases where a contract is entered
into between parties in different legal jurisdictions in order to establish which jurisdiction’s
courts will resolve any dispute between the parties;10 and
• the express terms of the contract.11

4.8 However, as the courts have recognised,12 there are situations in which offer and
acceptance analysis does not work well and alternative means of determining whether an
agreement has been entered into are employed. These alternatives will be discussed at the end
of this chapter.13
4.9 Before examining the principles relating to formation of an agreement, it must be noted
that the principles discussed below may not apply in relation to contracts for the sale of goods
where the parties are from different countries. In such contracts, all Australian jurisdictions have

5. King Tide Co Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251 at [12]–[13]; Holt v Bunney [2020]
SASCFC 89 at [145].
6. Redowood Pty Ltd v Mongoose Pty Ltd [2005] NSWCA 32 at [66]; Hyatt Australia Ltd v LTCB Australia Ltd
[1996] 1 Qd R 260 at 264.
7. See Chapter 36.
8. See Chapter 15.
9. See 4.101.
10. See 4.102.
11. See Chapter 10.
12. MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia) (1975) 133 CLR 125
at 136; 8 ALR 131 at 139; Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965 at 968;
Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 80–1; Raguz v Sullivan (2000) 50 NSWLR 236 at 251.
13. See 4.103–4.113.

42
 CHAPTER 4: THE FACT OF AGREEMENT­

adopted the provisions of the United Nations Convention on Contracts for the International
Sale of Goods 1980.14 An analysis of the relevant provisions of the Convention is beyond the
scope of this book.

THE OFFER

Definition of offer
4.10 In Dysart Timbers Ltd v Nielsen15 Tipping and Wilson JJ defined an offer as follows:
An offer is a statement of the terms upon which the offeror is prepared to be bound if
acceptance is communicated while the offer remains alive.

Whether a statement constitutes an offer is objectively determined.16

4.11 For a valid offer to exist, it must be communicated to the offeree, or his or her agent, by
the offeror, or his or her agent. If the offeree learns of the offer from an unauthorised person,
there is no offer for that offeree to accept.17 Once the offer is communicated to the offeree, he
or she has the power to transform it into an agreement by accepting it.

The existence of an offer

4.12 What is central to an offer is the will or intent of the offeror to be bound in contract by
the terms of the offer. A statement that lacks such will or intent is not an offer. In some cases,
such a statement will simply be the supply of information. In other cases, the statement may be
what is termed an ‘invitation to treat’. Carter18 defines an invitation to treat as ‘an invitation to
the person to whom it is addressed to make offers, or negotiate’.
4.13 In many cases the issue that will resolve a dispute as to the existence of an agreement
is whether a statement is an offer or an invitation to treat. Thus, in Gibson v Manchester City
Council19 the council, then controlled by the British Conservative Party, approved a scheme to
allow tenants of council housing to purchase their properties. One such tenant was Gibson.
The council sent a letter to Gibson which stated that the council ‘may be prepared’ to sell
to Gibson the premises that he leased from the council. The letter stipulated the price and

14. Sale of Goods (Vienna Convention) Act 1987 (ACT); Sale of Goods (Vienna Convention) Act 1986 (NSW);
Sale of Goods (Vienna Convention) Act 1987 (NT); Sale of Goods (Vienna Convention) Act 1986 (Qld);
Sale of Goods (Vienna Convention) Act 1986 (SA); Sale of Goods (Vienna Convention) Act 1987 (Tas);
Sale of Goods (Vienna Convention) Act 1987 (Vic); Sale of Goods (Vienna Convention) Act 1986 (WA).
15. [2009] 3 NZLR 160 at 168. See also Reardon v Morley Ford Pty Ltd (1980) 49 FLR 401 at 407; 33 ALR 417
at 423; Levingston v Levingston [2017] WASCA 91 at [24]; Blue v Ashley (No 2) [2017] EWHC 1928 (Comm)
at [52]; La Mela v Franklexis Pty Ltd [2020] WASCA 83 at [85]; Holt v Bunney [2020] SASCFC 89 at [146].
16. Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd [2010] EWCA Civ 1331 at [25]; Ho v Adelekun
[2019] EWCA Civ 1988 at [26].
17. Banks v Williams (1912) 12 SR (NSW) 382 at 390–1.
18. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Chatswood, 2018, p 49. See also
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 268.
19. [1979] 1 All ER 972.

43
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

terms and conditions upon which a sale would take place. The letter also invited Gibson ‘to
make a formal application to buy’ by completing an enclosed ‘application form’. Gibson sent
a completed application form to the council. Before formal contracts were prepared, control
of the council passed to the British Labour Party. The council then resolved to abandon
the scheme and to complete only those sales in which there was a legally binding contract.
Gibson claimed that he had such a contract. To establish his claim, Gibson had to show
that the council’s letter was an offer that had been accepted by his completion and sending
of the application form. If, on the other hand, the council’s letter was an invitation to treat,
Gibson’s application form, at best, constituted an offer, which the council had never accepted,
with the consequence that there was no contract between the parties. The House of Lords
unanimously ruled in favour of the council, holding that the council letter was an invitation
to treat. Lord Diplock20 said that the letter was ‘but a step in the negotiations for a contract
which … never reached fruition’.
4.14 In Harvey v Facey21 Harvey telegraphed to Facey saying: ‘Will you sell us Bumper Hall
Pen?’ Facey replied: ‘Lowest price for Bumper Hall Pen, £900’. Harvey replied that he agreed to
buy the property for £900 and asked that the title deeds be forwarded to him. Facey refused,
claiming there was no contract of sale. The issue before the court was whether Facey’s reply to
the Harvey’s initial telegram was an offer or simply the supplying of information. The House
of Lords ruled that it was merely the supply of information. Lord Morris22 said that ‘the mere
statement of the lowest price at which the vendor would sell contains no implied contract to
sell at the lowest price’.
4.15 Harvey v Facey23 is indicative of the view that where property, such as land, is of
considerable value, the mere statement of price at which a person is prepared to sell, is
usually not an offer. However, in Pattison v Mann,24 Bray CJ conceded that such a statement
could be an offer in some cases, but went on to say that very often the absence of reference
to matters which one would normally expect to be the subject of negotiations is a strong
indication that no concluded agreement has been reached by a purported acceptance of
such a statement.
4.16 The existence or otherwise of an offer is further explored below in the following five
contexts:
• circulars, catalogues, and advertisements;
• displays of goods;
• auctions;
• tenders; and
• standing offers.

20. Gibson v Manchester City Council [1979] 1 All ER 972 at 974. For a contrasting decision in relation to the
same council and scheme see Storer v Manchester City Council [1974] 3 All ER 824.
21. [1893] AC 552.
22. Harvey v Facey [1893] AC 552 at 556. See also Re Webster (1975) 132 CLR 270 at 282; 6 ALR 65 at 73–4.
23. [1893] AC 552.
24. (1975) 13 SASR 34 at 37.

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 CHAPTER 4: THE FACT OF AGREEMENT­

Circulars, catalogues, and advertisements

4.17 In relation to circulars, catalogues, and advertisements setting out price lists or
promoting the sale of products, the general rule is that they are seen as invitations to treat.
Thus, in Partridge v Crittenden25 an advertisement in a bird magazine that said ‘Bramblefinch
cocks, Bramblefinch hens 25s each’, was held to be an invitation to treat only. Furthermore, the
use of the word ‘offer’ in an advertisement does not necessarily mean that there is an offer in
law.26
4.18 The consequence of this general rule in relation to circulars, catalogues, and
advertisements is that it is the potential buyer that makes the offer that the seller either accepts
or rejects. The rationale for this general rule is that if the seller is seen as making the offer, the
number of acceptances by means of orders for the goods might well exceed the total stock held
by the seller. The consequence would be that the seller would be in breach of contract to all
those buyers who accepted the offer after stocks ran out.27 Such a consequence is undesirable
from the perspective of commercial convenience and efficiency.
4.19 However, the general rule will usually not apply if it is clear from the circular, catalogue,
or advertisement that the seller is limiting his or her liability to the amount of stock in hand.
Thus, in Lefkowitz v Great Minneapolis Surplus Store,28 a store placed a newspaper advertisement
which read: ‘1 Black Lapin Stole … Beautiful, worth $139.50 … $1.00 First come first served.’
Lefkowitz was the first person to present himself in response to the advertisement, but the store
refused to sell the fur stole on the basis of a house rule in the store that the advertisement was
one which could only be taken up by women. Lefkowitz sued the store for damages for breach of
contract. To succeed in his claim, Lefkowitz had to establish that the advertisement was an offer
that he had accepted by being the first person to present himself as a willing buyer of the fur.
The Supreme Court of Minnesota found in favour of Lefkowitz, ruling that the advertisement
was an offer that Lefkowitz had accepted and that the store could not impose new conditions
on the offer, in the form of the house rule, after it had been accepted. Murphy J29 said:
[W]here the offer is clear, definite, and explicit, and leaves nothing open for negotiation,
it constitutes an offer, acceptance of which will complete the contract. … Whether in any
individual instance a newspaper advertisement is an offer rather than an invitation to make
an offer depends on the legal intention of the parties and the surrounding circumstances. …
We are of the view on the facts before us that the offer by the [Great Minneapolis Surplus
Store] of the sale of the Lapin fur was clear, definite, and explicit, and left nothing open for
negotiation.

4.20 In Carlill v Carbolic Smoke Ball Co,30 the Carbolic Smoke Ball Co produced the Carbolic
Smoke Ball, a medical preparation. It placed an advertisement in newspapers offering a reward
of £100 to any person who, having used the medication as prescribed for two weeks, nevertheless
contracted influenza. The advertisement further stated that the company had deposited £1000 in

25. [1968] 2 All ER 421.

26. Spencer v Harding (1870) LR 5 CP 561; Clifton v Palumbo [1944] 2 All ER 497 at 499.
27. Grainger & Son v Gough [1896] AC 325 at 333–4.
28. 86 NW 2d 689 (1957).
29. Lefkowitz v Great Minneapolis Surplus Store 86 NW 2d 689, 191–2 (1957).
30. [1893] 1 QB 256.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

a special bank account as evidence of its sincerity. Carlill purchased the medication and used it as
prescribed for eight weeks before contracting influenza. She then sued to recover the £100 reward.
The company argued that the advertisement was not an offer. The Court of Appeal rejected this
argument. Lindley LJ31 and Bowen LJ32 both stressed that the necessary will or intention to make
the advertisement an offer rather than ‘a mere puff ’ was to be found in the fact that the company
had set up a special bank account to meet possible claims as a sign of its sincerity in the matter.

Displays of goods
4.21 As a general rule, a display of priced goods, such as in a shop or shop window, is an
invitation to treat and not an offer.33 Thus, the customer makes an offer for the goods that the
retailer either accepts or rejects. However, in some cases a display has been held to constitute an
offer.34 For example, in Chapleton v Barry Urban District Council35 a display of deck chairs with
a sign indicating the fee for their hire was held to constitute an offer.
4.22 In Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd,36
legislation stipulated that certain drugs could only be sold to members of the public if the sale
was ‘effected by, or under the supervision of, a registered pharmacist’. Boots Cash Chemist
operated a self-serve pharmacy. If its customers wanted to purchase drugs covered by the
legislation, they would, after selecting the drugs to be purchased, proceed to a checkout desk
where a registered pharmacist handled the transaction. The Pharmaceutical Society claimed
that this method of selling the drugs breached the legislation. In determining whether the
legislation was breached, the Court of Appeal focused on whether the display of drugs was
an offer or an invitation to treat. The court ruled that the display was an invitation to treat,
with the consequence that the customer made an offer at the time he or she presented at the
checkout counter as willing to buy the relevant drugs. A registered pharmacist then accepted
the offer. In such circumstances the sale contract was entered into under the supervision of a
registered pharmacist and thus there was no breach of the legislation.
4.23 In coming to that conclusion, the court suggested that if the display was an offer, acceptance
would have taken place and therefore a contract would have come into existence, when the customer
placed the drugs in a trolley or carry bag after making a selection from the display shelf. Because there
was no registered pharmacist involved at that stage, this would have amounted to a breach of the
legislation. However, the court rejected the notion that the display was an offer on the ground that,
once a selection had been made and therefore a contract had arisen, the customer would have been
unable to change his or her mind, return the selected item, and choose something else, because that
would amount to a breach of contract. Thus, the customer would have to pay for the selected item.
Such a consequence was rejected as being commercially inconvenient and as defeating the desired
result of allowing customers the freedom to choose and change their minds when shopping in such
shops. By categorising a display as an invitation to treat, such an undesirable result was avoided.

31. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 261–2.

32. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 268.
33. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401; [1953] 1 All
ER 482; Apotex Pty Ltd v Warner-Lambert Company LLC (No 3) [2017] FCA 94 at [29].
34. Reardon v Morley Ford Pty Ltd (1980) 49 FLR 401 at 407–8; 33 ALR 417 at 423.
35. [1940] 1 KB 532; [1940] 1 All ER 356.
36. [1953] 1 QB 401; [1953] 1 All ER 482.

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 CHAPTER 4: THE FACT OF AGREEMENT­

4.24 The reasoning in Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) Ltd37 has been criticised in so far as it suggests that, if the display were an offer, the
acceptance would have occurred when the customer selected an item and put it in his or her trolley
or carry bag. A more common sense approach would regard the acceptance as taking place when
the customer presented at the checkout ready to pay for the goods. And, as is noted below,38
as a general rule acceptance requires communication of acceptance to the offeror. If a display is
regarded as an offer, such communication would normally take place at the checkout when the
customer presented as ready to buy the goods, and not when the customer selected the goods from
the shelf.
4.25 Furthermore, it can be argued that in modern large department stores the Pharmaceutical
Society of Great Britain v Boots Cash Chemists (Southern) Ltd39 rule is not realistic. If the rule
is correct, it follows, in the words of Lord Goddard CJ,40 the judge at first instance in this case,
that ‘the customer brings the goods to the shopkeeper to see whether he will sell or not’. If so,
there needs to be a person, the shopkeeper or some duly appointed agent, who has the authority
to decide to sell the goods to the customer. In a small shop, where the owner works in the shop
and deals with customers, that may be realistic. But in large department stores or supermarkets
it may be that the store manager has such authority, but it is not the case that the shop assistants
or checkout operators can be said to have such authority. This is because the authority would
also include the right to change the price from that marked on the goods. Logically, then, there
could not be a contract entered into in such stores unless the person handling the sale was the
owner or manager of the store. That is not what happens in reality. Reality can best be explained
by stating that the display is an offer which contemplates acceptance by only one means,
namely by taking the goods to the checkout and paying the stipulated price. A shop assistant
or checkout operator can handle the matter, as he or she is merely receiving acceptances as an
agent appointed by the owner to receive acceptances. This view is supported in the dissenting
judgment of Clement JA in the Alberta Court of Appeal (in Canada) in R v Dawood.41

Auctions
4.26 In an auction, when an auctioneer puts up an item for sale, he or she is not making
an offer to sell to the highest bidder, but rather is inviting offers from the assembled bidders.
When a bidder makes an offer, it can be either accepted or rejected by the auctioneer. As was
held in Payne v Cave,42 acceptance of an offer made by a bidder is by the fall of the hammer.43
Because an offer can be withdrawn before it is accepted,44 a bidder is free to withdraw the offer
any time before it is accepted. On the other hand, an auctioneer does not have to accept any

37. [1953] 1 QB 401; [1953] 1 All ER 482.

38. See 4.84.
39. [1953] 1 QB 401; [1953] 1 All ER 482.
40. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 at 801.
41. [1976] 1 WWR 262.
42. Payne v Cave (1789) 100 ER 502. See also Simon v Metivier (1766) 96 ER 347 at 348.
43. In the context of the sale of goods at an auction, these rules have been given statutory force in all
Australian jurisdictions: Sale of Goods Act 1954 (ACT) s 60; Sale of Goods Act 1923 (NSW) s 60; Sale
of Goods Act 1972 (NT) s 60; Sale of Goods Act 1896 (Qld) s 59; Sale of Goods Act 1895 (SA) s 57;
Sale of Goods Act 1896 (Tas) s 62; Goods Act 1958 (Vic) s 64; Sale of Goods Act 1895 (WA) s 57.
44. See 4.50.

47
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

particular bid and, furthermore, is not bound to accept the highest bid.45 It also follows that the
cancellation of an advertised auction creates no contractual liability upon the auctioneer.46 The
advertising of the auction is not an offer to hold an auction. On the other hand, if auctioneer
has stated that the highest bid will be accepted, then the highest bidder will get the contract.47
4.27 In the context of an auction without a reserve price, there has been confusion as to
whether an auctioneer is obliged to accept the highest bid and what the consequences are, if
any, if he or she refuses to do so. Some cases48 have held that the principles in Payne v Cave49
apply and that, irrespective of whether the auction was with or without reserve, no contract
arises until the bidder’s offer has been accepted by the auctioneer by the fall of the hammer.
4.28 However, dicta in Warlow v Harrison50 suggests that, in such circumstances, although
no contract for the sale of the property arises between the highest bidder and vendor, the
auctioneer becomes liable to the highest bidder for damages for breach of contract. This
view was endorsed in the English decision of Barry v Davies51 where it was held that, in such
circumstances, the holding of the auction constitutes an offer by the auctioneer to sell to the
highest bidder and that the acceptance of the offer is made by the highest bidder. In the light of
the rule that an advertisement for an auction is not an offer to hold the auction,52 it is suggested
that the offer in Barry v Davies53 was made when the auctioneer put the property up for sale
without a reserve price at the auction, rather than when the auction was advertised.
4.29 Two comments can be made in relation to Barry v Davies:54 First, the case raises an issue
of the existence of consideration for the auctioneer’s promise. On this issue, Sir Murray Stuart-
Smith55 said:
[T]here is consideration both in the form of detriment to the bidder, since his bid can
be accepted unless it is withdrawn, and benefit to the auctioneer as bidding is driven up.
Moreover, attendance at the sale is likely to be increased if it is known that there is no reserve.

However, the problem here is whether a revocable bid is a sufficiently secure basis for a finding
that it amounts to consideration for the auctioneer’s promise.
4.30 Second, if the decision in Barry v Davies56 is accepted as good law in Australia, the
question arises whether, in the context of an auction with a reserve price, the auctioneer is
bound to accept the highest price once the reserve price has been reached. There appears to be
no reason why the auctioneer should not be so bound in these circumstances. The purpose of
a reserve price is to preclude the vendor from being bound in contract to sell the property at a

45. AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454.

46. Harris v Nickerson (1873) LR 8 QB 286.
47. Harvela Investments Ltd v Royal Trust Co of Canada (CI) [1986] 1 AC 207; [1985] 2 All ER 966.
48. AGC (Advances) v McWhirter (1977) 1 BPR 9454 at 9458; Seivewright v Brennan [2005] NSWSC 216 at [31].
49. (1789) 100 ER 502.
50. (1859) 120 ER 925.
51. [2001] 1 All ER 944.
52. Harris v Nickerson (1873) LR 8 QB 286.
53. [2001] 1 All ER 944.
54. [2001] 1 All ER 944.
55. Barry v Davies [2001] 1 All ER 944 at 949.
56. [2001] 1 All ER 944.

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 CHAPTER 4: THE FACT OF AGREEMENT­

price below the reserve price. By implication, the reserve price is a statement that the vendor is
prepared to sell to the highest bidder, provided that the highest bid exceeds the reserve price. In
other words, once the reserve price has been reached, the position of bidders becomes the same
as at an auction without reserve price and the auctioneer is liable, pursuant to Barry v Davies,57
if he or she does not accept the highest bid.

Tenders
4.31 Tenders have similarities to auctions, but the key difference is that in a tendering process
each bidder makes only one bid and without knowledge of the details of any other person’s bid.
In the tendering process it is the tenderer who makes the offer, and not the person calling for
tenders (the invitor). The invitor can accept or reject any tender.58 If, however, the invitor states
that he or she will accept the best tender, then he or she must do so and a contract arises with
the best tenderer.59 In fact, it is the usual practice that invitors expressly reserve the right to
accept any tender at all, although, strictly speaking, such an express reservation is unnecessary.
4.32 However, an important qualification to the above principles relates to so-called ‘process
contracts’. A process contract arises in cases where an invitation to tender creates an offer
to consider properly submitted tenders, with the result that the submission of such a tender
amounts to an acceptance of that offer. The consequence of finding a process contract is to
provide an unsuccessful bidder with a contractual remedy against an invitor who departs from
his or her own bidding rules. Whether or not a process contract exists depends on the intention
of the parties.60 The terms of any process contract are to be found in the express or implied
terms of the tender invitation to tender.61
4.33 In Transit New Zealand v Pratt Contractors Ltd,62 McGrath J said the following about
process contracts:
Whether a request for tenders gives rise to a process contract, once a conforming tender is
submitted, is in all cases a question of whether all the elements of contractual formation are
made out at that point. An analysis of the terms of the invitation to tender is the starting
point. Where the request makes no express commitment concerning the manner in which
tenders received will be addressed, that may indicate the invitation was no more than an
offer to receive them. On the other hand … the rigorous and comprehensive expression of
requirements to be complied with by tenderers may give rise to an implied promise by the
invitor to consider a conforming tender if others are considered. The law does not, however,
have a policy which inclines towards enforcement of implied promises by invitors, even if
they are public bodies, and whether there has been a binding promise as to process is to be
ascertained by applying general principles of contract law concerning contract creation and
implied terms.

57. [2001] 1 All ER 944.

58. Meudell v Mayor of Bendigo (1900) 26 VLR 158.
59. Harvela Investments Ltd v Royal Trust Co of Canada (CI) [1986] 1 AC 207; [1985] 2 All ER 966.
60. Dockpride Pty Ltd v Subiaco Redevelopment Authority [2005] WASC 211 at [109].
61. Tercon Contractors Ltd v British Columbia (Transportation and Highways) (2010) 315 DLR (4th) 385 at 394.
62. [2002] 2 NZLR 313 at 332–3.

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4.34 The willingness of courts to find that a process contract exists is largely motivated
by policy reasons, in particular, the desire to protect the integrity of tendering processes by
governments and their agencies where it is possible to do so by utilising contract law principles.63
4.35 In Blackpool & Fylde Aero Club v Blackpool Borough Council,64 the council called for
tenders to operate pleasure flights from its airport. Blackpool and Fylde was the existing
operator and its contract was coming to an end. It was also one of a select group of seven
entities invited to submit a tender. The invitation to tender was detailed and specific in the
procedure for, and form of, the submission of tenders. This was because the council wanted
to ensure that the committee considering the tenders was not in a position to know which
tenderer had submitted which tender. One of the clauses in the invitation to tender stated
that ‘[n]o tender which is received after the last date and time specified shall be admitted for
consideration’. Blackpool and Fylde submitted its tender in accordance with the requirements
of the invitation to tender. However, due to an administrative error by the council, the tender
was not considered. Thus, Blackpool and Fylde lost any chance of being the successful tenderer.
4.36 The Court of Appeal held that the invitation to tender constituted an offer to consider
all duly submitted tenders and that Blackpool and Fylde had accepted the offer by submitting
a tender in accordance with the requirements of the invitation to tender. Thus, the council was
liable to Blackpool and Fylde for damages for breach of contract. In coming to that conclusion,
Bingham LJ65 said:
[W]here … tenders are solicited from selected parties all of them known to the invitor, and
where a local authority’s invitation prescribes a clear, orderly and familiar procedure … the
invitee is in my judgment protected at least to this extent: if he submits a conforming tender
before the deadline he is entitled, not as a matter of mere expectation but of contractual right,
to be sure that his tender will after the deadline be opened and considered in conjunction
with all other conforming tenders or at least that his tender will be considered if others are.
… It is of course true that the invitation to tender [in this case] does not explicitly state
that the council will consider timely and conforming tenders. That is why one is concerned
with implication. But the council does not either say that it does not bind itself to do so,
and in the context a reasonable invitee would understand the invitation to be saying, quite
clearly, that if he submitted a timely and conforming tender it would be considered, at least
if any other such tender were considered. I readily accept that contracts are not to be lightly
implied. Having examined what the parties said and did, the court must be able to conclude
with confidence both that the parties intended to create contractual relations and that the
agreement was to the effect contended for.

4.37 In this case, Blackpool and Fylde’s loss was the chance of being the successful tenderer
and it was awarded damages to compensate it for the loss of that chance. Assessment of damages
for loss of a chance is not without its difficulties and complexities.66

63. R v Ron Engineering & Construction (Eastern) Ltd [1981] 1 SCR 111 at 121; 119 DLR (3d) 267 at 273;
Ipex ITG Pty Ltd (in liq) v State of Victoria [2010] VSC 480 at [42] (an appeal in this case was dismissed: Ipex ITG
Pty Ltd (in liq) (recs apptd) v State of Victoria [2012] VSCA 201).
64. [1990] 3 All ER 25.
65. Blackpool & Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER 25 at 30–1. See also Dockpride Pty Ltd
v Subiaco Redevelopment Authority [2005] WASC 211 at [135]–[140].
66. See 29.40–29.45.

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4.38 The emergence of process contracts has led to many invitations to tender by governments
including clauses that are designed to exclude the possibility of there being a process contract.
For example, in State Transit Authority of New South Wales v Australian Jockey Club,67 the
invitation to tender stated that ‘the tenderer acknowledges and agrees that no legal rights or
obligations will be deemed to have arisen between the vendor and the tenderer until a tender
is, if at all, accepted’. However, it is also clear that such clauses are strictly construed and may
be held to be ineffective.68
4.39 Finally, although many of the cases involving process contracts have involved invitations
to tender by governments or government instrumentalities, the relevant principles also apply in
the context of invitations to tender from private sector entities.69 However, attempts to extend
these principles to an advertisement regarding a teaching position at a university failed in
Roback v University of British Columbia.70 In that case Koenigsberg J71 said:
The contents of [the] advertisement fall well short of the specificity and detail characteristic
of tender calls and reflect the lack of intent to initiate contractual relations and basis
upon which the advertisement can be construed as an offer capable of acceptance by the
submission of a resume. Further, unlike bidders responding to a tender call, applicants for
the position were not required to expend considerable time or resources to be considered for
the position, but were requested merely to submit a curriculum vitae and three references.

Standing offers
4.40 A standing offer arises when one person states his or her willingness to provide certain
goods or services to another over a specified time period. For example, X may agree to provide
Y all its stationery needs for a period of 12 months based on a particular price list for individual
items. In such a case, X makes an offer. An acceptance occurs each time an order for stationery
is made, thereby creating individual contracts each time an order is made. However, there is
no obligation on Y to make any orders at all. It is also free to purchase stationery from other
suppliers.72

The range of offerees

4.41 An offeror can restrict the offer to a single person or to a range of persons. Thus, the
offer can be extended to:
• a specified person;
• specified persons;
• a class of persons defined by some description; or
• the world at large.

67. [2003] NSWSC 726.

68. Cubic Transportation Systems v State of New South Wales [2002] NSWSC 656.
69. J & A Developments v Edina Manufacturer Ltd [2006] NIQB 85 at [49].
70. (2007) 277 DLR (4th) 601.
71. Roback v University of British Columbia (2007) 277 DLR (4th) 601 at 611.
72. Colonial Ammunition Co v Reid (1900) 21 LR (NSW) 338 at 345–8.

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4.42 Only persons who are offerees are entitled to accept the offer.73 Thus, in the context of
a sale on eBay, an item that is listed for sale is regarded as an offer. The offerees are persons
who are registered as users of eBay and only they can accept the offer. The placement by a
registered user of the highest bid within the time limit stipulated in the offer is the acceptance
of the offer.74
4.43 The issue of offers to the world at large arose on the facts of Carlill v Carbolic Smoke Ball
Co,75 when the Carbolic Smoke Ball Co argued that the offer of the reward could not be made
to the world at large. In rejecting this argument, Bowen LJ76 pointed out that, although the offer
was open to be accepted by anybody, contracts only arose with those persons who actually
performed the conditions of the offer.

Termination of offers
4.44 An offer, once made, does not last forever. An offer can come to an end in a variety of
ways.

Lapse of time
4.45 An offer stated to be open for a set time lapses if not accepted within that time. If the
offer does not stipulate a set time for acceptance, it lapses after the expiration of a reasonable
time.77 What constitutes a reasonable time depends on the facts and circumstances of the case.
In Ballas v Theophilos (No 2),78 the High Court noted that consideration of the terms of the
offer is relevant in determining what is a reasonable time.
4.46 In cases of the lapse of an offer after the expiration of a reasonable time, the question
arises as to whether the conduct of the offeree is a relevant circumstance to be considered. The
answer to this question depends upon determining the proper basis of the rule. In Manchester
Diocesan Council for Education v Commercial & General Investments Ltd,79 Buckley J discussed
the matter as follows:
There appear to me to be two possible views on methods of approaching the problem. First,
it may be said that by implication the offer is made on terms that, if it is not accepted within
a reasonable time, it must be treated as withdrawn. Alternatively, it may be said that, if the
offeree does not accept the offer within a reasonable time, he must be treated as having
refused it. On either view the offer would cease to be a live one on the expiration of what in the
circumstances of the particular case should be regarded as a reasonable time for acceptance.
The first of these alternatives involves implying a term that if the offer is not accepted within
a reasonable time, it shall be treated as withdrawn or lapsing at the end of that period if it has
not then been accepted; the second is based on an inference to be drawn from the conduct
of the offeree, that is, that having failed to accept the offer within a reasonable time he has
manifested an intention to refuse it. If, in the first alternative, the time which the offeror is

73. T W Hedley (Investments) Pty Ltd v Richardson Plant Hire Pty Ltd [2005] QSC 99 at [13].
74. Smythe v Thomas (2007) 71 NSWLR 537.
75. [1893] 1 QB 256.
76. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 268.
77. Empirnall Holdings Pty Ltd v Machon Paul Partners Pty Ltd (1988) 14 NSWLR 523 at 534.
78. (1957) 98 CLR 193 at 197, 199.
79. [1969] 3 All ER 1593 at 1599–600.

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to be treated as having set for acceptance is to be such a time as is reasonable at the date of
the offer, what is reasonable must depend on circumstances then existing and reasonably
likely to arise during the continuance of the offer; … The second alternative on the other
hand involves simply an objective assessment of facts and the determination of the question
whether on the facts the offeree should in fairness to both parties be regarded as having
refused the offer. … I am strongly disposed to prefer the second alternative to the first. …
[I]f the first alternative were the correct view of the law and if what is reasonable had to
be ascertained as at the time of the offer, the subsequent conduct of the parties would be
irrelevant to the question how long the offer should be treated as remaining open. In my
opinion, however, the subsequent conduct of the parties is relevant to the question, which
I think is the right test, whether the offeree should be held to have refused the offer by his
conduct.

Rejection
4.47 An offer once rejected is terminated and cannot be subsequently accepted. A counter-
offer is an implied rejection of an offer. Thus, in Hyde v Wrench,80 Wrench offered to sell land
to Hyde for £1000. Hyde responded by offering to buy the property for £950. Wrench refused
to accept the counter-offer, whereupon Hyde purported to accept Wrench’s original offer to sell
for £1000. The court held that no contract arose because the original offer came to an end once
the counter-offer had been made. Thus, there was no offer for Hyde to accept.
4.48 However, care must be taken not to confuse a response that is a counter-offer with one
that is merely a request for further information or clarification of the terms of the offer. Such
a request or clarification does not terminate the offer which remains open to be subsequently
accepted. In Powierza v Daley,81 Cooke J observed that ‘the line between rejecting an offer
and merely inquiring as to a possible variation is a fine one, but the basic test is the effect on a
reasonable person standing in the shoes of the offeror’.
4.49 In Stevenson Jacques & Co v McLean,82 McLean offered to sell goods to Stevenson Jacques
at a set price to be paid in cash on delivery. Stevenson Jacques responded by seeking credit
terms. McLean treated this as a rejection of the offer and sold the goods to somebody else.
However, Stevenson Jacques subsequently accepted the offer before it was formally withdrawn,
and claimed that there was a contract.83 Stevenson Jacques sued McLean for damages for non-
delivery of the goods. In ruling in favour of Stevenson Jacques, Lush J84 said:
[T]he form of the telegram is one of inquiry. It is not … [like] Hyde v Wrench85 … where …
the negotiation was at an end by the refusal of the [offeree’s] counter proposal. Here there
is no counter proposal … There is nothing specific by way of offer or rejection, but a mere
inquiry, which should have been answered and not treated as a rejection of the offer.

80. (1840) 49 ER 132.

81. [1985] 1 NZLR 588 at 561.
82. (1880) 5 QBD 346.
83. See also 4.97.
84. Stevenson Jacques & Co v McLean (1880) 5 QBD 346 at 350.
85. (1840) 49 ER 132.

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Revocation
4.50 Except in cases where an option has been granted, an offer can be revoked by the offeror
at any time before it is accepted.86 This is so even if the offeror has promised that the offer is to
remain open for a specified period of time. In such a case the promise to keep the offer open is
unenforceable because the offeree has not given consideration for it.87 However, if consideration
is given for the promise to keep the offer open, an option is created. It should be noted that,
even if the promise to keep the offer open for a set time is not supported by consideration from
the offeree, it may be that relief is available to the offeree based upon principles of equitable
estoppel.
4.51 An option is a contract by which the option holder is entitled to enter into a contract
with the grantor of the option, either on a specified date or at any time during the option
period, by exercising the option in accordance with its terms. The effect of an option is to
grant to the option holder a period of time in which to decide whether he or she wants to
proceed with the purchase of the property that is the subject of the option. In relation to the
exercise of the option, the intention to exercise the option must be clearly and unequivocally
communicated.88 However, the option holder is not bound to exercise the option. If an option
is not exercised during the specified period, it lapses.89
4.52 In Goldsborough Mort & Co Ltd v Quinn,90 the High Court was divided as to the precise
nature of the option in that case. Griffith CJ91 and O’Connor J92 took the view that the option
was a conditional contract to purchase the property that was the subject of the option. Isaacs J93
viewed the option as an irrevocable offer. The issue of whether an option is classified as an
irrevocable offer or a conditional contract has been described as ‘an “academic riddle’’ that …
over 100 years of judicial analysis has not seemingly resolved’.94 However, the notion that an
option constitutes an irrevocable offer has been criticised as illogical. In Varty v British South
Africa Co,95 Diplock LJ said:

86. Routledge v Grant (1828) 130 ER 920 at 924; Goldsborough, Mort & Co Ltd v Quinn (1910) 10 CLR 674
at 678.
87. Dickinson v Dodds (1876) 2 Ch D 463 at 472; Goldsborough, Mort & Co Ltd v Quinn (1910) 10 CLR 674
at 678.
88. Ballas v Theophilos (No 2) (1957) 98 CLR 193 at 205; Prudential Assurance Co Ltd v Health Minders Pty Ltd
(1987) 9 NSWLR 673 at 677, 681, 683.
89. Sekisui Rib Loc Pty Ltd v Rocla Pty Ltd (2012) 291 ALR 140 at 160.
90. (1910) 10 CLR 674.
91. Goldsborough, Mort & Co Ltd v Quinn (1910) 10 CLR 674 at 678.
92. Goldsborough, Mort & Co Ltd v Quinn (1910) 10 CLR 674 at 685. See also Laybutt v Amoco Australia Pty
Ltd (1974) CLR 57 at 75–6; 4 ALR 482 at 497–8; Traywinds Pty Ltd v Cooper [1989] 1 Qd R 222 at 226;
Elsafty Enterprises Pty Ltd v Mermaids Cafe & Bar Pty Ltd [2007] QSC 394 at [52].
93. Goldsborough, Mort & Co Ltd v Quinn (1910) 10 CLR 674 at 696–7. See also Gerraty v McGavin (1914) 18
CLR 152 at 163; Mackay v Wilson (1947) 47 SR (NSW) 315 at 325; Gilbert J McCaul (Aust) Pty Ltd v Pitt
Club Ltd (1957) 59 SR (NSW) 122 at 123; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue
(NT) (2009) 239 CLR 27 at 33; 260 ALR 1 at 5; Agtan Pty Ltd v Caltex Australia Petroleum Pty Ltd [2018]
VSCA 169 at [126].
94. Tripple A Pty Ltd v WIN Television Qld Pty Ltd [2018] QCA 246 at [37].
95. [1965] Ch 508 at 523; [1964] 2 All ER 975 at 982.

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To speak of an enforceable option as an ‘irrevocable offer’ is juristically a contradiction in

terms, for the adjective ‘irrevocable’ connotes the existence of an obligation on the part of
the offeror, while the noun ‘offer’ connotes the absence of any obligation until the offer has
been accepted.

4.53 In any given case, whether the option is a conditional contract or an irrevocable offer will
depend upon the relevant facts and circumstances.96 If the option is construed as a conditional
contract, the contract for the purchase of the land becomes unconditional as a consequence
of exercising the option. This means that the date of the contract for the purchase of the land
is the date that the option was granted. However, if the option is construed as an irrevocable
offer, a contract for the purchase of the land comes into existence on the date that the option
was exercised.
4.54 In relation to situations not involving options or equitable estoppel, the revocation of an
offer must be communicated to the offeree97 or to an agent authorised by the offeree to receive
such a communication.98 The communication must clearly indicate that the offer is withdrawn.99
As is discussed below,100 in some circumstances a letter or telegram that is used to accept an
offer is effective to accept that offer when posted or sent, rather than when communication of
acceptance takes place. This is the famous postal acceptance rule. With revocation of an offer
there is no postal rule. If a letter or telegram is used to revoke an offer, it must be received by
the offeree before revocation is effective.
4.55 In Byrne v Van Tienhoven101 the offeror argued that his revocation was effective at the
time it was posted to the offeree. In rejecting this argument, Lindley J102 said:
If the [offeror’s] contention were to prevail no person who had received an offer by post and
had accepted it would know his position until he had waited such a time as to be quite sure
that a letter withdrawing the offer had not been posted before his acceptance of it. It appears
to me that both legal principle, and practical convenience require that a person who has
accepted an offer not known to him to have been revoked, shall be in a position safely to act
upon the footing that the offer and acceptance constitute a contract binding on both parties.

In this case, in circumstances where the postal acceptance rule applied, the offeree had posted
his acceptance of the offer after the offeror posted his letter withdrawing the offer, but before
the offeree had received the letter withdrawing the offer. The offer was one to sell goods. The
offeree, assuming he had a contract, re-sold the goods to a third party. The offeror claimed
that there was no contract. The offeree sued the offeror for damages for non-delivery of goods.
The offeree’s case depended on there being a contract with the offeror. The court held that
there was a contract because the letter withdrawing the offer, even though posted before the

96. Hughes v St Barbara Ltd [2011] WASCA 234 at [84]; Norton Property Group Pty Ltd v Ozzy States Pty Ltd
(in liq) [2020] NSWCA 23 at [70]–[73].
97. Financings Ltd v Stimson [1962] 3 All ER 386; CF Asset Finance Ltd v Okonji [2014] EWCA Civ 870 at [17].
98. IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205 at [2].
99. IVI Pty Ltd v Baycrown Pty Ltd [2005] QCA 205 at [26]; Realm Resources Ltd v Aurora Place Investments Pty
Ltd [2019] NSWSC 379 at [100].
100. See 4.89–4.97.
101. (1880) 5 CPD 344.
102. Byrne v Van Tienhoven (1880) 5 CPD 344 at 348.

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letter of acceptance was posted, was ineffective to withdraw the offer. This was because the
letter withdrawing the offer had not been received by the offeree before he posted his letter of
acceptance.
4.56 Although communication of revocation is required, it need not be communicated by
the offeror. It does not matter who communicates the revocation to the offeree, so long as the
information given to the offeree is reliable.103 In Dickinson v Dodds,104 Dodds made an offer
to sell land to Dickinson, but before Dickinson accepted the offer, Dodds sold the property to
Allan. Dodds did not advise Dickinson of the sale, but Dickinson was made aware of the sale
to Allan by Berry, who was Dickinson’s agent. Dickinson subsequently purported to accept
Dodds’ offer. The Court of Appeal rejected this claim, stating that Dickinson knew that the
offer had been revoked because he knew of the sale to Allan. Therefore, as Dodds’ offer had
been revoked before Dickinson’s acceptance of it, there was no contract between the parties. If
the situation had been that Dickinson had not known of Dodds’ sale to Allan, then Dickinson’s
acceptance would have been valid and Dodds would have been liable to Dickinson for damages
for breach of contract.105 To avoid liability in circumstances where a vendor makes offers to sell
to a number of offerees, the offeror should make it clear that it is open for acceptance only by
the first person to notify the offeror of his or her acceptance.
4.57 Treitel106 criticises the decision in Dickinson v Dodds107 on the basis that ‘[i]t puts on
the offeree the possibly difficult task of deciding whether his source of information is reliable’
and suggests that ‘[c]ertainty would be promoted if the rule were that the withdrawal must be
communicated by the offeror, as well as to the offeree’.
4.58 A critical issue for the communication rule is to establish exactly when communication
occurs. In cases of two-way instantaneous communications, such as face-to-face and telephone
communications, it takes place when the offeror speaks to the offeree. However, if the offeror’s
words are drowned out by aircraft noise, or spoken into a telephone after a line has gone dead,
or become so indistinct that the offeree does not hear them, there is no communication.108
Where communication is by means of sending a message to the offeree, communication occurs
when, in all the circumstances of the case, a reasonable offeree would have accessed the message
received.
4.59 The conduct of the offeree could displace the rule requiring actual notification. Thus, a
letter delivered to the last known address of the offeree could be seen as communication if the
offeree had moved from that address without notifying the offeror of his or her new address.
Similarly, the conduct of the offeror could displace the rule. For example, if an offeror uses
more than one telephone number to communicate with an offeree, it would be difficult to argue
that the offeree failed to accept the offer by leaving a message on the ‘wrong’ number.
4.60 With electronic communications, notification via email is regulated by legislation that
is common to all Australian jurisdictions. Thus, if the offeree has specified an email address,

103. Dickinson v Dodds (1876) 2 Ch D 463.

104. (1876) 2 Ch D 463.
105. Patterson v Dolman [1908] VLR 354.
106. E Peel, Treitel: The Law of Contract, 14th ed, Sweet & Maxwell, London, 2015, p 47.
107. (1876) 2 Ch D 463.
108. Entores v Miles Far East Corporation [1955] QB 327 at 332; [1955] 2 All ER 493 at 495.

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communication occurs when the offeror’s email enters the offeree’s information system.109
However, if the offeree has not indicated that he or she has an email address, communication
occurs when the email message actually comes to his or her attention.110
4.61 A particular problem with the revocation of offer rule is with offers to the world at large,
such as offers of a reward. How does one communicate revocation of the offer when one does
not know exactly who has seen the offer? The decision in Shuey v United States111 provides the
answer. In that case, America’s Secretary of State issued a reward offer of $25,000 in relation to
the capture of John H Surratt, one of the alleged accomplices in the assassination of President
Abraham Lincoln. The offer was subsequently revoked by publication of a notice to that effect.
Subsequently, and in ignorance of the revocation of the offer, Henri Beaumont de Sainte Marie
provided relevant information to the American government and claimed the reward.112 He was
unsuccessful because the offer of reward had been revoked before he had performed any act
in acceptance of it. The principle that emerges from the decision of the Supreme Court of the
United States in this case is that, if the publication of the revocation notice is as broad and given
the same notoriety as the offer, the offer will be regarded as effectively withdrawn. This is so,
even if a person who was aware of the offer did not actually know of the notice withdrawing
the offer.
4.62 A further problem in relation to offers to the world at large arises in circumstances where
a person has started to perform the terms of the offer, but has not fully completed performance
of them when the offeror revokes the offer. The law on this point appears to be as set out in
the Full Court of the Federal Court decision in Mobil Oil Australia Ltd v Lyndel Nominees Pty
Ltd.113 Prior to this case, it was widely thought that the offeror could not revoke the offer once
the offeree had, to the knowledge of the offeror, started performance of its terms, and that the
offeree would have a reasonable time to complete performance of the terms of the offer and

109. Electronic Transactions Act 1999 (Cth) s 14(3); Electronic Transactions Act 2001 (ACT) s 13(3); Electronic
Transactions Act 2000 (NSW) s 13(3); Electronic Transactions Act 2000 (NT) s 11(3); Electronic Transactions
Act 2001 (Qld) s 24(1); Electronic Transactions Act 2000 (SA) s 13(3); Electronic Transactions Act 2000 (Tas)
s 11(3); Electronic Transactions Act 2000 (Vic) s 13(3); Electronic Transactions Act 2003 (WA) s 13(3).
110. Electronic Transactions Act 1999 (Cth) s 14(4); Electronic Transactions Act 2001 (ACT) s 13(4); Electronic
Transactions Act 2000 (NSW) s 13(4); Electronic Transactions Act 2000 (NT) s 11(4); Electronic Transactions
Act 2001 (Qld) s 24(2); Electronic Transactions Act 2000 (SA) s 13(4); Electronic Transactions Act 2000
(Tas) s 11(4); Electronic Transactions Act 2000 (Vic) s 13(4); Electronic Transactions Act 2003 (WA) s 13(4).
111. 92 US 73 (1875), discussed in M A Eisenberg, ‘The Revocation of Offers’ [2004] Wisconsin Law Review 271
at 300–5.
112. After fleeing the United States, Surratt was arrested in Rome and subsequently tried, but not convicted, on
charges of involvement in the assassination. Prior to his trial his mother, Mary Elizabeth Surratt, was tried,
convicted, and executed by hanging on charges of being part of the conspiracy to assassinate Lincoln. She
was the first woman executed by the United States federal government. Her trial is the subject of the film,
The Conspirator (2011). For an account of the trials of Mary and John Surratt, see Arthur T Downey, Civil
War Lawyers: Constitutional Questions, Courtroom Dramas, and the Men Behind Them, ABA Publishing,
Chicago, 2010, pp 117–19, 259–75.
113. (1998) 81 FCR 475; 153 ALR 198.

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thereby accept the offer.114 Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd115 rejects such an
absolute rule. The Full Court116 in that case said:
In the circumstances of a particular case, it may be appropriate to find that the offeror has
entered into an implied ancillary contract not to revoke, or that the offeror is estopped from
falsifying an assumption, engendered by it, that the offeree will not be deprived of the chance
of completing the act of acceptance.

4.63 However, this would not always be the case. In some cases, an offeror could legitimately
withdraw the offer even though the offeree has started, but not yet completed, performance
of the terms of the offer. In particular, this could be so where what the offeree has done is of
benefit to the offeree itself. In Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd,117 it was alleged
that Mobil Oil had made an offer of various benefits to its franchisee if the franchisee reached
certain levels of sales over a certain period of time. Before that time period had elapsed, the
alleged offer was withdrawn. Although the Full Court ruled that there was no such offer, it
nevertheless dealt with withdrawal of offers in such circumstances. The withdrawal was valid
because the increased level of sales achieved by the franchisee in performing the terms of the
offer was of benefit to the franchisee, and it was therefore not unjust for Mobil Oil to revoke
the offer. Furthermore, the court said that, if there was an implied condition in the offer not to
revoke the offer, the offeror could still, nevertheless, revoke the offer. However, in such a case
the offeree would have an action for damages for breach of the implied contract.118 Similarly,
if the facts of a case precluded the offeror from revoking the offer on the basis of principles of
equitable estoppel, a revocation of the offer would be effective, although the offeree would be
able to seek equitable relief based upon the estoppel.

Failure of a condition
4.64 An offer may be made subject to an express or implied condition that a certain state
of affairs remains unchanged until acceptance. If the state of affairs changes, the offer lapses
and cannot thereafter be accepted. For example, in Financings Ltd v Stimson,119 an offer to
purchase a car from its owner lapsed and could not be accepted by the owner after the car was
significantly damaged and its value substantially depreciated.
4.65 In cases where the offer expressly indicates a particular state of affairs, the offer lapses
once that state of affairs ceases to exist. In cases where no express statement of the relevant state
of affairs is set out in the offer, there may be an implication that a certain state of affairs remains
unchanged. In such cases, the critical question is the level of importance of the change in the

114. Errington v Errington & Woods [1952] 1 KB 290 at 295; [1952] 1 All ER 149 at 153; Daulia Ltd v Four
Millbank Nominees Ltd [1978] Ch 231 at 239; [1978] 2 All ER 557 at 561; Vievers v Cordingley [1989] 2 Qd
R 278 at 298; Soulsbury v Soulsbury [2008] 2 WLR 834 at 852.
115. (1998) 81 FCR 475; 153 ALR 198.
116. Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 81 FCR 475 at 506; 153 ALR 198 at 228.
117. (1998) 81 FCR 475; 153 ALR 198. For an account of the trials of Mary and John Surratt, see A T Downey,
The Civil War Lawyers: Constitutional Questions, Courtroom Dramas, and the Men Behind Them, American
Bar Association, Chicago, 2010, pp 117–19, 259–75.
118. See D Davison-Vecchione, ‘Louder than Words: Acceptance by Conduct of Unilateral Offers’ (2014)
Nottingham Law Journal 20 at 22–4.
119. [1962] 3 All ER 386.

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state of affairs before a lapsing condition can be implied. On this question, in Dysart Timbers
Ltd v Nielsen,120 Tipping and Wilson JJ said:
[A] condition that an offer lapse upon the occurrence of a particular change of circumstances
should be implied into the offer only if it is objectively apparent that the willingness of
the offeror to be bound by the offer has been fundamentally undermined by the change
of circumstances. … [T]he condition which is implied is that the offer will lapse upon the
occurrence of a fundamental change of circumstances. … [L]apse [of an offer] on this basis
will be a relatively rare occurrence. This is an appropriate way to reconcile the interests of
offerors and offerees and to avoid the considerable uncertainty that would result from the
test being at a lower level. An offeree cannot reasonably expect to be able to accept an offer
if the basis on which it was made has fundamentally changed. Conversely an offeror must
ordinarily be expected to provide expressly for the circumstances in which the offer will
lapse. The need for there to be a fundamental change in circumstances before an offer will
lapse gives appropriate weight to the interests of both offerors and offerees.

Elias CJ and Blanchard J121 agreed with this analysis and added the following observation:
[B]ecause it [is] possible for the offeror to specify the events in which the offer would lapse
and, normally, to revoke the offer at any time without having to give a reason, in determining
what must be taken to be, or amount to, a fundamental change the Court should give less
weight to the occurrence of any event which an offeror must have had in contemplation
when making the offer, and about which the offeror chose to be silent. That silence when the
offer was made, or when it could have been revoked, may indicate that the offeror did not
regard such a matter as fundamental to the continuance of the offer.

4.66 Furthermore, in cases in which there is no express statement of such relevant

circumstances, it may be that the objective meaning of the offer leads to the conclusion that the
offer is open only for a very limited period of time and lapses if not accepted within that period.
Thus, in Bartolo v Hancock,122 an offer to settle a dispute before the hearing of it commenced
lapsed once the hearing commenced and could not be accepted by the offeree five days after
the hearing had commenced. The court ruled that the principle set out in Dysart Timbers Ltd
v Nielsen123 was not relevant because the circumstances were such that the reasonable meaning
of the offer, when made, was that it was to be accepted before the hearing commenced or else
it would lapse.
4.67 In order to avoid doubt in situations of possible changes in circumstances after the offer
has been made, an offeror should give careful consideration as to the circumstances that would
lead to a lapse of the offer and clearly stipulate that the offer will lapse if such circumstances
subsequently arise. This will avoid the issues of whether there is an implication that an offer
will lapse if circumstances change, and whether the changed circumstances are sufficiently
fundamental to lead to the conclusion that the offer has lapsed as a result.

120. [2009] 3 NZLR 160 at 168–9.

121. Dysart Timbers Ltd v Nielsen [2009] 3 NZLR 160 at 164. For a detailed analysis of this case, see
D McLauchlan and R Bigwood, ‘Lapse of Offers Due to Changed Circumstances: A Contract Conversation’
(2011) 27 Journal of Contract Law 222; C Hare, ‘Changed Circumstances and Lapsing Offers’ [2010] Lloyd’s
Maritime and Commercial Law Quarterly 379.
122. [2010] SASC 305 at [12]–[17].
123. [2009] 3 NZLR 160.
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Death of offeror or offeree

4.68 The death of the offeror before the acceptance of the offer will result in the lapse of
the offer if the offeree is aware of the death.124 Whether an offer will lapse in circumstances
where the offeree does not know of the offeror’s death will ‘depend upon the type of contract
involved and the intention of the offeror assessed objectively’.125 Thus, if the offer related to
the performance of personal services, the death of the offeror would presumably terminate
the offer. However, if the contract could be performed by the deceased offeror’s legal personal
representative, it may be that the offer can be accepted notwithstanding the offeror’s death. An
example of such a case would be an offer to sell land.
4.69 Generally, the death of the offeree terminates the offer.126 However, intention and
circumstances could lead to a different result. Thus, an offer to sell property could, in some
cases, be accepted by the deceased offeree’s legal personal representative.

THE ACCEPTANCE
4.70 If an offer has been made and it has not been terminated, an agreement will come into
being if the offer is accepted. Acceptances are usually expressed in some way, but on occasion
can be implied.127 An acceptance brings about consensus ad idem (a meeting of the minds).128
The relevant rules relating to acceptances are set out below.

Acceptance must be unequivocal

4.71 An acceptance has to be ‘a final and unqualified expression of assent to the terms of the
offer’.129 This requirement means that, by accepting an offer, it is clearly understood that there
is nothing left to be negotiated by the parties.

Acceptance must be in reliance upon the offer

4.72 For an offer to be accepted, the offeree’s acceptance must have been in reliance on, and
in response to, the offer.130 This means that the offeree must have had knowledge of the offer.131
Knowledge of the offer gives rise to a presumption that an acceptance of the offer was in reliance
upon the offer. However, this presumption can be rebutted by evidence to the contrary.132

124. Fong v Cilli (1968) 11 FLR 495 at 498.

125. Smith v Woods [2014] VSC 646 at [20].
126. Reynolds v Atherton (1921) 125 LT 690 at 695.
127. King Tide Co Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251 at [19].
128. Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] AC 854 at 915; [1983] 1 All ER 34
at 48–9; Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 225; 79 ALR 9 at 28–9.
129. Day Morris Associates v Voyce [2003] EWCA Civ 189 at [35]. See also Kriketos v Livschitz [2009] NSWCA
96 at [110]; Lui v Guan [2019] NSWSC 803 at [239]; Holt v Bunney [2020] SASCFC 89 at [147].
130. R v Clarke (1927) 40 CLR 227 at 231.
131. R v Clarke (1927) 40 CLR 227 at 241; Personnel Concepts WA Pty Ltd v Adam [2019] NSWSC 301 at [82].
132. R v Clarke (1927) 40 CLR 227 at 244.

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4.73 In R v Clarke, the Crown offered a reward for information leading to the arrest and
133

conviction of the murderers of two police officers. Clarke, who knew of the reward offer, came
forward with information that led to arrests and convictions, thereby satisfying the conditions
of the reward. However, on his own admission, Clarke gave the information solely for the
purpose of clearing himself after he had been arrested and charged with being one of the
murderers. The High Court ruled that Clarke’s admission rebutted the prima facie proposition
that he had acted in reliance on the offer when giving the information. Therefore, there being
no acceptance, Clarke was not entitled to claim the reward.
4.74 Mitchell and Phillips134 suggest that the principle in R v Clarke135 creates a ‘very weak
conception of reliance’, with the consequence that the inference referred to by Starke J will only
be rebutted ‘where the claimant has denied that he relied on the offer, or, perhaps, admits that
he was totally indifferent to the offer’. They suggest such cases ‘are likely to be rare’.

Acceptance must correspond with the offer

4.75 An acceptance must correspond exactly with the terms of the offer. Any response to an
offer that adds additional terms or alters existing terms set out in the offer is not an acceptance.
As previously noted,136 such a response is a counter-offer and has the effect of rejecting, rather
than accepting, the offer.
4.76 However, in analysing responses to offers that may be counter-offers one needs to be
careful because it may be that the response is not, and does not have the effect of, a counter-offer.
First, it may be that the response to the offer is an acceptance with additional terms included,
not by way of counter-offer, but rather as an acceptance of the offer with the additional terms
to be accepted by the offeror if he or she so wishes, but without affecting the acceptance of the
offer in its original form. Thus, in Dunlop v Higgins,137 the offeree, in response to an offer to sell
him goods, accepted the offer with a request that they be delivered on a particular date. This was
held to be a valid acceptance because it was clear that the acceptance was not conditional upon
the offeror agreeing to deliver the goods on that date. Second, there may be a valid acceptance
if the deviation from the terms of the offer is solely in favour of the offeror.138 Third, a response
to an offer that does not ‘introduce any new terms, but only such terms as would reasonably
follow consequentially on the agreement’ is not a rejection of the offer.139
4.77 Finally, an acceptance that does not coincide exactly with the terms of the offer due to
some error or misdescription by the offeree when the acceptance is made, does not necessarily
mean that there has not been a valid acceptance. Whether there has been an acceptance in

133. (1927) 40 CLR 227; Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd (No 6) [2020]
WASC 302 at [237].
134. P Mitchell and J Phillips, ‘The Contractual Nexus: Is Reliance Essential?’ (2002) 22 Oxford Journal of Legal
Studies 115 at 123.
135. (1927) 40 CLR 227.
136. See 4.47.
137. (1848) 1 HLC 381; 9 ER 805.
138. Boreland v Docker [2007] NSWCA 94 at [28], [76]–[78].
139. Turner Kempson & Co Pty Ltd v Camm [1922] VLR 498 at 502; Lark v Outhwaite [1991] Lloyd’s Rep 132
at 139; Brookfield Australia Investments Ltd v Lucas Stuart Pty Ltd [2012] NSWSC 1130 at [32]–[35].
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such cases is not always an easy matter to determine.140 In Carter v Hyde,141 Carter offered
to sell a hotel business to Hyde, which included furniture, the offer stipulating the furniture
being that which was in the hotel at the date of the offer. Hyde’s later acceptance of the offer,
after referring to the date of the offer, expressly referred to the furniture as being that which
was in the hotel at the date of acceptance. Carter argued that this amounted to a counter-
offer that he was not prepared to accept. The High Court disagreed and held that there was a
valid acceptance, on the ground that the statement of the date of acceptance in relation to the
furniture was simply an error. It could not preclude a reasonable person concluding that the
acceptance was anything other than a full and unconditional acceptance of the terms of the
offer as stated on the date it was made. On the other hand, in Redowood Pty Ltd v Mongoose
Pty Ltd,142 Redowood, on becoming the owner of 55 million renounceable rights in a publicly
listed company, received an offer from Mongoose to purchase the rights. The offer required
Redowood to insert the relevant Security Holder Reference Number (SRN) on the acceptance
form in a space designated for the SRN. In its acceptance of the offer, Redowood inserted an
SRN which was in fact the SRN in relation to other rights in the publicly listed company that
Mongoose had previously acquired from Redowood. In fact, no SRN had yet been issued in
relation to the rights that were the subject matter of Mongoose’s offer. The Court of Appeal, in a
majority decision, concluded that, in the circumstances of the case, the insertion of an incorrect
SRN in the acceptance form rendered it ineffective, with the consequence that no contract
arose between the parties.

Acceptance can be express or implied

4.78 Most acceptances are by means of some express statement made by the offeree to the
offeror. Thus, silence in response to an offer will generally be treated as an acceptance.143 This is
so because silence is ordinarily equivocal.144 This general principle is subject to two exceptions.
The first is where a case based upon the principles of equitable estoppel145 can be raised against
the offeree. The second qualification arises where the conduct of the offeree amounts to an
implication that he or she has accepted the offer.

Contract formation by conduct

4.79 Where offer and acceptance analysis is inappropriate to determine the question of the
existence of a contract, it may be possible to infer the existence of a contract and its terms based
on the conduct of the parties,146 although such cases will be rare.147 In such cases, the character
and circumstances of the conduct must indicate unambiguously that there is an intention to

140. Quadling v Robinson (1976) 137 CLR 192 at 201; 10 ALR 319 at 326.
141. (1923) 33 CLR 115.
142. [2005] NSWCA 32.
143. Felthouse v Bindley (1862) 142 ER 1037; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988)
14 NSWLR 523 at 534–5.
144. Day Ashley Francis v Yeo Chin Huat Anthony [2020] SGHC 93 at [116].
145. See Chapter 36.
146. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. See also The Bell Group Ltd
(in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1 at 314; Westgyp Pty Ltd v Northline Ceilings Pty Ltd
(No 2) [2019] WASCA 145 at [138].
147. P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 at [11]; Woolcorp Pty Ltd v Rodger
Constructions Pty Ltd [2017] VSCA 21 at [9].

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contract. It must also point to the existence of the contract on the terms alleged.149 It is not
148

sufficient that the conduct is merely consistent with the alleged contract — there needs to be a
positive indication that the conduct is evidence of the alleged contract.150 In any litigation on
the issue of whether there is a contract by conduct, evidence of post-contractual conduct is
admissible.151 If conduct leads to the conclusion that a contact exists, the date of the conduct
identifies the date of the contract.152
4.80 One situation where conduct can give rise to a contract is where there has been an offer
and conduct by the offeree that is consistent with the offer, but where there has been no actual
acceptance of the offer. However, as was pointed out by the Supreme Court in RTS Flexible
Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Productions),153 although the performance
of work that is consistent with the offer will be a ‘very relevant factor pointing’ to a contract, that will
not always be the case — it will always depend upon the facts and circumstances of the case.
4.81 In Brogden v Metropolitan Railway Co,154 Brogden & Co had been supplying coal to the
Metropolitan Railway Company on a casual basis. The parties met and drew up a draft agreement
that provided for supply of coal at a price of £1 per ton for 12 months from 1 January 1872 and
a further 12 months if two months’ notice of termination was not given prior to the expiry
date. The price that had been charged prior to 1 January 1872 had been less than £1 per ton.
However, the market price was rising at the time and was expected to continue to rise. The aim
of the proposed agreement was to fix the price for the next year or two. The railway company
prepared the draft and submitted it to Brogden & Co for approval. After the blanks were filled
in and one alteration was made, it was signed and sent to the railway company. The railway
company put the document into a drawer. On the following day it wrote back to Brogden & Co
stating: ‘We shall require 250 tons per week commencing not later than the 1st of January
next.’ Over the next two years, the parties acted in accordance with the draft and referred to
it in correspondence passing between them. Then a dispute arose concerning the supply of
coal. Brogden & Co denied there was a binding contract, but the House of Lords ruled that
there was a contract inferred by conduct. Lord Blackburn,155 after noting that whether there
was a contract was a question of fact with the onus of proof being with the party asserting the
existence of a contract, said:

148. Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216 at 237; Red Hill Iron Ltd v API Management Pty Ltd
[2012] WASC 323 at [320]; P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 at [11];
Apple and Pear Australia Ltd v Pink Lady America LLC (2016) 343 ALR 112 at 175–6; King Tide Co Pty Ltd
v Arawak Holdings Pty Ltd [2017] QCA 251 at [21].
149. Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 at [5]–[9]; CSR Ltd v Adecco (Australia) Pty Ltd
[2017] NSWCA 121 at [93].
150. Industrial Rollformers Pty Ltd v Ingersoll-Rand Australia Ltd [2001] NSWCA 111 at [142]; Kriketos
v Livschitz [2009] NSWCA 96 at [117]–[120]; P’Auer AG v Polybuild Technologies International Pty Ltd
[2015] VSCA 42 at [11]; Woolcorp Pty Ltd v Rodger Constructions Pty Ltd [2017] VSCA 21 at [9]; King Tide
Co Pty Ltd v Arawak Holdings Pty Ltd [2017] QCA 251 at [19]–[21].
151. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163; Woolcorp Pty Ltd v Rodger
Constructions Pty Ltd [2017] VSCA 21 at [95].
152. PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd (2007) 20 VR 487 at 503.
153. [2010] 3 All ER 1 at 22.
154. (1877) 2 App Cas 666.
155. Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 693.

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If a draft having been prepared and agreed upon as the basis of a deed or contract to be
executed between two parties, the parties, without waiting for the execution of the more
formal instrument, proceed to act upon the draft, and treat it as binding upon them, both
parties will be bound by it. But it must be clear that the parties have both waived the execution
of the formal instrument and have agreed expressly, or as shown by their conduct, to act on
the informal one.

4.82 In relation to the decision in Brogden v Metropolitan Railway Co,156 in Laidlaw Hillier
Hewitt Elsley Pty Ltd,157 Macfarlan JA said:
The decision of the House of Lords … establishes that the conduct of parties may give
rise to a contract. It was made clear however that the character and circumstances of the
conduct must indicate unambiguously that the parties intended to contract. For example
the Lord Chancellor158 said about the conduct in question in that case that ‘no explanation
can be given of it unless it refers to the contract in question’ and, that the conduct was
‘referable in my mind only to the contract’. Lord Hatherley spoke in similar terms about the
conduct: ‘It does establish a course of action on the part of the Plaintiffs of such a character
as necessarily to lead to the inference on the part of the Defendants that the agreement had
been accepted on the part of the Plaintiffs, and was to be acted upon by them; and they did
act upon it accordingly’. Likewise, Lord Selborne159 said that ‘it appears to me that every
single circumstance points quite unequivocally to this agreement’.

4.83 In Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd,160 a property developer
engaged an architect to undertake a property development. The architect forwarded a printed
contract to the developer, which the developer never signed. Progress payments were made
consistent with the printed contract that had been received by the developer. The Court of
Appeal held that the making of payments by the developer amounted to an acceptance by
conduct of the architect’s offer.

Acceptance must be communicated

4.84 As a general rule, an acceptance is only effective once it has been communicated to the
offeror161 or to the offeror’s agent.162 Thus, in Powell v Lee,163 a school’s management committee
had resolved to accept Powell’s application to be appointed as the school’s headmaster, but did
not officially communicate their resolution to him. One of the committee members advised
Powell privately of the decision. When another candidate was later selected and appointed as
headmaster, Powell sued for breach of contract. The court held that there had been no contract
because there had been no authorised communication of acceptance.

156. (1877) 2 App Cas 666.

157. [2009] NSWCA 44 at [5], cited with approval in Crowe-Maxwell v Frost (2016) 91 NSWLR 414 at 430.
158. Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 678, 680.
159. Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 689.
160. (1988) 14 NSWLR 523 at 535. See also CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121 at [106].
161. Tinn v Hoffman & Co (1873) 29 LT 271 at 278; Bombardier Inc v Avwest Aircraft Pty Ltd [2020] WASCA 2 at [66].
162. Walker v Salomon Smith Barney Securities Pty Ltd [2003] FCA 1099 at [167]; Ngoi v Wen [2017] NZCA 519
at [38]–[39].
163. (1908) 99 LT 284. See also Latec Finance Pty Ltd v Knight [1969] 2 NSWR 79.

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4.85 In Carlill v Carbolic Smoke Ball Co, Bowen LJ noted that the communication
164

requirement is for the benefit of the offeror and gives rise to the meeting of the minds that is
necessary for a contract to arise. The rationale for the requirement of communication is that it
would be unfair for an offeror to be legally bound by an offer he or she has made without any
knowledge of the offeree’s acceptance of it.
4.86 As to when communication can be said to have occurred, the principles here are the
same as with the requirement for communication of revocation of offers.165
4.87 The requirement of communication of acceptance is not universal. It can be dispensed
with by the offeror. Furthermore, it is not required in cases where the postal acceptance rule
applies.

Dispensing with the need for communication

4.88 As the communication requirement is for the benefit of the offeror, he or she is at liberty
to dispense with the need for communication and thereby permit acceptance to arise without
communication taking place.166 Such dispensation can be express or implied.167 Offers that lead
to the creation of unilateral contracts, such as those involving offers of reward, are ones in which
the court will usually find that the need to communicate has, by implication, been dispensed
with by the offeror.168 In such cases, there is no need to communicate acceptance of the offer
because the offeror has made an offer that the offeree can accept by actual performance of its
terms.169 Thus, in Kuzmanovski v New South Wales Lotteries Corporation,170 Rares J held that
a rule relating to an instant scratchie lottery ticket, which stated that the lottery prize would
be payable only on presentation of the ticket, constituted an offer that was accepted by the
presentation of the ticket.

The postal acceptance rule

4.89 A commonly cited statement of the postal acceptance rule is found in Henthorn
v Fraser,171 where Lord Herschell said:
Where the circumstances are such that it must have been within the contemplation of the
parties that, according to the ordinary usages of mankind, the post might be used as a means
of communicating the acceptance of an offer, the acceptance is complete as soon as it is
posted.

164. [1893] 1 QB 256 at 269.

165. See 4.58–4.60.
166. Bombardier Inc v Avwest Aircraft Pty Ltd [2020] WASCA 2 at [67].
167. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 269.
168. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 270.
169. Commissioner of Taxation v Racing Queensland Board (2019) 374 ALR 241 at 267.
170. (2010) 270 ALR 65 at 75. In an appeal in this case the issue of the formation of a contract was not
contested: New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski (2011) 195 FCR 234 at 237.
171. [1892] 2 Ch 27 at 33.

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4.90 The postal acceptance rule also applies to telegrams.172 This extension of the rule is
based upon the fact that telegrams are analogous to letters in that the message to be sent by
telegram is given to the post office.
4.91 When the postal acceptance rule applies, acceptance takes place at the time the letter or
telegram is sent, and not at the later time when it is received.173 Clearly, the effect of the rule is that
communication of acceptance is not required in cases where it applies. As a result, the offeror is
unaware of the existence of the contract when it comes into existence. This leaves the offeror in
a vulnerable position. For example, where an offer by A to sell goods to B has been accepted by
B by means of a letter in circumstances in which the postal acceptance rule applies, A will have
unwittingly committed a breach of contract if A sells the goods to a third party before he or she
receives B’s letter of acceptance. In such a case, B will be liable for damages for non-delivery of goods.
4.92 Because of the potential risk to which the offeror is exposed by the application of the
postal acceptance rule, courts have been keen to restrict further extensions of its operation. It
does not apply to facsimile communications.174 In general the rule does not apply to telephone
or telex communications.175
4.93 In circumstances where the postal acceptance rule does not apply, the fact that the form
of communication is almost instantaneous is the primary reason why the normal requirement
of communication of acceptance applies. In effect, the law takes the view that, in such
circumstances, it is as if the parties are actually in the presence of each other. Thus, it has been
held that the postal acceptance rule does not apply to email communications.176 It has also been
suggested that the same reasoning operates to exclude the postal acceptance rule from applying
to other forms of electronic communication, such as those involving interactive websites.177 It
is also suggested that the rule does not apply to letters sent through private document exchange
organisations or couriers, on the basis that these systems operate differently to the post office.
This is because a letter sent via either of these systems is not beyond recall by the sender,
whereas it generally is beyond recall if it has been sent via the postal system.
4.94 No single rationale justifying the postal acceptance rule has been universally accepted.
Perhaps the best explanation for the rule is that the common law has, for reasons of practical
necessity, recognised that when letters are used, one of the parties inevitably must accept the risk
involved.178 On the one hand, if acceptance occurs when the letter is posted or telegram is sent, the
risk to the offeror is that he or she may do something that amounts to a breach of contract despite
being unaware of the contract having come into existence. On the other hand, if the acceptance
occurs when the letter or telegram is received, the offeree is at risk because he or she has no way of
knowing that the letter has arrived and thus does not know whether a contract has materialised.
As both risks cannot be avoided, the law has made the choice that the offeror should bear the risk.

172. Cowan v O’Connor (1888) 20 QBD 640 at 642.

173. UK Learning Academy Ltd v Secretary of State for Education [2018] EWHC 2915 (Comm) at [228].
174. Egis Consulting Australia Pty Ltd v First Dynasty Mines Ltd [2001] WASC 22 at [9]–[10].
175. Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH [1983] 2 AC 34. But see Leach
Nominees Pty Ltd v Walter Wright Pty Ltd [1986] WAR 244.
176. Olivaylle Pty Ltd v Flottweg GMBH & KGAA (No 4) (2009) 255 ALR 632 at 642.
177. S Blount, Electronic Contracts, 2nd ed, LexisNexis Butterworths, Chatswood, 2015, pp 72–3. However,
see E Mik, ‘The Effectiveness of Acceptances Communicated by Electronic Means, or — Does the Postal
Acceptance Rule Apply to Email?’ (2009) 26 Journal of Contract Law 68.
178. Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 107 at [145].
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4.95 In Household Fire & Accident Insurance Co (Ltd) v Grant,179 Thesiger LJ observed that the
postal acceptance rule ‘may in some cases lead to inconvenience and hardship’, but he thought
that ‘such there must be at times in every view of the law’ and he was not prepared to concede
that the rule would ‘lead to any great or general inconvenience or hardship’. His Lordship180
noted that an offeror can always specify that actual communication is required.
4.96 In the operation of the postal acceptance rule, a number of points need to be emphasised:
• The rule only applies if it is reasonable, contemplated, or authorised that acceptance be by
letter or telegram.181 Simply because a letter or telegram is used to make the offer does not
mean that the postal acceptance rule applies to a letter or telegram that accepts the offer.
In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd,182 Dixon CJ and Fullagar J
said that ‘a finding that a contract is completed by the posting of a letter of acceptance
cannot be justified unless it is inferred that the offeror contemplated and intended that his
offer might be accepted by the doing of that act’. In relation to this statement, in Wardle
v Agricultural and Rural Finance Pty Ltd,183 Campbell JA said:
That statement requires something more precise than a contemplation that the postal
services might be used as a medium of communication. For it to be ‘inferred that the
offeror contemplated and intended that his offer might be accepted’ by the posting of
an acceptance there would need to be a basis in the terms or circumstances in which
the parties were communicating from which such an intention could be inferred. The
required inference is that it is the posting itself which is the acceptance, not just that the
post might be the means by which an acceptance is communicated.

In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd,184 the facts concerned
solicitors who were engaged in highly contentious communications in relation to a dispute
between their respective clients. Their Honours185 held that the postal acceptance rule did not
apply in these circumstances because ‘one would have thought that actual communication
would be regarded as essential to the conclusion of agreement on anything’. The letter or
telegram must be ‘properly’ posted — that is, properly addressed, have appropriate postage
or other fees paid, and deposited with the post office.186 It can be noted that there is a
prima facie presumption that a properly addressed and posted envelope, which has not
subsequently been returned, reached its destination in the ordinary course of the post.187

179. (1879) LR 4 Ex D 216 at 223.

180. Household Fire & Accident Insurance Company (Ltd) v Grant (1879) LR 4 Ex D 216 at 223–4.
181. Henthorn v Fraser [1892] 2 Ch 27 at 33.
182. (1957) 98 CLR 93 at 111.
183. [2012] NSWCA 107 at [135].
184. (1957) 98 CLR 93.
185. Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 at 112. For a critique of
this decision see D MacLaughlan, ‘The Uncertain Basis of the Postal Acceptance Rule?’ (2013) 30 Journal
of Contract Law 33 at 39–40.
186. Re Imperial Land Company of Marseilles (1872) LR 7 Ch App 587 at 592; L J Korbetis v Transgrain Shipping
BV [2005] EWHC 1345 (QB) at [15].
187. Australian Trade Commission v Solarex Pty Ltd (1978) 78 ALR 439 at 443, 446; Leveraged Equities Ltd
v Goodridge (2011) 274 ALR 655 at 702; Newcastle upon Tyne Hospitals NHS Foundation Trust v Haywood
[2018] 4 All ER 467 at 473.

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• It is irrelevant whether the letter or telegram ever reaches its destination. As acceptance
occurs when the letter is posted or the telegram is sent, its arrival at the address of the
offeror is logically irrelevant.188
• An offeror can, expressly or impliedly, exclude the operation of the postal acceptance rule
at the time the offer is made. The key here is to establish that the offeror requires actual
communication for an acceptance to take place.189 Thus, the rule could be negated ‘if the
express terms of the offer specify that the acceptance must reach the offeror’ or ‘if, having regard
to all the circumstances, including the nature of the subject matter under consideration, the
negotiating parties cannot have intended that there should be a binding agreement until the
party accepting an offer or exercising an option had in fact communicated the acceptance’.190
In Bressan v Squires,191 it was held that if the offeror stipulates that the offer can be ‘accepted
by [the offeree] by notice in writing addressed to me’ on or before a particular date, the rule
is excluded. Similarly, if the offeror stipulates that the offer may be accepted by ‘returning’
certain documents to the offeror by a certain date, acceptance does not occur when the
documents are posted.192 Furthermore, if an acceptance is required by means of registered or
certified mail, this excludes the postal acceptance rule, so that if the letter does not reach the
offeror there is no acceptance.193 However, it is not enough to exclude the operation of the
rule if the offeror merely states that an offer can be accepted on or before a particular date.194
• Note must be made of the situation where the postal acceptance rule applies and the offeree
sends a letter or telegram of acceptance, but before it is received by the offeror, the offeree
changes his or her mind and advises the offeror by some speedier means of communication
that he or she (the offeree) does not wish to accept the offer. Here the question arises as
to whether the letter or telegram of acceptance is binding and a contract is created. There
are competing views on this issue. It has been suggested that the Scottish case of Dunmore
v Alexander195 supports the view that the withdrawal of acceptance is effective. In support
of this view it can be argued that the offeror, at the time he or she has notice that the offeree
wants to reject the offer, is unaware of the letter of acceptance that has been posted but not
received, and that, accordingly, there can be no prejudice or harm to the offeror in a ruling
that there is no contract. Hudson196 supports this view on the basis that ‘[i]f the offeror
can be said to take the risks of delay and accidents in the post it would not seem to stray
matters to say that he also assumes the risk of a letter being overtaken by a speedier means
of communication’.
One possible objection to this approach is that the offeree is given an opportunity to
speculate. This is because, at the time of posting the letter of acceptance there is a contract,

188. Household Fire & Accident Insurance Company (Ltd) v Grant (1879) LR 4 Ex D 216 at 223, 227. For a
discussion of this rule see D M Evans, ‘The Anglo-American Mailing Rule: Some Problems of Offer and
Acceptance in Contracts by Correspondence’ (1966) 15 International & Comparative Law Quarterly 553
at 566–7.
189. Household Fire & Accident Insurance Company (Ltd) v Grant (1879) LR 4 Ex D 216 at 223.
190. Holwell Securities Ltd v Hughes [1974] 1 All ER 161 at 166–7.
191. [1974] 2 NSWLR 460 at 462–3. See also Holwell Securities Ltd v Hughes [1974] 1 All ER 161 at 164, 166.
192. Smoothseas Pty Ltd v Lawloan Mortgagees Pty Ltd [2007] QCA 445 at [12]–[14], [23].
193. Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1994) 63 SASR 235 at 238.
194. Holwell Securities Ltd v Hughes [1974] 1 All ER 161 at 164.
195. (1830) 9 SH (Ct of Sess) 190.
196. A Hudson, ‘Retraction of Letters of Acceptance’ (1966) 82 Law Quarterly Review 169 at 170. See also Evans,
‘The Anglo-American Mailing Rule’, note 188 above, at 563–4.

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but the offeree can change his or her mind about the contract and effectively revoke it,
provided he or she communicates a rejection of the offer before the letter of acceptance
is received by the offeror. However, the New Zealand decision of Wenkheim v Arndt197
suggests that the offeree’s later rejection of the offer is ineffective. Thus, the contract, having
been formed at the time of posting, remains on foot.
The division of opinion on this issue led Hedigan J in Nunin Holdings Pty Ltd v Tullamarine
Estates Pty Ltd198 to observe that ‘this question does not appear to have been directly
answered in the cases’.
4.97 A case that illustrates the operation of the postal acceptance rule and its interplay
with the rule as to revocation of offers is Stevenson Jacques & Co v McLean.199 The question
of whether the offeree’s initial reply in that case to the offer was a counter-offer or merely a
request for further information was dealt with above.200 Given that it was the latter, the offer
remained open to be accepted by the offeree. Upon receipt of the offeree’s initial telegram,
the offeror treated it as a rejection, sold the goods to a third party, and sent a telegram to
the offeree withdrawing the offer. However, before the offeree received this telegram he sent
a telegram accepting the offer. The court ruled that the offeree’s acceptance of the offer was
valid because the postal acceptance rule applied. The attempted revocation of the offer was
ineffective because it had not complied with the rule that a revocation of an offer must be
communicated to the offeree before it is effective.201 Having sold the goods to a third party, the
offeror was unable to carry out the contract with the offeree and was, accordingly, held liable
for damages for breach of contract for non-delivery of the goods.

Prescribed means of acceptance

4.98 An offeror can stipulate that an offer can only be accepted in a manner prescribed by
the terms of the offer. If the offer mandates that acceptance be in a prescribed form, then
that form must be followed for a valid acceptance to take place.202 This is so because, as was
held in George Hudson Holdings Ltd v Rudder,203 ‘for an acceptance to be effective, it must
comply with the requirements stipulated in the offer’. In such a case it must be made very clear
that the prescribed method of acceptance is the only method of acceptance, otherwise a court
could conclude that the prescribed method of acceptance is simply an additional method by
which acceptance may take place, and therefore does not have the effect of excluding the postal
acceptance rule if, in all the circumstances, its application is reasonable or contemplated.204

197. (1873) 1 JR 73. See also C L Pannam, ‘Postal Regulation 289 and Acceptance of the Offer by Post’ (1960)
2 Melbourne University Law Review 388 at 395–6.
198. [1994] 1 VR 74 at 85.
199. (1880) 5 QBD 346.
200. See 4.49.
201. See 4.50.
202. Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) SR (NSW) 122 at 123; Mitchell v Leafs Gully Farm
Pty Ltd [2016] NSWCA 92 at [32]; Ngoi v Wen [2017] NZCA 519 at [45]; Corrick v Silich [2018] NZCA 221
at [42].
203. (1973) 128 CLR 387 at 395.
204. Manchester Diocesan Council for Education v Commercial & General Investments Ltd [1969] 3 All ER
1593 at 1597–8; Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1994) 63 SASR 235 at 237–8; Woollahra
Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257 at [84].

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4.99 In relation to the situation where the terms of the offer are that the offeree is not to be
bound in contract until he or she has signed a contract, in Reveille Independent LLC v Anotech
International (UK) Ltd205 the Court of Appeal said the following:
[I]f a party has a right to sign a contract before being bound, it is open to it by clear and
unequivocal words or conduct to waive the requirement and to conclude the contract without
insisting on its signature. [Furthermore,] if signature is the prescribed mode of acceptance
an offeror will be bound by the contract if it waives that requirement and acquiesces in a
different mode of acceptance. … [I]t follows that where signature as the prescribed mode of
acceptance is intended for the benefit of the offeree, and the offeree accepts in some other
way, that should be treated as effective unless it can be shown that the failure to sign has
prejudiced the offeror. [Finally,] a draft agreement can have contractual force, although the
parties do not comply with a requirement that to be binding it must be signed, if essentially
all the terms have been agreed and their subsequent conduct indicates this, albeit a court will
not reach this conclusion lightly.

Acceptance and the date and place of contract

4.100 As pointed out at the beginning of this chapter,206 the date and place of the contract
are important items of information. The rules of acceptance tell us when and where a contract
was entered into.
4.101 The date of a contract is the date of acceptance. This is the date that communication of
the fact of acceptance takes place.207 Where the postal acceptance rule applies, this is the date
the letter is posted or the telegram is sent, not when it is received. However, it must be kept in
mind that it is not necessary to identify a precise time at which an offer or acceptance was made
or took place for a contract to come into existence.208
4.102 The place of the contract is the place of acceptance. This is the place where the offeror
is when communication of acceptance takes place. Where the postal acceptance rule applies, it
is the place from which the letter or telegram of acceptance was sent. It was in the context of the
issue as to the place of the contract, and hence the jurisdiction to hear the dispute pursuant to
the resulting contracts, that Entores v Miles Far East Corporation209 and Brinkibon Ltd v Stahag
Stahl und Stahlwarenhandelsgesellschaft mbH210 were decided. In the context of electronic
communications, the place of acceptance is the place where the offeree’s acceptance was received,
not the place from which it was sent.211

205. [2016] EWCA Civ 443 at [40]–[41].

206. See 4.7.
207. Entores v Miles Far East Corporation [1955] QB 327 at 334–5; [1955] 2 All ER 493 at 494–5; Brownlie v Four
Seasons Holdings Incorporated [2016] 1 WLR 1814 at 1826.
208. Ormwave Pty Ltd v Smith [2007] NSWCA 210 at [68]; Suncorp Metway Insurance Ltd v Owners Corporation
SP 64487 [2009] NSWCA 223 at [54].
209. [1955] QB 327; [1955] 2 All ER 493.
210. [1983] 2 AC 34.
211. Australian Competition and Consumer Commission v Valve Corporation (No 3) (2016) 337 ALR 647 at 664.

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ALTERNATIVES TO OFFER AND ACCEPTANCE

4.103 Although offer and acceptance analysis works well in many cases, in some cases it is
inappropriate or meaningless to try to conclude that an agreement resulted from one party
making an offer and the other accepting that offer. In Brambles Holdings Ltd v Bathurst City
Council,212 Heydon JA made the following comments in relation to the applicability of offer and
acceptance analysis:
Offer and acceptance analysis does not work well in various circumstances. One example is a
contract for the transportation of passengers on mass public transport. … Another example
concerns the exchanges of contracts to sell land, which are hard to analyse in offer and
acceptance terms. … Another is where the contract is made through a single broker acting
for both parties. Another is where the parties are deadlocked and they agree to submit to a
solution reached by a third party.

However, in the later case of Magill v Magill,213 Heydon J noted that, although offer and
acceptance analysis does not work well in some cases, this is not ‘a reason for its wholesale
abandonment’.

‘Battle of the forms’ cases

4.104 An illustration of difficulties associated with applying offer and acceptance analysis
in commercial contracts is with so-called ‘battle of the forms’ cases. The most common battle
of the forms cases are those where A offers to purchase goods from B on its (A’s) terms and B
accepts the offer but only on its (B’s) terms. In resolving such cases, courts will examine the
conduct of the parties as well as objectively interpret the documents. In relation to the outcome
of this process, in Tekdata Interconnections Ltd v Amphenol Ltd,214 Dyson LJ said:
[I]t may be possible to analyse the legal situation that results as being that there is: (i) a
contract on A’s conditions; (ii) a contract on B’s conditions; (iii) a contract on the terms that
would be implied by law, but incorporating neither A’s nor B’s conditions; (iv) a contract
incorporating some blend of both parties’ conditions; or (v) no contract at all.

4.105 In Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd,215 Butler offered to supply
Ex-Cell-O a specified machine for a particular price. The standard form of offer used by
Butler contained a price escalation clause that allowed for the price to be increased in certain
circumstances. Ex-Cell-O placed an order for the machine at the set price, the order stating
that it was subject to Ex-Cell-O’s standard terms that did not contain any price escalation
clause. Ex-Cell-O also requested that Butler confirm the order by signing and returning a
tear-off slip attached to the order. Butler did so, but noted that the acknowledgment was in
accordance with the original offer that had been sent to Ex-Cell-O. The machine was built and
Butler claimed a price that had been increased in accordance with the price escalation clause.
Ex-Cell-O claimed that the contract did not contain any price escalation clause. The Court of
Appeal ruled unanimously in favour of Ex-Cell-O, noting that Ex-Cell-O’s order represented a

212. (2001) 53 NSWLR 153 at 176.

213. (2006) 226 CLR 551 at 617; 231 ALR 277 at 329.
214. [2010] 1 Lloyd’s Rep 357 at 361.
215. [1979] 1 All ER 965.

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counter-offer that was accepted by Butler’s return of the tear-off slip. The notation on the tear-
off slip was interpreted as being simply a reference to the price and identity of the machine only
and did not amount to a reaffirmation of the terms and conditions in its original offer.
4.106 Although this case was decided by applying offer and acceptance principles, the
difficulties in doing so were recognised, especially by Lord Denning MR. Lord Steyn,216 writing
extra-judicially, said the following about such cases:
Each party insists on contracting only on his standard conditions. In the meantime the work
starts. Payments are made. Often it is a fiction to identify an offer and acceptance. Yet reason
tells us that neither party should be able to withdraw unilaterally from the transaction. The
reasonable expectations of the parties, albeit that they are still in disagreement about minor
details of the transaction, often demand that the court must recognise that a contract has
come into existence. The greater the evidence of reliance, and the further along the road
towards implementation the transaction is, the greater the prospect that the court will find a
contract made and do its best, in accordance with the reasonable expectation of the parties,
to spell out the terms of the contract.

4.107 In Goodman v Cospak,217 Master Macready identified three approaches that have
been used in the battle of the forms cases. The first two of these approaches will result in one
or other of the first two outcomes218 mentioned by Dyson LJ in Tekdata Interconnections Ltd
v Amphenol Ltd.219 The third approach would more than likely result in one or other of the
remaining outcomes mentioned by his Lordship.
4.108 The first approach is the so-called ‘last shot’ doctrine. In Tekdata Interconnections
Ltd v Amphenol Ltd,220 Dyson LJ explained this doctrine as meaning ‘that where conflicting
communications are exchanged, each is a counter-offer, so that if a contract results at all
(eg from an acceptance by conduct) it must be on the terms of the final document in the series
leading to the conclusion of the contract’. His Lordship221 went on to say that ‘where the facts are
no more complicated than that A makes an offer on its conditions and B accepts that offer on
its conditions and, without more, performance follows … there is a contract on B’s conditions’.
4.109 The second approach is the so-called ‘higher status’ doctrine. Under this approach, the
status of the forms is examined and the terms on the form with the higher status establishes the
terms of the contract. Thus, in Transmotors Ltd v Robertson, Buckley & Co Ltd,222 a confirmation
of an offer to transport goods that contained terms that differed to the offer, was held to be of
a higher status than a response to the confirmation, in the form of an invoice, even though the
invoice referred to the standard terms of the original offer.

216. J Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 Law Quarterly
Review 433 at 435.
217. [2004] NSWSC 704 at [46]–[53].
218. See 4.104.
219. [2010] 1 Lloyd’s Rep 357.
220. [2010] 1 Lloyd’s Rep 357 at 361.
221. Tekdata Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd’s Rep 357 at 361.
222. [1970] 1 Lloyd’s Rep 224.

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4.110 The third approach is the so-called ‘global’ or ‘synthesis’ approach. With this approach
the existence of agreement is established without reference to offer and acceptance. In Brambles
Holdings Ltd v Bathurst City Council,223 Heydon JA suggested that this approach involved
answering the following questions:
[I]n 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?

4.111 In answering these questions, it is clear that an objective assessment of the facts and
circumstances of the case is undertaken by the court and, furthermore, ‘that post-contractual
conduct is admissible on the question of whether a contract was formed’.224
4.112 An example of the third approach, which produced the third of the outcomes
mentioned by Dyson LJ in Tekdata Interconnections Ltd v Amphenol Ltd,225 arose in GHSP Inc
v AB Electronic Ltd.226 In that case the court held that a contract for manufacture and supply of
pedal sensors for a motor vehicle arose when the manufacturer accepted the buyer’s production
schedule. However, the contract did not include either party’s terms and conditions, the court
ruling that, in the absence of such express terms, the contract was governed by terms implied
by sale of goods legislation.
4.113 The global approach has an application beyond the battle of the forms cases, and can
be used to explain decisions that have found that an agreement existed even though no offer
and acceptance took place. Thus, in Clarke v Dunraven,227 each of the parties to the dispute
entered a yacht race organised by the Yacht Racing Association. In so doing they agreed to
be bound by the association’s sailing rules. In an action for breach of contract based upon a
breach of one of the association’s rules, it was held that, by agreeing to abide by the association’s
rules (so-called ‘vertical contracts’), all competitors in the race had contracted with each other
(so-called ‘horizontal contracts’) on terms that included the rules. However, the decision in
Clarke v Dunraven228 is not authority for the proposition that such horizontal contracts will
always arise in cases of this kind. Whether such horizontal contracts arise in any given case will
depend upon its particular facts.229

223. (2001) 53 NSWLR 153 at 179. See also Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 at 563;
Toyota Motor Corporation Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 178; EPS Constructions Pty
Ltd v Mass Holdings Pty Ltd [2015] NSWCA 317 at [79].
224. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 164.
225. [2010] 1 Lloyd’s Rep 357.
226. [2011] 1 Lloyd’s Rep 432.
227. [1897] AC 59. See also Baird Textile Holdings Pty Ltd v Marks & Spencer Plc [2001] EWCA Civ 274
at [18]–[20]; Bony v Kacou [2017] EWHC 2146 (Ch) at [36]–[49]; Mercato Sports (UK) Ltd v Everton
Football Club Company Ltd [2018] EWHC 1567 (Ch) at [29]–[42].
228. [1897] AC 59.
229. Mercato Sports (UK) Ltd v Everton Football Club Company Ltd [2018] EWHC 1567 (Ch) at [41]–[42];
Commissioner of Taxation v Racing Queensland Board (2019) 374 ALR 241 at 264.

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 5
THE REQUIREMENTS OF CERTAINTY
AND COMPLETENESS

INTRODUCTION
5.1 In Chapter 4 the principles applicable to the question of whether parties have entered into
an agreement were examined. However, ‘even where it is apparent that the parties have made
an agreement … the court may conclude that the agreement is too uncertain or incomplete to
be enforceable’.1 Thus, for any agreement to amount to a contract, it must also be sufficiently
certain and complete.2 In Australian Goldfields NL (in liq) v North Australian Diamonds NL,3
McClure JA said:
There are two limbs to the uncertainty doctrine. A contract (or a term thereof) is void for
uncertainty if (1) all the essential and critical terms of the bargain have not been agreed upon
or (2) the language used is so obscure and incapable of any precise or definite meaning that
the court is unable to attribute to the parties any particular contractual intention. Under the
first limb, the contract is incomplete. Under the second limb, the court is unable to attribute
a meaning to the language used by the parties. I refer to the latter as linguistic uncertainty.
Both limbs apply only to essential terms.

5.2 The law does not demand absolute certainty and completeness. These matters are
ones of degree, with a court’s concern being whether an agreement is sufficiently certain and
complete. Indeed, courts recognise that in commercial dealings business people work in an
environment where fluidity and adjustment are more important than precise documentation.4
As a consequence, a court will, whenever it is possible to do so, uphold an agreement rather
than render it void on grounds of uncertainty or incompleteness.5 For example, although the
description of the property to be sold pursuant to a contract for the sale of land must be stated

1. Blue v Ashley (No 2) [2017] EWHC 1928 (Comm) at [61].

2. Thorby v Goldberg (1964) 112 CLR 597 at 607; Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd
(2016) 260 CLR 1 at 21–2; 333 ALR 384 at 399; Hookway v Hookway [2020] TASSC 36 at [27].
3. (2009) 40 WAR 191 at 199.
4. Eastern Health v MIA Victoria Pty Ltd (2009) 22 VR 502 at 515.
5. Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 at 504; Upper Hunter County District Council v Australian
Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436, 437; Brown v Gould [1972] Ch 53 at 57–8; [1971]
2 All ER 1505 at 1508; Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 67, 71; Ipex Software
Services Pty Ltd v Hosking [2000] VSCA 239 at [56]; Australian Goldfields NL (in liq) v North Australian
Diamonds NL (2009) 40 WAR 191 at 232; Taluja v Shree Shirdi Sai Sansthan Sydney Ltd [2016] NSWCA 158
at [52]; Wells v Devani [2019] 3 All ER 379 at 386.

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with certainty, the fact that the description is vague will not render the contract void if there
is sufficient internal information to enable the property to be identified by the admission of
parol evidence.6
5.3 If it is clear that the parties regard themselves as having reached a concluded and binding
contract, a court ‘will strive to give effect to the parties’ contractual intention by clarifying or
rectifying express terms or implying terms’.7 If the court is unable to do so, the agreement is
void and completely unenforceable. The court will not fix the deficiency itself because that
would involve it in writing the contract for the parties. It is up to the parties to come to agreed
terms — the court will not make an agreement for them.
5.4 In addition to the issues of completeness and certainty, this chapter will deal with two
other matters. The first is with situations in which parties have reached an informal agreement
on all the terms of the contract, but contemplate that a further formal contract will subsequently
be prepared and entered into by them. These ‘subject to contract’ cases give rise to the question
of whether the informal agreement is enforceable even if no subsequent formal agreement is
entered into. The second is with contracts that are made ‘subject to finance’.

COMPLETENESS
5.5 In Thorby v Goldberg,8 the High Court stated that at a minimum, an agreement must
contain all the essential terms. If the parties have not reached agreement on the essential terms,
there can be no binding contract even if one of the parties has commenced work that is referable
to the agreement. However, in such a case, non-contractual remedies, such as restitution, may
be available.9
5.6 Whether a term is essential ‘will depend on the particular contract under consideration
and the surrounding circumstances’.10 Thus, in a contract for the sale of land, the essential
terms include, at the very least, those that identify the parties to the contract, the land that is the
subject of the contract,11 and the price to be paid for the land.12 In relation to a lease of land, in
Whitlock v Brew,13 McTiernan J said that ‘there must be, in addition to the parties and property,
an ascertainable period for its duration, an ascertainable rent, and an ascertainable point of
commencement’. The remaining details of such contracts will be readily implied because, given

6. Plant v Bourne [1897] 2 Ch 281 at 288.

7. Kop-Coat New Zealand Ltd v Incodo Ltd [2018] NZCA 430 at [59]. See also Fletcher Challenge Energy Ltd
v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 at 446.
8. (1964) 112 CLR 597 at 607. See also Foley v Classique Coaches Ltd [1934] 2 KB 1 at 13; May & Butcher Ltd
v The King [1934] 2 KB 17 at 20, 21.
9. ANZ Banking Group v Frost Holdings Pty Ltd [1989] VR 695 at 700–1; Mushroom Composters Pty Ltd v I S &
D E Robertson Pty Ltd [2015] NSWCA 1 at [63]; Allison v Tuna Tasmania Pty Ltd [2018] TASFC 5 at [120].
10. Roehlen v Mikhail [2018] VSC 121 at [16].
11. Examples of cases dealing with the issue of uncertainty on the description of the land include Equuscorp
Pty Ltd v Belperio [2006] VSC 14, upheld on appeal in Equuscorp Pty Ltd v Antonopoulos [2008] VSCA 179;
Taluja v Shree Shirdi Sai Sansthan Sydney Ltd [2016] NSWCA 158; Masonic Homes Ltd v Oppedisano &
Platinum Property Retirement Pty Ltd [2016] SASC 196.
12. See 8.14.
13. (1968) 118 CLR 445 at 454. See also Awad v Australian Sales & Leasing Pty Ltd [2018] VSC 627 at [38].

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their frequency, the courts are familiar with contracts for the sale or lease of land. The more
novel or unusual an agreement, the less able the court will be to imply terms to complete the
agreement.
5.7 If an agreement has been executed (carried out) in part or in full, the courts are less
likely to find it incomplete or uncertain.14 This is because to do so would have more serious
consequences to the parties than if the agreement was wholly executory (not carried out at all).
Whether there is a complete and enforceable contract in any particular case of this type will
depend upon its facts and circumstances.15 For example, in Foley v Classique Coaches Ltd,16 A
sold land to B upon which B was to conduct a motor coach business. A retained a petrol station
on adjoining land and it was agreed that B would purchase all its petrol from A for a set time
‘at a set price to be agreed by the parties from time to time’. The land was transferred to B, but
after three years of buying petrol from A, B wanted to buy petrol elsewhere. Could A enforce
the agreement as to the petrol sales? The Court of Appeal implied a term that the price was to
be reasonable and found in favour of A. Had the land not been transferred to B and the petrol
agreement not been acted on for three years, it is probable that the petrol sales agreement
would have failed on grounds that it was incomplete as to price.
5.8 Incompleteness can be overcome if there is agreement on a mechanism for determining
one or more terms of the contract, ‘provided that the determination does not depend on further
agreement between the parties’.17 An important case dealing with a machinery provision to
specifically detail an essential term is Booker Industries Pty Ltd v Wilson Parking (Qld) Ltd.18 In
that case parties entered into a lease with an option for a further term at the end of the initial
term. The lease pursuant to the option was to be on exactly the same terms and conditions as
the initial lease, with the exception of rent. For the new lease, the rent was to be as mutually
agreed by the parties, but, failing such an agreement, in an amount determined by an arbitrator
appointed by the then President of the Queensland Law Society. The parties could not agree
on the new rent. The landlord claimed that the option was thus void for incompleteness as to
an essential term, namely, the rent. The High Court ruled that the option was not incomplete
because of the existence of a mechanism that had been agreed upon by the parties to determine
the new rent. Gibbs CJ, Murphy, and Wilson JJ19 said:
[T]he lease itself provides the entire mechanism for determining the rental for the renewed
term. There is no further agreement required by the parties.

14. York Air Conditioning & Refrigeration (Australasia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at 53;
F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53 at 57; G Percy Trenthan Ltd v Archital
Luxfer [1993] 1 Lloyd’s Rep 25 at 27; Taluja v Shree Shirdi Sai Sansthan Sydney Ltd [2016] NSWCA 158
at [52]; NHS Commissioning Board v Vasant [2019] EWCA Civ 1245 at [35].
15. RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Co KG (UK Productions) [2010] 3 All ER 1 at 22;
Spartafield Ltd v Penten Group Ltd [2016] EWHC 2295 (TCC) at [112].
16. [1934] 2 KB 1.
17. Taluja v Shree Shirdi Sai Sansthan Sydney Ltd [2016] NSWCA 158 at [51]. See also Cudgen Rutile (No 2)
v Chalk [1975] AC 520 at 536; (1974) 4 ALR 438 at 447.
18. (1982) 149 CLR 600; 43 ALR 68. See also Brown v Gould [1972] Ch 53; [1971] 2 All ER 1505.
19. Booker Industries Pty Ltd v Wilson Parking (Qld) Ltd (1982) 149 CLR 600 at 604–5; 43 ALR 68 at 70. See also
May & Butcher Ltd v R [1934] 2 KB 17 at 21; ANZ Banking Group Ltd v Frost Holdings Pty Ltd [1989]
VR 695 at 700–1; Allison v Tuna Tasmania Pty Ltd [2018] TASFC 5 at [120].

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5.9 Thus, the option was valid because the outstanding term — the new rent — could be
determined without the need for any further agreement by the parties. An interesting problem
arises if the agreed mechanism fails to function. For example, in Booker Industries Pty Ltd
v Wilson Parking (Qld) Ltd,20 what would have happened if the President of the Law Society
had refused to appoint an arbitrator, or the appointed arbitrator had refused to act? In George
v Roach,21 the High Court said that in such a case the agreement would be void for incompleteness.
However, in Booker Industries Pty Ltd v Wilson Parking (Qld) Ltd,22 Brennan J indicated that, in
such a case, a court would lean towards a construction of the agreed mechanism clause merely
as a means of ascertaining what would be capable of being ascertained objectively as a fair and
reasonable rent. In Green v Wilden Pty Ltd,23 Hasluck J, after considering relevant authorities,
concluded that if the person called upon to nominate a valuer ‘or a valuer nominated by him,
failed to take the necessary steps to complete the valuation process, it would be open to the
Court to intervene and provide relief in order to remedy any hiatus of that kind’.
5.10 In relation to cases where an outstanding essential term is to be determined by a third
party, the scope for a party to the contract to challenge the validity of the determination once
made is limited. In Adnow Pty Ltd v Greenwells Wollert Pty Ltd,24 where the parties to an
option to purchase land agreed that the price was to be determined by a valuer, the Court of
Appeal said:
[A] court will only set aside such a valuation if it has not been made in accordance with the
terms of the contract. Ordinarily, in the absence of fraud or collusion, a mere error in the
production of the valuation will not constitute a departure by the valuer from the terms of
the contract. In the case of fraud or collusion, it may be concluded that the valuation has
not been made in accordance with the terms of the contract. However, otherwise, mistake
or error by the valuer is not sufficient to invalidate the valuation, unless the error is of such
a kind as to demonstrate that the valuation has not been made in accordance with the terms
of the contract.

5.11 The decision in Booker Industries Pty Ltd v Wilson Parking (Qld) Ltd25 is one dealing
with determination of an essential term by a third party. What is not clear, and is the subject of
conflicting authority, is whether such terms can be left for determination by one of the parties
to the agreement. In Godecke v Kirwan,26 Walsh J (Mason J agreeing) was of the view that there
was no impediment to this occurring, whereas Gibbs J27 took the opposite view.

20. (1982) 149 CLR 600; 43 ALR 68.

21. (1942) 67 CLR 253.
22. (1982) 149 CLR 600 at 616–7; 43 ALR 68 at 79–80.
23. [2005] WASC 83 at [942].
24. [2016] VSCA 282 at [40]. See also Legal & General Life Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR
314 at 335–6; WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489 at 499; AGL Victoria
Pty Ltd v SPI Networks (Gas) Pty Ltd [2006] VSCA 173 at [51]–[54]; Dura (Australia) Constructions Pty Ltd
v Hue Boutique Living Pty Ltd (2013) 41 VR 636 at 643–6.
25. (1982) 149 CLR 600; 43 ALR 68.
26. (1973) 129 CLR 629 at 642.
27. Godecke v Kirwan (1973) 129 CLR 629 at 645.

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CERTAINTY
5.12 Once the essential terms have been established, it is then to be determined if they
are sufficiently certain. If they are not, the agreement is void. The fact that the term may be
ambiguous does not render it uncertain.28 In relation to uncertainty, in Upper Hunter County
District Council v Australian Chilling & Freezing Co Ltd29 Barwick CJ said:
[A] contract of which there can be more than one possible meaning or which when construed
can produce in its application more than one result is not … void for uncertainty. As long
as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an
appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator
will decide its application.

5.13 Reflecting upon the reluctance of courts to find uncertainty except in the clearest of
cases, in Whitecap Leisure Ltd v John H Rundall Ltd30 Moore-Bick LJ said:
The conclusion that a contractual provision is so uncertain that it is incapable of being given
a meaning of any kind is one which the courts have always been reluctant to accept, since
they recognise that the very fact it was included demonstrates that the parties intended it to
have some effect.

5.14 In Palmer v Bank of New South Wales,31 Smith had verbally promised the Palmers that if
they took up residence in his house and cared for him for the remainder of his life, his property
would be left to them. The Palmers took up residence in the property where they cared for Smith
until his death. While living in the home, they entered into a written agreement that stated that
they had agreed to ‘look after and keep’ Smith. It also stated that they were to pay all normal
expenses on the property, but that they did not have to pay rent. Smith agreed that, ‘in return for
such services’, his property would pass to the Palmers on his death with no encumbrance. The
trial judge held that the initial arrangement, which he designated as a ‘consensus’, was without
legal effect. That conclusion was reached on the basis that the arrangement to live at Smith’s
house ‘and to look after him until his death’ was too uncertain to be treated as a promise in law.
On appeal to the Court of Appeal, the trial judge’s decision was overturned. Hutley JA32 said:
There may be some circumstances in which a court could hold that an undertaking by some
body to look after another is too uncertain to be enforceable, but in determining this the
court is entitled to consider the circumstances in which the words were used. Here they were
addressed to persons who knew the testator well, knew all about the circumstances under
which he lived and that he was to be looked after in a particular place, namely Sawtell, in his
home. … The term ‘to look after’ in these circumstances is no more indefinite than a promise
to ‘care for’ or ‘to nurse’. It is a contract to render services of a sufficiently definite character
as to constitute a legal obligation.

28. McDermott v Black (1940) 63 CLR 161 at 175.

29. (1968) 118 CLR 429 at 436. See also G Scammell & Nephew Ltd v Ouston [1941] AC 251 at 268.
30. [2008] EWCA Civ 429 at [21]. See also Durham Tees Valley Airport v Bmibaby Ltd [2010] EWCA Civ 485
at [88]; Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386 at [37]; Openwork Ltd
v Forte [2018] EWCA Civ 783 at [24]–[29].
31. [1973] 2 NSWLR 244.
32. Palmer v Bank of New South Wales [1973] 2 NSWLR 244 at 253. The aspect of the case dealing with
uncertainty was not in issue when it went to the High Court in Palmer v Bank of New South Wales (1975)
133 CLR 150; 7 ALR 671.
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5.15 In disputes involving business parties, courts are reluctant to find contracts void for
uncertainty except in the clearest of cases.33 If there is uncertainty as to some incidental or
non-essential matter, the court can sever the relevant provision and let the remainder of the
contract stand. What has to be shown before severance can be permitted is that the parties
intended to be bound by the contract even if the incidental or non-essential matter is severed.34
In McFarlane v Daniell,35 Jordan CJ said:
When valid promises supported by legal consideration are associated with, but separate in
form from, invalid promises, the test of whether they are severable is whether they are in
substance so connected with the others as to form an indivisible whole which cannot be
taken to pieces without altering its nature. If the elimination of the invalid promises changes
the extent only but not the kind of the contract, the valid promises are severable.

5.16 In Fitzgerald v Masters,36 clause 8 of a contract for the sale of a farm purported to
incorporate a non-existent set of conditions of sale. The High Court held the clause to be
meaningless and void, but permitted its severance from the rest of the contract. In relation to
clause 8, McTiernan, Webb, and Taylor JJ37 said:
In the circumstances of the case [clause 8] must be regarded simply as a compendious
provision inserted by way of more abundant caution to cover such incidental matters as did
not obtrude themselves for the consideration of the parties. But their intention that they
should be bound by the declared terms is clear. And it is equally clear that they intended their
agreement to subsist even if the provisions of clause 8 should fail to incorporate some term
or terms from an identifiable form containing ‘usual conditions’.

5.17 In Whitlock v Brew,38 a contract was entered into for the sale of land that included a
petrol station. Special Condition 5 of the contract stipulated that the purchaser would grant a
lease of the petrol station to an oil company ‘on such reasonable terms as commonly govern
such a lease’. The High Court held that Special Condition 5 was uncertain because there was no
evidence of such commonly used ‘reasonable terms’ that could be used to clarify the specific
rent and time period of the proposed lease. Furthermore, the High Court held that Special
Condition 5 could not be severed from the contract, with the result that the contract was void
for uncertainty.
5.18 A similar result occurred in G Scammell & Nephew Ltd v Ouston,39 where Ouston agreed
to purchase a vehicle from Scammell, with part of the price to be on hire–purchase terms. The
House of Lords held the agreement to be void for uncertainty because there was no evidence
of a trade custom, business procedure, or previous dealings between the parties that could
have been applied to construe the vague parts of the agreement. However, in Allcars Pty Ltd

33. Barbudev v Eurocom Cable Management Bulgaria Eood [2012] EWCA Civ 548 at [31].
34. Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 72; 31 ALR 206.
35. (1938) 38 SR (NSW) 337 at 345, cited with approval in United Group Rail Services Ltd v Rail Corporation
New South Wales (2009) 74 NSWLR 618 at 643.
36. (1956) 95 CLR 420.
37. Fitzgerald v Masters (1956) 95 CLR 420 at 438.
38. (1968) 118 CLR 445.
39. [1941] AC 251.

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v Tweedle40 Tweedle agreed to purchase a car from Allcars on terms of Allcars’ ‘usual agreement’.
This was held to be sufficiently certain and enforceable.
5.19 However, in some cases the standard of reasonableness will be used to overcome issues
of uncertainty. Thus, in Barbagallo v Clifton Fletcher Pty Ltd,41 it was held that in a sale of shares
at a ‘fair market value’, the description of the price was
… a reference to what was objectively the fair market value and the circumstance that either
party later did not think that the valuation was relevantly ‘fair’ would not detract from that
meaning … [and that] a dispute concerning what was the ‘fair market value’ … would have
to be determined by the Court.

5.20 In Attrill v Dresdner Kleinwort Ltd,42 a bank’s employees’ terms and conditions were set
out in a handbook and included provisions for discretionary bonus awards. For many years
the procedure had been to allocate a bonus pool, award individual bonuses in November,
communicate the allocation and award in December, and pay the cash element in January
provided that the employee was still employed at that time. The Court of Appeal rejected an
argument that the provision was void for uncertainty. Elias LJ43 said:
The submission on uncertainty was based on the assertion that the announcement of the
bonus pool left many problems not determined. For example, it is submitted that there is
uncertainty as to whether the individual guaranteed fixed bonuses should come out of the
fund; whether the bonus should be paid by way of shares or cash; and what proportion
of the fund could be held back for contingencies, it being accepted that an element of the
fund could be dealt with in that way. In my judgment, these problems are largely dealt
with by the finding of the judge that the fund would be dealt with ‘in the usual way’. For
example, that confirmed that individual fixed bonuses would be paid from the fund as well
as the discretionary bonuses. It would admittedly leave some imprecision, for example, on
the question of how much could be withheld for contingencies. But I have no doubt that the
parties would recognise that it would be a reasonable figure of the kind typically withheld for
this purpose in the past. The fundamental principles of the scheme were entirely clear and
the fact that there were some loose ends does not in my view begin to constitute a degree of
uncertainty necessary to defeat the parties’ intention that the agreement should be capable
of enforcement. The court will be slow to hold that otherwise contractually enforceable
obligations cannot be enforced because they are too uncertain.

Agreements to negotiate in good faith

5.21 A particular aspect of uncertainty is ‘an agreement to agree’. Such an agreement is void
for uncertainty.44 However, whether an agreement to negotiate in good faith is similarly void
is a more difficult issue. Agreements to negotiate in good faith are sometimes referred to as
‘process agreements’. An example of such an agreement is provided by the following example.

40. [1937] VLR 35.

41. [2004] NSWSC 699 at [36]–[37]. See also Wenning v Robinson [1964–5] NSWR 614.
42. [2013] 3 All ER 607.
43. Attrill v Dresdner Kleinwort Ltd [2013] 3 All ER 607 at 620–1.
44. Booker Industries Pty Ltd v Wilson Parking (Qld) Ltd (1982) 149 CLR 600 at 604; 43 ALR 68 at 70.

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Suppose parties are negotiating a complex joint venture agreement and a preliminary agreement
is reached, but not all details have been settled. The preliminary agreement states that the
parties will continue to negotiate in good faith with the aim of reaching a comprehensive final
agreement. Is the agreement to negotiate in good faith void for uncertainty?
5.22 In England, the House of Lords in Walford v Miles45 held that an agreement to negotiate
in good faith is void for uncertainty. Lord Ackner46 said:
The reason why an agreement to negotiate … is unenforceable, is simply because it lacks the
necessary certainty. … A duty to negotiate in good faith is as unworkable in practice as it is
inherently inconsistent with the position of a negotiating party. It is here that the uncertainty
lies. … [O]nce negotiations are in existence either party is entitled to withdraw from those
negotiations, at any time and for any reason. … Accordingly a bare agreement to negotiate
has no legal content.

5.23 In Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd,47 on facts essentially the same as
the above example, the parties to a joint venture continued to negotiate after the preliminary
agreement had been entered into, but without reaching a final agreement. Kirby P (Waddell AJA
agreeing) countenanced the possibility that such an agreement could, in appropriate
circumstances, be enforced, although he recognised that in most cases damages recovered
would be nominal. However, various factors led Kirby P to nevertheless find that the obligation
to negotiate was void for uncertainty. These included reference in the preliminary agreement
to new and fresh terms, the fact that the preliminary agreement was 10 pages long and the
last draft before negotiations ceased was over 130 pages long, and that there was no general
arbitration clause to allow for an external party to settle terms that could not be agreed on by
the parties. In rejecting this approach, Handley JA48 viewed the agreement as being illusory,
there being ‘no identifiable criteria by which the content of the obligation to negotiate in good
faith can be determined’.
5.24 The views of Kirby P in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd49 have subsequently
received a mixed reaction. In AMCI(IO) Pty Ltd v Aquila Steel Pty Ltd50 Douglas J held that
obligations to negotiate in good faith will be enforceable in some circumstances. However,
in Elizabeth Bay Developments Pty Ltd v Boral Building Services Pty Ltd51 and Laing O’Rourke
v Transport Infrastructure52 judges at first instance preferred the English approach as set out
in Walford v Miles.53 In Wellington City Council v Body Corporate 51702 (Wellington)54 the
New Zealand Court of Appeal said the following in relation to Kirby P’s approach:

45. [1992] 2 AC 128; [1992] 1 All ER 453.

46. Walford v Miles [1992] 2 AC 128 at 138; [1992] 1 All ER 453 at 460, followed in Chaggar v Chaggar [2018]
EWHC 1203 (QB) at [190].
47. (1991) 24 NSWLR 1.
48. Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 33.
49. (1991) 24 NSWLR 1.
50. [2009] QSC 139 at [25].
51. (1995) 36 NSWLR 709 at 716.
52. [2007] NSWSC 723 at [41]–[51].
53. [1992] 2 AC 128; [1992] 1 All ER 453.
54. [2002] 3 NZLR 486 at 491. See also Schulz v McArthur Ridge Investments Ltd [2015] NZCA 298 at [35].

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We are bound, respectfully, to point out that both Kirby P’s analysis and his application
of it to the facts merged questions of process contract and substantive bargain. A contract
purporting to bind the parties to negotiate, whether expressed in terms of good faith, best
endeavours or otherwise, is in substance a contract to try to agree. Breach lies in failure to
try, either at all or according to whatever may be required. Breach does not lie in failing to
agree. No question of what the terms of the substantive agreement should or might have
been directly arises at this stage of the inquiry. Kirby P’s references to external standards
and an external arbitrator would be relevant to fixing the terms of the substantive contract.
It is difficult, however, to see them as relevant to fixing the terms of an agreement to try to
agree, when the parties have not themselves provided for any external standard in aid of that
exercise. It is, in this kind of case, important to keep the process aspect conceptually separate
from the substantive agreement which the process contract purportedly obliges the parties
to endeavour to reach. … [W]e agree with Kirby P that contracts to negotiate should not
be held in all circumstances to be unenforceable. Their enforceability will depend on their
terms and particularly on the specificity of those terms. It is, in our view, vital to emphasise
from the outset that whether the terms of a process contract are sufficiently specific to
be enforceable is an issue separate and apart from whether the substantive agreement, if
reached, is sufficiently certain to be enforceable. If it is, the process contract will have borne
fruit and no question of a breach of that contract can arise. If the substantive agreement is
not sufficiently certain to be enforceable, the negotiations will have failed to bring about
an enforceable contract. An issue may remain as to whether the process contract itself was
enforceable and, if so, whether there was a breach of it.

5.25 However, in United Group Rail Services Ltd v Rail Corporation New South Wales,55
the Court of Appeal gave a ringing endorsement of the view that, in the appropriate context,
an obligation to negotiate in good faith was valid and enforceable. Speaking for the court,
Allsop P56 said:
In … Courtney [& Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd57] … Lord Denning MR
equated an agreement to negotiate with an agreement to agree. The latter is, of course, not
enforceable. … It does not follow, however, that an agreement to undertake negotiations
in good faith fails for the same reason. An agreement to agree to another agreement may
be incomplete if it lacks essential terms of the future bargain. An agreement to negotiate,
if viewed as an agreement to behave in a particular way may be uncertain, but is not
incomplete. … The relevant question is whether the clause has certain content. … An
obligation to undertake discussions about a subject in an honest and genuine attempt to
reach an identified result is not incomplete. It may be referable to a standard concerned with
conduct assessed by subjective standards, but that does not make the standard or compliance
with the standard impossible of assessment. Honesty is such a standard. Whether it is
capable of assessment depends on whether there is a standard of behaviour that is capable of
having legal content. Asserting its uncertainty does not answer the question. The assertion
that each party has an unfettered right to have regard to any of its own interests on any
basis begs the question as to what constraint the party may have imposed on itself by freely
entering into a given contract. If what is required by the voluntarily assumed constraint is

55. (2009) 74 NSWLR 618.

56. United Group Rail Services Limited v Rail Corporation New South Wales (2009) 74 NSWLR 618 at 634
at 635–6, cited with approval in Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2016] NSWCA
123 at [96]–[97]. See also Allison v Tuna Tasmania Pty Ltd [2018] TASFC 5 at [121]–[124].
57. [1975] 1 WLR 297.

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that a party negotiate honestly and genuinely with a view to resolution of a dispute with
fidelity to the bargain, there is no inherent inconsistency with negotiation, so constrained.
To say, as Lord Ackner did [in Walford v Miles58], that a party is entitled not to continue
with, or withdraw from, negotiations at any time and for any reason assumes that there is
no relevant constraint on the negotiation or the manner of its conduct by the bargain that
has been freely entered into.

5.26 In United Group Rail Services Ltd v Rail Corporation New South Wales,59 the court was
concerned with an agreement to negotiate in good faith in relation to a contractual dispute.
This was unlike the agreement in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd,60 which
provided for good faith negotiations towards entering into a commercial agreement. This was
a significant distinction between the two cases because in United Group Rail Services Ltd v Rail
Corporation New South Wales61 the parties were not involved in an open-ended negotiation
about a myriad of commercial interests to be bargained for from a self-interested perspective.
Rather, as was noted by Allsop P,62 they were engaged in the resolution of a defined dispute that
arose from ‘a finite and fixed legal framework about acts or omissions that would be said to
have happened or not happened’. Thus, if there is not present some sort of agreed framework
within which good faith negotiations are to be conducted, an agreement to negotiate in good
faith will, in all likelihood, be uncertain.63
5.27 In England, the Court of Appeal in Petromec Inc v Petroleo Brasileiro SA Petrobras64
distinguished the earlier House of Lords decision in Walford v Miles65 and upheld and enforced
an agreement to negotiate in good faith clause in the circumstances of the case before it. The case
concerned an agreement under which the claimant contracted to upgrade the world’s largest
offshore oil production platform. Variations to the agreement provided that the claimant was
to be paid its reasonable extra costs in upgrading the platform over and above earlier agreed
specifications. Clause 12.4 of the agreement stipulated that a subsidiary of the defendant
would ‘negotiate in good faith’ the extra costs with the claimant. Longmore LJ referred to the
traditional objections to enforcing such a clause as set out in Walford v Miles,66 namely, (i) such
an obligation is too uncertain to enforce because it is an agreement to agree; (ii) it is difficult
(if not impossible) to say whether a termination of negotiations is in good faith or bad; and
(iii) it is impossible to assess loss, since it can never be known whether good faith negotiations
would have produced an agreement at all, or what terms would have been agreed if agreement
had been reached. His Lordship then observed that, unlike the case before him, in Walford
v Miles67 there was no concluded agreement at all because everything was ‘subject to contract’
and there was no express agreement to negotiate in good faith. His Lordship held that the good
faith provision in Petromec Inc v Petroleo Brasileiro SA Petrobras68 was not a bare agreement

58. [1992] 2 AC 128; [1992] 1 All ER 453.

59. (2009) 74 NSWLR 618.
60. (1991) 24 NSWLR 1.
61. (2009) 74 NSWLR 618.
62. United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 at 637.
63. Baldwin v Icon Energy Ltd [2016] 1 Qd R 397 at 406–13.
64. [2005] EWCA Civ 891.
65. [1992] 2 AC 128; [1992] 1 All ER 453.
66. [1992] 2 AC 128; [1992] 1 All ER 453.
67. [1992] 2 AC 128; [1992] 1 All ER 453.
68. [2005] EWCA Civ 891.

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to negotiate. It was an express obligation drafted by firms of London solicitors as part of a

complex agreement between the parties. Longmore LJ69 declared that ‘[i]t would be a strong
thing to declare unenforceable a clause into which the parties have deliberately and expressly
entered’. He concluded that to decide that the clause had no legal content would be ‘for the law
deliberately to defeat the reasonable expectations of honest men’.

AGREEMENTS SUBJECT TO CONTRACT

5.28 In cases where parties have reached an agreement as to the essential terms of their
bargain, but also envisage formal contracts being prepared and executed at a later date, the legal
question that then arises is whether an enforceable contract is created by the earlier agreement
or only upon the entry into the formal contract.70 If the essential terms have not been agreed
upon there cannot be an enforceable contract.71 For example, an ‘agreement in principle’ is not
a legally enforceable contract.72
5.29 The leading Australian authority on agreements entered into on a subject to contract
basis is Masters v Cameron73 where, in suggesting that there existed three classes of case,
Dixon CJ, McTiernan, and Kitto JJ said:
Where parties who have been in negotiation reach agreement upon terms of a contractual
nature and also agree that the matter of their negotiations 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.

5.30 The first category set out in Masters v Cameron74 arises where the parties have reached
finality in arranging all the terms of their bargain and intend to be immediately bound to
the performance of its terms, but at the same time propose restatement of these terms in a
more formal contract. In such a case, the informal agreement creates an enforceable contract

69. Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] 1 Lloyd’s Rep 121; [2005] EWCA Civ 891 at [121].
See also Berkley Community Villages Ltd v Pullen [2007] EWHC 1330 (Ch); Butters v BBC Worldwide Ltd
[2009] EWHC 1954 (Ch); Gold Group Properties Ltd v BDW Trading Ltd [2010] EWHC 1632 (TCC); CPC
Group Ltd v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch); Mid Essex Hospital Services
NHS Trust v Compass Group UK & Ireland Ltd [2013] EWCA Civ 200; Health & Case Management Ltd
v Physiotherapy Network Ltd [2018] EWHC 869 (QB).
70. The anticipated formal document may be in the form of a simple contract or a deed: A J Lucas Operations
Pty Ltd v Gladstone Area Water Board [2015] QCA 287 at [79].
71. Darzi Group Pty Ltd v Nolde Pty Ltd (2019) 100 NSWLR 394 at 424–5.
72. Oracle New Zealand Ltd v Price Waterhouse Administration Ltd [2010] 1 NZLR 553 at 556.
73. (1954) 91 CLR 353 at 360.
74. (1954) 91 CLR 353.

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whether or not the contemplated formal contract is entered into. Thus, in Branca v Corbarro,75
a clause in the informal written agreement said that the agreement between the parties was ‘a
provisional agreement until a fully legalised agreement, drawn up by a solicitor and embodying
all the conditions herewith stated, is signed’. The Court of Appeal held that the document
bound the parties immediately. In relation to the clause, Asquith LJ76 said:
[T]he language of the material clause in the so-called provisional agreement … and
more especially the word ‘until’, seems to me plainly to imply that that agreement is to be
immediately fully binding unless and until superseded by a subsequent agreement of the
same tenor, but expressed in more precise and formal language.

5.31 In Stirnemann v Kaza Investments Pty Ltd,77 the informal agreement, constituted by
a facsimile letter from the purchaser to the vendor, stated that the purchaser would ‘arrange
for further necessary paperwork to be prepared by a lawyer and forwarded up to you’.
The Full Court unanimously held this to be a first category case. Peek J78 said:
There was nothing in the words of the facsimile to suggest that the parties intended to
re-negotiate any of these terms and nothing to suggest that the lawyer(s) drawing up the final
contract would have the power to vary those essential terms. In the circumstances, the words
‘I will arrange for further necessary paperwork to be prepared by a lawyer’ meant no more
than [the purchaser] would arrange for a lawyer to provide such documents, if any, as were
necessary to effect transfer and the formalities associated with settlement. (emphasis added)

5.32 The second category set out in Masters v Cameron79 is where the parties have agreed
completely on all of the terms of their bargain and intend no departure from them, but have,
nevertheless, made performance of one or more of these terms conditional on the execution of a
formal document. In such a case the informal agreement creates an enforceable contract. Thus, if
the terms of the informal agreement stated that payment of the purchase price was conditional on
the execution of a formal contract, a failure to sign the formal contract enables the innocent party
to obtain an order for specific performance requiring the other party to execute such a contract,
thereby satisfying the condition. The execution of the formal contract is not a condition of the
contract, but rather a condition of the obligation to pay the purchase price. Thus, in Godecke
v Kirwan,80 a duly accepted offer for the sale of land stated that ‘[p]ossession shall be given and
taken on settlement upon signing and execution of a formal contract of sale within 28 days of
acceptance of [the] offer’. The High Court held this was a second category case. Walsh J81 said:
[The parties] did not intend to make the execution of the formal contract a condition of the
coming into existence of a binding agreement. They made an agreement of which one term
was that possession was to be given and taken upon signing and execution of a formal contract
within 28 days. … [T]his was a term of the bargain that could be specifically enforced.

75. [1947] KB 854; [1947] 2 All ER 101.

76. Branca v Corbarro [1947] KB 854 at 859; [1947] 2 All ER 101 at 104.
77. [2011] SASCFC 77. See also Kisimul Holdings Pty Ltd v Simms [2016] NSWSC 814; Playford Vineyard
Pty Ltd v Wishford Nominees Pty Ltd [2018] SASC 84, confirmed on appeal in Playford Vineyard Pty Ltd
v Wishford Nominees Pty Ltd [2019] SASCFC 99 at [34]–[35].
78. Stirnemann v Kaza Investments Pty Ltd [2011] SASCFC 77 at [15].
79. (1954) 91 CLR 353.
80. (1973) 129 CLR 629; 1 ALR 457. See also Niesmann v Collingridge (1921) 29 CLR 177.
81. Godecke v Kirwan (1973) 129 CLR 629 at 641; 1 ALR 457 at 464–5.

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5.33 The third category set out in Masters v Cameron82 is where the parties do not intend to
make a concluded bargain at all unless formal contracts are executed, even though the terms of
that proposed contract have been agreed on and set out in the informal agreement. In Masters
v Cameron,83 Dixon CJ, McTiernan, and Kitto JJ said the following about third category cases:
They are cases in which the terms of agreement are not intended to have, and therefore do
not have, any binding effect of their own. The parties may have so provided either because
they have dealt only with major matters and contemplate that others will or may be regulated
by provisions to be introduced into the formal document … or simply because they wish to
reserve to themselves a right to withdraw at any time until the formal document is signed.

5.34 Masters v Cameron84 was a case that fell within the third category. In this case both
parties signed a memorandum relating to the sale of a farm by Cameron to Masters. The
memorandum stated that the agreement was ‘subject to the preparation of a formal contract
of sale which shall be acceptable to [Cameron’s] solicitors’. Masters paid a deposit and made
some minor structural alterations to the property. The High Court held that the memorandum
did not create an immediately enforceable contract. Such a contract would only arise when
a formal contract had been executed. In relation to the quoted words of the memorandum,
Dixon CJ, McTiernan, and Kitto JJ85 said:
[S]uch words prima facie create an overriding condition, so that what has been agreed upon
must be regarded as the intended basis for a future contract and not as constituting a contract.

5.35 In Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd86 it was suggested that
there is a fourth category of case in addition to the three mentioned in Masters v Cameron.87
McLelland J88 said:
There is in reality a fourth class of case additional to the three mentioned in Masters
v Cameron,89 as recognised … in Sinclair, Scott & Co v Naughton,90 namely ‘… 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’.

82. (1954) 91 CLR 353.

83. Masters v Cameron (1954) 91 CLR 353 at 361. See also Seventh Shar Nominees Pty Ltd v Hortico Pty Ltd
[2000] VSC 155; Symbion Medical Centre Operations Pty Ltd v Thomco (No 2113) Pty Ltd (2009) 103
SASR 354 at 366; Al Azhari v 27 Scott Street Pty Ltd [2017] VSC 600; Edge Development Group Pty Ltd
v Jack Road Investments [2019] VSCA 91; Croser v Focus Genetics Limited Partnership [2020] NZCA 367 at
[59].
84. (1954) 91 CLR 353.
85. Masters v Cameron (1954) 91 CLR 353 at 363.
86. (1986) 40 NSWLR 622.
87. (1954) 91 CLR 353.
88. Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628. His Honour’s
statement was approved by the Court of Appeal in this case in GR Securities Pty Ltd v Baulkham Hills
Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634–5.
89. (1954) 91 CLR 353.
90. (1929) 43 CLR 310 at 317.

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5.36 His Honour then referred, with approval, to Love & Stewart Ltd v S Instone & Co Ltd,92
91

in which Lord Loreburn said:

It was quite lawful to make a bargain containing certain terms with which one was content,
dealing with what one regarded as essentials, and at the same time to say that one would have
a formal document drawn up with the full expectation that one would by consent insert in it
a number of further terms. If that were the intention of the parties, then a bargain had been
made, nonetheless that both parties felt quite sure that the formal document could comprise
more than was contained in the preliminary bargain.

5.37 An essential aspect of the fourth category is ‘recognition by the parties that the existing
terms are to be binding “immediately and exclusively”, the matter of additional terms lying
merely in the realms of expectation’.93 Thus, if the court finds that not all terms of the initial
arrangement are settled, there is no agreement within the fourth category. As the Court of
Appeal observed in Uranium Equities Ltd v Fewster,94 the fourth category is ‘a variation of the
first category … [in that] it is one in which the parties intend to be bound immediately by the
terms which they have agreed upon, while expecting to make a further contract in substitution
for the first contract containing, by consent, additional terms’.
5.38 In New South Wales, there is no dispute as to the validity of the fourth category.95 It has
also been the case in South Australia,96 Victoria,97 and Western Australia.98 On the other hand,
in the Federal Court in Australian & International Pilots Association v Qantas Airways Ltd99
Gray J doubted the existence of a fourth category. The same suggestion, when made in a journal
article by Peden, Carter, and Tolhurst,1001 was rejected by the New South Wales Court of Appeal
in Helmos Enterprises Pty Ltd v Jaylor Pty Ltd.101

91. Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628.
92. (1917) 33 TLR 475 at 476.
93. ASIC v Edwards (2005) 220 ALR 148 at 168.
94. (2008) 36 WAR 97 at 133.
95. Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44 at [86]–[88]; OXS Pty Ltd v Sydney Harbour
Foreshore Authority [2016] NSWCA 120 at [69]–[70]; Harold R Finger & Co Pty Ltd v Karellas Investments
Pty Ltd [2016] NSWCA 123 at [83]; Gu v Hong [2018] NSWSC 1330 at [33]–[34].
96. Lucke v Cleary (2011) 111 SASR 134 at 152.
97. Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141 at [103]; Molonglo Group (Australia)
Pty Ltd v Cahill [2018] VSCA 147 at [166]; Edge Development Group Pty Ltd v Jack Road Investments [2019]
VSCA 91 at [22].
98. Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486 at 494–5; Anaconda Nickel Ltd v Tarmoola
Australia Pty Ltd (2000) 22 WAR 101; Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 at [87];
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2015) 48 WAR 261 at 279.
However, in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47 WAR 547 at 567–8, the Court
of Appeal stated that it did not, for the purposes of the case before it, need to decide if there was a fourth
category.
99. [2008] FCA 1972 at [75].
100. E Peden, J W Carter and G Tolhurst, ‘When Three Just Isn’t Enough: the Fourth Category of the “Subject to
Contract” Cases’ (2004) 20 Journal of Contract Law 156.
101. [2005] NSWCA 235 at [69].
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5.39 Cases that fall into categories 1, 2, and 4 are ones where the requisite intent is found in
the informal agreement, whereas in category 3 the requisite intent is found in the subsequent
formal contract.102
5.40 In Tasman Capital Pty Ltd v Sinclair,103 Giles JA made the important point that the
various categories were simply ‘intellectual aids’, and that the question to be determined in
any given case is ‘whether parties have come to a binding agreement as a matter of their
objectively ascertained intention’. Thus, as was pointed out by McHugh JA in GR Securities
Pty Ltd v Baulkham Hills Private Hospital Pty Ltd,104 ‘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’.
5.41 As a matter of general principle, the intention of the parties as to which of the four
categories any particular case gives rise to is ascertained by construing the terms of the
informal agreement in the light of surrounding circumstances.105 The categories are merely
exemplifications of, and thus necessarily subject to, this general principle.106 One of the important
factors relevant to the process of construction is the language that the parties use. In Masters
v Cameron,107 Dixon CJ, McTiernan, and Kitto JJ observed that the use of the words ‘subject
to contract’ would usually, but not always, result in the case falling within the third category.
Thus, as was stated in Francis v New South Wales Egg Producers Co-Operative Pty Ltd,108 in most
cases, the expressions ‘subject to contract’ or ‘subject to the preparation of a formal contract’
‘prima facie give rise to an overriding condition that no binding contract is concluded at that
point, but rather what has been negotiated is an intended basis for a future contract’. However,
in RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Company KG (UK Productions)109
the Supreme Court made the following observation:
[I]t is possible for an agreement ‘subject to contract’ or ‘subject to written contract’ to become
legally binding if the parties later agree to waive that condition, for they are in effect making
a firm contract by reference to the terms of the earlier agreement. Put another way, they are
waiving the ‘subject to [written] contract’ term or understanding. Whether in such a case the
parties agreed to enter into a binding contract, waiving reliance on the ‘subject to [written]

102. Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 at [136].
103. (2008) 75 NSWLR 1; [2008] NSWCA 248 at [26]. See also Feldman v GNM Australia Ltd [2017]
NSWCA 107 at [68].
104. (1986) 40 NSWLR 631 at 634–5. See also Godecke v Kirwan (1973) 129 CLR 629 at 638–9; 1 ALR 457
at 463; Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60 at [37]; Pavlovic
v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 at 609, 617–8; Feldman v GNM Australia Ltd
[2017] NSWCA 107 at [68]–[71]; Nurisvan Investment Ltd v Anyoption Holdings Ltd [2017] VSCA 141
at [103]–[106]; Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 at [148]; Darzi Group Pty Ltd
v Nolde Pty Ltd (2019) 100 NSWLR 394 at 425–6.
105. GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 634.
106. Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60 at [37].
107. (1954) 91 CLR 353 at 362.
108. Unreported, Federal Court of Australia, Tamberlin J, 10 March 1995 at [68]. See also Winn v Bull (1877) 7
ChD 29 at 32; Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [73]; Cooma Clothing Pty Ltd
v Create Invest Develop Pty Ltd (2013) 46 VR 447 at 460; Generator Developments Ltd v Lidl UK GmbH
[2018] EWCA Civ 396 at [79]; Farrar v Rylatt [2019] EWCA Civ 1864 at [65]–[66].
109. [2010] 3 All ER 1 at 22. See also Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2019] AC 119
at 133–4; [2018] 4 All ER 21 at 33–4.

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contract’ term or understanding will again depend upon all the circumstances of the case,
although the cases show that the court will not lightly so hold.

On the other hand, the absence of words such as ‘subject to contract’ does not preclude a
finding that the agreement is a third category case. It will depend upon the construction of the
words used.110
5.42 In determining the intention of the parties in this context one is not necessarily confined
to construing a single document.111 Various factors impact on whether an informal agreement
that also contemplates a more formal contract being entered into at a later stage, is intended to
be immediately binding. In Bullion Minerals Ltd v Fewster,112 Le Miere J listed some of the most
important factors as follows:
Firstly, the mere fact that the parties contemplate the execution of a heads of agreement or a
formal contract, subsequent to an oral or informal agreement, does not mean that the oral or
informal agreement is not presently binding.

Secondly, the fact that the parties contemplated the drawing up and execution of a heads of
agreement is a consideration which may point to the conclusion that no presently binding
agreement was intended until that heads of agreement was executed.

Thirdly, the existence of matters in which the parties have not reached consensus in their
informal agreement will render it the less likely that they intended immediately to be bound
before the execution of a formal document. … [I]n the ordinary case, as a matter of fact and
commonsense, other things being equal, the more numerous and significant areas in respect
of which parties have failed to reach agreement, the slower a court will be to conclude that
they have the requisite contractual intention. Even where the parties have agreed on the
major matters, their subsequent conduct may indicate that they did not intend to be bound
until the other issues between them were resolved in a formal document.

Fourthly, in order to determine what areas the parties were, and were not, in agreement, and
what matters they considered necessary in order for an agreement to exist, it is legitimate
to examine their subsequent conduct. Where communications between the parties after
an informal agreement refer to important terms and conditions not mentioned or resolved
during that informal discussion, it may more readily be inferred that the earlier discussion
was simply a preliminary negotiation and not a binding agreement.

Fifthly, depending upon the size, importance and complexity of the subject matter, the less
formal the initial agreement, the less likely it will be that it was intended to be legally binding
and enforceable. Thus, an oral discussion which contemplates a subsequent formal written
agreement is less likely to have been intended to have been immediately binding.

Sixthly, it is necessary to consider the nature and importance of the transaction which the
parties contemplate. Where the agreement concerns a large sum or a significant transaction,
it is less likely to have been intended to be presently binding. Broadly, the bigger the deal, the
less likely that a court would conclude that informal exchange amounts to a contract.

110. Winn v Bull (1877) 7 Ch D 29 at 32; Masters v Cameron (1954) 91 CLR 353 at 363.
111. Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at [69].
112. [2007] WASC 100 at [193]–[198].

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5.43 In Pavlovic v Universal Music Australia Pty Ltd,113 it was held that a court may have regard
to the subsequent conduct of the parties in determining whether the preliminary agreement
was one that the parties intended to be binding. In relation to the subsequent conduct of the
parties, in Verrocchi v Messinis,114 Riordan J said that the following types of conduct may be
relevant:
(a) Admissions by conduct of the existence or non-existence of a legally binding contract.
(b) Throwing light upon the meaning of the language in the disputed agreement for the
purpose of determining whether the language expresses an intention to enter or not
enter contractual relations.
(c) Whether and to what extent there were uncompleted negotiations between the parties;
and the significance of the uncompleted issues.

5.44 In practice, the third category of Masters v Cameron115 is the most common.116 Atiyah117
suggests that agreements of this kind are common because ‘the legal profession has devised a
procedure which prevents parties from binding themselves to an executory arrangement …
until they have had ample opportunity to consult their solicitors and make necessary final
arrangements’, thereby protecting ‘those who are less able and skilful at managing their affairs
from making a commitment which turns out to be disadvantageous’. The ‘procedure’ that
Atiyah has in mind is the use of the ‘subject to contract’ wording. However, this is not to say
that the parties need to use words such as ‘subject to contract’ for a third category case to arise.
In Benourad v Compass Group plc,118 Beatson J said:
‘[T]he more complicated the subject matter the more likely the parties are to want to
enshrine their contract in some written document to be prepared by their solicitors.
This enables them to review all the terms before being committed to any of them. The
commonest way of achieving this ability is to stipulate that the negotiations are ‘subject to
contract’. In such a case there is no binding contract until the formal written agreement
has been duly executed. … But it is not necessary that there should have been an express
stipulation that the negotiations are to be “subject to contract”’: Cheverney Consulting Ltd
v Whitehead Mann Ltd.119 … Where there is no such stipulation, this … is a question of
construction. The fact that a draft contractual document or a covering letter to it invites
a party to initial or sign a copy and return it to the other party, or contemplates that a
party would obtain legal advice before signing are telling indications that the parties do
not intend to be bound until the document is signed: Investec Bank (UK) Ltd v Zulman.120
[some citations omitted]

113. (2015) 90 NSWLR 605 at 625. See also Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2
NSWLR 309 at 336–7; Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWCA 282 at [43].
114. [2016] VSC 490 at [35].
115. (1954) 91 CLR 353.
116. Feldman v GNM Australia Ltd [2017] NSWCA 107 at [65].
117. P S Atiyah, Essays on Contract, Clarendon Press, Oxford, 1986, p 36.
118. [2010] EWHC 1882 (QB) at [106].
119. [2006] EWCA Civ 1303 at [42].
120. [2010] EWCA Civ 536 at [19]–[20]

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5.45 The major area in which the Masters v Cameron121 question arises is in relation to
contracts for the sale of land. Such contracts are required to be evidenced in writing.122 This
means that for an informal agreement to be enforceable under the first, second, or fourth
categories, the informal agreement must satisfy the statutory requirements as to writing.
However, an oral informal agreement relating to land may be enforceable under the exceptions
to the statutory writing requirement, especially the doctrine of part performance.123
5.46 In cases where there is no statutory writing requirement and an oral arrangement that
anticipates the entry into of some more formal contract is reached between the parties, one
must determine into which of the four categories the oral arrangement falls in order to decide
whether the oral arrangement creates an otherwise enforceable contract. In Chalik v Wales,124 in
relation to an oral agreement to resolve a dispute between the contracting parties, Barrett J said:
An agreement to compromise litigation is not, of its nature, one that attracts any a priori
expectation that it will be reduced to writing. … The likelihood that the parties did not
intend to be bound except by writing could arise in some cases and would increase with the
complexity of the content of the agreement. Where the dispute was, in essence, whether a
particular sum had already been paid by one party under a pre-existing contract or remained
still to be paid, and the compromise was that that party would pay half the sum in question
and the other interested party would not then raise the issue of non-payment of the whole, the
degree of complexity would be so slight as not to attract any such expectation. The evidence
[in this case] does not show that the possibility of recording the outcome of the mediation
in writing to be signed by relevant parties was addressed at any stage of the mediation. …
It therefore cannot be said that the oral bargain struck … was made in a context where
those parties had agreed that writing was essential. I am satisfied that [the parties] were not
negotiating on the basis of any common assumption that only a written outcome would be
binding. … [T]heir oral agreement was intended to be legally binding either in a complete
and final sense or in a way contemplated by the first category in Masters v Cameron125 …
(that is, that the parties intended to be bound immediately though contemplating more
formal steps at a later time).

CONTRACTS SUBJECT TO FINANCE

5.47 In some contracts for the sale of property, parties may agree to include what is
generally referred to as a ‘subject to finance’ clause. The effect of such a clause is to make
performance of the contract conditional upon finance to purchase the property being obtained
by a purchaser. In practical terms, such a clause benefits a purchaser because he or she does
not need to incur the expense of obtaining a loan approval for the purchase of a property
before actually contracting to purchase it. This removes the risk to the purchaser of incurring
expense obtaining a loan to purchase a property which he or she may not be able to purchase
because the vendor contracts to sell the property to somebody else before the loan is approved.

121. (1954) 91 CLR 353.

122. See 8.8.
123. See 8.24–8.43.
124. [2005] NSWSC 877 at [15]–[17].
125. (1954) 91 CLR 353.

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For the vendor there is a modicum of certainty in entering into a contract because the
purchaser’s failure to obtain a loan is the only basis upon which he or she could get out of the
contract once it has been entered into.
5.48 The leading case in this area of the law is the High Court decision in Meehan v Jones.126
This case concerned a contract between in which Jones agreed to sell land to Meehan for
$800,000. The land had an oil refinery on it. The contract contained a clause to the effect
that it was subject to Meehan entering into a ‘satisfactory agreement or arrangement’ with
Ampol Petroleum to supply ‘a satisfactory quantity of crude oil’. The clause also stated that the
contract was subject to Meehan or his nominee receiving ‘approval for finance on satisfactory
terms and conditions in an amount sufficient to complete the purchase’. If both of these
conditions were not fulfilled by 31 July 1979, it was stated that the contract would be void.
On 13 July 1979, Jones gave notice to Meehan that it was terminating the agreement on the
ground that it was void for uncertainty. Ten days later Jones contracted to sell the land to Bunny
Industries. On 30 July 1979, Meehan gave notice that it had fulfilled both of the conditions and
on 7 August 1979, he paid the deposit which Jones returned the next day. Meehan then brought
an action seeking specific performance of the contract.
5.49 In ruling in favour of Meehan, the High Court said that the clause was to be read as
‘satisfactory to the purchaser’ and that the two conditions allowed Meehan to determine
whether he was relevantly satisfied that they had been fulfilled. In relation to the loan, because
Meehan had obtained a loan approval that he was satisfied with, the contract was not void
for uncertainty as Jones had alleged. In coming to that conclusion, Gibbs CJ127 said it was
unnecessary for him decide whether the test as to whether a satisfactory loan had been obtained
was a subjective or objective one.
5.50 However, the court also said that a purchaser in such a case did not have an absolute
or unfettered right to decide if, for example, the finance was satisfactory. The purchaser must
take reasonable steps to obtain a loan approval.128 In relation to acting reasonably, in the
New Zealand case of Strack v Grey,129 the Court of Appeal said that ‘the authorities establish
that what is reasonably necessary depends on the circumstances. It may include approaching
more than one lender seeking a solicitor’s advice about alternative sources of finance, and
approaching the vendors for finance’. However, the court130 went on to note, ‘[a] court may
excuse a purchaser’s failure to make reasonable efforts if satisfied they would have been futile’.

126. (1982) 149 CLR 571; 42 ALR 463.

127. Meehan v Jones (1982) 149 CLR 571 at 578–9; 42 ALR 463 at 467.
128. Meehan v Jones (1982) 149 CLR 571 at 581, 591, 598; 42 ALR 463 at 469, 477, 482.
129. [2019] NZCA 432 at [57].
130. Strack v Grey (2019) 20 NZCPR 408; [2019] NZCA 432 at [59].

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CONSIDERATION

INTRODUCTION
6.1 In Chapter 1 it was noted that a definition of contract is that the promise or obligation set
out in a contract is enforceable at law, either by the remedy of damages for breach of contract
on the one hand, or by an order of specific performance or injunction on the other. In either
case it is the doctrine of consideration that explains why these remedies for breach of contract
are available to a plaintiff who sues a defendant for failing to carry out his or her promise or
obligation.

6.2 In Chapter 4 the necessity of the existence of an agreement between parties for the
formation of a contract was discussed. In Chapter 5 the requirement that an agreement be
sufficiently certain and complete was explored. However, an agreement, of itself, does
not constitute a contract. For a promise set out in an agreement to amount to a breach of
contract if it is not carried out, the promise must be, to use a lawyerly expression, supported
by consideration.1 The doctrine of consideration is based upon the concept of reciprocity, in
that a promisee (the person to whom the promise is made) must have given something of
value in exchange for the promise. What this means is that, unless the promisee, in seeking to
enforce the promise against the promisor (the person who made the promise), has provided
consideration for the promise, he or she will not succeed in any action for a remedy based
upon a breach of contract. (The promisee may, however, obtain remedies based upon other
principles, in particular those of equitable estoppel,2 but such remedies are not dependent
upon the existence of a contract.3) In effect, the rules of consideration, which emerged from the
ancient writs of covenant, debt, and assumpsit, are a product of a history whose purpose was to
‘define which promises should be actionable, and which should not give rise to legal liability’.4
6.3 The requirement of consideration is commonly expressed as the rule that consideration
must move from a promisee.5 It has been said that the doctrine of consideration is to contract

1. Beaton v McDivitt (1987) 13 NSWLR 162 at 168; Blue v Ashley (No 2) [2017] EWHC 1928 (Comm) at [58].
2. See Chapter 36.
3. The courts have made it clear that equitable estoppel, in this context, is not to be treated as the ‘equitable
equivalent of a contract’; Saleh v Romanous (2010) 79 NSWLR 453 at 462; Auburn Shopping Village Pty Ltd
v Nelmeer Hoteliers Pty Ltd (2017) 324 FLR 378 at 409.
4. A W B Simpson, A History of the Common Law of Contract: The Rise of the Action of Assumpsit, Clarendon
Press, Oxford, 1975, p 316. See also Ma Hongjin v SCP Holdings Pte Ltd [2019] SGHC 277 at [77].
5. Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd [1915] AC 847 at 853.

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law ‘as Elvis is to rock-and-roll: the King’.6 Benson7 comments on the importance and pedigree
of consideration as follows:
No doctrine of the common law of contract has been longer settled or more carefully
developed than consideration. … [It] embodied an idea of reciprocity that had continuously
animated the long history of contract law stretching back to fourteenth- and fifteenth-
century English medieval law. … [F]rom the late sixteenth and early seventeenth centuries,
consideration stipulated a general and necessary prerequisite for a kind of liability that is still
widely viewed as distinctively ‘contractual’. If there has ever been a basic contract doctrine
that, as a matter of self-conscious legal practice, has presented itself as reflecting a unified
conception of contract, consideration is it.

6.4 For consideration to exist, the promisee must promise or do something that is of
value in the eyes of the law.8 In Attorney-General for England and Wales v R,9 it was held that
‘consideration may be provided either by a promise or by an act.’
6.5 In the 18th century, the fact that a promisor was under some moral obligation to the
promisee was seen as sufficient consideration to allow the promisee to sue on the promise.10
However, modern contract law rejects the notion that a pre-existing moral obligation is
a sufficient basis for allowing the promisee to enforce the promisor’s promise. Thus, a
promise given in return for the promisee’s natural love and affection is not one supported
by consideration and, therefore, does not give rise to a contract.11 In Eastwood v Kenyon,12
Lord Denman CJ gave the following justification for not allowing moral obligations to
constitute consideration:
The enforcement of such promises by law, however plausibly reconciled by the desire to
effect all conscientious engagements, might be attended with mischievous consequences to
society; one of which would be the frequent preference of voluntary undertakings to claims
for just debts. Suits would thereby be multiplied, and voluntary undertakings would also be
multiplied, to the prejudice of real creditors.

6.6 Eastwood v Kenyon13 was decided at a time when the notion of a contract as a bargain
took hold in contract law. A consequence of this was that a contract was seen as an exchange
of something of value between the parties to it. Thus, an agreement by A to sell a book to B for
$10 is a bargain and a contract. It contains two promises:
• A’s promise to transfer title in the book to B; and
• B’s promise to pay $10 to A.

6. J D Gordon, ‘A Dialogue About the Doctrine of Consideration’ (1990) 75 Cornell Law Review 987 at 987.
7. P Benson, ‘The Idea of Consideration’ (2011) 61 University of Toronto Law Journal 241 at 241.
8. Thomas v Thomas (1842) 114 ER 330 at 333.
9. [2002] 2 NZLR 91 at 106.
10. Hawkes v Saunders (1782) 98 ER 1091 at 1091; Lee v Muggeridge (1813) 128 ER 599 at 603.
11. Eastwood v Kenyon (1840) 113 ER 482 at 486; Director of Public Prosecutions for Victoria v Le (2007) 232
CLR 562 at 577; 240 ALR 204 at 216; Scaffidi v Chief Executive Officer, Department of Local Government and
Communities (2017) 52 WAR 368 at 395.
12. Eastwood v Kenyon (1840) 113 ER 482 at 487.
13. (1840) 113 ER 482.

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B’s consideration for A’s promise is the promise to pay A $10 for the book. A’s consideration
for B’s promise is the promise to transfer title in the book to B. Thus, in this example, from the
perspective of the requirement of consideration, the mutual exchange of promises is sufficient
to create a contract.14 In this example, both A and B are simultaneously promisor and promisee.
Their respective promises are consideration for each other’s promise. From the point of view
of the doctrine of consideration, the contract is an exchange of a promise for a promise. At the
time the contract comes into existence neither party has performed its promise. This is what is
called a bilateral contract.15 The consideration given by both A and B is executory.
6.7 With bilateral contracts it is important not to confuse the promisee’s promise that is
provided as consideration, with his or her failure to carry out that promise. As was noted by
Pembroke J in Foote v Acceler8 Technologies Pty Ltd,16 ‘[t]here is a difference between the non-
existence of consideration and the non-performance of a contractual obligation’. A promisee’s
failure to carry out his or her promise does not mean that there has been a failure to provide
consideration. It does not mean that there is no contract. Rather, it means that he or she has
committed a breach of contract, thereby entitling the promisor to a remedy for that breach.
6.8 An agreement can, in terms of consideration, also be an exchange of a promise for an act.
Thus, if A promises to pay B $10 if B finds A’s lost dog, a contract arises when B finds the dog.
A’s promise is only enforceable by B if, and when, B finds A’s lost dog. The contract between A
and B comes into existence at this point of time. Finding A’s lost dog is B’s consideration for A’s
promise. (It is also his or her acceptance of A’s offer to pay.) This is what is called a unilateral
contract.17 B’s consideration is executed.
6.9 If no consideration is given for a promise, there is no contract, but rather a promise of
a gift. There are various reasons proffered explaining why the law does not enforce promises
of a gift. First, the claims of the promisee for the enforcement of the promise are seen as less
compelling if he or she has not provided consideration, as compared to circumstances where
consideration has been provided. Second, the enforcement of promises of a gift could prejudice
the rights of other persons such as creditors of the promisor.18 Finally, such promises are often
‘foolish and ill considered’.19 The requirement of consideration also gives promisors a degree of
protection against often rash behaviour.

WHAT IS CONSIDERATION?
6.10 Definitions of consideration fall into two groups. The first defines consideration in
terms of benefit and detriment. The second defines it as an element of a bargain.

14. Perry v Anthony [2016] NSWCA 56 at [26].

15. La Mela v Franklexis Pty Ltd [2020] WASCA 83 at [77]. See 1.35–1.36.
16. [2012] NSWSC 635 at [50].
17. La Mela v Franklexis Pty Ltd [2020] WASCA 83 at [79]. See 1.37.
18. Eastwood v Kenyon (1840) 113 ER 482 at 487.
19. Beaton v McDivitt (1987) 13 NSWLR 162 at 169. See also L L Fuller, ‘Consideration and Form’ (1941)
Columbia Law Review 799 at 799.

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6.11 An example of a benefit–detriment definition is found in Balfour v Balfour,20 where

Atkin LJ said:
[C]onsideration … may consist either in some right, interest, profit or benefit accruing to one
party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken
by the other.

A major problem with the benefit–detriment definition is that, in requiring the promisee to
either confer a benefit or suffer a detriment, it requires that the promisee be ‘worse off ’ as
a result of providing consideration. However, this is not always the case. Thus, in Hamer
v Sidway,21 an uncle promised to pay his nephew $5000 if the nephew refrained from ‘drinking
liquor, using tobacco, swearing, and playing cards or billiards for money’ until the nephew
reached 21 years of age. This promise was enforceable by the nephew upon performance of the
conditions set out in the uncle’s promise. This was so even though the nephew’s acts did not
result in a benefit being conferred upon the uncle, nor did they amount to a detriment suffered
by the nephew. The nephew was not ‘worse off ’ as a result of his performance of the conditions
of the promise. If anything, he was ‘better off ’.
6.12 A definition of consideration as an element of a bargain is set out in Dunlop Pneumatic
Tyre Company Ltd v Selfridge & Company Ltd22 as follows:
An act or forbearance of one party, or promise thereof, is the price for which the promise of
the other is bought, and the promise thus given for value is enforceable.

On this definition, consideration is the price paid for the promise. The conception of
consideration as a bargain involving a quid pro quo has been firmly entrenched as part of
Australian contract law ever since the High Court decision in Australian Woollen Mills Pty Ltd
v The Commonwealth.23

CONSIDERATION MUST BE BARGAINED FOR

6.13 Under the bargain definition of consideration, before a promisee’s promise or act can
be regarded as consideration, it must be established that the promise or act is given at the
request of the promisor and in reliance upon the promisor’s promise. Although the notion of
the promisor requesting the promisee’s promise or act is not disputed, some commentators
suggest that it is not necessary that the promisee’s promise or act was made or done in reliance
upon the promisor’s promise for that promise or act to amount to consideration.
6.14 In the context of bilateral contracts it is hard to imagine any proffered consideration not
satisfying the element of reliance. Thus, the essence of a contract for the sale by A of his car to B
for $1000 is that A (as promisor) says to B (as promisee) that if B promises to pay A an amount
of $1000 (the request element), A will transfer title in the car to B. Given that B’s promise is
still only a promise to perform the act of paying the money to A in the future, it is difficult to

20. [1919] 2 KB 571 at 578.

21. 124 NY 538 (1891).
22. [1915] AC 847 at 855.
23. (1954) 92 CLR 424 at 456–7.

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see how the promise could be seen as anything else but a promise given in reliance upon A’s
promise to transfer title in the car to B.
6.15 On the other hand, the question of the need to satisfy the element of reliance in the
context of unilateral contracts has been disputed. To understand the basis of the disputation
two relevant cases need to be detailed.
6.16 In Australian Woollen Mills v The Commonwealth,24 the Commonwealth government
implemented a scheme to facilitate the supply of wool products to the public at a reasonable
price, given that wool was scarce and relatively expensive at the time. The scheme involved
the payment of subsidies to Australian wool manufacturers in relation to wool purchased for
production of products for the Australian market. Australian Woollen Mills (AWM) purchased
considerable quantities of wool. The government did not pay the subsidies on all the wool
purchased by AWM. AWM sued the Commonwealth government for the unpaid subsidies,
claiming that its purchase of wool was consideration for the promise by the government to pay
subsidies to those local wool manufacturers, such as AWM, who purchased wool. In rejecting
AWM’s claim, the High Court effectively considered the government’s subsidy scheme as a
conditional promise of a gift that could not be legally enforced. In coming to that conclusion,
the High Court25 said:
Between the statement or announcement, which is put forward as an offer capable
of acceptance by the doing of an act, and the act which is put forward as the executed
consideration for the alleged promise, there must subsist, so to speak, the relation of a quid
pro quo. … The necessary connection or relation between the announcement and the act
is provided if the inference is drawn that [the promisor] has requested [the promisee] to
[do the act].

6.17 It should be noted that AWM’s appeal to the Privy Council was dismissed.26 However, the
Privy Council27 stated that its decision was based not upon concerns relating to consideration,
but on the ground that the government’s announcement of the subsidy scheme did not
constitute an offer, but rather an unenforceable statement of policy.
6.18 By way of contrast to Australian Woollen Mills v The Commonwealth,28 one can refer to
the facts of Carlill v Carbolic Smoke Ball Co.29 In that case, the Carbolic Smoke Ball Co argued
that the promise to pay £100 to anyone who complied with the terms of the advertisement was
only a conditional promise of a gift. The Court of Appeal rejected this argument, albeit in brief
terms only. Bowen LJ,30 after noting Carbolic’s argument that ‘there was no request, express or
implied, to use the smoke ball’, ruled that there was ‘a request to use [the smoke ball] in the
offer’. As to the consideration provided, Bowen LJ31 said:

24. (1954) 92 CLR 424.

25. Australian Woollen Mills v The Commonwealth (1954) 92 CLR 424 at 456–7.
26. Australian Woollen Mills Pty Ltd v The Commonwealth (1955) 93 CLR 546.
27. Australian Woollen Mills Pty Ltd v The Commonwealth (1955) 93 CLR 546 at 554–5.
28. (1954) 92 CLR 424.
29. [1893] 1 QB 256. See 4.20.
30. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 271.
31. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 271.

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Inconvenience sustained by one party at the request of the other is enough to create a
consideration. I think, therefore, that it is enough that [Mrs Carlill] took the trouble of using
the smoke ball. But I think also that the [Carbolic Smoke Ball Co] received a benefit from
this user, for the use of the smoke ball was contemplated by [them] as being indirectly a
benefit to them, because the use of the smoke balls would promote their sale.

6.19 In Beaton v McDivitt32 McHugh JA said that there were three possible outcomes in cases
involving a promise or offer to transfer property to another person:
The first concerns a promise to transfer property subject to the occurrence of an event
or condition. The promise will not be enforceable even if the event or condition occurs.
An example is a bare promise to pay X $100 if a certain team wins a football match. The
second situation concerns a promise to transfer property after which the promisor allows
the promisee to act to his detriment in reliance on the promise. In this situation, depending
on the circumstances, equity may prevent the promisor insisting on his strict rights and may
enforce the promise. The third situation is where the promise contains an express or implied
request by the promisor to do an act or fulfil a condition. In that situation the doing of the
act or the fulfilling of the condition by the promisee in reliance on the promise will usually
constitute consideration and create a binding contract.

His Honour noted that Carlill v Carbolic Smoke Ball Co33 was an example of the third category.
6.20 It is clear from these two cases and other authorities that, for the promisee’s act
to constitute consideration, it must be performed at the request, express or implied, of the
promisor.34 Thus, if A promises to pay B $100 and B drives A to a train station, B’s performance
of that act cannot be consideration for A’s promise to pay the money, because there was no
request by A for B to drive him to the train station. On the other hand, if A promises to pay B
$100 if B drives A to the train station, B’s performance of that act is consideration insofar as
the performance of that act is done at the request of A. In such cases B’s performance of the
act would be in reliance upon A’s promise. What is not altogether clear from these two cases
is whether B’s act can be consideration if it was not performed in reliance upon A’s promise.
Such a situation would arise in circumstances where B wanted to drive A to the train station
irrespective of A’s promise to pay B if B drove him to the train station, or if B had forgotten
about A’s promise when he decided to drive A to the train station.
6.21 Mitchell and Phillips35 suggest that reliance is not necessary on the basis that ‘a request
followed by the performance of the act with knowledge of the request in itself constitutes
the indicia of an enforceable contractual promise’. In support of their argument they cite the
above passage from Australian Woollen Mills v The Commonwealth,36 in particular the last
sentence where the High Court said that ‘[t]he necessary connection or relation between
the announcement and the act is provided if the inference is drawn that [the promisor] has
requested [the promisee] to [do the act]’ (Mitchell’s and Phillips’ emphasis).

32. (1987) 13 NSWLR 162 at 182.

33. [1893] 1 QB 256.
34. Hughes v St Barbara Ltd [2011] WASCA 234 at [99]–[101]; La Mela v Franklexis Pty Ltd [2020] WASCA 83
at [79].
35. P Mitchell and J Phillips, ‘The Contractual Nexus: Is Reliance Essential?’ (2002) 22 Oxford Journal of Legal
Studies 115 at 130.
36. (1954) 92 CLR 424 at 456–7. See 6.16.

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6.22 Whatever the merits may be of the argument advanced by Mitchell and Phillips in the
context of English contract law, it is unlikely to be correct in the context of Australian contract
law. In Chapter 4 it was noted that, on the basis of the decision in R v Clarke,37 an acceptance of
an offer must be in reliance upon the offer.38 To suggest that a promisee’s performance of an act
requested by the promisor could constitute consideration, even if it was done without reliance
upon the promisor’s promise, would be inconsistent with the decision in R v Clarke.39

ONLY A PARTY PROVIDING CONSIDERATION CAN

ENFORCE A PROMISE
6.23 The essence of the doctrine of consideration is that a promisor’s promise can only be
enforced by a promisee if he or she has provided consideration for the promise. There are two
parts to this rule:
• consideration must move from the promisee; and
• it need not move to the promisor.
In Dunlop Pneumatic Tyre Company Ltd v Selfridge & Company Ltd40 Lord Haldane LC said:
[I]f a person with whom a contract not under seal has been made is to be able to enforce it
consideration must have been given by him to the promisor or to some other person at the
promisor’s request.

6.24 Thus, if A and B enter into a contract in which B (the promisor) agrees to mow A’s lawn
and in return A (the promisee) agrees to pay $100 to C, A’s promise to pay is consideration that
has moved from A, not to B, but to C, who is a third party to the promise. As a unanimous
High Court in Pico Holdings Inc v Wave Vistas Pty Ltd41 affirmed, ‘[c]onsideration must move
from the promisee (A); it need not move to the promisor (B)’. Thus, in relation to A’s promise
to B that he or she would pay C, only B can enforce that promise. This is because B’s promise to
mow the law is the consideration for A’s promise to pay C. C has not provided any consideration
for A’s promise and, on that ground alone, cannot enforce A’s promise.
6.25 An important qualification to this rule relates to joint promisees.42 The qualification can
be illustrated by the example of A, who makes a promise to B and C jointly as promisees, with
the consideration for A’s promise being provided by B. C, although a joint promisee, provides
no consideration for A’s promise. Any action to enforce A’s promise must involve both B and
C. If B refuses to be a plaintiff in the action against A, C can sue A and join B as a defendant to
the proceedings. Any damages recovered from A as a result of these proceedings will be for B
and C. In circumstances where B has died before any proceedings have been commenced against

37. (1927) 40 CLR 227.

38. See 4.72–4.74.
39. (1927) 40 CLR 227.
40. [1915] AC 847 at 853.
41. (2005) 214 ALR 392 at 407.
42. Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 478–9, 493.

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A, C is required to join B’s estate to the proceedings. However, the damages recovered in such
proceedings will, pursuant to the principle of survivorship,43 belong to C alone.
6.26 In Coulls v Bagot’s Executor & Trustee Co,44 Mr Coulls owned land and entered into
an agreement by which O’Neil Construction Pty Ltd was given a right to quarry stone from
his land. The agreement stipulated that royalties would be paid to Mr and Mrs Coulls as
joint tenants. After Mr Coulls’ death, the issue was whether the royalties were to be paid to
Mrs Coulls, pursuant to the principle of survivorship, or to the executor of Mr Coulls’ estate.
Mrs Coulls’ claim to the royalties was denied because the majority of the High Court held that
the promise by O’Neil Construction was not made to Mr and Mrs Coulls jointly. The minority45
held that the promise was to Mr and Mrs Coulls jointly and that in such cases, as long as one of
them provided consideration, that was enough for the other to be able to enforce the promise.
Two of the three majority judges46 agreed on the legal principle stated by the minority, but held
that its application did not arise on the facts of the case.

‘PAST CONSIDERATION’ IS NOT CONSIDERATION

6.27 So-called ‘past consideration’ is not consideration. The expression ‘past consideration’ is
a misnomer. What is meant by past consideration is a situation where something is done before
any promise to pay for it is made, the earlier performance being past consideration in relation
to the later promise of payment. In Attorney-General for England and Wales v R,47 Tipping J
said that ‘[a]n act already done without reference to a promise does not satisfy the concept of
an exchange which underpins the law of consideration’. Thus, if B gives A a dog and A later
promises to pay $50 to B for the dog, B cannot sue for the $50 because his or her act of giving
the dog is past consideration.
6.28 The more typical situation where the past consideration rule arises is where a contract
is entered into and completed, and subsequently one party makes a further promise to the
other. The earlier contract does not amount to consideration for the subsequent promise —
the earlier contract is past consideration. This is illustrated by the facts of Roscorla v Thomas,48
where Roscorla purchased a horse from Thomas. After the sale was completed, Thomas
promised Roscorla that the horse was sound and ‘free from vice’. This was not true. Roscorla
sued Thomas for breach of contract on the basis of that promise. He failed because there was no
consideration for the promise. The earlier purchase of the horse was past consideration. Fresh
consideration had to be given for Thomas’s promise to be enforceable.
6.29 However, exceptions to the past consideration rule exist. In Pao On v Lau Yiu Long49
the Privy Council held that where there has been the performance of an act followed later by

43. According to the principle of survivorship, where property is held by two or more persons as joint tenants,
on the death of one joint tenant the property automatically passes to the surviving joint tenant(s).
44. (1967) 119 CLR 460.
45. Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 478–9 (Barwick CJ), 493 (Windeyer J).
46. Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 486 (Taylor & Owen JJ).
47. [2002] 2 NZLR 91 at 106.
48. (1842) 114 ER 496.
49. [1980] AC 614 at 629; [1979] 3 All ER 65 at 74, cited with approval in Wilson Pastoral International Pty
Ltd v George Street Steel Pty Ltd [2020] SASFC 54 at [59]. See also Devereaux Holdings Pty Ltd v Pelsart

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a promise to pay for the performance, the promise to pay will be supported by consideration,
and therefore enforceable, if:
• the earlier act was done at the promisor’s request;
• the parties understood at the time that the act was done it would attract some payment or
other form of remuneration; and
• payment, or some other form of remuneration, must have been legally enforceable had it
been made in advance of performance of the act.
In Re Casey’s Patents; Stewart v Casey,50 Casey promoted a patent owned by his employers
and was later promised a one-third interest in the patent for his promotional work. The issue
before the court was whether or not the promotional work was past consideration. The Court
of Appeal found for Casey and enforced the promise of payment. Bowen LJ51 said:
Even if it were true, as some scientific students of law believe, that a past service cannot
support a future promise, you must look at the document and see if the promise cannot
receive a proper effect in some other way. Now, the fact of a past service raises an implication
that at the time it was rendered it was to be paid for, and, if it was a service which was to
be paid for, when you get in the subsequent document a promise to pay, that promise may
be treated either as an admission which evidences or as a positive bargain which fixes the
amount of that reasonable remuneration on the faith of which the service was originally
rendered. So that here for past services there is ample justification for the promise to give
the third share.

6.30 However, it can be noted that, pursuant to s 32(1)(b) of the Bills of Exchange Act 1909 (Cth),
past consideration is good consideration for a bill of exchange.52

CONSIDERATION CANNOT BE ILLUSORY

6.31 The use of the expression ‘illusory consideration’ relates to circumstances in which it
is claimed that there is consideration where ‘a promise is made with the rider “if I feel like
it” or some such similar qualification’.53 An agreement that reserves to a party an unfettered
discretion as to whether to perform what appears to be a promise does not create a contract.54
But, as was noted by Mukhtar AsJ in Giasoumi v Ribbera,55 ‘[a]s long as there is some vestige

Resources NL (No 2) (1985) 9 ACLR 956 at 960; Robertson v Unique Lifestyle Investments Pty Ltd [2007]
VSCA 29 at [55]; Forbes Engineering (Asia) Pty Ltd v Forbes (No 4) [2009] FCA 675 at [173]; QCoal Pty Ltd
v Cliffs Australia Coal Pty Ltd [2010] QSC 479 at [25]–[31]; Huntingdale Village Pty Ltd (receivers and
managers appointed) v Corrs Chambers Westgarth (A Firm) (No 3) [2016] WASC 366 at [57], affirmed
on appeal in Huntingdale Village Pty Ltd (receivers and managers appointed) v Corrs Chambers Westgarth
[2018] WASCA 90 at [83]–[84].
50. [1892] 1 Ch 104.
51. Re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104 at 115–16.
52. Rocky Castle Finance Pty Ltd v Taylor (2014) 118 SASR 349 at 366.
53. Barry v Davies [2001] 1 All ER 944 at 947; Giasoumi v Ribbera [2017] VSC 631 at [82].
54. Loftus v Roberts (1902) 18 TLR 532 at 534; Thorby v Goldberg (1964) 112 CLR 597 at 605; Placer Development
Ltd v The Commonwealth (1969) 121 CLR 353 at 356, 359–60; Biotechnology Australia Pty Ltd v Pace (1988)
15 NSWLR 130 at 151.
55. [2017] VSC 631 at [82], cited with approval in LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd
[2018] NSWCA 129 at [30].

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of an objectively ascertainable obligation that can be broken by the promisor, then the promise
probably amounts to a good consideration’.
6.32 However, there is a distinction to be drawn between an agreement by which a party
reserves a discretion to perform or not and an agreement in which there is an obligation to
perform, although the manner or extent of performance is discretionary.56 The latter situation
gives rise to a contract, a common example arising in employment contracts containing terms
relating to the payment of bonuses.57
6.33 In British Empire Films Pty Ltd v Oxford Theatres Pty Ltd,58 in an agreement between
Oxford Theatres (OT) and British Empire Films (BEF), OT agreed to screen only films
distributed to it by BEF for a period of five years. OT wanted to screen films from other
distributors. BEF sought an injunction to stop it from doing so. To succeed, BEF had to show
that there was a contract and that the restraint of trade imposed upon OT was reasonable and
thus enforceable. In relation to the restraint, the court held that it was reasonable. The existence
of a contract depended on whether BEF provided consideration for the restraint of trade in
its favour. A clause in the agreement stipulated that ‘under no circumstances shall [BEF] be
in any way liable for failure to supply to [OT] any of the programmes as contemplated by
this agreement’. In effect, the supply of films by BEF was discretionary. O’Bryan J59 held that
the clause was ‘not a real consideration’ because ‘a supposed consideration which is entirely
dependent upon the will of [BEF] whether it will ever become operative is illusory’. However,
there were other clauses in the contract that did establish consideration from BEF, and the
injunction was ordered.

CONSIDERATION NEED NOT BE ADEQUATE —

IT MUST BE SUFFICIENT
6.34 The principle discussed here relates to the threshold of the legal validity of what is
offered as consideration. As noted above,60 for the promisee’s promise or act to be consideration
it must be of value in the eyes of the law. To satisfy this requirement, in Attorney-General for
England and Wales v R,61 it was said that ‘[c]onsideration does not have to be commercially
adequate to be sufficient in law’.
6.35 In Director of Public Prosecutions for Victoria v Le,62 Gummow and Hayne JJ defined
‘sufficient consideration’ as follows:
When used … in the general law, the term ‘sufficient consideration’ imports a notion of
tangible benefit or advantage conferred by the promisor upon the promisee, as in the case of

56. Re Anglican Development Fund Diocese of Bathurst (2015) 336 ALR 372 at 451.
57. See 29.165–29.169.
58. [1943] VLR 163.
59. British Empire Films Pty Ltd v Oxford Theatres Pty Ltd [1943] VLR 163 at 167–8.
60. See 6.4.
61. [2002] 2 NZLR 91 at 107. See also Sturlyn v Albany (1587) 78 ER 327 at 328; Wilson Pastoral International
Pty Ltd v George Street Steel Pty Ltd [2020] SASFC 54 at [61].
62. (2007) 232 CLR 562 at 576–7; 240 ALR 204 at 216.
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a forbearance to sue, a bona fide compromise of a disputed claim, or the conferral of some
other form of practical benefit. In these cases, the ‘threshold of legal recognition’ regarding
the consideration turns on the existence of such a real benefit.

6.36 The threshold of legal recognition of consideration is not high in the sense that
there is no requirement that there is parity in terms of value between the parties’ respective
promises. A single peppercorn may constitute consideration,63 and ‘does not cease to be good
consideration if it is established that the promisee does not like pepper and will throw away
the corn’.64 In cases where the consideration is only of token value, the expression ‘nominal
consideration’ is used. For example, in Thomas v Thomas,65 a lease of a house for the life of a
tenant at an annual rent of £1 per annum was one in which the consideration was sufficient as
it was of some commercial value.
6.37 However, there can be consideration even if what is proffered has no commercial value.
For example, consideration can be found in a promise to behave in a particular way. Thus, in
Dunton v Dunton,66 a promise by a wife to ‘conduct herself with sobriety, and in a respectable,
orderly and virtuous manner’ was held to be sufficient consideration for the husband’s promise
to pay the wife certain maintenance payments following their separation. On the other hand,
in White v Bluett,67 a father made certain distributions of property to his children to the
dissatisfaction of his son, who made repeated complaints to the father over the matter. In return
for a promise by the father not to seek recovery of a loan from his son, the son promised to
cease making complaints over the distribution that his father had made. The court held that
the son’s promise to cease with the complaints was not sufficient consideration for his father’s
promise because the son had no legal right to contest his father’s right to distribute the property
as he saw fit. Thus, the son could not enforce his father’s promise.
6.38 Although consideration need only be sufficient, this does not mean that the adequacy
of consideration is never of any relevance. For example, equitable remedies are not available
to a person who has only given nominal consideration. This stems from the equitable
maxim that equity will not assist a volunteer.68 A volunteer is a person who has not provided
valuable consideration. Valuable consideration means that the consideration must have some
real value. It does not include nominal consideration.69 Furthermore, even if consideration
is provided, the fact that it is inadequate can be significant in the exercise of the court’s
discretion as to whether equitable remedies for breach of contract should be ordered. Thus,
an application for an order of specific performance can be refused if the result of the order
would be to inflict unconscientious hardship upon the defendant. One of the factors that
can establish hardship to the defendant is the fact that the plaintiff ’s consideration for the
defendant’s promise was inadequate.70

63. Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 307.
64. Chappell & Co Ltd v Nestle & Co Ltd [1960] AC 87 at 114.
65. (1842) 114 ER 330.
66. (1892) 18 VLR 114. See also Jamieson v Renwick (1891) 17 VLR 124.
67. (1853) 23 LJ (Exch) 36.
68. Smith v Leveraged Equities Ltd [2020] WASCA 122 at [81].
69. See 31.13–31.16.
70. See 31.60.

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6.39 The policy behind the common law’s acceptance of the sufficiency of consideration
principle was discussed in Woolworths Ltd v Kelly71 by Kirby P, who gave the following reasons
for the approach taken by the common law:
• Different persons put different values upon the contracts they make. Idiosyncratic,
sentimental, ethical and economic reasons motivate them. It is thus impossible for the law
to indulge in an evaluation of the equivalence of the promises made by parties to a contract.
• Judges, who decide disputes, are not particularly well trained in the multitude of economic
and other factors that need to be considered in the evaluation of decisions made by
contracting parties. They are not qualified to substitute their opinions on the wisdom of
the contract for those of the parties to it.
• If courts had to adjudicate on adequacy of consideration it would lead to a flood of cases
before the courts, made all the worse by the fact that different judges would reach different
conclusions on the same facts.
• The prospect of disputes over the adequacy of consideration would lead to much uncertainty
in an area of the law where certainty is of economic importance to society.
• There are other avenues to challenge the adequacy of a bargain where some wrong
or moral fault can be shown to justify such a challenge, such as equitable relief where
unconscionability72 can be shown, as well as a variety of rights under legislation such as the
Australian Consumer Law73 and the Contracts Review Act 1980 (NSW).74
• Contract law is a reflection of the doctrine of freedom of contract, namely, that parties are
at liberty to negotiate contracts on whatever terms they wish, free from ‘the paternalistic
superintendence of the courts as to the adequacy of their bargains’.

WHEN IS CONSIDERATION SUFFICIENT?

Promise to perform an existing public law duty
6.40 The question raised here is whether a promise to perform an obligation already imposed
upon a person by the state — one’s public law duty — can amount to consideration. The answer
is that such a promise is not good consideration.75 Examples of public law duties include the
provision of police, public health, and firefighting services.
6.41 In Collins v Godefroy,76 an attorney was subpoenaed to give evidence in a court case.
He had been promised payment of a guinea per day for his attendance. The attorney attended
court, but was not called upon to give evidence. The question before the court was whether the
promise of payment was supported by consideration from the attorney. Lord Tenterden77 held
that a person who receives a subpoena is under a legal duty to give evidence and that a promise

71. (1991) 22 NSWLR 189 at 193–4.

72. See Chapter 19.
73. See Chapter 15.
74. See Chapter 20.
75. Collins v Godefroy (1831) 109 ER 1040 at 1042; Enterprise ICT Pty Ltd v Pham (No 2) [2018] NSWCA 185
at [31]; Searle v The Commonwealth of Australia (2019) 100 NSWLR 55 at 91; 376 ALR 512 at 546.
76. (1831) 109 ER 1040.
77. Collins v Godefroy (1831) 109 ER 1040 at 1042.

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to pay that person for loss of time incurred in such attendance is a promise for which no valid
consideration is given.
6.42 However, a promise to do more than is required of the promisee in carrying out his or
her public law duty is good consideration.78 In Glasbrook Brothers Ltd v Glamorgan County
Council,79 during a strike at Glasbrook Bros’ mine, the colliery manager asked the police to
station a police guard in the colliery premises to protect certain workers. The police believed
that mobile foot patrols would provide adequate protection, but agreed to garrison the colliery
in return for payment at specified rates. When the strike was over, Glasbrook Bros refused to
pay. It argued that there was no binding promise to make the payments on the ground that the
police authority had not given consideration because it was their public duty to protect property.
A bare majority of the House of Lords held that the police authority provided consideration for
the promise to pay for the maintenance of the garrison because they had provided services of
a kind that might be charged for.
6.43 This principle emerging from the decision of the House of Lords, which was subsequently
given statutory force in England80 and has been the subject of litigation in a number of later
cases, especially involving the policing of English football matches,81 culminated in the
Court of Appeal decision in Ipswich Town Football Club Co Ltd v Chief Constable of Suffolk
Constabulary.82 In that case, the issue was whether Ipswich Town, a football club then playing
in the in the second tier of professional football in England, was obliged to pay for certain
services – referred to in the case as special police services – provided by the local police force
at the club’s stadium. The club had been granted a traffic control order by the local council over
two roads next to the stadium where turnstiles and exit gates were located. The roads were
closed during matches to allow stewards to control the crowds. At some, but not all, matches,
the police attended inside the stadium and in the traffic control order area for the purposes of
controlling crowd behaviour. However, at most matches there was no police presence at all. It
was not disputed that police services within the stadium amounted to special police services, for
which the police could charge the club. The trial judge found that services in the traffic control
order area were also special police services. However, the Court of Appeal ruled otherwise.
6.44 In the court’s leading judgment, Gloster LJ83 stated a number of factors that were relevant
to whether or not policing within the traffic control order area was special policing services

78. Searle v The Commonwealth of Australia (2019) 100 NSWLR 55 at 59.

79. [1925] AC 270. For a contextual analysis of this case see M L Williams, ‘Coercion and the labour contract:
revisiting Glasbrook Brothers and the political fiction of Lewis Jones’ (2012) 8 International Journal of Law
in Context 1.
80. Police Act 1966 (UK) s 25. For an analysis of the historical development of the principle behind the
cases involving payment for policing services see C A Williams, ‘Constables for Hire: The History of
Private ‘Public’ Policing in the UK’ (2008) 18 Policing & Society 190. Relevant statutory provisions in
Australia include Police Act 1990 (NSW) s 208 and Police Regulation 2015 (NSW) reg 144; Police Service
Administration Act 1990 (Qld) s 10.16; Victoria Police (Fees and Charges) Regulations 2014 (Vic) reg 4;
Police Act 1892 (WA) s 39G.
81. Harris v Sheffield United Football Club Ltd [1988] QB 77; [1987] 2 All ER 838; Chief Constable of the Greater
Manchester Police v Wigan Athletic AFC Ltd [2009] 1 WLR 1580; Leeds United Football Club Ltd v Chief
Constable of West Yorkshire Police [2014] QB 168.
82. [2017] EWCA Civ 1484.
83. Ipswich Town Football Club Co Ltd v Chief Constable of Suffolk Constabulary [2017] EWCA Civ 1484
at [39]–[45].

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for which the police were entitled to be paid. First, and most importantly, but not necessarily
conclusively, was the fact that the policing was on public land and not on private land. The
second factor related to circumstances where police attend in response to an emergency
situation where there is risk to the public, as opposed to being invited to attend a pre-planned
event in order to prevent or control disorder. In such a situation the prima facie conclusion is
that the services provided are part of the police’s public law duty and that they are not special
police services. In this case the police did not provide any services at the majority of Ipswich
Town’s home ground matches. Gloster LJ84 concluded that because ‘the police only attended to
police certain matches at the stadium where there was a perceived risk of public disorder …
[this was] wholly consistent with the discharge of a public duty and not [special police services]’.
The third factor was the fact that football matches are essentially public events in which the
police exercised a public function in so far as they exercised their functions on public land.
Finally, Gloster LJ noted that the trial judge wrongly concluded that the traffic control order
gave the football club control over the roads that were within it and that that meant policing
within the traffic control area pointed towards there being special policing services.
6.45 The above cases were concerned with carrying out public duties by governmental or
public authorities. Although the parental obligation to care for and maintain one’s children
falls within the range of public law duties, courts appear to be more willing to hold a promise
to maintain a child as being sufficient consideration. In Ward v Byham,85 a father’s promise to
pay the mother of their ex-nuptial child £1 per week was supported by sufficient consideration
provided by the mother’s promise to make sure that the child would be looked after and happy.
6.46 In the course of his judgment in Ward v Byham,86 Lord Denning MR expressed the
view that promises to perform existing public law duties should be regarded as sufficient
consideration. Willmott, Christensen, Butler, and Dixon87 have observed:
This is particularly persuasive in modern times, as an increasing number of government
services must be paid for by consumers of those services. Assuming validity of consideration,
it would then remain open for a court to determine whether, on public policy grounds, it
would be appropriate for the contract to be enforced.

Performance of an existing contractual duty already owed to the

promisor
6.47 It has traditionally been regarded that a promise to perform an existing contractual
duty already owed to the promisor is not good consideration for some additional benefit
promised by the promisor to the promisee.88 A typical instance where this issue arises is with
a variation of an existing contract. Such a variation must be by means of another contract
between the parties. For example, if A and B have a contract whereby B is obliged to do certain

84. Ipswich Town Football Club Company Ltd v Chief Constable of Suffolk Constabulary [2017] EWCA Civ 1484
at [40].
85. [1956] 1 All ER 318.
86. [1956] 1 All ER 318 at 319.
87. L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th ed, Oxford University Press, Melbourne,
2018, p 167.
88. Wigan v Edwards (1973) 1 ALR 497 at 512.
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work for A, and there is an agreement to vary that contract so that B is to receive an extra $100
for the work to be done, A’s promise to pay the extra $100 is only enforceable if B provides
consideration for the promised extra money. If B merely promises to do what he or she was
already contractually bound to do under the original contract with A, the promise will not be
sufficient consideration for A’s promise to pay the extra $100.
6.48 In Stilk v Meyrick,89 Stilk agreed to be a member of a ship’s crew on a voyage from London
to the Baltic and back. During the voyage, two members of the crew deserted ship and the
ship’s captain agreed to pay extra money to the remaining members of the crew upon return to
London. When the extra money was not paid, Stilk sued the ship’s captain. Lord Ellenborough
held that there was no consideration for the promise to pay the additional wages. Under the
original contract Stilk had promised ‘to do all [he] could under all emergencies of the voyage’.
As the desertion of the two members of the crew amounted to an emergency, Stilk was already
under a contractual duty to help bring the ship back to London.
6.49 However, if, in return for the promise of an additional payment, a promisee promises to
do more than his or her existing contractual duty, the promisee will have provided consideration
for the promised additional payment. In Hartley v Ponsonby,90 Hartley, a mariner, signed on as a
member of a crew on a ship’s voyage. The ship, the ‘Mobile’, had a crew of 36 men. Upon its arrival in
Port Phillip, an intermediate port, 17 of the crew deserted, leaving only 19 men to sail the ship back
to Bombay (now Mumbai). Of those remaining men, only five had the training and qualifications
to sail the ship. To induce the remaining crew, including Hartley, to sail to the next port, Ponsonby,
the ship’s captain, promised them additional payments. These were never paid and Hartley sued.
The court held that Hartley had performed more than his existing contractual duty, which was to
work on a seaworthy ship. The ship had become unseaworthy because of the shortage of a skilled
crew and, as a result, Hartley was under no obligation to continue with the voyage. Therefore,
Hartley had provided sufficient consideration to support the promise to pay the increased wages.
6.50 Furthermore, if, in return for the promise of an additional payment, a promisee promises
to do no more than his or her existing contractual duty, the promisee will have provided
consideration for the promised additional payment, if such an arrangement means that the
promisor will gain a practical benefit or avoid a disbenefit.
6.51 In Williams v Roffey Bros & Nicholls (Contractors) Ltd,91 after entering into a contract (the
‘head contract’) to renovate a block of 27 flats, Roffey Bros subcontracted the carpentry work
to Williams for a price of £20,000. Williams experienced financial difficulties and informed
Roffey Bros that he could not complete the job. Under the head contract, if Roffey Bros did not
complete it on time, it was liable to pay liquidated damages to the owner of the block of flats
for late completion of the work. In these circumstances, Roffey Bros offered to vary the original
contract by increasing the amount to be paid to Williams by £10,300. Williams accepted the
proposal, did some more work, but did not complete the job. Roffey Bros then engaged other
carpenters. Roffey Bros did not complete the head contract on time and had to pay liquidated
damages to the owner for the delay in completion. Roffey Bros refused to pay Williams for the
work he had done after the promise to pay the additional money. Williams sued to recover

89. (1809) 170 ER 1168.

90. (1857) 119 ER 1471.
91. [1991] 1 QB 1; [1990] 1 All ER 512.

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the outstanding amounts. Roffey Bros argued that Williams had undertaken to do no more in
return for the additional money than he already had to do under the subcontract, and therefore,
its promise to pay the extra money was not supported by consideration from Williams.
6.52 The Court of Appeal held that Williams had provided additional consideration for the
promise of extra money. This consideration was the potential benefit to Roffey Bros of the work
being completed on time, thereby potentially relieving it from liability for liquidated damages
to the owner of the building. The court unanimously ruled that the consequential practical
benefit to Roffey Bros amounted to sufficient consideration, despite the fact that this was never
explicitly made the subject of the variation agreement. The court rejected an argument by
Roffey Bros that the consideration did not move from the promisee (Williams). Even though
there was no detriment to Williams, he did, nevertheless, provide consideration in that the
practical benefit to Roffey Bros flowed from the agreement to vary the original contract.
6.53 In coming to this conclusion, Glidewell LJ92 set out the principles as follows:
(i) If A has entered into a contract with B to do work for, or to supply goods or services to,
B in return for the payment by B, and
(ii) at some stage before A has completely performed his obligations under the contract B has
reason to doubt whether A will, or will be able to, complete his side of the bargain, and
(iii) B thereupon promises A an additional payment in return for A’s promise to perform his
contractual obligations on time, and
(iv) as a result of giving his promise B obtains in practice a benefit, or obviates a disbenefit,
and
(v) B’s promise is not given as a result of economic duress or fraud on the part of A, then
(vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will
be legally binding.

6.54 The elements of the practical benefit test set out by Glidewell LJ in Williams v Roffey
Bros & Nicholls (Contractors) Ltd93 were generally endorsed in Musumeci v Winadell Pty Ltd.94
In this case, a tenant of a shop in a shopping centre negotiated with the landlord for a rent
reduction. The negotiation was prompted by the landlord’s decision to lease premises to
another tenant that would result in significant financial difficulties for the existing tenant. The
central issue before the court was whether the tenant had provided sufficient consideration for
the landlord’s promise to accept a reduced rent. Santow J held that, in circumstances where a
landlord in a shopping centre introduced a new tenant that would compete with an existing
tenant, if the existing tenant claimed to be unable to pay his or her rent in full and also remain
a viable business, the practical benefit to the landlord of retaining the existing tenant as a
viable tenant and keeping the centre occupied with both competitors, could serve as sufficient
consideration for the landlord’s promise to reduce the rent payable by the existing tenant.
6.55 In relation to the principles set out by Glidewell LJ in Williams v Roffey Bros & Nicholls
(Contractors) Ltd,95 Santow J96 adopted them with three modifications. First, in element (iii),
B’s promise can also be one in the form of a concession, such as reducing A’s obligation.

92. [1991] 1 QB 1 at 15–16; [1990] 1 All ER 512 at 521–2.

93. [1991] 1 QB 1; [1990] 1 All ER 512.
94. (1994) 34 NSWLR 723.
95. [1991] 1 QB 1; [1990] 1 All ER 512.
96. Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 741–7.
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Second, in element (iv), the practical benefit can only amount to sufficient consideration if A’s
performance is capable of being viewed by B as worth more than any remedy that A may have
against B. Third, in element (v), in addition to fraud and economic duress, B’s promise cannot
be the result of undue influence, unconscionable conduct, or unfair pressure exerted by A. The
decision in this case has been cited with approval in a number of subsequent Australian cases.97
6.56 Although the decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd98 court
did not overrule Stilk v Meyrick,99 it has ‘effectively rendered [it] obsolete’.100 Arguably the two
decisions are irreconcilable. If the practical benefit principle is applied to the facts of Stilk
v Meyrick,101 it is hard to argue that the ship’s captain did not gain a practical benefit by the
promise to pay extra wages to his seamen.
6.57 In New Zealand, the Court of Appeal in Antons Trawling Co Ltd v Smith102 went further
than Williams v Roffey Bros & Nicholls (Contractors) Ltd103 and explicitly rejected the authority
of Stilk v Meyrick.104 As has been noted, the Williams v Roffey Bros & Nicholls (Contractors) Ltd105
approach proceeds on the basis that in a case of an agreement to vary a contract between A
and B, by which A promises to pay B additional money for the services to be performed by B,
any practical benefit that flows to A as a consequence of B agreeing to complete the original
contract for the additional money will be regarded as sufficient consideration for A’s promise.
The court in Antons Trawling Co Ltd v Smith106 held that, in such circumstances, B does not
need to provide any consideration at all to be able to enforce A’s promise. In delivering the
judgment of the court, Baragwanath J107 said:
We are satisfied that Stilk v Meyrick108 can no longer be taken to control such cases as
[Williams v] Roffey Bros,109 … and the present case where there is no element of duress or
other policy factor suggesting that an agreement, duly performed, should not attract the legal
consequences that each party must reasonably be taken to have expected. On the contrary, a
result that deprived [the promisee] Mr Smith of the benefit of what [the promisor] Antons
promised he should receive would be inconsistent with the essential principle underlying
the law of contract, that the law will seek to give effect to freely accepted reciprocal
undertakings. The importance of consideration is as a valuable signal that the parties intend
to be bound by their agreement, rather than an end in itself. Where the parties who have

97. Tinyow v Lee [2006] NSWCA 80 at [61]; Director of Public Prosecutions for Victoria v Le (2007) 232 CLR 562
at 576–7; 240 ALR 204 at 216; W & K Holdings (NSW) Pty Ltd v Mayo [2013] NSWSC 1063 at [164]–[165];
Hill v Forteng Pty Ltd [2019] FCAFC 105 at [24].
98. [1991] 1 QB 1; [1990] 1 All ER 512.
99. (1809) 170 ER 1168.
100. Blue v Ashley (No 2) [2017] EWHC 1928 (Comm) at [59].
101. (1809) 170 ER 1168.
102. [2003] 2 NZLR 23.
103. [1991] 1 QB 1; [1990] 1 All ER 512.
104. (1809) 170 ER 1168.
105. [1991] 1 QB 1; [1990] 1 All ER 512.
106. [2003] 2 NZLR 23. The court’s decision in this case was subsequently following by the New Zealand Court
of Appeal in [2014] 3 NZLR 129 at 141. See also New Zealand Local Authority Protection Disaster Fund
v Auckland Council [2013] NZHC 1858 at [35].
107. Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 at 45–6.
108. (1809) 170 ER 1168.
109. [1991] 1 QB 1; [1990] 1 All ER 512.

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already made such intention clear by entering legal relations have acted upon an agreement
to a variation, in the absence of policy reasons to the contrary they should be bound by their
agreement. Whichever option is adopted, whether that of [Williams v] Roffey Bros110 or that
[of dispensing with the need for consideration], the result is in this case the same.

6.58 The effect of the decision in Antons Trawling Co Ltd v Smith111 is to discard the need for
consideration in relation to variation agreements. Unless there are ‘policy reasons’ precluding
it, a variation agreement of the type discussed in the above cases does not require consideration
for it to be binding on the parties to it. Policy reasons precluding enforcement of the promise
set out in the variation agreement include, but are not confined to, those noted in Musumeci
v Winadell Pty Ltd,112 namely, the presence of economic duress, fraud, undue influence,
unconscionable conduct, and unfair pressure.
6.59 In Canada, the approach in Antons Trawling Co Ltd v Smith113 was endorsed by the
Court of Appeal in British Columbia where, in delivering the decision of the Court of Appeal
in British Columbia in Rosas v Toca,114 Bauman CJ said:
When parties to a contract agree to vary its terms, the variation should be enforceable
without fresh consideration, absent duress, unconscionability, or other public policy
concerns, which would render an otherwise valid term unenforceable. A variation supported
by valid consideration may continue to be enforceable for that reason, but a lack of fresh
consideration will no longer be determinative.

On the other hand, in Braiden v La-Z-Boy Canada Ltd,115 the Ontario Court of Appeal referred
to the traditional view that ‘[a] promise to do something that a party to a contract is already
bound to do is not consideration’.
6.60 Australian law has not followed the Antons Trawling Co Ltd v Smith116 approach.
Although not specifically dealing with the decision in Antons Trawling Co Ltd v Smith,117
both the High Court in Agricultural & Rural Finance Pty Ltd v Gardiner118 and the Court of
Appeal in New South Wales in SAS Developments Pty Ltd v Kerr119 have clearly stated that fresh
consideration is necessary for the validity of an agreement to vary an existing contract.
6.61 However, the question of whether the approach in Antons Trawling Co Ltd v Smith120
represents good law is largely one of theoretical, rather than of practical, significance.
As suggested in Antons Trawling Co Ltd v Smith,121 the practical consequences of the Antons

110. [1991] 1 QB 1; [1990] 1 All ER 512.

111. [2003] 2 NZLR 23.
112. (1994) 34 NSWLR 723.
113. [2003] 2 NZLR 23.
114. [2018] BCCA 191 at [183]. See also the New Brunswick Court of Appeal decision in NAV Canada v Greater
Fredericton Airport Authority Inc (2008) 290 DLR (4th) 405 at 425.
115. (2008) 294 DLR (4th) 172 at 187.
116. [2003] 2 NZLR 23.
117. [2003] 2 NZLR 23.
118. (2008) 238 CLR 570 at 601; 251 ALR 322 at 346.
119. [2013] NSWCA 56 at [70].
120. [2003] 2 NZLR 23.
121. [2003] 2 NZLR 23.

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Trawling Co Ltd v Smith and Williams v Roffey Bros & Nicholls (Contractors) Ltd 122 approaches
are the same. Under the Antons Trawling Co Ltd v Smith123 approach, consideration is not
necessary. Under the Williams v Roffey Bros & Nicholls (Contractors) Ltd 124 approach, as was
recognised by the Singapore Court of Appeal in Gay Choon Ing v Loh Sze Ti Terence Peter,125
consideration will, in the absence of exceptional circumstances, be relatively easy to establish.
It could also be argued that under the Williams v Roffey Bros & Nicholls (Contractors) Ltd 126
approach, consideration will always be present on the basis that the promisor, acting rationally,
would not have made the promise in the first place unless it was in his or her interest to do so.127
6.62 As a further comment on the practical benefit approach to consideration, it can be noted
that, in obiter comments in MWB Business Exchange Centres Ltd v Rock Advertising Ltd,128
Lord Sumption129 questioned whether Foakes v Beer130 can be reconciled with the decision in
Williams v Roffey Bros & Nicholls (Contractors) Ltd131 when he said:
In Williams v Roffey Bros & Nicholls (Contractors) Ltd,132 the Court of Appeal held that an
expectation of commercial advantage was good consideration. The problem about this was
that practical expectation of benefit was the very thing which the House of Lords held not
to be adequate consideration in Foakes v Beer.133 There are arguable points of distinction,
although the arguments are somewhat forced. A differently constituted Court of Appeal
made these points in In re Selectmove Ltd,134 and declined to follow Williams v Roffey &
Nicholls (Contractors) Ltd.135 The reality is that any decision on this point is likely to involve
a re-examination of the decision in Foakes v Beer.136 It is probably ripe for re-examination.
But if it is to be overruled or its effect substantially modified, it should be before an enlarged
panel of the court and in a case where the decision would be more than obiter dictum.

6.63 Finally, existing case law has not explored the issue of whether the practical benefit
approach to consideration can apply outside the context of variation of an existing contract.
However, scholars such as Coote137 and Giancaspro138 have argued that it should be confined

122. [1991] 1 QB 1; [1990] 1 All ER 512.

123. [2003] 2 NZLR 23.
124. [1991] 1 QB 1; [1990] 1 All ER 512.
125. [2009] 2 SLR 332; [2009] SGCA 3 at [100]–[101].
126. [1991] 1 QB 1; [1990] 1 All ER 512.
127. Blue v Ashley (No 2) [2017] EWHC 1928 (Comm) at [59].
128. [2019] AC 119; [2018] 4 All ER 21.
129. MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 at 131; [2018] 4 All ER 21
at 33–4. See also M Roberts, ‘Foakes v Beer: Bloodied, Bowed, but Still Binding Authority?’ (2018) 29 King’s
Law Journal 344.
130. (1884) 9 App Cas 605.
131. [1991] 1 QB 1; [1990] 1 All ER 512.
132. [1991] 1 QB 1; [1990] 1 All ER 512.
133. (1884) 9 App Cas 605 at 622.
134. [1995] 2 All ER 531.
135. Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1; [1990] 1 All ER 512.
136. (1884) 9 App Cas 605.
137. B Coote, ‘Variations Sans Consideration’ (2011) 27 Journal of Contact Law 185.
138. M Giancaspro, ‘Practical Benefit: An English Anomaly or a Growing Force in Contract Law?’ (2013)
30 Journal of Contract Law 12 at 20–1; M Giancaspro, ‘Should the Practical Benefit Principle Extend to
Contract Formation?’ (2014) 42 Australian Business Law Review 389.

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to variation of contracts and not extended to the traditional rules of consideration for
contract formation.

Performance of an existing contractual duty already owed to a

third person
6.64 A promise to perform an existing contractual duty is sufficient consideration where
the promise to perform is made to a different promisor.139 In Shadwell v Shadwell,140 Shadwell
agreed to marry Ellen Nicholl. His uncle then promised in writing to pay him, for as long
as the uncle lived, £150 per annum for each year that Shadwell’s income did not exceed 600
guineas if Shadwell married Nicholl. Shadwell married her, but the uncle did not make some
of the promised payments. After the uncle’s death, Shadwell sued the uncle’s estate to recover
the outstanding payments. It was argued that Shadwell had not provided consideration for
the promised payments. The court ruled that a promise to do something that has also been
promised with respect to somebody else (in this case Shadwell’s promise to marry Ellen
Nicholl) can be good consideration. In this case the uncle obtained a real benefit (the benefit of
having a close relative marry) and Shadwell had materially altered his position.

Compromise of a claim or forbearance to sue

6.65 When a legal dispute arises between parties, it is desirable for them to resolve it by
agreement, thereby avoiding litigation. For example, B may have a claim against A for breach
of contract. A and B may settle the dispute on terms that A pays B an agreed sum in return for
B promising not to pursue his or her claim against A. These agreements fall into two categories,
namely, forbearance to sue and compromise. Forbearance to sue arises where A has admitted
liability to B. Here there is a forbearance to sue by B, who, in effect, gives up his or her right
to sue A. In these cases, B’s consideration may be in the form of: (i) a promise not to sue for
limited period; (ii), a promise not to sue at all, (iii) a promise to abandon a claim already
commenced; or, (iv) a promise, honestly made and on reasonable grounds, to defer bring a
claim honestly made and on reasonable grounds.141
6.66 Compromise of claim arises where A denies any liability but nevertheless prefers to settle
the dispute by agreement rather than having it resolved by a court. For B’s promise not to pursue
his or her claim against A, or if the proceedings have already been commenced, to cease further
pursuing it, B needs to show: (i) that the claim is reasonable, and not frivolous or vexatious;
(ii) that there is liability on A’s part or at least that B has a bona fide belief in liability on
A’s part;142 and, (iii) that he or she has an honestly held belief that the claim would be successful
if litigated.143 The fact that B’s claim may in fact be legally uncertain is of no consequence.144

139. Scotson v Pegg (1861) 158 ER 121 at 123; Pao On v Lau Yiu Long [1980] AC 614 at 632; [1979] 3 All ER 65
at 76; Ailakis v Olivero (No 2) [2014] WASCA 127 at [106]–[109]; Liggins v Park Trent Properties Group Pty
Ltd [2020] NSWSC 1113 at [108].
140. (1860) 142 ER 62.
141. Wilson Pastoral International Pty Ltd v George Street Steel Pty Ltd [2020] SASFC 54 [2]-[19].
142. Miles v New Zealand Alford Estate Co (1886) 32 Ch D 266 at 291; Simantob v Shavleyan [2019] EWCA
Civ 1105 at [49].
143. Wigan v Edwards (1973) 1 ALR 497 at 512–13.
144. Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 at 698.

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6.67 In Hercules Motors Pty Ltd v Schubert, Schubert purchased a car from Hercules
145

Motors. He later found that the car had faulty paintwork. At first Schubert demanded a new
car, but eventually agreed to accept the car company’s promise to repaint the car and put it
in an ‘as new condition’. A representative of a paint company was to supervise the work and
report on it. The report was unsatisfactory. Schubert took the car and sued on the promise to
put the car in an ‘as new condition’. The company argued that there was no consideration for its
promise. The court held there was a genuine dispute between the parties as to their respective
rights and obligations. The agreement to repaint was a compromise of that dispute. Schubert’s
compromise was sufficient consideration for the company’s promise, even though he may not
have had an enforceable claim against the company at the time.
6.68 In Wigan v Edwards,146 Mr and Mrs Edwards agreed to purchase a house from Wigan,
the builder of the house. The contract contained no express term that the house had been
constructed in a good and workmanlike manner. Before the date for completion of the contract,
Mr and Mrs Edwards gave Wigan a list of defects in the house that required attention before
they would complete the transaction. Wigan promised to remedy the defects and Mr and
Mrs Edwards paid the balance of the purchase moneys and moved in. Wigan did not do the
remedial work and Mr and Mrs Edwards sued on Wigan’s promise. Wigan argued there was no
consideration for the promise to remedy the defects. The High Court held that the purchasers
genuinely believed that they did not have to complete the purchase because of the defects to the
house. The compromise of that belief was sufficient consideration for the promise to remedy
the defects.

The rule in Pinnel’s Case

6.69 The rule in Pinnel’s Case,147 once described by Jessel MR as ‘a most extraordinary
peculiarity of the English Common Law’,148 states that part payment of a debt is not sufficient
consideration for a promise to discharge the whole debt. In Pinnel’s Case,149 Pinnel brought an
action of debt on a bond of £16 against Cole for payment of £8, 10s due on 11 November 1600.
Cole pleaded that, at the insistence of Pinnel, he had paid him £5, 2s, 2d on 1 October 1600 and
that Pinnel had accepted this in full satisfaction of the £8, 10s. The court held that payment of a
lesser sum in satisfaction of a greater sum cannot be satisfaction for the whole. Lord Coke150 said:
Where the condition is for payment of 20 pounds, the obligor cannot at the time appointed
pay a lesser sum in satisfaction of the whole, because it is apparent that a lesser sum of
money cannot be a satisfaction of a greater.

6.70 Thus, if a debtor owes a creditor $100, and the creditor promises to accept $70
in full satisfaction of the debt, the creditor’s promise is not enforceable because the debtor
has not provided any consideration for the creditor’s promise to forgo the balance of $30.

145. (1953) 53 SR (NSW) 301.

146. (1973) 1 ALR 497.
147. (1602) 77 ER 237.
148. Couldery v Bartrum (1881) 19 Ch D 394 at 399.
149. (1602) 77 ER 237.
150. Pinnel’s Case (1602) 77 ER 237 at 237.

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The consequence is that the creditor can sue the debtor to recover the balance. In relation to
the rule, Austen-Baker151 makes the following observation:
On the one hand, creditors see in it an important protection against spurious advancement
of defences of accord and satisfaction; on the other hand, it has been seen as an obstruction
to giving effect to the intentions of the parties to such agreements, and as a hindrance to
good commercial practice.

6.71 The rule was applied in Foakes v Beer.152 In that case Beer obtained a judgment in court
against Foakes for a debt. Foakes asked if he could satisfy the judgment debt by paying it off
in instalments. Beer agreed not to take any further action if Foakes paid a lump sum and the
balance by instalments. Foakes complied with the agreement. Beer then claimed the interest
that had accrued on the judgment debt. The House of Lords held that the interest was payable.
Foakes did not provide consideration in return for the plaintiff ’s promise not to take any further
action. Foakes had a pre-existing obligation to pay the whole judgment debt, which included
any accrued interest. The mere payment by instalments of the judgment debt, less the accrued
interest, was not sufficient consideration.
6.72 However, a debtor/promisee can escape from the consequences of the rule through one
of its various exceptions, some of which have been described as ‘acts which are recognized and
designated as shams’.153 It has also been noted that, in light of the various exceptions to the rule,
although the rule ‘live[s] to fight another day’, it does so ‘with both arms tied behind [its] back
and [its] legs in shackles’ and ‘leading a strange, wraith-like existence’.154 The exceptions to the
rule include the following:
• where the agreement to accept a part payment of the debt is set out in a deed;155
• where the debtor promises something other than the payment of part of the debt, provided
that what is promised amounts to, at least, nominal consideration,156 or as Lord Coke put
it in Pinnel’s Case,157 ‘the gift of a horse, hawk or robe etc, in satisfaction is good for these
might be more beneficial to the [creditor] than the money’;
• where the debtor promises to pay the lesser sum at a time earlier than originally promised;158
• where the debtor promises to pay the lesser sum at a place different to that originally
promised;159
• where the debtor’s promise forms part of a composition arrangement pursuant to the
Bankruptcy Act 1966 (Cth), which allows a debtor to enter into an arrangement to pay
a lesser sum to creditors, in which event the arrangement has the effect of precluding the
creditor going behind it and claiming the balance of the debt as this would amount to a
fraud on the other creditors;

151. R Austen-Baker, ‘A Strange Sort of Survival for Pinnel’s Case: Collier v P & M J Wright (Holdings) Limited’
(2008) 71 Modern Law Review 611 at 616.
152. (1884) 9 App Cas 605.
153. W Hemingway, ‘The Rule in Pinnel’s Case’ (1926–27) 13 Virginia Law Review 380 at 386.
154. Austen-Baker, ‘A Strange Sort of Survival for Pinnel’s Case’, note 151 above, at 619–20.
155. See 6.76.
156. Couldery v Bartrum (1881) 19 Ch D 394 at 399.
157. (1602) 77 ER 237 at 237.
158. Pinnel’s Case (1602) 77 ER 237 at 237.
159. Pinnel’s Case (1602); 77 ER 237 at 237.

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• where the debtor can satisfy the requirements of the principle of equitable estoppel,160 in
which event the creditor will be precluded from bringing any action to recover the balance
of the debt;161 and
• where part payment of the debt is paid by someone else to discharge the full amount of the
debt, the creditor cannot then claim the balance from the debtor.162

6.73 In the light of Williams v Roffey Bros & Nicholls (Contractors) Ltd,163 the question arises
as to whether the practical benefit rule can be used to overcome the consequences of the rule in
Pinnel’s Case.164 In England, in Re Selectmove Ltd165 Peter Gibson LJ suggested that it could, but
held that he was precluded from so deciding because of the binding authority of Foakes v Beer.166
On the other hand, in MWB Business Exchange Centres Ltd v Rock Advertising Ltd,167 the Court
of Appeal held that, if part payment of a debt results in a practical benefit to the creditor, part
payment of a debt will overcome the rule in Pinnel’s Case.168 The Court of Appeal stressed that
mere part payment of the debt will not of itself be enough. There must be a practical benefit
to the creditor that flows from the part payment. On appeal to the Supreme Court169 in this
case, the validity of the Court of Appeal’s decision on consideration did not arise for decision,
but some doubts were expressed as to the validity of the decision in Williams v Roffey Bros &
Nicholls (Contractors) Ltd.170
6.74 In Australia, in Wolfe v Permanent Custodians Ltd,171 Zammit AJ suggested that
a practical benefit in accordance with the principles in Williams v Roffey Bros & Nicholls
(Contractors) Ltd172 would be sufficient to overcome the consequences of the rule in Pinnel’s
Case.173 On the other hand, in Amos v Citibank Ltd174 the Court of Appeal in Queensland took
the opposite view. Furthermore, in the High Court in PGA v The Queen,175 Bell J indicated her
support for the continued authority of Foakes v Beer176 which would suggest that her Honour
would hold that the principles in Williams v Roffey Bros & Nicholls (Contractors) Ltd177 would
not be sufficient to overcome the consequences of the rule in Pinnel’s Case.178

160. See Chapter 36.

161. Collier v P & M J Wright (Holdings) Ltd [2007] EWCA Civ 1329 at [39].
162. Hirachand Punamchand v Temple [1911] 2 KB 330; Bibald Consulting Pty Ltd v Miles Special Builders Pty
Ltd (2005) 226 ALR 510 at 556.
163. [1991] 1 QB 1; [1990] 1 All ER 512.
164. (1602) 77 ER 237.
165. [1995] 2 All ER 531 at 538.
166. (1884) 9 App Cas 605.
167. [2016] 3 WLR 1519 at 1533, 1542.
168. (1602) 77 ER 237.
169. MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 at 131; [2018] 4 All ER 21 at 33-4.
170. [1991] 1 QB 1; [1990] 1 All ER 512.
171. [2012] VSC 275 at [120].
172. [1991] 1 QB 1; [1990] 1 All ER 512.
173. (1602) 77 ER 237.
174. [1996] QCA 129.
175. (2012) 245 CLR 355 at 437; 287 ALR 599 at 660.
176. (1884) 9 App Cas 605.
177. [1991] 1 QB 1; [1990] 1 All ER 512.
178. (1602) 77 ER 237.

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DEEDS AND CONSIDERATION

6.75 Contracts can be categorised as being either simple or formal.179 A simple contract
can be entered into orally and/or in writing. A formal contract is one where the agreement
is entered into in a particular written form known as a deed. Historically, deeds were referred
to as documents under seal or specialties. This nomenclature reflected the fact that the party
to be bound sealed such documents. In deeds it is common to refer to the promisor as the
covenantor and the promisee as the covenantee.
6.76 Consideration is always necessary in simple contracts.180 However, ‘[a] deed gives rise to
a binding contractual commitment, irrespective of the existence of consideration’.181 As to why
consideration is not necessary, in Morley v Boothby182 Best CJ said:
The common law protected men against improvident contracts. If they bound themselves by
deed, it was considered that they must have determined upon what they were about to do,
before they made so solemn an engagement; and therefore it was not necessary to the validity
of the instrument, that any consideration should appear on it. In all other cases the contract
was invalid, unless the party making the promise was to obtain some advantage, or the party
to whom it was made, was to suffer some inconvenience in consequence of the one making,
or the other accepting such promise.

6.77 The common law’s exceptional treatment of deeds reflects the fact that deeds were used
in major transactions that were treated with a great deal of solemnity and seriousness.183 The
sale of land is an example of such a transaction. Historically, the use of writing for transactions
was relatively uncommon. Where writing was used in the form of a deed, this reflected the
seriousness with which the transaction was viewed. The significance of the transaction of
itself rendered it one that should be enforced, irrespective of whether or not consideration was
provided by the promisee. In the contemporary world, the use of writing is more the norm
than the exception, even with many simple contracts, and the use of deeds is not surrounded
with the degree of solemnity and seriousness as was once the case.184 However, this has not
changed the fact that an agreement set out in a deed does not require consideration for it to be
binding and enforceable at common law.
6.78 Thus, if B owes A a debt of $100, and A promises in a deed to release B from all liability
on that debt, A’s promise to B is binding upon A even though B provides no consideration for
A’s promise. If A’s promise was not set out in a deed, it would not be binding upon A, and A
could sue B to recover the debt. This circumstance is confirmed in Pinnel’s Case,185 where the
court noted that ‘if a man acknowledges himself to be satisfied by deed, it is a good bar, without
anything received’.

179. See 1.34.

180. Rann v Hughes (1778) 101 ER 1014.
181. Chen v Ng [2017] UKPC 27 at [30]. See also Leonard v Booth (1954) 91 CLR 452 at 474; Howard F Hudson
Pty Ltd v Ronayne (1972) 126 CLR 449 at 462; Ermogenous v Greek Orthodox Community of SA Inc (2002)
209 CLR 95 at 105; 187 ALR 92 at 99.
182. (1825) 130 ER 455 at 456.
183. Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361 at 369; Lim Zhipeng v Seow Suat Thin [2020] SGCA 89
at [28]–[30].
184. See First National Securities Ltd v Jones [1978] Ch 109 at 114–8, 119; [1978] 2 All ER 221 at 224–7, 228.
185. (1602) 77 ER 237 at 238.

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6.79 In relation to a person’s right of enforcement of an agreement set out in a deed, where
that person has not provided consideration, he or she can do so only at common law — that
is, he or she can seek the remedy of damages.186 To this extent the deed amounts to the only
exception to the requirement for consideration. Thus, a promisee who has not provided
consideration for an agreement that is set out in a deed has the same right to the common law
remedy of damages as a promisee who has provided consideration in an agreement that is not
set out in a deed.
6.80 However, a promisee who has not provided any consideration or has provided only
nominal consideration has no right to seek equitable remedies, such as specific performance.187
As Windeyer J said in Norman v Federal Commissioner of Taxation,188 ‘[f]or equity a deed
does not make good a want of consideration’. This is because of the fundamental basis upon
which equity acts. Equitable principles are based upon principles of unconscientiousness.189 If
a promisee has not provided any consideration or has provided only nominal consideration, it
would not be unconscientious for the promisor to refuse to carry out his or her promise. This
is reflected in the equitable maxim: ‘Equity will not assist a volunteer’ — a volunteer being a
person who has not given valuable consideration. A promisee who provides no consideration
or provides only nominal consideration is a volunteer and thus is not entitled to seek equitable
relief, such as a decree of specific performance.190
6.81 It is important to note that the use of a deed does not necessarily signify an agreement
without consideration. There are advantages to using a deed, quite apart from not having to be
concerned with whether consideration has been provided by the promisee. Thus, the limitation
period for bringing an action on an agreement set out in a deed is longer as compared to a
simple contract.191 Furthermore, for some transactions the use of a deed is mandatory.192 In
cases where the promisee in a deed has provided valuable consideration for the promise, he or
she is able to seek common law or equitable remedies if the promisor fails to carry out his or
her promise.
6.82 As noted, historically deeds were referred to as documents under seal. This reflected
the manner in which they were executed. Seals are no longer necessary for a valid deed.
The procedure for execution and delivery of a deed is now largely governed by statute.193

186. Cannon v Hartley [1949] Ch 213 at 217; [1949] 1 All ER 50 at 53–4.

187. Jefferys v Jefferys (1841) 41 ER 443; Re Ellenborough; Towry Law v Burne [1903] 1 Ch 697 at 700.
188. (1963) 109 CLR 9 at 24.
189. Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 324; 201 ALR 359 at 364–5.
190. See 31.13–31.16. In New Zealand, legislation applying to deeds coming into operation after 1 January 2008
stipulates that the absence of valuable consideration in a deed is no longer a basis for refusing the remedy
of specific performance: Property Law Act 2007 (NZ) s 18(1).
191. See 29.28.
192. For example, the transfer of old system title land at law must in all Australian jurisdictions, except the
Australian Capital Territory, be by way of deed: Conveyancing Act 1919 (NSW) s 23B(1); Law of Property
Act 2009 (NT) s 9(1); Property Law Act 1974 (Qld) s 10(1); Law of Property Act 1936 (SA) s 28(1);
Conveyancing and Law of Property Act 1884 (Tas) s 60(1); Property Law Act 1958 (Vic) s 52(1); and
Property Law Act 1969 (WA) s 33(1). In the Australian Capital Territory there is no old system title land.
193. Civil Law (Property) Act 2006 (ACT) Pt 2.3 Div 1; Conveyancing Act 1919 (NSW) Pt 3 Div 1; Law of
Property Act 2000 (NT) Pt 6 Div 1; Property Law Act 1974 (Qld) Pt 6 Div 1; Law of Property Act 1936 (SA)
s 41; Conveyancing and Law of Property Act 1884 (Tas) Pt 11 Div 1; Property Law Act 1958 (Vic) ss 73–73A;
and Property Law Act 1969 (WA) Pt 2. For a discussion of these statutory requirements see Netglory Pty Ltd

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Strict compliance with the statutory formalities is necessary — a document that does not so
comply is not a deed.194 The essence of a deed was expressed by Brereton J in Re Cummings
Engineering Holdings Pty Ltd195 as follows:
The essential requirements of a deed include that it be executed and intended to operate as a
deed. The mere affixation of a seal is insufficient to render an instrument a deed; there must
be some evidence (which may be found in the deed itself, or may be parole [sic] evidence)
from which it can be concluded that the instrument was intended to operate as a deed. Thus,
that the affixing of a seal does not render a document a deed, but actual words to show the
intention of the parties that the document be executed as a deed may suffice.

6.83 Whether or not an instrument is a deed is a question of whether the parties to it intended
it to be a deed. This will be decided objectively according to the principles of contractual
construction, after considering the text of the document, the surrounding circumstances, and
the purpose of the transaction. Thus, in 400 George Street (Qld) Pty Ltd v BG International
Ltd,196 the Court of Appeal held that a document titled ‘Agreement for Lease’ was a deed, at least
partly because the words ‘executed as a deed’ and ‘signed, sealed and delivered’ were on the
signature page, even though other expressions indicative of a deed were not included in the
operative parts of the agreement as a whole. On the other hand, a document purporting to be
a deed, but which is not properly executed, may, in the appropriate circumstances, constitute
a binding simple contract between the parties. Furthermore, an unexecuted deed may, if its
parties have clearly attached themselves to it, constitute a binding simple contract.197

v Caratti [2013] WASC 364 at [88]–[179]; Burkett v Bendigo & Adelaide Bank Ltd (No2) [2018] VSC 723
at [57]–[83].
194. Netglory Pty Ltd v Caratti [2013] WASC 364 at [125]; Australian Regional Wholesalers Pty Ltd v Gardiner
[2014] WASC 439 at [24]; Brown v Tavern Operator Pty Ltd (2018) 98 NSWLR 586 at 590–2.
195. [2014] NSWSC 250 at [52].
196. [2012] 2 Qd R 302 at 317. See also United Pacific Finance Pty Ltd (Receivers and Managers Appointed)
v Govindasamy [2020] NSWSC 128 at [87].
197. Nurisvan Investment Ltd v Anyoption Holdings [2017] VSCA 141 at [56]–[57]; Bendigo and Adelaide Bank
Ltd v Pickard [2019] SASC 123 at [73].

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INTENTION TO CREATE LEGAL RELATIONS

INTRODUCTION
7.1 For a contract to exist, the parties to it must intend that their agreement is to be legally
binding in the sense that each of them will be able to sue or be sued for any breach of the
contract. This is treated as a separate and distinct requirement for the formation of a contract
to that of consideration.1 In Tipperary Developments Pty Ltd v Western Australia2 McLure JA
expressed the rule as follows:
It is of the essence of contract, regarded as a class of obligations, that there be a voluntary
assumption of a legally enforceable duty. There will be no legally enforceable contractual
duty if the circumstances show that the parties did not intend, or cannot be regarded as
having intended, to subject that agreement to the adjudication of the courts.

7.2 In relation to the emergence of the requirement of intention to create legal relations,
Ibbetson3 notes the following:
By the beginning of the twentieth century it was a commonplace of the law of contract that
there had to have been an intention to create legal relations. There was the merest of hints
of such an idea in the earlier Common law, and its appearance as a central doctrine was
substantially an importation from the Will Theory [of Contract]. The Natural lawyers had
already insisted on the intention to be bound as the feature that distinguished a genuine
promise from a joke, and this was picked up, loosely, by the English writers of the mid-
nineteenth century. It did not, however, reach the doctrinal heartland until it was …
incorporated [by Pollock] in his textbook in 1876.

7.3 According to Simpson,4 the first case to clearly recognise that an intention to create legal
relations was a requirement for the existence of a contract was Carlill v Carbolic Smoke Ball Co.5

1. Norman v FEA Plantations Ltd (2011) 195 FCR 97 at 108; 280 ALR 470 at 483; Blue v Ashley [2017] EWHC
1928 (Comm) at [55].
2. (2009) 38 WAR 488 at 516; 258 ALR 124 at 152. See also Rose & Frank Co v J R Crompton & Bros Ltd [1923]
2 KB 261 at 293; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105; 187 ALR 92
at 99; Blue v Ashley [2017] EWHC 1928 (Comm) at [55]–[56].
3. D Ibbetson, A Historical Introduction to the Law of Obligations, Oxford University Press, Oxford, 1999, p 233.
4. A W B Simpson, Leading Cases in the Common Law, Clarendon Press, Oxford, 1995, pp 281–2.
5. [1893] 1 QB 256.

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However, subsequent cases usually source the origins of the requirement in the judgment of
Atkin LJ in Balfour v Balfour.6 This case concerned the question of whether a wife could enforce
an arrangement by which her husband agreed to make certain monthly payments to her while
she remained in England and until she returned to their home in Ceylon (now Sri Lanka).
Atkin LJ7 held that the arrangement was unenforceable because it was never intended that it
should be enforced and that ‘agreements such as [this one] are outside the realm of contracts
altogether’. The facts of Balfour v Balfour8 were such that the husband’s promise was also
unenforceable on the ground that the wife had not provided consideration for the husband’s
promise. This was the basis of the decision of Duke LJ.9 However, Atkin LJ was clear that even
if there were consideration moving from the wife, the agreement would not have created a
contract because of the lack of an intention that the agreement be legally binding.
7.4 The intention of the parties to create legal relations is objectively determined.10 However,
in Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd,11 Buss JA said that there are exceptional
cases where evidence of actual or subjective intention can be admitted to ascertain the existence
or otherwise of a contract. These exceptional cases included ones where:
(a) during the negotiations the parties or their representatives were jesting, joking, engaged
in a dramatic performance or doing or saying things that were not intended to be taken
at face value; (b) the ‘contract’ was a sham; or (c) the actual state of mind of one or more of
the parties was materially affected by mistake, misrepresentation, duress or undue influence.

7.5 In relation to what evidence can be considered in determining the existence of an

intention to be legally bound, in Druin Pty Ltd v Corbin,12 Robb J said:
As a matter of principle, the inquiry into whether the necessary objective intention exists
should never be confined to the written document, or at least not necessarily be so confined,
as it would be if the ascertainment of the existence of the intention was subject to the
application of the parol evidence rule. If it is established that each party intended to be bound
by the terms of a document that apparently sets out the whole of their intended bargain, then
it is meaningful to determine the terms of the contract by generally having regard only to the
wording of the document, although subject to the established exceptions. However, if, in a
particular case, there is an antecedent inquiry as to whether there is a contract at all, it seems
to be logically necessary to permit reference to all objective circumstances that may bear
upon the existence of the necessary intention. In Alonso v SRS Investments (WA) Pty Ltd,13
Edelman J noted that the plurality in Ermogenous [v Greek Orthodox Community of SA Inc14]

6. [1919] 2 KB 571.
7. Balfour v Balfour [1919] 2 KB 571 at 579. See also Cohen v Cohen (1929) 42 CLR 91 at 96.
8. [1919] 2 KB 571.
9. Balfour v Balfour [1919] 2 KB 571 at 575–6.
10. Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWCA Civ 1334 at [17]; Ashton v Pratt (2015) 88
NSWLR 281 at 318; 318 ALR 260 at 298; Sion v NSW Trustee and Guardian [2013] NSWCA 337 at [37]–[39];
Edington v Board of Trustees of the State Public Sector Superannuation Scheme [2016] QCA 247 at [80];
Winter v Nemeth [2018] NSWSC 644 at [56]–[60]; Croser v Focus Genetics Limited Partnership [2020]
NZCA 367 at [51].
11. (2015) 47 WAR 547 at 570–1.
12. [2014] NSWSC 510 at [32].
13. [2012] WASC 168 at [47].
14. (2002) 209 CLR 95; 187 ALR 92.

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‘did not suggest that there was any requirement of ambiguity in the words of an agreement
before resort could be had to surrounding circumstances to determine whether there
is a manifest intention to be legally bound. The issue of manifest intention in entering an
agreement may be different from the construction of words in an agreement’.

7.6 Whether the evidence justifies a finding that the parties objectively intended to create
legal relations is a question of fact, not law.15 Where it is not expressly stated by the parties, the
question of intention has traditionally been determined by the operation of two presumptions:
• Where family, social, or domestic agreements are made between members of a family or
close friends it is presumed that the requisite intention is absent.
• Where commercial agreements are made it is presumed that the requisite intention is
present.
7.7 Being presumptions, they are open to rebuttal by establishing that the facts show
otherwise. In relation to both presumptions, evidence must be introduced to rebut the
presumption. The ease with which a presumption can be rebutted is very much dependent on
the nature of the relationship between the parties to the agreement and the surrounding facts
and circumstances. For example, in relation to an agreement between a husband and wife,
evidence rebutting the presumption that the parties did not intend to enter into legal relations
‘needs … to be clear and convincing’.16
7.8 In 2002, the High Court in Ermogenous v Greek Orthodox Community of SA Inc,17 stated
that the use of presumptions is of limited value and that the presence of an intention to create
a legal relationship is, in all cases, a matter that has to be proved by the party to the agreement
who alleges that it is present. Before discussing this case and its impact, the presumptions that
have been traditionally applied in this area of contract law will be analysed.

FAMILY, SOCIAL, AND DOMESTIC AGREEMENTS

Application of the presumption
7.9 In the context of family, social, or domestic agreements, in Placer Development Ltd v The
Commonwealth,18 Windeyer J said:
Social and domestic arrangements are outside the realms of contract law simply because the
parties to them must be regarded as intending that the mutual promises whether kept or
broken are not to land them in court.

7.10 The most common instance for consideration of the application of the presumption in
the context of family, social, or domestic agreements is in relation to married couples, such as
occurred in Balfour v Balfour.19 In Baird v Smee,20 Handley JA observed that ‘[t]here is a legal
presumption of some strength that informal agreements between spouses are not intended to be

15. Druin Pty Ltd v Corbin [2014] NSWSC 510 at [36].

16. Gould v Gould [1970] 1 QB 275 at 281; [1969] 3 All ER 728 at 731.
17. (2002) 209 CLR 95; 187 ALR 92.
18. (1969) 121 CLR 353 at 367.
19. [1919] 2 KB 571.
20. [2000] NSWCA 253 at [24].

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legally binding’. Balfour v Balfour21 indicates that the presumption will apply between spouses who
are living together at the time. It does not apply if spouses have separated or are about to separate
at the time of making the agreement.22 In Merritt v Merritt,23 Lord Denning MR observed that
where the parties are no longer living in amity, but have separated or are about to be separated,
they ‘do not rely on honourable understandings. They want everything to be cut and dried. It
may safely be presumed that they intend to create legal relations’. The principles emerging from
Balfour v Balfour24 and Merritt v Merritt25 apply by analogy to de facto relationships.26
7.11 The presumption also arises in the context of members of the same family. Examples
here include a mother and daughter in the case of Jones v Padavatton27 and siblings in the case
of Wakeling v Ripley.28 In Sion v NSW Trustee and Guardian,29 Emmett JA noted that, in the
context of family relationships, ‘[t]he presumption applies with diminishing force the more
remote the familial connection’. Furthermore, just because parties to the arrangement happen
to stand in such a relationship does not mean that any agreement between them is one in which
the presumption applies. Thus, in Roufos v Brewster,30 a case involving an agreement between a
mother and her daughter and son-in-law in relation to a freight truck, the Full Court held that
the presumption did not arise because the nature of the agreement was clearly commercial. Thus,
what is important is whether the nature of the agreement is of a family, social, or domestic type.
7.12  In Jones v Padavatton,31 a mother, living in Trinidad, promised her daughter, who
then lived in Washington (USA), a monthly allowance if the daughter moved to London and
completed her studies in law with a view to eventually practising in Trinidad. The daughter
agreed to do so. Two years later the agreement was varied, with the mother purchasing a house
in which the daughter was entitled to live rent-free and to keep rent money gained by renting
out other rooms in the house. A few years later, after a falling out between the mother and
daughter, the mother sought to recover possession of the house. The daughter, who had not yet
completed her studies, claimed that she had a contractual right to stay in the house. The Court
of Appeal unanimously ruled against the daughter. Dankwerts LJ and Fenton-Atkinson LJ said
the case fell within Balfour v Balfour,32 in that it was a family agreement that was not intended
to give rise to a legally binding contract. Salmon LJ took a different approach, although he came
to the same end result. His Honour ruled that the first part of the agreement relating to the
monthly allowance was a legally binding contract, given the significant financial consequences
that would attach to the daughter if it were otherwise. However, he said that the agreement was
one to last for a reasonable time, which in the context of this case had expired. Furthermore,
he was of the view that what was in dispute was the latter part of the agreement relating to

21. [1919] 2 KB 571.

22. Merritt v Merritt [1970] 2 All ER 760.
23. [1970] 2 All ER 760 at 762.
24. [1919] 2 KB 571.
25. [1970] 2 All ER 760.
26. Shortall v White [2007] NSWCA 372 at [18].
27. [1969] 2 All ER 616.
28. (1951) 51 SR (NSW) 183.
29. [2013] NSWCA 337 at [40].
30. (1971) 2 SASR 218.
31. [1969] 2 All ER 616.
32. [1919] 2 KB 571.

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the occupancy of the house, which his Honour33 ruled was ‘very vague and made without any
contractual intent’.

Rationale of the presumption

7.13 The decision of Atkin LJ in Balfour v Balfour34 indicates that the presumption stems
from a rule of law or public policy and that the parties’ intentions only become relevant when
the rebuttal of the presumption comes into play. Atkin LJ35 explained the justification for the
presumption on the basis that the courts would be inundated with cases were such agreements
legally enforceable (the ‘floodgates argument’), and observed that ‘[t]he common law does not
regulate the form of agreements between spouses’.
7.14 It has been argued by Freeman36 that Balfour v Balfour37 reflects a conception of marriage
that is no longer relevant and that the case should no longer be followed because the institution
of marriage in modern family law, contrary to Atkin LJ’s dictum in that case, ‘has embraced
contract as its guiding principle’. Freeman’s observation is undoubtedly true, and to this extent
his criticism of Balfour v Balfour38 is appropriate. However, Freeman’s critique does not address
the floodgates argument raised by Atkin LJ.

Rebuttal of the presumption

7.15 Although the presumption can be rebutted, in Sion v NSW Trustee & Guardian,39
Emmett JA pointed out that ‘[t]he vaguer the language of an arrangement and the greater its
informality, the more difficult it will be to rebut the presumption, as it will be more likely that
there was no intention to contract’.
7.16 There is no finite list of ways in which the presumption can be rebutted. However, one
of the more significant is where the promisee is involved in ‘undertaking onerous obligations
or giving up existing advantages in reliance on an allegedly binding promise’.40 Echoes of this
approach are seen in the judgment of Salmon LJ in Jones v Padavatton.41 A clear illustration of
this approach is seen in Wakeling v Ripley,42 which dealt with somewhat similar circumstances
to those that existed in the first part of the agreement in Jones v Padavatton.43
7.17 In Wakeling v Ripley,44 a man asked his sister and brother-in-law to move from England
to Australia and in return he promised that he would provide them with an income for life

33. Jones v Padavatton [1969] 2 All ER 616 at 623.

34. [1919] 2 KB 571.
35. Balfour v Balfour [1919] 2 KB 571 at 579.
36. M Freeman, ‘Contracting in the Haven: Balfour v Balfour Revisited’ in R Halson (ed), Exploring the
Boundaries of Contract, Dartmouth, Aldershot, 1996, pp 68–82.
37. [1919] 2 KB 571.
38. [1919] 2 KB 571.
39. [2013] NSWCA 337 at [41].
40. Sharp v Anderson (1994) 6 BPR 97,510 at 13,808. See also Todd v Nicol [1957] SASR 72 at 79.
41. [1969] 2 All ER 616.
42. (1951) 51 SR (NSW) 183.
43. [1969] 2 All ER 616.
44. (1951) 51 SR (NSW) 183.

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and leave them his property after he died. The sister and her husband agreed, even though
this meant giving up secure employment in England. A dispute arose between the siblings
and the brother breached the agreement. The Full Court45 held for the sister on the basis that
the agreement was ‘something very much more than a mere family or social agreement’. An
important consideration was the fact that the giving up of secure employment by the sister’s
husband would have left the couple in serious financial circumstances had the agreement not
been legally enforceable.
7.18 In Chidiac v Maatouk,46 the presumption was rebutted ‘in circumstances where the
arrangement … involved the encumbrance of the only family asset of substance … against
the background where there was a pattern of the making of loans within the family for the
recognised purpose of assisting with the acquisition or operation of businesses’. The court ruled
that ‘the loans may more readily be seen to have been made in a commercial context’.

COMMERCIAL AGREEMENTS
7.19 In commercial agreements the presumption is that the parties do intend to be legally
bound. This is an issue that rarely arises in litigation.

Rebuttal of the presumption

7.20 It was held in Edwards v Skyways Ltd47 that, in cases where rebuttal of the presumption is
in issue, the onus of showing that a commercial agreement is not intended to be legally binding
is a heavy one.

Express exclusion of intent

7.21 If parties, by use of a so-called ‘honour clause’, expressly and clearly state that their
agreement is not intended to be legally binding, a court will give effect to such a clause. In Rose
& Frank Co v J R Crompton & Bros Ltd,48 Crompton, manufacturers of tissue paper, granted the
exclusive rights to sell its product in certain areas to Rose & Frank. The agreement contained an
honour clause. Disputes arose between the parties when Crompton terminated the agreement
without notice. The Court of Appeal unanimously held that Crompton was not liable for
damages for breach of contract because the agreement was not intended to create a binding
legal relationship. By a majority, the court also held that Crompton was not liable for damages
for non-delivery of goods in relation to orders placed by Rose & Frank before the agreement
was terminated. On appeal49 the House of Lords agreed that the agreement did not have the
force of a contract, but that, once orders were made pursuant to it, a new contract arose. Thus,
Crompton was liable for damages for non-delivery of goods in relation to those orders that had
been made before the agreement was terminated.

45. Wakeling v Ripley (1951) 51 SR (NSW) 183 at 186.

46. [2010] NSWSC 386 at [178].
47. [1964] 1 All ER 494 at 500.
48. [1923] 2 KB 261.
49. Rose & Frank Co v J R Crompton & Bros Ltd [1925] AC 445.

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7.22 In contrast to cases such as Rose & Frank Co v J R Crompton & Bros Ltd,50 words used
in an agreement will not be construed to exclude an intention to create a legal relationship
if they are ambiguous. Thus, in Edwards v Skyways Ltd,51 an airline company promised to
make ‘ex gratia’ payments to redundant air crew employees following an industrial dispute,
but failed to carry out the promise. When sued, the airline company argued that use of the
words ‘ex gratia’ meant there was no intention to be legally bound by the promises. The court
rejected this argument. It held that the words ‘ex gratia payment’ referred to a payment made
in settlement of a dispute without admission of liability, and that they related only to the issue
of no admission of liability. When the promise to make such a payment was set out in an
otherwise valid contract, the use of those words did not exclude contractual intent.

ERMOGENOUS AND THE ROLE OF PRESUMPTIONS

7.23 In Ermogenous v Greek Orthodox Community of SA Inc,52 the High Court considered
the role of presumptions in a case concerning the engagement, by an incorporated Greek
community organisation in South Australia, of an archbishop to head the Autocephalous Greek
Orthodox Church in Australia. Historically, the issue of the legal status of clergy was premised
on the presumption that their work was spiritual and not rooted in contract. However, on
the complicated and unusual facts in this case, the High Court held that the agreement to
engage the services of the archbishop was one of employment and that it was intended to be
legally binding. The practical impact of the decision was that the archbishop was entitled to
statutory long-service and annual leave payments. Had it been found that the agreement was
not intended to be legally binding, the entitlements would not have been payable. In coming
to its decision, the court rejected the proposition that an agreement for the remuneration of a
clergyman is one in which an intention to create legal relations is not to be presumed.
7.24 It can also be noted that in Percy v Board of National Mission of the Church of Scotland,53
the House of Lords held that an agreement to engage the services of a church minister, on the
facts of that case, displayed an intention to create legal relations, with the result that the church
minister was entitled to pursue a claim under the Sex Discrimination Act 1975 (UK).54 What
Ermogenous v Greek Orthodox Community of SA Inc55 and Percy v Board of National Mission of
the Church of Scotland56 show is that, in relation to statutory protections for employees on facts
similar to those dealt with in those cases, the relationship between a faith worker and his or
her religious organisation is likely to be characterised as one intended to create legal relations.
However, whether an employment contract has been formed in any given case will ultimately
depend on the individual facts and circumstances, the nature of the agreement, and the structure
and beliefs of the religious body in question. This was confirmed in Preston (formerly Moore)

50. [1923] 2 KB 261 (CA); [1925] AC 445 (HL).

51. [1964] 1 All ER 494.
52. (2002) 209 CLR 95; 187 ALR 92.
53. [2006] 2 AC 28; [2006] 4 All ER 1354.
54. This Act has since been repealed. Relevant provisions relating to sexual discrimination are now found in
the Equality Act 2010 (UK), Pt 5, Ch 3.
55. (2002) 209 CLR 95; 187 ALR 92.
56. [2006] 2 AC 28; [2006] 4 All ER 1354.

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v President of the Methodist Conference,57 in which the United Kingdom Supreme Court held
that the Methodist Church minister in that case was not entitled to the benefit of statutory
provisions relating to unfair dismissal. Lord Sumption58 said:
The primary considerations are the manner in which the minister was engaged, and the
character of the rules or terms governing his or her service. But, as with all exercises in
contractual construction, these documents and any other admissible evidence on the parties’
intentions fall to be construed against their factual background. Part of that background is
the fundamentally spiritual purpose of the functions of a minister of religion.

7.25 In England, in the wake of recent cases dealing with the question of whether faith workers
are engaged under a contract of employment, in Sharpe v Bishop of Worcester,59 Arden LJ said:
Not long ago, no one entertained the idea that, at least in a church where individual churches
are subject to an overarching organisation, a minister of religion could be an employee of
the religious organisation for which he worked. Several reasons were given for this: that
the duties of office were spiritual or that the minister held an office (and that holding of an
office was exclusive of employment) or that there was a presumption that the parties did not
intend to create legal relations or that the duties were prescribed by the special institutional
framework of religious law. Slowly but surely … some of these reasons have been displaced.
The law has developed and changed because it was difficult to justify the exclusion of
ministers of religion from the benefit of modern employment protection legislation. I would
go so far as to say that there is now no rule which applies only to ministers which does not
also apply to other persons who claim to be employees although of course the facts to which
the law has to be applied are very different. It is the same principles which have to be applied.

Arden LJ60 summarised the law in this context as follows:

(a) The question of employment status cannot be answered simply by discerning whether
a minister is an office holder61 or in employment; (b) there is no presumption against
contractual intent; … and (c) the spiritual nature of a ministry does not in any way prevent
a contract of employment arising.

Arden LJ62 then went on the stress ‘that it is not an inevitable outcome that the court will seek
to imply a contract of employment in every case of a minister of religion. The facts must be
looked at in the individual case and in the round.’ On the facts of this case, the Court of Appeal
unanimously held that an Anglican priest was not engaged under a contract of employment.63

57. [2013] 2 AC 163; [2013] 4 All ER 477.

58. Preston (formerly Moore) v President of the Methodist Conference [2013] 2 AC 163 at 173; [2013] 4 All
ER 477 at 483.
59. [2015] EWCA Civ 399 at [60]. See also New Testament Church of God v Stewart [2007] EWCA Civ 1004
at [21]–[35], [63]; E v English Province of our Lady of Charity [2013] QB 722 at 746–50; [2012] 4 All
ER 1152 at 1164–7.
60. Sharpe v Bishop of Worcester [2015] EWCA Civ 399 at [67].
61. In Preston (formerly Moore) v President of the Methodist Conference [2013] 2 AC 163 at 170; [2013] 4 All
ER 477 at 480, Lord Sumption defined an ‘office’ as ‘[b]roadly speaking, … a position of a public nature,
filled by successive incumbents, whose duties were defined not by agreement but by law or by the rules of
the institution’.
62. Sharpe v Bishop of Worcester [2015] EWCA Civ 399 at [92].
63. See also, for example, Celestial Church of Christ, Edward Street Parish (A Charity) v Lawson [2017] EWHC
97 (Ch) at [30]–[34].
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7.26 It has been argued that the cases dealing with the employment status of faith workers
have been instrumental in the modern development of intention and the breaking down of the
traditional presumptions.64 This is evidenced by the decision in Ermogenous v Greek Orthodox
Community of SA Inc,65 where Gaudron, McHugh, Hayne, and Callinan JJ said:
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. …
In this context of intention to create legal relations there is frequent reference to
‘presumptions’. It is said that it may be presumed that there are some ‘family arrangements’
which are not intended to give rise to legal obligations and it was said in this case that it
should not be presumed that there was an intention to create legal relations because it was a
matter concerning the engagement of a minister of religion. For our part, we doubt the utility
of using the language of presumptions in this context. At best, the use of that language does
no more than invite attention to identifying the party who bears the onus of proof. In this
case, where issue was joined about the existence of a legally binding contract between the
parties, there could be no doubt that it was for the [archbishop] to demonstrate that there
was such a contract. Reference to presumptions may serve only to distract attention from
that most basic and important proposition.
Given the requirement that intention is determined objectively, the court cannot take into
account ‘uncommunicated subjective motives and intentions of the parties’.66
7.27 In establishing this intention, the onus of proof rests on the party alleging that the
agreement was one intended to be legally binding. In Price v Southern Cross Television (TNT9)
Pty Ltd,67 after referring to the above passage from Ermogenous v Greek Orthodox Community
of SA Inc,68 Porter J said:
In the enquiry as to the issue of intention to create contractual relations, regard must also
be had to the consideration for the promises in question and the certainty with which the
parties have expressed their agreement. Further, … the weight of the consideration in the
form of a detriment or disadvantage to the plaintiff may compensate for a lack of clarity in
the arrangements, where the substance of the promise can be ascertained, but that as the
substance of the agreement becomes difficult to identify with certainty, then the more likely
it is the arrangement will fail for want of an intention to create legal relations.

7.28 In determining the existence of such an intention, Coulson J in MacInnes v Gross69 said:
There are a number of important principles relating to the intention of the parties to create
legal relations. In particular: (a) Where there is an express agreement, in an ordinary
commercial context, the burden of disproving an intention to create legal relations is a heavy

64. I Vickovich, ‘The Modern Animus Contrahendi: Focusing on Intention through a “Contemporary Lens”’
(2011) 13 Flinders Law Journal 95.
65. (2002) 209 CLR 95 at 105–6; 187 ALR 92 at 99–100.
66. Adichio v Dankeith Homes Pty Ltd [2012] NSWCA 316 at [16].
67. [2014] TASSC 70 at [51].
68. (2002) 209 CLR 95 at 105–6; 187 ALR 92 at 99–100.
69. [2017] EWHC 46 (QB) at [77].
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one; (b) Where there is no express agreement, the onus is on the party claiming that a binding
agreement had been made to prove that there was an intention to create legal relations; (c) One
factor which may be relevant to the issue of contractual intention is the degree of precision
(or otherwise) with which the alleged agreement is expressed. Vagueness/uncertainty may be
a ground for concluding that the parties did not reach any agreement at all.

7.29 In Tadrous v Tadrous,70 Pembroke J said that satisfying the onus of proof ‘will depend on
the particular circumstances, especially the family, social or cultural circumstances’. Relevant
circumstances that a court will consider include, ‘the subject matter of the agreement, the status
of the parties to it, [and] their relationship to one another’.71 Furthermore, a court can consider
‘whether the parties were play-acting, joking, or doing something not intended to be taken
at face value’.72 In Alonso v SRS Investments (WA) Pty Ltd,73 it was held that ‘the presence of a
signature is a relevant circumstance in ascertaining whether there is an objective or manifest
intention to be legally bound’.
7.30 In the context of commercial transactions, in Western Export Services Inc v Jireh
International Ltd,74 Hammerschlag J said:
Undoubtedly, the commercial and business setting in which an alleged contract is concluded,
including the presence of valuable consideration, is relevant in an assessment of whether
there was an intention to contract.

7.31 Following the High Court’s decision in Ermogenous v Greek Orthodox Community
of SA Inc,75 a number of cases76 applied the presumptions in determining whether or not an
intention to create legal relations was present. However, the preferred view is that High Court
did change the approach to be taken.77 Thus, in Evans v Secretary, Department of Families,
Housing, Community Services and Indigenous Affairs,78 the Full Court said:
In our opinion, [the High Court] rejected the use of presumptions as a basis for ascertaining
whether parties intended to enter into contractual relations. [In that case, Gaudron, McHugh,
Hayne and Callinan JJ] explained that the question in every case was whether an objective
assessment of the state of affairs between the parties, in the context in which they were
dealing evinced an intention to create contractual relations. That enquiry can take account
of the subject matter of the agreement, the status of the parties to it, their relationship to one
another and other surrounding circumstances.

70. [2010] NSWSC 1388 at [5].

71. Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105; 187 ALR 92 at 99.
72. Seiwa Australia Pty Ltd v Beard [2009] NSWCA 240 at [185].
73. [2012] WASC 168 at [49] See also Smada Group Ltd v Miro Farms Ltd [2007] NZCA 568 at [27]; Croser
v Focus Genetics Limited Partnership [2020] NZCA 367 at [55]..
74. [2010] NSWSC 622 at [199].
75. (2002) 209 CLR 95; 187 ALR 92.
76. Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [48]; Shortall v White [2007] NSWCA
372 at [18]; Australasian College of Dermatologists (2008) 168 FCR 44 at 109; 248 ALR 267 at 330; Chidiac
v Maatouk [2010] NSWSC 386 at [177]; Kennedy & Hunt v Griffiths [2011] QSC 369 at [24]; Sion v NSW
Trustee & Guardian [2013] NSWCA 337 at [40]; Buono v Mazzella [2016] NSWSC 659 at [167]–[169].
77. Ashton v Pratt (2015) 88 NSWLR 281 at 295–6; 318 ALR 260 at 276; Arfaras v Vosnakis [2016] NSWCA 65
at [50]; Wagdy Hanna & Associates Pty Ltd v Gavagna [2016] ACTCA 64 at [30]; Halikos Hospitality Pty Ltd
v INPEX Operations Australia Pty Ltd [2020] NTCA 4 at [163].
78. (2012) 289 ALR 237 at 241.

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The Full Court went on to say:

79

The fundamental question, whatever the circumstances of the parties, is whether in the
situation in which they were, did their words and conduct objectively assessed, evince an
intention that they intended to assume legally binding contractual obligations to each other?
The family or other relationship is one circumstance that is relevant.

Where a parent asks a child to change his or her life, such as by giving up a job or career to
look after a family business or to nurse or care for the parent in old age, on the holding out
of a reward, the circumstances may warrant the inference that a legally binding contract was
intended. …

Much depends on an evaluation of the actual circumstances. There will, of course, be

situations in which language or conduct that is capable of being viewed as contractual if it
were between strangers, could be viewed differently if it occurred between family members
or friends. Although the characterisation of promises made between persons in family,
domestic and social relationships is not be governed by a presumption that they are not
contractual, nonetheless courts must be careful not to convert informal situations that
frequently arise in circumstances that involve love, friendship and concomitant human
emotional feelings of duty or responsibility, into the stuff of daily commercial life. Hence,
the importance of considering, objectively, all the circumstances in arriving at a conclusion
in respect of whether the parties intended to enter into contractual relations, free from
suggested presumptions. The surest and safest way to proceed is, as the plurality held in
[the High Court] … by examining objectively the actual circumstances and context of the
parties’ dealings to ascertain whether what they said and did evinced an intention to contract
as opposed to expressing a sincere, but legally insufficient, promise or commitment that
reflected the trust or love shared between them.

7.32 An illustrative case applying the approach to intention as set out in Ermogenous v Greek
Orthodox Community of SA Inc80 (hereafter referred to as ‘the Ermogenous approach’) is Reitano
v Reitano.81 In that case, a mother who had decided to return to live in Spain, her country
of birth, agreed to leave a house in Alexandria to her son. In return, the son agreed to help
finance the mother’s purchase of a unit in Spain and to take responsibility for all the expenses
on the Alexandria property. In finding that there was an intention to enter into a legally binding
agreement, Pembroke J82 said:
In this case the subject matter, the circumstances, including the benefit to the [mother],
the finality of her decision to leave Australia, the absence of any intention by her to return
to Australia and her desire to confer a benefit on her son, all point to the seriousness of the
[mother’s] intention, let alone that of the [son]. She consulted solicitors and had a will and

79. Evans v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2012) 289
ALR 237 at 242.
80. (2002) 209 CLR 95; 187 ALR 92.
81. [2012] NSWSC 1127. See also Jakobkiewicz v Dickson Catering Pty Ltd [2002] ACTSC 107 at [19];
Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851 at [126]–[127]; Ashton v Australian Cruising Yacht
Co Pty Ltd [2005] WASC 192 at [113]–[114], Tadrous v Tadrous [2010] NSWSC 1388 at [5]; Norman
v FEA Plantations Ltd (2011) 195 FCR 97 at 108; 280 ALR 470 at 483; Reitano v Reitano [2012] NSWSC
1127 at [38] and Ailakis v Olivero (No 2) [2014] WASCA 127 at [73]–[77]; Zierholz@UC Pty Ltd v University
of Canberra [2019] ACTSC 310 at [111].
82. Reitano v Reitano [2012] NSWSC 1127 at [38].

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power of attorney prepared. Her conversation with [her son] occurred in the context of and
immediately following her dealing with the solicitors. Her statement to her son in the dining
room in March 1986 was, I am satisfied, considered. So was the plaintiff ’s response. The
result was, in my view, that she committed herself deliberately and legally to holding the
property for her son and renouncing any interest in it. The probability that she intended to
enter into legal relations is only amplified when one has regard to her silence on the matter
over the next 25 years and the conversation with her son in 2006.

7.33 An important question that arises in the wake of Ermogenous v Greek Orthodox
Community of SA Inc83 is the extent, if any, to which its approach differs, in practical terms,
from the traditional approach of applying presumptions. In cases previously categorised as
involving family, social, or domestic agreements, nothing has changed. This can be illustrated
by reference to the facts of Balfour v Balfour.84 Under the presumptions approach, the onus of
proof was on Mrs Balfour to rebut the presumption against contractual intent in the context of
an agreement between spouses. Under the Ermogenous approach, Mrs Balfour would bear the
same onus of proof, albeit expressed in terms of her having to establish that the agreement with
her husband did have contractual intent. However, this may be quite difficult to do because, as
noted by Leeming JA in Nadilo v Souris,85 cases subsequent to Ermogenous v Greek Orthodox
Community of SA Inc86 have made it clear that family, social, or domestic agreements do not
normally give rise to contracts because the parties lack the requisite intention.
7.34 In cases previously categorised as involving commercial agreements, the onus of proof
under the presumptions approach to intention is on the party seeking to rebut the presumption
that such an agreement has contractual intent. Under the Ermogenous approach, the onus of
proof is shifted to the other party. However, given that it was the commercial nature of the
agreement that gave rise to the presumption under the presumptions approach, the very fact that
the agreement is commercial in nature will be powerful evidence in establishing intention under
the Ermogenous approach. That establishing intention pursuant to the Ermogenous approach
will be relatively easy was made clear in Ailakis v Olivero (No 2),87 where Martin CJ said:
Although the commercial character and context of an agreement should not be regarded
as giving rise to a presumption of an intention to create legal relations, the very significant
commercial characteristics of the arrangements between the Ailakis brothers and Mr Olivero
strongly support an inference that they intended those arrangements to be enforceable.

7.35 This analysis suggests that the Ermogenous approach to intention to create legal relations
is not significantly different to the traditional presumptions approach. In effect it appears that
the traditional presumptions approach continues, albeit under the guise of rules relating to the
onus of proof.

83. (2002) 209 CLR 95; 187 ALR 92.

84. [1919] 2 KB 571.
85. [2019] NSWSC 108 at [81]–[83].
86. (2002) 209 CLR 95; 187 ALR 92.
87. [2014] WASCA 127 at [91]. See also Pirt Biotechnologies Pty Ltd v Pirtferm Ltd [2001] WASCA 96 at [21].

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INTENTION IN SOME SPECIFIC CONTEXTS

Letters of comfort
7.36 A particular area in commercial practice in which the question of intention has arisen
in recent years is with letters of comfort. An illustration of the use of letters of comfort is seen
in Kleinwort Benson Ltd v Malaysia Mining Corp Berhad.88 This case concerned a loan to a
subsidiary company whose parent company had provided a letter — the letter of comfort — to
the lender, which indicated that it was the parent company’s policy to ensure that the subsidiary
was at all times in a position to meet its liabilities to the lender.
7.37 The use of letters of comfort dates back to the 1960s. Their origin appears to be grounded
in the recognition of the fact that the signatory did not wish to enter into a legally enforceable
guarantee, because such a guarantee would show up as a contingent liability in the signatory’s
accounts, or that the signatory wished to avoid any legal liability or simply protect its credit
rating.89 In recent times it has been an issue before the courts as to whether contractual liability
is attached to a party issuing a letter of comfort. This requires a determination of whether the
provider of the letter assumed a legal responsibility, or merely a moral responsibility, towards
the recipient. It is therefore a matter of interpreting the wording of the letter in the light of
the facts and circumstances of the case.90 Difficulties with interpretation can be illustrated by
looking at the letters issued in two cases of similar, but not identical, circumstances.
7.38 In Kleinwort Benson Ltd v Malaysia Mining Corp Berhad,91 the relevant part of the letter
said: ‘It is our policy to ensure that the business of [the subsidiary] … is at all times in a position to
meet its liabilities to you.’ In Banque Brussels Lambert SA v Australian National Industries Ltd,92
the relevant part of the letter said: ‘We take this opportunity to confirm that it is our practice to
ensure that our affiliate … will at all times be in a position to meet its financial obligations as
they fall due.’ At issue in both cases was whether contractual liability attached to the respective
signatories of the letters when the subsidiary and affiliate respectively proved to be unable to
meet the obligations owed to the recipients of the letters.
7.39 In Kleinwort Benson Ltd v Malaysia Mining Corp Berhad,93 the Court of Appeal held
that no guarantee was created by the letter of comfort because it was not promissory in nature.
The letter was merely a representation of intent that, at best, gave rise to a moral responsibility,
rather than a legal obligation. However, in Banque Brussels Lambert SA v Australian National
Industries Ltd,94 the Supreme Court ruled that the letter, although not creating a guarantee,
did amount to a contractual undertaking that gave rise to a right to damages. In coming to his
conclusion, Rogers CJ95 said:
There should be no room in the proper flow of commerce for some purgatory where
statements made by businessmen, after hard bargaining and made to induce another

88. [1989] 1 All ER 785.

89. Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 at 520.
90. Re Anglican Development Fund Diocese of Bathurst (2015) 336 ALR 372 at 423.
91. [1989] 1 All ER 785.
92. (1989) 21 NSWLR 502.
93. [1989] 1 All ER 785.
94. (1989) 21 NSWLR 502.
95. Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 at 523–4.

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business person to enter into a business transaction would, without any express statement
to that effect, reside in a twilight zone of merely honourable engagement. The whole thrust
of the law today is to attempt to give proper effect to commercial transactions. It is for this
reason that uncertainty, a concept so much loved by lawyers, has fallen into disfavour as a
tool for striking down commercial bargains. If the statements are appropriately promissory
in character, courts should enforce them when they are uttered in the course of business and
there is no clear indication that they are not intended to be legally enforceable. …

[I]t is inimical to the effective administration of justice in commercial disputes that a court
should use a finely tuned linguistic fork.

7.40 The approach of Rogers CJ stands in contrast to that of English courts, which are far
less inclined to find legal obligations in letters of comfort. The English approach is reflected in
Associated British Ports v Ferryways NV,96 where Maurice Kay LJ said:
[T]he position remains that a document expressed to be a letter of comfort will usually
not give rise to legal obligations (except, perhaps, as a warranty of present intention) but
sometimes a primary continuing legal obligation may arise as a matter of construction,
notwithstanding the rubric of a letter of comfort.

7.41 In Australia a number of cases have preferred the English approach.97 Ultimately, it will
always be a question of construing in context the letter of comfort to determine whether or not
legally binding obligations were intended.98
7.42 Finally, as the court in Banque Brussels Lambert SA v Australian National Industries Ltd99
indicated, there may be other, non-contractual, types of legal liability that could arise pursuant
to a letter of comfort, such as relief based upon principles of equitable estoppel100 or statutory
principles concerning misleading or deceptive conduct.101

Government agreements
7.43 Whether an agreement entered into between a private individual and a government
creates a legally enforceable contract is determined by ascertaining whether it relates to a
commercial transaction or the implementation of government policy. In the latter case, despite
the fact that an agreement has all the appearances of being an ordinary contract, a court will rule
that there is no intention to create legal relations. The justification for distinguishing between
a government commercial transaction and the implementation of government policy is that,
in the latter situation, the subject matter is one of public law involving the carrying out of a
program with the expenditure of public funds for which the government obtained a mandate

96. [2009] 1 Lloyd’s Rep 595 at 600.

97. Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510 at 516–17; Toyota Motor
Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 177; Commonwealth Bank of
Australia v Carotino (2011) 111 SASR 573 at 588.
98. Norman v FEA Plantation Ltd (2011) 195 FCR 97 at 110–11; 280 ALR 470 at 484–5; Re Anglican Development
Fund Diocese of Bathurst (2015) 336 ALR 372 at 423.
99. (1989) 21 NSWLR 502.
100. See Chapter 36.
101. See Chapter 15.
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when it was elected to office. However, with a government commercial agreement, private law
issues are raised just as they are in contracts between private individuals.
7.44 In Anictomatis v Northern Territory of Australia,102 Southwood J summarised the key
factors in determining whether the government and a member of the public have intended to
create contractual relations as follows:
First, the form of the arrangement may be an important factor. In some cases the obligations of the
parties are spelled out in the same way as in a commercial agreement. Secondly, the procedures
that were followed by the parties in formulating their arrangement may be important. Thirdly,
the fact that the relevant Government entity or servant is obliged by legislation to provide
their goods and services to the public may be an important factor. Fourthly, the fact that the
transaction is a transaction which ordinary commercial entities do not undertake may be an
important factor. That is, the subject matter of the agreement may or may not indicate whether
the parties intended to create legal relations. Fifthly, the lack of any element of negotiation in the
transaction may be an important factor. Sixthly, the fact that the agreement was in the nature of
a ‘one off ’ deal may be important. Seventhly, the fact that there has been a request by the alleged
promisor that the promisee do the act on which the latter relies may be an important factor.
Eighthly, the fact that the conduct of the parties constituted an administrative arrangement by
which the Government implemented its governmental scheme or regime may be an important
factor. That is, it is important to consider whether the transaction is being undertaken pursuant
to a specific governmental function. However, it should not be overlooked that on occasion
contract may be chosen by Government as the mode of public administration.

7.45 In Administration of the Territory of Papua and New Guinea v Leahy,103 Leahy sought,
and obtained, assistance in relation to the eradication of an infestation of cattle ticks on his
property from the Department of Agriculture pursuant to its tick eradication program. Leahy
and the department reached an agreement as to what resources each party would provide to
address Leahy’s tick problem. The department did not properly carry out its obligations under
the agreement in relation to spraying Leahy’s property. Leahy’s action for damages for breach of
contract failed because the agreement between the parties did not constitute a contract. In the
High Court,104 Dixon CJ observed that there was ‘no intention on [the part of the department]
to enter into any contract, to undertake contractual obligations or to do or to undertake more
than was considered naturally and properly incident to carrying out their governmental or
departmental function in the conditions prevailing’.

Promotional offers
7.46 Retailers often seek to attract buyers by offers of ‘free gifts’ if their products are purchased.
The question that arises is whether the offer of a ‘free gift’ gives rise to a contract when the buyer
purchases the goods. One way of looking at the issue is to determine whether there was an
intention to create a legal relationship in relation to the offer of the ‘free gift’. In Esso Petroleum
Ltd v Commissioners of Customs and Excise,105 Esso devised a promotional scheme by which
purchasers of petrol received coins bearing the likeness of a member of the English football

102. (2008) 23 NTLR 55 at [42].

103. (1961) 105 CLR 6.
104. Administration of the Territory of Papua and New Guinea v Leahy (1961) 105 CLR 6 at 10.
105. [1976] 1 All ER 117.

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team that competed in the World Cup in 1970. The Customs and Excise Commissioners
claimed that the coins had been ‘sold’ and were thus dutiable for a purchase tax. The claim by
the Commissioners could only succeed if there was a sale of the coins — a sale being defined as
a contract by which goods are transferred to a buyer in return for a money consideration called
the price. The claim failed because the consideration for the coins was not a money payment,
but rather the creation of a collateral contract106 to purchase petrol. However, in dealing with
the case, a bare majority of the House of Lords expressed the view that there was an intention
to create legal relations in relation to the coins. In reaching this conclusion the majority focused
on the commercial setting and anticipated advantages to Esso and its proprietors by increasing
the volume of petrol sales. On the other hand, the minority focused on the language of the
promotion, which used the words ‘free’ and ‘gift’, the remote possibility of litigation if the coins
were not provided to a purchaser of petrol, and the lack of any intrinsic value in the coins.

INTENTION AND CONSIDERATION

7.47 It has also been suggested that the issue of intention is very often determined by the
presence or absence of consideration. The relationship between intention and consideration has
long attracted academic attention and the need for intention, once consideration is given, has
been questioned by some lawyers. For example, the American jurist Samuel Williston famously
questioned the need for intention and saw it as a continental intrusion that was ‘useful only
in systems which lack the test of consideration to enable them to determine the boundaries of
contract’.107
7.48 On the other hand, others have argued that the doctrine of consideration can be
abolished, and that intention should determine whether or not there is a contract. For example,
Lord Wright argued that the presence of consideration was a factor to be weighed up in
establishing intention, rather than a separate requirement for the existence of a contract.108
7.49 However, most superior courts exercising common law jurisdiction have over the years
accepted the necessity for intention, since in some cases the mere presence of a promise that
satisfies the rules of consideration may not, and should not, suffice to render an agreement
enforceable in a court of law. After all, as Frederick Pollock cautioned lawyers many years ago,
‘[a]n appointment between two friends to go out for a walk or to read a book together is not
agreement in the legal sense’.109 It has been accepted that public policy and the public interest
will require some types of agreements to be beyond the power of courts. It is also clear that
parties should not be held to agreements if they have specifically agreed not to be legally bound
to each other, despite the technical presence of consideration.110

106. See 10.66–10.83.

107. N Seddon and R Bigwood, Cheshire & Fifoot Law of Contract, 11th Aust ed, LexisNexis Butterworths,
Chatswood, 2017, p 227.
108. R A (Lord) Wright, ‘Ought the Doctrine of Consideration be abolished from the Common Law?’ (1936) 49
Harvard Law Review 1225 at 1251–3.
109. Sir Frederick Pollock, The Principles of Contract, 4th ed, Blackstone Publishing Co, Philadelphia, 1888, p 80.
110. Atco Controls Ltd (in liq) v Newtronics Pty Ltd (recs & mgrs apptd) (in liq) (2009) 25 VR 411 at 428–9.

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THE REQUIREMENT OF WRITING

INTRODUCTION
8.1 The central question dealt with in this chapter is the extent to which, if at all, a contract
has to be in written form. In addressing this question, the starting point is that at common law
there is no requirement for any contract to be in written form. Thus, from the perspective of
the common law, a contract could be completely oral, partly written and partly oral, or entirely
written. In relation to entirely written contracts, all the terms of the contract are set out in the
written documentation in accordance with the parol evidence rule.1
8.2 The presence of writing makes it much easier to establish the existence of a contract and
it is prudent for parties to enter into contracts in written form, even if there is no common law
requirement of writing. This is so especially in the case of complex commercial agreements.2
Furthermore, proving the existence of an oral contract is often not without its evidentiary
difficulties.3
8.3 However, the common law rule that contracts do not necessarily have to be in writing
to be valid gives way to any statute that imposes a writing requirement. Thus, the question
becomes one of determining whether there is any statute that imposes a writing requirement
on particular types of contract.
8.4 The earliest statute requiring writing was the Statute of Frauds, adopted by the English
Parliament in 1677. It imposed a writing requirement in relation to various types of contract,
including contracts involving land. All Australian jurisdictions have statutory provisions,
derived from the Statute of Frauds, in relation to land contracts.4

1. See 10.54–10.64.
2. Gladman Developments Ltd v Sutton [2016] EWHC 1597 (Ch) at [46].
3. On establishing that a contract is entirely oral see Watson v Foxman (1995) 49 NSWLR 315 at 318–9;
Commonwealth Bank of Australia v Serobian [2009] NSWSC 302 at [362]; Gestmin SGPS SA v Credit Suisse
(UK) Ltd [2013] EWHC 3560 (Comm) at [16]–[22]; Taouk v Assure (NSW) Pty Ltd [2017] NSWSC 534
at [75]; Blue v Ashley [2017] EWHC 1928 (Comm) at [49], [69]; Edgeworth Capital (Luxembourg) SARL
v Aabar Investments PJS [2018] EWHC 1627 (Comm) at [34]; Plankton Australia Pty Ltd v Rainstorm Dust
Control Pty Ltd [2018] FCA 174 at [13]; Halikos Hospitality Pty Ltd v INPEX Operations Australia Pty Ltd
[2020] NTCA 4 at [45].
4. Civil Law (Property) Act 2006 (ACT) s 204(1); Conveyancing Act 1919 (NSW) s 54A(1); Law of Property
Act 2000 (NT) s 62; Property Law Act 1974 (Qld) s 59; Law of Property Act 1936 (SA) s 26(1); Conveyancing
and Law of Property Act 1884 (Tas) s 36(1); Instruments Act 1958 (Vic) s 126(1) and Property Law Act 1958

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8.5 Legislative provisions derived from the Statute of Frauds are not the only examples
of statutes requiring writing. Important provisions also exist in relation to contracts for the
provision of credit, which contain detailed provisions relating to the form and content of such
contracts. What must be kept in mind is that statutory writing requirements must be looked
at individually to ascertain the requirements of the legislation and the consequences of non-
compliance. Thus, provisions derived from the Statute of Frauds do not deny the validity of
oral contracts. Rather, they merely make them unenforceable.5 Other legislative provisions
may make an oral contract void. Furthermore, writing requirements imposed in relation to
contracts for the provision of credit usually also impose fines on the credit provider for non-
compliance with the relevant statutory requirements.
8.6 Statutory provisions that require a contract in relation to land to be evidenced in writing
in order to be enforceable also apply to any subsequent agreement to vary the contract.6 Thus,
a later oral contract varying an enforceable contract for the sale of land is ineffective — the
contract as orally varied cannot be enforced and the original contract remains enforceable.7
However, if the later oral agreement is one to discharge or release the parties from their
obligations pursuant to the original sale of land contract, it will be effective.8 The often difficult
question of whether the later agreement is a variation or discharge of the earlier contract is
determined by ascertaining ‘the intention of the parties as disclosed in the later agreement’.9
8.7 On the other hand, ‘[a]n oral contract, which is collateral to a contract for the sale
or other disposition of an interest in land, is not caught by [the statutory requirement of
writing]’.10 Thus, in Angell v Duke,11 where a landlord promised a prospective tenant that, if
the prospective tenant entered into a lease, the landlord would effect certain repairs and install
certain additional furniture, the promise to provide these benefits was not within the statutory
writing requirement because it formed a collateral contract12 to the contract to lease.

CONTRACTS RELATING TO LAND

8.8 As already noted, all Australian jurisdictions have provisions requiring writing in relation
to contracts involving land. For example, in New South Wales s 54A(1) of the Conveyancing
Act 1919 stipulates as follows:

(Vic) s 53(1)(a); Law Reform (Statute of Frauds) Act 1962 (WA) s 2, which stipulates that the Statute of
Frauds 1677 (UK) s 4 applies in Western Australia.
5. Goss v Lord Nugent (1835) 110 ER 713 at 716; Comlin Holdings Pty Ltd v Metlej Developments Pty Ltd [2018]
NSWSC 761 at [198].
6. Agricultural & Rural Finance Pty Pty Ltd v Gardiner (2008) 238 CLR 570 at 593; 251 ALR 322 at 339–40;
Ta Lee Investment Pty Ltd v Antonios [2019] NSWCA 24 at [171].
7. Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 at 243; Adicho v Dankeith Homes Pty Ltd [2012]
NSWCA 316 at [29].
8. Goss v Lord Nugent (1833) 5 B & Ad 58; 110 ER 713 at 716; Tallerman and Co Pty Ltd v Nathan’s Merchandise
(Victoria) Pty Ltd (1957) 98 CLR 93 at 113.
9. Tallerman and Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 113. See 23.23–23.24.
10. Powercell Pty Ltd v Cuzeno Pty Ltd [2003] NSWSC 600 at [116].
11. (1875) LR 10 QB 174.
12. On collateral contracts see 10.66–10.86.

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54A Contracts for sale etc of land to be in writing

(1) No action or proceedings may be brought upon any contract for the sale or other
disposition of land or any interest in land, unless the agreement upon which such action or
proceedings is brought, or some memorandum or note thereof, is in writing, and signed by
the party to be charged or by some other person thereunto lawfully authorised by the party
to be charged.

To raise the statutory requirement of writing as a defence in civil proceedings, it must generally
be expressly pleaded so as to avoid surprise at trial.13 Most Australian jurisdictions have civil
procedure and court rules to that effect.

Rationale and background

8.9 In Actionstrength Ltd v International Glass Engineering In Gl En SpA14 Lord Bingham of
Cornhill said that the purpose of the legislation was ‘to prevent the calling of perjured evidence
to prove spurious agreements said to have been made orally’. That land contracts attracted this
particular attention of the legislature reflects the political, economic, and social significance
attached to land ownership. Through to the late 19th century England was predominantly a rural,
agrarian society in which the ownership of land was at the core of family inheritance, political
power, and social prestige.15 Historically, the right to vote was dependent on the ownership of
land. For example, in 18th century England and Wales the franchise was dependent upon a
man owning freehold property worth at least 40 shillings a year.16 Furthermore, candidates for
a seat in parliament were expected to have significant land holdings before being able to stand
for election. Thus, the Property Qualifications Act 1711 (UK) required members of parliament
to possess real estate to the value of £600 in counties and £300 in boroughs.17

Contracts covered by the legislation

8.10 Two aspects of the legislation must be noted in terms of ascertaining which contracts
are covered by the statutory requirement of writing. First, the legislation refers to contracts
for the sale or disposition of land. The primary meaning of ‘sale’ is the exchange of property
for money.18 The legislation does not extend this meaning.19 As to the meaning of ‘disposition’,
statutory definitions are found in most Australian jurisdictions.20 These definitions, although

13. Grundy v Cassar [2010] WASC 409 at [173].

14. Actionstrength Ltd v International Glass Engineering In Gl En SpA [2003] 2 AC 544 at 549; [2003] 2 All
ER 615 at 617. See also Nguyen v S M & T Homes Ltd [2017] 3 NZLR 281 at 288.
15. In the 1560s the leading Elizabethan lawyer Sir Thomas Smith wrote: ‘Day labourers, poor husbandmen,
yea merchants or retailers which have no free land have no voice nor authority in our commonwealth, and
no account is made of them, but only to be ruled’: cited in A Linklater, Owning the Earth, The Transforming
History of Land Ownership, Bloomsbury, London, 2014, p 31.
16. W A Speck, A Concise History of Britain 1707–1975, Cambridge University Press, Cambridge, 1993, pp 7–8.
17. Speck, A Concise History of Britain 1707–1975, note 16 above, p 10.
18. Sun World Inc v Registrar, Plant Variety Rights (1977) 148 ALR 447 at 458.
19. Robshaw Brothers Ltd v Mayer [1957] 1 Ch 125 at 131–2; [1956] 3 All ER 833 at 836.
20. Conveyancing Act 1919 (NSW) s 7(1); Law of Property Act 2000 (NT) s 4; Property Law Act 1974 (Qld)
Sch 6; Law of Property Act 1936 (SA) s 7; Property Law Act 1958 (Vic) s 18(1); Property Law Act 1969
(WA) s 7.

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not uniform, are generally broad and cover a variety of acts which result in the transfer of
property from one person to another. Thus, in South Australia, s 7 of the Law of Property
Act 1884 defines ‘disposition’ as including ‘a conveyance and also a devise, bequest, or an
appointment of property contained in a will’.
8.11 Second, the legislation extends to land, but also interests in land. Interests in land
include interests such as leases, mortgages, easements, and other rights of way. An important
example of an interest in land is that created by a lease. However, a licence to occupy land does
not give rise to an interest in land, and is therefore not subject to the statutory requirement of
writing. The ‘decisive’ distinguishing feature between a lease and a licence is that, for a lease to
arise, the occupier must be granted the right to exclusive possession of the land.21

Requirements of the legislation — the note or memorandum

8.12 The critical aspect of the legislation is that, to be enforceable, the contract between
the parties must be recorded in a written contract or ‘note or memorandum’ of the contract.
Written contracts, usually prepared by solicitors or conveyancers, are the customary way in
which this aspect of the legislation is satisfied. However, as is clear from the legislation, other
documents, such as letters22 and receipts,23 may also be sufficient, provided they constitute a
‘note or memorandum’ of the contract. Furthermore, ‘a written offer signed by the party to
be charged and accepted by parol by the offeree is a sufficient memorandum or note of an
agreement to satisfy [the requirements of the legislation]’.24
8.13 It is also clear that the legislation’s requirements can be satisfied even if the required
terms are set out in more than one document,25 although there is some uncertainty as to just
how clearly or explicitly a signed document must refer to the other documents. In Thomson
v McInnes,26 Griffith CJ said that ‘the reference … in the document signed must be to some
other document as such, and not merely to some transaction or event in the course of which
another document may or may not have been written’. However, a less stringent approach is set
out in Timmins v Moreland Street Property Co Ltd,27 where Jenkins LJ said:
[I]t is still indispensably necessary, in order to justify the reading of documents together
for this purpose, that there should be a document signed by the party to be charged, which,
while not containing in itself all the necessary ingredients of the required memorandum,
does contain some reference, express or implied, to some other document or transaction.
Where any such reference can be spelt out of a document so signed, then parol evidence may
be given to identify the other document referred to, or, as the case may be, to explain the
other transaction, and to identify any document relating to it. If by this process a document is

21. Radaich v Smith (1959) 101 CLR 209 at 217.

22. Thirkell v Cambi [1919] 2 KB 590.
23. Dinan v Harper [1922] VLR 49.
24. Lifoon Pty Ltd v Gillard [2006] NSWCA 182 at [42].
25. Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] 3 All ER 842 at 856–7.
26. (1911) 12 CLR 562 at 569.
27. [1958] Ch 110 at 130; [1957] 3 All ER 265 at 276. See also Harvey v Edwards Dunlop & Co (1927) 39 CLR
302 at 307; Todrell Pty Ltd v Finch (No 1) [2008] 1 Qd R 540 at 556–60; Australian and New Zealand Banking
Group v Widin (1990) 102 ALR 289 at 298–300; Tonitto v Bassal (1992) 28 NSWLR 564 at 572–4; Pang
v Byhand Holdings Pty Ltd [2010] NSWCA 175 at [21]–[22].

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brought to light which contains in writing all the terms of the bargain so far as not contained
in the document signed by the party to be charged, then the two documents can be read
together so as to constitute a sufficient memorandum.

Required terms
8.14 The terms to be set out in any contract involving land are not specified in the legislation.
However, the courts have held that to comply with the legislation, the written documentation
must contain at least all the essential terms of the contract.28 In the context of a contract for
the sale of land, at least three matters are essential. First, there must be a description of the
parties to the contract. Second, the contract must set out the price for the land. Third, the
contract must describe the land that is the subject of the contract.29 In the context of a lease
of land, the essential terms will usually be the parties, the premises, the term of the lease, and
the rent to be paid.30
8.15 In addition to these matters, and depending on the facts and circumstances of any given
case, other specific terms of the transaction may also be essential and therefore required to be
set out in the written document. Examples of such terms include that:
• the date for completion of the contract is one where time is of the essence;
• the payment of the purchase price is to be by instalments;
• the vendor was not to give vacant possession of the property upon completion of the
contract and would be entitled to remain in possession of the property until he or she could
find suitable arrangements for himself or herself;31
• separate prices are to be paid for separate lots;32
• chattels are included as well as land for an all-inclusive price;33 and
• a party’s obligations are to be guaranteed by a third party.34

Acknowledgment of the contract

8.16 The written document containing all the essential terms must also acknowledge the
existence of a contract, that is, contain words indicative of the parties’ intention to contract.35
Willmott, Christensen, Butler, and Dixon36 state that the policy reason behind this requirement
‘is to protect a party where the terms of the proposed transaction have been documented in the
negotiation stage, but agreement was never finally reached’.

28. Harvey v Edwards Dunlop & Co (1927) 39 CLR 302 at 307; Sinclair, Scott & Co Ltd v Naughton (1929) 43
CLR 310 at 318.
29. Hall v Busst (1960) 104 CLR 206 at 222. In relation to identifying the parties to the contract see Houtimport
BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 714 at 794; [2003] 2 All ER 785 at 848.
30. NZI Insurance Limited v Baryzcka (2003) 85 SASR 497 at 506.
31. Johnson v Humphrey [1946] 1 All ER 460.
32. Smith v MacGowan (1938) 159 LT 278.
33. Ram Narayan s/o Shankar v Rishad Hussain Shah s/o Tusaduq Hussain Shah [1979] 1 WLR 1349.
34. Todrell Pty Ltd v Finch (No 1) [2008] 1 Qd R 540 at 555.
35. Tiverton Estates Ltd v Wearwell Ltd [1975] Ch 146 at 157, 168, 172; [1974] 1 All ER 209 at 215, 224, 228;
Pirie v Saunders (1961) 104 CLR 149 at 155; Martyn v Glennan [1979] 2 NSWLR 234 at 242.
36. L Willmott, S Christensen, D Butler and B Dixon, Contract Law, 5th ed, Oxford University Press, Melbourne,
2018, p 398.

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8.17 The acknowledgment can be express or implied and courts have been easily satisfied
that an acknowledgment exists. Indeed, Seddon and Bigwood37 suggest that it would be more
appropriate to state the rule as being that a written document recording all the essential terms
is sufficient, provided that it does not contain an explicit denial of the existence of a contract.

Signature
8.18 The essential terms of the agreement must be set out in a written contract or note or
memorandum that is signed. The signature must be that of the party ‘to be charged’ — this
means the party against whom the contract is sought to be enforced or another person lawfully
authorised to sign the document on his or her behalf. Such authority may be given orally.38
8.19 Furthermore, in Jiwunda Pty Ltd v Trustees of the Travel Compensation Fund39 Palmer J
said:
[T]he authority to sign required by s 54A may be derived from express conferment by the
principal; it may be implied by law or from the situation of the parties; it may be what has
come to be known as ostensible or implied authority. The authority to sign may even be
conferred retrospectively: there may be no authority of any kind at the time that the contract
is made or the written memorandum is signed, so long as the principal later ratifies the
contract purportedly made on his behalf, so that, by that act, the signature on the written
memorandum becomes that of his ‘lawfully authorised’ agent.

8.20 The most common method of signing is by the person’s usual hand-written signature.40
However, it is clear that the requirement of signature for the purposes of the legislation can be
met in other ways, such as a mark, a rubber stamp, or a computer-generated signature.
8.21 In Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd41 the Court of
Appeal held that, for the purposes of a signature, ‘an electronic signature is sufficient and
that a first name, initials, or perhaps a nickname will suffice’. Thus, in relation to emails, in
J Pereira Fernandes SA v Mehta42 it was held that the insertion of a person’s email address by
an internet service provider after the document has been transmitted, absent evidence to the
contrary, is not a signature, even if the address contains the sender’s name. However, as was
pointed out in Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd,43 ‘an e-mail,
the text of which begins “Paul/Peter”, may be regarded as signed by Peter because by that
form of wording Peter signifies that he is addressing Paul and authenticates the content of the
whole of what follows’. Thus, a person’s name appended at the end of an email is regarded as a
signature. Furthermore, a signature includes electronic signatures, such as ‘typing a name into
an electronic format, scanning a manuscript signature, clicking an “I accept” button, using a

37. N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract, 11th Aust ed, LexisNexis Butterworths,
Chatswood, 2017, p 905.
38. McLaughlin v Duffill [2010] Ch 1 at 7–8.
39. [2006] NSWSC 741 at [76].
40. Firstpost Homes Ltd v Johnson [1995] 4 All ER 355 at 362. On what constitutes a signature see Welsh
v Gatchell [2009] 1 NZLR 241 at 253–4.
41. [2012] 3 All ER 842 at 863. See also Neocleous v Rees [2019] EWHC 2462 (Ch) at [31]–[33].
42. [2006] 2 All ER 891 at 900.
43. [2011] EWHC 56 (Comm) at [103]. This comment was not disputed on appeal: Golden Ocean Group Ltd
v Salgaocar Mining Industries PVT Ltd [2012] 3 All ER 842.

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digital (or cryptographic) signature, using a Personal Identification Number (PIN), making a
voice print, or giving a retinal scan’.44 Finally, in GetUp Ltd v Electoral Commissioner45 it was
held that an electronic signature tool which enabled a digital pen to be guided over text on a
computer, resulting in a facsimile of a person’s signature, could produce that person’s signature
validly for electoral registration purposes.
8.22 In relation to the signature requirement, there is no need that both parties sign the
same document. Indeed, the common practice in relation to the sale of land is for two copies
of the written contract to be prepared with each party signing one of them. This is followed
by an ‘exchange of contracts’ whereby the vendor gives the copy he or she has signed to
the purchaser and receives, in exchange, the copy signed by the purchaser. At the point of
exchange of contracts, from the perspective of both parties to the contract, the provisions
of the legislation are satisfied, as each party has a written document signed by the other.
This is all that is required to render the contract enforceable by either party in the event of a
breach by the other. This is so because the legislation only requires the person against whom
enforcement action is sought to have signed the document. Thus, for example, a purchaser
who has not signed any document can enforce a contract against a vendor who has signed
a note or memorandum of the agreement, provided that it was not the clear intention of the
parties that both parties had to sign it.46

Effect of compliance with the legislation

8.23 A contract that complies with the requirements of the legislation does not, of itself,
transfer the land or interest in land to the purchaser. For example, in a contract for the sale
of land from X to Y, the making of the contract only gives rise to an interest in the land in
favour of Y that is recognised and protected in equity. For Y to become the owner of the land
in law, further steps need to be undertaken. Thus, if the land is old system title land, except
in Queensland and the Australian Capital Territory and subject to minor exceptions, there
must be the delivery of a deed of conveyance from X to Y.47 In Queensland, only a written
document, not necessarily in deed form, is required.48 In the Australian Capital Territory
there is no old system title land. If the land is Torrens title land, a written transfer document
must be registered. Unless and until such registration takes place, X remains the legal owner
of the land.49

44. eBay International AG v Creative Festival Entertainment (2006) 170 FCR 450 at 464; S Blount, Electronic
Contracts, 2nd ed, LexisNexis Butterworths, Sydney, 2015, p 26.
45. (2010) 189 FCR 165.
46. Neill v Hewens (1953) 89 CLR 1 at 13.
47. Conveyancing Act 1919 (NSW) s 23B(1); Law of Property Act 2000 (NT) s 9(1); Law of Property Act 1936
(SA) s 28(1); Conveyancing and Law of Property Act 1884 (Tas) s 60(1); Property Law Act 1958 (Vic)
s 52(1); Property Law Act 1969 (WA) s 33(1).
48. Property Law Act 1974 (Qld) s 10(1).
49. Land Titles Act 1925 (ACT) s 57(1); Real Property Act 1900 (NSW) s 41(1); Land Title Act 2000 (NT) s 184;
Land Title Act 1994 (Qld) s 181; Real Property Act 1886 (SA) s 67(1); Land Titles Act 1980 (Tas) s 39(1);
Transfer of Land Act 1958 (Vic) s 40(1); Transfer of Land Act 1893 (WA) s 58(1).

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THE ENFORCEMENT IN EQUITY OF CONTRACTS

UNENFORCEABLE AT LAW
8.24 This part of this chapter deals with the enforcement in equity of contracts for the sale or
disposition of land or an interest in land. Such contracts are required by statutory provisions,
derived from the Statute of Frauds 1677 (UK), to be evidenced in writing. Failure to comply
with the statutory requirement of writing renders the contract unenforceable.50 Thus, there can
be no actions for remedies, such as damages at common law, and specific performance and
injunction in equity. However, the consequence of unenforceability is not absolute.

Relying on the statute to perpetrate fraud

8.25 Equity has long recognised that, although the purpose of the statutory requirement of
writing is to prevent fraud, the statute itself cannot be relied upon if doing so will result in
fraud.51 In such cases the usual equitable relief that is given is an order for specific performance.
In some cases, a declaration may be a sufficient remedy.52
8.26 However, common law damages cannot be awarded in such situations.53 In this respect,
in Ciavarella v Polimeni54 Young CJ in Eq said:
[I]f it would be fraudulent in the eyes of equity for the opposing party to rely on the
statute, equity will order that that party execute a note or memorandum of the contract
and will then proceed to grant specific performance. The plaintiff is not given relief
because of the contract, rather the conduct of the parties subsequent to the contract
raises an equity.

8.27 An example of a case giving effect to this equitable principle is Wakeham v MacKenzie.55
In that case Ball promised Wakeham that if Wakeham moved in with him and looked after
him, she would inherit the house when he died. Ball agreed to have this oral agreement reduced
to a written form, but despite assurances to Wakeham that this had been done, he did not do
so before he died. In response to the argument by Ball’s executor that any agreement by the
deceased had not been in writing, the court held that Ball’s conduct amounted to equitable

50. Civil Law (Property) Act 2006 (ACT) s 204(1); Conveyancing Act 1919 (NSW) s 54A(1); Law of Property
Act 2000 (NT) s 62; Property Law Act 1974 (Qld) s 59; Law of Property Act 1936 (SA) s 26(1); Conveyancing
and Law of Property Act 1884 (Tas) s 36(1); Instruments Act 1958 (Vic) s 126(1) and Property Law Act 1958
(Vic) s 53(1)(a); Law Reform (Statute of Frauds) Act 1962 (WA) s 2, which stipulates that the Statute of
Frauds 1677 (UK) s 4 applies in Western Australia.
51. McCormack v Grogan (1869) LR 4 HL 82 at 97; Rochefoucauld v Boustead (1897) 1 Ch 196 at 206; Organ
v Dandwell [1921] VLR 622 at 630; Ciaglia v Ciaglia (2010) 269 ALR 175 at 190–4; Young v Young (2014)
23 Tas R 76 at 82–3. The continued efficacy of this principle was reaffirmed by the High Court in Halloran
v Minister Administering National Parks and Wildlife Act (2006) 229 CLR 545; 224 ALR 79, where the court
used it as a basis for upholding the validity of an oral agreement to assign an equitable interest.
52. Meshumar v Otmy (2018) 97 NSWLR 615 at 647.
53. Penrith Whitewater Stadium Ltd v Lesvos Pty Ltd [2007] NSWCA 176 at [40].
54. [2008] NSWSC 234 at [119].
55. [1968] 2 All ER 783.

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fraud. It made an order against Ball’s estate enforcing the oral agreement and requiring the
house to be transferred to Wakeham.
8.28 It should be noted that contracts that do not comply with a statutory requirement of
writing may attract remedies that are entirely independent of the existence of the contract.
Thus, the principles of equitable estoppel56 and restitution may give a party to such a contract
remedies pursuant to these principles. Furthermore, equitable principles of constructive trusts
(a topic beyond the scope of this book) may also provide relief to such a party.

The doctrine of part performance

8.29 Equity will also specifically enforce an oral contract for the sale of land or an interest
in land, ‘without [the need] to establish that a lesser form of relief would be inadequate’,57 if the
doctrine of part performance applies.58 Legislation in all Australian jurisdictions confirms the
application of this equitable doctrine.59
8.30 In Pipikos v Trayans,60 Nettle and Gordon JJ said:
[W]hat equity enforces under the doctrine of part performance is not a contractual right
but an equity which arises from such acts of part performance of the alleged contract as
would make it a fraud upon the plaintiff for the defendant to recede from the contract, and,
therefore, … the test for the doctrine’s engagement is whether the defendant has gone so
far, as purchaser, directly or indirectly exercising, or, as vendor, in permitting the purchaser
directly or indirectly to exercise, rights of ownership over the property in suit as to make it
a fraud on the plaintiff unless ownership is completely and effectively conveyed pursuant to
the alleged agreement.

8.31 In relation to the origins of the doctrine of part performance, their Honours61 said:
[The doctrine’s] origins lay in the established equitable precept that part performance on
one side required as a matter of conscience, civilis et politica, that performance should be
ordered on the other side.

Their Honours62 went on to conclude that the objective of the doctrine was ‘to prevent
recurrence of the mischief which the Statute [of Frauds] was enacted to suppress’.

56. Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 at 521–2; 258 ALR 124 at 157–8.
57. Pipikos v Trayans (2018) 265 CLR 522 at 541; 359 ALR 210 at 223.
58. Pipikos v Trayans (2018) 265 CLR 522 at 570; 359 ALR 210 at 245.
59. Civil Law (Property) Act 2006 (ACT) s 204(2)(c); Conveyancing Act 1919 (NSW) s 54A(2); Law of
Property Act 2000 (NT) s 5(c); Property Law Act 1974 (Qld) s 6(d); Law of Property Act 1936 (SA) s 26(2);
Conveyancing and Law of Property Act 1884 (Tas) s 36(2); Property Law Act 1958 (Vic) s 55(d); Property
Law Act 1969 (WA) s 36(d).
60. (2018) 265 CLR 522 at 558; 359 ALR 210 at 235–6.
61. Pipikos v Trayans (2018) 265 CLR 522 at 547; 359 ALR 210 at 228. See also Masterton Homes Pty Ltd v Palm
Assets Pty Ltd (2009) 261 ALR 382 at 392; M J Leonard Pty Ltd v Bristrol Custodians Ltd (in liq) [2013]
NSWSC 1734 at [41].
62. Pipikos v Trayans (2018) 265 CLR 522 at 569; 359 ALR 210 at 244.

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8.32 In Waltons Stores (Interstate) Ltd v Maher,63 Brennan J summarised the principles
relating to the doctrine of part performance as follows:
In order that acts may be relied on as part performance of an unwritten contract, they must
be done under the terms and by the force of that contract and they must be unequivocally
and in their nature referable to some contract of the general nature of that alleged.

8.33 For the doctrine to apply, three matters need to be established. First, the acts must be
done by the party to the contract seeking to rely on the doctrine, or his or her authorised agent.64
8.34 Second, it must be shown that the acts done by the plaintiff were permitted, but not
necessarily required, to be done by the terms of the oral agreement.65 In Khoury v Khouri,66
Bryson JA, in the context of an oral agreement relating to land, said:
In the present case there are no acts of ownership such as taking possession, paying rates or
paying for the upkeep or improvement of the property, or receipt of rent or profits, or any
other act at all. Acts of part performance have been almost universally related to possession
and use or tenure of the land itself, such as where a purchaser is put into possession by the
vendor, or allowed to take possession by the vendor, or where the purchaser carries out
improvements. They have not necessarily been acts which the contract requires to be done.

8.35 Acts done in reliance on the contract cannot be taken into account as acts in performance
of the contract. Thus, in TA Dellaca Pty Ltd v PDL Industries Ltd,67 it was held that where a
person who had agreed to take a lease of premises surrendered the lease on his former premises,
the act of surrendering the lease was merely in reliance on the contract for lease and not in
performance of it, and therefore did not qualify as an act of part performance.
8.36 The third matter to be established for the doctrine to apply is that the acts done must
be unequivocally and in their own nature referable to a contract of the general nature of the
alleged oral agreement. For example, if the acts were erecting improvements to a property, they
would be consistent with an unconditional oral agreement to purchase the land but would not
be referable to an option agreement for the purchase of the land.68
8.37 In establishing this element, it is generally accepted that the court looks at the acts done
and then judges to see if there is an implication of an agreement of the type alleged, rather than
looking at the terms of the alleged oral agreement and judging if the acts are inconsistent with
such an agreement.69

63. (1988) 164 CLR 387 at 432; 76 ALR 513 at 544. These principles derive from the seminal decision of Lord
Selborne in Maddison v Alderson (1883) 8 App Cas 467 at 475–6, which has been cited with approval by the
High Court in McBride v Sandland (1918) 25 CLR 69 at 77–8; Cooney v Burns (1922) 30 CLR 216 at 221–2,
229–30, 239, 243–4; 28 ALR 181; Regent v Millett (1976) 133 CLR 679 at 683; 10 ALR 496 at 499; Pipikos
v Trayans (2018) 265 CLR 522 at 554–5; 359 ALR 210 at 233.
64. McBride v Sandland (1918) 25 CLR 69 at 79; Johnson v Hallam [2015] WASC 149 at [46].
65. Regent v Millett (1976) 133 CLR 679 at 683; 10 ALR 496 at 499; Vlahos Pty Ltd v Vlahos [2017] VSCA 166
at [103].
66. (2006) 66 NSWLR 241 at 268.
67. [1992] 3 NZLR 88.
68. McBride v Sandland (1918) 25 CLR 69.
69. McBride v Sandland (1918) 25 CLR 69 at 78; Lighting By Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd
(2008) 35 WAR 520 at 541.

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8.38 In J C Williamson Ltd v Lukey, Dixon J set out the test as follows:
70

The acts of part performance must be such as to be consistent only with the existence of a
contract between the parties, and to have been done in actual performance of that which in
fact existed. But in such a case the equity which so arises is to have the entire contract carried
into execution by both sides. Because the acts done upon the faith of the contract could not
have taken place if it had not been made, and the contract is of a kind which it is considered
equitable to enforce in specie, a party who has so acted in partial execution of the contract
obtains an equity to its complete performance.

8.39 The requirement that the acts of part performance must be unequivocal and in
their own nature referable to a contract of the general nature of the alleged oral agreement
was confirmed by a unanimous High Court in Pipikos v Trayans.71 In this case, in 2002,
Velika Trayans and her then-husband George Pipikos purchased a property at Clark Road,
Virginia in South Australia. The property was registered in Velika’s name. The couple made
improvements to the property. In 2004, Velika and George jointly purchased a property
at Taylors Road, Virginia, with Leon and Sophie Pipikos (George’s brother and his wife).
The property was financed by way of contributions from both couples and a bank loan.
Leon and Sophie jointly held a half-interest in the property, and George held the other half
in his name alone. Later in 2004, the two couples purchased a property at Penfield Road,
Virginia, which was, in part, financed by way of a bank loan. Leon and Sophie paid the
deposit and the balance of the purchase price. In 2012, Leon commenced proceedings in
the District Court of South Australia, seeking a declaration that Velika held a half-interest
in the Clark Road property on trust for him, or, alternatively, an order that he be registered
as joint proprietor of ‘one undivided moiety’ of that property. Leon claimed that in July
2004, he and George had agreed that Leon would acquire half of Velika’s interest in the
Clark Road property (but not the improvements) for $45,000, to be paid largely by way of
funding of George and Velika’s share in the purchase of the Penfield Road property. The
only documentary evidence of any agreement was a handwritten note signed by Velika. The
agreement did not meet the statutory requirement of writing set out in s 26(1) of the Law
of Property Act 1936 (SA). However, Leon claimed that the doctrine of part performance
entitled him to a decree that the agreement be specifically performed. Leon’s claim was
rejected by the trial judge, the Full Court of the Supreme Court of South Australia and,
finally, by the High Court.
8.40 In coming to their conclusion that the requirements of the doctrine of part performance
had not been satisfied, Kiefel CJ, Bell, Gageler and Keane JJ72 said:
Here, neither party performed any act that was unequivocally referable to the Clark
Road property. There was no giving or taking of possession of that land. There were no
other acts indicative of a change in the respective positions of the parties in relation to
the land.

70. (1931) 45 CLR 282 at 300, cited with approval in Pipikos v Trayans (2018) 265 CLR 522 at 542; 359 ALR 210
at 224.
71. (2018) 359 ALR 210; 265 CLR 522.
72. Pipikos v Trayans (2018) 265 CLR 522 at 546; 359 ALR 210 at 227.

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8.41 In relation to the requirement that alleged acts of part performance must be unequivocally
and in their own nature referable to a contract of the general nature of the alleged agreement,
Edelman J73 said:
The requirement that the act be unequivocally referable to some such agreement as that
alleged involves loose terms. There has been much room for dispute about (i) when an act
will sufficiently relate to a contract, so as to be unequivocally referable to it, and (ii) when
a contract will be ‘some such agreement’ as the agreement that is alleged. Each of these
questions may ultimately depend on evaluative conclusions based upon all the circumstances
surrounding the act or acts. Those conclusions should be drawn with regard to the nature
and rationale of the doctrine of part performance and the need to keep the doctrine within
narrow limits. Certainly, the doctrine of part performance should not be shorn of this well-
established constraint of unequivocal referability.

The need for the acts to be unequivocally referable to ‘some such agreement as that alleged’
requires only that the acts be referable to an agreement ‘of the general nature of that alleged’.
For instance, the giving or taking of possession will generally be a sufficient act of part
performance of a contract for the sale of land, even though it is an act that may be equally
referable to a contract of lease. … [In this case, Velika’s] acts were consistent with transactions
other than those of the general nature of a sale of the Clark Road land.

8.42 In coming to its decision in Pipikos v Trayans,74 the High Court rejected suggestions
made in the House of Lords decision of Steadman v Steadman75 that the doctrine of part
performance should be broadened. For example, in that case, Lord Salmon76 suggested that the
payment of money alone could, in the appropriate case, be a sufficient act of part performance.
However, the High Court’s decision reaffirms the traditional view that a payment of money
alone cannot be a sufficient act of part performance. This is because the payment of money
does not point to any particular type of contract.77 Payments of money are characteristics of a
wide variety of contracts.
8.43 However, a payment of money combined with other factors may allow a court to find
that part performance has been established.78 Thus, in Francis v Francis,79 where there was an
agreement for a loan, an advance of money, delivery of documents of title to the lender, and an
oral agreement made to give a legal mortgage as security, it was held that there were sufficient acts
of part performance. The critical factor in this case was the delivery of documents of title. Without
some act of that character there was nothing to give the transaction a semblance of a secured
loan, as opposed to an unsecured one. On the other hand, in Syzmanska v Syzmanski (No 2),80

73. Pipikos v Trayans (2018) 265 CLR 522 at 583–4; 359 ALR 210 at 255.
74. Pipikos v Trayans (2018) 265 CLR 522 at 543–6, 563–4, 583; 359 ALR 210 at 224–6, 239–40, 254.
75. [1976] AC 536; [1974] 2 All ER 977. It can be noted that the doctrine of part performance was abolished in
England by s 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 (UK).
76. Steadman v Steadman [1976] AC 536 at 570; [1974] 2 All ER 977 at 1006.
77. Cooney v Burns (1922) 30 CLR 216 at 222–3; Khoury v Khouri (2006) 66 NSWLR 241 at 268.
78. Dinh v Dang [2007] QSC 3 at [20]; Ciavarella v Polimeni [2008] NSWSC 234 [122]; Phung v Phung [2019]
NSWSC 117 at [71].
79. [1952] VLR 321.
80. [2015] SASC 191.

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the payment of money by one co-owner of land to the other, where the first co-owner also resided
in the property, did not amount to sufficient acts of part performance of a contract for the sale of
the second co-owner’s interest in the land to the first co-owner. In relation to the first co-owner’s
residence in the property, Blue J81 held that his ‘act of … continuing to reside in the property is
not referable to an agreement for the sale of an interest in property: as co-owner [he] had a right
to possession of the property’.

81. Syzmanska v Syzmanski (No 2) [2015] SASC 191 at [58].

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 9
CAPACITY

INTRODUCTION
9.1 Not all persons have full contractual capacity. Some persons have limited contractual
capacity and some persons have no contractual capacity at all. This creates complications
in that contracts made with such persons may not be valid or enforceable. It also presents
complications where a person comes under a legal disability after a contract has been made. In
this chapter the contractual capacity of minors, persons suffering a mental disability, bankrupts,
corporations, aliens, and married women will be analysed.

MINORS
9.2 The common law considers any person under the age of 21 to be a minor, more
commonly referred to as an infant. Throughout Australia, the age of majority has been reduced
by legislation to 18 years of age1 and all such persons below that age are referred to as ‘minors’.
After turning 18 years of age, a person has the legal rights and disabilities of an adult. However,
it should be noted that for some types of contracts a person under 18 years of age would be
treated as though they were of full adult age. This is particularly so under s 199(2) of the Life
Insurance Act 1995 (Cth), which allows some minors to take out life insurance or take an
assignment of a life policy. The section provides that a person who is at least 10 years old, but
has not reached 16, may, with the written consent of a parent or a person who stands in the
place of a parent:
• enter into a policy, including a life policy on his or her own life or on another life; or
• take an assignment of a policy.
9.3 Further, s 199(2) of the Life Insurance Act 1995 (Cth) also provides that a person who
has reached 16, but has not reached 18, has the same capacity to exercise rights or powers in
relation to a policy of which he or she is the owner as a person who has reached 18.

1. See Age of Majority Act 1974 (ACT); Minors (Property and Contracts) Act 1970 (NSW); Age of Majority
Act 1981 (NT); Age of Majority Act 1974 (Qld); Age of Majority (Reduction) Act 1971 (SA); Age of Majority
Act 1973 (Tas); Age of Majority Act 1977 (Vic); Age of Majority Act 1972 (WA). In New Zealand the age
of majority is 20: Age of Majority Act 1970 (NZ) s 4(1). On the significance of age, see Queensland Law
Reform Commission Draft Report, No WP 45, Minors’ Civil Law Capacity, 1995, at [2.1] and following.

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9.4 Similarly, s 28B of the Property Law Act 1958 (Vic) provides that certain specified
contracts with minors will be valid and binding upon the minor for all purposes, as if the minor
were of full age at the time he or she entered into the contract. This will be so in the following
circumstances:
(a) any contract at any time entered into by a minor member —
(i) of a building society registered under the Building Societies Act 1986 (Vic) or any
corresponding previous enactment;
(ii) of a co-operative registered under the Co-operatives National Law (Victoria) or
any corresponding previous enactment;
(ii) of a co-operative registered under the Co-operatives Housing Societies Act 1958 (Vic)
or any corresponding previous enactment;
(iv) of any industrial and provident society registered under the Industrial and
Provident Societies Act 1958 (Vic) or any corresponding previous enactment — for
the repayment of moneys lent or advanced or to be lent or advanced to the minor
by any such society;
(aa) any contract at any time entered into by a minor —
(i) with a building society registered under the Building Societies Act 1986 (Vic) or
any corresponding previous enactment; or
(ii) with an industrial and provident society registered under the Industrial and
Provident Societies Act 1958 (Vic) or any corresponding previous enactment — for
the repayment of moneys lent or advanced or to be lent or advanced to the minor
by any such society.

9.5 Minors in Victoria who have entered into contracts of the type prescribed by s 28B shall
not, at any time, be entitled on any ground relating to his or her minority or former minority,
to avoid any of his or her obligations under the contract, or under any instrument executed by
the minor, whereby the repayment of any moneys lent or advanced is secured, or to repudiate
any contract, transfer, conveyance, or assignment relating to any property charged by any such
instrument. Furthermore, any instrument executed or purporting to have been executed by a
minor by way of security for the repayment of any moneys lent or advanced, or to be lent or
advanced to the minor in pursuance of a contract of a kind referred to in s 28B, shall be as valid
and effectual for all purposes as if the minor were of full age and capacity at the time he or she
executed the instrument.
9.6 It is therefore the case in Victoria that any contract of the type referred to in s 28B can
only be set aside for reasons such as misrepresentation, mistake, unconscionability, duress, or
undue influence at common law or pursuant to statute.
9.7 The common law as to the contractual capacity of minors applies in all Australian states
and territories except New South Wales, although there have been some modifications to
this in specific contexts in the Australian Capital Territory, South Australia, Tasmania, and
Victoria.2 The position in all those states, including New South Wales, is analysed later in this
chapter.3 In essence, in all states other than New South Wales, a person who is under age lacks
contractual capacity in most circumstances and, if a contract is made with a minor, then it is

2. See, for example, Mercantile Law Act 1962 (ACT) s 15; Minors Contracts (Miscellaneous Provisions)
Act 1979 (SA); Minors Contracts Act 1988 (Tas); Supreme Court Act 1986 (Vic) ss 49–50.
3. See 9.28–9.46.

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voidable at the minor’s option unless it is a contract for ‘necessaries’ or a beneficial contract of
service, in which case the contract is valid.

Necessaries
9.8 The word ‘necessaries’ has proved difficult to define, but would include those things
essential to the maintenance of the minor, such as articles necessary to sustain the minor’s life,
including food, clothing, and shelter which have been supplied to them other than by way of
gift.4 The LexisNexis Concise Australian Legal Dictionary5 defines ‘necessaries’ as ‘those things
which cannot be dispensed with’, and states that the concept of ‘necessaries’ includes ‘food,
drink, clothing, medicine and education’. The concept is a relative one, varying according to the
station in life of the particular subject and is not limited to the bare essentials of life.
9.9 In Chapple v Cooper6 Alderson B gave the following overview of the common law in
this area:
Things necessary are those without which an individual cannot reasonably exist. In the first
place, food, raiment, lodging, and the like. About these there is no doubt. Again, as the
proper cultivation of the mind is as expedient as the support of the body, instruction in art
or trade, or intellectual, moral, and religious information may be a necessary also. Again, as
man lives in society, the assistance and attendance of others may be a necessary to his well-
being. Hence attendance may be the subject of an infant’s contract. Then the classes being
established, the subject matter and extent of the contract may vary according to the state
and condition of the infant himself. His clothes may be fine or coarse according to his rank;
his education may vary according to the station he is to fill; and the medicines will depend
on the illness with which he is afflicted, and the extent of his probable means when of age.
So, again, the nature and extent of the attendance will depend on his position in society. …
But in all these cases it must first be made out that the class itself is one in which the things
furnished are essential to the existence and reasonable advantage and comfort of the infant
contractor. Thus, articles of mere luxury are always excluded, though luxurious articles of
utility are in some cases allowed.

9.10 With respect to the supply of goods, ‘necessaries’ are defined in sale of goods legislation in
Australia’s states and territories7 to mean ‘goods suitable to the condition in life of the minor …
and his actual requirements at the time of the sale and delivery’. The difficulty with the concept
of ‘necessaries’ is that society changes and what might have not been considered necessary 50 or
even 10 years ago, may be considered necessary today. Each case must depend on its own facts.
9.11 An example of the difficulty with the meaning of the term ‘necessaries’ took place in Bojczuk
v Gregorcewicz.8 In that case the defendant was under the age of majority and living in Poland.

4. Bojczuk v Gregorcewicz [1961] SASR 128 at 131.

5. LexisNexis Concise Australian Legal Dictionary, 5th ed, LexisNexis Butterworths, Sydney, 2015, p 425.
See also Peters v Fleming (1840) 151 ER 314, 315–16.
6. (1844) 153 ER 105 at 107.
7. See Sale of Goods Act 1954 (ACT) s 7; Sale of Goods Act 1923 (NSW) s 7; Sale of Goods Act 1972 (NT) s 7;
Sale of Goods Act 1896 (Qld) s 5; Sale of Goods Act 1895 (SA) s 2; Sale of Goods Act 1896 (Tas) s 7; Goods
Act 1958 (Vic) s 7; Sale of Goods Act 1895 (WA) s 2.
8. [1961] SASR 128. See also H K Lucke, ‘The Intention to Create Legal Relations’ (1970) 3 Adelaide Law
Review 419, footnote 30.

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The plaintiff, a relative, lent the defendant money to come to Australia, but she never repaid the
loan. The plaintiff sued for the recovery of the money and the defendant pleaded infancy.
9.12 The court held that the contract of loan was not a contract for ‘necessaries’. The defendant
had employment and accommodation in Poland and there was no compelling requirement for
her to come to Australia. Relevantly, Ross J9 said the following:
[T]he plain fact is that the defendant did not come to Australia for the purpose of providing
herself with means of self-support, for she had a job in Poland which was by Polish standards
a satisfactory one.

9.13 Contracts involving a minor receiving tuition or instruction have been held to be
binding on the minor as such benefits have been seen to be necessaries. In Roberts v Gray10
Gray, a minor, entered into a contract with Roberts, a professional billiard player, whereby
Roberts would accompany Gray on a world tour in which both would play billiard tournaments.
After entering into the contract, Roberts spent money and effort in making tour arrangements.
However, due to a dispute between Gray and Roberts, the tour was cancelled. In consequence
Roberts sued Gray for breach of contract. The English Court of Appeal found that the contract
was binding as it was one for necessaries — the contract involving Gray receiving some form of
instruction on playing billiards — and it did not contain unreasonable terms.
9.14 Similarly, in McLaughlin v Darcy11 Les Darcy, a minor, was a professional boxer who
wanted to leave Australia in 1916 and go to the United States to fight in boxing matches.
However, in order to go overseas Darcy needed an Australian passport. At the time, and due to
World War I, passports were difficult to obtain. Darcy agreed with McLaughlin, a solicitor, that
McLaughlin would travel to Melbourne in order to obtain a passport for Darcy. It was further
agreed that McLaughlin would be paid remuneration whether he was successful or not in
obtaining the passport. Before any passport was issued, Darcy absconded to the United States
without a passport and died while overseas without having paid McLaughlin. McLaughlin sued
Darcy’s estate, which argued that at the time of making the agreement, Darcy was a minor.
The Full Court of the New South Wales Supreme Court unanimously held that the contract was
capable of being regarded as a contract for necessaries. According to Sly J:12
[T]he question is, is there evidence for the jury that the services rendered were necessaries?
It has been laid down as far back as Lord Coke’s time, ‘that an infant may bind himself for
good teaching and instruction, whereby he may profit himself afterwards’, and it would be a
matter for the jury to decide whether teaching and instruction in America were necessaries.

9.15 Similarly, Gordon J13 said:

[T]he services for which [McLaughlin] is claiming payment were ‘necessaries’ ie, essential to
the welfare of the infant Darcy … just as much so as personal employment or education, or
the supply of food, clothing, medicine, or legal advice in protection of the person or estate
of an infant.

9. Bojczuk v Gregorcewicz [1961] SASR 128 at 134.

10. [1913] 1 KB 520.
11. (1918) 18 SR (NSW) 585.
12. McLaughlin v Darcy (1918) 18 SR (NSW) 585 at 591.
13. McLaughlin v Darcy (1918) 18 SR (NSW) 585 at 595.

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9.16 The issue of whether a particular representation agreement between a football agent and
a professional football player, who was a minor at the time of the execution of the agreement,
was a contract for necessities was discussed in Proform Sports Management Ltd v Proactive
Sports Management Ltd.14
9.17 In order to ascertain whether goods being supplied to minors are necessaries, mixed
questions of law and fact are involved.15 The plaintiff must prove that the goods or services
provided were necessary for that minor. The court will take into account in some cases the social
standing and occupation of the minor when deciding whether goods or services supplied to the
minor were necessaries. Further, in order for a minor to be liable for necessaries, it must also be
shown that the goods or services were required at the time they were delivered.16 However, if a
contract for the supply of goods or services which are necessary contains onerous terms, then it
will be void.17 Minors are also only required at common law to pay a reasonable price.18

Employment agreements with minors

9.18 The common law has recognised that minors may be bound to certain employment
contracts, such as apprenticeships, where they are to the minor’s advantage or to their benefit,
and as long as such a contract does not contain unusual and prejudicial clauses outweighing the
beneficial terms.19 If the employment contract does not benefit the minor overall, then it is not
binding and the contract will be void.
9.19 In De Francesco v Barnum20 a minor entered into a contract with the plaintiff as an
apprentice to be taught stage dancing. The minor agreed to serve the plaintiff for seven
years, but there was no obligation on the plaintiff to provide employment. The plaintiff had
the right to terminate the contract, but the minor had no similar right. The minor left the
plaintiff and took up with the defendant. The plaintiff sued the defendant in the tort of
inducing a breach of contract.
9.20 The court found in favour of the defendant. It was held by Fry J that the contract between
the plaintiff and the minor was so one-sided and unreasonable that it could not be considered
as a valid contract. Accordingly, there could be no tort of inducing a breach of contract.21
9.21 This issue was subsequently considered in Proform Sports Management Ltd v Proactive
Sports Management Ltd,22 a case involving the English football player, Wayne Rooney. In that
case Proform had entered into a representation/management contract with Wayne Rooney for
a term of two years. The agreement was also signed by Rooney’s father. At that time, Rooney
was just over 15 years of age and did not have the benefit of legal advice. He was, however, under

14. [2007] 1 All ER 542. See 9.21–9.24.

15. Ryder v Wombwell (1868) LR 4 Exch 32 at 38.
16. Scarborough v Sturzaker (1905) 1 Tas LR 117.
17. Sultman v Bond [1956] St R Qd 180 at 190.
18. Nash v Inman [1908] 2 KB 1.
19. Roberts v Gray [1913] 1 KB 520.
20. (1890) 45 Ch D 430.
21. The decision in De Francesco v Barnum (1890) 45 Ch D 430 can be compared with Hamilton v Lethbridge
(1912) 14 CLR 236; 18 ALR 222. See 9.26.
22. [2007] 1 All ER 542.

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a football playing contract with the Everton Football Club. Pursuant to the representation/
management agreement, Rooney purported to appoint Proform to act as his executive agent
and to carry out all the functions in respect of personal representation on behalf of his work as a
professional football player for a period of two years. The agreement was expressed to expire in
December 2002. Another clause of the contract contained a confirmation that Rooney was free
to enter into the contract and a statement that he wished to employ Proform to represent him
exclusively in contract negotiations and transfers. The agreement listed the duties of Proform
and set out the management fees that would be payable to them. Importantly, the agreement
contained provisions that restricted Rooney from engaging other agents to act on his behalf
and from personally negotiating player contracts and transfers. It also contained provisions
enabling Proform to assign the benefit of the contract.
9.22 At some point, Rooney and his parents became disillusioned with Proform and
approached Proactive Sports Management, who subsequently advised that they could not enter
into a player representation agreement with Rooney while the agreement with Proform was
in place. However, Proactive Sports Management advised that they could enter into an ‘image
rights’ agreement with Rooney.
9.23 In June and July 2002, letters were written by Rooney to Proform (and to another company
which had taken over Proform’s business). The letters were also signed by Rooney’s parents. In
those letters it was indicated that Rooney did not intend to renew the agreement with Proform
and he requested an immediate release from the Proform agreement. Subsequently, Proactive
Sports Management entered into a document expressed to be a ‘representation agreement’ with
Rooney and his parents. That agreement was not restricted to marketing and image rights and
extended to representing Rooney in respect of his commercial and business affairs, including
transfer and contract negotiations. In September 2002, two letters purporting to terminate the
agreement with Proform were drafted. and in one letter it was contended that one of the bases
of termination was that the Proform agreement was voidable at the option of Rooney on the
grounds of his age at the time that he signed the agreement. On 19 September 2002, Proactive
signed a player representation agreement with Rooney. However, despite this, and despite the
view held by Proactive Sports Management that the Proform agreement had been set aside,
Proactive Sports Management did not represent Rooney until the period originally set out in
the Proform agreement had expired. On 14 December 2002, three days after the expiry of the
agreement with Proform, Proactive Sports entered into a representation agreement with Rooney.
9.24 As a consequence of these events, Proform brought proceedings against Proactive and
one of the directors of Proactive for unlawful interference with and/or the procuring a breach
of the agreement made with Proform and Rooney in 2000. Both Proactive and its director
applied for summary judgment and contended that, as Rooney’s 2000 agreement with Proform
was voidable because it did not fall within the class of contracts that were enforceable against
a minor, or alternatively, was not for Rooney’s benefit, they could not be liable for inducing a
breach of that contract. Hodge J agreed with this argument and also found that the agreement
was not one for ‘necessaries’, which was analogous to contracts of employment, apprenticeship,
or education, because Rooney was, at the date of the 2000 agreement, already contracted with
the Everton Football Club. His Honour23 distinguished football players’ representatives from

23. Proform Sports Management Ltd v Proactive Sports Management Ltd [2007] 1 All ER 542 at 555.

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music group managers and held that the former do not undertake matters that are essential to
a player’s training or livelihood. Importantly, his Honour24 also said that:
It follows logically from the proposition that where a contract is determinable, the defendant
incurs no liability merely by inducing the contracting party to determine the contract lawfully,
for there is then no breach, that it is no tort to procure the breach of a voidable contract,
at least where the person induced is the party who enjoys the right to rescind. … [I]t does
seem to me that if a contract is voidable, then there should be no liability for procuring the
breach of it. It does not matter whether the contract has already been avoided, or whether
the alleged tortfeasor merely induces the minor to breach the contract. If the contract is
one which the minor is entitled to avoid, then it does not seem to me that liability for the
tort for wrongfully interfering with, or of inducing the breach of, the contract should arise.
I can see no justification for holding a defendant liable for the tort in such circumstances,
notwithstanding that the contract remains valid until avoided.

9.25 It is common for employment contracts to contain clauses restraining an employee from
working in competition with the employer after they leave their employment.25 However, in
regards to such contracts courts have held that the presence of a restraint of trade clause in a
contract of employment with a minor will not necessarily make the contract non-beneficial.26
However, a restraint of trade clause is prima facie void at common law, unless it is reasonable
and not against public policy. It must also not be unconscionable.
9.26 In Hamilton v Lethbridge27 the High Court held that a contract of employment was
binding upon a minor notwithstanding the presence of a restraint of trade clause within the
agreement. In that case Lethbridge, a minor, entered into an employment contract, known as
articles of clerkship, with Hamilton, a solicitor. The contract contained a provision preventing
the minor from practising as a solicitor within 50 miles of the town in which Hamilton
practised. Within a short time of Lethbridge graduating as a solicitor he commenced practice
within the 50-mile area. Hamilton applied for an injunction seeking to restrain Lethbridge
from carrying on his practice. The High Court held that the contract was binding together with
the restraint of trade.

Contracts involving the acquisition or disposition of property

9.27 Minors may become involved in contracts to buy or sell property. Such contracts are
not specifically enforceable due to the absence of mutuality.28 However, with respect to land
agreements, it is arguable that at common law a minor should ratify such contracts when they
attain 18 years of age29 and that such contracts should be able to be repudiated by the minor.
With respect to contracts to purchase shares, a similar position may apply.

24. Proform Sports Management Ltd v Proactive Sports Management Ltd [2007] 1 All ER 542 at 552.
25. Restraint of trade clauses are analysed at 27.39–27.123.
26. Bromley v Smith [1909] 2KB 235.
27. (1912) 14 CLR 236.
28. See 31.39 and 31.76–31.78.
29. Orakpo v Manson Investments Ltd [1978] AC 95 at 106–7; [1977] 3 All ER 1 at 9.

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The position of minors in New South Wales

9.28 The Minors (Property and Contracts) Act 1970 (NSW) (the Minors Act) has abolished
the application of the common law principles relating to infants’ contracts in New South Wales
and provides that a minor is presumptively bound to a civil act which is made in accordance with
the provisions of the Minors Act. This does not affect the rights that a minor might otherwise
have to avoid the contract, for example, in cases of misrepresentation or undue influence, nor
will it affect any statutory rights a minor may have. The term ‘civil act’ is defined in s 6 of the
Minors Act as including:
(a) a contract,
(b) an election to rescind or determine a contract for fraud, mistake, breach or otherwise,
(c) a disposition of property,
(d) a disclaimer,
(e) an acknowledgment of receipt of property,
(f) a discharge or acquittance,
(g) an exercise of a power under a contract or under a settlement, will or other instrument,
(h) an assent or consent to, acquiescence in, or acknowledgment or waiver of, any matter
by a person affecting the person’s rights or obligations under a contract or relating to
property,
(i) a release of any cause of action,
(j) a grant of any leave or licence,
(k) an election in relation to rights under a will or other instrument, or in relation to
conversion as between realty and personalty, or
(l) an act done:
(i) in relation to the formation,
(ii) in relation to becoming or ceasing to be a member or officer, or
(iii) as a member or officer:
of a partnership, or of an association, company or society, whether a corporation or not,
(m) … any act relating to contractual or proprietary rights or obligations or to any chose in
action:
whether having effect at law or in equity.

9.29 Section 18 of the Minors Act deals with what has been described as the ‘age of
understanding’ and provides that the Minors Act does not make presumptively binding on a
minor a civil act in which the minor participates, or appears to participate, while lacking, by
reason of youth, the understanding necessary for his or her participation in the civil act.
9.30 The primary test for the validity of a minor’s contract is contained in s 19 of the Minors
Act which deals with what is described as a ‘beneficial civil act’. Pursuant to this test, a minor
will be bound to a civil act that is beneficial to the minor at the time that it is made. There have
been few, if any, cases discussing the meaning of the term ‘beneficial’ under the Minors Act, but
it would appear that the word has a wider meaning than ‘necessaries’ at common law.
9.31 The Minors Act also sets out other categories of civil acts that are presumptively binding
upon a minor. These categories include:
• a contract for the acquisition of property where the consideration paid or payable by the
minor is not manifestly excessive at the date of contract, or a contract for the disposal

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of property where the consideration is received at least in part by the minor and is not
manifestly inadequate;30
• a contract of investment by a minor in any public funds or government stock or government
securities of any State of Australia or of the Commonwealth, or any debentures or securities
guaranteed by the Government or by the Treasurer;31
• a contract with a consideration not exceeding $10,000 that has the prior approval of a local
court and which is for the minor’s benefit;32
• a contract for the disposal of property that was signed before an independent solicitor or
the NSW Trustee and Guardian not more than seven days before the contract. The witness
must state that the minor appeared to understand the nature of the transaction and that the
consideration is not manifestly inadequate;33 and
• where the minor makes a reasonable gift.34
9.32 Section 26(1) of the Minors Act gives the Supreme Court of New South Wales the
authority to grant, on such terms and conditions as the court thinks fit, power to a minor to
participate in a civil act. The section also gives the court power to rescind or vary an order that
has been made under s 26(1). A condition to the grant of such an order under s 26 is that it
must appear to the court that the order is for the benefit of the minor.
9.33 Where a minor participates in a civil act when authorised by a grant of capacity under
s 26, the civil act is presumptively binding upon the minor. In addition, where an order of
rescission or variation is made under s 26, it will not affect the validity of the civil act in which
the minor has participated before the making of the order of rescission or variation.35
9.34 The Minors Act treats the situations that give rise to a binding contract as separate
categories and interdependent. Two points should, however, be made. First, in a number of
cases where a minor is ‘granted’ contractual capacity, for example, where approval of the local
court is given or where there has been a grant of contractual capacity by the Supreme Court,
the approving body must determine that the contract is for the minor’s benefit. Similarly, where
a solicitor or other person gives a certificate under ss 28 and 29 of the Minors Act, they must
be satisfied as to the adequacy of the consideration received. Second, there is the problem of
what represents a benefit to the minor under the primary test laid down by s 19 of the Minors
Act. Although the Minors Act allows a court to refer the question to a parent or guardian of the
minor or a referee, and that person can make reasonable enquiries and report to the court,36 the
court must, however, still determine whether the contract is beneficial on its own judgment.
In so doing it needs to look at all the circumstances of the case, including the nature of the
transaction and the minor’s position in life.
9.35 A relevant factor in this regard is fairness of the bargain. It is suggested that if the Minors
Act recognises, as it does in s 20, that a minor should be bound to a fair bargain, then it is logical

30. Minors (Property and Contracts) Act 1970 (NSW) s 20.

31. Minors (Property and Contracts) Act 1970 (NSW) s 23.
32. Minors (Property and Contracts) Act 1970 (NSW) s 27.
33. Minors (Property and Contracts) Act 1970 (NSW) ss 28–29.
34. Minors (Property and Contracts) Act 1970 (NSW) s 21.
35. Minors (Property and Contracts) Act 1970 (NSW) s 26(5).
36. Minors (Property and Contracts) Act 1970 (NSW) s 43.

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to conclude that the factors referred to in s 20 — that is, the payment of a grossly excessive price
or the receipt of a manifestly inadequate price — would be relevant to the question of benefit.
9.36 The Minors Act does not specify that a contract made by a minor that does not meet
any of the qualifications in the Minors Act will be void. Section 17 of the Minors Act merely
says that the contract is not binding. However, it would appear that the Minors Act generally
gives a voidable quality to such contracts, and it is submitted that a minor will lose their
rights in cases of affirmation, undue delay, or where a third party has become involved. This
latter situation is recognised in s 24, where protection is given to a third party who acquires
property in good faith and without notice following upon a minor’s contract. Similarly, with
respect to affirmation, s 30 of the Minors Act provides that a contract can be enforced against
a minor who, after turning 18, affirms an otherwise non-binding contract. The affirmation can
be express or implied from conduct and need not be communicated to another person. The
Minors Act also allows a court to affirm a contract made during minority if it believes that the
contract is for the minor’s benefit.
9.37 It follows from this that a contract made by a minor that is not otherwise binding on the
minor under the Minors Act is a voidable contract.

The position of minors in other states of Australia

Victoria
9.38 Section 49 of the Supreme Court Act 1986 (Vic) provides that certain contracts made by
a minor are void. They include contracts for the repayment of money lent or to be lent, contracts
for payment for goods supplied or to be supplied (other than necessaries), and accounts stated.
Furthermore, ss 50 and 51 of the Supreme Court Act 1986 (Vic) restricts the ability to bring
proceedings based on promises made after full age to pay a debt which was contracted during
infancy or on a ratification made after full age of a promise or contract made during infancy.

South Australia
9.39 The Minors Contracts (Miscellaneous Provisions) Act 1979 (SA) (the South Australian
Act) provides that a contract that is unenforceable against a person because that person was a
minor at the time it was made remains unenforceable unless ratified by the minor in writing
after attaining the age of majority.
9.40 Section 4 of the South Australian Act provides that where a minor has entered into
a contract that is, by reason of his or her minority at the time of entering into the contract,
unenforceable against him or her, the contract shall remain unenforceable against him or her
unless it is ratified by him or her, in writing, on or after the day on which he or she attains
their majority.
9.41 Section 5 of the South Australian Act deals with guarantees and provides that when a
person (other than a minor) guarantees the performance by a minor of his or her obligations
under a contract, the guarantee shall be enforceable against the guarantor to the same extent as
if the minor had, before entering into the contract to which the guarantee relates, attained his
or her majority. However, that section does not operate to render a guarantee enforceable if it
would, apart from this section, be unenforceable otherwise than by reason of the minority of
the person whose obligations are guaranteed.
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9.42 Section 6 of the South Australian Act states that a contract with a minor has effect as if the
minor had, before entering into the contract, attained his or her majority if, before the contract
was entered into by the minor, its terms were approved by the Supreme Court or by a local court
of full jurisdiction. The minor, or his or her parent or guardian, or any other party may make an
application for the approval of a court in respect of the terms of a proposed contract.
9.43 The South Australian Act, in s 7, also provides that where a person has avoided a contract
on the ground of his or her minority, and before the avoidance of the contract property passed
thereunder to some other contracting party, then a court may, on an application made by or on
behalf of the minor, order restitution of that property. An order under this section may be made
on such terms and conditions as the court considers just and may be made notwithstanding
that the minor has received some benefit under the contract, or that any other party to the
contract has partly performed his or her obligations under the contract. It should be noted
that a ‘Court’ for the purposes of s 7 is defined as the Supreme Court and a local court of full
jurisdiction where the value of the property in respect of which restitution is sought does not
exceed the jurisdictional limit of a local court of full jurisdiction. ‘Court’ also includes a local
court of limited jurisdiction where the value of the property in respect of which restitution is
sought does not exceed the jurisdictional limit of a local court of limited jurisdiction.
9.44 Pursuant to s 8 of the South Australian Act, both the Supreme Court and a local court of
full jurisdiction may, on the application of a minor or on the application of a parent or guardian
of a minor, appoint a person to transact any specified business, or business of a specified class,
or to execute any documents on behalf of the minor. Where a person appointed to transact
business on behalf of a minor under s 8 incurs any liabilities in the course of so doing, those
liabilities are enforceable against the minor.

Tasmania
9.45 The Minors Contracts Act 1988 (Tas) contains provisions relating to the enforcement
of guarantees that have given over debts owed by minors. Section 4 of the Minors Contracts
Act 1988 (Tas) provides that where a person, other than a minor, guarantees the performance
by a minor of his or her obligations under any contract, the guarantee is enforceable against
the guarantor to the same extent as if the minor had not been a minor at the relevant date.
Importantly, s 4 does not operate to render a guarantee enforceable if it would, apart from
this section, be unenforceable otherwise than by reasons of the minority of the person whose
obligations are guaranteed.

Australian Capital Territory, Northern Territory, and Western Australia

9.46 Section 15 of the Mercantile Law Act 1962 (ACT) provides that an action shall not be
brought whereby to charge a person upon a promise made after full age to pay a debt contracted
during infancy; or upon a ratification after full age of a promise or simple contract made during
infancy, unless the promise or ratification is made in writing signed by the party to be charged.
A similar position exists in the Northern Territory and Western Australia.37

37. Imperial Act 9 Geo iv c 14 s 5.

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PERSONS SUFFERING A MENTAL DISABILITY

9.47 A contract with a person who has been legally declared insane is void. However,
contracts with such persons for the purchase of ‘necessaries’ may be binding under sale of
goods legislation mentioned earlier in this chapter.38 For example, under s 7 of the Sale of
Goods Act 1923 (NSW), where ‘necessaries’ are sold and delivered to a person who, because
of mental incapacity or drunkenness, is incompetent to make the contract, that person must
pay a reasonable price for such ‘necessaries’. The definition of ‘necessaries’ under this Act is
wider than the common law definition. It includes goods suitable to the requirements and
position in life of that person and to actual requirements at the time of the sale and delivery.
9.48 A difficulty arises in situations where a person has not been declared insane, but who
lacks the necessary mental capacity to give genuine consent to a commercial transaction.
A person will lack capacity ‘if they are not capable of understanding the general nature of what
they are doing or do not have the capacity to understand the transaction when it is explained’.39
This lack of capacity may be permanent or temporary and can arise from mental illness,
sickness, age, or because of the consumption of alcohol or drugs. In these situations the courts
will not enforce a contract against a party who ‘lacks such soundness of mind as to be capable
of understanding the general nature of what he [or she] is doing’.40 The transaction will be
voidable, subject to various rules relating to rescission being satisfied,41 provided that the other
party to the transaction had knowledge of the incapacity,42 although it is an ‘unresolved question
whether actual knowledge of the incapacity is required or whether constructive knowledge is
sufficient’.43 However, the transaction will be effectual until an election is made to avoid it.44
9.49 In this respect, in Imperial Loan Co v Stone45 Lopes LJ said:
A contract made by a person of unsound mind is not voidable at that person’s option if the
other party to the contract believed at the time he made the contract that the person with
whom he was dealing was of sound mind. In order to avoid a fair contract on the ground
of insanity, the mental incapacity of the one must be known to the other of the contracting
parties. A defendant who seeks to avoid a contract on the ground of his insanity, must plead
and prove, not merely his incapacity, but also the plaintiff ’s knowledge of that fact, and
unless he proves these two things he cannot succeed.

38. See 9.10.

39. Gibbons v Wright (1954) 91 CLR 423 at 437–8. See also Hanna v Raoul [2018] NSWCA 201 at [47]; Gill
v Garrett [2020] NSWSC 795 at [410].
40. Gibbons v Wright (1954) 91 CLR 423 at 437. See also Hanna v Raoul [2018] NSWCA 201 at [47]–[50].
41. See 35.24–35.43.
42. Gibbons v Wright (1954) 91 CLR 423 at 441.
43. Hanna v Raoul [2018] NSWCA 201 at [51]. See also Public Trustee (WA) v Brumar Nominees Pty Ltd [2012]
WASC 161 at [90]–[96].
44. Gibbons v Wright (1954) 91 CLR 423 at 439; Borchert v Terry [2009] WASC 322 at [52]; Dunhill v Burgin
[2014] 2 All ER 364 at 374. Although beyond the scope of this book, it is worthwhile noting that special
court rules exist which deal with persons under a legal incapacity. Examples of such rules are contained
in Pt 7 Div 4 of the Uniform Civil Procedure Rules 2005 (NSW). Pursuant to those Rules, a person under
a legal incapacity (defined in rule 7.13) may not commence or carry on proceedings, including defending
proceedings, except by his or her tutor.
45. [1892] 1 QB 599 at 602–3.

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9.50 In Ford v Perpetual Trustees Victoria Ltd46 a lender advanced money to a borrower
pursuant to a loan agreement and mortgage. The borrower suffered from a congenital
intellectual impairment, which placed his overall level of intellectual functioning below the
first percentile of the Wechsler Adult Intelligence Scale. He had the ability to sign his name,
but had no capacity to understand and did not understand the transactions. The borrower had
been manipulated by his son into signing the loan documents and mortgage in order for his
son to purchase a cleaning business. Subsequently, a plea by the borrower of non est factum was
successful.47 However, in a detailed review of Gibbons v Wright48 the New South Wales Court
of Appeal in Ford v Perpetual Trustees Victoria Ltd49 noted the relationship between incapacity
and non est factum. According to Allsopp P and Young JA:50
The relationship between incapacity and non est factum was dealt with by the Court in
Gibbons v Wright.51 … The two pleas (non est factum and incapacity) must be distinguished,
as is clear from Gibbons v Wright.52 Each may be seen to occupy distinct areas and each is
theoretically distinct from the other. But it goes too far, in our respectful view, to say that the
two pleas are ‘incompatible’: cf Crago v McIntyre.53 Facts which, if known by the other party,
would make the deed voidable may also, if sufficient in themselves, found a conclusion that
the document was not signed. The two pleas may be made in the same case (as they were
here). Nothing in Gibbons v Wright54 is support for the conclusion that incapacity cannot be
a ground for a plea of non est factum if the facts as to the incapacity are sufficient to enable
a conclusion to be drawn that the document was not signed. Indeed, the history of non est
factum shows that in the 18th century when, before the reforms of 1832, the plea was a plea
of general issue, incapacity could be considered as part of a defence raised by a plea of non
est factum as in Yates v Boen.55 …

In Gibbons v Wright,56 the Court gave a number of examples of non est factum: the lunatic in
a frenzy, not even aware of what motions his hand was performing and the sleepwalker57 and
‘complete dementia’58. Further, the Court59 referred to Foster v Mackinnon60 as an example of
the mind not going with the pen. In Foster61 Byles J said:

It seems plain, on principle and on authority, that, if a blind man, or a man who
cannot read, or who for some reason (not implying negligence) forebears to read, has
a written contract falsely read over to him, the reader misreading to such a degree that

46. (2009) 75 NSWLR 42; 257 ALR 658.

47. See 16.88–16.95.
48. Gibbons v Wright (1954) 91 CLR 423.
49. (2009) 75 NSWLR 42; 257 ALR 658.
50. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 60–1; 257 ALR 658 at 676.
51. Gibbons v Wright (1954) 91 CLR 423 at 442–4.
52. Gibbons v Wright (1954) 91 CLR 423 at 443.
53. Crago v McIntyre [1976] 1 NSWLR 729 at 737.
54. (1954) 91 CLR 423.
55. Yates v Boen (1738) 93 ER 1060.
56. (1954) 91 CLR 423.
57. Gibbons v Wright (1954) 91 CLR 423 at 443.
58. Gibbons v Wright (1954) 91 CLR 423 at 446.
59. Gibbons v Wright (1954) 91 CLR 423 at 443.
60. (1869) LR 4 CPD 704.
61. Foster v Mackinnon (1869) LR 4 CPD 704 at 711.

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the written contract is of a nature altogether different from the contract pretended
to be read from the paper which the blind or illiterate man afterwards signs; then,
at least if there be no negligence, the signature so obtained is of no force. And it is
invalid not merely on the ground of fraud, where fraud exists, but on the ground that
the mind of the signer did not accompany the signature; in other words, that he never
intended to sign, and therefore in contemplation of law never did sign, the contract
to which his name is appended.

The same passage was cited in Gallie v Lee62 by Lord Hodson,63 Lord Wilberforce,64 and
Lord Pearson.65

Certainly, the three examples given by the Court can be seen to be circumstances where the
mind does not go with the pen. Holland J, in Crago v McIntyre,66 expressed it succinctly as:
‘the mental incapacity must be such as to deprive its victim of an understanding of what he
is signing so that his mind cannot go with his signature’.

In the circumstances of the case, the Court of Appeal held that the borrower did not know
what he was signing — he could not have understood either the loan agreement or mortgage if
it had been read to him and no explanation of the documents that he signed would have been
adequate to provide him with an understanding and appreciation of their true meaning and
effect ‘or effect even at a basic or visceral level’.
9.51 The fact that a contract is unfair or unreasonable does not allow a party to escape
contractual obligations on the ground of lack of mental capacity if the above two factors are not
present. In Hart v O’Connor67 an aged farmer agreed to sell his farm to the defendant on terms
that were less than fair. The farmer died and his beneficiaries sought to rescind the contract.
The facts showed that although the farmer probably lacked the necessary mental capacity, the
defendant did not know this.
9.52 The Privy Council held that a person seeking to void a contract on the ground of mental
incapacity had to prove both that there was a mental incapacity and that the other party knew
or should have known of the incapacity.68 Further, on the issue of ‘unfairness’, the court held
that a party had to establish ‘unconscionable behaviour’. Lord Brightman69 said:
[T]he validity of a contract entered into by a lunatic who is ostensibly sane is to be judged
by the same standards as a contract by a person of sound mind, and is not voidable by the
lunatic or his representatives by reason of ‘unfairness’ unless such unfairness amounts to
equitable fraud which would have enabled the complaining party to avoid the contract even
if he had been sane.

62. Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004; [1970] 3 All ER 961.
63. Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 at 1020; [1970] 3 All ER 961 at 966.
64. Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 at 1026; [1970] 3 All ER 961 at 972.
65. Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004 at 1035; [1970] 3 All ER 961 at 979.
66. Crago v McIntyre [1976] 1 NSWLR 729 at 737.
67. [1985] AC 1000; [1985] 2 All ER 880.
68. In May 2020, in TUV v Chief of New Zealand Defence Force [2020] NZSC 47, the Supreme Court of
New Zealand granted leave to appeal to consider the correctness of the Privy Council decision in this case.
69. Hart v O’Connor [1985] AC 1000 at 1027; [1985] 2 All ER 880 at 894.
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9.53 Caution should be taken with respect to the ambit of the Privy Council decision in
Hart v O’Connor70 in Australia, as statutory remedies may exist under legislation such as the
Contracts Review Act 1980 (NSW) or Australian Consumer Law, which enable a court to set
such a transaction aside under general principles of unconscionability or unfairness.71
9.54 The burden of establishing both lack of capacity and knowledge by the other party lies
with the party seeking to avoid the contract.72
9.55 A question sometimes arises as to whether a person’s contractual capacity is affected by
drunkenness. The following is stated in Halsbury’s Laws of England73 on this issue:
The fact that a party was drunk when he purported to enter into a contract may be a defence
to an action on the contract; and it has been said that drunkenness is in this respect on the
same footing as unsoundness of mind. It may be that extreme intoxication will so deprive
a person of his reason as to render his consent void; but, in many cases the courts have
contented themselves with a finding that the contract was voidable. Where drunkenness is
not such as to deprive a party of his reason, but merely of his business sense, the contract
is at most voidable: generally, equity will not interfere either to avoid or to enforce it; but
it will grant relief to the drunken party if he can show that his condition was known to the
other party at the time when the contract was made, and that some unfair advantage has
been taken of him.

9.56 Chitty on Contracts74 suggests that the test of incapacity by way of drunkenness is the
same as that for mentally disordered persons, being whether the person was so drunk as not
to understand what he or she was doing and whether the other party knew of that condition.
Chitty states that a contract may, in such circumstances, on some authorities be voidable at the
drunken person’s option (and can also be ratified when sober). However, other authorities
suggest that equity has a wider jurisdiction to set aside an unfair or unconscientious transaction
entered into by a person affected by alcohol. Treitel75 states that:
Extreme drunkenness is a defence to an action on a contract if it prevents the defendant from
understanding the transaction, and if the claimant knows this. … [However, a] defendant
cannot rely on drunkenness which merely blurred his business sense: but such drunkenness
is a ground on which equity may refuse to order specific performance. Nor does a party’s
habitual drunkenness deprive him of contractual capacity but it could be a ground for relief
if the other party has taken over the position of guardian or advisor to the drunkard so as to
give rise to a presumption of undue influence between them.

70. [1985] AC 1000; [1985] 2 All ER 880.

71. These issues are discussed fully in Chapters 19, 20 and 21.
72. Gibbons v Wright (1954) 91 CLR 423.
73. Halsbury’s Laws of England vol 9(1), 4th ed, Butterworths, 1974, at [717].
74. H G Beale (ed), Chitty on Contracts, Volume I: General Principles, 33rd ed, Sweet & Maxwell, London, 2018,
at [9-106].
75. E Peel, Treitel: The Law of Contract, 14th ed, Sweet & Maxwell, London, 2015, p 662.

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9.57 In the wake of the discussions referred to in 9.55–9.56, in Kurth v McGavin76 Priestley J
said:
On the basis of those commentaries I consider that the distinction apparent in Halsbury and
adopted by Cooke J in Peeters v Schimanski77 between drunkenness depriving a party of his
or her reason on the one hand, and drunkenness which merely deprives a party of his or her
business sense on the other hand, remains a valid distinction. But in either circumstance, a
prerequisite to granting relief to the drunken party is that the drunken condition must be
known to the other party at the time the contract was made: Irvani v Irvani.78 Importantly,
the equitable remedy of specific performance may well be refused in situations where
drunkenness of a party is a factor leading to a contract.

BANKRUPTS
9.58 An analysis of the law of bankruptcy is beyond the scope of this book. However, it should
be noted that, while the fact of bankruptcy does not automatically disqualify the bankrupt
from making contracts, it may place some limits on a bankrupt person’s ability to contract. For
example, a bankrupt must disclose to anyone to whom they apply for credit of more than $3000
that they are bankrupt.79 Also, property acquired by a bankrupt, including contractual benefits,
generally vests in the trustee in bankruptcy for the benefit of the bankrupt’s creditors.80

CORPORATIONS
9.59 Formerly, a corporation could only make a valid contract that it was authorised
to make by its constitution. (In this section, the words ‘company’ and ‘corporation’ will be
used interchangeably.) This constitution, part of which was known as the memorandum of
association, contained the company’s objects or reasons for its formation, and defined the
powers that could be exercised in order to achieve these objectives. If the company exceeded
its stated objects or powers, it was regarded as having acted ultra vires and any such act was
regarded as void at common law.81
9.60 The doctrine of ultra vires has now been substantially abolished by ss 124 and 125
of the Corporations Act 2001 (Cth) in respect of companies that are registered under the

76. [2007] 3 NZLR 614 at 630.

77. Peeters v Schimanski [1975] 2 NZLR 328.
78. Irvani v Irvani [2000] 1 Lloyd’s Rep 412 at 425. This case concerned a person who argued that he suffered
from a psychiatric condition known as pathological gambling, which was characterised by a continuous
impairment of his ability to control the frequency with which he gambled and the amount of money that
he gambled. In that case, the person argued that a particular casino knew or ought to have known about his
condition and that it took unconscientious advantage of his inability to resist the urge to gamble by offering
and providing him with credit.
79. Bankruptcy Act 1966 (Cth) s 269.
80. Bankruptcy Act 1966 (Cth) s 58.
81. J V Gooley, M Zammit, M Dicker, and D J Russell, Corporations and Associations Law: Principles and Issues,
LexisNexis Butterworths, 7th ed, Australia, 2020, at [14.11].

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Corporations Act. Companies not so registered may still be affected by ultra vires.82 Generally,
a corporation registered under the Corporations Act now has the full contractual capacity
of a natural person. Even if the constitution of a company imposes restraints upon what the
company may do contractually, a contract made in breach of those limits is still enforceable. If
a company does make a contract in excess of the powers set out in its memorandum, the other
party may still enforce the contract unless he or she knew, or should in the circumstances have
known, that the company did not have the power to make that particular contract.83
9.61 In Rolled Steel Products (Holdings) Ltd v British Steel Corporation84 the court85 analysed
ultra vires and the different senses of its use. In this case, Rolled Steel Products (RSP) was a
member of a group of companies controlled by S. At S’s request, RSP borrowed money from
SSS Ltd, another company controlled by S, to establish a steel service centre which was operated
by SSS Ltd. SSS Ltd became indebted to C Ltd, a subsidiary of British Steel Corporation (BSC).
S gave a personal guarantee of the SSS Ltd debt, but later agreed to an arrangement whereby
C Ltd lent sufficient money to RSP to enable it to repay its debt to SSS Ltd, in return for RSP
agreeing to guarantee repayment of SSS Ltd’s debt to C Ltd and to repay the loan from the
proceeds of a prompt sale of the steel service centre. When the sale was not effected by the
agreed date, RSP gave C Ltd a debenture over its property as security for the loan. S, in breach
of the Articles of RSP, did not declare his interest in the transaction when voting on these
matters. C Ltd recovered its loan by exercising its rights under the debenture to put RSP into
receivership. Sale of the assets did not realise sufficient funds to pay all the unsecured creditors.
At the conclusion of the receivership, RSP, relying on S’s non-disclosure being a sufficient
breach of duty to render the security ultra vires and void, sued BSC and the receiver for the
recovery of all moneys paid by the receiver to BSC. The trial judge held that BSC was entitled
to assume that company documents were executed in the proper form, but upheld RSP’s claim
on the basis that BSC knew that the guarantee and debenture had been given by RSP for an
improper purpose.
9.62 According to Slade LJ:86
(1) The basic rule is that a company incorporated under the Companies Acts only has the
capacity to do those acts which fall within its objects as set out in its memorandum of
association or are reasonably incidental to the attainment or pursuit of those objects.
Ultimately, therefore, the question whether a particular transaction is within or outside
its capacity must depend on the true construction of the memorandum.
(2) Nevertheless, if a particular act … is of a category which, on the true construction of the
company’s memorandum, is capable of being performed as reasonably incidental to the
attainment or pursuit of its objects, it will not be rendered ultra vires the company merely
because in a particular instance its directors, in performing the act in its name, are in
truth doing so for purposes other than those set out in its memorandum. Subject to any
express restrictions on the relevant power which may be contained in the memorandum,

82. Humphries v The Proprietors ‘Surfers Palms North’ Group Titles Plan 1955; Commonwealth v Australian
Commonwealth Shipping Board (1926) 39 CLR 1.
83. Corporations Act 2001 (Cth) s 125.
84. [1986] Ch 246.
85. The facts of this case are taken from R Baxt, K Fletcher and S Fridman, Corporations and Associations:
Cases and Materials, 10th ed, LexisNexis Butterworths, Sydney, 2009, at [6.6C].
86. Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246 at 295–6.

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the state of mind or knowledge of the persons managing the company’s affairs or of the
persons dealing with it is irrelevant in considering questions of corporate capacity.
(3) While due regard must be paid to any express conditions attached to or limitations on
powers contained in a company’s memorandum (e.g., a power to borrow only up to a
specified amount), the court will not ordinarily construe a statement in a memorandum
that a particular power is exercisable ‘for the purposes of the company’ as a condition
limiting the company’s corporate capacity to exercise the power; it will regard it as simply
imposing a limit on the authority of the directors. …
(4) At least in default of the unanimous consent of all the shareholders … the directors of
a company will not have actual authority from the company to exercise any express or
implied power other than for the purposes of the company as set out in its memorandum
of association.
(5) A company holds its directors as having ostensible authority to bind the company to
any transaction which falls within the powers expressly or impliedly conferred on it by
its memorandum of association. Unless he is put on notice to the contrary, a person
dealing in good faith with a company which is carrying on an intra vires business is
entitled to assume that its directors are properly exercising such powers for the purposes
of the company as set out in its memorandum. Correspondingly, such a person in such
circumstances can hold the company to any transaction of this nature.
(6) If, however, a person dealing with a company is on notice that the directors are exercising
the relevant power for purposes other than the purposes of the company, he cannot rely
on the ostensible authority of the directors and, on ordinary principles of agency, cannot
hold the company to the transaction.

9.63 In this case, the particular words in RSP’s Memorandum did not limit the corporate
capacity of RSP, but imposed a limit on the authority of the directors. In the circumstances,
the guarantee and the debenture were not executed for a legitimate purpose of RSP and it was
found that those at BSC knew this. Finally, by way of comment, his Honour87 also said:
[I]t seems to me highly desirable that, as a matter of terminology, the phrase ‘ultra vires’ in
the context of company law should for the future be rigidly confined to describing acts which
are beyond the corporate capacity of a company.

9.64 The consequences at common law of an ultra vires transaction were illustrated in
Ashbury Railway Carriage & Iron Co v Riche.88 In this case the company’s objects were stated as
including the manufacture of railway machinery and rolling stock. The directors on behalf of
the company contracted to operate a railway line in Belgium and entered into a contract for the
construction of the railway. The contract was later repudiated. The constructors then sued the
company for breach of contract. The court held that, as the objects clause in the memorandum
did not allow for the building of railways, the contract was ultra vires and was a complete nullity
and therefore unenforceable.
9.65 Thus, persons who dealt with a company could find that a supposed contract was void
if the dealing could not be related to the company’s objects, as it would be regarded as ultra
vires the company. Even a unanimous vote of the members purporting to ratify the transaction
could not cure its defective nature. With this judicial interpretation in the background, drafters

87. Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246 at 297.
88. (1875) LR 7 HL 653.

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of company objects clauses reacted with long and convoluted clauses in order to reduce the risk
that a company’s dealing might be regarded as ultra vires and void. Companies were given very
wide objects — as wide as the drafter’s imagination. The court’s response to this wide drafting
was to ascertain the company’s main object and construe ancillary objects in the light of and
subject to this main object. This obviously cut down many widely drafted objects clauses.
Accordingly, drafters fought back and stated that all objects were to be regarded as main objects
in themselves. The result was that company memorandums contained myriad powers and
objects, many of which were totally unrelated to what the company did or ever intended to do.89
9.66 Sections 124 and 125 of the Corporations Act 2001 (Cth) have now substantially
changed this common law position with respect to companies registered under that or previous
companies legislation. From 1 January 1984, legislation commenced which provided that
companies had the legal capacity of a natural person. This meant that it was not necessary from
that time to draft long lists of enabling powers to enable a company to function. As part of this
legislative change, it became optional for a company to include in its constitution a limit on the
company’s powers.90 Furthermore, Parliament, at the same time, made it optional for a company
to include objects in its Memorandum or constitution.91 If a company did not include objects
in its Memorandum or constitution, then it was not restricted on what it could do, unless the
restriction was imposed by legislative regulation. Despite these legislative developments, some
companies continued (and continue) to include objects and powers within their constitutions.
Briefly, such companies appear to fall into one of two categories:
• those formed prior to 1 January 1984 and which have not abolished their existing powers
and objects contained in their constitutions; or
• those formed after 1 January 1984 and which have chosen to include powers and objects in
their constitutions.
Further, no liability companies must be formed solely for mining purposes.
9.67 In consequence, it is possible that these companies can exceed their objects and powers
and thus act ultra vires. However, the statutory consequences for such acts are now regulated
by s 125(1)–(2) of the Corporations Act 2001 (Cth). Section 125(1) relevantly provides that the
exercise of a power by the company is not invalid merely because it is contrary to an express
restriction or prohibition in the company’s constitution. Section 125(2) relevantly provides that
an act of the company is not invalid merely because it is contrary to or beyond any objects in
the company’s constitution.

ALIENS
9.68 A contract made with an alien — a foreign national — generally does not cause problems
of contractual capacity in peacetime conditions. However, if there is a state of war between
Australia and the country of that foreign national, there are two important consequences:
• The foreign national is without contractual capacity to enter into a contract.
• The foreign national may not enforce a contract, even if that contract was made before the
outbreak of hostilities.

89. H A Stephenson & Son Ltd v Gillanders Arbuthnot & Co (1931) 45 CLR 476.
90. Corporations Act 2001 (Cth) s 125(1).
91. Corporations Act 2001 (Cth) s 125(2).
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MARRIED WOMEN
9.69 For a considerable period, married women lacked contractual capacity at common law,
as a married woman had no separate legal personality from that of her husband. The equitable
doctrine of separate estate altered this position and now the position has been altered by statute
in all jurisdictions in Australia such that almost all contractual restraints on married women
have been abolished.92

92. See Married Persons’ Property Act 1986 (ACT); Married Persons (Equality of Status) Act 1996 (NSW);
Married Persons (Equality of Status) Act 1989 (NT); Law of Property Act 1936 (SA); Conveyancing and
Law of Property Act 1884 (Tas); Marriage Act 1958 (Vic); Property Law Act 1969 (WA).

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 Part III:
Terms of a Contract
 10
EXPRESS TERMS

INTRODUCTION
10.1 This, and the following three chapters deal, in turn, with express terms, implied terms,
and the construction or interpretation of terms. These chapters are concerned with what a
contract actually says and means. Here the assumption is that there is a validly formed contract,
even though there may be grounds to rescind it or have it declared void for some reason.
10.2 In relation to the terms of the contract, one is concerned with what may be seen as
the constituent parts of a contract that are binding upon the parties and that indicate what
the parties need to do in performance of the contract. It should be noted that terms often
appear in written contracts as sentences or paragraphs and are variously called terms, clauses,
provisions, conditions, warranties, covenants, or other expressions that mean the same thing
or that are included under the general umbrella of terms. The multiplicity of expressions that
are used to describe a term of a contract can lead to confusion. This is because some of these
expressions have a specific technical meaning in relation to the classification of terms. For
example, the breach of a term that is classified as a ‘condition’ entitles the innocent party to the
breach to terminate the contract. And, if the breach is of a term that is classified as a ‘warranty’,
the innocent party to the breach is not entitled to terminate the contract. On the other hand,
the breach of any term, irrespective of its classification, permits the innocent party to pursue a
claim for damages for breach of contract.
10.3 The most common way of categorising terms is to distinguish between express terms,
that is, terms that are expressly stated or agreed upon by the parties, and implied terms, that is,
those terms that are not expressly agreed but that may be implied for some necessary reason.
Thus, simply reading a contractual document may not identify all the terms of the contract, just
as evidence of what the parties said and what they did may not identify all the terms of their
contract. This chapter is focused on express terms. The topic of implied terms is examined in
Chapter 11. Once a court has determined what the terms of a contract are, there then may be
issues as to their construction or interpretation in order to decide what they actually mean.
The general principles of construction of terms are dealt with in Chapter 12. A more detailed
analysis of the construction of exclusion clauses is dealt with in Chapter 13.
10.4 Express terms are those that are explicitly included in the contract by the parties. This
chapter sets out principles that enable courts to identify the express terms of a contract. In many
cases this will not present any difficulties. Thus, in a written contract signed by both parties and

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which sets out the parties’ obligations, the express terms will be the said written obligations.
However, there are situations, particularly in relation to oral statements made in the course
of negotiations leading up to the contract, where the express terms are not at all clear, and
contracting parties frequently disagree over what they have or have not promised to each other.
In resolving such disagreements, the fundamental question that has to be resolved by a court is
whether the statements made by the parties are express terms of the contract.
10.5 Not all statements made in negotiations leading up to a contract qualify as express terms
of the contract. The law divides such statements into the following two major categories:
• promissory statements that give rise to contractual obligations and are referred to as express
terms; and
• non-promissory statements that do not give rise to contractual obligations and are often
referred to as mere representations.
10.6 However, there are also other specialised kinds of terms, which are not promissory, that
often appear in written contracts. These include definition, interpretation, and other so-called
‘boilerplate’ clauses that assist in interpreting the contract and that generally are not capable of
being breached. There are also what may be referred to as ‘contingent conditions’, which indicate
the circumstances in which contractual obligations will arise, or indeed, determine whether or
not a contract exists between the parties. These contingent conditions are discussed in Chapter 23.
10.7 This chapter will first discuss whether statements made by the parties in negotiations
leading to a contract are terms or mere representations. As will be seen, this is a question of
objectively determining the intention of the parties in this regard. If it is found that a particular
statement is intended to be a term of the contract, the question that then arises is whether it
has been incorporated as such into the contract. The issue of incorporation will be dealt with
under the headings of incorporation of terms by signature, incorporation of terms by notice,
and incorporation of terms by prior dealings.
10.8 Finally, it must be noted that, subject to any statutory requirements to the contrary,
contracts do not need to be in written form.1 Thus, a contract may be entirely oral, in which
case its terms ‘must be inferred from a combination of surrounding circumstances including
conversations, documents and conduct none of which provide a definitive form of words’.2
A contract can also be entirely written or partly written and partly oral.3 In these situations,
in determining the terms of a contract, a court will need to consider not only any written
record of the contract, but also extrinsic (usually oral) evidence that is relevant to establishing
the contract’s terms. If the written record of the contract is held to constitute the entirety of
the contract between the parties to the exclusion of any extrinsic oral statements, then the
parol evidence rule will apply. The parol evidence rule contains two parts. The first part is
concerned with the exclusion of extrinsic evidence that would add to, subtract from, vary, or
qualify the terms of a written contract.4 Although this part of the rule may preclude a finding
that a statement is a term of the contract, the statement may nevertheless be a term of an
altogether distinct or separate contract, known as a collateral contract. The second part of the
parol evidence rule deals with the exclusion of extrinsic evidence that would otherwise assist

1. See Chapter 8.
2. County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [7]. See also 8.1.
3. Autoclenz Ltd v Belcher [2009] EWCA Civ 1046 at [87].
4. See 10.54–10.65.
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the court in interpreting or construing the contract. This part of the rule will be analysed when
discussing the construction of terms.5

TERMS AND REPRESENTATIONS

10.9 In the course of negotiations leading to the formation of a contract various statements
will be made by the parties to each other. The question that often arises is whether such
statements constitute terms of the contract or merely representations. If the statement is a term
and it is not true, that will usually mean that there has been a breach of contract, which will
entitle the innocent party to the breach to sue the other for damages for breach of contract.
No such remedy will be available if the statement is merely a representation. However, a false
representation may constitute a misrepresentation,6 which in turn may give rise to a right to
rescind the contract.7 Alternatively, the false representation may attract one or other of the
various remedies in relation to the prohibition against misleading or deceptive conduct.8
10.10 The following example raises the question of whether a statement made in the course
of negotiations is a term of the contract or merely a representation. X and Y enter into lengthy
verbal negotiations relating to the sale of X’s Mazda motor vehicle to Y for $5000. During the
negotiations, X states that the car is a 1996 model Mazda. After the contract is completed,
Y discovers that the Mazda is a 1994 model, and therefore worth somewhat less than a 1996
model. Is the statement by X as to the year model of the motor vehicle a term of the contract,
with the consequence that X is in breach of the contract? In other words, did X promise to sell
a 1996 Mazda or simply a Mazda? If it is the former, X is liable to Y for damages for breach of
contract, whereas in the latter case there is no such liability because there is no breach of contract.
10.11 A representation ‘is a statement, or assertion, made by one party to the other, before
or at the time of the contract, of some matter or circumstance relating to it’.9 Generally,
representations are descriptive or ‘representational’ in the sense that they provide information
about the subject matter of the contract or related matters. They are not considered binding on
the maker of the statement. On the other hand, terms usually specify what the parties are to
do in performance of the contract and are considered promissory and binding. As Carter10 has
noted, ‘[w]hat distinguishes a term from a mere representation is the intention of the maker of
the statement to guarantee its truth’.
10.12 In Ellul v Oakes,11 the court set out the following as factors that may be used to
determine whether a statement is a term or mere representation:
• the importance of the statement — the more important it is the more likely it is a term;
• the time that has elapsed between the making of the statement and the making of the
agreement — the longer the time the more likely the statement is a representation only;12

5. See 12.57–12.67.
6. See Chapter 14.
7. See Chapter 35.
8. See Chapter 15.
9. Behn v Burness (1863) 122 ER 281 at 282.
10. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Chatswood, 2018, p 212.
11. (1972) 3 SASR 377 at 387.
12. Brewer v Mann [2010] EWHC 2444 (QB) at [129].
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• whether the party making the statement was, vis-à-vis the other party, in a better position
to ascertain the truth of the statement — if so, the more likely it is that the statement is a
term; and
• whether the statement was subsequently omitted when the agreement was embodied
in a more formal written document — if so, the more likely it is that the statement is a
representation only.13
10.13 None of these factors is conclusive; they are simply indicators. It is ultimately for
the court to ascertain ‘whether there is evidence of an intention by one or both of the parties
that there should be contractual liability in respect of the accuracy of the statement’.14 The
intention is to be determined by an objective analysis of ‘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’.15 The following two cases
illustrate the difficulties the courts can have in ascertaining the intention of the parties.
10.14 In Oscar Chess Ltd v Williams,16 Williams traded in his Morris motor vehicle with
Oscar Chess for a new car. Williams told Oscar Chess that the car was a 1948 model. On that
basis, Oscar Chess gave it a trade-in value of £290. Williams’ statement was based upon the car’s
registration papers. After the trade-in was finalised, Oscar Chess discovered that the Morris
was a 1939 model with a trade-in value of only £175. Oscar Chess sued Williams for damages
for breach of contract, claiming that Williams’ statement that the Morris was a 1948 model
was a term of the contract. By a majority, the Court of Appeal held that the statement was not
a term. Thus, Oscar Chess had no claim against Williams for damages for breach of contract.
Denning LJ17 noted that, in determining the issue of contractual intention, the court must look
objectively at the totality of the evidence. This depends on looking at what the parties said and
did, rather than on their uncommunicated thoughts. Williams, who was the last in a series
of owners of the Morris, simply relied on what the registration papers said and Oscar Chess,
as the car dealer, could have checked whether the car was in fact a 1948 model. An objective
analysis of the facts indicated that Williams could not have intended the statement to be a
term of the contract. Thus, the court18 held that Williams’ statement was only an innocent
misrepresentation.
10.15 In Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd,19 Dick Bentley purchased
a second-hand Bentley motor vehicle from Harold Smith. During the negotiations preceding
the purchase, Harold Smith stated that the car had travelled only 20,000 miles since its engine
and gearbox had been replaced. This statement was false. Dick Bentley sued Harold Smith for
damages for breach of contract. The Court of Appeal held that Harold Smith’s statement was a

13. Brewer v Mann [2010] EWHC 2444 (QB) at [129].

14. Ellul v Oakes (1972) 3 SASR 377 at 387. See also Hospital Products Ltd v United States Surgical Corp (1984)
156 CLR 41 at 61; 55 ALR 417 at 427; Crouch and Lyndon (a firm) v IPG Finance Australia Pty Ltd [2014]
1 Qd R 512 at 533; Larner v George Weston Foods Ltd [2014] VSCA 62 at [177].
15. Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105–6; 187 ALR 92 at 100.
See also Mihaljevic v Eiffel Tower Motors Pty Ltd [1973] VR 545 at 555; Mainieri v Cirillo (2015) 47 VR 127
at 136–7.
16. [1957] 1 All ER 325.
17. Oscar Chess Ltd v Williams [1957] 1 All ER 325 at 328.
18. [1957] 1 All ER 325 at 329–30, 331.
19. [1965] 2 All ER 65.

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term that had been breached, leaving it liable to Dick Bentley for damages for breach of contract.
Lord Denning MR20 reaffirmed his statement of principle in Oscar Chess Ltd v Williams,21 and
then went on to say:
[I]t seems to me that if a representation is made in the course of dealings for a contract for
the very purpose of inducing the other party to act upon it, and it actually induces him to
act upon it by entering into the contract, that is prima facie ground for inferring that it was
intended as a [term of the contract]. … But the maker of the representation can rebut this
inference if he can show … that he was in fact innocent of fault in making it, and that it
would not be reasonable in the circumstances for him to be bound by it.

His Lordship ruled that in Oscar Chess Ltd v Williams,22 the inference was rebutted. However,
the inference was not rebutted in this case because Harold Smith was a dealer in cars and in a
position to know, or at least ascertain, the history of the cars it was selling. The statement as to
the 20,000 miles was made without any foundation. Accordingly, Harold Smith was held to be
in breach of contract and liable to Dick Bentley for damages.
10.16 Two matters need to be raised in relation to Lord Denning’s comments in these two
cases. First, his suggestion in Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd,23 that
when one party makes a statement that is aimed at inducing a contract and the other party
relies on it, the statement is generally a term, is of doubtful authority in Australia. Although
similar comments are made to that effect in Ellul & Ellul v Oakes,24 in J J Savage & Sons Pty Ltd
v Blakney,25 the High Court observed that the fact that a contract to purchase property would
never have been entered into had a particular statement not been made, was insufficient to
establish that the statement was a term of the contract. Second, Lord Denning’s statements in
both cases, suggesting that the losing parties lost due to fault on their respective parts, were
rejected by Zelling J in Ellul & Ellul v Oakes.26

INCORPORATION OF TERMS BY SIGNATURE

10.17 One of the most common ways in which terms are expressly incorporated into written
contracts is by signature.27 Signature of a document is one of the most obvious ways in which
the signatory is held bound by the terms of the document. In L’Estrange v F Graucob Ltd,28 it
was held that signature ordinarily will bind the signatory to the terms, even if he or she has not
read or understood the terms set out in the document. This is often referred to as the ‘signature
rule’. L’Estrange v F Graucob Ltd29 concerned the purchase of a vending machine pursuant to

20. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65 at 67.
21. [1957] 1 All ER 325.
22. [1957] 1 All ER 325.
23. [1965] 2 All ER 65.
24. (1972) 3 SASR 377 at 387.
25. (1970) 119 CLR 435 at 442.
26. (1972) 3 SASR 377 at 388–9.
27. In relation to when a person can be said to have signed a document see 8.18–8.22.
28. L’Estrange v F Graucob Ltd [1934] 2 KB 394 at 403, 406. See also Parker v South Eastern Railway Co (1877)
2 CPD 416 at 421; Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 645; 4 ALR 257 at 265.
29. [1934] 2 KB 394.

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a contract that was signed and which contained an exclusion clause that protected the vendor
from liability to L’Estrange. The practical outcome of this case was that L’Estrange purchased a
machine that did not work and which was essentially worthless.
10.18 The rule in L’Estrange v F Graucob Ltd 30 could be criticised on the ground that it can
be, and is being, used by powerful bargainers to impose upon others their preferred terms of
the contract. Chapman31 argues that the signatory should receive reasonable notice of the terms
before he or she is bound by the signature rule. On the other hand, Moringiello32 suggests that
the signature rule has an ‘alerting power’, in that it signals to a signatory that the document is
important and should, at least, be read.
10.19 In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd33 a unanimous High Court gave
the following reasons underpinning the signature rule:
First, it accords with the ‘general test of objectivity [that] is of pervasive influence in the law
of contract’. The legal rights and obligations of the parties turn upon what their words and
conduct would be reasonably understood to convey, not upon actual beliefs or intentions.

Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving
such disputation is commonly difficult, time-consuming, expensive and problematic.
Where parties enter into a written agreement, the Court will generally hold them to the
obligations which they have assumed by that agreement. At least, it will do so unless relief
is afforded by the operation of statute or some other legal or equitable principle applicable
to the case. Different questions may arise where the execution of the written agreement is
contested; but that is not the case here. In a time of growing international trade with parties
in legal systems having the same or even stronger deference to the obligations of written
agreements (and frequently communicating in different languages and from the standpoint
of different cultures) this is not a time to ignore the rules of the common law upholding
obligations undertaken in written agreements. It is a time to maintain those rules. They are
not unbending. They allow for exceptions. But the exceptions must be proved according to
established categories. The obligations of written agreements between parties cannot simply
be ignored or brushed aside.

10.20 The signature rule was reaffirmed by the High Court of Australia in Toll (FGCT)
Pty Ltd v Alphapharm Pty Ltd.34 In this case the facts concerned the signature to a printed form
with printing on the front and back. On the front, just above the place where it was signed,
there appeared the words: ‘Please read “Conditions of Contract” (overleaf) prior to signing.’
The signatory (who was the agent of one of the parties) did not read the relevant conditions,
nor were they mentioned in any conversation between the relevant parties. The conditions
contained an exclusion clause. The issue before the High Court was whether the exclusion
clause formed part of the contract. It was argued that reasonable notice of terms had to be given
and that in the absence of such notice, a signatory was not bound by the signature rule.

30. [1934] 2 KB 394.

31. M Chapman, ‘Common Law Contract and Consent: Signature and Objectivity’ (1998) 49 Northern Ireland
Legal Quarterly 363 at 380.
32. J M Moringiello, ‘Signals, Assent and Internet Contracting’ (2005) 57 Rutgers Law Review 1307 at 1313.
33. (2004) 218 CLR 471 at 483–4; 211 ALR 101 at 108–9. See also Wilton v Farnworth (1948) 76 CLR 646 at 649;
Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 at [43].
34. (2004) 219 CLR 165 at 185; 211 ALR 342 at 356–7.

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10.21 The High Court, in a unanimous decision, held that the exclusion clause formed part
35

of the contract, stating:

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
… 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 High Court36 continued:

Legal instruments of various kinds take their efficacy from signature or execution. Such
instruments are often signed by people who have not read and understood all their terms,
but who are nevertheless committed to those terms by the act of signature or execution. It is
that commitment which enables third parties to assume the legal efficacy of the instrument.
To undermine that assumption would cause serious mischief.

10.22 In rejecting the argument that notice had to be given of the exclusion clause, the
High Court37 said:
When an attempt is made to introduce the concept of sufficient notice into the field of signed
contracts, there is a danger of subverting fundamental principle based on sound legal policy.
There are circumstances in which it is material to ask whether a person who has signed a
document was given reasonable notice of what was in it. Cases where misrepresentation is
alleged, or where mistake is claimed, provide examples. No one suggests that the fact that
a document has been signed is for all purposes conclusive as to its legal effect. At the same
time, where a person has signed a document, which is intended to affect legal relations, and
there is no question of misrepresentation, duress, mistake, or any other vitiating element, the
fact that the person has signed the document without reading it does not put the other party
in the position of having to show that due notice was given of its terms. Furthermore, it may
be asked, where would this leave a third party into whose hands the document might come?

10.23 The High Court recognised that there are principles that ameliorate the effect of
the signature rule. It should also be noted that vitiating factors such as misrepresentation,38
mistake,39 and duress,40 and statutory provisions such as those in the Contracts Review Act 1980
(NSW),41 may result in a contract being declared voidable or void ab initio notwithstanding
that it may have been signed.42 What a signature does is incorporate terms into a contract and
thus determine the question of the content, rather than the continued existence, of the contract.
10.24 In relation to the signature rule, it can also be noted that signing a document that
refers to terms of the contract that are contained in a separate document will generally

35. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 180–1; 211 ALR 342 at 353.
36. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 182; 211 ALR 342 at 354.
37. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 184; 211 ALR 342 at 355–6.
38. See Chapter 14.
39. See Chapter 16.
40. See Chapter 17.
41. See Chapter 20.
42. Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 at [43]–[44].

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result in those terms being incorporated into the contract. Thus, in Ange v First East Auction
Holdings Pty Ltd,43 the signatory knew of the terms set out in a separate document. These were
subsequently held to be part of the contract. The Court of Appeal noted that, if the terms in the
separate document were unusual, notice of the terms may, depending upon the circumstances,
be required for them to be incorporated into the contract.
10.25 Difficult issues can arise in relation to the signature rule in circumstances where the
parties have finalised the terms of their agreement, but later sign a document that includes
terms not previously agreed upon. Two situations in which this could occur can be noted.
First, in cases where the signing of the document occurs after the terms of the agreement have
been performed, the additional terms will generally not be incorporated as express terms of
the contract. Thus, in D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd,44 the facts concerned
an exclusion clause that formed part of the document signed after goods were transported
by the carrying company in accordance with an earlier oral agreement that did not include
such a term. The Full Court held that the exclusion clause was not part of the contract as the
‘[oral] contract was made before the form was presented, and moreover, the performance of
the contract by [the carrying company] was complete by that time’. Second, there are cases
where an oral agreement has been reached and the document containing additional terms is
subsequently signed, but before performance of the oral agreement takes place. In such cases
the subsequent signed document may operate as a variation of the earlier oral agreement, but
only if it can be established that, in signing the document, the parties intended such a variation.
Thus, in Warming’s Used Cars Ltd v Tucker,45 the signed document stated that a used car that
was the subject of the earlier oral agreement was not encumbered. The earlier oral agreement
made no reference to such a term. The court ruled that the signed document was of no effect as
there was no intention by the parties to vary the earlier oral agreement.

Exceptions to the signature rule

10.26 In L’Estrange v F Graucob Ltd46 it was held that the signature rule did not apply to
situations where documents are signed as the result of fraud or misrepresentation. This
exception also extends to signatures obtained as the result of duress,47 undue influence,48 and
unconscionable conduct.49 As is noted in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,50 the
principle of non est factum51 — a species of mistake — also operates as an exception.
10.27 The case of Curtis v Chemical Cleaning & Dyeing Co52 concerned a signature that was
induced by misrepresentation. In that case, Curtis took a wedding dress to be drycleaned. The
drycleaner asked her to sign a document headed ‘Receipt’. On asking why her signature was

43. (2011) 284 ALR 638 at 646–9.

44. [1971] VR 749 at 753.
45. [1956] SASR 249.
46. [1934] 2 KB 394.
47. See Chapter 17.
48. See Chapter 18.
49. See Chapter 19.
50. (2004) 219 CLR 165; 211 ALR 342.
51. See 16.88–16.95.
52. [1951] 1 KB 805; [1951] 1 All ER 631.

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necessary, Curtis was told it was because the document contained a clause excluding liability
for damage to the beads and sequins on the dress. Curtis signed the document. However,
the exclusion clause was not confined to damage to the beads and sequins on the dress, but
purported to exclude liability for any damage to the dress. When the dress was returned, there
was a stain on it and Curtis sued for damages. The drycleaner pleaded the exclusion clause as a
defence to liability. The issue to be determined was whether Curtis’s signature bound her to the
exclusion clause printed on the receipt.
10.28 The Court of Appeal held that the signature rule did not apply and, therefore, that
the exclusion clause was not incorporated as part of the contract. Although Curtis knew that
the clause was intended to be part of the contract, and would otherwise have been bound by the
term in the document in accordance with the signature rule, this was not the case here because
of misrepresentation by the drycleaner. Denning LJ53 said:
When one party puts forward a printed form for signature, failure by him to draw attention
to the existence or extent of the exemption clause may in some circumstances convey the
impression that there is no exemption at all, or at any rate, not so wide an exemption as that
which is in fact contained in the document. The present case is a good illustration.

10.29 This false impression could be the result of words or conduct by the defendant, and
it does not matter whether the defendant acted knowingly or unwittingly in creating the false
impression.
10.30 In Curtis v Chemical Cleaning & Dyeing Co,54 Denning LJ went on to consider what
the result would have been if Curtis had not questioned the drycleaner about the need for her
signature, but had simply signed the document on being asked to do so. On the basis that the
document would have been seen as a voucher or receipt, his Lordship took the view that the
result would have been the same. It would not have been understood as a contractual document
unless the drycleaner had done something that could have been considered sufficient to give
notice of the clause to Curtis.

INCORPORATION OF TERMS BY NOTICE

10.31 Although notice is not a factor in relation to cases where the signature rule applies, it
is crucial in cases of unsigned documents, or writing on signs, which are alleged to be part of a
contract. Common instances of such unsigned documents include tickets issued for transport
by bus, train, ferry, or aeroplane; tickets issued on entry into a car park; and tickets issued for
entry into, or use of, facilities in an amusement park or similar establishment. In such cases the
clauses set out in the unsigned document or on the sign will not be incorporated as express
terms of the contract unless reasonable notice of them has been given to the party alleged to
be bound by them. Whether reasonable notice has been given is ultimately a question as to

53. Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 at 809; [1951] 1 All ER 631 at 634. See also Axa
Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133 at [105].
54. [1951] 1 KB 805; [1951] 1 All ER 631.

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whether there has been a meeting of the minds. In relation to what is meant by notice, in HIH
Casualty & General Insurance Ltd v New Hampshire Insurance Company55 Rix LJ said:
[T]he ‘question of notice is closely akin to a question of awareness: the party affected by
sufficient notice, even if not actually aware of the term in question, is regarded as having
constructive knowledge of it, ie as being constructively aware of it.

Thus, a person will have notice of the term if he or she is aware of the existence of the term,
even though he or she is not aware of its content.
10.32 The two major aspects of the notice rule are:
• the timing of the notice; and
• the reasonableness of the notice.

Timing of the notice

10.33 In terms of timing, notice of the term has to be given at or before the entering into of
the contract.56 Thus, in Olley v Marlborough Court Ltd,57 a hotel sought to rely on an exclusion
clause located inside a hotel room. However, the argument failed as it was held that the contract
had been formed before the patron, Olley, set foot in the room. In Oceanic Sun Line Special
Shipping Co Inc v Fay,58 exclusion clauses were printed on a ticket for a cruise in the Greek
islands. However, the clauses was not incorporated into the contract as the contract for the
cruise was made in Australia, some time before the issue of the ticket in Greece.
10.34 The issue of the timing of notice was dealt with by Lord Denning MR in Thornton
v Shoe Lane Parking Ltd59 in the context of a multi-storey car park in which a machine issued a
ticket upon activation by the customer. Lord Denning60 addressed the question of whether any
terms printed on the ticket formed part of the contract as follows:
We have been referred to the ticket cases of former times. … They were concerned with
railways, steamships and cloakrooms where booking clerks issued tickets to customers who
took them away without reading them. In those cases the issue of the ticket was regarded as
an offer by the company. If the customer took it and retained it without objection, his act
was regarded as an acceptance of the offer. … These cases were based on the theory that the
customer, on being handed the ticket, could refuse it and decline to enter into a contract
on those terms. He could ask for his money back. That theory was, of course, a fiction. No
customer in a thousand ever read the conditions. If he had stopped to do so, he would have
missed the train or the boat.

None of those cases has any application to a ticket which is issued by an automatic machine.
The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money
back. He may protest to the machine, even swear at it. But it will remain unmoved. He is

55. [2001] 2 Lloyd’s Rep 161 at 199.

56. Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 228; 79 ALR 9 at 31; Baltic Shipping
Co v Dillon (1991) 22 NSWLR 1 at 8, 25.
57. [1949] 1 KB 532; [1949] 1 All ER 127.
58. (1988) 165 CLR 197; 79 ALR 9.
59. [1971] 2 QB 163; [1971] 1 All ER 686.
60. Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 at 169; [1971] 1 All ER 686 at 689.

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committed beyond recall. He was committed at the very moment when he put his money
into the machine. The contract was concluded at that time. It can be translated into offer and
acceptance in this way: the offer is made when the proprietor of the machine holds it out as
being ready to receive the money. The acceptance takes place when the customer puts his
money into the slot. The terms of the offer are contained in the notice placed on or near the
machine stating what is offered for the money. The customer is bound by those terms as long
as they are sufficiently brought to his notice before-hand, but not otherwise. He is not bound
by the terms printed on the ticket if they differ from the notice, because the ticket comes too
late. The contract has already been made. … The ticket is no more than a voucher or receipt
for the money that has been paid … on terms which have been offered and accepted before
the ticket is issued.

Reasonableness of the notice

10.35 If a party actually knows that the document or sign contains contractual terms, then he
or she is bound, irrespective of whether the document or sign has been read.61 In the absence
of actual knowledge, the delivery of the document or the placing of the sign must be done in
such a way that the other party can be taken to have been given reasonable notice of the terms.62
10.36 In this context, in the case of documents, there is a distinction drawn between
documents that are contractual in nature and those that are non-contractual in nature. With
a document that reasonably appears to be contractual, the presentation and acceptance of the
document — its mere delivery — will amount to reasonable notice.63 If, however, the document
is non-contractual in nature, merely handing it over to the other party is not enough. The party
relying on the clause must take reasonable steps to draw the recipient’s attention to it. Typical
examples of non-contractual documents include tickets, receipts, vouchers, and wall signs.
10.37 In Causer v Browne,64 Causer had her dress drycleaned at Browne’s drycleaning
business. When the dress was left with Browne, a docket was handed over that contained an
exclusion clause at the bottom of the docket. The dress was damaged and Browne claimed he
was protected by the clause. However, the Full Court held that the exclusion clause was not
part of the contract, with the result that Browne was held liable to Causer for damages. The
court held that the docket that was handed over was merely a voucher to be produced when
collecting the goods and would not be seen by a reasonable person as contractual in nature.
Because no steps were taken to draw Causer’s attention to the exclusion clause, it was held not
to be part of the contract. Herring CJ65 said:
In cases of this kind, before a person delivering the document can hold the person receiving
it bound by any special conditions in his favour recorded thereon, he must show (and the
onus of proof is upon him in this respect) that the person receiving it was aware (or ought to
be treated as aware) that it was not delivered to him merely as a voucher or receipt, but also

61. Parker v South Eastern Railway Co (1877) 2 CPD 416 at 423.

62. Parker v South Eastern Railway Co (1877) 2 CPD 416 at 423; Hood v Anchor Line (Henderson Brothers) Ltd
[1918] AC 837 at 844, 847; Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd [2016] 2 Qd R 194
at 209–10.
63. Parker v South Eastern Railway Co (1877) 2 CPD 416 at 422.
64. [1952] VLR 1.
65. Causer v Browne [1952] VLR 1 at 5.

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that it was intended to convey to him the knowledge of such special conditions and that the
person delivering it intended to modify the effect of the ordinary contract thereby.

10.38 In terms of what actually has to be done to satisfy the obligation of reasonable notice
in any given case, the facts and circumstances in each case are crucial. It is generally accepted
that the nature of the clause is an important factor. For example, the more onerous or unusual
the term, the more that is required to satisfy the requirement of reasonable notice.66 As to what
is meant by onerous or unusual, in Higgins & Co Lawyers Ltd v Evans,67 Saini J said that ‘[t]he
authorities also refer to like terms as “unreasonable and extortionate”, “particularly onerous”,
“outlandish” … “Draconian” … [and] “very onerous, unreasonable and extortionate”’ and that
‘[o]ne is looking for something out of the ordinary and which would cause serious fairness
concerns’. The difficult question of determining if a clause is ‘particularly onerous or unusual
has to be considered in the context of the contract as a whole’.68 However, the mere fact that the
term ‘is a limitation or exclusion clause does not of itself mean that it is onerous or unusual’.69
10.39 In Thornton v Shoe Lane Parking Ltd,70 a ticket at a parking station was issued stating
that the contract was on terms and conditions set out on a pillar opposite the ticket machine.
The terms included a clause excluding the parking station from liability for damage to the
vehicle and personal injuries to the owner of the vehicle. The Court of Appeal held that
reasonable notice of the clause had not been given. Lord Denning MR71 said:
All I can say is that [the clause] is so wide and so destructive of rights that the court should
not hold any man bound by it unless it is drawn to his attention in the most explicit way.
… In order to give sufficient notice, it would need to be printed in red ink with a red hand
pointing to it — or something equally startling.

10.40 In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd,72 Stiletto required
a selection of photographs for a business presentation. Interfoto had a library of photos.
At Stiletto’s request a bag of photographs was sent to Stiletto. Included in the bag was a
document setting out terms and conditions for the hiring of the photographs. Clause 2 of the
document stipulated that, if the photographs were returned late, Stiletto would pay a late fee
of £5 per day for each photograph. Stiletto was late in returning the photographs and Interfoto
claimed damages in accordance with clause 2. The Court of Appeal ruled that clause 2 was not
a term of the contract. The court noted that the contract was entered into at the time of the
opening of the bag of photographs by Stiletto and that Stiletto was deemed to know that the
document contained terms and conditions of the contract. However, while the routine clauses
on the document were part of the contract, clause 2 was held to be ‘particularly onerous and
unusual’ and not a term of the contract because Interfoto had not ‘fairly brought [it] to the

66. Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 at 229; 79 ALR 9 at 31; Interfoto Picture
Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 at 443; [1988] 1 All ER 348 at 355; Goodlife
Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371 at [32]–[35], [101].
67. [2020] 1 WLR 141 at 160–1. See also Kerr v Australian Executor Trustees (SA) Ltd [2019] NSWSC 1279
at [279].
68. Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371 at [46].
69. Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371 at [35].
70. [1971] 2 QB 163; [1971] 1 All ER 686.
71. Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 at 170; [1971] 1 All ER 686 at 690.
72. [1989] QB 433; [1988] 1 All ER 348.
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attention of [Stiletto]’. As a result, Stiletto was liable to an amount being one-tenth of the
73

amount calculated by clause 2. Indeed, Dillon LJ74 indicated that clause 2 may well have been
unenforceable on the alternative ground that it was a penalty.75
10.41 On the other hand, where a commercially sophisticated party is allowed time to
consider terms and conditions previously supplied to it, and it then subsequently proceeds
with the transaction, that party will generally be bound by the said terms and conditions. Thus,
in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd,76 McHugh JA said:
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 a tribunal of fact to
hold that the offer was accepted according to its terms.

10.42 In relation to the principles dealing with incorporation of terms set out in an unsigned
document, in Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd77 Peter Lyons J, after
considering relevant authorities, summarised the law as follows:
My examination of these authorities leads me to adopt the following propositions for
determining whether a party (the acceptor) is bound by a term set out or incorporated in
an unsigned document which the other party (the offeror) has provided to the acceptor in
circumstances which show the offeror intends the document to identify terms of the contract.
It is not always the case that the acceptor is not bound by an exemption clause, unless the
offeror directs attention to the clause. The fundamental question is whether the offeror is
reasonably entitled to conclude that the acceptor has accepted the terms in the document,
including the exemption clause. That conclusion should be reached where the second party
has had a reasonable opportunity to consider the terms, including the exemption clause, and
has behaved in a way which manifests acceptance of the document as recording contractual
terms. In other cases, where the clause is one reasonably to be expected in contracts of
the kind in question, acceptance of the document makes the clause binding, even if the
acceptor does not know its terms, or even that it is contained in the document. If the
clause is not one reasonably to be expected, then something more is required by way of
provision of information about the clause to the acceptor before the contract is formed.
What information will be required will depend on the circumstances, but particularly on
the terms of the clause.

73. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 at 438–9; [1988] 1 All ER 348
at 352.
74. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 at 436; [1988] 1 All ER 348
at 350.
75. See 30.2–30.33.
76. (1988) 14 NSWLR 523 at 535.
77. [2016] 2 Qd R 194 at 209–10. An appeal in this case was dismissed and the Court of Appeal approved of
the statement of principle set out by Peter Lyons J: Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd
[2017] 2 Qd R 66 at 88, 91. Also cited with approval in National Australia Bank Ltd v Dionys (as Trustee
for the Angel Family Trust) [2016] NSWCA 242 at [183]. See also Allen Fabrications Ltd v ASD Ltd [2012]
EWHC 2213 (TCC) at [61].

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INCORPORATION OF TERMS BY PRIOR DEALINGS

10.43 What is envisaged by the incorporation of terms by prior dealings is where parties have
regularly contracted in the past on the same terms, but on a later occasion a contract is entered
into without expressly incorporating the terms used in the past. In some cases, the terms of the
past contracts are incorporated into the later contract. Thus, in James Elliot Construction Ltd
v Irish Asphalt Ltd,78 the Irish Supreme Court said:
[I]f in the course of a consistent period of dealing, the parties to a contract entered into a
series of contracts including terms and conditions, actually known to the party to be bound
or drawn to their attention, and that if, on the conclusion of a subsequent contract, the party
relying on the terms and conditions omitted to either draw the terms and conditions to
the other party, or failed to include them on a contractual document, it would be wrong to
permit the party affected by the relevant term to say that, even though they were aware of the
terms and conditions, they could avoid its consequences because the relevant term was not
expressly incorporated into the subsequent contract.

10.44 Whether the record of earlier contracts leads to the incorporation of the previous
terms into the later contract is ultimately a question of reasonableness.79 In McCutcheon
v David MacBrayne Ltd,80 Lord Reid said that this depends upon whether, ‘[i]f the officious
bystander had asked [the parties] whether they had intended to leave out the conditions this
time, both must, as honest men, have said “of course not”’. In practical terms, whether it is
reasonable for the terms to be so incorporated depends mainly on the number and consistency
of the past dealings between the parties. Each case ultimately depends upon its own facts and
circumstances. Thus, in Hollier v Rambler Motors (AMC) Ltd,81 three or four contracts over
five years in relation to the repair of a car were not sufficient to establish a consistent course
of dealings. On the other hand, in Henry Kendall & Sons v William Lillico & Sons Ltd,82 three
to four contracts per month over a three-year period in relation to the sale of animal feed for
pheasants and partridges were sufficient to establish a consistent course of dealings.
10.45 A particular issue that arises in this area is whether the terms have to be a part of all of
the past contracts. Thus, in Henry Kendall & Sons v William Lillico & Sons Ltd,83 in the earlier
contracts between the parties, notice of the relevant terms was given by means of a written
document after the contracts were entered into. Nevertheless, the House of Lords held that the
terms became part of subsequent contracts. Lord Guest84 said:
In the present case [the buyer], by continuing to conduct their business with [the seller] on
the basis of the [document] which contained the relevant condition and by not objecting
to the condition, must be taken to have assented to the incorporation of these terms in the
contract.

78. [2014] IESC 74 at [147].

79. Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 at 113; [1968] 2 All ER 444 at 481.
80. [1964] 1 WLR 125 at 128; [1964] 1 All ER 430 at 432.
81. [1972] 2 QB 71; [1972] 1 All ER 399.
82. [1969] 2 AC 31; [1968] 2 All ER 444.
83. [1969] 2 AC 31; [1968] 2 All ER 444.
84. Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 at 105; [1968] 2 All ER 444 at 474–5.
See also Circle Freight International Ltd v Medeast Gulf Exports Ltd [1998] 2 Lloyd’s Rep 427 at 433, 435;
Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 1900 (Comm) at [348].

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10.46 In Hollier v Rambler Motors (AMC) Ltd, Salmon LJ described the decision in Henry
85

Kendall & Sons v William Lillico & Sons Ltd86 as follows:

[It was] a typical case where a consistent course of dealing between the parties makes it
imperative for the court to read into the contract the condition for which the sellers were
contending. Everything that the buyer had done, or failed to do, would have convinced any
ordinary seller that the buyer was agreeing to the terms in question. The fact that the buyer
had not read the term is beside the point. The seller could not be expected to know that the
buyer had not troubled to acquaint himself with what was written in the form that had been
sent to him so often, year in and year out during the previous three years, in transactions
exactly the same as the transaction then in question.

10.47 No doubt, it has to be established that the person has actual or constructive knowledge
of the term relied on at some stage prior to the latest contract between the parties.
10.48 However, in D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd,87 in essentially the same
circumstances as in Henry Kendall & Sons v William Lillico & Sons Ltd,88 the Full Court held that
the terms, contained in a delivery docket handed over after each of the previous contracts had
been entered into, could not be incorporated into the latest contract between the parties. This
was so even though the plaintiff knew of the existence, but not of the content, of the documents.
The court conceded that, if the plaintiff knew that the document was a contractual document,
he would have been bound by it. The court said that in Henry Kendall & Sons v William Lillico
& Sons Ltd,89 the purchaser knew that the document was a contractual document.
10.49 The decision in D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd90 was not followed
in Hays Personnel Services (Australia) Pty Ltd v Motorline Pty Ltd.91 In this case a recruitment
company had on nine occasions between February and September 2003 found staff for a car
sales company. On each occasion, after an employee had been found and placed with the car
sales company, the recruitment company sent a letter confirming the placement and attaching
a document headed ‘Terms of Business’. The car sales company never objected to the terms
set out in the document. The Court of Appeal unanimously held that, in these circumstances,
when an employee was placed with the car sales company in December 2003, it was reasonable
to assume that the ‘Terms of Business’ document formed part of that contract. Holmes JA92
held that, unlike the delivery docket in D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd,93
‘[t]here was no conceivable reason for providing [the “Terms of Business” document] except
to bring its content to [the car sales company’s] attention as terms and conditions upon which
the parties were to operate’.

85. [1972] 2 QB 71 at 77; [1972] 1 All ER 399 at 403.

86. [1969] 2 AC 31; [1968] 2 All ER 444.
87. [1971] VR 749.
88. [1969] 2 AC 31; [1968] 2 All ER 444.
89. [1969] 2 AC 31; [1968] 2 All ER 444.
90. [1971] VR 749.
91. [2008] QCA 375.
92. Hays Personnel Services (Australia) Pty Ltd v Motorline Pty Ltd [2008] QCA 375 at [16].
93. [1971] VR 749.

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10.50 A final case to consider in this context is La Rosa v Nudrill Pty Ltd.94 In that case,
La Rosa, a carrier, claimed that he was protected from liability by an exclusion clause which
was alleged to be part of a cartage contract on the basis of prior dealings. The parties had in
the past had a number of contracts for cartage. In each case an oral agreement was reached
and it was conceded by the parties that, at that stage, the past agreements did not contain an
exclusion clause. After performance of each contract La Rosa sent an invoice to the client
for payment. At the bottom of these invoices there was reference to the cartage contract
being subject to terms and conditions on the back of the invoice. One of those terms was an
exclusion clause. Damage to the client’s goods was caused by La Rosa’s negligence during the
performance of one of the contracts. Although the court unanimously held that exclusion
clause on the previous invoices was not an express term of the contract and that, therefore,
La Rosa was not able to escape liability in negligence for the damage he caused to the client’s
goods, it nevertheless rejected the approach taken in cases of this type by the court in D J Hill
& Co Pty Ltd v Walter H Wright Pty Ltd.95
10.51 In La Rosa v Nudrill Pty Ltd,96 Buss JA referred to D J Hill & Co Pty Ltd v Walter H
Wright Pty Ltd97 as ruling ‘that a term could not be incorporated into a contract by a previous
course of dealings unless the term was contained in an earlier contract or contracts between
the parties’, but rejected that approach as ‘erroneous’. McLure P98 set out the principles to apply
in such cases as follows:
A review of all the cases reveals that there is no single test for the incorporation of a term
into a contract based on prior dealings. However, it is clear that we are not here talking
about implied terms in fact … or a term implied as a matter of trade custom or usage. The
question is whether an express term is incorporated into a contract as a result of an inference
arising from the prior conduct of the parties as a whole. Moreover, it is not essential in a
prior dealing case that the term in issue must have been incorporated in a previous contract
between the parties, whether by a contractual document or otherwise. …

The test applied in the ‘ticket cases’ is frequently used in prior dealing cases. That test is
whether the party seeking to rely on the term did what was reasonably sufficient to give to
the other contracting party notice of the term; that is a question of fact having regard to the
circumstances of each case and the situations of the contractual parties.

In the ticket cases, notice of the terms is given on or around the time of entry into the relevant
contract and constructive knowledge of the content of the term(s) is sufficient. Moreover, in
the ticket cases the expression ‘contractual document’ is used to refer to the sort of document
in which a reasonable person would expect to find contractual terms. However, in the prior
dealing cases it has a wider meaning to include documents which the parties have by their
conduct accepted or treated as a contractual document.

94. [2013] WASCA 18.

95. [1971] VR 749.
96. [2013] WASCA 18 at [73].
97. [1971] VR 749.
98. La Rosa v Nudrill Pty Ltd [2013] WASCA 18 at [43]–[45].

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10.52 In applying the principles to the facts of this case, McLure P99 said:
[T]he facts in this case do not support an inference that the exclusion clause was incorporated
in the cartage contract as a result of the prior dealings between the parties. … The invoices
were not a ‘contractual document’ within either the narrow or wider meaning of the
expression. In each case the invoice was provided to the [client] for services already supplied
pursuant to a prior contract. The purpose of the invoices was to secure payment for those
services. The receipt of the invoices by the [client] in all the circumstances is not sufficient
to justify an inference of an acceptance by the [client] of, and readiness to be bound by, the
terms on the reverse of the invoices. Nor is it sufficient notice to the [client] of the terms on
which the [La Rosa] would do business in the future.

10.53 In this case, Buss JA100 set out the relevant principles in relation to prior dealings as
follows:
[T]erms may be incorporated by a previous course of dealings between the parties. A course
of dealings, for this purpose, refers in general to the existence of a prior consistent history of
comparable transactions between the parties when the relevant transaction is undertaken. …

It will be a question of fact and degree whether, in a particular case, the parties, by their
conduct, have incorporated a term into their contract by a previous course of dealings.
Each case turns on its own facts and circumstances. Factors of relevance in determining
whether the alleged term was incorporated include the number of prior dealings, how
recent they were, and the consistency in the prior dealings and the dealing in question
(for example, the similarity between the subject matter of the dealings and the manner in
which the dealings were entered into or concluded). This is not, of course, an exhaustive
statement of relevant factors.

The factors which I have identified are relevant to what each party was reasonably entitled
to conclude from the actions or conduct of the other. The requisite frequency will vary
depending on the facts and circumstances of the particular case. … Consistency is required
in that … when the conduct is not consistent ‘there is no reason why it should produce an
invariable contractual result’.

A term may be incorporated by a previous course of dealings without it being essential for
the party seeking to rely on the term to establish that the other party had actual knowledge
of it. …

It is not an essential pre-condition to the incorporation of a term by a previous course of

dealings that:

(a) any document containing the relevant term have been sent or given to the party
sought to be bound at or prior to the formation of each of the contracts (or one or
more of them) constituting the previous course of dealings; or
(b) the relevant term have been incorporated in at least one of the contracts constituting
the previous course of dealings.

99. La Rosa v Nudrill Pty Ltd [2013] WASCA 18 at [47].

100. La Rosa v Nudrill Pty Ltd [2013] WASCA 18 at [63]–[72].

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However, the time when any document containing the alleged term was in fact given or sent
to the party sought to be bound, and that party’s degree of knowledge (if any) of the document
or the alleged term, will be relevant in determining whether it was given reasonable notice of
the alleged term and, if so, what the party seeking to rely on the alleged term was reasonably
entitled to conclude from the actions or conduct of the other party.

THE PAROL EVIDENCE RULE

10.54 As already noted, in the case of entirely written contracts, the parol evidence rule
101

is of critical importance. The relevant part of the rule in this context stipulates that extrinsic
evidence cannot be introduced that will have the effect of adding to, subtracting from, varying,
or qualifying the language of an entirely written contract.102 Where the contract between the
parties is an entirely written contract, the express terms of that contract are only those terms
that are recorded in the written contract. Subject to any exception that might apply,103 the parol
evidence rule will preclude the parties from attempting to include in the contract anything they
may have said or written to each other before the contract was signed.
10.55 In relation to the significance of the rule, in Shogun Finance Ltd v Hudson,104
Lord Hobhouse, after noting that the rule was ‘fundamental to the mercantile law of [England]’
said:
The [parol evidence] rule is one of the great strengths of English commercial law and is one
of the main reasons for the success of English law in preference to laxer systems which do
not provide the same certainty.

10.56 In relation to the justification for the parol evidence rule, in Bacchus Marsh Concentrated
Milk Co Ltd v Joseph Nathan & Co Ltd,105 Higgins J said that the rule was desirable because it
contributed to preserving ‘finality in written instruments meant to be final’. In the Countess of
Rutland’s Case,106 Popham CJ said:
[I]t would be inconvenient, that matters in writing made by advice and on consideration and
which finally import the certain truth of the agreement of the parties should be controlled by
averment of the parties to be proved by the uncertain testimony of slippery memory.

10.57 Two matters need to be examined in relation to the parol evidence rule. First, there is
the matter of what is meant by extrinsic evidence. Second, there is the matter of the application
of the rule only to entirely written contracts.
10.58 In relation to the first matter, the rule relates to all forms of extrinsic evidence. In most
cases this means oral evidence. However, it also covers other forms of extrinsic evidence, such

101. See 10.8.

102. Goss v Lord Nugent (1833) 110 ER 713 at 716; Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 143–4; Codelfa
Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; 41 ALR 367 at 371;
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261 at 289.
103. See 10.65.
104. [2004] 1 AC 919 at 944; [2004] 1 All ER 215 at 230.
105. (1919) 26 CLR 337 at 451–2.
106. [1572] 77 ER 89 at 90.

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as other documents that relate to the contract or earlier drafts of the written contract eventually
entered into by the parties.107
10.59 In relation to the issue of the rule applying only to entirely written contracts, it must
be noted that the parol evidence rule has no application to contracts that are intended to
be partly written and partly oral.108 The parol evidence rule is concerned only with written
documents intended to contain the entire agreement between the parties.109 For example, in
Hospital Products Ltd v United States Surgical Corp,110 the High Court held that oral statements
made in a restaurant could be incorporated as express terms on the basis of evidence that
the contract was intended by both parties to be constituted by those statements as well as
subsequent written documents.
10.60 In ascertaining whether the parties intended any written document to constitute the
entirety of the contract between them, the primary source of the parties’ intentions will usually
be the language of the written document in which they have chosen to express themselves. On
this threshold question of intention, notwithstanding earlier authority to the contrary,111 it is
now generally accepted that the parol evidence rule has no application and that oral evidence
is admissible to determine whether an entirely written contract or a partly written and partly
oral contract was intended. Thus, in State Rail Authority of New South Wales v Heath Outdoor
Pty Ltd112 McHugh JA said:
[I]n my opinion the correct rule is that the existence of writing which appears to represent
a written contract between the parties is no more than an evidentiary foundation for
a conclusion that their agreement is wholly in writing. … [T]he mere production of a
contractual document, however complete it may look, cannot as a matter of law exclude
evidence of oral terms if the other party asserts that such terms were agreed. If that assertion
is proved, evidence of oral terms cannot be excluded because the court will, by definition,
have found that the contractual terms are partly to be found in what was agreed orally as well
as the document in question. No parol evidence rule could apply.

10.61 In Masterton Homes Pty Ltd v Palm Assets Pty Ltd,113 Campbell JA said that the
principles determining whether an agreement is an entirely written or partly written and partly
oral contract include:
(1) When there is a document that on its face appears to be a complete contract, that provides
an evidentiary basis for inferring that the document contains the whole of the express
contractual terms that bind the parties.

107. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; 41 ALR
367 at 371; Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261
at 289.
108. Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at 402, cited with approval in Quijiao
Liu v Yuqing Xiao [2020] NSWSC 289 at [84].
109. Harris v Rickett (1859) 157 ER 734 at 736–7.
110. (1984) 156 CLR 41 at 61, 89–90, 120; 55 ALR 417 at 426–7, 448–9, 471–2.
111. LG Thorne & Co Pty Ltd v Thomas Borthwick & Son (Australasia) Ltd (1955) 56 SR (NSW) 81 at 88.
112. (1986) 7 NSWLR 170 at 191–2.
113. (2009) 261 ALR 382 at 401–2, cited with approval in Bakers Investment Group (Australia) Ltd v Caason
Investments Pty Ltd (No 2) [2014] VSC 598 at [373]; Ran Bi v Yingde Investments Pty Ltd [2019] VSC 324
at [77]; Belflora Pty Ltd v Vinflora Pty Ltd [2020] NSWSC 1229 at [41].

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(2) It is open to a party to prove that, even though there is a document that on its face
appears to be a complete contract, the parties have agreed orally on terms additional
to those contained in the writing. Conversely, it is open to a party to prove that the
parties have orally agreed that a document should contain the whole of the terms agreed
between them.

(3) The parol evidence rule applies only to contracts that are wholly in writing, and thus
has no scope to operate until it has first been ascertained that the contract is wholly in
writing.

10.62 Finally, in relation to the situation where parties have orally agreed on the terms of
their contract and reduce that agreement to writing, an issue that arises is whether the written
contract is an entirely written contract or a partly written and partly oral contract. In this
respect, in S & K Investments Pty Ltd v Cerini,114 Martin CJ said:
[W]here parties to an oral commercial agreement have agreed to reduce the terms of their
agreement to writing, in the absence of any indication to the contrary, it is reasonable to
infer that they intended their written agreement to embody and record all the terms of their
agreement. This position has been described as an implication or presumption that is ‘very
strong’ although rebuttable. In such a case it is reasonable to infer that the parties wish to
achieve the commercial objective of securing a comprehensive written record of the continuing
terms of their agreement in the absence of some indication to the contrary. The commercial
advantages of that objective would be largely defeated if the written record of the agreement
was incomplete and the rights and obligations of the parties continued to be governed by
terms not reduced to writing. … [T]he fact that the parties decided to record the terms of
their agreement in a document in and of itself supports an inference that they intended the
written agreement to supersede and take the place of their preceding oral agreement.

10.63 A further issue in relation to whether or not a written document is an entirely written
contract concerns a written document that contains an entire agreement clause. Such clauses
‘are intended to achieve contractual certainty about the terms agreed … nullifying prior
collateral agreements relating to the same subject matter’.115 By so doing they will often mean
that the parties have formed an entirely written contract to which the parol evidence rule
will apply.116 Thus, in Stevenson v Regents Park Sporting & Community Club Ltd,117 a written
contract was entered into between the club and Stevenson for him to be able to operate a bistro
at the club. It was alleged that certain oral terms formed part of a partly written and partly oral
contract between the parties. Fullerton J held that the contract was constituted only by the
written document. Her Honour118 also noted that her conclusion on this matter was reinforced
by the presence of an entire agreement clause in the written contract.
10.64 However, that is not always the case. It may be that there is compelling evidence that
the parties actually intended some additional term to have contractual effect. The court will

114. [2016] WASC 233 at [37].

115. MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 at 128; [2018] 4 All ER 21 at 28.
116. Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 357–8, 363–4, 368.
117. [2012] NSWSC 424.
118. Stevenson v Regents Park Sporting & Community Club Ltd [2012] NSWSC 424 at [16].

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give effect to that additional term if it is persuaded that that term truly expressed the intention
of the parties.119 Furthermore, an entire agreement clause does not:
• unless expressly stated, operate to exclude the use of extrinsic evidence to establish an
implied term;120
• exclude the introduction of evidence that would establish a claim for damages in the tort
of deceit;121 or
• exclude the operation of the statutory provisions relating to the prohibition against
misleading or deceptive conduct.122

Exceptions to the parol evidence rule

10.65 The parol evidence rule, however, is not absolute. There are recognised situations
in which courts are prepared to circumvent the parol evidence rule, especially where it is
considered necessary to establish the true intention of the parties and determine the express
terms of their contract. Courts may allow the use of extrinsic evidence to establish:
• that the operation of the contract is not to occur until the happening of a certain event;123
• that a written contract incorrectly records the agreement of the parties, in which case
extrinsic evidence may provide the basis for the court to issue an order for rectification of
the written contract;124
• that a prior collateral contract exists,125 provided that the main contract does not contain
an ‘entire agreement’ clause. Because a collateral contract is an independent and separate
contract, it is not, strictly speaking, an exception to the parol evidence rule. The rule only
applies to the main contract. The principles relating to collateral contracts are detailed in
the following section of this chapter.

COLLATERAL CONTRACTS
10.66 By way of introduction to the issue of collateral contracts, imagine the following
scenario: A agrees to lease his farm to B and a detailed written lease agreement is prepared by
A for the parties to sign. The written lease agreement covers all the terms one would generally
expect to find in a contract of this type. B agrees to all of its terms. However, before B signs
the lease, he or she seeks an assurance from A that the drainage system on the farm is in good
working order. The written agreement prepared by A is silent on this matter. A assures B that

119. Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] EWCA Civ 58 at [25]; Tomkins v Knowsley
Primary Care Trust [2010] EWHC 1194 (QB) at [80]–[83].
120. J N Hipwell & Son v Szurek [2018] EWCA Civ 674 at [27]; NHS Commissioning Board (Known as NHS
England) v Vasant [2019] EWCA Civ 1245 at [51].
121. Commercial Banking Co of Sydney Ltd v R H Brown & Co (1972) 126 CLR 337 at 344, 349–50. See further
37.5–37.16.
122. Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 at 98.
123. Pym v Campbell (1856) 119 ER 903.
124. Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 657–8.
125. State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191. For
example, in De Lassalle v Guildford [1901] 2 KB 215 and LG Thorne & Co Pty Ltd v Thomas Borthwick &
Son (Australasia) Ltd (1955) 56 SR (NSW) 81.

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the drainage system is in excellent condition. B signs the lease, but later discovers that the
drainage system is not in good working order. Can B sue A for breach of contract in relation
to the fact that the drainage system is not working as promised by A? In other words, does the
oral promise made by A about the drainage system amount to an express term of the contract
between A and B, notwithstanding that the promise does not appear in the written lease?
10.67 This example raises the issue of collateral contracts. A’s assurance as to the condition
of the drains could amount to a contract that is separate and distinct from the written lease.
The separate contract is referred to as a collateral contract. In De Lassalle v Guildford,126 on
very similar facts to this example, the court held that the written lease was an entirely written
contract to which the parol evidence rule applied. However, the court also found that the
assurance about the condition of the drains constituted a collateral contract. The collateral
contract in the scenario consists of one express term, namely, the promise by A that the drains
on the farm are in excellent condition. The consideration for A’s promise is entry into the main
contract by B — in this case the formation of the written lease. If the main contract is one for
which there exists a statutory requirement of writing, there is no need for the collateral contract
to also be in writing.127 The collateral contract is connected to the main contract by way of
consideration. In Heilbut Symons & Co v Buckleton,128 Lord Moulton said:
It is evident, both on principle and on authority, that there may be a contract the consideration
for which is the making of some other contract.

Thus, ‘a collateral contract is entered into before or not later than, entry into the main contract’.129
10.68 However, courts may be reluctant to find a collateral contract if the statement alleged
to be a collateral contract ‘is one that you would expect to find its place naturally in the principal
contract’.130 Thus, in BMIC Ltd v Chinnakannan Sivasankaran Siva Ltd131 Popplewell J said:
The purpose of a written and formally executed agreement is to avoid the disputes which
commonly arise when the parties’ bargain is not completely recorded in writing. In a case …
in which the parties contemplate that their agreement will be reduced to lengthy written
agreements, drafted and advised on by lawyers, and formally executed, there is a strong
presumption (quite apart from any entire agreement clause) that the parties do not intend to
be bound by anything not recorded in their written agreement.

10.69 For a statement to amount to an independent contract that is collateral to the ‘main’
written contract between the parties, two elements must be satisfied, namely:
• that the statement is promissory in nature; and
• that there is no inconsistency between the main contract and the alleged collateral
contract.132

126. [1901] 2 KB 215.

127. See 8.6.
128. [1913] AC 30 at 47.
129. Di Giovanni v Dark Horse Developments Pty Ltd (in liq) [2014] WASCA 188 at [22].
130. Shepperd v The Council for the Municipality of Ryde (1952) 85 CLR 1 at 12.
131. [2014] EWHC 1880 (Comm) at [45]. See also Nassif v Fahd [2007] NSWCA 269 at [28].
132. Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 147; Mainieri v Cirillo (2014) 47 VR 127 at 136.

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Promissory nature of the statement

10.70 For a representee to establish a collateral contract, he or she must establish that the
representor’s statement ‘was promissory and not merely representational’.133 In the High Court
decision in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd134 Gordon J said:
A statement will be promissory if it was ‘reasonably considered’ by the person to whom
it was made as ‘intended’ to be a contractual promise.135 It must also be shown that the
person to whom the statement was made ‘intended’ to accept the statement as a contractual
promise.136 The relevant ‘intention’ of the parties is to be judged objectively, that is, ‘deduced
from the totality of the evidence’,137 by reference to what a reasonable person in the position
of the parties would have understood. And as with any contractual promise, the statement
must be sufficiently certain.

10.71 To assert simply that the representee would not have entered into the contract
had the statement not been made is insufficient to establish a collateral contract, although
it may establish a misrepresentation. As was said by Lord Moulton in Heilbut Symons & Co
v Buckleton,138 it is fundamental that there be ‘an intention on the part of either or both parties
that there should be a contractual liability in respect of the statement’. In Coast Corp Pacific
Pty Ltd v Stockland Development Pty Ltd,139 Jackson J observed that ‘the distinction between a
statement that is promissory and a statement that is merely representational can be a fine one,
made by reference to the particular facts and the evidence adduced in the particular case’.
10.72 In J J Savage & Sons Pty Ltd v Blakney,140 Blakney purchased a boat from J J Savage
on the basis of a statement set out in a letter by the vendor expressing the view that the boat’s
engine would propel the boat at an estimated speed of 15 miles per hour. The boat achieved a
speed of only 12 miles per hour. Blakney claimed that the statement constituted a promise, the
consideration for which was his entry into the contract to purchase the boat. The High Court
ruled against Blakney saying that, in the circumstances, the statement was only an opinion,
which, even though it was made with the calculation of Blakney entering into the contract and
was a matter of considerable importance to Blakney, nevertheless did not constitute a collateral
contract. The High Court141 said:
When the letter which we have quoted was written, the negotiations for the construction and
delivery of the boat were incomplete. On receipt of the letter there were three courses open
to the respondent. He could have required the attainment of the speed to be inserted in the
specification as a condition of the contract; or he could have sought from the appellant a
promise — however expressed, whether as an assurance, guarantee, promise or otherwise —
that the boat would attain the speed as a prerequisite to his ordering the boat; or he could

133. J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442.
134. (2016) 260 CLR 1 at 76; 333 ALR 384 at 440.
135. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61; 55 ALR 417 at 427.
136. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61; 55 ALR 417 at 427.
137. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61; 55 ALR 417 at 427.
138. [1913] AC 30 at 47 at 51.
139. [2018] QSC 305 at [99].
140. (1970) 119 CLR 435.
141. J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442–2. See also Shepherd v The Council for the
Municipality of Ryde (1952) 85 CLR 1; Robertson v Kern Land Pty Ltd (1989) 96 FLR 217.

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be content to form his own judgment as to the suitable power unit for the boat relying upon
the opinion of the appellant of whose reputation and experience in the relevant field he had,
as the trial judge found, a high regard. Only the second course would give rise to a collateral
warranty.

Inconsistency
10.73 The alleged collateral contract cannot be inconsistent with or contradict a term of
the main contract.142 This is so because, although ‘the collateral contract alters the contractual
relations of the parties, … it does not, cannot, and is not intended to, alter the terms of the main
contract’.143 In Hoyt’s Pty Ltd v Spencer,144 Hoyt’s sub-leased premises from Spencer. The sub-
lease stated that Spencer could terminate the sub-lease ‘at any time during [its] currency’ upon
giving four weeks’ notice in writing. Prior to executing the sub-lease, Spencer assured Hoyt’s
that he would only terminate the sub-lease in certain limited and specified circumstances.
Spencer subsequently terminated the sub-lease, but none of the circumstances specified in
his earlier assurance to Hoyt’s had eventuated. Hoyt’s claimed that the assurance constituted a
collateral contract and sought damages from Spencer. The High Court ruled against Hoyt’s —
there was no collateral contract because the assurance was inconsistent with the written term of
the main contract permitting termination in any circumstances. Isaacs J145 said:
The truth is that a collateral contract, which may be either antecedent or contemporaneous …
being supplementary only to the main contract, cannot impinge on it, or alter its provisions
or the rights created by it; consequently, where the main contract is relied on as the
consideration in whole or part for the promise contained in the collateral contract, it is a
wholly inconsistent and impossible contention that the other party is not to have the full
benefit of the main contract as made.

10.74 Inconsistency may also arise in cases where the main contract contains an entire
agreement clause.146 Although an entire agreement clause is strictly construed,147 in Crossman
v Sheahan,148 Ward JA observed that its purpose ‘is to make the document to which the clause
relates an exhaustive statement of the bargain’. Thus, such a clause seeks to limit the liability
of parties to each other by excluding liability based upon pre-contractual statements and
conversations, unless such statements and conversations are expressly dealt with as terms of
the contract.

142. Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 147; Mayberry v Atlantic Union Oil Co Ltd (1953) 89 CLR
507 at 517; Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 75–6; 333 ALR
384 at 440; Skyrise Consultants Pty Ltd v Metroland Funds Management Ltd [2011] NSWCA 406 at [15];
B & R Stevens Transport Pty Ltd v Burkitt [2016] NSWCA 259 at [35]–[38].
143. Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 75; 333 ALR 384 at 440.
144. (1919) 27 CLR 133.
145. Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 147.
146. DKB Investments Pty Ltd v Belcote Pty Ltd (1991) 105 FLR 429 at 431; MacDonald v Shinko Australia Pty Ltd
[1999] 2 Qd R 152 at 156.
147. Barclays Bank Plc v Unicredit Bank Ag [2014] EWCA Civ 302 at [28].
148. [2016] NSWCA 200 at [243].

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10.75 In relation to entire agreement clauses, in Inntrepreneur Pub Company (GL) v East
Crown Ltd,149 Lightman J said:
The purpose of an entire agreement clause is to preclude a party to a written agreement
threshing through the undergrowth and finding in the course of negotiations some (chance)
remark or statement (often long forgotten or difficult to recall or explain) on which to found
a claim such as the present to the existence of a collateral [contract]. … [S]uch a clause
constitutes a binding agreement between the parties that the full contractual terms are to be
found in the document containing the clause and not elsewhere, and that accordingly any
promises or assurances made in the course of negotiations (which in the absence of such
a clause might have effect as a collateral [contract]) shall have no contractual force, save
insofar as they are reflected and given effect in that document. The operation of the clause
is … to denude what would otherwise constitute a collateral [contract] of legal effect.

10.76 In J N Hipwell & Son v Szurek,150 the Court of Appeal in England referred to Lightman J’s
statement as authority for the proposition that an entire agreement clause will ‘ordinarily be
given full force and conclusive effect as an integral part of the parties’ bargain in accordance
with its terms’.
10.77 However, in Australia cases have taken the view that the effect of an entire agreement
clause is dependent upon its construction. In McMahon v National Foods Milk Ltd,151 Nettle JA
said the following as to whether an agreement clause would preclude the finding of a collateral
contract:
If business persons were asked as a matter of principle what is meant by an entire agreement
clause, they would probably reply that it means what it says. Shorn of surrounding
circumstances, the idea that an entire agreement clause should not be taken to extend to a
collateral contract because the latter is a separate contract would possibly be thought of as
quaint. But lawyers must beware of generalities. In an age of contractual development which
puts contextual interpretation ahead of formalism, each case is unique.

10.78  Nettle JA152 then went on to cite, with approval, the views of Peden and Carter,153 who
had expressed the following views on the effect of entire agreement clauses:
Arguably, if the [entire agreement] clause refers expressly to collateral contracts, that should
be a sufficient statement of intention that a collateral contract may not be put forward as
an additional express term of the bargain. But if there is no express reference to collateral
contracts, it seems odd to regard a clause in the main agreement as effective to prevent
enforcement of a collateral contract. At least in cases where the alleged collateral contract
was contemporaneous with the main contract, it would seem logical to infer that the parties
intended the collateral contract to operate because otherwise the very reason why one party

149. [2000] 2 Lloyd’s Rep 611 at 613, cited with approval in Essex County Council v UBB Waste (Essex) Ltd [2020]
EWHC 1581 (TCC) at [109]. See also MacDonald v Schinko Australia Pty Ltd [1999] 2 Qd R 152 at 156.
150. [2018] EWCA Civ 674 at [20]. Cases where a collateral contract has been found to exist in the face of
an entire agreement clause include Ryanair Ltd v SR Technics Ireland Ltd [2007] EWHC 3089 (QB)
at [137]–[143]; CPL Ltd v CPL Opco (Trinidad) Ltd [2017] EWHC 3399 (Ch) at [33], [39]–[40].
151. (2009) 25 VR 251 at 272; 259 ALR 20 at 39.
152. McMahon v National Foods Milk Ltd (2009) 25 VR 251 at 273; 259 ALR 20 at 40.
153. E Peden & J W Carter, ‘Entire Agreement — and Similar — Clauses’ (2006) 22 Journal of Contract Law 1 at 8.

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entered into the main contract — the willingness of the other to enter into the collateral
contract — would count for nothing.

10.79 In relation to Nettle JA’s views, in Coast Corp Pacific Pty Ltd v Stockland Development
Pty Ltd154 Jackson J said:
In my view, there is no special rule of construction that applies to the operation of an entire
agreement clause, to the effect that something amounting to express words of exclusion of
a collateral contract is required before an entire agreement clause can apply to a collateral
contract. To the extent that McMahon [v National Foods Milk Ltd155] is suggested to stand for
a contrary rule or approach, in my view, it is not binding authority and I would not follow it.

10.80 The potency of the rule in Hoyt’s Pty Ltd v Spencer156 has been reduced as a result of
Waltons Stores (Interstate) Ltd v Maher.157 Following this decision, a party in the position of
Hoyt’s would likely be able to establish compliance with the elements of equitable estoppel and
gain an appropriate remedy. However, it must be kept in mind that the Waltons Stores (Interstate)
Ltd v Maher158 decision simply paves the way for an alternative remedy for someone in Hoyt’s
position. It does not negate the requirement of compliance with the rule in Hoyt’s Pty Ltd
v Spencer159 in order to establish a collateral contract.
10.81 The decision in Saleh v Romanous160 is one in which a pre-contractual equitable
estoppel was upheld. In that case the vendors of a development property, prior to the formation
of a contract for sale, assured the purchasers that they did not have to purchase the property if
they were unable to get the owner of neighbouring land to join the proposed development of
the property. The contract contained an entire agreement clause. The purchasers were unable
to get the agreement of the neighbouring landowner to the proposed development of the two
lots of land. The vendors sought to enforce the contract against the purchasers. Handley AJA161
held that, as the assurance given by the vendors satisfied the elements of equitable estoppel,
the vendors were to be restrained from exercising their legal rights under the contract. This
was so notwithstanding that the purchasers could not establish a collateral contract because
of the rule in Hoyt’s Pty Ltd v Spencer.162 Furthermore, it was held that the contract’s entire
agreement clause could not preclude the purchasers from raising equitable estoppel. This
did not mean that the pre-contractual estoppel conferred any positive rights of enforcement
against the vendors. This was because the estoppel acted as a restraint on the enforcement of
the contract by the vendors and nothing more. Thus, the estoppel did not give the purchasers
the right to terminate the contract and recover the deposit. However, the purchasers were
entitled to exercise their right to recover the deposit pursuant to the provisions of s 55(2A) of
the Conveyancing Act 1919 (NSW).163

154. [2018] QSC 305 at [138]. See also Johnson Property Group Pty Ltd v Thornton [2015] NSWSC 1389 at [59].
155. (2009) 25 VR 251; 259 ALR 20.
156. (1919) 27 CLR 133.
157. (1988) 164 CLR 387; 76 ALR 513.
158. (1988) 164 CLR 387; 76 ALR 513.
159. (1919) 27 CLR 133.
160. (2010) 79 NSWLR 453.
161. Saleh v Romanous (2010) 79 NSWLR 453 at 459–62.
162. (1919) 27 CLR 133.
163. Victoria has similar legislation: Property Law Act 1958 (Vic) s 49(2).

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10.82 It could be argued that to allow for a finding of equitable estoppel in this situation
would be to enable one to avoid the consequences of the main contract. In the case of Hoyt’s
Pty Ltd v Spencer,164 this would mean that Hoyt’s would have escaped the consequences of the
sub-lease that stated that Spencer was able to terminate it at any time and for any reason. Or, to
put it in other words, using equitable estoppel here would have enabled Hoyt’s to succeed where
it failed to establish a collateral contract. These arguments were considered and rejected by the
court in Saleh v Romanous,165 where Handley AJA said that, whereas a collateral contract gives
rise to rights that can be enforced, ‘[a] promissory estoppel is not enforced as a contract, but as
an equitable restraint on the exercise or enforcement of the promisor’s rights’.
10.83 It should also be noted that s 18 of the Australian Consumer Law, which prohibits
misleading or deceptive conduct, provides another possible avenue of relief for a person unable
to establish a collateral contract due to the rule in Hoyt’s Pty Ltd v Spencer.166

Collateral contract with a third party

10.84 A collateral contract may also arise in cases where a promise by a third person induces
the formation of a contract between two parties. The situation envisaged here can be described
as a tripartite collateral contract. Imagine the following scenario: A makes a promise to B who,
in reliance on that promise, enters into a contract with C. The entry by B into the contract
with C constitutes the main contract and is also the consideration for the collateral contract
constituted between A and B, on the basis of A’s promise to B. However, there is one qualification
for a collateral contract to arise in this scenario, and that is that the contract between B and C
must provide a benefit to A.
10.85 In Andrews v Hopkinson,167 Hopkinson, a car dealer, made certain assurances to
Andrews, the purchaser, in relation to the roadworthiness of a motor vehicle that Andrews
subsequently purchased from Berkeley Finance. Andrews was seriously injured because of the
dangerous condition of the vehicle. Hopkinson’s assurance constituted a contract with Andrews
that was collateral to the main contract between Andrews and Berkeley Finance. The benefit to
Hopkinson was the sale of the car to Andrews.
10.86 In tripartite collateral contracts the rule in Hoyt’s Pty Ltd v Spencer168 does not apply. In
other words, it is of no consequence that there may be an inconsistency between any collateral
contract between A and B and the main contract between B and C.169

164. (1919) 27 CLR 133.

165. (2010) 79 NSWLR 453 at 460.
166. (1919) 27 CLR 133.
167. [1957] 1 QB 229; [1956] 3 All ER 422.
168. (1919) 27 CLR 133.
169. Manning Motel Pty Limited v DH MB Pty Ltd [2013] NSWSC 1582 at [25].

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IMPLIED TERMS

INTRODUCTION
11.1 Generally, the bulk of the terms of a contract are express terms. However, terms can
form part of a contract by implication. In Hickman v Turn and Wave Ltd1 Randerson J said that
‘[t]he question of whether terms should be implied arises when the contract does not expressly
provide for what happens when some event occurs’. McMeel2 points to the importance of
implied terms as follows:
Implication of terms performs a vital function in ensuring the validity of contracts, in
accordance with the principle that contracts should, where possible, be given lawful effect.

11.2 A simple, and not uncommon, illustration of this process relates to parties entering
into an agreement for the occupation of land. Often one party will have entered into
occupation of the land and agreed to pay a certain occupation fee. However, various other
matters relating to the occupation are not settled. In the context of such a situation, in Javad
v Aqil3 Nicholls LJ said:
[P]arties frequently proceed with an arrangement whereby one person takes possession of
another’s land for payment without having agreed or directed their minds to one or more
fundamental aspects of their transaction. In such cases the law, where appropriate, has to
step in and fill the gaps in a way which is sensible and reasonable. The law will imply, from
what was agreed and all the surrounding circumstances, the terms the parties are to be taken
to have intended to apply. Thus if one party permits another to go into possession of his land
on payment of a rent of so much per week or month, failing more the inference sensibly and
reasonably to be drawn is that the parties intended that there should be a weekly or monthly
tenancy. … But I emphasise the qualification ‘failing more’. Frequently there will be more.
Indeed, nowadays there normally will be other material surrounding circumstances. The
simple situation is unlikely to arise often, not least because of the extent to which statute has
intervened in landlord-tenant relationships. Where there is more than the simple situation,
the inference sensibly and reasonably to be drawn will depend upon a fair consideration of

1. [2011] 3 NZLR 318 at 370.

2. G McMeel, The Construction of Contracts, Interpretation, Implication and Rectification, 2nd ed, Oxford
University Press, Oxford, 2011, p 15.
3. [1991] 1 All ER 243 at 247–8.

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all the circumstances, of which the payment of rent on a periodical basis is only one, albeit
a very important one. This is so however large or small may be the amount of the payment.

11.3 Implied terms can be categorised as follows:

• terms implied to give efficacy to a particular contract based upon the facts and circumstances
of a particular case;
• terms which the law finds in a certain class of contract, either pursuant to the common
law or statute, although those terms may not find specific expression in the contractual
statements or documents of the parties; and
• terms implied into a contract to give effect to a notorious custom or usage in a particular
trade, industry, or locality.
11.4 Terms implied in fact or by custom are implied into a contract to give effect to the
presumed intentions of the parties.4 Terms implied by law do not depend on the intentions of
the parties and are implied on more general considerations.5 In University of Western Australia
v Gray6 the Full Court of the Federal Court referred to the distinction between terms implied
in fact and terms implied by law as follows:
Terms implied in fact are individualised gap fillers, depending on the terms and circumstances
of a particular contract. Terms implied in law are in reality incidents attached to standardised
contractual relationships …

11.5 With terms implied in fact, it is presumed that the contract is effective without the
implied term. Thus, the onus of proof rests upon the party alleging the existence of the
implied term.7 The same approach applies with terms implied by custom. With terms implied
by law, the term is presumed to be part of the contract. Thus, the onus of proof rests upon the
party who alleges that the term should not be implied into the contract.8

IMPLICATION OF TERMS ON THE FACTS OF THE CASE

11.6 In this category of implied terms a court is asked to imply a particular term on the
basis of the specific facts and circumstances of the case before it. In Codelfa Construction Pty
Ltd v State Rail Authority of New South Wales9 Mason J said the following in relation to terms
implied in fact:
[T]he term is one which it is presumed that the parties would have agreed upon had they
turned their minds to it — it is not a term that they have actually agreed upon. Thus, in the

4. Breen v Williams (1995) 186 CLR 71 at 102–3; 138 ALR 259 at 281; Interlink Australia Pty Ltd v Lowe [2015]
QCA 211 at [47].
5. Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 at 576; 1 All ER 125 at 132–3.
6. (2009) 179 FCR 346 at 375; (2009) 259 ALR 224 at 251.
7. Heimann v The Commonwealth (1938) 38 SR (NSW) 691 at 695; Castlemaine Tooheys Ltd v Carlton
& United Breweries Ltd (1987) 10 NSWLR 468 at 492.
8. Heimann v The Commonwealth (1938) 38 SR (NSW) 691 at 695–6; Castlemaine Tooheys Ltd v Carlton
& United Breweries Ltd (1987) 10 NSWLR 468 at 492.
9. (1982) 149 CLR 337 at 347; 41 ALR 367 at 370. See also Breen v Williams (1995–96) 186 CLR 71 at 102–3;
138 ALR 259 at 281.

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case of the implied term the deficiency in the expression of the consensual agreement is
caused by the failure of the parties to direct their minds to a particular eventuality and to
make explicit provision for it. … [T]he implication of a term is designed to give effect to the
parties’ presumed intention.

11.7 The principles to be applied depend upon whether the contract is formal or informal.

Formal contracts
11.8 In Bull v Australian Quarter Horse Association10 Beazley P said that ‘[w]here the
relationship between the parties occurs in a formal contract’, the implication of a term needs to
satisfy the five elements set out by Lord Simon in the Privy Council in BP Refinery (Westernport)
Pty Ltd v Shire of Hastings,11 where his Lordship said the following:
Their Lordships do not think it necessary to review exhaustively the authorities on the
implication of a term in a contract which the parties have not thought fit to express. In
their view, for a term to be implied the following conditions (which may overlap) must be
satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business
efficacy to the contract, so that no term will be implied if the contract is effective without
it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear
expression; (5) it must not contradict any express term of the contract.

This statement of the law has been approved by the High Court many times as applicable to
cases of implication of terms in a formal contract that is complete upon its face.12
11.9 In relation to Lord Simon’s statement of the law, in Marks and Spencer plc v BNP Paribas
Securities Services Trust Co (Jersey) Ltd13 Lord Neuberger said:
First, in Equitable Life Assurance Society v Hyman14 Lord Steyn rightly observed that the
implication of a term was ‘not critically dependent on proof of an actual intention of the
parties’ when negotiating the contract. If one approaches the question by reference to what
the parties would have agreed, one is not strictly concerned with the hypothetical answer of
the actual parties, but with that of notional reasonable people in the position of the parties
at the time at which they were contracting. Secondly, a term should not be implied into a
detailed commercial contract merely because it appears fair or merely because one considers
that the parties would have agreed it if it had been suggested to them. Those are necessary
but not sufficient grounds for including a term. However, and thirdly, it is questionable
whether Lord Simon’s first requirement, reasonableness and equitableness, will usually,
if ever, add anything: if a term satisfies the other requirements, it is hard to think that it

10. [2015] NSWCA 354 at [51].

11. (1977) 180 CLR 266 at 282–3; 16 ALR 363 at 376.
12. Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 at 605–6;
26 ALR 567 at 575–6; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149
CLR 337 at 347; 41 ALR 367 at 371; Khoury v Government Insurance Office of New South Wales (1984) 165
CLR 622 at 636; 54 ALR 639 at 649; Hospital Products Ltd v United States Surgical Corporation (1984) 156
CLR 41 at 117–18; 55 ALR 417 at 470; Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, 441; 131
ALR 422 at 427–8, 443.
13. [2016] AC 742 at 754–5; [2016] 4 All ER 441 at 448–9, cited with approval in ASC AWD Shipbuilder Pty Ltd
v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at 125–6.
14. [2002] 1 AC 408 at 459; [2000] 3 All ER 961 at 970.

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would not be reasonable and equitable. Fourthly, … although Lord Simon’s requirements are
otherwise cumulative, I would accept that business necessity and obviousness, his second
and third requirements, can be alternatives in the sense that only one of them needs to be
satisfied, although I suspect that in practice it would be a rare case where only one of those
two requirements would be satisfied. Fifthly, if one approaches the issue by reference to
the officious bystander, it is ‘vital to formulate the question to be posed by [him] with the
utmost care’. … Sixthly, necessity for business efficacy involves a value judgment. … [T]he
test is not one of ‘absolute necessity’, not least because the necessity is judged by reference
to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second
requirement is … that a term can only be implied if, without the term, the contract would
lack commercial or practical coherence.

Furthermore, it is generally more difficult to establish that there is an implied term in the
context of ‘detailed commercial contracts which [are] the product of extensive negotiations and
in which legal advisers [are] heavily involved’.15
11.10 In relation to discharging the onus of proof, courts are generally reluctant to imply
a term into a contract. When faced with the issue of implying terms, ‘the court must proceed
with caution’.16
11.11 In Philips Electronique Grand Public SA v British Sky Broadcasting Ltd,17 the Court of
Appeal elaborated on the approach of the court in implying terms as follows:
The implication of contract terms involves … the interpolation of terms to deal with matters
for which, ex hypothesi, the parties themselves have made no provision. It is because the
implication of terms is so potentially intrusive that the law imposes strict constraints on the
exercise of this extraordinary power.

There are of course contracts into which terms are routinely and unquestioningly implied.
If a surgeon undertakes to operate on a patient a term will be implied into the contract that
he exercise reasonable care and skill in doing so. It is inconceivable that any patient would in
any imaginable circumstance commit his bodily well-being to the ministrations of a surgeon
who did not undertake that obligation, or that a surgeon could hope to remain in practice
without professing to discharge it. Again, quite apart from statute, the courts would not
ordinarily hesitate to imply into a contract for the sale of unseen goods that they should be of
merchantable quality and answer to their description and conform with sample. It is hard to
imagine trade conducted, in the absence of express agreement, on any other terms.

But the difficulties increase the further one moves away from these paradigm examples. In
the first case, it is probably unlikely that any terms will have been expressly agreed, except
perhaps the nature of the operation, the fee, and the time and the place of operation. In the
second case, the need for implication usually arises where the contract terms have not been

15. Barnes v Forty Two International Pty Ltd (2014) 316 ALR 408 at 437. See also Codelfa Construction Pty Ltd
v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346; 41 ALR 367 at 370; BP Oil International
Ltd v Target Shipping Ltd [2013] EWCA Civ 196 at [19]; Liberty Investing Ltd v Sydow [2015] EWHC 608
(Comm) at [11]; Fraser Turner Ltd v Pricewaterhousecoopers LLP [2018] EWHC 1743 (Ch) at [45].
16. Ukraine v Law Debenture Trust Corporation plc [2019] QB 1121 at 1188. See also Roxborough v Rothmans
of Pall Mall Australia Pty Ltd (2001) 208 CLR 516 at 575–6; 185 ALR 335 at 381.
17. [1995] EMLR 472 at 481–2, cited with approval in Primary Health Care Limited v Commissioner of Taxation
(2010) 186 FCR 301 at 340–1; 267 ALR 648 at 686–7.
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spelled out in detail or by reference to written conditions. It is much more difficult to infer
with confidence what the parties must have intended when they have entered into a lengthy
and carefully-drafted contract but have omitted to make provision for the matter in issue.
Given the rules which restrict evidence of the parties’ intention when negotiating a contract,
it may well be doubtful whether the omission was the result of the parties’ oversight or of
their deliberate decision; if the parties appreciate that they are unlikely to agree on what is
to happen in a certain not impossible eventuality, they may well choose to leave the matter
uncovered in their contract in the hope that the eventuality will not occur.

In the familiar cases already mentioned there could be little room for doubt what the parties’
joint answer would have been had the question been raised at the outset. There would,
almost literally, have been only one possible answer. But this may not be so where a contract
is novel, known to involve more than ordinary risk and known to be more than ordinarily
uncertain in its outcome. And it is not enough to show that had the parties foreseen the
eventuality which in fact occurred they would have wished to make provision for it, unless it
can also be shown either that there was only one contractual solution or that one of several
possible solutions would without doubt have been preferred.

11.12 A further preliminary point relates to the issue of whether there must be an enforceable
contract before the court can imply a term or whether a term can be implied to an agreement
that is otherwise unenforceable because it is not sufficiently certain or complete and thereby
create an enforceable contract. On this issue, in Wells v Devani,18 Lord Kitchin said:
I recognise that there will be cases where an agreement is so vague and uncertain that it
cannot be enforced. So too, there will be cases where the parties have not addressed certain
matters which are so fundamental that their agreement is incomplete. Further, an agreement
may be so deficient in one or other of these respects that nothing can be done to render it
enforceable. But I do not accept that there is any general rule that it is not possible to imply
a term into an agreement to render it sufficiently certain or complete to constitute a binding
contract. Indeed, it seems to me that it is possible to imply something that is so obvious that
it goes without saying into anything, including something the law regards as no more than an
offer. If the offer is accepted, the contract is made on the terms of the words used and what
those words imply. Moreover, where it is apparent the parties intended to be bound and to
create legal relations, it may be permissible to imply a term to give the contract such business
efficacy as the parties must have intended. For example, an agreement may be enforceable
despite calling for some further agreement between the parties, say as to price, for it may be
appropriate to imply a term that, in default of agreement, a reasonable price must be paid.

… Accordingly, where … the parties intended to create legal relations and have acted on that
basis, I believe that it may be permissible to imply a term into the agreement between them
where it is necessary to do so to give the agreement business efficacy or the term would be so
obvious that ‘it goes without saying’, and where, without that term, the agreement would be
regarded as incomplete or too uncertain to be enforceable.

With these points in mind, the meaning of the requirements listed by Lord Simon will be
examined in turn.

18. [2019] 3 All ER 379 at 392–3.

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Equitable and reasonable

11.13 In relation to the requirement of reasonableness and equity two things can be noted.
First, such a requirement refers to fairness as between the parties.19 Thus, in Byrne v Australian
Airlines Ltd20 McHugh and Gummow JJ rejected the suggested implication of a term because,
‘[t]he contractual term propounded by the appellants would operate in a partisan fashion’.
Second, reasonableness and equity is to be judged by reference to the benefits and burdens each
party can expect to enjoy or undertake under the contract. Thus, in BP Refinery (Westernport)
Pty Ltd v Shire of Hastings21 the majority of the Privy Council rejected the proposed implication
into a rating agreement, requiring a continuity of the corporate identity of the BP Refinery
corporation, on the ground that such an implication would deprive the corporation of a
benefit which induced it to make a major capital investment in the Shire of Hastings. However,
reasonableness alone is not enough to imply a term.22

Necessary to give business efficacy to the contract

11.14 The requirement that a term be ‘necessary to give business efficacy to the contract’
means that it is not the court’s role to improve the contract in question by implying a term.23
However, this requirement does not mean that the term must be absolutely necessary in the
sense that, without the term, the contract would be ineffective.24 Rather, this element requires
that the alleged implied term must be necessary for the reasonable or effective operation of the
contract in the circumstances of the case.25
11.15 As to meeting this requirement, in Duval v 11–13 Randolph Crescent Ltd,26 Lord Kitchin
said:
A way of assessing whether a term is necessary to give business efficacy to a contract is
to consider whether, without the term, the contract would lack commercial or practical
coherence.

19. TMA Australia Pty Ltd v Indect Electronics & Distribution GmbH [2015] NSWCA 343 at [101].
20. (1995) 185 CLR 410 at 442; 131 ALR 422 at 444.
21. (1977) 180 CLR 266 at 284; 16 ALR 363 at 377.
22. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346; 41
ALR 367 at 370; Servcorp WA Pty Ltd v Perron Investments Pty Ltd (2016) 50 WAR 226 at 242; Marks and
Spencer PLC v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 at 754–5; [2016] 4 All
ER 441 at 448–9.
23. Societe Generale, London Branch v Geys [2011] EWCA Civ 307 at [33]; Ali v Petroleum Company of Trinidad
and Tobago (Trinidad and Tobago) [2017] UKPC 2 at [7]; Fraser Turner Ltd v Pricewaterhousecoopers LLP
[2018] EWHC 1743 (Ch) at [45].
24. Marks and Spencer PLC v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 at 755; [2016]
4 All ER 441 at 449; J N Hipwell & Son v Szurek [2018] EWCA Civ 674 at [30].
25. Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 428; 131 ALR 422 at 428; Grocon Constructors
(Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 at [142]; Marks and Spencer plc v BNP
Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 at 755; [2016] 4 All ER 441 at 449; ASC AWD
Shipbuilder Pty Ltd v Ottoway Engineering Pty Ltd (2017) 129 SASR 122 at 126.
26. [2020] 2 WLR 1167 at 1180. See also Servcorp WA Pty Ltd v Perron Investments Pty Ltd (2016) 50 WAR 226
at 252.

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In Wellington v Huaxin Energy (Aust) Pty Ltd,27 Jackson J observed that ‘[i]n practice, most, if
not all, failed cases of alleged terms implied in fact … fall at the hurdle that the alleged term is
not necessary to give business efficacy’.
11.16 In The Moorcock28 the parties to a contract agreed that a vessel, the ‘Moorcock’, would
be moored next to a jetty for loading and unloading cargo, and that at low tide the vessel would
come to rest on the mud at the bottom of the river. The vessel was damaged when at low tide it
came to rest on a ridge of hard ground beneath the mud at the bottom of the river. The English
Court of Appeal held that the jetty owners were liable for the damage to the vessel on the basis
of a breach of an implied term. Such a term required them to take reasonable care to ensure that
the bottom of the river was reasonably fit for the purpose or to have informed the owners of
the vessel that it was not fit for that purpose. In relation to the requirement of business efficacy,
Bowen LJ29 said that the court needs to identify ‘an implication from the presumed intention of
the parties with the object of giving to the transaction such efficacy as both parties must have
intended that at all events it should have’.
11.17 In Elkerton v Milecki,30 Milecki argued that there was an implied term in the
contract appointing him as Chief Rabbi at a Sydney synagogue to the effect that, based
upon Orthodox Jewish law, his appointment was for life and could not be terminated. The
contract had no express term relating to the length of his appointment. The court rejected
his argument on the basis that it was ‘[not] necessary to imply such a term to give the
contract efficacy where, in the absence of any other provision as to its duration, it would be
terminable on reasonable notice’.31

So obvious it goes without saying

11.18 The requirement of obviousness serves to emphasise the fact that implication involves
attributing a presumed intention to the parties. It is tested by asking whether the parties would
have readily agreed to the proposed implied term if it had been suggested to them in the course
of their negotiations.32 This test, sometimes referred to as ‘the officious bystander’ test, was
described in Shirlaw v Southern Foundries (1926) Ltd33 by MacKinnon LJ as follows:
Prima facie that which in any contract is left to be implied and need not be expressed is
something so obvious that it goes without saying; so that, if while the parties were making
their bargain, an officious bystander were to suggest some express provision for it in the
agreement, they would testily suppress him with a common, ‘Oh, of course’.

27. [2019] QSC 18 at [68].

28. (1889) 14 PD 64.
29. The Moorcock (1889) 14 PD 64 at 68.
30. [2018] NSWCA 141.
31. Elkerton v Milecki [2018] NSWCA 141 at [46].
32. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 374; 41
ALR 367 at 393.
33. [1939] 2 KB 206 at 227; [1939] 2 All ER 113 at 125. See also Reigate v Union Manufacturing Co (Ramsbottom)
Ltd [1918] 1 KB 592 at 605.

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11.19 In Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance

(Australia) Ltd34 the High Court, in relation to the allegation of an implied term in that case, said:
[It was not] so obvious that both [parties] … would clearly have agreed to its inclusion in
the contract … had they directed their minds to it at the time they concluded their bargain.
This will commonly be the situation where the term sought to be implied is adverse to the
interests of one of the parties, as they are adverse to the interests of [one party] here. An
implication which may be regarded as obvious to one party may not be so regarded by the
party detrimentally affected. Unless it can be said that both parties would have consented to
its inclusion, a term cannot be implied.

11.20 In relation to the overlapping and cumulative nature of this element and that of business
efficacy, in TMA Australia Pty Ltd v Indect Electronics & Distribution GmbH35 Meagher JA, after
noting that this element was ‘not a freestanding one justifying implication’, said:
[I]t is because of the necessity to imply the term that it may be said, had the parties turned
their minds to the question, that they would have responded that its inclusion was a matter
so obvious as to be unnecessary to spell it out.

11.21 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales36 Codelfa
contracted with the State Rail Authority (SRA) to do excavation work as part of the construction
of a railway line in Sydney’s eastern suburbs. To complete the project by the due date, Codelfa
organised work to be done on the basis of three shifts of eight hours per day for six days of each
week. This virtually non-stop work saw local residents complain and obtain an injunction to
prevent work being done between the hours of 10pm and 6am. This meant that the costs of the
work would increase. Codelfa claimed that the long written contract between the parties had
further implied terms to the effect that the SRA was obliged to pay Codelfa these additional
costs and that the completion date for the work was to be extended. The reason that Codelfa
costed the project as it did at the time the contract was entered into was its mistaken belief that
the SRA’s statutory immunity from injunctive relief extended to itself and enabled it to work
24 hours per day.
11.22 The High Court rejected Codelfa’s argument. According to Mason J, the critical weakness
in Codelfa’s argument was with respect to the element of obviousness. His Honour37 said:
In this case the problem, as I see it, lies not so much in saying that the implication of a term is
necessary to give business efficacy to the contract, as in concluding that the particular term to
be implied is so obvious that ‘it goes without saying’. … [T]there remains an insurmountable
problem in saying that ‘it goes without saying’ that had the parties contemplated the possibility
that their legal advice was incorrect and that an injunction might be granted to restrain noise
or other nuisance, they would have settled upon [terms to the effect that Codelfa would be
granted an extension of time and an indemnity as to additional costs]. I doubt whether the
fiction of treating the parties as reasonable and fair makes the problem any the less difficult.
This is not a case in which an obvious provision was overlooked by the parties and omitted
from the contract. Rather it was a case in which the parties made a common assumption

34. (1986) 160 CLR 226 at 241; 64 ALR 481 at 489. See 11.45–11.46.
35. [2015] NSWCA 343 at [103].
36. (1982) 149 CLR 337; 41 ALR 367.
37. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 355–6; 41
ALR 367 at 377–8.
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which masked the need to explore what provision should be made to cover the event which
occurred. In ordinary circumstances negotiation about that matter might have yielded any
one of a number of alternative provisions, each being regarded as a reasonable solution.

11.23 Brennan J38 was of the view that only the element of reasonableness as set out in
BP Refinery (Westernport) Pty Ltd v Shire of Hastings39 was satisfied by the facts of this case.

Capable of clear expression

11.24 The requirement that a term be capable of clear expression means that the term must be
reasonably certain.40 However, ‘[a] term is not incapable of clear expression merely because one
of the parties, in the context of litigation, disagrees on its formulation’.41 As was pointed out in
Servcorp WA Pty Ltd v Perron Investments Pty Ltd,42 ‘[t]he requirement that an alleged implied
term be capable of clear expression overlaps with the requirement of obviousness. A term which
is incapable of clear expression is unlikely to be so obvious that “it goes without saying”’.
11.25 In Shell (UK) Ltd v Lostock Garage Ltd43 Lostock agreed to obtain all its petrol supplies
from Shell. During a petrol price war, Shell gave subsidies to some of its garages, but not to the
one operated by Lostock. Lostock sought petrol supplies from other sources. Shell then sought
an injunction to prevent Lostock obtaining petrol supplies from elsewhere. Lostock argued that
Shell was in breach of an implied term not to discriminate against it in terms of the subsidies
that it was giving. The Court of Appeal44 rejected the argument, first, on the basis that it did
not satisfy the business efficacy element, and second, because the alleged term ‘[could not] be
formulated with sufficient precision’.

Consistency with express terms

11.26 The requirement of consistency with the express terms of the contract requires that the
term said to be implied does not contradict the effect of the express terms of the agreement and
does not adequately deal with a matter which the contract deals with.
11.27 In Servcorp WA Pty Ltd v Perron Investments Pty Ltd45 Buss JA said:
The requirement that an alleged implied term not ‘contradict’ any express term plainly
includes a direct contradiction. However, the requirement has a broader connotation. For
example, a term cannot be implied if it is apparent, on the face of the document, that the
parties adverted to the point in question and either deliberately rejected it or deliberately
refrained from dealing with it.

38. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 405–6; 41
ALR 367 at 419–20.
39. (1977) 180 CLR 266; 16 ALR 363.
40. Torre Asset Funding Ltd v Royal Bank of Scotland plc [2013] EWHC 2670 (Ch) at [152]; Fraser Turner Ltd
v Pricewaterhousecoopers LLP [2018] EWHC 1743 (Ch) at [45]; Wellington v Huaxin Energy (Aust) Pty Ltd
[2019] QSC 18 at [105].
41. Servcorp WA Pty Ltd v Perron Investments Pty Ltd (2016) 50 WAR 226 at 257.
42. (2016) 50 WAR 226 at 257.
43. [1977] 1 All ER 481.
44. Shell (UK) Ltd v Lostock Garage Ltd [1977] 1 All ER 481 at 488.
45. (2016) 50 WAR 226 at 254. See also Kitching v Phillips (2011) 278 ALR 551 at 563 ; Ali v Petroleum Company
of Trinidad and Tobago (Trinidad and Tobago) [2017] UKPC 2 at [7]; Sea Master Shipping Inc v Arab Bank
(Switzerland) Ltd [2020] EWHC 2030 (Comm) at [14].
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Although the mere fact that an express term deals with a particular subject matter is not, of
itself, decisive against an implication which involves the relevant subject matter being dealt with
more extensively, an examination of the contract, in the context of the objective framework of
facts within which it came into existence, may reveal that the express term was intended to
cover the field that would otherwise be occupied, at least in part, by the alleged implied term.
In those circumstances, there would be no room for the implication of the alleged term. …

An implied term may grow out of an express contractual term. An implied term will not
necessarily, in the relevant sense, contradict an express term merely because it modifies the
effect of the express term, since every implied term will invariably have that effect. Similarly,
an exception from the general effect of an express contractual term will not necessarily, in
the relevant sense, contradict it.

11.28 In relation to this requirement, the existence of an entire agreement clause46 in the
contact may give rise to an inconsistency and thus preclude the implication of a term on the
facts of the case. If the entire agreement clause explicitly refers to implied terms, then an
inconsistency arises that precludes the implication of terms.47 However, where there is no
explicit reference to implied terms in the entire agreement clause, the majority of judicial
opinion suggests that such a clause will not preclude the finding of an implied term in fact.48

Informal contracts
11.29 Although the elements in BP Refinery (Westernport) Pty Ltd v Shire of Hastings49 apply
in cases of formal and detailed written contracts, the question that arises is the relevance of these
elements in cases of less formal and/or verbal contracts. In this context, in Byrne v Australian
Airlines Ltd,50 McHugh and Gummow JJ said:
[W]here the contract is not in writing and is oral or partly oral or it appears that the parties
themselves did not reduce their agreement to a complete written form, caution is required
against an automatic or rigid application of the cumulative criteria identified in [BP Refinery
(Westernport) Pty Ltd v Shire of Hastings51]. … If the contract has not been reduced to
complete written form, the question is whether the implication of the particular term is
necessary for the reasonable or effective operation of the contract in the circumstances of the
case; only where this can be seen to be true will the term be implied.

Furthermore, ‘even in the case of an informal contract a term will be implied only if it is capable
of clear expression and does not contradict an express term of the contract’.52

46. See 10.63.

47. Hope v RCA Photophone of Australia Proprietary Limited (1937) 59 CLR 348 at 357–8, 363.
48. Hart v MacDonald (1910) 10 CLR 417 at 421, 427, 430; Etna v Arif [1999] 2 VR 353 at 371; Barnes v Forty
Two International Pty Limited (2014) 316 ALR 408 at 443–4; Servcorp WA Pty Ltd v Perron Investments
Pty Ltd (2016) 50 WAR 226 at 245; Kason Kek-Gardner Ltd v Process Components Ltd [2017] EWCA Civ
2132 at [54]; Federal Republic of Nigeria v JP Morgan Chase Bank, NA [2019] EWHC 347 (Comm) at [37];
but see contra NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR 481 at 571.
49. (1977) 180 CLR 266; 16 ALR 363.
50. (1995) 185 CLR 410 at 442; 131 ALR 422 at 443–4. See also Hawkins v Clayton (1988) 164 CLR 539 at 573;
78 ALR 69 at 92–3; P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42 at [110];
Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92 at [92].
51. (1977) 180 CLR 266; 16 ALR 363.
52. Futuretronics.com.au Pty Limited v Graphix Labels Pty Ltd [2007] FCA 1621 at [123].
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IMPLICATION OF TERMS BY LAW

11.30 The implication of terms by law can be pursuant to statute or the common law. The
implication of such terms reflects policy considerations, rather than the intentions of the
parties. According to Karl Llewellyn, in ascertaining the existence of a term implied by law, a
court is concerned with ‘what the minimum decencies are which the court will insist upon as
essential to an enforceable bargain of that type, or as being inherent in a bargain of that type’.53

Terms implied by statute

11.31 In Breen v Williams,54 Gaudron and McHugh JJ observed that terms implied by statute,
‘give effect to social and economic policies which the legislature thinks are necessary to protect
or promote the rights of one party to that class of contract’.
11.32 Important statutes that imply terms include state and territory legislation governing
sale of goods contracts55 and the consumer protection provisions in ss 51–62 of the Australian
Consumer Law. Statutes that imply terms may also limit or preclude the parties from expressly
excluding their implied terms. Thus, although all sale of goods legislation in all Australian
jurisdictions except the Australian Capital Territory explicitly permit the terms implied by
the legislation to be excluded by express agreement between the parties,56 in New South Wales
certain provisions cannot be excluded in the context of ‘consumer’ transactions.57 Furthermore,
terms implied by the Australian Consumer Law can only be excluded in some contracts.58

Terms implied by common law

11.33 A two-part test is used to decide whether a term is implied by the common law. First,
the court must determine the type or class of contractual relationship to which the term would
apply. Second, the court must determine that the term is appropriate for all contracts in that
type or class of contract. To satisfy the second requirement the test of necessity is used.59 The
necessity test requires the court be satisfied that implication of the term is necessary in the
sense that if the term is not implied ‘the enjoyment of the rights conferred by the contract

53. Quoted in McMeel, The Construction of Contracts, note 2 above, p 13.

54. Breen v Williams (1995–96) 186 CLR 71 at 103; 138 ALR 259 at 281.
55. For terms implied into sale of goods contracts, including those relating to title, sales by description, fitness
for purpose, merchantable quality, and sales by sample, see Sale of Goods Act 1954 (ACT) ss 17–20; Sale
of Goods Act 1923 (NSW) ss 17–20; Sale of Goods Act 1972 (NT) ss 17–20; Sale of Goods Act 1896 (Qld)
ss 15–18; Sale of Goods Act 1895 (SA) ss 12–15; Sale of Goods Act 1896 (Tas) ss 17–20; Goods Act 1958
(Vic) ss 17–20; Sale of Goods Act 1895 (WA) ss 12–15.
56. Sale of Goods Act 1923 (NSW) s 57; Sale of Goods Act 1972 (NT) s 57; Sale of Goods Act 1896 (Qld) s 56;
Sale of Goods Act 1895 (SA) s 54; Sale of Goods Act 1896 (Tas) s 59; Goods Act 1958 (Vic) s 61; Sale of
Goods Act 1895 (WA) s 54.
57. Sale of Goods Act 1923 (NSW) s 64.
58. Australian Consumer Law ss 54–64A. See 13.38–13.45.
59. Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450; 131 ALR 422 at 450; University of Western
Australia v Gray (2009) 179 FCR 346 at 375–9; 259 ALR 224 at 251–6; Commonwealth Bank of Australia
v Barker (2014) 253 CLR 169 at 193–4; 312 ALR 356 at 369–70; WIN Corporation Pty Ltd v Nine Network
Australia Pty Ltd (2016) 341 ALR 467 at 480-1.

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would be or could be rendered nugatory, worthless, or, perhaps, be seriously undermined’.60

This test could be established if the absence of the term would mean that the contract would be
‘deprived of its substance, seriously undermined or drastically devalued’.61
11.34 In Commonwealth Bank of Australia v Barker,62 Kiefel J63 said the following in relation
to the necessity test:
The requirement of necessity for the implication of a term in a contract, or a contract of
a particular kind, cannot be brushed aside as ‘elusive’. It is fundamental to the basis for
implications. It is not uncertain … It has the advantage of providing objectivity to the test
employed by the courts.

However, Gageler J,64 after affirming the test of necessity, said:

But the inquiry is not exhausted by that consideration; it does not exclude considerations
of justice and policy. Couching the ultimate evaluation in terms of necessity serves usefully
to emphasise this and no more: that a court should not imply a new term other than by
reference to considerations that are compelling.

11.35 In Byrne v Australian Airlines Ltd,65 McHugh and Gummow JJ suggested that
there was ‘force’ to the argument that many of the terms implied by the common law had
their origins in terms implied on the facts of a particular case on the basis of the presumed
intention of the parties to the contract and which subsequently ‘became so much a part of the
common understanding as to be imported into all transactions of the particular description’.
11.36 Terms implied by the common law ‘may be displaced by the express terms of the
contract or by statute’.66 Furthermore, an implied term may be excluded by ‘circumstances
which strongly lead to the conclusion that [it] was excluded’.67 This means that whether such an
implied term has been excluded ‘is to be addressed by reference to the particular contract and
the actual circumstances, not contracts of a class and general circumstances’.68
11.37 In Liverpool City Council v Irwin,69 in relation to tenancy agreements for units in a
block of flats, the House of Lords held that it was necessary to imply a term to the effect that
the landlord was obliged to take reasonable care of the common areas. In Tournier v National
Provincial and Union Bank of England70 it was held that there was a term implied by the
common law that imposed an obligation on a banker generally to observe secrecy with respect
to a customer’s account, together with information derived from the account itself, and any
other information which the banker acquires in the capacity as the customer’s banker.

60. Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 453; 131 ALR 422 at 452.
61. Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450; 131 ALR 422 at 450.
62. Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 208; 312 ALR 356 at 381.
63. Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 208; 312 ALR 356 at 381.
64. Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 215–6; 312 ALR 356 at 386.
65. (1995) 185 CLR 410 at 449; 131 ALR 422 at 449.
66. Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 186; 312 ALR 356 at 364.
67. Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 at 17; 4 ALR 77 at 89.
68. Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468 at 492; Shaw v State of
New South Wales [2012] NSWCA 102 at [45].
69. [1977] AC 239; [1976] 2 All ER 39.
70. Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 at 480–1, 485.

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11.38 A significant example of terms implied by the common law is with employment
contracts. In the absence of an express term or statutory provision to the contrary, it has long
been established that an employee is bound by terms to the effect that he or she will:
• take reasonable care in carrying out the terms of employment;71
• faithfully serve the employer;72 and
• obey lawful and reasonable commands of the employer.73
• in the context of a contract for the provision of professional services, provide the services
with reasonable care and skill.74
On the other hand, an employer is bound by terms to the effect that he or she will:
• provide a safe system of work;75
• indemnify an employee for costs incurred by the employee in the course of employment;76
and
• when terminating a contract which has no set term, give reasonable notice of termination
except in case where summary dismissal is justified.77
More recently, English law has developed to a stage where, in the Supreme Court in Edwards
v Chesterfield Royal Hospital NHS Foundation Trust,78 Lord Dyson said that ‘[i]t is now well
established that an employment contract is subject to an implied term that the employer and
employee may not, without reasonable and proper cause, conduct themselves in a manner
likely to destroy or seriously damage the relationship of confidence and trust between them’.
However, in Commonwealth Bank of Australia v Barker79 the existence of such an implied term
in Australian employment contracts was rejected by the High Court, largely on the grounds
that the test of necessity was not satisfied.
11.39 Although terms implied by the common law usually relate to particular types of
contract, it is clear that some terms implied by the common law apply to all contracts. An
important example is the implied term of cooperation.80 This term binds party A to the contract
to do all such things as are necessary on his or her part to enable party B to obtain the benefit
what has been promised by party A, but does not require party A to cooperate in bringing about
something which the contract does not require to be brought about.81 As Kiefel J explained in

71. Kashemije Stud Pty Ltd v Hawkes [1978] 1 NSWLR 143 at 145–6.
72. Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 72–3, 81–2; Concut Pty Ltd v Worrell (2000) 176 ALR
693 at 700–1.
73. Adami v Maison de Luxe Ltd (1924) 35 CLR 143 at 151; R v Darling Island Stevedoring and Lighterage Co
Ltd; Ex parte Halliday and O’Sullivan (1938) 60 CLR 601 at 621–2.
74. Libra Collaroy Pty Ltd v Bhide [2017] NSWCA 196 at [241].
75. O’Connor v The Commissioner for Government Transport (1954) 100 CLR 225 at 229.
76. Re Famatina Development Corporation Ltd [1914] 2 Ch 271 at 282.
77. Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 429; 131 ALR 422 at 433; Hand v District Council of
Barunga West [2013] SASC 182 at [62]–[64].
78. [2012] 2 AC 22 at 30; [2012] 2 All ER 278 at 281. See also Malik v Bank of Credit and Commerce International
SA (in liq) [1998] AC 20 at 34–5, 45–6; [1997] 3 All ER 1 at 5, 15.
79. (2014) 253 CLR 169 at 193–4, 214; 312 ALR 356 at 369–70, 385.
80. The suggestion that the obligation to cooperate was not an implied term, but rather a matter of construction
was rejected by the Court of Appeal in at Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201
at [109]–[117].
81. Butt v M’Donald (1896) 7 QLJR 68; Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998)
43 NSWLR 104 at 124; Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 194; 312

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Commonwealth Bank of Australia v Barker, the obligation to cooperate ‘is anchored upon the
82

need for one party to take a positive step without which the other party is unable to enjoy a right
or benefit conferred upon it by the contract’. This obligation extends to a negative covenant not
to hinder or prevent the fulfilment of the purpose of an express promise.83 However, the implied
term of cooperation term does not override an express term in the contract to the contrary.84
11.40 In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd,85
Mason J said the following about the implied term to cooperate:
It is easy to imply a duty to co-operate in the doing of acts which are necessary to the
performance by the parties or by one of the parties of fundamental obligations under the
contract. It is not quite so easy to make the implication when the acts in question are necessary
to entitle the other contracting party to a benefit under the contract but are not essential to
the performance of that party’s obligations and are not fundamental to the contract. Then the
question arises whether the contract imposes a duty to co-operate on the first party or whether it
leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence
of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation
of the contract depends, as it seems to me, not so much on the application of the general rule of
construction as on the intention of the parties as manifested by the contract itself.

11.41 The implied term to cooperate includes within its scope the so-called ‘prevention
principle’,86 which was described by Lord Cockburn CJ in Stirling v Maitland87 as follows:
[I]f a party enters into an arrangement which can only take effect by the continuance of a
certain existing state of circumstances, there is an implied engagement on his part that he
shall do nothing of his own motion to put an end to that state of circumstances, under which
alone the arrangement can be operative.

11.42 An illustration of the application of the implied term to do all that is reasonably
necessary to secure performance of the contract is the case of Butts v O’Dwyer.88 In that case
it was held that where parties had agreed to transfer land subject to a condition that it was not
to become effective unless the Minister’s consent had been obtained, there was an implied
obligation on the part of the person giving the transfer to do all that was reasonable on his
part to obtain the Minister’s consent. In Kennedy v Vercoe89 a contract for the sale of a business

ALR 356 at 370; Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd (2015) 237 FCR 534 at 560;
327 ALR 45 at 69.
82. (2014) 253 CLR 169 at 209; 312 ALR 356 at 381.
83. Stirling v Maitland (1864) 122 ER 1043 at 1047; Mackay v Dick (1881) 6 App Cas 251 at 263; Shepherd v Felt
& Textiles of Australia Ltd (1931) 45 CLR 359 at 378; Secured Income Real Estate (Australia) Ltd v St Martins
Investments Pty Ltd (1979) 144 CLR 596 at 607–8; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126
at 142; 181 ALR 337 at 348. See 22.27–22.28.
84. EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd (2010) 41 WAR 23 at 54.
85. (1979) 144 CLR 596 at 607–8. See also Wolfe v Permanent Custodians Ltd [2013] VSCA 331 at [28]; Ukraine
v Law Debenture Trust Corporation plc [2019] QB 1121 at 1190.
86. BAE Systems Australia Ltd v Cubic Defence New Zealand Ltd (2011) 285 ALR 596 at 609–10.
87. (1864) 122 ER 1043 at 1047.
88. (1952) 87 CLR 267.
89. (1960) 105 CLR 521. Other examples include Ray v Davies (1909) 9 CLR 160 at 169–70; Bruce v Tyley
(1916) 21 CLR 277 at 285, 287–8; Milne v Municipal Council of Sydney (1921) 14 CLR 54 at 69–70; Norton
v Angus (1926) 38 CLR 523 at 535; McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656 at 661, 663.

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contained a clause that the purchaser of the business also be accepted by the landlord as tenant.
It was held that there was an implied obligation on the purchaser to do whatever was reasonably
required of him to enable the vendor to obtain the landlord’s consent, so that the contract could
be performed.
11.43 On the other hand, there is no implied term to the effect that a party will not threaten
a breach of contract. In Spira v Commonwealth Bank of Australia90 the Court of Appeal held
that it was not necessary to imply such a term, on the basis that such threats are adequately
covered by principles relating to anticipatory breach and repudiation of contracts and the tort
of intimidation.

IMPLICATION OF TERMS BY CUSTOM

11.44 A term may be implied into a contract to incorporate a relevant custom in a particular
market, trade, or locality. The essential question to be answered when examining whether there
is such a term is ‘whether the general notoriety of the custom makes it reasonable to assume
that the parties contracted with reference to the custom so that it is therefore reasonable to
import such a term into the contract’.91
11.45 A leading case on terms implied by custom is Con-Stan Industries of Australia Pty Ltd
v Norwich Winterthur Insurance (Australia) Ltd.92 The facts of this case concerned a claim that
there existed a customary term in a contract of insurance to the effect that, in cases where the
insured had paid the insurance premium to a broker and the broker had failed to pass it on to
the insurer, the insurer’s only claim for the premium was against the broker and not against
the insured.
11.46 In rejecting this claim, the High Court93 set out the following propositions in relation
to terms implied by custom:
1. The existence of a custom or usage that will justify the implication of a term into a
contract is a question of fact. …
2. There must be evidence that the custom relied on is so well known and acquiesced in
that everyone making a contract in that situation can reasonably be presumed to have
imported that term into the contract. … However, it is not necessary that the custom be
universally accepted, for such a requirement would always be defeated by the denial by
one litigant of the very matter that the other party seeks to prove in the proceedings.
3. A term will not be implied into a contract on the basis of custom where it is contrary to
the express terms of the agreement. …
4. A person may be bound by a custom notwithstanding the fact that he had no knowledge
of it.

90. (2003) 57 NSWLR 544 at 551–2.

91. Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 423; 131 ALR 422 at 442.
92. (1986) 160 CLR 226; 64 ALR 481.
93. Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR
226 at 237–8; 64 ALR 481 at 485–6. See also Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 423; 131
ALR 422 at 442; Breen v Williams (1996) 186 CLR 71 at 124; 138 ALR 259 at 297.

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11.47 In Public Service Association and Professional Officers’ Association Amalgamated Union
of New South Wales v Zoological Parks Board of New South Wales94 these principles were applied
in relation to employees of Taronga Zoo. It was held that a long-standing practice of allowing
employees to have a flexi-day each month in return for additional hours worked had become a
customary term of their employment contracts.

IMPLIED TERMS OF GOOD FAITH

11.48 An issue concerning implied terms is whether there is an implied term in commercial
contracts that parties will exercise contractual rights and powers reasonably and in good faith.
In Wolfe v Permanent Custodians Ltd,95 Zammit AsJ described the essence of such a term as
one that ‘precludes a party from exercising a contractual power capriciously for an extraneous
purpose’. In MSC Mediterranean Shipping Company SA v Cottonex Anstalt96 Moore-Bick LJ
opined that the recognition of such a term ‘would be a significant step in the development of
our law of contract with potentially far-reaching consequences’.
11.49 The existence of such an implied term is unresolved and the subject of significant
judicial debate.97 In this context, in Esso Petroleum Pty Ltd v Southern Pacific Petroleum NL98
Warren CJ said:
If a duty of good faith exists, it really means that there is a standard of contractual conduct
that should be met. The difficulty is that the standard is nebulous. Therefore, the current
reticence attending the application and recognition of a duty of good faith probably lies as
much with the vagueness and imprecision inherent in defining commercial morality. The
modern law of contract has developed on the premise of achieving certainty in commerce. If
good faith is not readily capable of definition then that certainty is undermined.

11.50 However, an obligation of good faith has been found to exist in the context of certain
contracts such as a construction contract,99 a franchise contract,100 and a process contract.101
On the other hand, various courts have expressed doubts about as to the existence of such an
implied term.102 The High Court, in Royal Botanic Gardens and Domain Trust v South Sydney

94. [2007] NSWIRComm 1080.

95. [2012] VSC 275 at [264].
96. [2016] EWCA Civ 789 at [45].
97. (2014) 253 CLR 169 at 214; 312 ALR 356 at 385. For brief notes on the major cases in this debate see Aurizon
Network Pty Ltd v Glencore Coal Queensland Pty Ltd [2019] QSC 163 at [219]–[240] On appeal in this case,
the Court of Appeal differed from the trial judge as to whether there was an implied term on the facts of
this case: Glencore Coal Queensland Pty Ltd v Aurizon Network Pty Ltd [2020] QCA 182 at [135].
98. [2005] VSCA 228 at [3].
99. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.
100. Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; Far Horizons Pty Ltd v McDonald’s
Australia Ltd [2000] VSC 310.
101. Dockpride Pty Ltd v Subiaco Redevelopment Authority [2005] WASC 211 at [154]–[156].
102. Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 95–8; 117 ALR 393
at 404–7; Central Exchange Ltd v Anaconda Nickel Ltd (2002) 26 WAR 33 at 52; Re Kendells (NSW) Pty Ltd
(in liq); Kendell v Sweeney [2005] QSC 64 at [48]–[60]; Famestock Pty Ltd v Body Corporate for No 9 Port
Douglas Road (No 2) [2012] QSC 339 at [74].

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Council,103 left open the question of whether there was such an implied term. In particular,
Kirby J104 opined that ‘such an implied term appears to conflict with fundamental notions of
caveat emptor that are inherent … in common law conceptions of economic freedom’ and that
‘[i]t also appears to be inconsistent with the law … in respect of the introduction of implied
terms into written contracts which the parties have omitted to include’.
11.51 If an implied term of good faith does arise in a particular contract or particular
category of contract, the following questions arise:
• To what contracts does it apply?
• What is the meaning of the term?
• Can a duty of good faith be excluded?

The application of the implied term

11.52 To the extent that an implied term of good faith exists, the question of which contracts
are subject to such a term is unresolved.105 In GEC Marconi Systems Pty Ltd v BHP Information
Technology Pty Ltd,106 Finn J argued that ‘the duty of good faith and fair dealing should apply
to all contracts’. In Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd,107 Finkelstein J
suggested that an implied term of good faith existed as an ‘incident’ of all commercial contracts.
This suggestion has been rejected in a variety of cases.108 An initial problem with Finkelstein J’s
view is what is meant by ‘commercial contracts’. As Mason CJ noted in Baltic Shipping Co v Dillon
(The Mikhail Lermontov),109 the distinction between commercial and non-commercial contracts
‘is by no means easy to draw’. Thus, in Vodafone Pacific Ltd v Mobile Innovations Ltd110 the Court of
Appeal suggested that, given the ‘width and indeterminacy’ of the expression ‘commercial contracts’,
caution should be exercised before any court ruled that such a term applied to all such contracts.
11.53 However, in CGU Workers Compensation (NSW) Ltd v Garcia,111 Mason P suggested
that such a term could be implied into certain classes of contract, stating:

103. (2002) 240 CLR 45 at 63, 94; 186 ALR 289 at 301, 327. See also Commonwealth Bank of Australia v Barker
(2014) 253 CLR 169 at 195-6; 312 ALR 356 at 371.
104. Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 240 CLR 45 at 75–6; 186 ALR 289
at 312.
105. Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at 214; 312 ALR 356 at 385.
106. (2003) 128 FCR 1 at 209.
107. [2005] FCA 288 at [64]. See also Australian Securities and Investments Commission v Fortescue Metals
Group Ltd (2011) 274 ALR 731 at 793.
108. (2008) 17 Tas R 320 at 326; Insight Oceania Pty Ltd v Philips Electronics Australia Ltd [2008] NSWSC
710 at [175]; Starlink International Group Pty Ltd v Coles Supermarkets Australia Pty Ltd [2011] NSWSC
1154 at [18]; Specialist Diagnostic Services Pty Ltd v Healthscope Ltd (2012) 41 VR 1 at 20; Androvitsaneas
v Members First Broker Network [2013] VSCA 212 at [108]; Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6)
(2015) 329 ALR 1 at 160–1; Tameeka Group Pty Ltd v Landan Pty Ltd (No 3) [2016] FCA 733 at [154];
Cahill v Kiversun Pty Ltd [2017] VSC 641 at [210]; Westgem Investments Pty Ltd v Commonwealth Bank of
Australia Ltd (No 6) [2020] WASC 302 at [311]-[312].
109. (1993) 176 CLR 344 at 365–6; 111 ALR 289 at 305.
110. [2004] NSWCA 15 at [191].
111. (2007) 69 NSWLR 680 at 705. See also Kosho Pty Ltd v Trilogy Funds Management Ltd [2013] QSC 135
at [124].

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In determining whether the implication is to be drawn from a particular class of contract,

courts ask a range of questions that include whether the contract would be effective without
it, and whether the enjoyment of the rights expressly conferred would or could be rendered
nugatory, worthless or perhaps be seriously undermined. The central criterion is one of
‘necessity’, a matter to be tested against any applicable statutory policy.

11.54 Thus, it has been observed that standard form contracts, especially if they contain a
general power of termination, will contain the implied term to act in good faith.112 Furthermore,
it has been suggested that a good faith term could be more readily applied to so-called relational
contracts.113 A relational contract has been described as ‘one which involves not merely an
exchange but a relationship between contracting parties’ in which ‘[e]xpectations of loyalty
and interdependence mark the formation of the contract and become the basis for the rational
economic planning of the parties’.114 A franchise contract is a good illustration of a relational
contract.115 Indeed, it has been held that franchise contracts are ones in which there is a good
faith term implied by law.116 It may also be that an implied obligation of good faith exists in
on-demand loan contracts.117 Finally, it is suggested that such a term could also be implied
in commercial contracts where one party to the contract is at a substantial disadvantage or is
particularly vulnerable. However, in Whelan v Cigarette & Gift Warehouse Pty Ltd,118 Collier J
ruled that an implied duty of good faith could not be implied by law into employment contracts
‘because of a lack of certainty about the content of such a duty in the employment context’.
11.55 Various cases119 have suggested that the existence of a term of good faith should be
tested against the principles applicable to the implications of terms on the facts of the case.120
Thus, in Tote Tasmania Pty Ltd v Garrott121 the Full Court said that ‘[w]hether a term requiring
the exercise of good faith is to be implied depends upon the principles of ad hoc implication’.

112. Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 at 569.
113. Globe Motors v TRW Lucas Varity Electric Steering [2016] EWCA Civ 396 at [67]; Bates v Post Office Ltd
(No 3) [2019] EWHC 606 (QB) at [705]-[721].
114. Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506 at 517. See also Bates v Post Office Ltd
(No 3) [2019] EWHC 606 (QB) at [725]–[726].
115. Other examples of relational contracts include contracts of employment, contracts between landlord and
tenant, licensor and licensee, contracts of partnership, service contracts not constituting employment, and
business contract such as commercial agencies and distributorship agreements: Haywood v Newcastle upon
Tyne Hospitals NHS Foundation Trust [2018] 4 All ER 467 at 490.
116. Video Ezy International Pty Ltd v Sedema Pty Ltd [2014] NSWSC 143 at [72]; RPR Maintenance Pty Ltd
v Marmax Investments Pty Ltd [2014] FCA 409 at [208]; Sheikh Tahnoon Bin Saeed Bin Shakhboot Al
Nehayan v Kent [2018] EWHC 333 (Comm) at [174]; UTB LLC v Sheffield United Ltd [2019] EWHC 2322
(Ch) at [200]; Cathay Pacific Airways Ltd v Lufthansa Technik AG [2020] EWHC 1789 (Ch) at [218].
117. National Australia Bank v McCourt [2010] WASC 237 at [75]–[80].
118. [2017] FCA 1534 at [224].
119. Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 at [25]; Specialist
Diagnostic Services Pty Ltd v Healthscope Pty Ltd (2012) 41 VR 1 at 20; 305 ALR 569 at 587; Androvitsaneas
v Members First Broker Network [2013] VSCA 212 at [108]; Aurizon Network Pty Ltd v Glencore Coal
Queensland Pty Ltd [2019] QSC 163 at [245]; Key Infrastructure Australia Pty Ltd v Bensons Property Group
Pty Ltd [2019] VSC 522 at [295]; Cathay Pacific Airways Ltd v Lufthansa Technik AG [2020] EWHC 1789
(Ch) at [197]; Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd [2020] WASC 302 at
[311]-[312].
120. See 11.6–11.29.
121. (2008) 17 Tas R 320 at 326.

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Furthermore, in considering the circumstances in which such a term might be implied, the Full
Court122 went on to say:
Whether a power conferred upon a party to a contract is fettered by a duty of good faith
depends upon the terms in which the power is expressed. Without purporting to compile
an exhaustive list, there are at least three types of contractual powers which suggest different
results. One is a provision conferring a power in an agreement, such as a partnership
agreement, which is concerned with co-operation between the parties to produce a
result which benefits all the parties to the contract. In such an agreement, a court might
readily imply an obligation to act in good faith in that the party upon whom the power
is conferred must have regard to the interest of all the parties to the agreement. Another
type of provision is one which confers a power if the donee of the power considers that a
certain state of affairs or condition exists. In this case, a court may well hold that the power
can only be exercised by an honest decision that the state of affairs or condition does exist,
but the honest exercise of the power will not be reviewed by the court. Yet another type of
provision is one conferring a power that is quite unqualified. Here, a court may conclude
that the power can legitimately be exercised in the interests of the party upon whom it is
conferred and that party is to be the sole judge of where its interests lie and may exercise the
power for any reason it sees fit.

11.56 In relation to whether an implied term of good faith should be implied into any given
contract, in Errat v Grills,123 Lindsay J made the following pertinent observation:
Where … parties have engaged in a detailed exposition of their respective rights and
obligations in a formal document, there may be less call, or scope, for a generic implied term
of any description.

11.57 In England, where there has been a reluctance to recognise the existence of implied
terms as to good faith,124 it has been held that although there is no such term implied by law in
relation to commercial contracts, there is no reason why a court could not imply such a term
on the facts of a particular case.125 In Mid Essex Hospital Services NHS Trust v Compass Group
UK and Ireland Ltd126 Jackson LJ said that an implied term of good faith ‘is implied by law as

122. Tote Tasmania Pty Ltd v Garrott (2008) 17 Tas R 320 at 326–7, cited with approval in Network Ltd v Speck
[2009] VSC 235 at [16]; Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2012] VSC
99 at [418].
123. [2015] NSWSC 594 at [120], cited with approval in Gujarat NRE India Pty Ltd v Wollongong Coal Ltd
[2018] NSWSC 1459 at [221].
124. Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) at [123]; The Rt Hon
Lady Justice Arden, ‘Coming to Terms with Good Faith’ (2013) 30 Journal of Contract Law 199, 207
at 211–2.
125. Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) at [131]; Monde Petroleum
SA v Westernzagros Ltd [2016] EWHC 1472 (Comm) at [249]–[254]; National Private Air Transport Services
Company (National Air Services) Ltd v Creditrade Llp [2016] EWHC 2144 (Comm) at [135]; Globe Motors,
Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 at [68]; Sheikh Tahnoon Bin Saeed Bin
Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [167]–[176]. The Irish Court of Appeal has
also held that there is no implied term of good faith in Irish law: Flynn v Breccia [2017] IECA 74 at [99].
126. [2013] EWCA Civ 200 at [105]. See also Property Alliance Group Ltd v Royal Bank of Scotland Plc [2016]
EWHC 3342 (Ch) at [275].

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an incident of certain categories of contract’. In Canada, the Supreme Court has embraced the
concept of good faith.127

The meaning of the term

11.58 The scope of an implied term of good faith is a matter of conjecture.128 However, it is
clear that it is distinct from the obligation of the parties to cooperate so as to ensure that each
party can complete performance of his or her contractual obligations.129 In various cases,130
courts have adopted or referred to a statement made by Sir Anthony Mason in a 1993 lecture in
Cambridge, in which he said that the implied term of good faith embraced the following three
related notions:
• an obligation on the parties to cooperate in achieving the contractual objects (loyalty to the
promise itself);
• compliance with honest standards of conduct; and
• compliance with standards of conduct which are reasonable having regard to the interests
of the parties.
11.59 The meaning of good faith has been discussed in a variety of cases,131 including In
Paciocco v Australia and New Zealand Banking Group Ltd,132 where Allsop CJ said:
The usual content of the obligation of good faith that can be extracted from … . [the cases]
is an obligation to act honestly and with a fidelity to the bargain; an obligation not to
act dishonestly and not to act to undermine the bargain entered or the substance of the
contractual benefit bargained for; and an obligation to act reasonably and with fair dealing
having regard to the interests of the parties (which will, inevitably, at times conflict) and to
the provisions, aims and purposes of the contract, objectively ascertained.

None of these obligations requires the interests of a contracting party to be subordinated

to those of the other. It is good faith or fair dealing between the parties by reference to the
bargain and its terms that is called for, be they both commercial parties or business dealing
with consumers. … [T]he contractual notion of good faith varies in what is required for
its satisfaction by reference to the nature of the contract. But the notion is rooted in the

127. Bhasin v Nrynew [2014] 3 SCR 494 at 514–15. For an analysis of this case and the English approach to good
faith see Z X Tan, ‘Keeping Faith with Good Faith? The Evolving Trajectory Post-Yam Seng and Bhasin’
[2016] Journal of Business Law 420.
128. For a discussion of the meaning of good faith see E Peden, ‘The Meaning of Contractual “Good Faith”’
(2002) 22 Australian Bar Review 235.
129. CGU Workers Compensation (NSW) Ltd v Garcia (2007) 69 NSWLR 680 at 704.
130. Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 at 570; Macquarie International
Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [146]; Strzelecki
Holdings Pty Ltd v Cable Sands Pty Ltd (2010) 41 WAR 318 at 348; F & C Alternative Investments (Holdings)
Ltd v Barthelemy (No 2) [2012] Ch 613 at 666–7; Kosho Pty Ltd v Trilogy Funds Management Ltd [2013]
QSC 135 at [123]; Masters Home Improvement Australia Pty Ltd v North East Solution Pty (2017) 372 ALR
440 at 465.
131. Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 at [65]–[67]; Sundararajah
v Teachers Federation Health Ltd (2011) 283 ALR 720 at 731; Macquarie International Health Clinic Pty Ltd
v Sydney South West Area Health Service [2010] NSWCA 268 at [12]; Yam Seng PTE Ltd v International Trade
Corporation Ltd [2013] EWHC 111 (QB) at [141]–[142]; Marmax Investments Pty Ltd v RPR Maintenance
Pty Ltd (2015) 237 FCR 534 at 563; 327 ALR 45 at 72; Astor Management AG v Atalaya Mining Plc [2017]
EWHC 425 (Comm) at [98]; Knights Quest Pty Ltd v Daiwa Can Company (2018) 366 ALR 557 at 577–8.
132. (2015) 236 FCR 199 at 273–4; 321 ALR 584 at 650–1.
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bargain and requires behaviour to support it, not undermine it, and not to take advantage
of oversight, slips and the like in it. To do so is akin to theft, and if permitted by the
law [leads] to over-elaborate contracts, and defensive and mistrustful attitudes among
contracting parties. …

The standard of fair dealing or reasonableness that is to be expected in any given case
must recognise the nature of the contract or relationship, the different interests of the
parties and the lack of necessity for parties to subordinate their own interests to those of
the counterparty. That a normative standard is introduced by good faith is clear. It will,
however, not call for the same acts from all contracting parties in all cases. The legal norm
should not be confused with the factual question of its satisfaction. The contractual and
factual context (including the nature of the contract or contextual relationship) is vital to
understand what, in any case, is required to be done or not done to satisfy the normative
standard. …

Good faith does not import an equitable notion of the fiduciary that is rooted in loyalty to
another in the service of her or his interests. Rather, it is rooted in honest and reasonable
fair dealing.

Trickery and sharp practice impede commerce by decreasing trust and increasing risk.
Good faith and fair dealing promote commerce by supporting the central conception and
basal foundation of commerce: a requisite degree of trust. Business people understand these
things.

11.60 In Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject
to a Deed of Company Arrangement) (No 3),133 after considering various authorities as to the
meaning of good faith, Colvin J summarised the principles as follows:
(1) the term ‘good faith’ imports a normative standard to be observed by the parties in
dealings as to matters to which the standard is applied;
(2) the normative standard embraces an obligation to act honestly and with fidelity to the
bargain concluded between the parties;
(3) the normative standard also embraces an obligation to act cooperatively in matters
related to performance;
(4) the standard does not require a party to subordinate its legitimate interests to those of the
counterparty, but [it] does require due regard to the legitimate interests that both parties
have in the performance of the contract they have made;
(5) conduct which is dishonest, capricious, arbitrary or motivated by a purpose which is
antithetical to the evident object of any provision of the franchise agreement or the Code
that governs the conduct being scrutinised or conduct which is otherwise motivated by
bad faith will not meet the standard;
(6) where the scrutinised conduct, viewed in the particular context, is objectively
unreasonable then the unreasonableness may form part of the basis for a conclusion that
there has been a lack of good faith, but objective unreasonableness is insufficient of itself
to amount to a lack of good faith; and
(7) the quality of the scrutinised conduct is to be evaluated having regard to the circumstances
of the particular parties, particularly their sophistication, commercial power and the
relative significance for each party of the subject matter of the conduct.

133. (2019) 368 ALR 441 at 565–6.

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11.61 Another approach to the meaning of good faith has been to define it in terms of an
obligation not to act in bad faith.134 Thus, in Jobern Pty Ltd v BreakFree Resorts (Victoria)
Pty Ltd135 Gordon J said:
Specific conduct has also been identified by various courts as constituting ‘bad faith’ or a lack
of ‘good faith’ including:

(1) acting arbitrarily, capriciously, unreasonably or recklessly;

(2) acting in a manner that is oppressive or unfair in its result by, for example, seeking to
prevent the performance of the contract or to withhold its benefits;
(3) failing to have reasonable regards to the other party’s interests;
(4) failing to act ‘reasonably’ in general.

11.62 Finally, it can be noted that the statutory unconscionability provisions set out in Pt 2–2
of the Australian Consumer Law136 include, in s 22, ‘good faith’ as a factor that may be taken
into account when determining whether there has been unconscionable conduct in connection
with goods or services under s 21. This has led some courts to equate unconscionability with
lack of good faith. Thus, in Automasters Australia Pty Ltd v Bruness Pty Ltd137 Hasluck J said:
The law does not prescribe a precise meaning of the term ‘good faith’ and it is probably
no more than a prohibition on acting unconscionably. In that respect it is significant that
s 51AC of the Trade Practices Act [now s 22 of the Australian Consumer Law] refers to the
requirement for both parties to act in good faith in their dealings with each other.

11.63 Burger King Corporation v Hungry Jack’s Pty Ltd138 provides a useful illustration
of the application of the implied term of good faith. In that case Burger King Corporation
franchised its fast food business in Australia to Hungry Jack’s, but also retained for itself the
right to operate its own restaurants. Following various disputes between them, the parties
entered into a number of new agreements in 1990. Pursuant to one of these agreements, the
Development Agreement, Hungry Jack’s was given an unrestricted, but non-exclusive, right to
develop restaurants in Australia, and was required to develop at least four restaurants each year
in Western Australia, South Australia, and Queensland. In complying with the Development
Agreement, Hungry Jack’s was required to obtain operational, financial, and legal approvals
from Burger King for each of the new restaurants. The agreement stipulated that the granting
of approvals was at the ‘sole discretion’ of Burger King. From 1993 Burger King decided to
take a more active role in developing its restaurants in Australia and by 1995 started to freeze
the recruitment of franchisees by Hungry Jack’s. It also started refusing the approvals required
by the Development Agreement. This was part of a strategy on its part to regain control of
its Australian market, which it had lost through its own neglect. These actions effectively
impeded the development of restaurants by Hungry Jack’s. In 1996 Burger King terminated
the agreement on the ground that Hungry Jack’s had failed to develop the required number of
restaurants. Hungry Jack’s then sued Burger King for damages for breach of contract, alleging
that Burger King had breached an implied term to act in good faith.

134. Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 at [68]; Tameeka Group Pty Ltd
v Landan Pty Ltd (No 3) [2016] FCA 733 at [152].
135. [2007] FCA 1066 at [146].
136. See 19.61–19.74.
137. [2002] WASC 286 at [372].
138. (2001) 69 NSWLR 558.

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11.64 The Court of Appeal found in favour of Hungry Jack’s. The court ruled that the
freezing of recruitment of franchisees and the refusal to grant approvals amounted to breaches
of an implied obligation to act in good faith. The court noted that these activities were clearly
motivated by the desire to increase the number of restaurants operated by Burger King
at Hungry Jack’s expense. The court also held that the actions of Burger King amounted to
breaches of express terms of the Development Agreement.

The exclusion of the term

11.65 If the contract has an express term that provides an objective basis upon which a
contractual right or power is to be exercised, there is no need for, and the court will not imply,
an implied term for it to be exercised in good faith.139 Outside of such cases, Australian cases are
divided on whether an express term can exclude any duty of good faith. From the perspective
of basic principle, if it is the case that good faith is implied by law, it should be able to be
excluded by a clear express term to that effect or by the presence of any other express term
that is inconsistent with a duty of good faith. Thus, it has been held that ‘it is plain that no duty
of good faith can be implied where the duty (or, more accurately, the precise content of the
particular duty sought to be implied) is inconsistent with an express term of the contract’.140
11.66 Doubt has been cast on this approach in GEC Marconi Systems Pty Ltd v BHP
Information Technology Pty Ltd,141 where Finn J observed that, notwithstanding the basic
principle mentioned above, ‘it is, perhaps, difficult to envisage an express provision authorising
dishonesty’. His Honour also observed:
There are … real questions still to answer in Australian law as to the proper approach to
be taken where the issue is, not whether a duty of good faith should be implied, but rather
whether it should be excluded in circumstances where it would otherwise be implied but for
some alleged inconsistency with, or preclusion by, the terms of the contract.

His Honour’s142 response to this question was suggested when he continued and said:
I find arresting the suggestion that an entire agreement clause is of itself sufficient to
constitute an ‘express exclusion’ of an implied duty of good faith and fair dealing where that
implication would otherwise have been made by law.

139. Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200 at [94],
[139], [154].
140. Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124 at [594].
See also Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 at 570; Central Exchange Ltd
v Anaconda Nickel Ltd (2002) 26 WAR 33 at 52; Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd
[2005] FCA 288 at [64]; Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd at [2012] NSWCA
184 at [146]; Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165
at [154]–[155]. English cases have adopted this approach: Bates v Post Office (No 3) [2019] EWHC 606 (QB)
at [725]; Cathay Pacific Airways Ltd v Lufthansa Technik AG [2020] EWHC 1789 (Ch) at [226].
141. (2003) 128 FCR 1 at 209.
142. GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at 209, followed in
Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49 at [585].

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CONSTRUCTION OF CONTRACTUAL TERMS

INTRODUCTION
12.1 In Chapters 10 and 11 the principles for identifying the terms of a contract were
discussed. This chapter will examine the principles used by courts in interpreting the
words used in those terms. This is usually referred to as the construction of terms of the
contract. The principles of construction involve two things: the meaning of the terms of
the contract; and the legal effects or significance of the document’s terms.1 The latter will
be discussed in Chapter 24 in the context of the principles governing discharge following
a breach of contract.
12.2 This chapter will examine the principles of construction of terms of a contract in
relation to the meaning of the terms of a contract. The importance of this topic cannot be
overstated and, as Slattery J observed in Gujarat NRE India Pty Ltd v Wollongong Coal Ltd,2
‘[m]uch judicial ink has been spilled on the issue of the proper approach to construction of
commercial contracts’. A large proportion of cases in contract law have as a component —
often the major component — the construction of its terms. The conclusion reached by the
court on the construction issue usually has significant consequences in relation to the outcome
of the case before the court. It can be noted at this stage that the principles of construction
of contractual terms apply with equal force to contracts with governments3 and to deeds.4
They also apply to trust documents,5 one of the reasons for this being that ‘[t]he contractual
relationship provides one of the most common bases for the establishment or implication and
for the definition of a trust’.6
12.3 In determining the meaning of the words used in a contract, a significant source
of the problems faced by the courts is the richness of the English language. This point

1. Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 78.

2. [2017] NSWSC 209 at [34].
3. Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55 at [197].
4. Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 240 CLR 45 at 52; 186 ALR 289
at 292–3; Commissioner of State Revenue (Vic) v Snowy Hydro Ltd (2012) 43 VR 109 at 130; Australian
Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd (2015) 298 FLR 147 at 163; 323 ALR 570
at 585; Mercanti v Mercanti (2016) 50 WAR 495 at 516; 340 ALR 290 at 306.
5. Byrnes v Kendle (2011) 243 CLR 253 at 284; 279 ALR 212 at 236–7.
6. Gosper v Sawyer (1985) 160 CLR 548 at 568–9; 58 ALR 13 at 26.

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was well made by Lord Simon of Glaisdale in Stock v Frank Jones (Tipton) Ltd,7 where his
Lordship said:
Words and phrases of the English language have an extraordinary range of meaning. This
has been a rich resource in English poetry (which makes fruitful use of the resonances,
overtones and ambiguities) but it has a concomitant disadvantage in English law (which
seeks unambiguous precision, with the aim that every citizen shall know as exactly as
possible, where he stands under the law).

THE IMPORTANCE OF INTENTION

12.4 In interpreting the meaning of the terms of a contract, the ‘unbroken orthodoxy of the
common law’8 is that this is by objectively determining the intention of the parties.9 By this
is meant establishing what a reasonable person would have understood the words to mean.10
In determining the intention of the parties, in Chartbrook Ltd v Persimmon Homes Ltd,11
Lord Hoffmann said:
When the language used in an instrument gives rise to difficulties of construction, the
process of interpretation does not require one to formulate some alternative form of words
which approximates as closely as possible to that of the parties. It is to decide what a
reasonable person would have understood the parties to have meant by using the language
which they did. The fact that the court might have to express that meaning in language
quite different from that used by the parties … is no reason for not giving effect to what
they appear to have meant.

12.5 In this process of construction it is not the role of the court to improve the contract.
Thus, in Arnold v Britton,12 Lord Hodge said:
The [court] is not there to re-write the parties’ agreement because it was unwise to gamble
on future economic circumstances in a long term contract or because subsequent events
have shown that the natural meaning of the words has produced a bad bargain for one side.
The question for the court is not whether a reasonable and properly informed [party] would
enter into such an undertaking. That would involve the possibility of re-writing the parties’
bargain in the name of commercial good sense.

7. [1978] 1 All ER 948 at 953.

8. Bathurst Resources Ltd v L & M Coal Holdings Ltd [2020] NZCA 113 at [37].
9. Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at 502; [1971] 1 All ER 847 at 882, cited with
approval in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR
540 at 549; Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129
CLR 99 at 109.
10. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; 211 ALR 342 at 352; Byrnes v Kendle
(2011) 243 CLR 253 at 286; 279 ALR 212 at 238; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees
Pty Ltd (2017) 261 CLR 544 at 551; 343 ALR 58 at 63; KDR Victoria Pty Ltd v JC Decaux Pty Ltd [2020] VSC
390 at [17].
11. [2009] 1 AC 1101 at 1113–14; [2009] 4 All ER 677 at 688.
12. [2015] AC 1619 at 1640; [2016] 1 All ER 1 at 18–19.

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12.6 When construing terms of a contract, a court must have regard to all its words used to
ensure the congruent operation of its various components as a whole.13 Thus, in Metropolitan
Gas Co v Federated Gas Employees’ Industrial Union,14 Isaacs and Rich JJ said:
It is a received canon of interpretation that every passage in a document must be read,
not as if it were entirely divorced from its context, but as part of the whole instrument:
Ex antecedentibus et consequentibus fit optima interpretatio. In construing an instrument
‘every part of it should be brought into action, in order to collect from the whole one uniform
and consistent sense, if that may be done; or, in other words, the construction must be made
upon the entire instrument, and not merely upon disjointed parts of it; the whole context
must be considered, in endeavouring to collect the intention of the parties, although the
immediate object of inquiry be the meaning of an isolated clause’.

12.7 Furthermore, it is a general principle that words of a contract should be interpreted in a

way that gives them an effect rather than a way which makes them redundant. However, this is
not an invariable rule. In AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd,15 Ball J said:
In some cases, it may be appropriate to interpret words in a way that makes them redundant.
That may be appropriate where the alternative construction of the words is inconsistent with
other provisions of the contract or where the alternative construction is inconsistent with the
commercial purpose of the contract or where it appears that the words have been included
out of abundant caution.

12.8 When a particular word is used more than once in a carefully drafted document,
a rebuttable presumption arises to the effect that the intention was for the word to mean the
same thing throughout the entire document.16 However, it may be that the same words have
different meanings, even if in the same document.17
12.9 Furthermore, in construing contractual terms, a court will seek to adopt a construction that
will preserve the validity of the contract and in that regard will strive to avoid holding agreements,

13. Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at 529; 214 ALR 410 at 413; Mercanti v Mercanti
(2016) 50 WAR 495 at 516; 340 ALR 290 at 306; Black Box Control Pty Ltd v Terravision [2016] WASCA
219 at [42]; HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 at [134]; MetLife Insurance Ltd
v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56 at [100]–[101]; Liu v Guan [2019]
NSWSC 803 at [271]–[273]; Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020] NSWCA 155 at [83].
14. (1925) 35 CLR 449 at 455. See also Re Strand Music Hall Co Ltd (1865) 55 ER 853 at 856; Chapmans Ltd
v Australian Stock Exchange Ltd (1996) 67 FCR 402 at 411; 137 ALR 433 at 442; Greencapital Aust Pty Ltd
v Pasminco Cockie Creek Smelter Pty Ltd [2019] NSWCA 53 at [52]; JKC Australia LNG Pty Ltd v CH2M
Hill Co Ltd (No 2) [2020] WASCA 112 at [68].
15. [2010] NSWSC 985 at [13], cited with approval in XL Insurance Co SE v BNY Trust Co Australia Ltd [2019]
NSWCA 215 at [72].
16. Prestcold (Central) Ltd v Minister of Labour [1969] 1 All ER 69 at 75; Dura (Australia) Constructions Pty Ltd
v Hue Boutique Living Pty Ltd (2013) 41 VR 636 at 646; Healthcare Australia Pty Ltd v Randstad Pty Ltd
[2016] NSWSC 1407 at [19].
17. Robbins v Federal Commissioner of Taxation (1974) 129 CLR 332 at 339; FAI General Insurance Co Ltd
v Ocean Marine Mutual Protection & Indemnity Association (1997) 41 NSWLR 117 at 120-4; Fitness First
Australia Pty Ltd v Fenshaw Pty Ltd (2016) 92 NSWLR 128 at 137–8; 341 ALR 607 at 616; HP Mercantile Pty
Ltd v Hartnett [2016] NSWCA 342 at [161]; Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020] NSWCA 155 at [84].

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in particular commercial agreements, void for uncertainty.18 Thus, a court should construe a
commercial contract ‘fairly and broadly, without being too astute or subtle in finding defects’.19
12.10 In the process of construction it is clear that no hard and fast rules apply. The
‘construction [of contractual terms] is a composite exercise, neither uncompromisingly literal
nor unswervingly purposive’,20 although in more recent times there has been a move away from
literal methods of construction towards a more commercial approach.21
12.11 Where technical words or phrases are incorporated into a contract, there is a rebuttable
presumption that they are used with that technical meaning in mind.22 This presumption is not
easily displaced.23 In relation to the presumption, in Phoenix Commercial Enterprises Pty Ltd
v City of Canada Bay Council,24 Campbell JA said the following:
There has long been a principle of construction concerning words or phrases that have a
specialised or technical meaning in the law whereby: ‘[w]hen technical words or phrases
are made use of, the strong presumption is, that the party intended to use them according
to their correct technical meaning’. … In Sydall v Castings Ltd25 Diplock LJ explained the
principle:

Documents which are intended to give rise to legally enforceable rights and duties
contemplate enforcement by due process of law, which involves their being interpreted
by courts composed of judges, each one of whom has his personal idiosyncracies of
sentiment and upbringing, not to speak of age. Such documents would fail in their
object if the rights and duties which could be enforced depended on the personal
idiosyncracies of the individual judge or judges on whom the task of construing them
chanced to fall. It is to avoid this that lawyers, whose profession it is to draft and
to construe such documents, have been compelled to evolve an English language,
of which the constituent words and phrases are more precise in their meaning than
they are in the language of Shakespeare or of any of the passengers on the Clapham
omnibus this morning. These words and phrases to which a more precise meaning is
so ascribed are called by lawyers ‘terms of art’, but are in popular parlance known as
‘legal jargon’. We lawyers must not allow this denigratory description to obscure the
social justification for the use of ‘terms of art’ in legal documents. It is essential to the
effective operation of the rule of law. The phrase ‘legal jargon’, however, does contain
a reminder that non-lawyers are unfamiliar with the meanings which lawyers attach
to particular ‘terms of art’, and that where a word or phrase which is a ‘term of art’ is
used by an author who is not a lawyer, particularly in a document which he does not

18. Meehan v Jones (1982) 149 CLR 571 at 589; 42 ALR 463 at 475; JKC Australia LNG Pty Ltd v CH2M Hill Co
Ltd (No 2) [2020] WASCA 112 at [72].
19. Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99
at 109.
20. International Fina Services AG v Katrina Shipping Ltd (The Fina Samco) [1995] 2 Lloyd’s Rep 344 at 350.
21. Sirius International Insurance Company (Publ) v FAI General Insurance Ltd [2005] 1 All ER 191 at 200;
Wood v Capita Insurance Services Ltd [2017] AC 1173 at 1179; [2017] 4 All ER 615 at 619.
22. Marquis of Cholmondeley v Lord Clinton (1820) 37 ER 527 at 559.
23. Brett v Barr Smith (1918) 26 CLR 87 at 93; Sydney Attractions Group Pty Ltd v Schulman [2013] NSWSC 858
at [66].
24. [2010] NSWCA 64 at [167]–[170].
25. [1967] 1 QB 302 at 313–4.

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anticipate may have to be construed by a lawyer, he may have meant by it something

different from its meaning when used by a lawyer as a term of art. …
If the document in question is drawn by a lawyer, is manifestly intended to effect a legal
transaction, and uses an expression that is not an expression in common use but that has a
meaning in an area of legal discourse that is relevant to the document in question, that in itself
provides a basis for the reasonable reader concluding that that expression is used in its special
legal sense, unless there are other factors present that show it is not used in that special legal
sense. So understood, the presumption is consistent with the current approach to construction.

12.12 Finally, it can be noted that the impact of the contract upon third parties is relevant to
determining the objective intention of the parties.26

THE OBJECTIVE DETERMINATION OF INTENTION

12.13 As a matter of policy, the law has always required the interpretation of a contract to be
determined on an objective basis. This point has been repeatedly stressed by the High Court.27
The justification for this objective approach was explained by Tipping J in Vector Gas Ltd v Bay
of Plenty Energy Ltd,28 as follows:
The objective approach is regarded as having two principal advantages. These are greater
certainty and the saving of time and cost: greater certainty, because the subjective approach
is apt to undermine the security of the written words by means of which the parties recorded
their consensus; and saving time and cost, because a subjective approach is generally
thought to require a fuller search for and examination of extrinsic evidence. A lesser, but
still significant, perceived advantage is avoiding the effect a subjective approach might
have on third parties who may have relied on what the words of the document appeared
objectively to mean. But, despite its eschewing a subjective approach, the common law does
not require the court, through the objective method, to ascribe to the parties an intention
that a properly informed and reasonable person would not ascribe to them when aware of all
the circumstances in which the contract was made.

12.14 In the United Kingdom, the leading formulation of the objective test of interpretation
is set out in Lord Hoffmann’s speech in Investors Compensation Scheme Ltd v West Bromwich
Building Society,29 where his Lordship said that the interpretation of a written contract involved:
… the ascertainment of the meaning which the document would convey to a reasonable
person having all the background knowledge which would reasonably have been available to
the parties in the situation in which they were at the time of the contract.

26. Kidd v State of Western Australia [2014] WASC 99 at [121].

27. Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; 211 ALR 342 at 352; International Air
Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 174; 242 ALR 47 at 63; Byrnes
v Kendle (2011) 243 CLR 253 at 284; 279 ALR 212 at 236–7; Electricity Generation Corporation v Woodside
Energy Ltd (2014) 251 CLR 640 at 656; 306 ALR 25 at 33; Mount Bruce Mining Pty Ltd v Wright Prospecting
Pty Ltd (2015) 256 CLR 104 at 116; 325 ALR 188 at 197; Simic v New South Wales Land and Housing
Corporation (2016) 339 ALR 200 at 219; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd
261 CLR 544 at 551; (2017) 343 ALR 58 at 63.
28. [2010] 2 NZLR 444 at 458. See also Bathurst Resources Ltd v L & M Coal Holdings Ltd [2020] NZCA 113
at [40]–[44].
29. [1998] 1 All ER 98 at 114.
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12.15 Significantly, in his statement of principle Lord Hoffmann did not restrict a court
from referring to the surrounding circumstances to cases where contractual terms are written
in ambiguous language. In the light of considerable debate over the impact of this case,
in Chartbrook Ltd v Persimmon Homes Ltd,30 Lord Hoffmann made the following comment:
The only points [Investors Compensation Scheme Ltd v West Bromwich Building Society31]
decided that might have been thought in the least controversial were, first, that it was not
necessary to find an ‘ambiguity’ before one could have any regard to background and,
secondly, that the meaning which the parties would reasonably be taken to have intended
could be given effect despite the fact that it was not, according to conventional usage, an
‘available’ meaning of the words or syntax which they had actually used.

12.16 On the other hand, in Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales,32 the leading Australian High Court decision on construction of contracts, Mason J said:
The true rule is that evidence of surrounding circumstances is admissible to assist in the
interpretation of the contract if the language is ambiguous or susceptible of more than one
meaning. But it is not admissible to contradict the language of the contract when it has a
plain meaning.

12.17 In the wake of these two statements of principle, considerable debate ensued as
to whether there was a difference of approach between them and if so, which was binding
on Australian courts. What was seen by many as the essential difference between the two
approaches was that Mason J’s statement meant that evidence of surrounding circumstances
could only be used as an aid to the construction of a term if it was ambiguous or susceptible
to more than one meaning. On the other hand, Lord Hoffmann’s approach meant that such
evidence could be used whether or not there was any ambiguity in the term.
12.18 In 2002, in Royal Botanic Gardens and Domain Trust v South Sydney Council,33 the
High Court left open for a future time the question as to whether Lord Hoffmann’s approach
was broader or preferable to that of Mason J34 and demanded that, in the meantime, other
Australian courts should construe contractual terms in accordance with Mason J’s statement
of principle in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales.35 The
binding nature of Mason J’s statement of principle has subsequently been reaffirmed by the
High Court on a number of occasions.36 In Mount Bruce Mining Pty Ltd v Wright Prospecting
Pty Ltd,37 French CJ, Nettle, and Gordon JJ echoed the views of Mason J when they said:

30. [2009] 1 AC 1101 at 1119; [2009] 4 All ER 677 at 693. This approach has been adopted in New Zealand:
Malthouse Ltd v Rangatira Ltd [2018] NZCA 621 at [19]; Forsgren NZ Ltd v Restaurant Brands Ltd [2020]
NZCA 254 at [15].
31. [1998] 1 All ER 98.
32. (1982) 149 CLR 337 at 352; 41 ALR 367 at 374.
33. (2002) 240 CLR 45 at 62–3; 186 ALR 289 at 301.
34. In a footnote to their judgment in Byrnes v Kendle (2011) 243 CLR 253 at 285; 279 ALR 212 at 23, Heydon
and Crennan JJ noted that the High Court had not pronounced on the issue of whether there was an
inconsistency between the approaches of Lord Hoffmann and Mason J.
35. (1982) 149 CLR 337 at 352; 41 ALR 367 at 374.
36. Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604 at 605; Mount Bruce Mining
Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 116, 134; 325 ALR 188 at 198, 211.
37. (2015) 256 CLR 104 at 116; 325 ALR 188 at 198.

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Ordinarily, this process of construction is possible by reference to the contract alone. Indeed,
if an expression in a contract is unambiguous or susceptible of only one meaning, evidence
of surrounding circumstances (events, circumstances and things external to the contract)
cannot be adduced to contradict its plain meaning.

To the same effect, Kiefel and Keane JJ38 said:

[I]t is essential to identify ambiguity in the language of the contract before the court may
have regard to the surrounding circumstances and the object of the transaction.

12.19 On the basis that evidence of surrounding circumstances can only be admitted
where, in the words of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New
South Wales,39 the ‘language used is ambiguous or susceptible of more than one meaning’, the
following two questions arise:
• When is language ‘ambiguous or susceptible of more than one meaning’?
• What is meant by ‘evidence of surrounding circumstances’?

Ambiguity
12.20 The meaning of language that is, in the words of Mason J, ‘ambiguous or susceptible of
more than one meaning’, has drawn a number of comments by later Australian courts. Thus, in
Ritter v Keatley Real Estate Pty Ltd,40 Stanley J said:
The concept of ambiguity referred to by Mason J … is not without its difficulties. The
disjunctive reference to language which is ambiguous or susceptible to more than one
meaning suggests that the concept of ambiguity is broader than the concept of a word or
phrase susceptible of more than one meaning. This may reflect an intention to include
concepts of patent, latent and inherent ambiguity. The dictionary definition of ‘ambiguous’
includes the following meanings: ‘open to various interpretations’, ‘equivocal’, ‘doubtful’,
‘uncertain’, ‘having a double meaning’, ‘obscure’, ‘indistinct’, and ‘lacking clarity’. In Gardiner
v Agricultural and Rural Finance Pty Ltd,41 Spigelman CJ said that ambiguity ‘extend[s] to any
situation in which the scope and applicability of the formulation [is], for whatever reason,
doubtful’. In my view, the Mason J formulation … is directed to circumstances in which
an exclusively textual analysis of the language of a contract produces uncertainty as to the
meaning of the contractual provision.

12.21 In Bisognin v Hera Project Pty Ltd,42 Sloss J said that, at the very least, ambiguity
‘extends at least to the situation where a textual analysis of the language used in the contract
reveals or gives rise to uncertainty as to the meaning of a provision, or apprehension that the
wording of the contract might not reflect the presumed intention of the parties’. His Honour43

38. Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 132; 325 ALR 188 at 210,
referred to with approval by the High Court in Simic v New South Wales Land and Housing Corporation
(2016) 339 ALR 200 at 206, 219.
39. (1982) 149 CLR 337 at 352; 41 ALR 367 at 374.
40. (2013) 116 SASR 53 at 74–5.
41. [2007] NSWCA 235 at [12].
42. [2016] VSC 75 at [156]. To similar effect see South Sydney Council v Royal Botanic Gardens [1999] NSWCA
478 at [35].
43. Bisognin v Hera Project Pty Ltd [2016] VSC 75 at [157].
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went on the express his support for a broader view of ambiguity, exemplified in the following
three decisions from the Supreme Court of Western Australia. First, in McCourt v Cranston,44
Pullin JA said:
Usually, the meaning of ‘ambiguous’ is taken to include ‘open to various interpretations’ …
but by using the phrase ‘ambiguous or susceptible of more than one meaning’ perhaps
Mason J wished to emphasise that not only a contract open to more than one meaning would
allow in evidence of surrounding circumstances but also one where the contract is merely
‘difficult to understand’.

12.22 Second, in Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd,45 Owen J said:
I think the proper approach is to look first to the instrument itself to see whether there
is some reasonable basis for the apprehension that the wording of the contract might not
necessarily reflect the presumed intention of the parties. The English language being what it
is, such a reasonable apprehension will generally be apparent ‘in many, if not most, cases’.46
It may come from a patent and obvious confusion in the words themselves. But it may
also come from a reading of the instrument as a whole. The law has long recognised that
ambiguity can be latent, as well as patent.

12.23 Third, in Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd,47
McClure P said:
For the purposes of the gateway requirement ‘ambiguity’ means any situation in which the
scope or applicability of a contract is, for whatever reason, doubtful. It is not confined to
lexical, grammatical or syntactical ambiguity. The fact that adversaries can formulate and
advance materially different constructions of the language of a contract does not itself satisfy
the gateway requirement. Having regard to the language of the contract as a whole and what
can be gleaned from that source as to the contractual purpose, competing constructions
must be reasonably arguable.

12.24 In Manufacturers Mutual Insurance Ltd v Withers,48 McHugh JA said:

[F]ew, if any, English words are unambiguous or not susceptible of more than one meaning
or have a plain meaning. Until a word, phrase or sentence is understood in the light of the
surrounding circumstances, it is rarely possible to know what it means.

12.25 This approach was endorsed by the Court of Appeal in Mainteck Services Pty Ltd
v Stein Heurtey SA,49 where Leeming JA said:
[T]o say that a legal text is ‘clear’ reflects the outcome of that process of interpretation.
It means that there is nothing in the context which detracts from the ordinary literal
meaning. … [W]hether contractual language has a ‘plain meaning’ is (a) a conclusion and
(b) a conclusion which cannot be reached until one has had regard to the context. … Mason J
was indicating that there are very real limits to the extent to which grammatical meaning can

44. [2012] WASCA 60 at [24].

45. (1999) 21 WAR 425 at 436.
46. Trawl Industries of Australia Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 358.
47. (2014) 48 WAR 261 at 274.
48. (1988) 5 ANZ Ins Cases 75,336 at 75,343.
49. (2014) 89 NSWLR 633 at 654–5; 310 ALR 113 at 132.

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be displaced by contextual considerations. However, in order to determine whether more

than one meaning is available, it may be necessary first to turn to the context.

12.26 In coming to this conclusion, Leeming JA referred to, and relied upon, the High Court
decision in Electricity Generation Corporation v Woodside Energy Ltd,50 where French CJ,
Hayne, Crennan, and Kiefel JJ, said:
The meaning of the terms of a commercial contract is to be determined by what a
reasonable businessperson would have understood those terms to mean. That approach is
not unfamiliar. … [I]t will require consideration of the language used by the parties, the
surrounding circumstances known to them and the commercial purpose or objects to be
secured by the contract. Appreciation of the commercial purpose or objects is facilitated by
an understanding ‘of the genesis of the transaction, the background, the context [and] the
market in which the parties are operating’.51 … A commercial contract is to be construed so
as to avoid it ‘making commercial nonsense or working commercial inconvenience’.52

Leeming JA53 then concluded as follows:

To the extent that what was said in Jireh54 supports a proposition that ‘ambiguity’ can be
evaluated without regard to surrounding circumstances and commercial purpose or objects,
it is clear that it is inconsistent with what was said in Woodside.55 The judgment confirms
that not only will the language used ‘require consideration’ but so too will the surrounding
circumstances and the commercial purpose or objects.

However, his Honour56 also observed that ‘[v]ery often, nothing in the context will come close
to displacing the ordinary grammatical meaning of the legal text’.
12.27 The views of Leeming JA were echoed in WIN Corporation Pty Ltd v Nine Network
Australia Pty Ltd,57 where Barrett AJA said:
A potential tension that inheres in this proposition is that to recognise words as bearing a
‘plain meaning’ is merely to state a conclusion arrived at by some process of interpretation
which cannot, as a matter of logic, exclude context. As Leeming JA noted in Mainteck Services
Pty Ltd v Stein Heurtey SA,58 to state that a legal text is ‘clear’ does no more than recognise
that ‘there is nothing in the context which detracts from the ordinary literal meaning’.
It therefore becomes clear that the notion that it may first be necessary to consider context
when construing a contract is not inconsistent with Mason J’s ‘true rule’. On this footing,
it does not follow that the task of assessing whether a phrase or expression is ambiguous or

50. (2014) 251 CLR 640 at 656–7; 306 ALR 25 at 33–4.

51. Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 360; 41 ALR 367 at
373–4, citing Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995–6.
52. Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559; 211 ALR 159 at 180.
53. Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 at 63; 310 ALR 113 at 130. See also
Cherry v Steele-Park (2017) 96 NSWLR 548 at 559–60; 351 ALR 521 at 532.
54. Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604.
55. Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; 306 ALR 25.
56. Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 at 654; 310 ALR 113 at 131.
57. (2016) 341 ALR 467 at 477. See also Todd v Alterra at Lloyd’s Ltd (2016) 239 FCR 12 at 28–9; 330 ALR 454
at 470–1.
58. (2014) 89 NSWLR 633 at 654; 310 ALR 113 at 132.

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susceptible of more than one meaning must be undertaken without regard to evidence of
surrounding circumstances. This position corresponds with the approach of the High Court
in Victoria v Tatts Group Ltd59 where the relevant contract was construed by reference to its
text, context and purpose without any anterior finding of ambiguity as a precondition to a
consideration of surrounding circumstances as an aid to discovering or elucidating context
and purpose.

12.28 The significance of the decision in Mainteck Services Pty Ltd v Stein Heurtey SA,60 it has
been argued by some, is that it appears to adopt an approach to interpretation that is consistent
with the Lord Hoffmann approach to construction.61 However, others argue that it is consistent
with the Mason J approach to construction.62 In Apple and Pear Australia Ltd v Pink Lady
America LLC,63 the Court of Appeal, after a lengthy analysis of these arguments, said:
[T]here has been controversy, reflected in the judgments of many intermediate appellate
courts, about when, and in what manner, surrounding circumstances can be relied upon in
the construction of commercial contracts, the questions surrounding the extent to which
surrounding circumstances can be relied upon in the construction of commercial contracts
raise large issues and their fate remains to be resolved by the High Court on another day.

Surrounding circumstances
12.29 Notwithstanding the question of what is meant by ambiguity and when it may arise,
the fact of the matter is that, as a matter of practice, courts are not reluctant to find the existence
of ambiguity. However, as Leeming JA said in Zhang v ROC Services (NSW) Pty Ltd,64 ‘[w]here
there is more than one legal meaning, a court looks at the text, context and purpose, with a view
to determining which potential meaning best accords with those considerations’. The question
that then arises is what falls within the description of ‘text, context and purpose’ or what may
also be described as ‘evidence of surrounding circumstances’.
12.30 In Bank of Credit and Commerce International SA v Ali,65 Lord Hoffmann said that
admissible background or surrounding circumstances included ‘anything which a reasonable
man would have regarded as relevant’, and that ‘there is no conceptual limit to what can be
regarded as background’. This statement of principle was cited with approval by Campbell JA

59. (2016) 328 ALR 564.

60. (2014) 89 NSWLR 633; 310 ALR 113.
61. Stratton Finance Pty Ltd v Webb (2014) 314 ALR 166 at 174; Taouk v Assure (NSW) Pty Ltd [2017] NSWCA
227 at [103]; Commissioner of Taxation v Trustee for the Michael Hayes Family Trust [2019] FCAFC 226
at [28]–[32]; Management Services Australia Pty Ltd v PM Works Pty Ltd [2019] NSWCA 107 at [59];
B Michael and D Wong, ‘Recourse to Contractual Context Reaffirmed’ (2015) 89 Australian Law Journal
181 at 187.
62. Gladstone Area Water Board v A J Lucas Operations Pty Ltd [2014] QSC 311 at [153]–[168]; Technomin
Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261 at 270–1 (the decision
in this case was not followed in the New South Wales Court of Appeal in Cherry v Steele-Park (2017) 96
NSWLR 548 at 566; 351 ALR 521 at 538); Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm
Pty Ltd [2020] VSC 126 at [89]–[109].
63. [2016] VSCA 280 at [138].
64. (2016) 93 NSWLR 561 at 582.
65. [2002] 1 AC 251 at 269; [2001] 1 All ER 961 at 975.

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in Franklins Pty Ltd v Metcash Trading Ltd,66 who then went on to say that a ‘contract should
be construed bearing in mind those facts that the parties knew, or that it can reasonably be
assumed they knew, that can impact upon the meaning of the words of the contract’.
12.31 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,67 Mason J
said:
Generally speaking facts existing when the contract was made will not be receivable as part
of the surrounding circumstances as an aid to construction, unless they were known to both
parties, although … if the facts are notorious knowledge of them will be presumed.

12.32 In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,68 French CJ, Nettle, and
Gordon JJ said the following as to what constituted ‘surrounding circumstances’:
What may be referred to are events, circumstances and things external to the contract
which are known to the parties or which assist in identifying the purpose or object of the
transaction, which may include its history, background and context and the market in which
the parties were operating. What is inadmissible is evidence of the parties’ statements and
actions reflecting their actual intentions and expectations.

12.33 It should also be noted that facts and circumstances that would otherwise be admitted
as an aid to the construction of a contract will be available for that purpose even if they were
communicated between the parties on a ‘without prejudice’ basis.69
12.34 Where evidence of surrounding circumstances is admissible, it is clear that there are
limits on what a court can do with that evidence when construing the contract. In Sattva Capital
Corporation v Creston Moly Corporation,70 the Supreme Court of Canada said the following in
relation to the use of surrounding circumstances:
While the surrounding circumstances will be considered in interpreting the terms of a
contract, they must never be allowed to overwhelm the words of that agreement. The goal of
examining such evidence is to deepen a decision-maker’s understanding of the mutual and
objective intentions of the parties as expressed in the words of the contract. The interpretation
of a written contractual provision must always be grounded in the text and read in light of
the entire contract. While the surrounding circumstances are relied upon in the interpretive
process, courts cannot use them to deviate from the text such that the court effectively
creates a new agreement. The nature of the evidence that can be relied upon under the rubric
of ‘surrounding circumstances’ will necessarily vary from case to case. It does, however, have
its limits. It should consist only of objective evidence of the background facts at the time of
the execution of the contract, that is, knowledge that was or reasonably ought to have been
within the knowledge of both parties at or before the date of contracting. … [T]his includes,

66. (2009) 76 NSWLR 603 at 678.

67. (1982) 149 CLR 337 at 352; 41 ALR 367 at 374–5.
68. (2015) 256 CLR 104 at 117; 325 ALR 188 at 198. See also Newey v Westpac Banking Corporation [2014]
NSWCA 319 at [110].
69. Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2011] 1 AC 662 at 679–83; [2010] 4 All ER 1011
at 1024–7.
70. [2014] 2 SCR 633 at 661–2. See also Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd [2006]
EWCA Civ 1732 at [21]–[22]; McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) (2011)
81 NSWLR 690 at 697; 284 ALR 196 at 202; Kidd v State of Western Australia [2014] WASC 99 at [126].

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in the words of Lord Hoffmann, ‘absolutely anything which would have affected the way in
which the language of the document would have been understood by a reasonable man’71.
Whether something was or reasonably ought to have been within the common knowledge of
the parties at the time of execution of the contract is a question of fact.

The Supreme Court72 also noted that ‘the parol evidence rule does not apply to preclude
evidence of surrounding circumstances when interpreting the words of a written contract’.
12.35 Finally, it must be kept in mind that the practical effect of the decision in Codelfa
Construction Pty Ltd v State Rail Authority of New South Wales73 ‘is that surrounding
circumstances cannot be relied on to give rise to an ambiguity that does not otherwise emerge
from a consideration of the text of the document as a whole, including whatever can be gleaned
from that source as to the purpose or object of the contract’.74

PRINCIPLES OF CONSTRUCTION
12.36 As already noted, in determining the objective intention of the parties to the contract
no hard and fast rules apply.75 Rather the court applies what are best described as ‘principles’
of construction.76 A number of these principles are discussed below. However, it must be kept
in mind that these principles are not binding rules and will not apply in the face of facts to the
contrary.

Presumption that unreasonable results are not intended

12.37 It is presumed that parties to written contracts do not intend the terms of their contract
to operate unreasonably. Thus, the more unreasonable the result a particular construction of
the terms would produce, the less likely it is that such an interpretation reflects the parties’
intentions. However, if the parties intend to produce an unreasonable result, such an intention
must be abundantly clear from the words used.77
12.38 However, this principle relating to the reasonableness or otherwise of the contract
cannot be taken too far. In Chartbrook Ltd v Persimmon Homes Ltd,78 Lord Hoffmann
observed:
[T]he fact that a contract may appear to be unduly favourable to one of the parties is
not a sufficient reason for supposing that it does not mean what it says. The reasonable

71. Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114.
72. Sattva Capital Corporation v Creston Moly Corporation [2014] 2 SCR 633 at 663.
73. (1982) 149 CLR 337; 41 ALR 367.
74. Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012) 45 WAR 29 at 50; 294 ALR 550 at 566.
75. See 12.10.
76. P Butt, Modern Legal Drafting, A Guide to Using Clearer Language, 3rd ed, Cambridge University Press,
Cambridge, 2013, p 55.
77. L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 251; [1973] 2 All ER 39 at 45.
78. [2009] 1 AC 1101 at 1113; [2009] 4 All ER 677 at 687. See also Bisognin v Hera Project Pty Ltd [2016] VSC
75 at [146].

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addressee of the instrument has not been privy to the negotiations and cannot tell whether
a provision favourable to one side was not an exchange for some concession elsewhere, or
simply a bad bargain.

12.39 Whether a court gives effect to an unreasonable interpretation depends upon the
circumstances of the case. If the language used is open to two constructions, preference is to
be given to the one that avoids an unreasonable result.79 Where the words of a contract are
unambiguous and give rise to a capricious or unreasonable result, the court will give effect to
them, even if one could reasonably surmise that the parties did not intend such a result.80
12.40 However, even in cases where there is no ambiguity, a court may decline to apply the
plain meaning of the words used if:
• it would lead to an irrational result;81
• if it would lead to a meaning that is repugnant to the objectively determined intention of
the parties;82
• if it makes no commercial sense.83 In such cases the plain meaning must be manifestly
absurd — mere unreasonableness is not enough.84 As was pointed out by Ward JA in
International Petroleum Investment Company v Independent Public Business Corporation
of Papua New Guinea,85 ‘[t]he Court has no mandate to rewrite agreements merely to
give them a more commercial operation’. Establishing absurdity is not easily achieved.86
In relation to what is meant by absurdity, in National Australia Bank Ltd v Clowes,87
Leeming JA said:
In my opinion this is a clear case where the literal meaning of the contractual words is an
absurdity, and it is self-evident what the objective intention is to be taken to have been.
Where both those elements are present … ordinary processes of contractual construction
displace an absurd literal meaning by a meaningful legal meaning. … [T]he principle is
premised upon absurdity, not ambiguity, and is available even where … the language is
unambiguous.

79. Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99
at 109–10.
80. State Lotteries Office v Burgin (unreported, New South Wales Court of Appeal, Kirby P, 23 April 1993,
19 May 1993) at [4]; New South Wales Lotteries Corporation Pty Ltd v Kuzmanovski (2011) 195 FCR 234
at 244.
81. Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 at [19]–[20].
82. Dainford Ltd v Smith (1985) 155 CLR 342 at 364; 58 ALR 285 at 301; Dodds v Kennedy (No 2) (2011) 42
WAR 16 at 26, 31.
83. McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) (2011) 81 NSWLR 690 at 697;
284 ALR 196 at 202; Gloria Jean’s Coffee v Western Export Services Inc [2011] NSWCA 137 at [55]; Electricity
Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 657; 306 ALR 25 at 34.
84. Schwartz v Hadid [2013] NSWCA 89 at [31]; Current Images Pty Ltd v Dupack Pty Ltd [2012] NSWCA 99
at [47].
85. [2015] NSWCA 363 at [148].
86. Miwa Pty Ltd v Siantan Properties Pty Ltd [2011] NSWCA 297 at [18]; Apple and Pear Australia Ltd v Pink
Lady America LLC (2016) 343 ALR 112 at 158; Seymour Whyte Construction Pty Ltd v Ostwald Bros Pty Ltd
(in liq) (2019) 99 NSWLR 317 at 322–3.
87. [2013] NSWCA 179 at [34]. See also Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98 at [124].

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Later in his judgment Leeming JA88 said:

The principle is not confined to linguistic errors such as ‘inconsistent’ being read as ‘consistent’
or ‘shorter’ being read as ‘longer’ [as occurred in Saxby Soft Drinks Pty Ltd v George Saxby
Beverages Pty Ltd89]. The principle extends to obvious conceptual errors, such as ‘lessor’
being read as ‘lessee’ as in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd,90 or
[as on the facts of this case] words denoting a mortgage of company title flat being read as a
mortgage of the shares in the company which entitle their owner to that flat. In all those cases,
it is perfectly clear what legal meaning is to be given to the literally absurd words.

In these situations the court may insert words to avoid such absurdities and inconsistencies ‘if
it is clear that the words have been omitted, and what those omitted words were’.91
12.41 Leeming JA’s observations in National Australia Bank Ltd v Clowes92 bring into focus
the relationship between the process of construction and the remedy of rectification which is
discussed in Chapter 34.

Avoidance of inconsistencies
12.42 Where contractual terms appear to be inconsistent with each other, the court will
‘do its best to reconcile them if that can conscientiously and fairly be done’.93 The question
of inconsistency is determined objectively.94 An inconsistency will arise where the terms of
a contract ‘cannot sensibly be read together’.95 In Re Media Entertainment & Arts Alliance;
Ex Parte Hoyts Corp Pty Ltd (No 1),96 Mason CJ, Brennan, Dawson, Toohey, Gaudron, and
McHugh JJ said:
A conflict … involving apparently inconsistent provisions in the one instrument, is to be
resolved, if at all possible on the basis that one provision qualifies the other and, hence, that
both have meaning and effect. That rule is an aspect of the general rule that an instrument
must be read as a whole.

However, in order to avoid inconsistencies it may be necessary to depart from the ordinary
meaning of the words approach to construction.97
12.43 In cases where parties contract on the basis of a standard form contract (the primary
contractual document) and incorporate further terms that they have negotiated (the incorporated

88. National Australia Bank Ltd v Clowes [2013] NSWCA 179 at [38].
89. [2009] NSWSC 1486.
90. (2008) 73 NSWLR 53.
91. Homberg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 741; [2003] 2 All ER 785 at 798; referred
to with approval in A & A Property Developers Pty Ltd v MCCA Asset Management Ltd [2017] VSCA 365
at [69], [84].
92. [2013] NSWCA 179.
93. Geys v Société Générale, London Branch [2013] 1 AC 523 at 538; [2013] 1 All ER 1061 at 1076.
94. Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565 at 574; Alexander v West Bromwich
Mortgage Company [2017] 1 All ER 942 at 951.
95. Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565 at 578.
96. (1993) 178 CLR 379 at 386–7; 115 ALR 321 at 326.
97. Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99
at 109.

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document), if an inconsistency arises between the two documents, a court will ‘almost always’
give effect to the terms set out in the incorporated document.98 In Homburg Houtimport BV
v Agrosin Private Ltd (The Starsin),99 Lord Bingham of Cornhill said:
[I]t is common sense that greater weight should attach to terms which the particular
contracting parties have chosen to include in the contract than to pre-printed terms probably
devised to cover very many situations to which the particular contracting parties have never
addressed their minds.

12.44 Of course, there is the preliminary question of whether an inconsistency has arisen.
On this issue, in Pagnan SpA v Tradax Ocean Transportation SA,100 Dillon LJ said:
What is meant by inconsistency? Obviously there is inconsistency where two clauses cannot
sensibly be read together, but can it really be said that there is inconsistency wherever one
clause in a document qualifies another clause? A force majeure clause, or a strike and lock
out clause, almost invariably does qualify the apparently absolute obligations undertaken by
the parties under other clauses in the contract; so equally with an extension of time clause,
for instance in a building agreement. So equally, with a lease, the re-entry clause qualifies
the apparently unconditional demise for a term of years absolute, but no one would say they
were inconsistent.

Presumption in favour of business common sense

12.45 A court will assume that parties to a contract intended to produce a contract consistent
with business commonsense.101 Thus, if a detailed semantic and syntactical analysis of a written
contract leads to a conclusion that is inconsistent with business common sense, the contract
must be made to yield to business common sense.102 In International Air Transport Association
v Ansett Australia Holdings Ltd,103 Gleeson CJ said:
In giving a commercial contract a businesslike interpretation, it is necessary to consider
the language used by the parties, the circumstances addressed by the contract, and the
objects which it is intended to secure. An appreciation of the commercial purpose of a
contract calls for an understanding of the genesis of the transaction, the background, and
the market.

98. Bedroff Pty Ltd v Rennie [2002] NSWSC 928 at [59]; Leonie’s Travel Pty Ltd v International Air Transport
Association (2009) 255 ALR 89 at 106; Macdonald v Kavshan Pty Ltd; Villarica v Kavshan Pty Ltd [2016]
NSWSC 731 at [30]–[31].
99. [2004] 1 AC 715 at 737; [2003] 2 All ER 785 at 794, cited with approval in Al Achrafi v Topic [2016] NSWSC
1807 at [33].
100. [1987] 3 All ER 565 at 578.
101. Re Golden Key Ltd (in rec) [2009] EWCA 636 at [28]; Electricity Generation Corporation v Woodside Energy
Ltd (2014) 251 CLR 640 at 657; 306 ALR 25 at 33–4.
102. Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201; [1984] 3 All ER 229 at 233;
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 198; 185 ALR 152 at 163; Rainy Sky SA
v Kookmin Bank [2012] 1 All ER 1137 at 1149; Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR
561 at 583–4; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at 551;
343 ALR 58 at 63.
103. (2008) 234 CLR 151 at 160; 242 ALR 47 at 51–2.

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12.46 In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,104 French CJ, Nettle, and
Gordon JJ said:
Unless a contrary intention is indicated in the contract, a court is entitled to approach the
task of giving a commercial contract an interpretation on the assumption ‘that the parties …
intended to produce a commercial result’: Electricity Generation Corporation v Woodside
Energy Ltd.105 Put another way, a commercial contract should be construed so as to avoid it
‘making commercial nonsense or working commercial inconvenience’.

12.47 The justification for this approach to the construction of commercial agreements was
explained in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd,106 where Lord Steyn said:
In determining the meaning of the language of commercial contracts … the law therefore
generally favours a commercially sensible construction. The reason for this approach is
that a commercial construction is more likely to give effect to the intention of the parties.
Words are therefore interpreted in the way in which a reasonable commercial person would
construe them. And the standard of the reasonable commercial person is hostile to technical
interpretations and undue emphasis on niceties of language.

12.48 When a court looks at commercial common sense, it does so by looking at the facts and
circumstances that existed at the time of the contract. In Arnold v Britton,107 Lord Neuberger
said:
[C]ommercial common sense is not to be invoked retrospectively. The mere fact that a
contractual arrangement, if interpreted according to its natural language, has worked out
badly, or even disastrously, for one of the parties is not a reason for departing from the
natural language. Commercial common sense is only relevant to the extent of how matters
would or could have been perceived by the parties, or by reasonable people in the position of
the parties, as at the date that the contract was made.

12.49 On the question of whether the contract is one that flouts business common sense,
in LB Re Financing No 3 Ltd v Excalibur Funding No 1 Plc108 Briggs J said:
In this context, a distinction must be made between absurdity and irrationality on the one
hand, and apparent unfairness or one-sidedness on the other. The former may compel the
court to conclude that something must have gone wrong with the language, but it is no
part of the court’s task to mend businessmen’s bargains. Commercial absurdity may require
the court to depart even from the apparently unambiguous natural meaning of a provision
in an instrument, because ‘the law does not require judges to attribute to the parties an
intention they plainly could not have had’.109 Questions of commercial common sense falling
short of absurdity may however enable the court to choose between genuinely alternative
meanings of an ambiguous provision. The greater the ambiguity, the more persuasive may
be an argument based upon the apparently greater degree of common sense of one version
over the other.

104. (2015) 256 CLR 104 at 117; 325 ALR 188 at 198.
105. (2014) 251 CLR 640 at 657; 306 ALR 25 at 34.
106. [1997] AC 749 at 770–1; [1997] 3 All ER 352 at 372.
107. [2015] AC 1619 at 1628; [2016] 1 All ER 1 at 7.
108. [2011] EWHC 2111 (Ch) at [45]–[46].
109. Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 115.

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12.50 However, a court needs to be careful in seeking an interpretation that is inconsistent

with commercial common sense. In Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd,110
Neuberger LJ said:
[T]he court must be careful before departing from the natural meaning of the provisions in
the contract merely because it may conflict with its notions of commercial common sense
of what the parties may have or should have thought or intended. Judges are not always
the most commercially-minded, let alone the most commercially experienced, people, and
should … avoid arrogating to themselves over confidently the role of arbiter of commercial
reasons or likelihood. Of course, in many cases, the commercial common sense of a
particular interpretation, either because of peculiar circumstances of the case or because of
more general considerations, is clear. Furthermore, sometimes it is plainly justified to depart
from the primary meanings of words and give them what might, on the face of it, appear to
be a strange meaning, for instance where the primary meaning of the words leads to a plainly
ridiculous or unreasonable result.

12.51 A common instance of the application of this principle is where there is ambiguity.
In such cases, ‘the court is entitled to prefer the construction which is consistent with business
common sense and to reject the other’.111 However, in such cases the courts need to also be
careful for the reasons set out in Jireh International Pty Ltd v Western Export Services Inc,112
where Macfarlan JA said:
So far as they are able, courts must of course give commercial agreements a commercial
and business-like interpretation. However, their ability to do so is constrained by the
language used by the parties. If after considering the contract as a whole and the background
circumstances known to both parties, a court concludes that the language of a contract is
unambiguous, the court must give effect to that language unless to do so would give the
contract an absurd operation. In the case of absurdity, a court is able to conclude that the
parties must have made a mistake in the language that they used and to correct that mistake.
A court is not justified in disregarding unambiguous language simply because the contract
would have a more commercial and businesslike operation if an interpretation different to
that dictated by the language were adopted.

12.52 An illustration of the business common sense approach to construction is the decision
in Idya Pty Ltd v Anastasiou.113 In that case a tenant of retail premises under a registered strata
plan used them as a fast food outlet. Pursuant to clause 19.1(a) of the relevant strata plan
documentation, the ‘owners’ of the premises were not permitted to ‘use’ them as a fast food
outlet. The word ‘owners’ was defined to mean the registered proprietors of the premises. The
tenant claimed that, as it was not the owner of the premises, the prohibition against using them

110. [2006] EWCA Civ 1932 at [21]–[22].

111. Rainy Sky SA v Kookmin Bank [2012] 1 All ER 1137 at 1146; BMA Special Opportunity Hub Finance Ltd and
others v African Minerals Finance Ltd [2013] EWCA Civ 416 at [24]; Fons Hf (in liquidation) v Corporal Ltd
[2014] EWCA Civ 304 at [15].
112. [2011] NSWCA 137 at [55]. See also Arnold v Britton [2015] AC 1619 at 1628–9; [2016] 1 All ER 1 at 7;
Lindsay v Noble Investments Ltd [2015] NZCA 588 at [16].
113. [2008] NSWCA 102.

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as a fast food outlet did not apply to it, with the consequence that it could not be prevented
from operating its fast food outlet for the duration of the lease. The Court of Appeal rejected
this argument. Beazley JA114 said:
In my opinion, having regard to the wide meaning that the word ‘use’ bears, depending upon
its context, the proper construction of cl 19.1(a) is that it is a prohibition upon the owners of
the Retail Shops on using, including permitting to be used, the premises as a fast food outlet.
Any other construction would be commercially nonsensical. If the construction for which
the [tenant] contend was the correct one, it would mean that an individual could be the
proprietor of the Retail Shops and by the mere device of entering into a lease or licence with a
company of which the proprietor was the sole shareholder, thereby avoid the prohibition on
use. The reverse, of course, would also operate, that is, a company could be the owner of the
Retail Shops and lease or licence the premises to its sole shareholder. Reasonable commercial
persons would readily reject that as being available under a clause in the terms of cl 19.1(a).

THE USE OF DICTIONARIES

12.53 In ascertaining the meaning of words used in legal documents, courts will often have
recourse to dictionaries. However, in using dictionaries the following points need to be kept in
mind. First, a dictionary definition of a word will often provide various shades of meaning to
a word. Second, dictionaries published in different countries may give different meanings to
words. To overcome this problem, courts will usually use a dictionary published in the country
in which the document was made. In Australia, the ‘authorised’ dictionary is generally accepted
to be the Macquarie Dictionary.115 Third, as Butt116 has noted, ‘reference to dictionaries is no
substitute for judicial determination of the meaning the parties have given a word or phrase.
Dictionaries illustrate usage in general; but the parties’ contract will have its own context. …
The primary task of a court is to find, not the dictionary meaning, but the meaning as used
by the parties in the context of their particular transaction’. Thus, in Southern Equity Pty Ltd
v Timevale Pty Ltd,117 Brereton J said:
[I]n construing the term in this contract, it must be remembered that one is ascertaining …
what a reasonable person in the position of these parties would have understood the
provisions of a contract to mean, taking into consideration the purpose and object of the
transaction. This is not necessarily the same meaning as is attributed to the words used by
dictionaries or by judicial pronouncements in other cases, although those sources will often
inform the objective meaning of words used by parties.

12.54 In TAL Life Ltd v Shuetrim,118 Leeming JA said:

Dictionary definitions may assist in identifying the range of possible meanings a word may
bear in various contexts, but will not assist in ascertaining the precise meaning the word

114. Idya Pty Ltd v Anastasiou [2008] NSWCA 102 at [50].

115. John White & Sons Pty Ltd v Changleng (1985) 2 NSWLR 163 at 164–5; Lottoland Australia Pty Ltd
v Australian Communications and Media Authority (2019) 100 NSWLR 328 at 349–50; 348 FLR 118 at 140.
116. Butt, Modern Legal Drafting, note 76 above, p 57.
117. [2012] NSWSC 15 at [40]. See also Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty
Ltd (1991) 25 NSWLR 541 at 560; Bicheno Investments Pty Ltd v Winterbottom [2017] NSWSC 536 at [37].
118. (2016) 91 NSWLR 439 at 457–8; 332 ALR 507 at 526–7.

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bears in a particular context. As much was recognised by a unanimous High Court … in

Thiess v Collector of Customs119 when observing that a mature and developed jurisprudence
does not ‘make a fortress out of the dictionary’. Although the distinction between the
dictionary definition of a word and its legal meaning is not often well understood, it is clear
that dictionaries are no substitute for the interpretative process.

12.55 Parties to transactions will often include within their legal documents ‘private’
dictionaries in the form of definitions of words used in the documentation. In relation to the
interpretation of these ‘private’ dictionary definitions, in Perpetual Custodians Pty Ltd v IOOF
Investment Management Ltd,120 Leeming JA said:
Lord Steyn has written extrajudicially that ‘[e]ven an agreed definition is of limited use:
it takes no account of contextual requirements’.121 … Professor McMeel122 has written that
‘even defined terms must yield to wider context or contrary intention’. Professor Carter123 has
said that ‘the absence of [words to the effect “unless the context indicates otherwise”] does
not mean that the definition necessarily applies to every usage of the term in the document’.
That must in my opinion be correct in principle. The ordinary approach to construction
insists on reading the contract as a whole and doing so harmoniously, so as to resolve or
minimise internal inconsistency. Foreign to that approach would be a slavish rule that
defined terms inevitably bear every aspect of their defined meaning. The contestable nub of
the matter is what is sufficient to constitute a displacing context or contrary intention. Owen
and Steytler JJ124 have said that ‘the deliberate use of defined words is not to be lightly passed
over, even where the definition leaves open the possibility of another meaning for a defined
phrase’, a proposition whose force I acknowledge.

12.56 Similarly, in Black Box Control Pty Ltd v Terravision Pty Ltd,125 the Court of Appeal
said that ‘[d]efinitions do not have substantive effect. A definition is not to be construed
in isolation from the operative provision(s) in which the defined term is used. Rather, the
operative provision is ordinarily to be read by inserting the definition into it.’

THE PAROL EVIDENCE RULE AND THE CONSTRUCTION

OF CONTRACTS
12.57 The parol evidence rule contains two parts.126 The first part is concerned with the
exclusion of extrinsic evidence that would add to, subtract from, or vary or qualify the terms
of a written contract.127 Our concern here is with the second part of the rule that deals with the
exclusion of extrinsic evidence that would otherwise assist the court in construing the contract.

119. (2014) 250 CLR 664 at 672; 306 ALR 594 at 599–600.
120. (2013) 278 FLR 49 at 71; 304 ALR 436 at 456–7.
121. J Steyn, ‘Pepper v Hart; A Re-Examination’ (2001) 21 Oxford Journal of Legal Studies 59 at 60.
122. G McMeel, The Construction of Contracts, Interpretation, Implication, and Rectification, 2nd ed, Oxford
University Press, Oxford, 2011, p 159.
123. J W Carter, The Construction of Commercial Contracts, Hart Publishing, Oxford, 2013, p 446.
124. BHP Petroleum (Australia) Pty Ltd v Sagasco South East Inc [2001] WASCA 159 at [24].
125. [2016] WASCA 219 at [42].
126. See 10.8.
127. See 10.54–10.65.

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In its operation relating to the construction of contracts, the parol evidence rule excludes
extrinsic evidence of a number of matters that would otherwise be relevant in ascertaining the
intention of the parties in relation to the meaning of a written agreement.

Prior negotiations
12.58 The parol evidence rule excludes extrinsic evidence of the prior negotiations of the
parties.128 The justification for this approach was explained in Prenn v Simmonds,129 where
Lord Wilberforce said:
The reason for not admitting evidence of these exchanges is not a technical one or even
mainly one of convenience. … It is simply that such evidence is unhelpful. By the nature of
things, where negotiations are difficult, the parties’ positions, with each passing letter, are
changing and until the final document, though converging, are still divergent. It is only the
final document that records a consensus. … The words used may, and often do, represent
a formula which means different things to each side, yet may be accepted because that is
the only way to get ‘agreement’ and in the hope that disputes will not arise. The only course
then can be to try to ascertain the ‘natural’ meaning. Far more, and indeed totally, dangerous
is to admit evidence of one party’s objective — even if this is known to the other party.
However strongly pursued this may be, the other party may only be willing to give it partial
recognition, and in a world of give and take, men often have to be satisfied with less than
what they want. So, again, it would be a matter of speculation how far the common intention
was that the particular objective should be realised.

12.59 In Globe Motors, Inc v TRW Lucas Varity Electric Steering Ltd,130 Beatson LJ said that
‘[t]he rationale for the general rule is said to be practical policy and the public interest in
economy and predictability in obtaining advice and adjudicating disputes’.
12.60 However, although the prior negotiations rule prevents the use of pre-contractual
negotiations as evidence of the interpretation of contractual terms, it does not preclude the use
of such evidence for the purpose of establishing relevant background facts that were known to
the parties. Thus, in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,131
Mason J said:
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously
the prior negotiations will tend to establish objective background facts which were known
to both parties and the subject matter of the contract. To the extent to which they have this
tendency they are admissible. But in so far as they consist of statements and actions of the
parties which are reflective of their actual intentions and expectations they are not receivable.
The point is that such statements and actions reveal the terms of the contract which the
parties intended or hoped to make. They are superseded by, and merged in, the contract
itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of
the parties being inadmissible in aid of construction.

128. Australia and New Zealand Banking Group Ltd v Compagnie D’Assurances Maratimes Aeriennes Et Terrestres
[1996] 1 VR 561 at 565; Globe Motors, Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396
at [61].
129. [1971] 3 All ER 237 at 240–1.
130. [2016] EWCA Civ 396 at [61].
131. (1982) 149 CLR 337 at 352; 41 ALR 367 at 375.

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12.61 The appropriateness of the prior negotiations rule has recently been debated. Writing
extrajudicially, Lord Nicholls of Birkenhead132 suggested that it should be abolished on the
grounds that such a move would:
• introduce coherence into this area of the law;
• make the law more transparent;
• conform to current international trends; and
• overcome injustices that result from the application of the rule.
However, a unanimous House of Lords in Chartbrook Ltd v Persimmon Homes Ltd133
subsequently rejected these criticisms of the prior negotiations rule and confirmed the authority
of Prenn v Simmonds.134 In Byrnes v Kendle135 Heydon and Crennan JJ also confirmed the prior
negotiations rule.
12.62 Spigelman CJ,136 also writing extrajudicially, provided reasons for the continuation of
the prior negotiations rule. First, its abolition would result in increased costs of conducting
commercial activity. Second, the abolition of the rule would expose a third party to the contract,
who relies on its terms when dealing with one of its parties, to increased risk because he or she
is not aware of the prior negotiations and is thus unable to assess how such negotiations impact
on the meaning of the words used. Accordingly, a third party’s understanding of the meaning
of the contract is more likely to be at variance with the meaning that is determined with the
assistance of evidence of prior negotiations. This would, in his Honour’s view, lead to increased
commercial uncertainty and costly arbitration or judicial proceedings to resolve the inevitable
disputes that would arise.
12.63 However, in the New Zealand Supreme Court decision in Vector Gas Ltd v Bay of
Plenty Energy Ltd,137 Tipping and Wilson JJ were in favour of abandoning the prior negotiations
rule, while Blanchard and Gault JJ were inclined to interpret the rule very liberally and to leave
it open for later consideration as to whether it should be abandoned. McGrath J was the only
judge in this case who was in favour of retaining the prior negotiations rule as it was currently
understood and applied in Australia and the United Kingdom. In this context McGrath J138
observed:
I see no point in New Zealand courts at this stage attempting to put a gloss on the general
approach so recently stated by the House of Lords. It is better that the common law of
New Zealand in this important field of commerce march in step with settled approaches
overseas unless and until very good reasons for departure emerge.

132. Lord Nicholls of Birkenhead, ‘My Kingdom for a Horse: The Meaning of Words’ (2005) 121 Law Quarterly
Review 577.
133. [2009] 1 AC 1101; [2009] 4 All ER 677.
134. [1971] 3 All ER 237.
135. Byrnes v Kendle (2011) 243 CLR 253 at 284–5; 279 ALR 212 at 236–7.
136. Hon J J Spigelman, ‘From Text to Context: Contemporary Contractual Interpretation’ (2007) 81 Australian
Law Journal 322 at 331–6.
137. [2010] 2 NZLR 444.
138. Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 at 473–4.

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Post-contract conduct
12.64 The question as to whether the parol evidence rule excludes evidence of the conduct of
the parties subsequent to the entry into the contract has been one that has attracted a divergence
of judicial and academic opinions. In Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd,139
Kirby P canvassed various reasons in support of the conflicting views on the admissibility of the
subsequent conduct of the contracting parties. In support of excluding evidence of subsequent
conduct, his Honour noted that if post-contract behaviour was taken into account, it could
lead a party to tailor such behaviour in order to persuade the other party to accept his or her
understanding of the contract or to provide supporting evidence in any subsequent court case
between the parties. Furthermore, permitting such evidence would expand the field of enquiry
undertaken by a court, which would lead to an increase in the length and costs of litigation.
On the other hand, the possibility of clear and mutual post-contract conduct that evidences the
parties’ original intentions would tend to support the admissibility of such evidence.
12.65 In High Court cases such as Farmer v Honan140 and Howard Smith & Co Ltd
v Varawa,141there are suggestions that post-contract conduct is admissible in determining the
meaning of the contract. On the other hand, other High Court cases such as Maynard v Goode142
and Administration of the Territory of Papua New Guinea v Daera Guba,143 suggest that evidence
of post-contractual conduct is inadmissible. More recently, but without any discussion of the
issue, the latter approach was endorsed by a bare majority of the High Court in Agricultural &
Rural Finance Pty Ltd v Gardiner.144 The High Court majority’s view is also supported by the
Courts of Appeal in New South Wales, Victoria, and Western Australia and the Full Court of
the Federal Court.145
12.66 On the other hand, it can be noted that all members of the Supreme Court in
New Zealand in Gibbons Holdings Ltd v Wholesale Distributors Ltd,146 after consideration of
the issue, supported the view that post-contractual conduct could be taken into account in
construing a contract. Thus, Tipping J147 said:
As a matter of principle, the Court should not deprive itself of any material which may be
helpful in ascertaining the parties’ jointly intended meaning, unless there are sufficiently
strong policy reasons for the Court to limit itself in that way. I say that on the basis that

139. (1990) 20 NSWLR 310 at 316.

140. (1919) 26 CLR 183 at 197.
141. (1907) 5 CLR 68 at 78.
142. (1926) 37 CLR 529 at 538.
143. (1973) 130 CLR 353 at 446.
144. (2008) 238 CLR 570 at 582; 251 ALR 322 at 330.
145. Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [59]; County Securities Pty Ltd v Challenger
Group Holdings Pty Ltd [2008] NSWCA 193 at [161]; Secure Parking (WA) Pty Ltd v Wilson (2008)
38 WAR 350 at 373; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 678–82; World
Best Holdings Ltd v Sarkar [2010] NSWCA 24 at [19]–[20]; Byrne v Macquarie Group Services Australia
Pty Ltd [2011] NSWCA 68 at [40]; Lederberger v Mediterranean Olives Financial Pty Ltd (2012) 38 VR
509 at 518; Greencapital Aust Pty Ltd v Pasminco Cockie Creek Smelter Pty Ltd [2019] NSWCA 53 at [40];
WorkPac Pty Ltd v Rossato (2020) 378 ALR 585 at 606–7, 608, 692.
146. [2008] 1 NZLR 277 at 283, 288–9, 294–7, 298–9, 308–11.
147. Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277 at 294. See also Bathurst Resources Ltd
v L & M Coal Holdings Ltd [2020] NZCA 113 at [63].

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any form of material extrinsic to the document should be admissible only if capable of
shedding light on the meaning intended by both parties. Extrinsic material which bears only
on the meaning intended or understood by one party should be excluded. The need for the
extrinsic material to shed light on the shared intention of the parties applies to both pre-
contract and post-contract evidence. Provided this point is kept firmly in mind, I consider
the advantages of admitting evidence of post-contract conduct outweigh the disadvantages.
The latter comprise primarily the potential for ex post facto subversion of earlier jointly
shared intentions and the lengthening of interpretation disputes by encouraging the parties
to produce evidence which is often only tenuously relevant at best.

Later in his judgment, Tipping J148 said:

If the court can be confident from their subsequent conduct what both parties intended their
words to mean, and the words are capable of bearing that meaning, it would be inappropriate
to presume that they meant something else.

Exceptions to the parol evidence rule

12.67 In the construction of a contract, the impact of the parol evidence rule is qualified by
a number of exceptions that enable extrinsic evidence to be admitted. The major exceptions to
the rule permit the use of extrinsic evidence for the following purposes:
• to identify the subject matter of the contract in circumstances where the description of
the subject matter is uncertain or ambiguous.149 For example, in White v Australian
and New Zealand Theatres Ltd150 two theatrical artists were engaged to provide their
‘professional services’ for a theatre company. There was no definition of ‘professional
services’ in the contract. Extrinsic evidence was admitted to establish that it included
producing the performance as well as acting in it. It is, however, probably more difficult to
introduce extrinsic evidence if the ambiguity relates to the nature or character of the subject
matter. Thus, in Hope v RCA Photophone of Australia Pty Ltd151 extrinsic evidence was not
admitted to establish that a lease of ‘electrical sound-reproduction’ equipment meant new as
opposed to second-hand equipment, on the basis that the description was clear to ‘all those
who understand the terminology used for the purpose of describing sound-reproducing
apparatus’.
• to show the intention that both parties had in relation to the meaning of a particular
ambiguous contractual term.152 Such cases are sometimes referred to as ‘private dictionary’

148. Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277 at 297. The approach of Tipping J
was reaffirmed by the Court of Appeal in AAI Ltd v 92 Lichfield Street Ltd (in receivership and in liquidation)
[2015] NZCA 559 at [47].
149. Process Minerals International Pty Ltd v Consolidated Minerals Pty Ltd [2011] WASCA 219 at [98]; Paul
Fishlock v Campaign Palace Pty Ltd [2013] NSWSC 531 at [103]–[114]; Technomin Australia Pty Ltd
v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261 at 290; Lawrence v Ciantar [2019]
NSWSC 464 at [98].
150. (1943) 67 CLR 266.
151. (1937) 59 CLR 348 at 356.
152. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 248–50;
41 ALR 367 at 375 at 372–6; Australasian Medical Insurance Ltd v CGU Insurance Ltd (2010) 271 ALR 142
at 156–7; Canberra Hire Pty Ltd v Koppers Wood Products Pty Ltd [2013] ACTSC 162 at [203]–[208].

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cases because the parties have agreed that a word or expression in the express terms of the
contract is to have, or not have, a particular meaning;153
• to identify the parties to an unwritten contract (but not an entirely written contract);154
• to establish whether a person’s post-contractual conduct, if it constitutes admissions adverse
to his or her interests, shows that a contract that he or she claims to exist, was formed.155 In
Fazio v Fazio156 Murphy JA said:
Where, however, an informal agreement (oral or inferred) is alleged to have been made
on or by a certain date, the conduct of the parties, including conduct subsequent to the
postulated date, may be considered in deciding whether a contract has been concluded.
Such conduct may be considered for the purpose of inferring not only whether a binding
agreement had been reached, but also its subject matter and the identification of its
necessary terms.

• to establish whether a document or clause in a document is a sham;157

• to establish whether a term was incorporated into a contract.158 Thus, post-contractual
conduct may be admissible as an admission by one party as to the terms of a contract.159
Also, if the contract is oral or partly written and partly oral evidence of subsequent conduct
can be admitted to establish the terms of the contract;160
• to establish whether the remedy of rectification is available;161 and
• to establish ‘the meaning of words in ancient documents where the meaning of those words
is now obscure’.162
Whether extrinsic evidence can be admitted to determine if a term should be implied into a
contract is a matter that remains unsettled.163

EXCLUSION CLAUSES AND EXTRINSIC EVIDENCE

12.68 In relation to the extent to which extrinsic evidence is admissible, either as an
exception to the parol evidence rule or on the view that evidence of prior negotiations and/

153. Lodge Partners Pty Ltd v Pegum (2009) 255 ALR 516 at 521.
154. B H Australia Constructions Pty Ltd v Kapeller (2019) 100 NSWLR 367 at 385; 375 ALR 159 at 176.
155. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 164; Stirnemann v Kaza Investments
Pty Ltd [2011] SASCFC 77 at [17]–[18]; Hughes v St Barbara Ltd [2011] WASCA 234 at [106]; Cooper
v Hobbs [2013] NSWCA 70 at [54]; Hopcroft & Edwards v Edmonds (2013) 116 SASR 191 at 214; Pavlovic
v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 at 625–6; Bundanoon Sandstone Pty Ltd v Centric
Group Pty Ltd (2019) 373 ALR 591 at 615.
156. [2012] WASCA 72 at [193].
157. Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369 at 1380.
158. Great North Eastern Railway Ltd v Avon Insurance plc [2001] 2 Lloyd’s Rep 649 at 655.
159. Johnson v Brightstars Holding Co Pty Ltd [2014] NSWCA 150 at [84].
160. Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [143]; County Securities Pty Ltd v Challenger
Group Holdings Pty Ltd [2008] NSWCA 193 at [7]–[27]; Lawrence v Ciantar [2020] NSWCA 89 at [114];
WorkPac Pty Ltd v Rossato (2020) 378 ALR 585 at 607–8.
161. Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 657–8.
162. Mineralogy Pty Ltd v Sino Iron Ltd (No 6) (2015) 329 ALR 1 at 113.
163. Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan and Co Ltd (1919) 26 CLR 410 at 427.

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or post-contract conduct should generally be admissible on questions of the interpretation

of contracts, an entire agreement clause is an effective way of preventing such evidence from
being so used.164 Spigelman CJ165 noted that ‘a strong argument can be made that such a clause
precludes consideration of “surrounding circumstances” external to the document, on the basis
that the parties have agreed to do just that’.
12.69 However, in Westpac Banking Corporation v Newey,166 Pembroke J said the following:
Nor does an entire agreement clause prevent the identification and resolution of an ambiguity.
The usual purpose of such a clause is to prevent reliance on representations, collateral
promises and implied terms. If an ambiguity exists, an entire agreement clause cannot
rationally prevent resort to the context and mutually known surrounding circumstances to
resolve it. I do not accept the view that the inclusion of an entire agreement clause is a means
of ‘contracting out of contextualism’.

LEGAL DRAFTING AND THE CONSTRUCTION OF

LEGAL DOCUMENTS
12.70 The importance of effective legal drafting in minimising the occurrence of cases in
which the construction of legal documents is an issue cannot be overstated. In many cases
poor legal drafting is the reason why the issue of construction arises for judicial determination.
Judges have often commented on the poor quality of drafting.167 In this respect, Butt168 has
made the following observation:
Judges have not been reluctant to criticise poorly-drafted, traditionally styled, legal
documents. … Epithets have included: botched, cobbled-together, doublespeak, absurd,
archaic, incomprehensible legal gobbledegook, singularly inelegant, and mind-numbing.

12.71 Poor drafting has its impact on the construction of the document. Thus, in Mitsu
Construction Company Ltd v Attorney General of Hong Kong,169 Lord Bridge said:
[T]he poorer the quality of the drafting, the less willing the court should be to be driven by
semantic niceties to attribute to the parties an improbable and unbusinesslike intention, if the
language used, whatever it may lack in precision, is reasonably capable of an interpretation
which attributes to the parties an intention to make provision for contingencies inherent in
the work contracted for on a sensible and businesslike basis.

164. C Mitchell, ‘Entire Agreement Clauses: Contracting out of Contexualism’ (2006) 22 Journal of Contract
Law 222; E Peden and J W Carter, ‘Entire Agreement — and Similar – Clauses’ (2006) 22 Journal of
Contract Law 1.
165. Spigelman, ‘From Text to Context: Contemporary Contractual Interpretation’, note 136 above, at 336.
166. [2013] NSWSC 447 at [44].
167. See, for example, Hydrofibre Pty Ltd v Australian Prime Fibre Pty Ltd [2013] QSC 163 at [93]; Mainteck
Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 at 659–60; 310 ALR 113 at 137.
168. Butt, Modern Legal Drafting, note 76 above, p 47.
169. [1986] UKPC 6 at 9. See also Cohen v Teseo Properties Ltd [2014] EWHC 2442 (Ch) at [30].

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12.72 The impact of poor drafting on contractual construction was very evident in Ecosse
Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd170 and attracted comment from some of
the judges in the High Court. Thus, Gageler J171 said:
Clause 4 [of the lease in this case] can only be so construed for what it is: a clumsily tailored
variation of an ill-fitting off-the-shelf precedent. To bring linguistic and grammatical
precision to its construction would be to burden the clause with more weight than its jumble
of words will bear.

Nettle J172 said:

Poor drafting may justify a court in being more ready to depart from the natural and
ordinary meaning of the terms of a contract, and no doubt, the poorer the drafting, the
less willing a court should be to be ‘driven by semantic niceties to attribute to the parties an
improbable and unbusinesslike intention’.173 But poor drafting provides ‘no reason to depart
from the fundamental rule of construction of contractual documents that the intention of the
parties must be ascertained from the language they have used interpreted in the light of the
relevant factual situation in which the contract was made’.174 Where there is ambiguity which
permits of two alternative and semantically not improbable interpretations, construction in
accordance with what it may be supposed would be the approach of honest and reasonable
businesspersons may assist in choosing one such alternative over the other. But where, as
here, the language and surrounding circumstances of a commercial contract present a choice
between, on the one hand, a plain, ordinary and commercially not irrational meaning of a
clause and, on the other, a meaning which is significantly removed from the natural and
ordinary meaning of the terms of the clause, which ill-accords with other provisions of the
agreement, and which in the end produces an outcome that is more commercially acceptable
from one of the parties’ point of view only, the precept runs out of application. Unless
the Anglo-Australian objective theory of contract is now to be cast aside, the commercial
approach to construction is not a licence to alter the meaning of a term that is ‘clear and
fairly susceptible of one meaning only’ to achieve a result that the court may think to be
reasonable.175 The court is not authorised under the guise of construction to make a new
contract for the parties at odds with the contract to which they have agreed.

12.73 Much of today’s legal drafting is in a form that is difficult for non-lawyers to understand.
In this respect, Butt176 states:
Legal English … has traditionally been a special variety of English. Mysterious in form
and expression, it is larded with law-Latin and Norman-French, heavily dependent on the
past, and unashamedly archaic. Antiquated words flourish … Habitual jargon and stilted
formalism conjure a spurious sense of precision.

170. (2017) 261 CLR 544; 343 ALR 58.

171. Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at 562; 343 ALR 58 at 71.
172. Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at 579–81; 343 ALR 58
at 84–5.
173. Mitsui Construction Co Ltd v Attorney General of Hong Kong (1986) 33 BLR 1 at 14.
174. Mitsui Construction Co Ltd v Attorney General of Hong Kong (1986) 33 BLR 1 at 14.
175. Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 851; [1980] 1 ALL ER 556 at 568.
176. Butt, Modern Legal Drafting, note 76 above, p 1.

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12.74 However, some progress is being made towards the use of plain English in legal drafting.
This is a trend that is favoured by an overwhelming majority of Australian judges177 and legal
practitioners.178 A Discussion Paper issued by the Victorian Law Reform Commission179
provides the following description of what is meant by ‘plain English’:
Plain English is language that is not artificially complicated, but is clear and effective for
its intended audience. While it shuns the antiquated and inflated word and phrase, which
can readily be either omitted altogether or replaced with a more useful substitute, it does
not seek to rid documents of terms which express important distinctions. Nonetheless,
plain language documents offer non-expert readers some assistance in coping with these
technical terms. To a far larger extent, plain language is concerned with matters of sentence
and paragraph structure, with organisation and design, where so many of the hindrances to
clear expression originate.

12.75 Butt180 lists the following benefits of using plain English:

• ease of understanding;
• increases in the ‘efficiency’ with which readers absorb and understand legal documents;
• the reduction of errors in drafting documents;
• the reduction of litigation in relation to the construction of documents; and
• the reduction of complaints against lawyers.
12.76 It can also be noted that legislation may prescribe the use of plain language. For example,
s 184 of the National Consumer Credit Protection Act 2009 (Cth) requires various consumer
credit contracts to be ‘easily legible’ and ‘clearly expressed’. Furthermore, the consequences of not
using plain English may have significant impact on the rights of parties under certain contracts.
Thus, ‘whether a consumer was able to understand’ relevant documents, is a factor that can
be taken into account by a court in determining whether a transaction was unconscionable
pursuant to the unconscionability provisions in ss 21 and 22 of the Australian Consumer Law.
Similarly, s 9(2)(g) of the Contracts Review Act 1980 (NSW) provides that ‘the physical form of
the contract, and the intelligibility of the language in which it is expressed’ is a factor that can
go towards establishing that a contract is ‘unjust’.
12.77 In summing up the benefits of plain English in legal drafting, Butt181 writes as follows:
Legal language should not be a language of coded messages, unintelligible to ordinary
citizens. Modern, plain English can cope with the concepts and complexities of the law and
legal process. It is as capable of precision as traditional legal English. The few technical terms
that a lawyer might feel compelled to retain for convenience or necessity can be incorporated
without destroying the document’s legal integrity. The modern English of a legal document
will never read like a good novel, but it can be attractive and effective in a clean, clear,
functional style.

177. K O’Brien, ‘Judicial Attitudes to Plain Language and the Law’ (2009) 32 Australian Bar Review 204.
178. B McKillop, ‘What Lawyers Think About Plain Legal Language’ (May 1994) 32 New South Wales Law
Society Journal 68.
179. Quoted in Butt, Modern Legal Drafting, note 76 above, p 102.
180. Butt, Modern Legal Drafting, note 76 above, pp 104–13.
181. Butt, Modern Legal Drafting, note 76 above, pp 128–9.

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INTRODUCTION
13.1 Exclusion clauses are contractual terms that seek to exclude or limit the liability of a
defendant to a plaintiff in the event that the defendant causes loss to the plaintiff. The liability
covered by an exclusion clause is not necessarily confined to a defendant’s breaches of contract.
It can be for liability that is based upon other principles, such as torts and statute. Exclusion
clauses are sometimes referred to as ‘exemption’, ‘exception’, or ‘limitation’ clauses.
13.2 Cases involving exclusion clauses may involve determination of any or all of the
following issues:
• whether a defendant is liable to a plaintiff — this will require the plaintiff to establish that
the defendant has committed a wrong, such as a breach of contract;
• whether the exclusion clause is a term of a contract between its parties — this raises the
issue of incorporation of terms;1
• whether the exclusion clause, on its proper construction or interpretation, covers the
defendant’s liability that has arisen — this is the issue covered by the present chapter.
13.3 Courts have traditionally approached exclusion clauses in accordance with answering
each of these three questions. Such an approach casts an exclusion clause as a defence to an
action by a plaintiff against a defendant.2 For example, if X contracts with Y to provide security
services for Y and, in the course of performing those services, damages Y’s property, X would
be regarded as having committed a breach of an express or implied term to provide the security
services in a proper manner and with due regard to Y’s property. If there is an exclusion clause
in the contract that protects or excludes X from liability for the damage to Y’s property, the
exclusion clause will be regarded as a defence to an action by Y against X for breach of the
said term of the contract. But as was pointed out by Windeyer J in Thomas National Transport
(Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd,3 it may be that the effect of an exclusion
clause is ‘to define substantively the limits of [the defendant’s] duty by negativing obligations
that the law would otherwise impose and undertakings that it would otherwise imply’. Whether
the exclusion clause is classified as a defence to an action against a defendant or merely as a

1. See Chapter 10.

2. Karsales v Wallis [1956] 1 WLR 936 at 940; Rutter v Palmer [1922] 2 KB 87 at 92.
3. (1966) 115 CLR 353 at 385. See also Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 851;
[1980] 1 All ER 556 at 568; Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128 at [19].

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clause allocating risks between the parties, the result, in terms of the action by the plaintiff
against the defendant will be the same. However, as Carter4 notes, ‘courts … generally prefer to
treat [exclusion clauses] as possible defences’.5

GENERAL APPROACH TO CONSTRUCTION

OF EXCLUSION CLAUSES
13.4 In determining whether an exclusion clause shields a defendant from liability to a
plaintiff, the principal task of the court is to determine the intention of the parties. In the past
courts were quite hostile towards exclusion clauses.6 However, in more recent times a more
even-handed approach has prevailed, especially in the context of commercial transactions.
Thus, in Tradigrain SA v Intertek Testing Services (ITS) Canada,7 Moore-Bick LJ said:
It is certainly true that English law has traditionally taken a restrictive approach to the
construction of exemption clauses and clauses limiting liability for breaches of contract and
other wrongful acts. However, in recent years it has been increasingly willing to recognise
that parties to commercial contracts are entitled to apportion the risk of loss as they see fit
and that provisions which limit or exclude liability must be construed in the same way as
other terms.

13.5 The contemporary approach to the construction of exclusion clauses is exemplified in

Darlington Futures Ltd v Delco Australia Pty Ltd.8 In that case the High Court9 set out the
following two principles:
• An exclusion clause should be construed ‘according to its natural and ordinary meaning,
read in the light of the contract as a whole, thereby giving weight to the context in which the
clause appears including the nature and object of the contract’.
• The contra proferentem principle will be applied so that in cases of ambiguity the clause will
be construed against the person relying on the exclusion clause.10
13.6 The High Court11 went on to stress that these principles applied with equal vigour
irrespective of whether the exclusion clause excluded all of the defendant’s liability or merely
limited the extent of his or her liability.

4. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Chatswood, 2018, p 293.
5. On the debate as to the nature of exclusion clauses see E Macdonald, ‘Exception Clauses: Exclusionary or
Definitional?’ (2012) 29 Journal of Contract Law 47.
6. Interactive E-Solutions JLT & v O3b Africa Ltd [2018] EWCA Civ 62 at [14].
7. [2007] EWCA Civ 154 at [46]. See also Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128 at [19];
McGee Group Ltd v Galliford Try Building Ltd [2017] EWHC 87 (TCC) at [25].
8. (1986) 161 CLR 500; 68 ALR 385.
9. Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510; 68 ALR 385 at 391. See also
Selected Seeds Pty Ltd v QBEMM Pty Ltd (2010) 242 CLR 336 at 344; 271 ALR 484 at 490.
10. In Electric Life Pty Ltd v Unison Finance Group Pty Ltd [2015] NSWCA 394 at [42] Emmett JA said that the
contra proferentem principle ‘is designed to assist the Court in choosing between alternative meanings of
particular language, being meanings that are fairly open’.
11. Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510; 68 ALR 385 at 391.

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13.7 In relation to the first principle noted by the High Court, in Stocznia Gdynia SA
v Gearbulk Holdings Ltd,12 Moore-Bick LJ said:
It is important to remember that any clause in a contract must be construed in the context in
which one finds it, both the immediate context of the other terms and the wider context of
the transaction as a whole. The court is unlikely to be satisfied that a party to a contract has
abandoned valuable rights arising by operation of law unless the terms of the contract make it
sufficiently clear that that was intended. The more valuable the right, the clearer the language
will need to be.

Thus, in Wallis v Pratt & Hayes,13 an exclusion clause stipulated that a seller of goods gave ‘no
warranty expressed or implied as to the growth, description or any other matters’. The seller
supplied the buyer with somewhat different goods and was thus in breach of a condition implied
into the contract by sale of goods legislation. The House of Lords held that the exclusion clause
did not cover the breach in question, as the clause only excluded liability for breach of the
warranties — not conditions — implied by the legislation.
13.8 In relation to the contra proferentem principle, it means, in this context, that an
exclusion clause will ordinarily be strictly construed against the party for whose benefit the
clause applies — the proferens.14 However, as was pointed out by Leeming JA in Zhang v ROC
Services (NSW) Pty Ltd:15
[T]he [contra proferentem] rule is one of last resort. … If after ascertaining the literal or
grammatical meanings and evaluating them against the text, context and purpose of the
contract, there is still real doubt, then a clause is to be construed against the person who
drafted it.

13.9 As to the justification for the contra proferentum principle, in Nobahar-Cookson v Hut
Group Ltd,16 Briggs LJ said:
Ambiguity in an exclusion clause may have to be resolved by a narrow construction because
an exclusion clause cuts down or detracts from the ambit of some important obligation in a
contract, or a remedy conferred by the general law such as … an obligation to give effect to
a contractual warranty by paying compensation for breach of it. The parties are not lightly
to be taken to have intended to cut down the remedies which the law provides for breach of
important contractual obligations without using clear words having that effect.

13.10 In ascertaining the natural and ordinary meaning of the words in accordance with
the contextual approach to construction set out in Darlington Futures Ltd v Delco Australia

12. [2010] QB 27 at 39.

13. [1911] AC 394.
14. Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966) 115 CLR 353
at 376.
15. (2016) 93 NSWLR 561 at 591. See also Rava v Logan Wines Pty Ltd [2007] NSWCA 62 at [55]; OZ Minerals
Holdings Pty Ltd v AIG Australia Ltd [2015] VSCA 346 at [52]; Beefeater Sales International Pty Ltd v MIS
Funding No 1 Pty Ltd [2016] NSWCA 217 at [66]; Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128
at [19].
16. [2016] EWCA Civ 128 at [18], cited with approval in Teoco UK Ltd v Aircom Jersey 4 Ltd [2018] EWCA
Civ 23 at [26]; JP Morgan Chase Bank NA v Federal Republic of Nigeria [2019] EWCA Civ 1641 at [62];
Rees v Windsor-Clive [2020] EWCA Civ 816 at [37].

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Pty Ltd, a court is less likely to find that the parties to the contract intended to exclude liability
17

in relation to serious breaches of the contract than for less serious breaches. The same can be
said in relation to wilful breaches of a contract. Very clear and unambiguous words of exclusion
are required to effectively exclude liability for such breaches.
13.11 One of the significant consequences of the contemporary approach to the
construction of exclusion clauses is that they are now more likely to be upheld in commercial
contracts than was the case in the past. However, in consumer contracts a stricter approach
may be justified and warranted on the basis that the consumer is vulnerable and less capable
of protecting his or her interests. The following two cases illustrate the workings of these
basic rules.
13.12 In Photo Production Ltd v Securicor Transport Ltd,18 Securicor provided night patrol
services for Photo Production. One of Securicor’s employees deliberately lit a fire that got out
of control and destroyed Photo Production’s factory. Securicor claimed that it was protected by
an exclusion clause that said: ‘Under no circumstances shall [Securicor] be responsible for any
injurious act or default by any employee of [Securicor] unless such act or default could have
been foreseen and avoided by the exercise of due diligence on the part of [Securicor] as his
employer’. The House of Lords upheld Securicor’s claim. In relation to the construction of the
exclusion clause, Lord Wilberforce19 said:
It is drafted in strong terms, ‘Under no circumstances’ … ‘any injurious act or default by
any employee’. These words have to be approached with the aid of the cardinal rules of
construction that they must be read contra proferentem and that in order to escape from the
consequences of one’s own wrongdoing, or that of one’s servant, clear words are necessary. I
think that these words are clear. Photo Production in fact relied upon them for an argument
that since they exempted from negligence they must be taken as not exempting from the
consequence of deliberate acts. But this is a perversion of the rule that if a clause can cover
something other than negligence, it will not be applied to negligence. Whether, in addition
to negligence, it covers other, eg, deliberate, acts, remains a matter of construction requiring,
of course, clear words. I am of opinion that it does, and being free to construe and apply the
clause, I must hold that liability is excluded.

13.13 In Darlington Futures Ltd v Delco Australia Pty Ltd,20 Darlington was a commodity
broker and Delco was its client. In breach of its authority, Darlington dealt in the futures
market leading to losses suffered by Delco. Clause 6 of the contract between the parties said
that Darlington would not be responsible ‘for any loss … arising from trading by [Darlington]
on behalf of [Delco] whether pursuant to this agreement or not’. Clause 7(c) said that ‘any
liability on [Darlington’s] part … for damages for or in respect of any claim arising out of or
in connection with the relationship established by this agreement or any conduct under it or
any orders or instructions given … shall not in any event … exceed one hundred dollars’. The
High Court was confronted with determining whether these clauses protected Darlington from

17. (1986) 161 CLR 500; 68 ALR 385.

18. [1980] AC 827; [1980] 1 All ER 556.
19. Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 846; [1980] 1 All ER 556 at 564.
20. (1986) 161 CLR 500; 68 ALR 385.

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liability to Delco for the losses caused by Darlington’s breach of contract. It21 ruled that clause 6
did not protect Darlington:
Read in context these words [in cl 6] plainly refer to trading activity undertaken by
[Darlington] for [Delco] with [Delco’s] authority, whether pursuant to the Agreement or
not. It can scarcely be supposed that the parties intended to exclude liability on the part
of [Darlington] for losses arising from trading activity in which it presumed to engage on
behalf of [Delco] when [Darlington] had no authority so to do.

Furthermore, the High Court22 also ruled that clause 7(c) did protect Darlington:
The Full Court of the Supreme Court [of South Australia] considered that cl 7(c) by its
terms had no application to claims arising out of conduct which is outside the scope of the
agreement and the relationship between the parties established by it. This, in our opinion, is
to place a more restrictive interpretation on the clause than its language will naturally bear.
In particular, it is expressed to comprehend claims arising out of or in connection with the
relationship established by the agreement. A claim in respect of an unauthorized transaction
may nonetheless have a connection, indeed a substantial connection, with the relationship of
broker and client established by the agreement. We are unable to discern any basis on which
cl 7(c) can be construed so as not to apply to such a claim. The present case is one in which
[Delco’s] claim arises in connection with the relationship of broker and client established by
the contract between the parties, notwithstanding the finding that the relevant transactions
were not authorized.

Exclusion clauses and negligence

13.14 For the tort of negligence to be within the scope of an exclusion clause it must be
clearly intended that the clause covers negligence.23 In Canada Steamship Lines Ltd v The King24
the Privy Council set out the following rules in relation to the construction of clauses that seek
to exclude a defendant’s liability for negligence:
• An express exemption of liability for negligence will effectively exclude liability on the part
of the defendant.
• Where there is no express reference to negligence, the court needs to determine if the words
used are wide enough to exclude negligence, with any doubts on this to be resolved by
applying the contra proferentem principle.
• If the words used are wide enough to cover negligence but also encompass other grounds of
liability other than negligence, the clause will be read as applying only to the other grounds
of liability and will not operate to exclude the claim for negligence, provided that the other
ground is not ‘so fanciful or remote that the proferens cannot be supposed to have desired
protection against it’.
In applying these rules, in Mir Steel UK Ltd v Morris,25 Rimer LJ said they ‘should not be applied
mechanistically and ought to be regarded as no more than guidelines’.

21. Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 511; 68 ALR 385 at 392.
22. Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 511; 68 ALR 385 at 392.
23. Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 at 649.
24. [1952] AC 192 at 208; 1 All ER 305 at 310.
25. [2012] EWCA Civ 1397 at [35]. See also CNM Estates (Tolworth Tower) Ltd v VeCREF I SARL [2020]
EWHC 1605 (Comm) at [20].

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13.15 A number of points can be made in relation to the Canada Steamship Lines Ltd v The
King26 rules. As regards the first rule, it ‘will be satisfied by words which make it clear that
the clause exempts liability for negligence, even if the word “negligence” is not used. … Some
contractual provisions which do not expressly refer to negligence or a synonym for negligence
may nonetheless make it very clear that negligence is excluded’.27 If the first rule is satisfied,
it will be effective to exclude liability in negligence, unless rendered inoperative on some other
basis such as the four corners rule.28
13.16 As regards the second rule, other words and expressions will be effective if they are
ones that include negligence within their scope. Thus, words such as ‘howsoever caused’ and
‘under no circumstances’ will generally be said to incorporate negligence.29 Indeed, in White
v Blackmore,30 Roskill LJ observed that the words ‘howsoever caused’ ‘have become in the last
half century and more the classic phrase hereby to exclude liability for negligence’. In DNFS Pty
Ltd v De Neefe Signs Pty Ltd31 Pagone J noted that ‘the words “all liability” … were capable of
embracing negligence’.
13.17 As regards the third rule, its effect is to dictate that, if the clause covers losses
occasioned by negligent and non-negligent acts, it will be construed to cover only non-
negligent sources of liability, with the result that liability in negligence will not be excluded.
If, however, negligence is the only reasonable basis upon which liability is incurred, the clause
will ‘more readily’32 be construed to exclude such liability. A non-negligent act will not be
relevant for the purposes the third rule if it is one which, ‘on a reasonable assessment of all
the circumstances at the time the underlying contract was made, it is unlikely that the parties
would have addressed their mind’.33
13.18 In Alderslade v Hendon Laundry Ltd,34 Lord Greene MR said the following about the
third rule:
The reason [for the third rule] is that if a contracting party wishes … to limit his liability
in respect of negligence, he must do so in clear terms in the absence of which the clause is
construed as relating to a liability not based on negligence.

26. [1952] AC 192 at 208; 1 All ER 305 at 310.

27. CNM Estates (Tolworth Tower) Ltd v VeCREF I SARL [2020] EWHC 1605 (Comm) at [22]. See also
Mineralimportexport v Eastern Mediterranean Maritime Ltd (The Golden Leader) [1980] 2 Lloyd’s Rep 573
at 574; Monarch Airlines Ltd v Luton Airport Ltd [1998] 1 Lloyd’s Rep 403 at 408.
28. See 13.34–13.36.
29. Rutter v Palmer [1922] 2 KB 87 at 94.
30. [1972] 2 QB 651 at 677; [1972] 3 All ER 158 at 176. See also Gibaud v Great Eastern Railway Company
[1921] 2 QB 427 at 437; Brown v Drake International Ltd [2004] EWCA Civ 1629 at [21].
31. [2008] VSC 424 at [33].
32. Rutter v Palmer [1922] 2 KB 87 at 93; Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 at 78–9; [1972]
1 All ER 399 at 404–5; CNM Estates (Tolworth Tower) Ltd v VeCREF I SARL [2020] EWHC 1605 (Comm)
at [27].
33. Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd [1982] 2 Lloyd’s Rep 42 at 48. See also
E E Caledonia Ltd v Orbit Valve Co plc [1995] 1 All ER 174 at 181–2; Aprile SPA v Elin Maritime Ltd [2019]
EWHC 1001 (Comm) at [66]; CNM Estates (Tolworth Tower) Ltd v VeCREF I SARL [2020] EWHC 1605
(Comm) at [28]–[30].
34. [1945] KB 189 at 192; [1945] 1 All ER 244 at 245.

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In this case, Alderslade had left handkerchiefs with Hendon Laundry Co for cleaning, which
were not returned. The loss was due to the negligence of Hendon. Hendon sought to rely on a
clause in the contract that limited liability for loss of the handkerchiefs to 20 times the charge
for washing them. The Court of Appeal held that Hendon was in breach of its obligation to take
reasonable care of the goods — in other words, it had been negligent. The court held that the
only way in which Hendon could have been liable to Alderslade was in negligence. Thus, the
clause was effective to protect Hendon.
13.19 Alderslade v Hendon Laundry Ltd35 can be contrasted with White v John Warwick &
Co Ltd,36 in which the plaintiff hired a tricycle. The hiring contract had a clause protecting the
defendant in relation to injuries sustained by the hirer of the tricycle. The plaintiff was injured
when the seat on the tricycle slipped. The Court of Appeal held that there were two causes
of action in this case. The first was for breach of contract of an implied promise to provide a
machine that was reasonably safe for the purpose hired. This involved no finding of negligence
on the defendant’s part. The second was in the tort of negligence. Because there were two
distinct causes of liability, the exclusion clause covered only the contract claim. The plaintiff
was able to succeed in the tort claim because the exclusion clause did not protect the defendant
from liability based upon negligence.
13.20 What distinguished these two cases is that in Alderslade v Hendon Laundry Ltd37
there was only one possible cause of action for the loss in question, that being in the tort of
negligence, whereas in White v John Warwick & Co Ltd,38 there was concurrent liability in both
the tort of negligence and breach of contract. Thus, pursuant to the third rule, the exclusion
clause excluded liability for negligence in the first of the two cases, but not in the second.
13.21 It can be noted that the possible alternative causes of action in cases such as White
v John Warwick & Co Ltd39 may be identified with a little imagination, but the courts have made
it clear that they cannot be so fanciful or remote that the defendant could not be said to have
desired to be protected against them.40
13.22 Following the High Court decision in Darlington Futures Ltd v Delco Australia Pty Ltd,41
the status of the Canada Steamship Lines Ltd v The King42 rules has been a matter of some
conjecture. This is because the rules were determined at a time when exclusion clauses were
regarded with suspicion by the courts and were construed strictly. However, the contemporary
approach to interpretation of exclusion clauses sees them more as a matter related to the parties’
negotiations as to the allocation of risk. Thus, in G L Nederlands (Asia) Pty Ltd v Expertise
Events Pty Ltd,43 the Court of Appeal left open the question of whether Darlington Futures Ltd

35. [1945] KB 189; [1945] 1 All ER 244.

36. [1953] 1 WLR 1285; [1953] 2 All ER 1021.
37. [1945] KB 189; [1945] 1 All ER 244.
38. [1953] 1 WLR 1285; [1953] 2 All ER 1021.
39. [1953] 1 WLR 1285; [1953] 2 All ER 1021.
40. Canada Steamship Lines Ltd v The King [1952] AC 192 at 208; 1 All ER 305 at 310.
41. (1986) 161 CLR 500; 68 ALR 385.
42. [1952] AC 192; 1 All ER 305.
43. [1999] NSWCA 62 at [22].

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v Delco Australia Pty Ltd conflicted with the Canada Steamship Lines Ltd v The King rules.45
44

However, in Glenmont Investments Pty Ltd v O’Loughlin (No 2),46 the Full Court said:
Insofar as the [three rules] lay down strict rules of construction, [they] are no longer
appropriate following the High Court’s decision in Darlington. Such rules are to be
eschewed in favour of construction of the clause according to its natural and ordinary
meaning, viewed in context of the contract as a whole. This is not to say that the
[three rules] are entirely without value for they may, in certain circumstances, act as
a useful guide to interpretation. However they can go no further than that. It may be
worthwhile to add some words of caution. The rejection of rigid rules that limit the
ambit of exclusion clauses should not give birth to other rigid rules that encourage
reading exclusion clauses as referring to negligence whenever the words are sufficiently
broad. The policy behind the recent approach to interpretation of exclusion clauses is
based on the concept that the court should not impose a strained construction upon
an exclusion clause, but should give effect to the intentions of the contracting parties
who are capable of protecting their interests and deciding how to allocate risks. Simply
because a contract excludes liability on a number of grounds, it does not follow that
negligence liability should automatically be excluded. Once again, we emphasise that it
is for the court to examine the contract as a whole.

13.23 It is suggested that the first two rules are not inconsistent with Darlington Futures Ltd
v Delco Australia Pty Ltd47 in that they reflect the ordinary and natural meaning approach to
interpretation of exclusion clauses set out that case.48
13.24 As for the third rule, the question arises as to whether it is consistent with the
approach to the construction of exclusion clauses outlined by the High Court in Darlington
Futures Ltd v Delco Australia Pty Ltd.49 It can reasonably be argued that to enable a plaintiff
to sue a defendant in negligence on the basis of the third rule is to negate the ordinary and
natural meaning of the words approach to the construction of exclusion clauses mandated
by the High Court. Support for this approach also comes from the House of Lords decision
in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank,50 where Lord Bingham
of Cornhill said:
Lord Morton [in the Canada Steamship Lines51] was giving helpful guidance on the proper
approach to interpretation and not laying down a code. The passage does not provide a
litmus test which, applied to the terms of the contract, yields a certain and predictable result.
The Courts’ task of ascertaining what the particular parties intended, in their particular
commercial context, remains.

44. (1986) 161 CLR 500; 68 ALR 385.

45. [1952] AC 192; 1 All ER 305.
46. (2000) 79 SASR 185 at 243, cited with approval by the Court of Appeal in MWH Australia Pty Ltd v Wynton
Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 at 596.
47. (1986) 161 CLR 500; 68 ALR 385.
48. Persimmon Homes Ltd v Arup & Partners Ltd [2015] EWHC 3573 (TCC) at [24].
49. (1986) 161 CLR 500; 68 ALR 385.
50. [2003] 2 Lloyd’s Rep 61 at 67.
51. Canada Steamship Lines Ltd v The King [1952] AC 192; 1 All ER 305.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

13.25 In Capita (Banstead 2011) Ltd v RFIB Group Ltd,52 Popplewell J derived the following
principles from the recent English decisions dealing with the three rules:
(1) A clear intention must appear from the words used before the Court will reach the
conclusion that one party has agreed to exempt the other from the consequences of his own
negligence … The underlying rationale is that clear words are needed because it is inherently
improbable that one party should agree to assume responsibility for the consequences of the
other’s negligence.

(2) The [three rules] are not to be applied mechanistically and ought to be considered as
no more than guidelines; the task is always to ascertain what the parties intended in their
particular commercial context in accordance with the established principles of construction.
They nevertheless form a useful guide to the approach where the commercial context makes
it improbable that in the absence of clear words one party would have agreed to assume
responsibility for the relevant negligence of the other.

(3) These principles apply with even greater force to dishonest wrongdoing, because of
the inherent improbability of one party assuming responsibility for the consequences of
dishonest wrongdoing by the other. The law, on public policy grounds, does not permit a
party to exclude liability for the consequences of his own fraud; and if the consequences of
fraudulent or dishonest misrepresentation or deceit by his agent are to be excluded, such
intention must be expressed in clear and unmistakeable terms on the face of the contract.
General words will not serve. The language must be such as will alert a commercial party
to the extraordinary bargain he is invited to make because in the absence of words which
expressly refer to dishonesty the common assumption is that the parties will act honestly.

13.26 On the other hand, McDonald53 has argued that the decision in Darlington Futures
Ltd v Delco Australia Pty Ltd54 does not impliedly overrule the third rule, on the basis that the
High Court cited, with approval, earlier High Court authority that had applied the rules in
Canada Steamship Lines Ltd v The King.55 Furthermore, it should be noted that the Darlington
Futures Ltd v Delco Australia Pty Ltd56 case was not one that was concerned with the exclusion
of liability for negligence.
13.27 In relation to the application of the three rules principles in the context of non-
commercial contexts, McDonald57 summarises the position as follows:
Whatever the position with commercial contracts at arms length, the High Court clearly
limited its judgment in Darlington to such contracts and specifically noted that its general
statement applied only where ‘no considerations of fairness or reasonableness arise’. … In
contrast, for cases which do not come within the definition, there should be no doubt that
the Canada SS rules must continue to apply, and it is interesting to note that the High Court

52. [2014] EWHC 2197 (Comm) at [15], cited with approval in JP Morgan Chase Bank NA v Federal Republic
of Nigeria [2019] EWCA Civ 1641 at [68].
53. B McDonald, ‘Contractual Exclusions and Indemnities of Liability for Negligence’ in G Tolhurst and
E Peden (eds), Commercial Issues in Contract Law, Ross Parsons Centre of Commercial, Corporate and
Taxation Law Monograph Series, Sydney, 2008, pp 16–17.
54. (1986) 161 CLR 500; 68 ALR 385.
55. [1952] AC 192; 1 All ER 305.
56. (1986) 161 CLR 500; 68 ALR 385.
57. McDonald, ‘Contractual Exclusions and Indemnities of Liability for Negligence’, note 53 above, at 24.

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in Darlington impliedly sees considerations of fairness and reasonableness as part of the

armory of a court at common law when construing the likely or imputed intent of the parties
as ordinary reasonable people.

13.28 McDonald’s argument that the approach to the construction of exclusion clauses
in Darlington Futures Ltd v Delco Australia Pty Ltd58 is limited to commercial contracts,
is supported by an observation by Lord Toulson in Impact Funding Solutions Ltd v AIG Europe
Insurance Ltd59 concerning the decision in Photo Production Ltd v Securicor Transport Ltd,60
in which the House of Lords adopted an essentially identical approach to the construction of
exclusion clauses as did the High Court.61 Lord Toulson62 observed that the principles in Photo
Production Ltd v Securicor Transport Ltd63 only applied to non-consumer contracts.
13.29 As a final point on this issue it may now be the case that, following the recent
introduction of unfair terms legislation set out in ss 23–28 of the Australian Consumer Law,
a stronger case can be made for the abandonment of the rules in Canada Steamship Lines Ltd
v The King.64 It could be argued that the applicability of exclusion clauses in consumer contracts
could be regulated by asking whether such a term is unfair and, if not unfair, applying the
approach to interpretation set out in Darlington Futures Ltd v Delco Australia Pty Ltd.65 In this
respect it can be noted that the introduction of unfair terms legislation in the United Kingdom
was seen by the House of Lords as a major reason for discarding the traditional approach to the
construction of exclusion clauses and adopting the modern approach to the interpretation of
exclusion clauses.66
13.30 Undoubtedly, a High Court ruling is needed to clarify the status of the Canada
Steamship Lines Ltd v The King67 rules in Australia. Pending such clarification, the sensible
approach to take in drafting exclusion clauses is to make explicit reference to ‘negligence’ if
exclusion of such liability is desired.

OTHER RELEVANT PRINCIPLES OF CONSTRUCTION

13.31 Although the general principles set out in Darlington Futures Ltd v Delco Australia Pty Ltd68
apply, there are other principles that may be relevant in assisting the court in construing an
exclusion clause. These can be considered in the context of:
• the deviation cases; and
• the four corners rule.

58. (1986) 161 CLR 500; 68 ALR 385.

59. [2016] 3 WLR 1422.
60. [1980] AC 827; [1980] 1 All ER 556.
61. See 13.6.
62. Impact Funding Solutions Ltd v AIG Europe Insurance Ltd [2016] 3 WLR 1422 at 1433.
63. [1980] AC 827; [1980] 1 All ER 556.
64. [1952] AC 192; 1 All ER 305.
65. (1986) 161 CLR 500; 68 ALR 385.
66. Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 851; [1980] 1 All ER 556 at 568.
67. [1952] AC 192; 1 All ER 305.
68. (1986) 161 CLR 500; 68 ALR 385.

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Deviation cases
13.32 If a carrier deviates from the agreed voyage or route, he or she loses the benefit of an
exclusion clause. Thus, in Thomas National Transport (Melbourne) Pty Ltd v May & Baker
(Australia) Pty Ltd,69 TNT was to transport May and Baker’s goods from Melbourne to Sydney.
A TNT subcontractor collected the goods, but was unable to have them stored overnight in
TNT’s depot as it was shut when he arrived. He stored them in his own garage, but they were
destroyed by fire that night. TNT relied on an exclusion clause in the contract for protection.
The High Court ruled against TNT on the basis that the contract stipulated that the goods were
to be stored in TNT’s depot. The storage in the subcontractor’s garage was an unauthorised
deviation that rendered the exclusion clause inapplicable.
13.33 However, this is not an absolute rule. It is still a matter of construction of the contract
so that an appropriately drafted exclusion clause can exclude its operation.

Four corners rule

13.34 The four corners rule states that if the defendant’s act causing loss to the plaintiff is an
act that has not been authorised or contemplated by the contract, then an exclusion clause will
generally not protect the defendant from liability for damages flowing from that act. Such an
act is said to be outside the scope, or four corners, of the contract.
13.35 In Council of the City of Sydney v West,70 West left his car in a council car park. He was
given a ticket that said that it had to be presented in order for the car to be collected. A thief,
calling himself Robinson, presented himself to the car park and claimed West’s car. ‘Robinson’
claimed to have lost the ticket. He was given the car and drove away. The car was later found
damaged and abandoned. West sued the council for the damage to his car. The council relied
upon a clause printed on the ticket which excluded the council from liability ‘for the loss or
damage to any vehicle or for loss of or damage to any article or thing in or upon any vehicle or
for any injury to any person however such loss, damage or injury may arise or be caused’. The
High Court ruled against the council. It accepted that the clause was incorporated as part of
the contract. However, the exclusion clause did not apply as the council had acted outside the
scope of the contract by releasing the car to a person without a ticket — that is, in a way not
authorised or contemplated by the contract.
13.36 A final point that needs to be made in relation to the four corners rule is that it
is not a rule of law. Rather, it is a principle of construction of an exclusion clause. What
this means is that a carefully drafted exclusion clause can exclude liability for conduct that
would otherwise be caught by the four corners rule. As Barrett J pointed out in Reinhold
v New South Wales Lotteries Corp,71 ‘the question of exclusion of liability is ultimately to be
determined by reference to the precise contractual terms, construed in the context of the
parties’ dealing’.

69. (1966) 115 CLR 353.

70. (1965) 114 CLR 481.
71. Reinhold v New South Wales Lotteries Corp [2008] NSWSC 5 at [211].

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EXCLUSION CLAUSES AND LEGISLATION

13.37 Important legislative provisions have been enacted limiting the application of exclusion
clauses. An important example of such legislation is located in ss 64 and 64A of the Australian
Consumer Law, which is set out in Sch 2 of the Competition and Consumer Act 2010 (Cth),
together with s 139A of the Competition and Consumer Act 2010 (Cth). A less specific statutory
intervention is found in the Contracts Review Act 1980 (NSW).

Australian Consumer Law

13.38 Section 64 of the Australian Consumer Law stipulates as follows:
(1) A term of a contract (including a term that is not set out in the contract but is
incorporated in the contract by another term of the contract) is void to the extent
that the term purports to exclude, restrict or modify, or has the effect of excluding,
restricting or modifying:
(a) the application of all or any of the provisions of this Division; or
(b) the exercise of a right conferred by such a provision; or
(c) any liability of a person for a failure to comply with a guarantee that applies under
this Division to a supply of goods or services.
(2) A term of a contract is not taken, for the purposes of this section, to exclude, restrict or
modify the application of a provision of this Division unless the term does so expressly
or is inconsistent with the provision.

13.39 Section 64 relates to the consumer guarantee provisions set out in ss 51–62 of the
Australian Consumer Law. These provisions provide an array of consumer guarantees that are
enforceable against both the manufacturer/importer and retailer of goods and/or services. The
guarantees as to the supply of goods relate to:
• title;72
• undisturbed possession;73
• undisclosed securities;74
• acceptable quality;75
• fitness for any disclosed purpose;76
• supply of goods by description;77
• supply of goods by sample or demonstration model;78
• repairs and spare parts;79 and
• express warranties.80

72. Australian Consumer Law (ACL) s 51.

73. ACL s 52.
74. ACL s 53.
75. ACL s 54.
76. ACL s 55.
77. ACL s 56.
78. ACL s 57.
79. ACL s 58.
80. ACL s 59.

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13.40 The guarantees as to the supply of services81 relate to:

• due care and skill;82
• fitness for a particular purpose;83 and
• and reasonable time for supply.84
Section 63 stipulates that the provisions in ss 60–62 do not apply to:
• insurance contracts; and
• contracts for the supply of services relating to the transportation or storage of goods for the
purposes of a business, trade, or profession carried on by the person for whom the goods
are transported or stored.
13.41 It should be noted that a term that is void by virtue of s 64 may also constitute a
violation of the prohibitions against misleading or deceptive conduct and the making of false
and misleading representations about goods and services set out in ss 18 and 29 respectively of
the Australian Consumer Law.85
13.42 It must also be noted that the above consumer guarantee provisions only apply to
a contract for the supply of goods and services to a consumer. Section 3 of the Australian
Consumer Law defines a consumer of goods as a person who is supplied goods where:
• the contract price for the goods or services is $40,000 or less; or
• the goods or services supplied under the contract are of a kind ordinarily acquired for
personal, domestic or household use or consumption; or
• the good supplied under the contract is a vehicle or trailer to be principally used in the
transport of goods on public roads.
However, s 3 goes on to stipulate that a person will not be a consumer in relation to contracts
for the supply of goods noted in the first two bullet points above, if those goods are acquired for
the purpose of re-supply or the purpose of using or transforming them, in trade or commerce,
through manufacture or the repairing or treating of other goods or fixtures on land.
13.43 There are qualifications to the application of s 64 as follows:
• Section 64A(1) stipulates that, in a contract for the supply of goods, other than goods of a
kind ordinarily acquired for personal, domestic or household use or consumption, a term
of a contract will not be void under s 64 if the term merely limits the supplier’s liability to
replacing of the good or supply of equivalent goods, or repairing the goods, or paying for
the cost of replacing the goods or equivalent goods, or paying the costs of repairing the
goods.
• Section 64A(2) stipulates that, in a contract for the supply of services other than services of
a kind ordinarily acquired for personal, domestic or household use or consumption, a term
of a contract will not be void under s 64 if the term merely limits the supplier’s liability to
supplying the services again, or paying the costs of supplying the services again.

81. Financial services are not governed by these provisions, but are regulated by equivalent provisions in the
Australian Securities and Investments Commission Act 2001 (Cth).
82. ACL s 60.
83. ACL s 61.
84. ACL s 62.
85. Re Trade Practices Commission v Radio World Pty Ltd [1989] FCA 353 at [25].

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However, pursuant to s 64A(3), the supplier of the goods or services cannot rely on s 64A(1)
or s 64A(2), as the case may be, if the buyer establishes that it would not be fair or reasonable
that the supplier be able to so rely. The question of fairness or reasonableness is, pursuant
to s 64A(4), to be determined by having regard to all the circumstances of the case, and in
particular, to:
• the relative bargaining positions of the parties;
• whether the buyer received an inducement to agree to the term;
• whether the buyer had the opportunity to acquire the goods or services elsewhere without
the inclusion of the term;
• whether the buyer knew or ought reasonably to have known of the existence of the term;
and
• in the case of the supply of goods, whether the goods were manufactured, processed or
adapted to the special order of the buyer.
13.44 A further qualification to the application of s 64 is set out in s 139A of the Competition
and Consumer Act 2010 (Cth), which deals with terms excluding consumer guarantees from
supplies of recreational services. Section 139A stipulates as follows:
(1) A term of a contract for the supply of recreational services to a consumer by a person
is not void under section 64 of the Australian Consumer Law only because the term
excludes, restricts or modifies, or has the effect of excluding, restricting or modifying:
(a) the application of all or any of the provisions of Subdivision B of Division 1 of Part 3-2
of the Australian Consumer Law; or
(b) the exercise of a right conferred by such a provision; or
(c) any liability of the person for a failure to comply with a guarantee that applies under
that Subdivision to the supply.
(2) Recreational services are services that consist of participation in:
(a) a sporting activity or a similar leisure time pursuit; or
(b) any other activity that:
(i) involves a significant degree of physical exertion or physical risk; and
(ii) is undertaken for the purposes of recreation, enjoyment or leisure.
(3) This section does not apply unless the exclusion, restriction or modification is limited to
liability for:
(a) death; or
(b) a physical or mental injury of an individual (including the aggravation, acceleration
or recurrence of such an injury of the individual); or
(c) the contraction, aggravation or acceleration of a disease of an individual; or
(d) the coming into existence, the aggravation, acceleration or recurrence of any other
condition, circumstance, occurrence, activity, form of behaviour, course of conduct
or state of affairs in relation to an individual:
(i) that is or may be harmful or disadvantageous to the individual or community; or
(ii) that may result in harm or disadvantage to the individual or community.
(4) This section does not apply if the exclusion, restriction or modification would apply to
significant personal injury suffered by a person that is caused by the reckless conduct of
the supplier of the recreational services.
(5) The supplier’s conduct is reckless conduct if the supplier:
(a) is aware, or should reasonably have been aware, of a significant risk that the conduct
could result in personal injury to another person; and
(b) engages in the conduct despite the risk and without adequate justification.
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13.45 It should be noted that s 139A’s predecessor provision was s 68B of the Trade Practices
Act 1974 (Cth). Section 139A is, in essence, the same as s 68B. However, there are changes in
wording. In s 139A(1) the words ‘only because’, which are underlined above, replaced the words
‘by reason only that’ that appeared in s 68B. Furthermore, in 139A(3) the word ‘unless’, which
is underlined above, replaced the words ‘so long as’ that appeared in s 68B.

The Contracts Review Act 1980 (NSW)

13.46 Under s 7 of the Contracts Review Act 1980 (NSW) a court can, among other things,
declare a term of a contract void if it is unjust. Thus, if an exclusion clause is found to be unjust
within the meaning of the Act, it could be declared void. In John Dorahy’s Fitness Centre Pty Ltd
v Buchanan86 an exclusion clause that effectively excluded the defendant from liability in both
tort and contract was, in the circumstances of the case, found to be unjust. A more detailed
analysis of the Contracts Review Act is undertaken in Chapter 20.

86. New South Wales Court of Appeal, 18 December 1996, unreported.

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Vitiating Factors
 14
MISREPRESENTATION

INTRODUCTION
14.1 Statements that are made during pre-contractual representations may become part of
a contract that is subsequently made. In such cases the statements form part of the terms of
the contract or part of the terms of a collateral contract. Where those statements are false, the
innocent party has a right to seek damages for breach of contract. In addition, the innocent
party may be able to terminate the contract depending upon whether the terms are classified
as conditions, warranties, or intermediate terms.1 Whether such statements constitute terms or
not is a matter of ascertaining the parties’ intention.
14.2 If such statements are not contractual terms, they may be misrepresentations.
Misrepresentations give rise to certain remedies that may be available to the innocent party.
The primary remedy is rescission.2 The effect of this remedy is to set aside or avoid the contract,
leaving the parties to it in the same position they were in before the contract was entered into.
However, rescission may not be available for various reasons.3 If the representation is fraudulent
or constitutes a negligent misstatement, the representee can pursue remedies in the torts of
deceit4 and negligence5 respectively. Furthermore, representations will usually also amount to
misleading or deceptive conduct as defined in s 18 of the Australian Consumer Law, in which
case the representee will be able to seek the appropriate statutory remedies set out in Ch 5 of
the Australian Consumer Law.6

ELEMENTS OF MISREPRESENTATION
14.3 To establish an actionable misrepresentation, the party to whom the representation has
been made (the representee) must show that, before or at the time of the contract, the person
who made the misrepresentation (the representor) directly or indirectly made a false statement
of fact that was intended to induce the representee to make the contract; and that it did in
fact operate as an inducement to make the contract. The matter of establishing the terms of a

1. See 24.24–24.41.
2. See Chapter 35. In the Australian Capital Territory and South Australia statutory damages are available for
a misrepresentation: Civil Law (Wrongs) Act 2002 (ACT) s 174; Misrepresentation Act 1971 (SA) s 8.
3. See 35.24–35.43.
4. See 37.7–37.16.
5. See 37.17–37.26.
6. See 15.89–15.99.
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

statement alleged to be a misrepresentation is a question of fact. Whether it is construed to be

a misrepresentation is a question of law.7 Each of the elements of a misrepresentation will be
examined in turn.

The representation must be a statement of fact

14.4 The representation must be a statement of a past or present fact. It has traditionally been
held that the requirement that the statement be one of fact excluded statements of law. The
rationale for this principle was the legal fiction that everybody is presumed to know the law and
therefore there can be no misrepresentation about something that is (presumably) known by
the representee. This rationale has been criticised by Lord Denning as being ‘illusory’ in Andre
& Cie v Ets Michel Blanc & Fils.8 Furthermore, the High Court of Australia in David Securities
Pty Ltd v Commonwealth Bank of Australia,9 a case dealing with the law of restitution, rejected
the distinction in the context of recovery of payments of money made as the result of a mistake.
14.5 The fact/law distinction has been rejected in the context of mistake in contract.10
There seems to be no reason why this line of reasoning should not also apply in the context of
misrepresentations. Indeed, this appears to be the way the law has developed in New Zealand11
and England. Thus, in Briggs v Gleeds (Head Office)12 Newey J cited with approval the following
statement in Pankhania v Hackney,13 where Rex Todd QC, sitting as a High Court Judge, had said:
I have concluded that the ‘misrepresentation of law’ rule has not survived the decision in
Kleinwort Benson Ltd v Lincoln City Council.14 Its historical origin is as an off-shoot of the
‘mistake of law’ rule, created by analogy with it, and the two are logically interdependent. Both
are grounded in the maxim ‘ignorantia juris non excusat’, a tag whose dubious utility would
have been enhanced, had it gone on to explain who was not excused, and from what. As it
stands, it means no more than that ignorance of the general law does not excuse anyone from
compliance with it, a proposition with which criminal lawyers are familiar. In translation,
it has become distorted and amplified in meaning, in such expressions as ‘everyone is taken
to know the law’, from which follow two further propositions, (underpinning the ‘mistake of
law’ and ‘misrepresentation of law’ rules respectively) (i) ‘as you are taken to know the law, it
is your own fault if you are mistaken as to it, and because of that you should have no relief ’
and (ii) ‘as you are taken to know the law, it is your own fault if you are mistaken as to it, even
if I have misrepresented it to you, and because of that you should have no relief ’. Those two
propositions bear little relation to, and do not follow logically from, the maxim ‘ignorantia
juris non excusat’, but save for its Latin roots, no basis for the ‘misrepresentation of law’
rule is to be found. … The distinction between fact and law in the context of relief from
misrepresentation has no more underlying principle to it than it does in the context of relief
from mistake. Indeed, when the principles of mistake and misrepresentation are set side by

7. Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 40; 333 ALR 384 at 413;
Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd (2018) 56 VR 557 at 587–8.
8. [1979] 2 Lloyd’s Rep 427 at 430.
9. (1992) 175 CLR 353; 109 ALR 57.
10. Classic International Pty Ltd v Lagos (2002) 60 NSWLR 241 at 249–50; Brennan v Bolt Burdon [2005]
QB 303 at 309–10, 317, 323. See also 16.4.
11. Southern Response Earthquake Services Ltd v Dodds [2020] NZCA 395 at [132].
12. [2014] EWHC 1178 (Ch) at [28].
13. [2002] EWHC 2441 (Ch) at [57].
14. [1999] 2 AC 349.
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side, there is a stronger case for granting relief against a party who has induced a mistaken
belief as to law in another, than against one who has merely made the same mistake himself.
The rules of the common law should, so far as possible, be congruent with one another, and
based on coherent principle. The survival of the ‘misrepresentation of law’ rule following the
demise of the ‘mistake of law’ rule would be no more than a quixotic anachronism.

14.6 If, however, one assumes that the traditional rule about statements of law still applies,
it must be noted that there are qualifications. Misstatements as to a person’s private rights,
the effect of a private instrument, and the effect of private Acts of parliament can amount
to misrepresentations. Furthermore, if the misstatement of law is deliberate or wilful, it can
amount to a misrepresentation.15 Similarly so for misstatements where the statement is a
composite statement of fact and law. In Eaglesfield v Marquis of Londonderry16 Jessel MR said:
A misrepresentation of law is this: when you state the facts, and state a conclusion of law, so
as to distinguish between facts and law. The man who knows the facts is taken to know the
law; but when you state that as a fact which no doubt involves, as most facts do, a conclusion
of law, that is still a statement of fact and not a statement of law.

14.7 Advertising puffery cannot amount to misrepresentation. A puff is a promotional

statement that no reasonable person would believe to be a statement of fact — for example,
a statement that a car will go so fast that you will not see it. In Australian Competition and
Consumer Commission v We Buy Houses Pty Ltd17 Gleeson J said that ‘[w]hether a representation
constitutes puffery … turns on the particular facts considered in light of the ordinary incidents
and character of commercial behaviour. A claim will not be regarded as puffery if there is
a definitive statement as to a characteristic or consequence of the claim’. Thus, in Mitchell
v Valherie18 the facts concerned an advertisement for the sale of a house. In addition to setting
out the basic description of the house, the brochure included the statements, ‘Nothing to Spend
*
Perfect Presentation’ and ‘Cosy* Immaculate Style’. Evidence established that there were various
structural defects in the home. The majority of the South Australian Full Court held that these
words, read in context, did not amount to misrepresentations.
14.8 Promises or assurances as to the future are not statements of fact for the purposes of
misrepresentation. In Beattie v Lord Ebury,19 Mellish LJ said:
[T]here is a clear difference between a misrepresentation in point of fact, a representation that
something exists at that moment which does not exist, and a representation that something
will be done in the future. Of course, a representation that something will be done in the
future cannot either be true or false at the moment it is made, and although you may call it a
representation, if it is anything, it is a contract or promise.

Thus, a promise by directors of a co-operative society not to, in the future, suspend withdrawals
by the representee, was not a statement of a presently existing fact, therefore could not be a

15. Public Trustee v Taylor [1978] VR 289.

16. (1876) 4 Ch D 693 at 702.
17. [2017] FCA 915 at [64].
18. (2005) 93 SASR 76. See also Bembridge v Just Spectacles Pty Ltd [2006] WASC 185 at [33].
19. (1872) LR 7 Ch App 777 at 804. These words were cited approvingly in LARS SA v Bone China Pty Ltd
[2015] NSWSC 730 at [61].

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

misrepresentation, and accordingly there was no right to rescind.20 However, as the next case
illustrates, this does not mean that all such statements in the future tense are not statements of
presently existing facts.
14.9 In Balfour & Clark v Hollandia Ravensthorpe NL21 the purchasers of a house were
induced into the purchase on the basis of a statement made by one of three companies that
operated as a group in the construction and sale of homes. The first company built the homes,
the second sold them, and the third provided loans to purchasers for two years to purchase the
homes. An agent of the second company told the purchasers that they would be able to borrow
from a stipulated building society in two years’ time when it was necessary to repay the third
company the balance of the loan borrowed at the time of purchase. The agent was deemed to
have known that the purchasers would not be able to obtain the necessary loan in two years’
time because of the purchasers’ combined income being too low to support the loan needed
to refinance. The purchasers sought to set aside the purchase of the house from the group of
three companies. The question before the court was whether the statement made by the agent
about being able to obtain a loan from the stipulated building society in two years’ time was an
assurance as to the future, or a statement of presently existing fact.
14.10 According to the Full Court, the statement was a statement of fact and amounted to a
misrepresentation, as to the existing policy of the building society and as to the agent’s state of
knowledge of that policy. Bray CJ22 said:
There are many cases where a statement expressed in the future tense is really a representation
of an existing fact. If I say that a department store is selling certain goods at 15 per cent
discount, that is a statement in the present tense and a representation of an existing fact; if
I say, ‘If you go to that department store they will sell you the goods in question at a discount
of 15 per cent’, that is a statement in the future tense, but it is none the less a representation
of an existing fact. It means exactly the same as the first statement.

14.11 On the basis of this reasoning, the Full Court held that the statement made to the
purchasers was not an assurance as to the future, but rather a statement as to the existing
lending policy of the stipulated building society, and thus a representation of an existing fact.
Because it was false, it amounted to a misrepresentation.
14.12 A similar line of reasoning applies to misstatements of future intention. Because such
a statement cannot be either true or false at the time it is made, it cannot be a statement of
a presently existing fact.23 However, a statement of future intention will be a statement of a
presently existing fact, if there is no previous intention to do that which the representor states
is his or her future intention. In New Zealand, in West v Quayside Trustee Ltd (in receivership
and in liquidation)24 the Court of Appeal said:
The state of mind of the person making a representation is an existing fact. A mere
statement of intention will become actionable only if it can be established that the

20. Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601.
21. (1978) 18 SASR 240.
22. Balfour & Clark v Hollandia Ravensthorpe NL (1978) 18 SASR 240 at 252.
23. Beattie v Lord Ebury (1872) LR 7 Ch App 777 at 804.
24. [2012] NZCA 232 at [30].

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person making the representation did not at the time genuinely have that intention,
or alternatively, that he or she had no reasonable expectation of being able to fulfil the
representation.

14.13 In Edgington v Fitzmaurice25 a prospectus issued by a company seeking public loan

money stated that the money borrowed would be used on improvements to the buildings of the
company and to extend the business. Edgington lent money to a company by way of debentures
on the basis of the statement contained in the prospectus. In fact, it was always the directors’
intention to use the money that was raised through the prospectus to discharge some of the
company’s existing liabilities to other creditors.
14.14 The English Court of Appeal held that the representation was false and was a
misrepresentation of an existing fact. Bowen LJ26 put the matter in the following terms:
A mere suggestion of possible purposes to which a portion of the money might be applied
would not have formed a basis for an action of deceit. There must be a misstatement of an
existing fact: but the state of a man’s mind is as much a fact as the state of his digestion. It is
true that it is very difficult to prove what the state of a man’s mind at a particular time is, but
if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state
of a man’s mind is, therefore, a misstatement of fact.

14.15 It should be noted that where a person makes a statement of intention or opinion, it
can be implied that their state of mind is consistent with that intention or opinion. If that is
not the case the representation will be regarded as fraudulent.27 In British Airways v Taylor28 an
airline had overbooked a plane and was prosecuted for making a false statement. The airline
defended the charge on the basis that it was a statement as to a future fact. The court took the
view that a statement of this type could be taken as a present statement — a representation that
at the time of booking there were vacancies on the plane. It should be noted that representations
as to future matters made without reasonable grounds could be actionable under the Australian
Consumer Law.29 Similarly, depending upon the nature of the impugned conduct, it may be
actionable under s 18 of the Australian Consumer Law.
14.16 Finally, statements of opinion are not generally regarded as statements of fact. In
Bisset v Wilkinson30 a statement by a vendor of land that had never been used to run sheep,
that it could, in his judgment, accommodate 2000 sheep, was held by the Privy Council to
be merely a statement of opinion and not a statement of fact. The Privy Council31 said that
it was proper to take into account ‘the material facts of the transaction, the knowledge of the
parties respectively, and their relative positions, the words of representations used, and the
actual condition of the subject matter spoken of. Both parties knew that the vendor had never
carried on sheep farming on the land.’ In those circumstances it was held that the statement
was one of opinion only.

25. (1885) 29 Ch D 459.

26. Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483. See also Shrestha v Minister for Immigration and Border
Protection (2017) 251 FCR 143 at 150.
27. Ritter v North Side Enterprises Pty Ltd (1975) 132 CLR 301; 6 ALR 125.
28. [1976] 1 All ER 65.
29. See 15.72–15.76.
30. [1927] AC 177.
31. Bisset v Wilkinson [1927] AC 177 at 183.

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Consistent with this analysis is the view that a statement by a party to a contract of a legal
conclusion may frequently be nothing but an expression of opinion.32
14.17 However, in Middleton v AON Risk Services Australia Ltd33 McLure JA said the
following on this issue:
Whether or not a statement is one of fact or opinion depends upon all the relevant
circumstances known to the representee, including the form in which the statement is
made and the personal knowledge or likely personal knowledge of the person making the
statement. The subject matter of the statement may also be relevant but is not necessarily
determinative. Further, a person may make a statement of fact about what he or she merely
believes as opinion. For example, a statement as to the value of property or the nature of its
tenure may be in such form and made in such circumstances as to be a statement of fact not
opinion.

In AIC Ltd v ITS Testing Services (UK) Ltd ‘The Kriti Palm’34 Rix LJ said:
A statement of opinion will not suffice unless the deceit is in the fact that the opinion was
not, or not honestly, held or in some further implicit dishonest misrepresentation of fact to
be derived from the statement of opinion.

14.18 Thus, if the statement of opinion is made upon the basis of facts known to the
representor, but unknown to the representee, the statement will be regarded as one of fact.
In Smith v Land & House Property Corporation35 Smith, the owner of a hotel, sold it with the
existing tenant to Land & House. Smith stated that the tenant was ‘a most desirable tenant’. In
fact the tenant had to be pressured to pay rent and prior to completion of the sale went into
liquidation. Smith sought an order for specific performance of the contract of sale to Land &
House. Land & House defended the action on the basis that the statement as to the tenant was a
misrepresentation and that therefore specific performance should be refused and the contract
set aside. The question before the court was whether the statement as to the tenant was one of
opinion or fact. The English Court of Appeal held the statement was one of fact and ruled in
favour of Land & House. Bowen LJ36 said:
It is often fallaciously assumed that a statement of opinion cannot involve the statement of a
fact. In a case where the facts are equally well known to both parties, what one of them says
to the other is frequently nothing but an expression of opinion. … But if the facts are not
equally known to both sides, then a statement of opinion by the one who knows the facts
best involves very often a statement of a material fact, for he impliedly states that he knows
facts which justify his opinion.

Because Smith knew of the facts relating to the tenancy relationship and Land & House did not
know those facts, Smith’s statement was a statement of fact.

32. Norton Property Group Pty Ltd v Ozzy States Pty Ltd (in liq) [2020] NSWCA 23 at [89]–[92].
33. [2008] WASCA 239 at [22].
34. [2006] EWCA Civ 1601 at [255].
35. (1884) 28 Ch D 7.
36. Smith v Land & House Property Corporation (1884) 28 Ch D 7 at 15.

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In Magee v Mason, Magee, who had owned a house for two years, made a statement to
37

Mason prior to the sale of the house to Mason that the house was not a leaky building. This
issue before the Court of Appeal was whether the statement was a misrepresentation. The court
said that, in the context of the surrounding facts and circumstances, Magee’s statement could
mean one of three things: (i) that the house had not leaked while Magee owned it; (ii) that
Magee knew of no facts establishing that it was through design or construction prone to leak;
or (iii) that it was not through design or construction leaking or prone to leak. The majority
of the Court of Appeal (Miller and Gendall JJ, Courtney J dissenting) held that the statement
did not have the third meaning and because neither of the first two meanings rendered Magee’s
statement false, there was no misrepresentation. The majority38 also noted that there was no
statement of opinion or underlying fact upon which an opinion was based, as had been the case
in Smith v Land & House Property Corporation.39
14.19 In Magill v Magill40 a wife told her husband that he was the father of her child in
circumstances where at the relevant times she was having unprotected sex with her lover. The
wife claimed that her statement of paternity to her husband was an opinion. Speaking for the
Victorian Court of Appeal, Eames JA41 said:
Although pleaded as a statement of fact in this case — to the effect, ‘you are the father’ —
it was submitted that such an assertion could be no more than an opinion. However,
even if it was to be regarded as a statement of opinion it would still constitute a material
misrepresentation, since the fact that the appellant was also having unprotected sexual
intercourse with another man, at or about the time of conception in each case, was known
only to her, and her statement of opinion implied that she knew facts that justified her
opinion. A statement of belief as to paternity would be capable of constituting deceit in
circumstances where what is withheld, namely, the fact that regular unprotected sexual
intercourse had been conducted with another man, rendered the statement at best a half-
truth, and amounted to a misstatement of belief or opinion.

14.20 However, the Victorian Court of Appeal held that there was no fraudulent
misrepresentation on the part of the wife because there was no evidence that the husband
satisfied the element of reliance.42 Accordingly, the husband was not able to recover damages
in the tort of deceit.43 On appeal in Magill v Magill,44 the High Court upheld the decision of the
Court of Appeal, on the basis that:
• statements such as had been made in this case were not amenable to an action in the tort of
deceit at all (Gummow, Kirby and Crennan JJ); or
• only in exceptional circumstances could statements made in the context of a marriage or a
close personal or family relationship be amenable to an action in the tort of deceit, and this
case was not such an exceptional case (Gleeson CJ, Hayne and Heydon JJ).

37. [2017] NZCA 502.

38. Magee v Mason [2017] NZCA 502 at [31].
39. (1884) 28 Ch D 7.
40. [2005] VSCA 51.
41. Magill v Magill [2005] VSCA 51 at [64].
42. See 14.36–14.51.
43. See Chapter 37.
44. (2006) 226 CLR 551; 231 ALR 277.

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The representation must be false

14.21 The falsity of a statement generally requires some positive statement or conduct by
the representor. This may be as little as a nod, or a wink, or a shake of the head.45 When made
in the course of negotiations, a representation may result in an agreement collateral to the
main agreement if it can be concluded that the parties intended that the representation be
contractually binding. That will be so if the representation has the quality of a contractual
promise, as distinct from a mere representation.46
14.22 In relation to the manner in which a representation is communicated, in Global Flood
Defence Systems Ltd v Johann Van Den Noort Beheer BV47 Hacon J said the following:
Particularly where a representation is made in writing, the nature and style of the
communication may influence the court’s approach to the construction of a document. For
example, a chatty representation made in an email will not generally be interpreted by strict
application of all the usual rules of construction. By contrast if the representation is made,
for instance, in a draft patent licence agreement written in the usual style of such documents,
it will be more appropriate to apply the usual rules of construction to the draft. Business
sense is to be given to business documents. Moreover the nature and style of the document
may indicate to a reasonable person in the position of the representee that he needs to secure
the help of someone with relevant expertise before he is able to interpret the document
correctly. The understanding of the document on the part of a representee who fails to do
this may significantly differ from the understanding of a reasonable person in his shoes who
has taken appropriately informed advice. In my view, only the latter is relevant. It would be
unsatisfactory if this were not the law. In that event, where the representation is contained in
a specialist document and the representee has no relevant training, he could rely on his own
reasonable ignorance together with a mulish refusal to take informed advice to say that his
genuine but false interpretation of the document induced him to enter into the agreement.

14.23 On the other hand, there is no general obligation on a person to disclose facts.48
In Smith v Hughes49 Cockburn CJ said:
The general rule, both of law and equity, in respect to concealment, is that mere silence
with regard to a material fact, which there is no legal obligation to divulge, will not avoid a
contract, although it operates as an injury to the party from whom it is concealed.

14.24 Thus, parties to a contract are not obliged to look after each other’s interests. They
may remain silent, absent a special relationship between them and absent the application of
statutory provisions, such as those prohibiting misleading or deceptive conduct contained in
s 18 of the Australian Consumer Law.50 Generally, such non-disclosure does not amount to a
misrepresentation. The rationale for this rule is the principle of caveat emptor (let the buyer

45. Walters v Morgan (1861) 45 ER 1056 at 1059.

46. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 61; 55 ALR 417 at 427;
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 12; 333 ALR 384 at 392.
See 10.70–10.72.
47. [2016] EWHC 99 (IPEC) at [40]–[41].
48. Concut Pty Ltd v Worrell (2000) 176 ALR 693 at 703.
49. (1871) LR 6 QB 597 at 604.
50. Smith v Hughes (1871) LR 6 QB 597; United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 5–6;
60 ALR 741 at 743. See Chapter 15 for a discussion of misleading or deceptive conduct.

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beware). The approach of the common law is that buyers can demand a warranty in relation
51

to various matters. In Smith v Hughes52 Cockburn CJ said:

I take the true rule to be, that where a specific article is offered for sale, without express
warranty, or without circumstances from which the law will imply a warranty — as where,
for instance, an article is ordered for a specific purpose — and the buyer has full opportunity
of inspecting and forming his own judgment, if he chooses to act on his own judgment,
the rule caveat emptor applies. If he gets the article he contracted to buy, and that article
corresponds with what it was sold as, he gets all he is entitled to, and is bound by the contract.
Here the defendant agreed to buy a specific parcel of oats. The oats were what they were sold
as, namely, good oats according to the sample. The buyer persuaded himself they were old
oats, when they were not so; but the seller neither said nor did anything to contribute to his
deception. He has himself to blame. The question is not what a man of scrupulous morality
or nice honour would do under such circumstances.

In a similar vein, Blackburn J53 said the following:

[O]n the sale of a specific article, unless there be a warranty making it part of the bargain
that it possesses some particular quality, the purchaser must take the article he has bought
though it does not possess that quality. And I agree that even if the vendor was aware that the
purchaser thought that the article possessed that quality, and would not have entered into the
contract unless he had so thought, still the purchaser is bound, unless the vendor was guilty
of some fraud or deceit upon him, and that a mere abstinence from disabusing the purchaser
of that impression is not fraud or deceit; for, whatever may be the case in a court of morals,
there is no legal obligation on the vendor to inform the purchaser that he is under a mistake,
not induced by the act of the vendor.

The best explanation for the caveat emptor principle is the common law’s historical attachment
to the concept of a free market and individualist ideology. The common law approach here is in
stark contrast with civil law systems, which require pre-contractual disclosure of relevant facts
pursuant to a pre-contractual duty of good faith.
In Broadley Construction Pte Ltd v Alacran Design Pte Ltd,54 the Court of Appeal in
Singapore in discussing a party’s right to remain silent noted that the right was not absolute.
In this respect, the court55 said:
The law has always been cautious in ascribing legal significance to a party’s silence. This
applies to silence as acceptance of terms in a contract, silence as waiver of rights, and squarely
in cases of misrepresentation by silence. Silence, being passive conduct, and inherently

51. In his recollections of his days as a student who dropped out of law studies at Columbia Law School,
President Theodore Roosevelt wrote: ‘The caveat emptor side of the law, like to caveat emptor side of
business, seemed to me repellent; it did not make for social fair dealing. The “let the buyer beware” maxim,
when translated into actual practice, whether in law or business, tends to translate itself further into the
seller making his profit at the expense of the buyer, instead of by a bargain which shall be to the profit of
both. It does not seem to me that the law was framed to discourage as it should sharp practice, and all other
kinds of bargains except those which are fair and of benefit to both sides’: T Roosevelt, Theodore Roosevelt:
An Autobiography, Charles Scribner’s Sons, New York, 1921, p 55.
52. (1871) LR 6 QB 597 at 603.
53. Smith v Hughes (1871) LR 6 QB 597 at 606–7.
54. [2018] SGCA 25.
55. Broadley Construction Pte Ltd v Alacran Design Pte Ltd [2018] SGCA 25 at [28].

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lacking the definitive quality of an active statement, is rarely considered sufficient to amount
to a representation. But the courts have also made it clear that silence can in appropriate
circumstances acquire a positive content and amount to a representation. Such cases have
been characterised as situations where there is a duty on the alleged representor to speak
or disclose certain facts, and in cases of misrepresentation, that failure to do so renders
a statement previously made by the representor false or (more rarely) itself constitutes a
false statement. Such a duty may arise out of the relationship of the parties and/or other
circumstances in which the silence is maintained, and is to be assessed by reference to how a
reasonable person would view the silence in the circumstances.

In this context, in Marme Inversiones 2007 SL v Natwest Markets Plc,56 Picken J said:
(1) First, it is possible for a representation to be made expressly or impliedly through words
or conduct. For a representation to be implied, silence or mere assumption is not usually
enough as there is no general duty of disclosure. It is necessary to view the words or conduct
objectively to determine whether an implied representation has been made, although the
natural assumptions of the reasonable representee will be helpful in assessing whether an
implied representation has been made through the conduct of the representor.

(2) Secondly, whether or not a representation is implied is ultimately a question of fact to be

determined in the circumstances of the particular case.

(3) Thirdly, more may be required, in terms of words or conduct, for a representation which
is wide in meaning or complex to be implied.

(4) Fourthly, it is less likely that a representation that is vague, uncertain or ambiguous would
be objectively understood to have been made from words or conduct.

14.25 However, there are circumstances where there is a positive duty to disclose facts that
are known. First, contracts uberrimae fidei (contracts of utmost good faith) impose duties of
disclosure of material facts. In Bell v Lever Bros Ltd57 Lord Atkin said:
There are certain contracts expressed by law to be contracts of utmost good faith, where
material facts must be disclosed; if not, the contract is voidable. … [C]ontracts for partnership
and contracts of insurance are the leading instances. In such cases the duty does not arise out
of contract; the duty of a person proposing insurance arises before a contract is made, so of
an intending partner.

Non-disclosure in these cases is ‘tantamount to an implied representation that there is nothing

relevant to disclose’ and if the non-disclosure is fraudulent, ‘a party to whom the duty is owed
who suffers loss by reason of the breach [of duty] may recover damages for that loss in the tort
of deceit’.58
14.26 In the context of insurance contracts, this general law duty requires both parties to an
insurance contract to disclose all material facts that are relevant to the other party’s decision to

56. [2019] EWHC 366 (Comm) at [123].

57. [1932] AC 161 at 227.
58. Conlon v Simms [2007] 3 All ER 802 at 832.

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enter into the insurance contract. However, this duty of disclosure by an insured to an insurer
59

is now regulated by ss 21–22 of the Insurance Contracts Act 1984 (Cth). Those sections make
it clear that an insured must disclose to the insurer, before the relevant contract of insurance is
entered into, every matter that is known to the insured, being a matter that:
• the insured ‘knows’, that is, more than ‘believes’ or ‘suspects’ or ‘strongly suspects’,60 to be a
matter relevant to the decision of the insurer whether to accept the risk and, if so, on what
terms; or
• a reasonable person, not that of the insured, in the circumstances could be expected to
know to be a matter so relevant,61 it not being sufficient that he or she have a suspicion that
the information might be relevant to the insurer’s decision.
This statutory duty of disclosure does not require the disclosure of a matter:
• that diminishes the risk;
• that is of common knowledge;
• that the insurer knows or in the ordinary course of the insurer’s business as an insurer ought
to know; or
• as to which compliance with the duty of disclosure is waived by the insurer.
14.27 Second, if a statement is only partially true or a distortion of the truth, the failure to
disclose the whole truth amounts to a misrepresentation. In Tipperary Developments Pty Ltd
v Western Australia62 McLure JA said:
A statement will be false if the representor omits essential qualifying facts. The test of what is
an essential qualifying fact is whether the discrepancy between the facts as represented and
the facts as they existed would have reasonably influenced the mind of a normal representee
in considering whether to alter his position as he did.

14.28 Thus, in Dimmock v Hallett63 a statement was made by a vendor of real estate to the
effect that the land was fully leased. The vendor did not disclose that he had received a number
of notices from tenants to the effect that they were quitting part of the land. The vendor’s
statement was held to be a misrepresentation, even though at the time it was made it was
literally true. A similar position arose in Krakowski v Eurolynx Properties Ltd.64 In that case
the High Court held that the Krakowskis were induced by Eurolynx to enter into a contract to
purchase a shop. The inducement was in the form of a representation made by Eurolynx to the
effect that it had found a lessee for the property that was for sale and that that lessee was willing
to pay a rent of $156,000 for a lease of that property. However, Eurolynx had not disclosed a
side agreement that it had made with the tenant that gave the tenant a rent-free period of three
months and a payment from Eurolynx to the tenant equal to a year’s rent. The High Court held
that there was a misrepresentation because, although the statement about the rent under the
lease was literally true, the failure to disclose the side agreement created a distortion of truth

59. Carter v Boehm (1766) 97 ER 1162 at 1165; Khoury v GIO (1984) 165 CLR 622 at 637; 54 ALR 639 at 649;
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268
at [18].
60. Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) (2003) 214 CLR 514 at 531;
197 ALR 364 at 371.
61. Stealth Enterprises Pty Ltd v Calliden Insurance Ltd [2017] NSWCA 71 at [50].
62. (2009) 38 WAR 488 at 525; 258 ALR 124 at 161.
63. (1866) LR 2 Ch App 21.
64. (1995) 183 CLR 563; 130 ALR 1.
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that amounted to a misrepresentation. Indeed, the High Court held that it was a fraudulent
misrepresentation65 as well as a breach of the prohibition on misleading or deceptive conduct
under s 18 of the Australian Consumer Law.66
14.29 In Demagogue Pty Ltd v Ramensky67 the applicable principles here were stated by
Black CJ as follows:
Although ‘mere silence’ is a convenient way of describing some fact situations, there is in
truth no such thing as ‘mere silence’ because the significance of silence always falls to be
considered in the context in which it occurs. That context may or may not include facts
giving rise to a reasonable expectation, in the circumstances of the case, that if particular
matters exist they will be disclosed.

14.30 Similarly there has been a recognition that representations may continue without being
expressly repeated, unless they are modified or withdrawn, so long as they remain relevant to
the dealings between the parties.68 Thus, in Cramaso LLP v Ogilvie-Grant69 Lord Reed SCJ,
speaking for a unanimous Supreme Court, said:
As Smith J observed in the Australian case of Jones v Dumbrell:70

When a man makes a representation with the object of inducing another to enter
into a contract with him, that other will ordinarily understand the representor, by his
conduct in continuing the negotiations and concluding the contract, to be asserting,
throughout, that the facts remain as they were initially represented to be. And the
representor will ordinarily be well aware that his representation is still operating in
this way, or at least will continue to desire that it shall do so. Commonly, therefore,
an inducing representation is a ‘continuing’ representation, in reality and not merely
by construction of law.

As Smith J indicated by his use of the words ‘ordinarily’ and ‘commonly’, whether a
representation should be treated as continuing depends upon the facts of the individual
case. Where a misrepresentation does not have a continuing effect, for example because it
is withdrawn or lapses, or because the other party discovers the true state of affairs before
the contract is concluded, it cannot induce the other party to enter into the contract and
therefore cannot affect its validity or give rise to a remedy in damages for any loss resulting
from its conclusion. As Lord Brougham observed in Irvine v Kirkpatrick,71 in order that the
misrepresentation may be of any avail whatever, it must inure to the date of the contract. If
the other party discovers the truth before he signs the contract, ‘the misrepresentation and
the concealment go for just absolutely nothing’.

14.31 Third, if a statement is made, which is true at the time it is made, but because of
changed circumstances becomes untrue, the representor has an obligation to disclose the

65. See 37.5–37.16.

66. See Chapter 15 for a discussion of misleading or deceptive conduct.
67. (1992) 39 FCR 31 at 32; 110 ALR 608 at 610.
68. Mbakwe v Sarkis [2009] NSWCA 330 at [33].
69. [2014] AC 1093 at 1103; [2014] 2 All ER 270 at 277–8.
70. [1981] VR 199 at 203.
71. (1850) 7 Bell App 186 at 237–8.

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changed circumstances because the time at which a representation is to be evaluated is when

the representee enters into the contract.72 Thus, a representation is a ‘continuing representation’
until changed circumstances are notified to the representee.73
14.32 In With v O’Flanagan74 a doctor who wanted to sell his practice represented that his
takings were at a certain level and that he had 1480 patients. Those statements were true at
the time they were made. However, due to a change in circumstances takings had dropped
dramatically and there were only 1260 patients at the time the business was to be sold. The
English Court of Appeal allowed the purchaser to rescind the contract. The same obligation
arises in circumstances where the representor believes that the statement is true at the time it is
made, but subsequently discovers that it is untrue.75
14.33 A failure by the representor to disclose the situation after becoming aware that the
statement is no longer true or never was true, means that there is a fraudulent misrepresentation.76
If the representor does not become aware that the statement is no longer true or never was true,
he or she is guilty of an innocent misrepresentation.
14.34 The issue of silence in the context of misrepresentation was summarised by Bowen CJ
in Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd77 as follows:
Dealing with the question of misrepresentation constituted by silence, there are cases which
show, for example, that an omission to mention a qualification, in the absence of which some
absolute statement made is rendered misleading, is conduct which should be regarded as
misleading. So too is the omission to mention a subsequent change which has occurred after
some statement which is correct at the time has been made where the result of the change
is to render the statement incorrect so that thereafter it becomes misleading. This also may
be regarded as constituting misleading conduct. However, the general position between
contracting parties has been expressed in the following way: ‘The general rule, both of law
and equity, in respect to concealment, is that mere silence with regard to a material fact,
which there is no legal obligation to divulge, will not avoid a contract, although it operates as
an injury to that the party from whom it is concealed.’78 Under the general law it is important
to consider whether there is a legal obligation to divulge. There are particular relationships
which have been held to raise an obligation of disclosure. Contracts uberrimae fidei come to
mind as examples of this type of relationship. Indeed, there are many particular relationships
which raise duties of disclosure. These include trustee and beneficiary, solicitor and client,
principal and agent and guardian and ward. Where an obligation to disclose arises an
omission to inform the person to whom the obligation is owed may, perhaps on the basis that
that person is entitled to assume some fact or circumstance which does not exist, constitute
or be an ingredient in misleading conduct.

72. Brownlie v Campbell [1880] 5 App Cas 925 at 950.

73. Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd (2018) 56 VR 557 at 575–6. See also Jones
v Dumbrell [1981] VR 199 at 203.
74. [1936] Ch 575; [1936] 1 All ER 727.
75. Lockhart v Osman [1981] VR 57; Cramaso LLP v Ogilvie-Grant [2014] AC 1093 at 1103; [2014] 2 All ER 270
at 277.
76. Wilson v Dodd [2012] EWHC 3727 (Ch) at [83].
77. (1986) 12 FCR 477 at 489-90.
78. Smith v Hughes (1871) LR 6 QB 597 at 604.

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14.35 Finally, it can be observed that the caveat emptor principle is in certain classes of
contracts overcome to some degree by implied terms at law. For example, legislation regulating
the sale of goods79 imposes duties on sellers, so that goods must correspond with any description,
be of satisfactory quality, and be reasonably fit for the purpose disclosed by the buyer. Such
obligations effectively require certain matters relevant to the goods to be disclosed. However, it
must be kept in mind that not all sales of goods will necessarily be caught by these provisions.

The representation must have been intended to induce and did

induce the innocent party to enter into the contract
14.36 In order for a false statement of fact to be an actionable misrepresentation, it must have
been intended to induce, and did induce, the representee to enter into the contract. In Edgington
v Fitzmaurice,80 Bowen LJ referred to reliance being established if the representation ‘was
actively present to [the representee’s] mind’. In Dadourian Group International Inc v Simms81
the English Court of Appeal summarised the principles relevant to inducement as follows:
(1) it is a question of fact whether a representee has been induced to enter into a transaction
by a material misrepresentation intended by the representor to be relied upon by the
representee; (2) if the misrepresentation is of such a nature that it would be likely to play a
part in the decision of a reasonable person to enter into a transaction it will be presumed that
it did so unless the representor satisfies the court to the contrary; (3) the misrepresentation
does not have to be the sole inducement for the representee to be able to rely on it: it is
enough if the misrepresentation plays a real and substantial part, albeit not a decisive part,
in inducing the representee to act; (4) the presumption of inducement is rebutted by the
representor showing that the misrepresentation did not play a real and substantial part in the
representee’s decision to enter into the transaction; the representor does not have to go so far
as to show that the misrepresentation played no part at all; and (5) the issue is to be decided
by the court on a balance of probabilities on the whole of the evidence before it.

14.37 If a representation is not directed to the other contracting party, there can be no
reliance on it and any action based upon misrepresentation will fail. In Peek v Gurney82
promoters of a company issued a prospectus that contained false statements. Shares were
applied for and allotted. The plaintiff bought shares in the company from a shareholder in
reliance upon the prospectus. The House of Lords held that the plaintiff had no rights in respect
of the misrepresentation. There was no intention by those issuing the prospectus to induce the
plaintiff to enter into the contract that he did.
14.38 A person to whom a representation has been made bears the onus of proof in
establishing that a false statement of fact was made with the intention to induce a contract
and, in addition, that they relied on the statement in entering the contract. In this respect, in
Redgrave v Hurd83 Sir George Jessel MR said:

79. See, for example, 11.30–11.32 dealing with terms implied by statute.
80. (1885) 29 Ch D 459 at 483, cited with approval in Century Financial Holdings Ltd v Jamtoff Trading Ltd
[2018] EWHC 3135 (Comm) at [26].
81. [2009] 1 Lloyd’s Rep 601 at 618, cited with approval in Zagora Management Ltd v Zurich Insurance plc
[2019] EWHC 140 (TCC) at [11.30].
82. (1873) LR 6 HL 377.
83. (1881) 20 Ch D 1 at 21–2.

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[W]hen a person makes a material representation to another to induce him to enter into a
contract, and the other enters into that contract, it is not sufficient to say that the party to
whom the representation is made does not prove that he entered into the contract, relying
upon the representation. If it is a material representation calculated to induce him to enter
into the contract, it is an inference of law that he was induced by the representation to enter
into it, and in order to take away his title to be relieved from the contract on the ground that
the representation was untrue, it must be shewn either that he had knowledge of the facts
contrary to the representation, or that he stated in terms, or shewed clearly by his conduct,
that he did not rely on the representation. If you tell a man, ‘You may enter into partnership
with me, my business is bringing in between £300 and £400 a year,’ the man who makes
that representation must know that it is a material inducement to the other to enter into the
partnership, and you cannot investigate as to whether it was more or less probable that the
inducement would operate on the mind of the party to whom the representation was made.
Where you have neither evidence that he knew facts to shew that the statement was untrue,
or that he said or did anything to shew that he did not actually rely upon the statement, the
inference remains that he did so rely, and the statement being a material statement, its being
untrue is a sufficient ground for rescinding the contract.

14.39 In relation to establishing inducement in court proceedings, in Morleand Finance Corp

(Vic) Pty Ltd v Westendorp84 Fullagar J, speaking for the Court of Appeal, said that the case of
Smith v Chadwick85 established the following propositions:
(i) If the person alleged to be induced is called as a witness and is not asked any question
directed as to whether he was induced, it is difficult to draw the inference that he was
induced; and

(ii) It follows that, where the precise verbal content of the representation is established by the
evidence but the words have two possible meanings of equal weight, one material and one not
material to inducement, and the person allegedly induced is called as a witness and swears
that the representation (quoting it verbatim) was the cause of his entering into the contract,
but does not say which of the two possible meanings he attributed to the representation,
the difficulty still remains in the way of drawing the inference — although of course much
may turn on the nature of the ambiguity and the weight to be given to the assertion of
inducement. The person who asserts inducement must assert clearly and precisely what the
inducement was.

14.40 The inference that the representee was induced by the representation can be rebutted
if the representor can show that the statement did not in fact affect the mind of the representee
to enter into the contract.86 In this respect, in Global Flood Defence Systems Ltd v Johann Van
Den Noort Beheer BV87 Hacon J said:
It is open to a defendant to show that notwithstanding his misrepresentation, the claimant
was aware of the true facts and was therefore not induced by the misrepresentation to enter
into the contract. However, it is not enough for the defendant to establish that the claimant
could have discovered the true facts, it must be shown that he did discover them.

84. [1993] 2 VR 284 at 304.

85. (1884) 9 App Cas 187.
86. Gould v Vaggelas (1984) 157 CLR 215 at 236; 56 ALR 31 at 46.
87. [2016] EWHC 99 (IPEC) at [35].

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14.41 If the representee is aware of the falsity of the statement, but is not aware of the extent of
the falsity, reliance will still be established. In Gipps v Gipps88 a dispute arose concerning the sale
of shares in a family company. The seller was the wife and the buyer the husband. A number of
representations were made relating to the value of stock and to profit. The wife knew that the
representations were wrong to some extent, however, the New South Wales Court of Appeal
held that this knowledge did not preclude the wife from relying on the representations.
14.42 If a false statement of fact is made and a representee establishes by their own enquiries
the truth of the matter and then enters into a contract, there is no misrepresentation because
the representee cannot claim to have been induced to contract on the basis of a statement that
was revealed to be false as the result of the representee’s own enquiries. In Holmes v Jones89 the
owners of a rural property offered it for sale and made false statements as to the number of
stock that were being carried on the property. The purchaser did not initially accept the offer.
However, he did so later, after he had become aware that the statements as to stock were false.
The High Court held that he was not induced by the misrepresentations.
14.43 In contrast, in Senanayake v Cheng90 Senanayake was a partner in a firm of stock brokers
and sold a portion of his share in the business to Cheng. Senanayake had represented to Cheng
that the firm was ‘a gold mine’ and this induced her to enter into the contract. After completing the
purchase, she examined the books of the firm and discovered that the representation was untrue.
Senanayake refused to return the purchase price to Cheng. The House of Lords held that she could
rescind the contract. Lord Morris said that the arrangement between Senanayake and Cheng
contemplated a continuing relationship and it would be wrong to suppose that a type of iron curtain
had fallen which precluded her seeking relief when she discovered that she had been induced by
misrepresentation. Her discovery of the facts was not possible until after she became a partner.
Therefore, it would be unfair that the mere fact of becoming a partner debarred her from relief.
14.44 However, if the representee merely had the opportunity to inquire as to the accuracy
of the statement, but declined to do so, reliance is still present and a misrepresentation is
established. In Redgrave v Hurd91 Baggallay LJ said:
The mere fact that a party has an opportunity of investigating and ascertaining whether
a representation is true or false is not sufficient to deprive him of his right to rely on
misrepresentation. … The representation once made relieves the party from an investigation,
even if the opportunity is afforded. I do not mean to say that there may not be certain
circumstances of suspicion, which might put a person upon inquiry, and make it his duty to
inquire, but under ordinary circumstances, the mere fact that he does not avail himself of
the opportunity of testing the accuracy of the representation made to him will not enable the
opposing party to succeed on that ground.

14.45 In Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd92
Moore-Bick LJ summed the position up when he observed that it was not enough for the

88. [1978] 1 NSWLR 454.

89. (1907) 4 CLR 1692; 14 ALR 89.
90. [1966] AC 63; [1965] 3 All ER 296.
91. (1881) 20 Ch D 1 at 22–3.
92. [2006] EWCA Civ 386 at [40]. See also Standard Chartered Bank v Pakistan National Shipping Corporation
[2003] 1 AC 959 at 967; [2003] 1 All ER 173 at 179; Pattinson v Flack [2002] EWCA Civ 1820 at [40];
Broadley Construction Pte Ltd v Alacran Design Pte Ltd [2018] SGCA 25 at [36].

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representor to show that the representee could have discovered the truth — rather it had to be
shown that he or she did discover the truth.
14.46 Finally, for reliance to be established, it need not be shown that the statement was
the sole inducing factor.93 It is sufficient if it is a ‘real’ factor in inducing the representee to
contract.94
14.47 However, ‘[i]t is not … sufficient for [the representee] to show merely that he was
supported or encouraged in reaching his decision by the representation in question’.95
14.48 In Mbakwe v Sarkis96 the plaintiff had a small but profitable business as a technician
servicing x-ray film processing equipment and similar equipment in hospitals. However, he
knew that he needed assistance from someone with financial skills and in late 1999 or early
2000 he appointed the defendant as his financial adviser on a monthly retainer. The plaintiff
consulted the defendant about his business on a regular basis and sought his advice on particular
matters. In addition, the defendant also offered unsolicited advice, which the plaintiff had
accepted. In March 2002 the defendant drew to the plaintiff ’s attention an opportunity to make
an unsecured loan to a property developer at what appeared to be a very attractive rate of
interest and recommended the investment to him. The plaintiff acted on this advice on three
occasions during that year and lent a total of $245,000 to the developer. In fact the borrower
and his companies were hopelessly insolvent and the moneys invested were lost. The plaintiff
sued the defendant for damages, alleging that the defendant owed him a duty of care and that
the advice had been negligent. The trial judge awarded damages. The defendant appealed,
challenging the ultimate findings of duty, reliance, and breach.
14.49 In Mbakwe v Sarkis97 the New South Wales Court of Appeal, in dismissing the appeal,
approved of the following statement from Spencer Bower, Turner, and Handley:98
It is enough that the representation was an inducing cause, it need not be the only inducing
cause. … It is enough if revelation of the material facts might have given [the plaintiff]
pause. If the misrepresentation was an inducing cause of the alteration of position, it is no
answer that other causes contributed to producing the result. As Stephenson LJ said [in] JEB
Fasteners Ltd v Marks Bloom & Co:99 ‘as long as a representation plays a real and substantial
part, though not by itself a decisive part, in inducing a plaintiff to act, it is a cause of his loss
and he relied on it, no matter how strong or how many are the other matters which played
their part in inducing him to act’.

93. Edgington v Fitzmaurice (1885) 29 Ch D 459 at 483; Gould v Vaggelas (1984) 157 CLR 215 at 236; 56 ALR 31
at 46; Henville v Walker (2001) 206 CLR 459 at 493; 182 ALR 37 at 62; Hayward v Zurich Insurance Co plc
[2016] 4 All ER 628 at 641; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia
Friendly Society Ltd (2018) 265 CLR 1 at 12–3; 360 ALR 1 at 6; BV Nederlandse Industrie Van Eiprodukten
v Rembrandt Enterprises, Inc [2019] 4 All ER 612 at 626.
94. Edgington v Fitzmaurice (1885) 29 Ch D 459 at 481.
95. Raffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2011] 1 Lloyd’s Rep 123 at [153]; Leni Gas
& Oil Investments Ltd v Malta Oil Pty Ltd [2014] EWHC 893 (Comm) at [16].
96. [2009] NSWCA 330.
97. [2009] NSWCA 330 at [24].
98. S Bower, A Turner and K Handley, Actionable Misrepresentation, 4th ed, Butterworths LexisNexis, 2000,
pp 72–3.
99. [1983] 1 All ER 583 at 589.

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14.50 A question that arises in misrepresentation cases stems from a question that is usually
put to representees, namely: What would you have done if you knew that the representation
was untrue? In Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc100 Christopher
Clarke J observed that ‘judges use their answers (or the judge’s own conclusion on the question)
to decide whether inducement has been established’. However, in cases involving fraudulent
misrepresentations, the relevance of the answer to such a question is a matter of some doubt.
In Leni Gas & Oil Investments Ltd v Malta Oil Pty Ltd101 Males J summed up the position as
follows:
[There is] a debate about the extent to which it is permitted to consider whether a claimant
would still have entered into the contract on the same terms even if it had known the true
position. Some cases suggest that as a matter of principle a dishonest defendant will not be
allowed to seek to rebut the presumption of inducement by proving that the claimant would
still have entered into the contract on the same terms even if it had known the true position.
Other cases suggest that if it can be proved what the claimant would have done if it had
known the truth, that may, depending on the facts, enable the claimant to prove that it was
indeed induced by the fraudulent representation to enter into the contract or it may enable
the defendant to prove that the claimant was not so induced.

14.51 However, the position is somewhat clearer in Australia. In Taheri v Vitek102 Leeming JA
(Bathurst CJ and Emmett JA agreeing) said:
To be clear, it would be no defence even if it were shown that [the representees] might
well have entered into the compromise absent any fraudulent misrepresentation.
As James VC put it in Re lmperial Mercantile Credit Association; Williams’ case,103 in
a passage endorsed by Meagher and Handley JJA in Demetrios v Gikas Dry Cleaning
Industries Pty Ltd104 and by Lord Millett in BP Exploration Operating Co Ltd v Chevron
Transport (Scotland):105

… I do not think a Court of Equity is in the habit of considering that a falsehood is

not to be looked at because, if the truth had been told, the same thing might have
resulted.

The authorities to the same effect were collected by Beazley JA in Macquarie Generation
v Peabody Resources.106 Her Honour107 concluded:

Thus, it is not relevant for the Court to determine whether, if the true position had
been known, the representee would or would not have altered his position in relation
to the contract. ‘It is enough if a full and exact revelation of the material facts might
have prevented him from doing so’.

100. [2011] 1 Lloyd’s Rep 123 at [181].

101. [2014] EWHC 893 (Comm) at [20].
102. (2014) 87 NSWLR 403 at 420.
103. (1869) 9 LR Eq 225 at 226.
104. (1991) 22 NSWLR 561 at 570.
105. [2003] 1 AC 197 at [105].
106. [2000] NSWCA 361 at [81].
107. Macquarie Generation v Peabody Resources [2000] NSWCA 361 at [82].

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To similar effect, in Sears v Minco plc 108

Judge Hodge QC said:
[T]he test is whether the representee would have entered into the contract had the
representation not been made, rather than what he would have done had he known
the truth. The presumption of inducement is rebutted by the representor showing that
the representation did not play a real and substantial part in the representee’s decision to
enter into the transaction; the representor does not have to go so far as to show that the
representation played no part at all in that decision. Nor is it sufficient for the representee to
show that the representation was actively present to his mind if the representor succeeds in
showing that the representation did not play a real and substantial part in the representee’s
decision to enter into the transaction.

THE ISSUE OF MATERIALITY

14.52 At issue here is whether the element of materiality is a further requirement to establish
a misrepresentation. Does the statement of fact have to be of a material fact? Many cases talk
of ‘material facts’. However, there is little authority that specifically focuses on the issue of
materiality as an element for a misrepresentation. The Australian case of Nicholas v Thompson109
clearly excludes materiality as an essential element in relation to fraudulent misrepresentations.
In England, however, in Downs v Chappell110 Hobhouse LJ listed materiality as an element to
be proven in cases based upon fraudulent misrepresentation. Similarly, in Hayward v Zurich
Insurance Co plc111 Lord Clarke said:
I would accept the submission on behalf of Zurich that materiality is evidence of inducement
because what is material tends to induce.

14.53 In relation to innocent misrepresentations, there is some slender authority suggesting

that materiality is an element. In Macquarie Generation v Peabody Resources Ltd112 Beazley JA
said that ‘[f]or an innocent misrepresentation to be actionable, the representee has to establish
both materiality and inducement’. Whether or not this is an accurate statement of the law,
it is clear that materiality is relevant to the element of reliance. Unless the statement is of a
material fact, it may well be difficult to establish that the statement induced the contract.
Indeed, in Museprime Properties Ltd v Adhill Properties Ltd113 Scott J considered materiality and
inducement as being synonymous. In a similar manner, in Bate v Aviva Insurance UK Ltd,114
in a case where there was evidence of inducement independent of the materiality of the
representation, Tomlinson LJ said:
[T]here may be cases in which the materiality is so obvious as to justify an inference of
fact that the representee was actually induced, although even in such exceptional cases the
inference may be rebutted. … This was such a case where the inference of inducement would
have been justified, had it been necessary to resort to it.

108. [2016] EWHC 433 (Ch) at [64].

109. [1924] VLR 554 at 575–6.
110. [1997] 1 WLR 426 at 433.
111. [2016] 4 All ER 628 at 640.
112. [2000] NSWCA 361 at [70].
113. (1991) 61 P & CR 111 at 124.
114. [2014] EWCA Civ 334 at [35].
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EXCLUSION CLAUSES AND MISREPRESENTATION

14.54 It is often the case that parties attempt to exclude liability for representations they have
made that are false. Although exclusion clauses in contracts are dealt with separately in this
book,115 a number of principles have been developed which have some bearing on whether a
party to a contract has any remedy in circumstances where they have been induced to enter
into an agreement by a misrepresentation.
14.55 In Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd116 Moore-Bick LJ
said:
It is common to include in certain kinds of contracts an express acknowledgment by each
of the parties that they have not been induced to enter the contract by any representations
other than those contained in the contract itself. The effectiveness of a clause of that
kind may be challenged on the grounds that the contract as a whole, including the clause
in question, can be avoided if in fact one or other party was induced to enter into it by
misrepresentation. However, I can see no reason in principle why it should not be possible
for parties to an agreement to give up any right to assert that they were induced to enter into
it by misrepresentation, provided that they make their intention clear, or why a clause of that
kind, if properly drafted, should not give rise to a contractual estoppel of the kind recognised
in Colchester Borough Council v Smith.117 However, that particular question does not arise in
this case. A clause of that kind may (depending on its terms) also be capable of giving rise to
an estoppel by representation if the necessary elements can be established.

In order to exclude liability for a misrepresentation, in Axa Sun Life Services plc v Campbell
Martin Ltd,118 Rix LJ said:
[T]he exclusion of liability for misrepresentation has to be clearly stated. It can be done by
clauses which state the parties’ agreement that there have been no representations made; or
that there has been no reliance on any representations; or by an express exclusion of liability
for misrepresentation. However, save in such contexts, and particularly where the word
‘representations’ takes its place alongside other words expressive of contractual obligation,
talk of the parties’ contract superseding such prior agreement will not by itself absolve a
party of misrepresentation where its ingredients can be proved.

14.56 This introduces the practical consideration of whether a party who has made a false
representation can nevertheless exclude the legal consequence that would ordinarily flow from
that representation. For example, if a party makes representations that are false to another
party and then, pursuant to a contractual term, attempts to obtain an agreement by the party
to whom the representation was made that they did not rely on the representation or to affirm
that no representation was in fact made, the question arises as to the effectiveness of such
contractual terms.

115. See Chapter 13.

116. [2006] EWCA Civ 386 at [57].
117. [1991] Ch 448, affirmed on appeal [1992] Ch 421; [1992] 2 All ER 561.
118. [2011] EWCA Civ 133 at [94].

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14.57 Putting aside issues relating to the general approach to the construction of exclusion
clauses,119 and whether or not a representation was false or misleading, or whether it was as
to a future matter,120 the possibility exists for a party who has made a false representation
to exclude the legal consequence that would ordinarily flow from that representation by an
appropriately worded exclusion clause or disclaimer. Invariably the issue will be determined
by ascertaining first, whether the exclusion or disclaimer, on its true construction, covers the
particular representation that was made; and second, whether the exclusion or disclaimer is
effective to exclude any reliance on the representation, taking into account the impact of any
legislation (such as the Australian Consumer Law).

119. See Chapter 13.

120. See 15.72–15.76.

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MISLEADING OR DECEPTIVE CONDUCT

INTRODUCTION
15.1 The prohibition against misleading or deceptive conduct is found in legislation.
According to Carter,1 the prohibition on misleading or deceptive conduct is one of the most
important consumer protection measures of Australian law. Originally, the prohibition was
enacted in s 52 of the Trade Practices Act 1974 (Cth).2 Today, the legislative prohibition is found
in s 18 of the Australian Consumer Law, which is Sch 2 of the Competition and Consumer
Act 2010 (Cth). It is also contained in other legislation dealing with specific areas of regulated
activity (for example, financial services3) which are outside the Australian Consumer Law.
15.2 Section 18 of the Australian Consumer Law stipulates:
A person must not, in trade or commerce, engage in conduct that is misleading or deceptive
or is likely to mislead or deceive.

15.3 Several issues arise for consideration from the wording of s 18. First, the prohibition is
directed at ‘a person’. Who are such persons? Does it include natural persons or is the prohibited
conduct confined to registered corporations of some type? Second, the prohibition is directed
only when the impugned conduct occurs in trade or commerce. Third, the section prohibits
such persons from engaging in conduct that is misleading or deceptive or likely to mislead
or deceive. This application raises questions about ascertaining how a person will be taken
to ‘engage in conduct’4 and of the appropriate tests used to determine whether the conduct is
misleading or deceptive or likely to mislead or deceive. Analogous to this exercise is ascertaining
what is ‘conduct’ for the purpose of the legislation.

1. J W Carter, ‘The Commercial Side of Australian Consumer Protection Law’ (2010) 26 Journal of Contract
Law 221 at 229.
2. As of the start of 2010, the Trade Practices Act 1974 (Cth) was renamed the Competition and Consumer
Act 2010 (Cth).
3. See s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth).
4. As will be seen at 15.17, the provisions regulating misleading or deceptive conduct are not restricted to
representations, as the question is whether a respondent’s conduct, which may include acts, omissions,
statements, or silence is misleading or likely to mislead or deceive. See Butcher v Lachlan Elder Realty Pty
Ltd (2005) 218 CLR 592 at 603; 212 ALR 357 at 365; Australian Competition and Consumer Commission
v TPG Internet Pty Ltd (2013) 250 CLR 640 at 655; 304 ALR 186 at 196; Australian Olympic Committee
v Telstra Corporation Ltd [2016] FCA 857 at [132].

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15.4 In addition to the above questions arising from the wording of s 18, it needs to be
understood that the Australian Consumer Law does not cover all areas where misleading and
deceptive conduct may take place. Relevantly, s 131A(1) of the Competition and Consumer
Act 2010 (Cth) stipulates that the provision of financial services or products is not subject
to the Australian Consumer Law. That means that conduct which is misleading or deceptive
or is likely to mislead or deceive in relation to financial services or products is not dealt with
pursuant to s 18. However, financial services and products are regulated by s 12DA of the
Australian Securities and Investments Commission Act 2001 (Cth), which largely mirrors the
provisions of s 18 of the Australian Consumer Law.
15.5 Another restriction on the application of the Australian Consumer Law is the
Commonwealth Constitution, which as a matter of practicality restricts the Commonwealth
government’s competence to legislate in relation to misleading or deceptive conduct.
This restriction, which is confirmed by s 131(1) of the Competition and Consumer
Act 2010 (Cth), confines the application of the Australian Consumer Law as a law of
the Commonwealth to the activities of corporations. In relation to persons who are not
corporations, such legislative competence rests with the various states and territories. This
means that where the Australian Consumer Law provides that the misleading or deceptive
conduct provisions relate to the actions of ‘persons’, those persons must be corporations for
the Act to apply.
15.6 However, despite the restriction on the application of the misleading or deceptive
conduct provisions in the Australian Consumer Law to corporations, each of the states and
territories has passed legislation adopting the provisions of the Australian Consumer Law as part
of its law. From a practical point of view that means that in relation to misleading or deceptive
conduct by persons who are not corporations, the provisions of the Australian Consumer Law
are enforced as a law of the state or territory where such conduct occurred. Thus, depending
upon the nature of the person engaged in misleading or deceptive conduct, the provisions of
the Australian Consumer Law will be enforced either as a law of the Commonwealth or as a law
of the relevant state or territory in identical terms.
15.7 The ambit of the necessary enquiry to ascertain whether there has been misleading or
deceptive conduct was explained in Australian Competition and Consumer Commission v Coles
Supermarkets Australia Pty Ltd5 by Allsop CJ as follows:
For the enquiry under s 18, it is necessary to identify the impugned conduct and then to
consider whether that conduct, considered as a whole and in context, is misleading or
deceptive or likely to mislead or deceive.

15.8 As will be seen later in this chapter,6 a breach of s 18(1) may result in various
remedies set out in Ch 5 of the Australian Consumer Law, such as injunctions, damages, and
compensatory orders, which can be sought by anybody and are not confined to persons who
are consumers as defined by s 3 of the Australian Consumer Law.7 The availability of such
remedies has a dramatic effect on areas of contract law traditionally dealt with by the law
relating to misrepresentation and unconscionability. Although there is much overlap between

5. (2014) 317 ALR 73 at 81.

6. See 15.89–15.97.
7. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 601; 92 ALR 193 at 195.

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what constitutes a misrepresentation under the general law and what constitutes misleading or
deceptive conduct, it must be noted that the latter is much broader than the former and is not
confined to persons standing in a contractual relationship.

THE MEANING OF ‘IN TRADE AND COMMERCE’

15.9 As noted above, for a breach of s 18(1) of the Australian Consumer Law to occur,
the misleading or deceptive conduct or conduct which is likely to mislead or deceive must
be by a person engaged in ‘trade or commerce’. Thus, an analysis of s 18(1) involves an
examination of the meaning of ‘in trade and commerce’, ‘engage in conduct’, and ‘misleading
or deceptive conduct’. Section 2 of the Australian Consumer Law states that trade and
commerce means:
(a) trade and commerce within Australia; or
(b) trade and commerce between Australia and places outside Australia; and includes any
business or professional activity (whether or not carried on for profit).

15.10 The Australian Consumer Law does not, however, define the words ‘trade’ or
‘commerce’. It has thus been left to the courts to determine the meaning of these two words.
In this respect the courts have consistently stated that the words are to be interpreted broadly.
Thus, in Larmer v Power Machinery Pty Ltd8 Nimmo J said:
I think the provisions of the Trade Practices Act, including the definition given to the
expression [‘in trade and commerce’ in the legislation] demand that a very wide meaning
be given to it. In my view, the expression is intended to cover the whole field in which the
nation’s trade or commerce is carried on. I reject the view that it is confined to any particular
event which may occur in the conduct of a business which operates within that field.

15.11 The breadth of the expression was described by Deane J in Re Ku-ring-gai Co-operative
Building Society (No 12) Ltd9 as follows:
The terms ‘trade’ and ‘commerce’ are not terms of art. They are expressions of fact and
terms of common knowledge. While the particular instances that may fall within them
will depend upon the varying phrases of development of trade, commerce and commercial
communication, the terms are clearly of the widest import. They are not restricted to
dealings or communications which can properly be described as being at arm’s length in the
sense that they are within open markets or between strangers or have a dominant objective of
profit-making. They are apt to include commercial or business dealings in finance between
a company and its members which are not within the mainstream of ordinary commercial
activities and which, while being commercial in character, are marked by a degree of altruism
which is not compatible with a dominant objective of profit-making.

15.12 The Australian Consumer Law prescribes that the alleged misleading or deceptive
conduct must occur ‘in’ trade or commerce. This has been held to mean that the conduct must

8. (1977) 29 FLR 490 at 493; 14 ALR 243 at 245–6.

9. (1978) 36 FLR 134 at 167; (1978) 22 ALR 621 at 648–9. See also Morton Seed & Grain Pty Ltd v Phillbourne
Manufacturing Pty Ltd [2018] WASC 386 at [542]; Southern Waste Resourceco Pty Ltd v Adelaide Hills
Region Waste Management Authority (No 3) [2019] SASC 192 at [142]–[149].

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be trading or commercial in nature, and not merely incidental to trade or commerce.10 In

Concrete Constructions (NSW) Pty Ltd v Nelson11 Mason CJ, Deane, Dawson, and Gaudron JJ
said:
The phrase ‘in trade or commerce’ in [s 18(1)] has a restrictive operation. It qualifies the
prohibition against engaging in conduct of the specified kind. As a matter of language,
a prohibition against engaging in conduct ‘in trade or commerce’ can be construed as
encompassing conduct in the course of the myriad of activities which are not, of their
nature, of a trading or commercial character but which are undertaken in the course of,
or as incidental to, the carrying on of an overall trading or commercial business. If the
words ‘in trade or commerce’ in [s 18(1)] are construed in that sense, the provisions of the
section would extend, for example, to a case where the misleading or deceptive conduct was
a failure by a driver to give the correct handsignal when driving a truck in the course of a
[person’s] haulage business. It would also extend to a case, such as the present, where the
alleged misleading or deceptive conduct consisted of the giving of inaccurate information by
one employee to another in the course of carrying on the building activities of a commercial
builder. Alternatively, the reference to conduct ‘in trade or commerce’ in [s 18(1)] can be
construed as referring only to conduct which is itself an aspect or element of activities or
transactions which, of their nature, bear a trading or commercial character. So construed,
to borrow and adapt words used by Dixon J. in a different context in Bank of NSW v The
Commonwealth12 the words ‘in trade or commerce’ refer to ‘the central conception’ of trade
or commerce and not to the ‘immense field of activities’ in which [persons] may engage
in the course of, or for the purposes of, carrying on some overall trading or commercial
business.

15.13 Their Honours,13 in preferring the second and narrower interpretation, then observed:
[I]t is plain that [s 18(1)] was not intended to extend to all conduct, regardless of its nature,
in which a [person] might engage in the course of, or for the purposes of, its overall trading
or commercial business. Put differently, the section was not intended to impose, by a side-
wind, an overlay of Commonwealth law upon every field of legislative control into which
a [person] might stray for the purposes of, or in connection with, carrying on its trading
or commercial activities. What the section is concerned with is the conduct of a [person]
towards persons, be they consumers or not, with whom it (or those whose interests it
represents or is seeking to promote) has or may have dealings in the course of those activities
or transactions which, of their nature, bear a trading or commercial character. Such conduct
includes, of course, promotional activities in relation to, or for the purposes of, the supply of
goods or services to actual or potential consumers, be they identified persons or merely an
unidentifiable section of the public. In some areas, the dividing line between what is and what
is not conduct in ‘trade or commerce’ may be less clear and may require an identification of
what imports a trading or commercial character to an activity which is not, without more,
of that character.

10. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 602–3; 92 ALR 193 at 196–7; Rasch
Nominees Pty Ltd v Bartholomaeus [2013] SASCFC 23 at [68], [87]–[108]; Morton Seed & Grain Pty Ltd
v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [543].
11. (1990) 169 CLR 594 at 602–3; 92 ALR 193 at 196–7.
12. (1948) 76 CLR 1 at 381.
13. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603–4; 92 ALR 193 at 197.
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15.14 The High Court decision in Concrete Constructions (NSW) Pty Ltd v Nelson14 was
summed up by the Full Court of the Federal Court in Fletcher v Nextra Australia Pty Ltd15 as
follows:
It has been observed that the High Court made a deliberate choice in Concrete Constructions
between a wide and narrow view of the expression ‘in trade or commerce’ in [s 18] and chose
the narrow view. As such ‘in trade or commerce’ would have a restrictive operation and
confine the effect of the provision to conduct which ‘is itself an aspect or element of activities
or transactions which, of their nature, bear a trading or a commercial character’.16 In Concrete
Constructions, focus was placed upon ‘the central conception’ of trade or commerce and not
the ‘immense field of activities’ in which corporations may engage in the course of, or for the
purposes of, carrying on some overall trading or commercial business. As Yates J noted in
Toben v Jones17 … conduct ‘in relation to’ or ‘in connection with’ trade or commerce is not
sufficient to engage the provision.

15.15 Consistent with these views, the following was stated in Bride v Shire of Katanning18 by
McKerracher J:
Concrete Constructions19 made clear that [s 18] … was not intended to extend to all
conduct, regardless of its nature, in which a corporation might engage for the purpose
of its overall trading or commercial business. Rather, the reference to conduct ‘in trade
or commerce’ can be construed as referring only to conduct which is itself an aspect or
element of activities or transactions which of their nature bear a trading or commercial
character.

15.16 A consequence of this interpretation is that a purely personal transaction, such as the
sale of a house used as one’s private residence, will not be caught by s 18(1) because such a sale
is not ‘in’ trade or commerce.20 This is so even if a real estate agent is concerned, although the
agent may be liable for misleading or deceptive conduct.21

THE MEANING OF ‘ENGAGE IN CONDUCT’

15.17 Section 2(2) of the Australian Consumer Law expansively details the meaning of
‘engage in conduct’ for the purposes of that legislation. Section 2(2)(a) states that ‘a reference
to engaging in conduct shall be read as a reference to do or refusing to do any act’. Further,
‘conduct’ includes the making or giving effect to a provision of a contract.22 In most cases the

14. (1990) 169 CLR 594; 92 ALR 193.

15. (2015) 229 FCR 153 at 165.
16. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603; 92 ALR 193 at 197.
17. (2012) 298 ALR 203 at [40].
18. [2016] FCA 65 at [23].
19. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; 92 ALR 193.
20. O’Brien v Smolonogov (1983) 53 ALR 107.
21. Argy v Blunts & Lane Real Estate Pty Ltd (1990) 26 FCR 112; 94 ALR 719.
22. Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 505; Campbell
v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 322; 257 ALR 610 at 623; MWH Australia Pty Ltd
v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 at 598.

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necessary ‘act’ will consist of some oral or written statement or representation,23 however, the
broad definition does not confine conduct to representations.24 It will also include a warranty
contained in a contract as to a state of affairs.25 In Google Inc v Australian Competition and
Consumer Commission,26 Hayne J stated:
The generality with which s 52 was expressed should not obscure one fundamental point. The
section prohibited engaging in conduct that is misleading or deceptive or is likely to mislead
or deceive. It is, therefore, always necessary to begin consideration of the application of the
section by identifying the conduct that is said to meet the statutory description ‘misleading
or deceptive or ... likely to mislead or deceive’. The first question for consideration is always:
‘What did the alleged contravener do (or not do)?’ It is only after identifying the conduct that
is impugned that one can go on to consider separately whether that conduct is misleading or
deceptive or likely to be so.

In some s 52 cases, in identifying conduct that is said to be misleading or deceptive or likely

to be so, it may be necessary to recognise that the Act amplified (s 4(2)(a)) the way in which
a reference to ‘engaging in conduct’ should be read. No question of that kind arose in this
appeal and the extended definition may be put aside.

Silence
15.18 It is clear that the words, ‘refusing to do any act’, means that silence can also amount to
‘engaging in conduct’.27 In relation to silence or ‘refusing to do any act’, s 2(2)(c) of the Australian
Consumer Law states that it includes:
(i) refraining (otherwise than inadvertently) from doing the act; or
(ii) making it known that the act will not be done.

The latter conduct is anticipatory of non-performance. Questions arise as to when silence may
constitute misleading and deceptive conduct28 and whether a failure to disclose a matter needs
to be intentional.

When to disclose and the effect of remaining silent

15.19 Cases involving silence fall into two categories. The first is where there is mere silence
or, as it is sometimes called, silence in isolation from other circumstances. The second is

23. Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 at 555; 79 ALR 83 at 93; Morton
Seed & Grain Pty Ltd v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [544].
24. Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 at 465; 294 ALR 404
at 424; Morton Seed & Grain Pty Ltd v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [544].
25. Peters Properties Maddington Pty Ltd v Keen [2019] WASC 138 at [160].
26. (2013) 249 CLR 435 at 464–5; 294 ALR 404 at 423–4. See also Morton Seed & Grain Pty Ltd v Phillbourne
Manufacturing Pty Ltd [2018] WASC 386 at [544]; Southern Waste Resourceco Pty Ltd v Adelaide Hills
Region Waste Management Authority (No 3) [2019] SASC 192 at [137].
27. See, for example, Redmond Family Holdings v GC Access Pty Ltd [2016] NSWSC 796; Re Elsmore Resources
Ltd [2016] NSWSC 856 at [92].
28. See McLennan v Clapham [2019] ACTSC 1 at [142]. See also Software Integrators Pty Ltd v Roadrunner
Couriers Pty Ltd (1997) 69 SASR 288 at 295–6; Commonwealth Bank of Australia v Dinh [2019] WASC 456
at [661].

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where the silence is part of a broader set of circumstances, where what is said or done may
be true at face value, but is nevertheless misleading or deceptive because of the silence. This
categorisation of silence cases was drawn in Miller & Associates Insurance Broking Pty Ltd
v BMW Australia Finance Ltd,29 where French CJ and Kiefel J said:
Where silence or non-disclosure is relied upon, the pleading should identify whether it is
alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or
whether it is an element of conduct, including other acts or omissions, said to be misleading
or deceptive.

What this means is that, as a matter of practice, a drafter of an originating process, such as
a statement of claim, must take care to clearly identify the conduct said to be misleading or
deceptive. That conduct includes any silence, if applicable.30
15.20 Some case illustrations are of assistance in explaining the impact of silence in
particular circumstances. In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1)31
Henjo operated a restaurant. The restaurant licence had a maximum seating capacity for 84
persons. In fact, the restaurant operated with capacity for 128 patrons. Collins Marrickville
contracted to purchase the restaurant, having been informed that the restaurant had a 128
seating capacity. The solicitor for Collins Marrickville failed to undertake the standard
search of the restaurant’s licence that would have revealed the true situation. After the sale
of the restaurant was completed, Collins Marrickville discovered the true situation.
The Full Court of the Federal Court held that Henjo’s failure to disclose the restaurant’s
licence details was misleading or deceptive conduct and held it liable to Collins Marrickville
for damages. Lockhart J32 said:
In the present case [Henjo] sold a business knowing that it was subject to serious
limitations upon its lawful seating capacity, limitations imposed by both the licensing
authorities and the local council which vitally affected the business, its goodwill, takings
and profitability and knowing that in fact the restaurant was being conducted contrary
to law with a substantial element of overseating. [Henjo’s] agent had given [Collins
Marrickville] to understand that the limitations upon the seating capacity and the
limitations arising from the licensing of the restaurant were less restrictive than was in
fact the case, while the manner in which the business was conducted at the time of sale
supported this understanding. In my opinion these circumstances gave rise to a duty
on the part of Henjo as vendor to reveal the true position to Collins Marrickville, the
potential purchaser, before any contract was signed. It is no answer to say that Collins
Marrickville should have made its own inquiries and that, if it had done so, it would have
found out the true position.33

29. (2010) 241 CLR 357 at 364; 270 ALR 204 at 206.
30. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 341–2; 257 ALR 610 at 638–9; Miller &
Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 364; 270 ALR 204
at 206; Westgyp Pty Ltd v Northline Ceilings Pty Ltd [2018] WASC 244 at [316].
31. (1988) 39 FCR 546; 79 ALR 83.
32. Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 at 557–8; 79 ALR 83
at 95.
33. See Redgrave v Hurd (1881) 20 Ch D 1 at 14, 17, 23 in the context of the equitable right to rescind for
innocent misrepresentation.

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15.21 In Demagogue Pty Ltd v Ramensky, Ramensky contracted to purchase Lot 5 in a

34

proposed strata development being undertaken by Demagogue. The contract set out the
proposed strata development and Lot 5 was detailed in a plan annexed to the contract. The plan
also referred to a driveway. However, what was referred to as the driveway on the plan was a
public road. Demagogue had for some two years been negotiating with the Land Administration
Commission in Queensland for the right to use the road as a driveway to the proposed flats.
Demagogue did not tell Ramensky of the issues relating to the driveway.
The Full Court of the Federal Court held that Demagogue’s silence constituted misleading
or deceptive conduct and ordered the contract to be rescinded. Black CJ held that the basis
for the finding of misleading or deceptive conduct lay in the fact that there was a reasonable
expectation that there should have been disclosure of the unusual circumstances surrounding
access to the property. His Honour35 said:
Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose
any general duty of disclosure; the question is simply whether, having regard to all the relevant
circumstances, there has been conduct that is misleading or deceptive or that is likely to
mislead or deceive. To speak of ‘mere silence’ or of a duty of disclosure can divert attention
from that primary question. Although ‘mere silence’ is a convenient way of describing some
fact situations, there is in truth no such thing as ‘mere silence’ because the significance of
silence always falls to be considered in the context in which it occurs. That context may or
may not include facts giving rise to a reasonable expectation, in the circumstances of the case
that if particular matters exist they will be disclosed.

15.22 Since the decisions in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd
(No 1)36 and Demagogue Pty Ltd v Ramensky,37 the issue of silence during trade and
commerce and the duty to disclose material facts has been considered by the High Court. In
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd38 the following
was stated:
In commercial dealings between individuals or individual entities, characterisation of
conduct will be undertaken by reference to its circumstances and context. Silence may
be a circumstance to be considered.39 The knowledge of the person to whom the conduct
is directed may be relevant. Also relevant, as in the present case, may be the existence of
common assumptions and practices established between the parties or prevailing in the
particular profession, trade or industry in which they carry on business. The judgment which
looks to a reasonable expectation of disclosure as an aid to characterising non-disclosure
as misleading or deceptive is objective. It is a practical approach to the application of the
prohibition in [s 18].40

34. (1992) 39 FCR 31; 110 ALR 608.

35. Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32; 110 ALR 608 at 609.
36. (1988) 39 FCR 546; 79 ALR 83.
37. (1992) 39 FCR 31; 110 ALR 608.
38. (2010) 241 CLR 357 at 369–71; (2010) 270 ALR 204 at 211–2.
39. Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 44.
40. See the criticism that the ‘reasonable expectation’ approach lacks underlying principle: F De Wilde, ‘The
Less Said — The Worse: Silence as Misleading and Deceptive Conduct’ (2007) 15 Trade Practices Law
Journal 7 at 10.

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To invoke the existence of a reasonable expectation that if a fact exists it will be disclosed
is to do no more than direct attention to the effect or likely effect of non-disclosure
unmediated by antecedent erroneous assumptions or beliefs or high moral expectations
held by one person of another which exceed the requirements of the general law and
the prohibition imposed by the statute. In that connection, Robson AJA in the Court
of Appeal spoke of [s 18] as making parties ‘strictly responsible to ensure they did not
mislead or deceive their customer or trading partners’.41 Such language, while no doubt
intended to distinguish the necessary elements of misleading or deceptive conduct from
those of torts such as deceit, negligence and passing off, may take on a life of its own.
It may lead to the imposition of a requirement to volunteer information which travels
beyond the statutory duty ‘to act in a way which does not mislead or deceive’.42 Cicero,
in his famous essay On Duties, seems to have contemplated such a standard when he
wrote:43

Holding things back does not always amount to concealment; but it does when you
want people, for your own profit, to be kept in the dark about something which you
know and would be useful for them to know.

It would no doubt be regarded as an unrealistic expectation, inconsistent with the protection

of that ‘superior smartness in dealing’ of which Barton J wrote in W Scott Fell & Co Ltd
v Lloyd,44 that people who hold things back for their own profit are to be regarded as engaging
in misleading or deceptive conduct. As Burchett J observed in Poseidon Ltd v Adelaide
Petroleum NL,45 [s 18] does not strike at the traditional secretiveness and obliquity of the
bargaining process. But his Honour went on to remark that the bargaining process is not to
be seen as a licence to deceive, and gave the example of a bargainer who had no intention of
contracting on the terms discussed and whose silence was to achieve some undisclosed and
ulterior purpose harmful to a competitor.

However, as a general proposition, [s 18] does not require a party to commercial negotiations
to volunteer information which will be of assistance to the decision-making of the other
party. A fortiori it does not impose on a party an obligation to volunteer information in order
to avoid the consequences of the careless disregard, for its own interests, of another party of
equal bargaining power and competence. Yet that appears to have been, in practical effect,
the character of the obligation said to have rested upon Miller in this case.

Reasonable expectation analysis is unnecessary in the case of a false representation where the
undisclosed fact is the falsity of the representation. A party to precontractual negotiations
who provides to another party a document containing a false representation which is not
disclaimed will, in all probability, have engaged in misleading or deceptive conduct. When
a document contains a statement that is true, non-disclosure of an important qualifying
fact will be misleading or deceptive if the recipient would be misled, absent such disclosure,
into believing that the statement was complete. In some cases it might not be necessary to

41. BMW Australia Finance Ltd v Miller & Associates Insurance Broking Pty Ltd [2009] VSCA 117 at [62].
42. Inderby Pty Ltd v Qinert (1995) ATPR (Digest) 46-141 at 53,115.
43. Cicero, De Officiis, bk 3, ch 57, as translated by Grant in ‘A Practical Code of Behaviour’, in Cicero: Selected
Works, rev ed (1971) 157 at 180.
44. (1906) 4 CLR 572 at 580.
45. (1991) 105 ALR 25 at 26.

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invoke non-disclosure at all where a statement which is literally true, but incomplete in some
material respect, conveys a false representation that it is complete.

15.23 The decision in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance
Ltd46 makes it clear that, as a general rule, s 18 of the Australian Consumer Law ‘does not
require a party to commercial negotiations to volunteer information which will be of assistance
to the decision-making of the other party’.47 However, if the circumstances of a particular case
give rise to a reasonable expectation that, if a fact existed, it would be disclosed, then the failure
to disclose that fact may give rise to an inference that the fact does not exist. Where there is
a reasonable expectation that, if a fact existed it would be disclosed, a failure to disclose the
existence of that fact would constitute misleading or deceptive conduct. As was stated by Hill J
in Winterton Constructions Pty Ltd v Hambros Australia Ltd:48
Obviously, it is difficult to see how a mere silence could, of itself, constitute conduct which
is misleading or deceptive … However, if the circumstances are such that a person is
entitled to believe that a relevant matter affecting him or her adversely would, if it existed,
be communicated, then the failure to so communicate it may constitute conduct which is
misleading or deceptive because the person who ultimately may act to his or her detriment
is entitled to infer from the silence that no danger of detriment existed.

15.24 In cases involving commercial transactions where parties are dealing at arms’ length,
the courts are more inclined to find that one party’s silence does not constitute engaging in
conduct amounting to a violation of s 18(1). To suggest otherwise may suggest that a party to
a commercial transaction has a general duty to volunteer information that they may possess.
This is not the case. Thus, in Miller & Associates Insurance Broking Pty Ltd v BMW Australia
Finance Ltd,49 in the context of a commercial borrower and insurance broker certain proven
non-disclosures by the broker in relation to an insurance policy were held not to be violations
of s 18(1). In the context of that case, French CJ and Kiefel J50 said:
[A]s a general proposition, [s 18] does not require a party to commercial negotiations to
volunteer information which will be of assistance to the decision-making of the other party.
A fortiori it does not impose on a party an obligation to volunteer information in order to
avoid the consequences of the careless disregard, for its own interests, of another party of
equal bargaining power and competence.

15.25 In Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd51 the failure of the
landlord’s agent to disclose to a prospective tenant that premises to be leased for conducting a
school were at risk of being contaminated was held to be engaging in conduct that violated the
prohibition against misleading or deceptive conduct.

46. (2010) 241 CLR 357; (2010) 270 ALR 204.

47. (2010) 241 CLR 357 at 371; (2010) 270 ALR 204 at 211.
48. (1992) 39 FCR 97 at 114; 111 ALR 649 at 666. See also Rafferty v Madgwicks (2012) 203 FCR 1 at 68; 287
ALR 437 at 505.
49. (2010) 241 CLR 357; 270 ALR 204. See also Ardizzone v Valentino Nominees Pty Ltd [2019] WASC 55
at [603].
50. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 371; 270
ALR 204 at 212.
51. (2004) 215 ALR 625 at 655–7.

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Does silence need to be a deliberate act?

15.26 On this question there are conflicting authorities. In Costa Vraca Pty Ltd v Berrigan
Weed & Pest Control Pty Ltd52 Finkelstein J said:
It is clear that a failure to provide information can be conduct which is misleading or
deceptive. For the purposes of [s 18(1)] ‘engaging in conduct’ is defined in [s 2(2)(a)] as a
reference to doing or refusing to do any act and by [s 2(2)(c)] a reference to refusing to do
an act includes a reference to refraining (otherwise than inadvertently) from doing that act.

However, when the complaint is that [s 18(1)] has been infringed by conduct that involves
either refusing or refraining from doing an act before that conduct is actionable it must
have been deliberately engaged in. … [T]his [follows] from the use of the words ‘refuse’
and ‘refrain’ in [s 2(2)]. This conclusion is reinforced by the fact that by [s 2(2)(c)] conduct
includes the refraining from doing an act provided it is ‘otherwise than inadvertently’. …
Accordingly, to determine whether [one] has contravened [s 18(1)] … two questions arise
for consideration. The first is whether the failure by [one] to inform [the other of the relevant
matter] was misleading or deceptive conduct. The second question is whether that conduct
was deliberate.

Generally, in commercial dealings between parties the law does not impose any obligation
upon one party to inform the other party of matters that might be important for the
other party to know before that party enters into some agreement or embarks upon some
transaction with the first party. Of course there are exceptions. There can be no fraudulent
concealment of facts. Further, some relationships require facts to be disclosed. …

Section [s 18(1)] has brought about an important change to this common law position. In
Commonwealth Bank of Australia v Mehta53 Samuels JA said that now:

… silence is not misleading only where there is a duty to disclose at common law
or in equity. It may simply be the element in all the circumstances of the case which
renders the conduct misleading or deceptive.

One circumstance where the failure to provide information will constitute misleading or
deceptive conduct is where the circumstances of the case give rise to a reasonable expectation
that if a relevant fact exists it will be disclosed. In Demagogue [Pty Ltd v Ramensky]54
Gummow J put the matter this way:

But, consistently with regard to the natural meaning of the terms of [s 18], the
question is whether in the light of all relevant circumstances constituted by acts,
omissions, statements or silence, there has been conduct which is or is likely to be
misleading or deceptive.

15.27 However, in CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd,55
Nettle JA (with whom the other members of the court agreed) said:

52. (1998) 155 ALR 714 at 722–3. See also Johnson Tiles Pty Ltd v Esso Australia (1999) 45 IPR 453 at 455; and
D’Souza v Wedgewood Road Hallam No 1 Pty Ltd [2010] FCA 765 at [69].
53. (1991) 23 NSWLR 84 at 88.
54. (1992) 39 FCR 31 at 41; 110 ALR 608 at 618.
55. (2005) ATPR 42-042 at [34].

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The second argument is both wrong in law and contrary to the evidence and the findings
below. As to the law, the misleading and deceptive quality of remaining silent inheres in the
non-disclosure of information; not in any refusal to provide it. Consequently, it does not
follow from the fact that a failure to act must be intentional in order to be actionable, that
silence must be intentional in order to be actionable. It is plain in principle and authority that
it is not necessary that silence be intentional in order that it may constitute misleading and
deceptive conduct for the purposes of s 52 [of the Trade Practices Act 1974 (Cth)].

15.28 Later, in Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd,56 the Western
Australian Court of Appeal adopted the view taken in CCP Australian Airships Ltd v Primus
Telecommunications Pty Ltd.57 The court referred to the observation of Gummow J (with whom
Black CJ and Cooper J agreed) in Demagogue Pty Ltd v Ramensky:58
But in any case, where a failure to speak is relied upon, the question must be whether in
the particular circumstances the silence constitutes or is part of misleading or deceptive
conduct. The expanded meaning given by s 4(2) to ‘conduct’ should not distract attention
from the fundamental issue in the case at hand.

15.29 More recently, the Court of Appeal in the Australian Capital Territory in Clarkson
Williams Partners Pty Ltd v Vaughan,59 agreed with the view taken in CCP Australian Airships
Ltd v Primus Telecommunications Pty Ltd60 and Owston Nominees No 2 Pty Ltd v Clambake Pty
Ltd,61 and held that ‘[a]n inadvertent failure to disclose relevant information is capable of being
just as misleading or deceptive as the deliberate withholding of the same information’.62

The position on silence — in summary

15.30 The relevant principles relating to s 42 of the Fair Trading Act 1987 (NSW) (which
was the equivalent to s 52 of the Trade Practices Act 1974 (Cth) and now s 18 of the Australian
Consumer Law) were summarised in Fabcot Pty Ltd v Port Macquarie-Hastings Council63 by
Sackville AJA as follows:64

(i) For conduct to be misleading or deceptive it is not necessary that it convey an

express or implied representation.65 It is sufficient that the conduct leads or is
likely to lead another party into error.66

56. (2011) 248 FLR 193 at 237.

57. (2005) ATPR 42-042.
58. (1992) 39 FCR 31 at 40; 110 ALR 608 at 617.
59. [2016] ACTCA 1 at [78].
60. (2005) ATPR 42-042.
61. (2011) 248 FLR 193.
62. Clarkson Williams Partners Pty Ltd v Vaughan [2016] ACTCA 1 at [78]. See also Yorke v Lucas (1985) 158
CLR 661 at 666. See also Tuggeranong Town Centre Pty Ltd v Brenda Hungerford Pty Ltd (No 2) [2017]
ACTSC 88 at [951]–[953].
63. [2011] NSWCA 167 at [209].
64. This summary was cited with approval in Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015]
NSWCA 94 at [192]; OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 at [178];
Re Elsmore Resources Ltd [2016] NSWSC 856 at [993].
65. Butcher v Lachlan Elder Realty Pty Ltd (2005) 218 CLR 592 at 603; 212 ALR 357 at 365; Miller & Associates
Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 368; 270 ALR 204 at 210.
66. Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564, at 589–90; Butcher v Lachlan Elder Realty
Pty Ltd (2005) 218 CLR 592 at 626; 212 ALR 357 at 384; Miller & Associates Insurance Broking Pty Ltd
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(ii) In a case of alleged misleading or deceptive conduct as a result of non-disclosure, it is

not necessary to show that the alleged contravenor knew of the facts not disclosed.67
However, knowledge may be relevant, for example, where disclosure of a fact would
reasonably be expected if the fact were known to the alleged contravenor.68
(iii) The question in a case of alleged misleading or deceptive conduct as a result of non-
disclosure is whether in the light of all relevant circumstances, there has been conduct
which is misleading or deceptive.69 While the circumstances in which silence can be
characterised as misleading or deceptive cannot be exhaustively defined, unless they
give rise to a reasonable expectation that if some relevant fact exists it will be disclosed,
mere silence will not support the inference that the fact does exist.70
(iv) In commercial dealings between individual entities, the characterisation of conduct
must be undertaken by reference to circumstances and context.71 The relevant
circumstances include the knowledge of the person who claims to have been misled
and any common assumptions or practices established between the parties or in the
particular activity or business in which they are engaged.72
(v) The language of reasonable expectation is not statutory but is an aid to characterising
non-disclosure as misleading or deceptive. The judgment as to whether there is such a
reasonable expectation is objective.73
(vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed,
directs attention to the effect or likely effect of non-disclosure unmediated by
antecedent erroneous assumptions or beliefs, or high moral expectations that exceed
the requirements of the general law or of the prohibition imposed by s 42 of the Fair
Trading Act.74
(vii) In general, s 42 of the Fair Trading Act does not require a party to commercial
negotiations to volunteer information which will assist the decision-making of the
other party. A fortiori, s 42 does not require a party to volunteer information in order
to avoid the careless disregard of its own interests of a party of equal bargaining power
and competence.75

v BMW Australia Finance Ltd (2010) 241 CLR 357 at 368; 270 ALR 204 at 210; Australian Competition and
Consumer Commission v viagogo AG [2019] FCA 544 at [15].
67. Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 467; Johnson Tiles Pty Ltd v Esso Australia Ltd (2000)
104 FCR 564 at 591.
68. Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564 at 591.
69. Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 41; 110 ALR 608 at 618.
70. Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054 at 53,195, approved in Demagogue
v Ramensky (1992) 39 FCR 31 at 41; 110 ALR 608 at 618–19; Miller & Associates Insurance Broking Pty Ltd
v BMW Australia Finance Ltd (2010) 241 CLR 357 at 368; 270 ALR 204 at 210.
71. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 369–70;
270 ALR 204 at 211.
72. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 369–70;
270 ALR 204 at 211.
73. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 369–70;
270 ALR 204 at 211.
74. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 370; 270
ALR 204 at 211–2.
75. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 370; 270
ALR 204 at 212.

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15.31 To this summary, one could also add the following issues involved in analysing the
possible effect of silence by one person on another person:
(a) whether, in a particular case, the pleading has identified whether silence is alleged of
itself to be, in the circumstances of the case, misleading or deceptive conduct or whether
it is an element of conduct, including other acts or omissions, said to be misleading or
deceptive;
(b) silence is a circumstance like any other to be taken into account in determining whether
conduct is misleading or deceptive. The question is whether in all the circumstances the
conduct leads or is likely to lead a person into error;76
(c) whether a person who is said to have been misled or deceived had a reasonable expectation
that if the relevant matter existed it would be disclosed.77 The test is an objective one.78
Reasonable expectation is not a statutory prescription, but rather an ‘approach which
can be taken to the characterisation, for the purposes of [s 18], of conduct consisting of,
or including, non-disclosure of information. That approach may differ in its application
according to whether the conduct is said to be misleading or deceptive to members of the
public, or whether it arises between entities in commercial negotiations. An example in
the former category is non-disclosure of material facts in a prospectus.’79
(d) whether the failure to disclose a matter would allow one party to infer from the other’s
silence that that matter did not exist;80
(e) the materiality of information which is not disclosed will be relevant to whether a non-
disclosure of it is misleading;81
(f) as will be seen later in this chapter, the question whether conduct is misleading or
deceptive or likely to mislead or deceive is distinct from and logically anterior to the
question whether a person has suffered loss or damage because of the conduct of another
person, and is therefore entitled to damages under s 236 of the Australian Consumer
Law or an order under s 237, although there may be practical overlaps in the resolution
of the two questions.82

76. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 368–71;
270 ALR 204 at 210–2; Australia and New Zealand Banking Group Ltd v James (No 3) [2019] NSWSC 832
at [72].
77. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 369; 270
ALR 204 at 211; Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209]; Woollahra
Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257 at [110]; OXS Pty Ltd v Sydney Harbour
Foreshore Authority [2016] NSWCA 120 at [178]; Australia and New Zealand Banking Group Ltd v James
(No 3) [2019] NSWSC 832 at [72].
78. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 319; 257 ALR 610 at 620; Miller &
Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 369; 270 ALR
204 at 211; Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209]; Woollahra
Municipal Council v Secure Parking Pty Ltd [2015] NSWSC 257 at [110]; OXS Pty Ltd v Sydney Harbour
Foreshore Authority [2016] NSWCA 120 at [178]; Australia and New Zealand Banking Group Ltd v James
(No 3) [2019] NSWSC 832 at [72].
79. Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; 270 ALR
204 at 211.
80. Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; 110 ALR 608; Winterton Constructions Pty Ltd v Hambros
Australia Ltd (1992) 39 FCR 97; 111 ALR 649; Re Elsmore Resources Ltd [2016] NSWSC 856 at [92]–[93].
81. Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC
192 at [362]; Re Elsmore Resources Ltd [2016] NSWSC 856 at [92]–[93].
82. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 318; 257 ALR 610 at 620; Australia and
New Zealand Banking Group Ltd v James (No 3) [2019] NSWSC 832 at [73].

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THE MEANING OF ‘MISLEADING OR DECEPTIVE’

15.32 The focal point of s 18 — that is, ‘misleading or deceptive’ conduct — is not defined
in the Australian Consumer Law. What can be said is that s 18 has been broadly interpreted by
the courts and has a broader scope of operation than the tort of passing off.83 Further, as was
observed by French CJ and Kiefel J in Miller & Associates Insurance Broking Pty Ltd v BMW
Australia Finance Ltd:84
The cause of action for contravention of statutory prohibitions against conduct in trade or
commerce that is misleading or deceptive or is likely to mislead or deceive has become a
staple of civil litigation in Australian courts at all levels.

15.33 In Brown v Jam Factory Pty Ltd85 Fox J said the following in relation to ascertaining the
what was formerly contained in s 52 of Trade Practices Act 1974 (Cth) (s 18(1) of the Australian
Consumer Law):
Section 52 is a comprehensive provision of wide impact, which does not adopt the language
of any common law cause of action. It does not purport to create liability at all; rather does
it establish a norm of conduct, failure to observe which has consequences provided for
elsewhere in the same statute, or under the general law. … In my view effect should be
given to the ordinary meaning of the words used. They should not be qualified or (if it be
possible) expanded, by reference to established common law principles of liability. At the
same time, known concepts, such as those concerning the torts of deceit and passing off and
the analyses made of them over the years, may prove helpful in deciding a case under s 52.
… One looks to the audience, or the relevant part of it, and, eccentricities and absurdities
aside, asks whether the conduct complained of was to them misleading or deceptive; but the
question is not simply whether they (or he) were (or was) misled. Whether the conduct was
misleading or deceptive is a matter for the court. … Conduct will not mislead or deceive a
person having a conscious awareness of the true facts or correct information.

15.34 Consistent remarks on the meaning of the words used in the statutory predecessor to
those used in s 18 of the Australian Consumer Law were made by the Full Court of the Federal
Court in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1),86 where Lockhart J
said:
The Compact Edition of the Oxford English Dictionary 1987 defines the word ‘mislead’ in
its transitive sense as ‘to lead astray in action or conduct; to lead into error; to cause to err’.
‘Deceive’ is defined as ‘to ensnare; to take unawares by craft or guile; to overcome, overreach,
get the better of by trickery; to beguile or betray into mischief or sins; to mislead’. … The two
words, ‘misleading’ and ‘deceptive’, are plainly not synonymous. That is not to say that each
word may not catch some of the same conduct and that there may not be some degree of
overlap. ‘Mislead’ does not necessarily involve an element of intent and it is a word of wider
reach than ‘deceive’. However, it is difficult, in my opinion, to read the word ‘deceive’ in [s 18]

83. Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216
at 227; 18 ALR 639 at 646; Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235
at [273], [277]–[282].
84. (2010) 241 CLR 357 at 364; 270 ALR 204 at 206.
85. (1981) 53 FLR 340 at 348–9; 35 ALR 79 at 86.
86. (1988) 39 FCR 546 at 554–5; 79 ALR 83 at 92–3.

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other than as involving some degree of moral turpitude as it does in ordinary English usage.
Trickery, craft and guile, though not essential elements of liability, are typically at the heart
of this second element of the statutory provision directed to the protection of the public from
unfair trading practices.

15.35 A number of cases contain summaries of the principles to be applied in relation to the
proper interpretation of s 18 and its statutory predecessor.87
15.36 First, whether conduct is misleading or deceptive or likely to mislead or deceive is an
objective question which the court must determine for itself88 after exercising ‘a judgment of
a notional cause and effect relationship between the conduct and the putative consumer’s state
of mind’.89
15.37 Second, in assessing whether conduct amounts to misleading or deceptive conduct the
relevant date is the date the conduct commenced.90 Such conduct does not have to ‘endure up to
some “point of sale”’91 and is not limited to conduct which induces or is likely to induce entry into
a transaction. ‘Conduct which misleads a consumer so that, under some mistaken impression
of a trader’s connection or affiliation, he or she opens negotiations or invites approaches may be
misleading or deceptive even if the true position emerges before the transaction is concluded.’92
15.38 Third, there is no meaningful difference between the words and phrases ‘misleading or
deceptive’, ‘mislead or deceive’ or ‘false or misleading’.93
15.39 Fourth, conduct is misleading or deceptive, or likely to mislead or deceive, if it has a
tendency to lead into error.94 That means that there must be a sufficient causal link between
the impugned conduct or apprehended conduct and the error or misconception on the part

87. Equity Access Pty Ltd v Westpac Banking Corporation (1990) ATPR 40-994 at 50,950; Comité Interprofessionnel
du Vin de Champagne v Powell [2015] FCA 1110; Sydney Medical Service Co-operative Ltd v Lakemba
Medical Services Pty Ltd [2016] FCA 763 at [14]; Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd
[2016] FCA 235 at [260]–[273].
88. Equity Access Pty Ltd v Westpac Banking Corporation (1990) ATPR 40–994 at 50,950. The objective test is
dealt with at 15.65.
89. SAP Australia Pty Ltd v Sapient Australia Pty Ltd (1999) 169 ALR 1 at 14; Australian Competition and
Consumer Commission v viagogo AG [2019] FCA 544 at [15].
90. Optical 88 Ltd v Optical 88 Pty Ltd (No 2) (2010) 275 ALR 526 at 589–90; Flexopack SA Plastics Industry
v Flexopack Australia Pty Ltd [2016] FCA 235 at [275].
91. Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [269].
92. SAP Australia Pty Ltd v Sapient Australia Pty Ltd (1999) 169 ALR 1 at 14. See also Verrocchi v Direct
Chemist Outlet Pty Ltd (2016) 247 FCR 570 at 581; Australian Competition and Consumer Commission
v viagogo AG [2019] FCA 544 at [28].
93. Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 at [14]; Australian
Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2014) 317 ALR 73 at 81;
Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [260].
94. Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198–9; Campbell v Backoffice
Investments (2009) 238 CLR 304 at 319; 257 ALR 610 at 620; Miller & Associates Insurance Broking Pty Ltd
v BMW Australia Finance Ltd (2010) 241 CLR 357 at 368; 270 ALR 204 at 210; Australian Competition and
Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at 651; 304 ALR 184 at 194; Flexopack
SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [263]; Morton Seed & Grain Pty Ltd
v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [545]; McLennan v Clapham [2019] ACTSC 1
at [141].

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of persons exposed to it.95 According to Beach J in Flexopack SA Plastics Industry v Flexopack

Australia Pty Ltd,96 ‘[s]ubject to one qualification, the error or misconception must result
from the respondent’s conduct and not from other circumstances for which the respondent
was not responsible. But conduct that exploits or feeds into and thereby reinforces the pre-
existing mistaken views of members of the relevant class may be misleading or deceptive
or likely to mislead or deceive’. The conduct regulated is not confined to the prohibition of
misrepresentations.97
15.40 Fifth, where, as in Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd,98
the focus of the inquiry was on the effect of the conduct or representation by the use by the
respondents of particular words, such as ‘Flexopack’ and ‘Flexopack Australia’, on the relevant
class of persons to whom the conduct or those representations were directed the court found:
[I]n the case of a descriptive or generic word, for an applicant to make good an allegation
of affiliation it may need to demonstrate that the word has acquired a secondary meaning
and become distinctive of the applicant’s business. Whether a secondary meaning exists is a
question of fact to be determined having regard to all the relevant contextual circumstances.
It is also said that it may be difficult to establish that a descriptive name, as opposed to a
concocted or invented name, has become distinctive of the applicant’s business.

Relatedly, however, there is no requirement under the Australian Consumer Law to show
an exclusive reputation.99 Indeed, query whether it is necessary to show a reputation at all.100
But perhaps it may be said that one need show only ‘[v]ery slight activities’ and it can be
established even without retail sales.101

15.41 Sixth, conduct causing mere confusion102 or uncertainty or wonderment103 in the

minds of the public is not necessarily coextensive with misleading or deceptive conduct.104

95. SAP Australia Pty Ltd v Sapient Australia Pty Ltd (1999) 169 ALR 1 at 14; Australian Competition and
Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at 651–2; 304 ALR 186 at 194. See also
Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2014) 317 ALR
73 at 81; Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [266].
96. [2016] FCA 235 at [267].
97. Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 at 465; 294 ALR 404
at 424; Morton Seed & Grain Pty Ltd v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [544].
98. [2016] FCA 235 at [271]–[272].
99. Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (2007) 159 FCR 397 at 418–9.
100. See Heerey J in Woodtree Pty Ltd v Zheng (2007) 164 FCR 369 at 376.
101. Miki Shoko Co Ltd v Merv Brown Pty Ltd [1988] ATPR 40-858 at 49,278.
102. Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 201; SAP Australia Pty Ltd v Sapient
Australia Pty Ltd (1999) 169 ALR 1 at 14; Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd
[2016] FCA 235 at [263]; Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2020]
FCAFC 130 at [22].
103. Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 201; Campomar Sociedad, Limitada v Nike
International Ltd (2000) 202 CLR 45 at 87; 169 ALR 677 at 703–5; Google Inc v Australian Competition and
Consumer Commission (2013) 249 CLR 435 at 443; 294 ALR 404 at 407; Flexopack SA Plastics Industry
v Flexopack Australia Pty Ltd [2016] FCA 235 at [263]; Australian Olympic Committee v Telstra Corporation
Ltd [2016] FCA 857 at [132].
104. See also Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 201; Equity Access Pty Ltd
v Westpac Banking Corporation (1990) ATPR 40-994 at 50,950; Campomar Sociedad, Limitada v Nike
International Ltd (2000) 202 CLR 45 at 87; 169 ALR 677 at 703–5; Google Inc v Australian Competition and

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Furthermore, ‘conduct that is merely transitory or ephemeral where any likely misleading
impression is likely to be readily or quickly dispelled or corrected does not constitute conduct
that would infringe s 18’.105
15.42 Seventh, as to whether the conduct is likely to mislead or deceive, this will occur if
there is a real, and not remote, chance or possibility of misleading or deceiving, regardless of
whether it is more or less than 50 per cent.106 However, in Parkdale Custom Built Furniture Pty Ltd
v Puxu Pty Ltd107 Gibbs CJ observed that the words ‘likely to mislead or deceive’ added little to
the meaning of s 18 and that ‘at most they make it clear that it is unnecessary to prove that the
conduct in question actually deceived or misled anyone’.108
15.43 Eighth, any assessment of s 18 involves an identification of the relevant conduct and a
consideration of whether that conduct, considered as a whole109 and in context, is misleading
or deceptive or likely to mislead or deceive. It has been affirmed that ‘[s]uch conduct is not to
be pigeon-holed into the framework or language of representation’.110
15.44 Ninth, where the issue is the effect of particular conduct on a class of persons
(rather than identified individuals to whom a particular false representation has been made
or particular conduct directed), the focus of the inquiry is on whether ‘a not insignificant
number’111 of ordinary or reasonable members within the class have been misled or deceived or
are likely to have been misled or deceived by the respondent’s conduct.112 According to Beach J
in Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd:113
The Campomar formulation looks at the issue in a normative sense. The reactions of the
hypothetical individual within the class are considered. The hypothetical individual is a

Consumer Commission (2013) 249 CLR 435 at 443; 294 ALR 404 at 407; Comité Interprofessionnel du Vin
de Champagne v Powell (2015) 330 ALR 67; Sydney Medical Service Co-operative Ltd v Lakemba Medical
Services Pty Ltd [2016] FCA 763 at [14]; Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016]
FCA 235 at [260]–[273]; Australian Olympic Committee v Telstra Corporation Ltd [2016] FCA 857 at [132].
105. Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [268]. See also Knight
v Beyond Properties Ltd (2007) 242 ALR 586 at 598–9.
106. Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87; 55 ALR 25 at 30; MacCormick
v Nowland (1988) ATPR 40-852; Equity Access Pty Ltd v Westpac Banking Corporation (1990) ATPR
40-994 at 50,950; Australian Competition & Consumer Commission v Dateline Imports Pty Ltd [2015]
FCAFC 114 at [179]; Sydney Medical Service Co-operative Ltd v Lakemba Medical Services Pty Ltd [2016]
FCA 763 at [12]; Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [264];
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2020] FCAFC 130 at [22].
107. (1982) 149 CLR 191 at 198; 42 ALR 1 at 6.
108. See also Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [268]; Sydney
Medical Service Co-operative Ltd v Lakemba Medical Services Pty Ltd [2016] FCA 763 at [11]; Australian
Competition and Consumer Commission v TPG Internet Pty Ltd [2020] FCAFC 130 at [22].
109. Campbell v Backoffice Investments (2009) 238 CLR 304 at 341–2; 257 ALR 610 at 638–9; Morton Seed &
Grain Pty Ltd v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [545].
110. Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [262].
111. National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90 at [70]–[71];
Peter Bodum A/S v DKSH Australia Pty Ltd (2011) 280 ALR 639 at 680–2; Flexopack SA Plastics Industry
v Flexopack Australia Pty Ltd [2016] FCA 235 at [270].
112. Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at 85; 169 ALR 677 at 703–4;
Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [261], [270].
113. [2016] FCA 235 at [270].
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reasonable or ordinary member of the class. Does satisfying the Campomar formulation
satisfy the ‘not insignificant number’ requirement? I am inclined to the view that if, applying
the Campomar test, reasonable members of the class would be likely to be misled, then such
a finding carries with it that a significant proportion of the class would be likely to be misled.
But if I am wrong and that a finding of a ‘not insignificant number’ of members of the class
being likely to be misled is an additional requirement that needs to be satisfied, then I would
make that finding in the present case.

However, in Australian Competition & Consumer Commission v TPG Internet Pty Ltd,114 the
Full Court of the Federal Court took the view that the ‘significant number test’ is not required
by the language of s 18, although it recognised that it was ‘open for a party to seek to establish
that conduct is misleading by establishing that persons were in fact misled, and in such cases
it may be necessary to establish that the number of such persons was significant in order to
persuade the court that the conduct was misleading or deceptive or likely to mislead or deceive’.
15.45 Tenth, the objective characteristics that one attributes to ordinary or reasonable members
of the relevant class may differ depending on the medium for communication being considered.115
15.46 Eleventh, it is not a requirement of s 18 for an applicant to prove actual damage.116

Conduct in the form of spoken words

15.47 Where the conduct or the representation is in the form of words, it is wrong to just
focus on some words and ignore others that may provide relevant context and give meaning to
the impugned words. In other words, it is necessary to have regard to the effect of the document
in the context of the evidence as a whole. A court is not confined to examining the document
in isolation and ‘must have regard to all the conduct in relation to the document including the
preparation and distribution of the document and any statement, action, silence or inaction in
connection with the document’.117
15.48 In cases where it is claimed that spoken words constitute misleading or deceptive
conduct, the applicant must clearly identify the words that the respondent is alleged to have
spoken. In this respect, in Watson v Foxman118 McLelland CJ in Eq said:

114. [2020] FCAFC 130 at [23].

115. Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [261].
116. Flexopack SA Plastics Industry v Flexopack Australia Pty Ltd [2016] FCA 235 at [277].
117. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 625; 212 ALR 357 at 383–4; Campbell
v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 341–2; 257 ALR 610 at 638–9; Australian Olympic
Committee v Telstra Corporation Ltd [2016] FCA 857 at [132].
118. (1995) 49 NSWLR 315 at 318–9. See also Christofidellis v Zdrilic [1999] FCA 39 at [39]; Hayle Holdings Pty
Ltd v Australian Technology Group Ltd [2000] FCA 1242 at [240]; ACCC v Australian Safeway Stores Pty Ltd
(No 2) [2001] FCA 1861 at [72]; Hadgkiss v Blevin [2004] FCA 697 at [34]; Harbour Port Consulting v NSW
Maritime [2011] NSWSC 813 at [10]–[18]; Morton Seed & Grain Pty Ltd v Phillbourne Manufacturing
Pty Ltd [2018] WASC 386 at [549]; Flourentzou v Spink [2019] NSWCA 315 at [24]; Volonakis v Erceg [2019]
NSWSC 1875 at [146]; Atanaskovic v Birketu Pty Ltd [2019] NSWSC 1006 at [366]; Tonna v Mendonca
[2019] NSWSC 1849 at [19]; Snowden v Australian Mortgage Assist Pty Ltd [2019] NSWSC 1799 at [72];
Australian Competition and Consumer Commission v Ramsay Health Care Australia Pty Ltd [2020] FCA
308 at [6]; Chetwynd v Rose [2020] NSWSC 111 at [154].

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Where, in civil proceedings, a party alleges that the conduct of another was misleading or
deceptive, or likely to mislead or deceive … within the meaning of [s 18], it is ordinarily
necessary for that party to prove to the reasonable satisfaction of the court: (1) what the
alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where
the conduct is the speaking of words in the course of a conversation, it is necessary that
the words spoken be proved with a degree of precision sufficient to enable the court to be
reasonably satisfied that they were in fact misleading in the proved circumstances. In many
cases (but not all) the question whether spoken words were misleading may depend upon
what, if examined at the time, may have been seen to be relatively subtle nuances flowing
from the use of one word, phrase or grammatical construction rather than another, or the
presence or absence of some qualifying word or phrase, or condition. Furthermore, human
memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily
the degree of fallibility increases with the passage of time, particularly where disputes or
litigation intervene, and the processes of memory are overlaid, often subconsciously, by
perceptions of self-interest as well as conscious consideration of what should have been said
or could have been said. All too often what is actually remembered is little more than an
impression from which plausible details are then, again often subconsciously, constructed.
All this is a matter of ordinary human experience.

Each element of the cause of action must be proved to the reasonable satisfaction of the
court, which means that the court ‘must feel an actual persuasion of its occurrence or
existence’. Such satisfaction is ‘not … attained or established independently of the nature
and consequence of the fact or facts to be proved’ including 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’.119

Considerations of the above kinds can pose serious difficulties of proof for a party relying
upon spoken words as the foundation of a cause of action based on s 52 of the Trade
Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable
contemporaneous record or other satisfactory corroboration.

15.49 The requirement for proof with a sufficient degree of precision referred to in Watson
v Foxman does not amount to a requirement ‘to prove the precise words spoken ... But the court
needs to be satisfied, bearing in mind the civil standard of proof, that words were spoken that
would reasonably convey the representation asserted’.120 Further, the state of mind of the person
who makes a statement of a past or present fact is irrelevant unless the statement relates to the
state of mind of that person.121

When conduct is misleading or deceptive — relevance of the

target audience
15.50 For a violation of s 18 to occur, the conduct engaged in must be misleading or deceptive.
Whether this is so depends upon the context in which the conduct took place. Resolution of
this issue is ‘a question of fact to be answered in the context of the evidence as to the alleged

119. Helton v Allen (1940) 63 CLR 691 at 712. See also Chetwynd v Rose [2020] NSWSC 111 at [154].
120. David Clarke Airconditioning Pty Ltd v Quann (No 3) [2017] WASC 91 at [221]; Morton Seed & Grain Pty
Ltd v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [550].
121. Australian Competition & Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114 at [179].

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conduct and as to relevant surrounding facts and circumstances’.122 This initially involves an
identification of the target audience at which the conduct is directed.123 In identifying the target
audience, a distinction is drawn between conduct directed at specific individuals and conduct
directed at the public generally.124
15.51 This issue was dealt with in the following way125 in Parkdale Custom Built Furniture Pty
Ltd v Puxu Pty Ltd,126 where Gibbs CJ said:
Section [18] does not expressly state what persons or class of persons should be considered as
the possible victims for the purpose of deciding whether conduct is misleading or deceptive
or likely to mislead or deceive. It seems clear enough that consideration must be given to
the class of consumers likely to be affected by the conduct. Although it is true, as has often
been said, that ordinarily a class of consumers may include the inexperienced as well as
the experienced, and the gullible as well as the astute, the section must in my opinion by
regarded as contemplating the effect of the conduct on reasonable members of the class. The
heavy burdens which the section creates cannot have been intended to be imposed for the
benefit of persons who fail to take reasonable care of their own interests. What is reasonable
will of course depend on all the circumstances.

Conduct directed at specific individuals

15.52 In cases where there is an allegation that misleading or deceptive conduct induced a
specific individual or individuals to enter into a contract, in reaching its determination on the
issue, the court must take into account everything that the other party did up to the time that
the contract was entered into.127 In Campbell v Backoffice Investments Pty Ltd128 French CJ said:
Characterisation [of the conduct] may proceed by reference to the circumstances and context
of the questioned conduct. The state of knowledge of the person to whom the conduct is
directed may be relevant, at least in so far as it relates to the content and circumstances of
the conduct.

15.53 In Butcher v Lachlan Elder Realty Pty Ltd129 Butcher and Radford were the purchasers of
land situated in Rednal Street, Mona Vale (the Rednal land) from its then registered proprietor,
Harkins. The Rednal land was a valuable waterfront property on the southern shore of Pittwater,
a large bay to the north of Sydney. Lachlan Elder Realty Pty Ltd (the agent) acted for Harkins
in that sale. Butcher and Radford, claiming that the agent had breached the then equivalent
of s 18, sued the agent for damages, claiming (among other things) that a colour advertising
brochure issued by the agent in relation to the Rednal land was misleading or deceptive because
it misrepresented the location of a swimming pool that was alleged to be wholly within the
freehold land that was partly demarcated by the mean high water mark. The colour advertising

122. Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 199.
123. Weitman v Katies (1977) 29 FLR 336 at 339–41.
124. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 319; 257 ALR 610 at 620.
125. Optical 88 Ltd v Optical 88 Pty Ltd (No 2) [2010] FCA 1380 at [336]–[342]; Australian Olympic Committee
v Telstra Corporation Ltd [2016] FCA 857 at [132].
126. (1982) 149 CLR 191 at 199; 42 ALR 1 at 6.
127. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 604–5; 212 ALR 357 at 366–7.
128. (2009) 238 CLR 304 at 319; 257 ALR 610 at 620.
129. (2004) 218 CLR 592; 212 ALR 357.
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brochure was a two-sided document. On one side it contained a reproduction of an older survey
that had been prepared in relation to the Rednal land. This survey showed that the swimming
pool at the back of the property was within the freehold land as partly demarcated by the mean
high water mark. The reality was that the mean high water mark actually traversed through the
middle of the swimming pool. The evidence was that all the information that was contained on
the colour advertising brochure produced by the agent, including the survey documentation,
came from documents provided by Harkins and was approved by him.
15.54 A majority of the High Court held that the agent did not engage in misleading or
deceptive conduct towards Butcher and Radford. The agent did no more than communicate,
without adopting or endorsing, what Harkins was representing.
15.55 In coming to their conclusion that that the agent had done no more than communicate
what the vendor had represented and that it did not adopt or endorse the vendor’s statement,
the High Court majority130 said that this conclusion flowed from the specific circumstances
of the case. These included the nature of the parties, the character of the transaction that was
contemplated, and the contents of the brochure itself.
15.56 The same approach is also apparent from the judgment of McHugh J, who dissented in
relation to the result in this case. However, on the point in issue, namely, whether information
had merely been passed on or not, his Honour131 observed that the authorities indicate that in
determining whether there had been a contravention of the equivalent of s 18, two things are
important:
(1) whether the corporation assumed responsibility for or adopted (or endorsed or used its
name in association with) the information so that it would be reasonable for a recipient to
rely on the information; and (2) whether the corporation disclaimed any belief in the truth
or falsity of the information or disclaimed any personal responsibility for what it conveyed.

15.57 McHugh J132 then referred to Gardam v George Wills & Co Ltd,133 where French J had
said:
The innocent carriage of a false representation from one person to another in circumstances
where the carrier is and is seen to be a mere conduit, does not involve him in making that
representation. … When, however, a representation is conveyed in circumstances in which
the carrier would be regarded by the relevant section of the public as adopting it, then he
makes that representation. It will be a question of fact in each case.

15.58 Thus the character of the particular conduct of the conveyor of the information is
important. In Butcher v Lachlan Elder Realty Pty Ltd134 Gleeson CJ, Hayne, and Heydon JJ
stated the following:
[I]t is necessary to consider the character of the particular conduct of the particular agent in
relation to the particular purchasers, bearing in mind what matters of fact each knew about
the other as a result of the nature of their dealings and the conversations between them, or

130. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 615–6; 212 ALR 357 at 375–6.
131. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 627; 212 ALR 357 at 385.
132. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 627; 212 ALR 357 at 385.
133. Gardam v George Wills & Co Ltd (1988) 82 ALR 415 at 427.
134. (2004) 218 CLR 592 at 604–5; 212 ALR 357 at ALR 366.

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which each may be taken to have known. … [T]he mere fact that a person had engaged in
the conduct of supplying a document containing misleading information [does] not mean
that that person [has] engaged in misleading conduct: it [is] crucial to examine the role of
the person in question.

15.59 In Butcher v Lachlan Elder Realty Pty Ltd135 the plurality judgment gave detailed
consideration to the personal characteristics and experience of the property purchasers (the
alleged representees) on the one hand, and the alleged representor on the other. Gleeson CJ,
Hayne, and Heydon JJ136 described the purchasers as ‘persons who were quite wealthy, and
certainly aspired to becoming wealthier, by means of complex property and financial dealings’
and as ‘intelligent, shrewd and self-reliant’. In contrast to this description, their Honours137
described the alleged representor as a suburban real estate agent who could not be assumed
to have possessed ‘research skills or means of independently verifying title deeds about the
properties’ that it sought to sell. These, among other matters, were relevant to the court’s
conclusion that a reasonable person in the position of the purchasers would not have understood
the agent to be doing more than passing on information supplied by another or others.

Conduct directed at the public generally

15.60 In relation to identifying circumstances where conduct is directed to the public or a
section of the public, in Taco Co of Australia Inc v Taco Bell Pty Ltd138 Deane and Fitzgerald JJ
said the following:
First, it is necessary to identify the relevant section (or sections) of the public (which may be
the public at large) by reference to whom the question of whether conduct is, or is likely to
be, misleading or deceptive falls to be tested. …

Second, once the relevant section of the public is established, the matter is to be considered
by reference to all who come within it, ‘including the astute and the gullible, the intelligent
and the not so intelligent, the well educated as well as the poorly educated, men and women
of various ages pursuing a variety of vocations’.139

Thirdly, evidence that some person has in fact formed an erroneous conclusion is admissible
and may be persuasive but is not essential. Such evidence does not itself conclusively
establish that conduct is misleading or deceptive or likely to mislead or deceive. The court
must determine that question for itself. The test is objective.

Finally, it is necessary to inquire why proven misconception has arisen. The fundamental
importance of this principle is that it is only by this investigation that the evidence of those
who are shown to have been led into error can be evaluated and it can be determined whether
they are confused because of misleading or deceptive conduct on the part of the respondent.

135. 218 CLR 592; 212 ALR 357.

136. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 606; 212 ALR 357 at 367.
137. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 606; 212 ALR 357 at 368.
138. (1982) 42 ALR 177 at 202–3.
139. Puxu Pty Ltd v Parkdale Custom Built Furniture Pty Ltd (1980) 31 ALR 73 at 93.

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15.61 The above observations of Deane and Fitzgerald JJ regarding the manner in which a
plaintiff should go about establishing whether or not particular conduct has produced error
or misconception, were approved by the High Court in Campomar Sociedad, Limitada v Nike
International Ltd.140 In addition, the High Court141 set out two additional rules. First, where
the persons allegedly misled or deceived are not identified individuals, but are members of a
class, it is necessary to isolate ‘a representative member’ of the class and determine whether this
hypothetical individual is likely to have been misled or deceived. Second, when considering
the likely effect of the conduct on this hypothetical person, he or she should be judged as an
‘ordinary’ or ‘reasonable’ member of the class. The consequence of this rule is that ‘extreme’ or
‘fanciful’ reactions to the conduct are to be disregarded.
15.62 In Australian Competition and Consumer Commission v Coles Supermarkets Australia
Pty Ltd142 the facts concerned the sale of bread in a supermarket that was baked in a two-stage
process. It was partly baked before it arrived in the supermarket and then finally baked on
the day it was sold. The issue before the court was whether phrases such as ‘baked today, sold
today’, ‘baked fresh’, and ‘freshly baked in-store’ amounted to misleading or deceptive conduct.
Allsop CJ143 said:
Where conduct or representations is or are directed to members of the public at large,
the conduct or representations must be judged by their effect on ‘ordinary’ or ‘reasonable’
members of the class of prospective purchasers. In a context such as the present, the
purchasing of a staple such as bread in a supermarket, the ordinary or reasonable person may
be intelligent or not, may be well educated or not, will not likely spend any time undertaking
an intellectualised process of analysis, will often be shopping for many other items, and will
be likely affected by an intuitive sense of attraction rather than by any process of analytical or
logical choice. The dominant message of advertising for bread is likely to be simple, though
intuitively diffuse. What is reasonable care by members of the public must be judged in the
above context. The purchase of bread from a baker or bread shop should not normally call
for astute attention to disclaimers about the wares on sale at the counter.

15.63 However, as was pointed out by Finkelstein J in .Au Domain Administration Ltd
v Domain Names Pty Ltd,144 the High Court decision in Campomar Sociedad, Limitada v Nike
International Ltd145 still left some issues unresolved. Relevantly, his Honour146 said:
One unresolved issue concerns a matter of characterisation. How is one to distinguish between
a case which involves a representation made to identified individuals and a case where
the representation is made to the public or to a section of the public? I had occasion briefly
to consider this problem in Australian Securities and Investments Commission v National

140. (2000) 202 CLR 45 at 84; 169 ALR 677 at 703.

141. Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at 85–6; 169 ALR 677 at 703–5.
See also Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2020] FCAFC 130
at [22].
142. (2014) 317 ALR 73.
143. Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2014) 317 ALR
73 at 81–2.
144. (2004) 207 ALR 521 at 527.
145. (2000) 202 CLR 45; 169 ALR 677.
146. Au Domain Administration Ltd v Domain Names Pty Ltd (2004) 207 ALR 521 at 527.

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Exchange Pty Ltd.147 There the defendant had made false representations to approximately 5000
shareholders of a major public company. Each shareholder to whom the representations were
made was identifiable by name and address. I treated the case as one where the representation
had been made to identified individuals. If I were to adopt that approach in the instant case, it
would be characterised as a case concerning representations to identified individuals, although
the notices in issue were despatched to several hundred thousand businesses.

15.64 A final point in relation to conduct directed to the public generally arises from the
decision in Weitmann v Katies Ltd,148 where Franki J said that in such cases a court had to
‘consider whether a reasonably significant number of potential purchasers would be likely to
be misled or deceived’. Although this statement was cited with approval in subsequent cases, in
Au Domain Administration Ltd149 Finkelstein J doubted the continuing validity of the statement
by Franki J. According to his Honour:150
It seems to me that there is simply no warrant for imposing a requirement that in a
‘representation to the public’ case significant members of the public must be misled by
the impugned conduct before there can be a contravention of [s 18]. First, [s 18] does not
prescribe this requirement. Second, there is no reason in principle why the requirement
should exist. Third, it would be strange if a court were to determine that certain conduct had
the capacity to mislead (and did in fact mislead a handful of people) but nevertheless held
that the conduct was not actionable because an insufficient number of people were misled. …

I am of opinion that the dictum [in Weitmann v Katies Ltd151] cannot survive the High Court’s
decision in Campomar Sociedad.152 By laying down the rule that in a ‘representation to the
public’ case the question whether conduct is misleading or deceptive is to be assessed by
reference to the reaction of the hypothetical representative member of the class to whom
the representation is directed, the High Court has left no scope for the operation of the
requirement that it must also be shown that a significant number of members of the class
have been misled. That is, the two requirements cannot sit side by side. I take the position
now to be that the dictum imposed in Weitmann v Katies Ltd153 has been overtaken.

Objective test
15.65 As noted earlier in this chapter, the issue of establishing whether any particular
conduct is misleading or deceptive, is a question of fact that is to be objectively determined
by the court.154 Viewing isolated parts of the conduct of a party has been held to invite error.155

147. (2003) 202 ALR 24 at 27–8.

148. (1977) 29 FLR 336 at 343.
149. (2004) 207 ALR 521 at 527.
150. Au Domain Administration Ltd v Domain Names Pty Ltd (2004) 207 ALR 521 at 529–30.
151. (1977) 29 FLR 336.
152. Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45; 169 ALR 677.
153. (1977) 29 FLR 336.
154. See, for example, Campbell v Backoffice Investments (2009) 238 CLR 304 at 341–2; 257 ALR 610 at 638–9;
Australian Olympic Committee v Telstra Corporation Ltd [2016] FCA 857 at [132]; Morton Seed & Grain Pty
Ltd v Phillbourne Manufacturing Pty Ltd [2018] WASC 386 at [545]–[546].
155. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 625; 212 ALR 357 at 383–4; Campbell
v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 341–2; 257 ALR 610 at 638–9; Australian Olympic
Committee v Telstra Corporation Ltd [2016] FCA 857 at [132].

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In Campbell v Backoffice Investments Pty Ltd156 Gummow, Hayne, Heydon, and Kiefel JJ
approved the following statements by McHugh J in Butcher v Lachlan Elder Realty Pty Ltd:157
The question whether conduct is misleading or deceptive or is likely to mislead or deceive
is a question of fact. In determining whether a contravention of [s 18] has occurred, the
task of the court is to examine the relevant course of conduct as a whole. It is determined
by reference to the alleged conduct in the light of the relevant surrounding facts and
circumstances. It is an objective question that the court must determine for itself. It invites
error to look at isolated parts of the [person’s] conduct. The effect of any relevant statements
or actions or any silence or inaction occurring in the context of a single course of conduct
must be deduced from the whole course of conduct. Thus, where the alleged contravention
of [s 18] relates primarily to a document, the effect of the document must be examined in the
context of the evidence as a whole. The court is not confined to examining the document in
isolation. It must have regard to all the conduct of the [person] in relation to the document
including the preparation and distribution of the document and any statement, action,
silence or inaction in connection with the document.

Intention
15.66 It is now established that intent is not a necessary element in establishing a contravention
of s 18.158 In Yorke v Lucas159 Mason ACJ, and Wilson, Deane, and Dawson JJ said:
It is, of course, established that contravention of [s 18] does not require an intent to mislead
or deceive and even though a [person] acts honestly and reasonably, it may nonetheless
engage in conduct that is misleading or deceptive or is likely to mislead or deceive. That does
not, however, mean that a [person who] purports to do no more than pass on information
supplied by another must nevertheless be engaging in misleading or deceptive conduct if the
information turns out to be false. If the circumstances are such as to make it apparent that
the [person] is not the source of the information and that it expressly or impliedly disclaims
any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt
that the [person] can properly be said to be itself engaging in conduct that is misleading or
deceptive.

15.67 Thus, a person who acts honestly and reasonably may nonetheless engage in conduct
that is likely to mislead or deceive and be in breach of s 18. However, there are cases where an
intention to mislead or deceive will be essential in order to establish a contravention of s 18.160

Causation
15.68 In order to establish loss or damage flowing from an alleged breach of s 18, the party
alleging misleading and deceptive conduct has the onus of establishing a causal connection

156. (2009) 238 CLR 304 at 341–2; 257 ALR 610 at 638–9.
157. (2004) 218 CLR 592 at 625; 212 ALR 357 at 383–4.
158. Yorke v Lucas (1985) 158 CLR 661 at 666; 61 ALR 307 at 309; MWH Australia Pty Ltd v Wynton Stone
Australia Pty Ltd (in liq) (2010) 31 VR 575 at 583; Australian Competition and Consumer Commission
v TPG Internet Pty Ltd [2020] FCAFC 130 at [22].
159. (1985) 158 CLR 661 at 666; 61 ALR 307 at 309. See also Australian Olympic Committee v Telstra Corporation
Ltd [2016] FCA 857 at [132].
160. Bridge Stockbrokers Ltd v Bridges (1985) 57 ALR 401 at 415.
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between the misrepresentation alleged and the loss purportedly suffered as a consequence
of the alleged misrepresentation. This is an objective question161 and has been described as
‘ultimately a matter of common sense’.162 The offending conduct need not be the only cause
of the applicant’s loss or damage. It is sufficient if it plays or might have played a part in the
applicant’s loss or damage, even if only a minor part.163 The crucial issue is that the party
pursuing the cause of action must show that the misrepresentation alleged ‘played some part
in inducing entry into the contract’.164 Thus, evidence of causation is required where a loss is
claimed.165
15.69 In Campbell v Backoffice Investments Pty Ltd166 Gummow, Hayne, Heydon, and Kiefel JJ
adopted what may be seen as a more demanding approach to the proof of causation in cases of
misleading and deceptive conduct. Their Honours167 adopted the following statement made by
McHugh J168 in Butcher v Lachlan Elder Realty Pty Ltd:
The question whether conduct is misleading or deceptive or is likely to mislead or deceive is
a question of fact. In determining whether a contravention of [s 18] has occurred, the task of
the court is to examine the relevant course of conduct as a whole. It is determined by reference
to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an
objective question that the court must determine for itself. It invites error to look at isolated
parts of the corporation’s conduct. The effect of any relevant statements or actions or any
silence or inaction occurring in the context of a single course of conduct must be deduced
from the whole course of conduct. Thus, where the alleged contravention of [s 18] relates
primarily to a document, the effect of the document must be examined in the context of the
evidence as a whole. The court is not confined to examining the document in isolation. It
must have regard to all the conduct of the corporation in relation to the document including
the preparation and distribution of the document and any statement, action, silence or
inaction in connection with the document.

Opinion statements
15.70 Although statements of opinion, and possibly statements of law, cannot give rise
to a misrepresentation under the general law, such statements may amount to misleading
or deceptive conduct.169 In relation to statements of opinion, in Australian Securities and
Investments Commission v Fortescue Metals Group Ltd170 Keane CJ said:
In the circumstances of any particular case, the effect of a statement upon its audience may
well vary, depending on the nature of the information conveyed and the terms in which

161. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 625; 212 ALR 357 at 383–4.
162. Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95 at [39].
163. I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; 192 ALR 1; Wardley
Australia Ltd v Western Australia (1992) 175 CLR 514; 109 ALR 247.
164. MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 at 583.
165. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 319–20; 257 ALR 610 at 621; MWH
Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010) 31 VR 575 at 584.
166. (2009) 238 CLR 304; 257 ALR 610.
167. Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 341; 257 ALR 610 at 638–9.
168. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 625; 212 ALR 357 at 383–4.
169. Heydon v NRMA Ltd (2000) 51 NSWLR 1 at 148.
170. (2011) 190 FCR 364 at 405–6; 274 ALR 731 at 767–8.

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it is couched. A representation may be couched in terms which are apt to be understood

by an ordinary and reasonable audience only as a statement of opinion. On the other
hand, a representation may be couched in terms which may ordinarily and reasonably be
understood only as a statement of fact. In the first case, the existence of a reasonable basis
for the statement means that the representation cannot be characterised as misleading or
deceptive if the opinion is genuinely and reasonably held by the representor. That cannot
be said in relation to the second category. A statement which is ordinarily and reasonably
understood as a statement of opinion is not apt to mislead if the opinion is genuinely
and reasonably held by the maker of the statement. That is because the audience would
understand that the statement was made on the basis that it expresses a view on which
a different opinion might also be entertained, not a matter of fact about which no doubt
can be entertained.

15.71 Similar views were expressed in Campbell v Backoffice Investments Pty Ltd171 and in
Tomlak Pty Ltd v Westpac Banking Corp.172

Misleading representations as to future matters

15.72 During negotiations for a contract, many statements will be made. Any such statement
may constitute a term of the contract or a collateral contract, or it may become an actionable
misrepresentation. However, it may also be that the statement constitutes misleading or
deceptive conduct. Often such statements relate to future matters. For example, the statement
may relate to the future profitability of a business that is being sold. For such statements to
constitute misleading or deceptive conduct, it is important to appreciate that the mere falsity of
the statement will not constitute misleading or deceptive conduct — more is required. In this
respect, in Phoenix Court Pty Ltd v Melbourne Central Pty Ltd173 Goldberg J said:
Although the mere fact that a representation as to future conduct or the happening of a
future event does not occur does not make the representation misleading or deceptive,
such a representation can ripen into misleading or deceptive conduct for the purposes
of [s 18] in a number of circumstances; namely, if there is an implied statement in the
representation as to a present or past fact; if the representation represents impliedly that
the representor has a present intention to make good the promise or has the means or
ability to do so; if the representation involves a representation that the representor has
a present state of mind; or if a representation is made, which having regard to relevant
circumstances at the time, requires a qualification because of the possibility of its non-
fulfilment. In any of these circumstances it is necessary to plead more than simply the
fact of the representation as to the future matter and the fact that it does not occur. One
has to plead material facts in relation to the implication in the statement of the present or
past fact, the present intention and the means to carry it out, the relevant state of mind
and the fact that there was no basis for it, and the relevant circumstance giving rise to the
qualification. Without pleading such matters all the material facts necessary to complete
the cause of action have not been stated and the respondent does not know what case it
has to meet.

171. (2009) 238 CLR 304 at 345; 257 ALR 610 at 642.
172. [2020] VSC 79 at [48].
173. [1997] FCA 1101 at [15].

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15.73 Bruce174 summarises the position in relation to whether a representation as to the

future constitutes misleading or deceptive conduct by noting that, in order for it to be so, one
must establish that the future misrepresentation made by the other:
(i) contained an implied statement of [a] present or past fact about the [other’s] state of
mind or intention; and
(ii) that the maker of the future representation did not have reasonable grounds for holding
that state of mind, intention or for making that future representation

However, in this context, s 4 of the Australian Consumer Law is of great significance. Section 4
is a re-drafted version of what was formerly s 51A of the Trade Practices Act 1974 (Cth).
Section 4(1) stipulates as follows:
If:

(a) a person makes a representation with respect to any future matter (including the doing
of, or the refusing to do, any act); and
(b) the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.

Thus, s 4(1) deems a future representation to be misleading or deceptive unless the person
making it has reasonable grounds for making it. Pursuant to s 4(2), the maker of the
representation with respect to any future matter is to be deemed not to have had reasonable
grounds for making the representation unless the maker adduces evidence to the contrary.
Section 4(3) makes it clear that merely adducing evidence of reasonable grounds does not
constitute a substantive defence to an action for misleading or deceptive conduct. Section 4(3)
did not have its equivalent provision in what was s 51A of the Trade Practices Act 1974 (Cth)
and was introduced to resolve certain ambiguities that arose in relation to the onus of proof. In
this respect, s 4(3) stipulates as follows:
To avoid doubt, subsection (2) does not:
(a) have the effect that, merely because such evidence to the contrary is adduced, the person
who made the representation is taken to have had reasonable grounds for making the
representation; or
(b) have the effect of placing on any person an onus of proving that the person who made the
representation had reasonable grounds for making the representation.

15.74 Thus, the maker of the representation must bring evidence to establish reasonable
grounds for making future representation. This casts an evidential burden on the respondent
to adduce evidence of reasonable grounds for making the representation, failing which the
deeming effect is engaged.175 In this respect, in McGrath v Australian Naturalcare Products Pty
Ltd176 Emmett J said:

174. A Bruce, Consumer Protection Law in Australia, LexisNexis Butterworths, Australia, 2011, p 100.
175. Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513; North East Equity Pty Ltd v Proud Nominees Pty
Ltd (2010) 269 ALR 262 at 269–70; North East Equity Pty Ltd v Proud Nominees Pty Ltd (2012) 285 ALR
217 at 224; Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) (2012) 301 ALR 1 at 249;
Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 at [189]; SPAR Licensing
Pty Ltd v MIS Qld Pty Ltd (2014) 314 ALR 35 at 56–7; Bonham v Iluka Resources Ltd [2015] FCA 713 at [88];
Rakic v Johns Lyng Insurance Building Solutions (Victoria) Pty Ltd (Trustee) [2016] FCA 430 at [74].
176. (2008) 165 FCR 230 at 242; 246 ALR 514 at 525.

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However, if evidence is adduced by a representor to the effect that the representor had
reasonable grounds for making the representation, the deeming provision will not operate.
Where the representor adduces such evidence, it is then a matter for the court to determine,
on the balance of probabilities in the ordinary way, whether or not the representor had
reasonable grounds for making the representation.

15.75 The fact that a person may believe in a particular state of affairs does not necessarily
mean that there are reasonable grounds for that belief. In Cummings v Lewis177 Sheppard and
Neaves JJ said:
Genuine or honest belief is not what [s 51A] of the Act refers to. It refers to the person
making a representation not having reasonable grounds for making it. The distinction is
perhaps a fine one, but the fact that a person may honestly believe in that particular state
of affairs does not necessarily mean that he has reasonable grounds for his belief that the
statement he makes is correct.

Sheppard and Neaves JJ178 went on to discuss evidence of reasonableness and said the following:
Evidence of reasonable grounds may be established by evidence other than that of the persons
who are alleged to have made particular representations as to a future matter. Indeed, as in so
many other areas, a court may find the overall probabilities to which the circumstances of a
given case give rise, the background to it and the conduct of the parties prior to conversations
taking place as providing better guides to whether or not they had particular states of mind
or whether particular factors existed which would establish evidence of something such as
reasonable grounds … If one changes the exercise to an inquiry, not into genuine or honest
belief, but into whether there were reasonable grounds, it is again the overall circumstances
of the case which will provide more reliable guidance than would oral evidence on the part
of interested parties.

15.76 In the context of the former s 51A of the Trade Practices Act 1974 (Cth), in Traderight
(NSW) Pty Ltd v Bank of Queensland Ltd179 Ball J said:
In order for s 51A … to operate the representation must be a representation with ‘respect to
any future matter’. ‘Future matter’ is not defined. The expression ‘with respect to’ is a broad
one. It may include representations which induced the relevant arrangement. …

The question whether a representation is a representation with respect to a future matter

is a question of characterisation that must take into account the context in which the
representation was made. The mere fact that the representation is expressed as an opinion
does not prevent it from being a representation with respect to a future matter. …

It has sometimes been suggested that, if the representor states his or her reasons for
making a statement, the statement is not a representation with respect to a future matter.
However, that approach was rejected by the Court of Appeal in Digi-Tech (Australia) Ltd
v Brand.180

177. (1993) 41 FCR 559 at 565; 113 ALR 285 at 291.

178. Cummings v Lewis (1993) 41 FCR 559 at 566; 113 ALR 285 at 292.
179. [2014] NSWSC 55 at [1124]–[1128].
180. [2004] NSWCA 58 at [97], [103]–[104].

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Similarly, the fact that a statement is expressed in terms of what is possible rather than what
will happen does not necessarily mean that the statement is not a statement with respect to
a future matter. …

On the other hand, it is necessary to distinguish between a statement concerning what may
occur in the future and a statement concerning what is hypothetically possible. To take a
simple example, compare these two statements:

(1) If you become a Bank of Queensland franchisee you should be able to write $4 million in
new loans per month.

(2) It is possible for some Bank of Queensland franchisees to write $4 million in new loans
per month.

Leaving context aside, the first statement appears to be a statement of what a particular
individual should be able to achieve as an Owner Manager in the future. It is a statement
with respect to a future matter even though it is couched in terms of what is possible or
likely. The second statement is not a statement with respect to a future matter at all. It is
not saying that any particular state of affairs will or is likely or may come about. It is merely
saying what is possible without making any prediction concerning what any particular
franchisee might achieve. The statement is consistent with a statement made to a particular
proposed franchisee to the effect that ‘If you become a Bank of Queensland franchisee there
is no possibility that you will write $4 million in new loans per month’. Consequently, if
made, it cannot carry with it the implication that any particular franchisee will or may write
$4 million in loans per month. What character a particular statement has depends on the
words used and their context.

EXCLUSION CLAUSES AND DISCLAIMERS

15.77 There is no express or implied prohibition181 in the Competition and Consumer
Act 2010 (Cth) (or the Australian Consumer Law which forms part of that Act) on contracting
out of the operation of s 18 of the Australian Consumer Law. However, the Competition and
Consumer Act 2010 (Cth) is a public policy statute the object of which is stated, in s 2, to be ‘to
enhance the welfare of Australians through the promotion of competition and fair trading and
provision for consumer protection’. In those circumstances, public policy182 will preclude the
operation of s 18 being ousted by private agreement between contracting parties.183 This was
stated by Lockhart J in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd:184

181. Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd (2018) 56 VR 557 at 601–6.
182. In Heydon, Trade Practices Law — Competition and Consumer Law, Thomson Reuters, as at May 2018,
[160.1170], six explanations are offered as the basis for this non-exclusion. However, it can be strongly
argued that public policy grounds are the most significant.
183. Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 at 377–8; Byers v Dorotea Pty Ltd (1986) 69 ALR 715 at 725;
79 ALR 83 at 98–9; MBF Investments Pty Ltd v Nolan (2011) 37 VR 116 at 168; Venerdi Pty Ltd v Anthony
Moreton Group Funds Management Ltd [2015] 1 Qd R 214 at 221–2; Secure Parking Pty Ltd v Woollahra
Municipal Council [2016] NSWCA 154 at [112]; Brighton Australia Pty Ltd v Multiplex Constructions
Pty Ltd (2018) 56 VR 557 at 599. See also R J Scruby, ‘Contracting Out of Statutory Prohibitions against
Misleading and Deceptive Conduct’ (2019) 47 Australian Bar Review 180.
184. Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 at 561; 79 ALR 83 at 99.

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There are wider objections to allowing effect to such clauses. Otherwise the operation
of the Act, a public policy statute, could be ousted by private agreement. Parliament
passed the Act to stamp out unfair or improper conduct in trade or in commerce; it
would be contrary to public policy for special conditions such as those with which this
contract was concerned to deny or prohibit a statutory remedy for offending conduct
under the Act.

15.78 The prohibition against exclusion of liability, often referred to as the ‘no-exclusion
principle’, was acknowledged by the High Court in Campbell v Backoffice Investments Pty Ltd185
in the following way:
It is as well to add, however, that, of itself, neither the inclusion of an entire agreement
clause in an agreement nor the inclusion of a provision expressly denying reliance
upon pre-contractual representations will necessarily prevent the provision of misleading
information before a contract was made constituting a contravention of the prohibition
against misleading or deceptive conduct by which loss or damage was sustained. As pointed
out earlier, by reference to the reasons of McHugh J in Butcher,186 whether conduct is
misleading or deceptive is a question of fact to be decided by reference to all of the relevant
circumstances, of which the terms of the contract are but one.

15.79 According to Riordan J in Brighton Australia Pty Ltd v Multiplex Constructions

Pty Ltd,187 the no exclusion principle is an application of the policy of the common law
that where (a) a statute embraces public rather than private rights; and (b) the legislative
purpose will not be fulfilled if the court enforces private contractual arrangements, the
court will refuse to enforce the private contractual arrangements on the grounds of public
policy.188
15.80 Further, the no exclusion principle extends to:

(a) the remedy provided in s 236 of the Australian Consumer Law; and,
(b) the right to commence an action within six years after the relevant date under s 236(2).189
15.81 As to the remedy contained in s 236, which is further analysed later in this chapter,190
the issue was dealt with by Jackson J in Venerdi Pty Ltd v Anthony Moreton Group Funds

185. (2009) 238 CLR 304 at 348; 257 ALR 610 at 644. This statement was repeated in Brighton Australia Pty Ltd
v Multiplex Constructions Pty Ltd (2018) 56 VR 557 at 599.
186. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; 212 ALR 357.
187. (2018) 56 VR 557 at 601–6.
188. As to statements of the relevant underlying principles that apply in circumstances where rights that are
conferred for reasons of public policy cannot be contracted out or abandoned by contracting parties,
see Hunt v Hunt [1862] 31 LJ Ch 161 at 175; Davies v Davies (1919) 26 CLR 348 at 355, 365; Lieberman
v Morris (1944) 69 CLR 69 at 90; Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 404; 95
ALR 321 at 327; Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 513; 286 ALR 12 at 22.
189. Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367 at 371; Venerdi Pty Ltd v Anthony
Moreton Group Funds Management Ltd [2015] 1 Qd R 214 at 223; Brighton Australia Pty Ltd v Multiplex
Constructions Pty Ltd (2018) 56 VR 557 at 601–6.
190. See 15.82 and 15.90–15.96.

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Management Ltd191 in the following way in the context of a particular counterclaim that was
based upon a reliance exclusion clause:192
Since 1824, and it has been often repeated since, Judges have been warned against riding the
‘unruly horse’ of public policy illegality. However, in my view, intermediate appellate courts
in this country have already engaged public policy as the principle which repels giving effect
to the operation of an exclusory and disclaimer clause, except as a factual element going to
the answers to the questions of misleading or deceptive conduct or causation.

Consistently with that approach, in my view, the conclusion should also be reached that
public policy precludes giving effect to a counterclaim based on the reliance exclusion
clause as a claim for damages for breach of contract which is not maintainable because
the representation and agreement is ‘treated by the courts as unenforceable because it is a
‘contract associated with or in furtherance of illegal purposes’.

15.82 As to the statutory right to commence an action within six years after the relevant date
under s 236(2), although that time provision is procedural in nature, it has been held that ‘any
attempt to restrict the remedy by limiting the time in which an action can be brought is an
unacceptable interference with the public policy underpinning the provisions’.193 This would
be so where, for example, a term of the contract provides that a cause of action must begin
within three years instead of the statutory six-year period. Importantly, the crucial issue in this
context is that the contractual limitation of a lesser period to bring proceedings is one that is
contrary to the public policy aim of the Act. Despite this, the issue is not free from uncertainty
and complexity.194
15.83 It is also the position that liability under the Australian Consumer Law cannot be
affected in circumstances where one party would not have entered into the contract absent
the misleading conduct. In such circumstances, the appropriate remedy under the Australian
Consumer Law is to compensate the applicant ‘for the actual losses incurred’.195 This was
affirmed by Shepherd J in Clarke Equipment Australia Ltd v Covcat Pty Ltd196 where his Honour
(with whom Fox and Jackson JJ agreed) stated:
If, as a result of the conduct, a person is induced to enter into a contract and suffers loss, an
action to recover it lies. The terms of the contract are irrelevant.

15.84 However, it is possible for a contracting party to escape liability for a violation of s 18
if an effectively worded disclaimer contained as a term of the contract expressly precludes
misleading or deceptive conduct from arising at all. Such clauses are not exclusion clauses as

191. [2015] 1 Qd R 214 at 223.

192. An illustration of such a clause would be where the parties have agreed to terms including a term that
excludes one party’s reliance on representations or conduct by the other party which occurred prior to the
commencement of the contract.
193. Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd (2018) 56 VR 557 at 601–6. See also Omega
Air Inc v CAE Australia Pty Ltd [2015] NSWSC 802 at [31]; Commonwealth Bank of Australia v Dinh [2019]
WASC 456 at [713].
194. Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 404–6; 95 ALR 321 at 327–8.
195. Henville v Walker (2001) 206 CLR 459 at 503; 182 ALR 37 at 70; Brighton Australia Pty Ltd v Multiplex
Constructions Pty Ltd (2018) 56 VR 557 at 601–6.
196. (1987) 71 ALR 367 at 371, cited with approval in Brighton Australia Pty Ltd v Multiplex Constructions Pty
Ltd (2018) 56 VR 557 at 601–6.
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traditionally understood. Rather, they lead to negating the existence of misleading or deceptive
conduct.197 In this respect, in Italform Pty Ltd v Sangain Pty Ltd198 Macfarlan JA said:
Where a contract is alleged to have been induced by misleading or deceptive conduct,
everything that the party alleged to have engaged in that conduct did up until the time the
contract was entered into must be taken into account. Thus, where it is contended that there
has been a relevant ‘disclaimer’ prior to the contract being entered into, that disclaimer
must be considered for the purpose of determining whether it has had effect ‘by actually
modifying the conduct’. If a disclaimer has effect it is ‘not by any independent force of its
own’ but by ‘erasing whatever is misleading in the conduct’.

15.85 Such clauses will be relatively rare. In this respect, in Hutchence v South Sea Bubble
Company Pty Ltd199 Wilcox J said:
[S]uch cases are … confined to situations in which the court is able to reach satisfaction —
the onus resting on the party relying upon the disclaimer — that the disclaimer is likely
to be seen and understood by all those — leaving aside isolated exceptions — who would
otherwise be misled before they act in relation to the relevant transaction.

15.86 In addition, sometimes exclusion clauses or disclaimers are expressed in such a

way so as to preclude a party from ‘relying’ upon a representation that has been made to
them. This is different. The approach of the courts to clauses so formulated was discussed
in Poulet Frais Pty Ltd v Silver Fox Company Pty Ltd,200 where Branson, Nicholson, and
Jacobson JJ said:
[T]here are numerous authorities for the proposition that clauses seeking to exclude liability
for contraventions of [s 18] … are not effective but the authorities admit of the possibility
that in some circumstances such a clause may be operative. We do not need to resolve the
divergent explanations given in the cases. It is sufficient to say that the authorities recognise
that reliance is a question of fact and that the existence of an exclusion or qualification clause
is relevant to a determination of the question of whether an applicant has established reliance.

In Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd201 Morling and
Wilcox JJ were of the view that a well-drafted disclaimer, drawn to the attention of the
contracting party and acknowledged in writing to have been made, was sufficient to negate
reliance. … As in the present case, there was evidence that the applicant had legal advice.

Here the disclosure documents contained numerous exhortations to Mr and Mrs Baker and
Silver Fox to make their own investigations of the potential profitability of the franchise.
There were also acknowledgments in the disclosure documents and the Franchise Agreement
in the clearest terms that the applicant did not rely on any representation as to the turnover
or profits of the franchise. The acknowledgments were more numerous than in Keen Mar202
and were in clear words.

197. Traderight (NSW) Pty Ltd v Bank Of Queensland Ltd [2014] NSWSC 55 at [1133].
198. [2009] NSWCA 427 at [30].
199. (1986) 64 ALR 330 at 338.
200. (2005) 220 ALR 211 at 232.
201. (1989) ATPR (Digest) 46-048.
202. (1989) ATPR (Digest) 46-048.

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15.87 In John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd203 a real estate agent
(John G Glass) placed a typed document emanating from the principal of a firm of consultants
acting for the vendor with other materials in a folder with a glossy cover. The typed document
showed that the net lettable area of a building being offered for sale was 180 square metres.
In fact, the net lettable area was 137.4 square metres. John G Glass contended that the only
representation it had made was that it had obtained the information in the brochure from the
vendor, that it had not endorsed or approved the information in the brochure, and that it was
no more than a conduit. These contentions relied on the following statement in the brochure
on a page immediately before the back cover:
The information contained herein has been prepared with care by our Company or it
has been supplied to us by apparently reliable sources. In either case we have no reason
to doubt its completeness or accuracy. However, neither John G Glass Real Estate Pty
Limited, its employees or its clients guarantee the information nor does it, or is it
intended, to form part of any contract. Accordingly, all interested parties should make
their own enquiries to verify the information as well as any additional or supporting
information supplied and it is the responsibility of interested parties to satisfy themselves
in all respects.

The Full Federal Court upheld the trial judge’s rejection of these contentions and found
John G Glass liable, given the circumstances, where it had held itself out as, among other
things, ‘consultants to institutional investors and to developers of major properties’. In those
circumstances, it was found by the court that potential purchasers of properties would not
regard the real estate agent as just passing on information about the value of the property ‘for
what it is worth and without any belief in its truth or falsity’. John G Glass Real Estate Pty Ltd
v Karawi Constructions Pty Ltd204 was distinguished in Butcher v Lachlan Elder Realty Pty Ltd
which is discussed at 15.53–15.59.205
15.88 Finally, s 18 of the Australian Consumer Law is not constrained by the registration of
a trade mark.206

REMEDIES
15.89 As has been seen, the prohibition of misleading and deceptive conduct in s 18 of the
Australian Consumer Law overlaps with, but goes well beyond, the concept of misrepresentation
under the general law. With misrepresentation, the prima facie remedy is that of rescission,
which may or may not be available.207 Furthermore, if the misrepresentation is fraudulent
or constitutes negligent misstatement, tortious damages are available.208 However, if there is
misleading or deceptive conduct, a far more potent array of remedies is available, including

203. [1993] FCA 431. See also Borzi Smythe Pty Ltd v Campbell Holdings (NSW) Pty Ltd [2008] NSWCA 233;
CH Real Estate Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37 at [123]–[125]; Hyder v McGrath Sales Pty Ltd
[2018] NSWCA 223 at [62]–[63].
204. [1993] FCA 431.
205. Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 612; 212 ALR 357 at 373.
206. Sydney Medical Service Co-operative Ltd v Lakemba Medical Services Pty Ltd [2016] FCA 763 at [15].
207. See 35.24–35.43.
208. See Chapter 37.

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the injunction, damages, and various ancillary orders, all set out in Ch 5 of the Australian
Consumer Law.

Damages
15.90 In relation to contracts entered into as the result of misleading or deceptive conduct,
the principal remedy is that of damages. Although an injunction209 is more important in
relation to relief for violations of s 18 of the Australian Consumer Law generally, such relief is
of little utility in circumstances where a contract has already been entered into as the result of
misleading or deceptive conduct.
15.91 In relation to the action for damages, s 236 of the Australian Consumer Law stipulates
as follows:
(1) If:
(a) a person (the claimant) suffers loss or damage because of the conduct of another person;
and
(b) the conduct contravened [s 18 of the Australian Consumer Law]
the claimant may recover the amount of the loss or damage by action against that other
person, or against any person involved in the contravention.

(2) An action under subsection (1) may be commenced at any time within 6 years after the
day on which the cause of action that relates to the conduct accrued.

15.92 The amount of the damages for loss suffered as the result of a contravention of s 18 is
determined by asking what measure of damages properly conforms to the remedial purpose of
the statute and does justice and equity in the circumstances of the case.210 In order to recover
damages for such loss, s 52 of the Trade Practices Act 1974 (Cth) required proof that the loss
was caused ‘by’ the contravention. Section 236 of the Australian Consumer Law requires proof
that any claimed loss or damage was ‘because of ’ the conduct of another person. Accordingly,
the loss of an opportunity or chance is compensable as long as there was a substantial prospect
of a beneficial outcome,211 that is, there was a ‘substantial, and not merely speculative, prospect’
that the benefit would be acquired.212 In this respect, in Italform Pty Ltd v Sangain Pty Ltd213
MacFarlan JA said:
In many cases, [causation] will be shown by proving that the conduct was relied upon in the
taking of some action, often, as here, by the entry into a contract. In other cases, particularly
when the misleading or deceptive conduct is constituted by a failure to speak or advise, the
notion of ‘reliance’ is less useful as one of the ‘tools of analysis’ to be utilised for the purpose
of determining whether there is ‘a causal connection (denoted by the word ‘by’) between
[misleading or deceptive] conduct and the loss and damage allegedly suffered’.

209. See ss 232–236 of the Australian Consumer Law.

210. Henville v Walker (2001) 206 CLR 459 at 470; 182 ALR 37 at 42.
211. Badenach v Calvert (2016) 257 CLR 440 at 454–5; (2016) 331 ALR 48 at 56–7; AGC Industries Pty Ltd
v Karara Mining Pty Ltd [2019] WASC 140 at [206].
212. Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 364; 120 ALR 16 at 37; AGC Industries Pty Ltd
v Karara Mining Pty Ltd [2019] WASC 140 at [206].
213. [2009] NSWCA 427 at [42].

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15.93 In relation to establishing reliance, in Campbell v Backoffice Investments Pty Ltd,214 the
plurality in the High Court said:
It is as well to add, however, that, of itself, neither the inclusion of an entire agreement
clause in an agreement nor the inclusion of a provision expressly denying reliance upon
pre-contractual representations will necessarily prevent the provision of misleading
information before a contract was made constituting a contravention of the prohibition
against misleading or deceptive conduct by which loss or damage was sustained.

15.94 To similar effect, in Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2)215
Jackson J said:
[T]he fact that an entire agreement clause or non-reliance clause was included in the
contract is not sufficient to demonstrate a break in the chain of causation between the alleged
representations as misleading or deceptive conduct and the loss or damage suffered by the
defendant if held to the contract.

15.95 In making that comment, Jackson J216 noted the following:

I am not here concerned with whether the entire agreement clause and the non-reliance
clauses could have the effect that the alleged representations, in context, were not misleading
or deceptive.

15.96 In relation to quantifying the damages for the loss suffered, the essential applicable
principles were summarised by Martin CJ in Professional Services of Australia Pty Ltd
v Computer Accounting and Tax Pty Ltd (No 2)217 as follows:
The cases establish that where a party claims to have suffered loss and damage ‘by’ reason
of conduct in contravention of [s 18] the usual measure of damage will be the measure
applicable in tort — namely, the sum required to place that party in the position in which
they would have been but for the contravening conduct. However, the measure is not
confined to the measure in tort, or by analogy to other measures, such as that available in
contract or equitable remedies.

Where the conduct in contravention of [s 18] is found to have been a material cause in
the acquisition of an asset by the innocent party, the ordinary measure of damage will
be the difference between the price paid for the asset, and its true value at the time of
acquisition. … When assessing the value of that which has been acquired, subsequent
declines in value can be taken into account if inherent in the asset itself at the time of
acquisition, but not if ‘independent’, ‘extrinsic’, ‘supervening’ or ‘accidental’. In addition,
losses caused by and flowing from the acquisition of the asset, such as trading losses
incurred in running a business may also be recovered. Provided the causal connection
between the contravening conduct and the acquisition of the asset is established, it is
otherwise unnecessary to establish a causal connection between the subject matter of the
contravention and the cause of the loss.

214. (2009) 238 CLR 304 at 348; 257 ALR 610 at 644.
215. [2016] QSC 5 at [80].
216. Juniper Property Holdings No 15 Pty Ltd v Caltabiano (No 2) [2016] QSC 5 at [80].
217. (2009) 261 ALR 179 at 200–1.

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Ancillary orders
15.97 Where a contract has been entered into as the result of misleading or deceptive
conduct, a court can make various ancillary orders. These orders are similar to those formerly
contained in s 87 of the Trade Practices Act 1974 (Cth). In relation to such ancillary orders, the
most significant are those set out in s 243(1) of the Australian Consumer Law. Pursuant to this
section, a court can make a variety of orders, including:
• an order declaring the contract void in whole or in part;
• an order varying the contract;
• an order refusing specific performance of the contract;
• an order requiring the defendant to refund money or return property;
• an order requiring the defendant to repair or provide parts for goods;
• an order requiring the defendant to provide services; and
• an order requiring the execution of instruments relating to land that varies or terminates a
previously executed instrument relating to the said land.
15.98 It has long been accepted that the powers conferred under s 243 are discretionary.218
Section 243 has been described by the High Court as conferring a wide discretionary power
on courts to make remedial orders in appropriate cases in order to ensure a fair result.219 The
power to make such orders is broader than that provided for under the common law or in
equity. Furthermore, the scope of the orders available is not to be constrained because, in
particular cases, they may resemble common law or equitable remedies.220
15.99 The breadth of the section’s statutory predecessor was described in Awad v Twin Creeks
Properties Pty Ltd221 by Allsop P as follows:
Relief under the TPA, s 87, should be viewed not by reference to general law analogues
but by reference to the rule of responsibility in the statute that is directed against
misleading and deceptive conduct.222 Involved in that rule of responsibility is the
public policy of protection of people in trade and commerce from being misled, and
the width of the powers given by the TPA that are apt to be employed in a manner
conformable with the just compensation or protection of the representee. Whether or
not to grant a form of rescission under s 87, or to limit a plaintiff to damages under s 82,
is a question in the nature of a discretion to be approached by reference to the facts of the
particular case, the policy and underpinning of the TPA and the evaluative assessment
of what is the appropriate relief to compensate for, or to prevent the likely suffering of,
loss or damage ‘by’ the conduct. An approach that is limited mechanically around a but
for causation enquiry will be likely not to involve a full evaluative assessment of the
appropriate relief.

218. Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd (1981) 36 ALR 23 at 56.
219. Kizbeau Pty Ltd v WG & V Pty Ltd (1995) 184 CLR 281 at 298; 131 ALR 363 at 375.
220. Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd (2005) 224 ALR 134 at 149.
221. [2012] NSWCA 200 at [43]–[44].
222. Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 503–4, 510, 528–9; Murphy v Overton Investments
Pty Ltd (2004) 216 CLR 388 at 407; 204 ALR 26 at 37. See generally Bullabidgee Pty Ltd v McCleary [2011]
NSWCA 259 at [64]–[72]; Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 364–7.

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If a defendant has contravened the norm of the statute and made misleading or deceptive
representations that are operative to induce the representee to enter a contract, many factors
may influence the question of relief. One of them could be the weight of the influence of the
impugned conduct. It is not, however, a determinative factor upon which relief under s 87
turns. To view the matter thus is to constrict the exercise of power contemplated by the TPA.
This is how the primary judge appears to have approached the matter. With respect, that was
an error.

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 16
MISTAKE

INTRODUCTION

16.1 Mistake in contract law can have many meanings. A party may make a mistake
in judgment — for example, the buyer may believe that the value of the subject matter will
increase, but it does not. The parties may both be mistaken as to some fundamental term of the
contract, or as to what has been agreed. Only one party might be mistaken and the other party
does or does not know of the mistake.
16.2 Generally a party who makes a wrong judgment when entering a contract cannot, in the
absence of fraud, misleading and deceptive conduct, or unconscionability, avoid the contract.
That party has made an error and must suffer the consequences, unless they are induced
into the error. Suppose that X purchases shares in a company believing that those shares will
rise in value. The shares do not rise in value; in fact, they become worthless. X must face the
consequences of bad judgment. Sometimes these mistakes are due to some misrepresentation
or misleading conduct on the part of one of the parties. In such cases there will usually be
remedies based on other principles, such as misrepresentation and misleading or deceptive
conduct. This chapter is not concerned with such mistakes.
16.3 The law relating to mistake has been described1 as:
… old, arcane uncertain in application, complex and controversial. It is possible for a party to
a contract to argue that the contract is ineffective because that party made a serious mistake
in entering into the contract. The doctrine of mistake is controversial because a too-easy plea
of mistake would make contracts unsafe and would undermine security in transactions. In
fact mistake does not crop up very often in cases. The law is complex because of a distinction
between mistake at law, which renders the contract void, and mistake in equity, which
renders the contract voidable. The law is also complex because the law’s approach varies
according to the type of mistake made.

16.4 For a mistake to affect the validity of a contract it must be an ‘operative mistake’ — that
is, a mistake that operates to make the contract void or voidable. Although it was traditionally
held that the law on mistake was confined to mistakes of fact, it is clear now that it also extends
to mistakes of law.2

1. N Seddon, ‘Contract: Mistake Mistake’ (2006) 80 Australian Law Journal 95 at 95. See also Errichetti
Nominees Pty Ltd v Paterson Group Architects Pty Ltd [2007] WASC 77.
2. Clasic International Pty Ltd v Lagos (2002) 60 NSWLR 241 at 249–50; Brennan v Bolt Burdon [2005] QB 303
at 309–10, 317, 323.
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16.5 The real difficulty in understanding the law relating to mistake lies in what appears
to be the way common law and equity treat the effect of a mistake. There can be no doubt
that there is a doctrine of common law mistake,3 which is narrower and less flexible than the
doctrine of mistake in equity.4 As will be seen, in Australia the High Court has considered this
issue in McRae v Commonwealth Disposals Commission5 and Taylor v Johnson.6 In the United
Kingdom the key authorities are Bell v Lever Brothers,7 Solle v Butcher8 and Great Peace Shipping
Ltd v Tsavliris Salvage (International) Ltd.9 The effect of a mistake at common law is to make
the contract void ab initio. Therefore, no property will pass under it and no obligations can
arise under it. Even if the contract is not void at common law, in equity the contract may be
voidable on the ground of mistake, subject to satisfying the requirement to rescind. Property
will pass and obligations will arise unless or until the contract is avoided. However, the right to
rescission may be lost.10 On the other hand, if the mistake relates to the recording of the terms
of the contract in a written document, the remedy of rectification may be available.11
16.6 Broadly, there are four types of mistake that could have an effect on the enforceability
and validity of a contract:
• common mistake;
• mutual mistake;
• unilateral mistake; and
• non est factum.

COMMON MISTAKE

16.7 If the parties have reached agreement, but have made the same mistake as to a
fundamental fact, they have made what is often called a common mistake. The validity of the
contract depends upon the type of common mistake made. Two questions can be asked in
relation to common mistakes: First, does a common mistake by the parties as to ‘the nature,
content and/or effect of the contract as a whole’12 render the contract void ab initio? If so, what
is the relevant test to be applied? Second, can the courts set aside a contract for a common
mistake?

3. Bell v Lever Brothers Ltd [1932] AC 161.

4. See, for example, Solle v Butcher [1950] 1 KB 671; [1949] 2 All ER 1107.
5. (1951) 84 CLR 377.
6. (1983) 151 CLR 422.
7. [1932] AC 161.
8. [1950] 1 KB 671; [1949] 2 All ER 1107.
9. [2003] QB 679; [2002] 4 All ER 689.
10. See 35.24–35.43.
11. See Chapter 34.
12. Triple Seven Msn 27251 Ltd v Azman Air Services Ltd [2018] EWHC 1348 (Comm) at [62]. It should
be noted that when reference is made to a contract or agreement in this context, this rule will include
compromise agreements made where there has been an agreement whereby a pre-existing dispute between
parties is settled by agreement: see Brennan v Bolt Burden [2004] EWCA Civ 1017; Elston v King [2020]
EWHC 55 (Ch).

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16.8 In Associated Japanese Bank (International) Ltd v Credit du Nord SA13 Steyn J stated
that the following matters need to be taken in account before considering whether there is a
common mistake:
• There can be no mistake if ‘the contract itself, by express or implied condition precedent or
otherwise, provides who bears the risk of the relevant mistake’. It is, indeed, ‘this hurdle that
many pleas of mistake will either fail or prove to have been unnecessary’ because ‘[o]nly if
the contract is silent on the point, is there scope for invoking mistake’.
• The law seeks to uphold, rather than destroy, apparent contracts.
• There can be no common mistake if a party has entered into the contract with a mistaken
belief in circumstances, where there are no reasonable grounds for such a belief.
Steyn J also pointed out that ‘the common law rules as to a mistake … like the common law
rules regarding commercial frustration, are designed to cope with the impact of unexpected
and wholly exceptional circumstances on apparent contracts’.14 However, as was noted in Triple
Seven Msn 27251 Ltd v Azman Air Services Ltd:15
The doctrine of common mistake is not meant to apply to those cases where the shared
assumption is not sufficiently fundamental and/or where the difference between the assumed
and actual states of affairs is anything less than fundamental or essential or radical. If it were
otherwise, the value of certainty attached to a contract would be unjustifiably undermined.

16.9 Where the subject matter of the contract has been destroyed or does not exist at the time
of the contract and neither party knows this or is at fault, then the contract is void ab initio.
Under the sale of goods legislation in Australia16 a contract for the sale of specific goods is void
if the goods, without the knowledge of the seller, have perished at the time the contract is made.
This rule is said to be based upon the decision in Couturier v Hastie.17
16.10 In Couturier v Hastie18 the plaintiffs, merchants at Smyrna, charted a vessel called
the ‘Kezia Page’ in January 1848 to proceed to Salonica in order to load a cargo of Indian
corn ‘of fair average quality but of great value’, and then to proceed with the corn to a port
in the United Kingdom. A bill of lading was signed, making the corn deliverable ‘to order of
the plaintiffs or to their assigns, he or they paying freight as per charter-party’. Payment was
to be made two months from the date of handing over shipping documents. At Salonica, a
large quantity of Indian corn was loaded onto the vessel, which then set sail. Subsequently,
the plaintiffs endorsed the bill of lading and sent it together with the charter party to their
London agents, Messrs Bernouilli, with orders for those agents to sell the cargo on their
account. The plaintiffs also through Messrs Bernouilli insured the cargo ‘at and from Salonica
to the port of discharge in the United Kingdom’. On 1 May, Messrs Bernouilli employed the
defendants to sell the cargo and sent them the bill of lading endorsed, the charter party, and the

13. [1988] 3 All ER 902 at 912.

14. See also Dana Gas PJSC v Dana Gas Sukuk Ltd [2017] EWHC 2928 (Comm) at [57].
15. [2018] EWHC 1348 (Comm) at [67]. See also Associated Japanese Bank (International) Ltd v Credit du Nord
SA [1988] 3 All ER 902 at 903.
16. Sale of Goods Act 1954 (ACT) s 11; Sale of Goods Act 1923 (NSW) s 11; Sale of Goods Act 1972 (NT) s 10;
Sale of Goods Act 1896 (Qld) s 9; Sale of Goods Act 1895 (SA) s 6; Sale of Goods Act 1896 (Tas) s 11; Goods
Act 1958 (Vic) s 9; Sale of Goods Act 1895 (WA) s 6.
17. (1852) 155 ER 1250 (Court of Exchequer); affirmed by the House of Lords (1856) 10 ER 1065.
18. (1852) 155 ER 1250 (Court of Exchequer); affirmed by the House of Lords (1856) 10 ER 1065.

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policy of insurance. The defendants advanced £600 on the cargo. On 15 May, the defendants
sold the cargo to Callander. However, unbeknown to the parties, at the time the defendants sold
the cargo the vessel containing the corn encountered very heavy weather and put into port at
Tunis. Here the cargo had been found to have become so heated and fermented that it could
not be safely carried further. In consequence, the cargo was landed at Tunis and sold there prior
to the sale contract with Callander. When Callander found out about the sale of the corn in
Tunis, he advised that he repudiated the contract ‘on the ground that the cargo did not exist at
the date of the contract’. Callander subsequently became bankrupt. The plaintiffs then brought
proceedings against the defendants to recover the price of the cargo.
16.11 The case came on for trial before Baron Martin and a jury. Baron Martin directed the
jury that ‘the contract imported that, at the time of the sale, the corn was in existence as such,
and capable of delivery’.19 The jury found a verdict for the defendants. On appeal to the Court of
Exchequer the plaintiffs were successful. This decision was reversed in the Court of Exchequer
Chamber, and the House of Lords affirmed the decision of the Court of Exchequer Chamber,
so that the defendants got judgment.
16.12 The judgment of the Exchequer Chamber was delivered by Coleridge J, who emphasised
that the issue was to be determined by construction of the actual contract. Subsequently in the
House of Lords, Lord Cranworth LC20 said ‘… the whole question turns upon the meaning and
construction of the contract’ and with that in mind added ‘what the parties contemplated …
was that there was an existing something to be sold and bought, and, if sold and bought, then
the benefit of insurance should go with it’.
16.13 A different position applies if in fact the goods never existed. In McRae v Commonwealth
Disposals Commission21 the Commonwealth Disposals Commission requested tenders for
the salvage of an oil tanker that was said to be lying on Jourmaund Reef. McRae’s tender was
accepted by the Commission. Subsequently the parties entered into an agreement for the
salvage of ‘One oil tanker … wrecked on Jourmaund Reef … approximately 100 miles north of
Samarai’. The Commission supplied McRae with latitude and longitude references said to show
the location of the vessel. Subsequently McRae launched a salvage expedition, but could not
find the vessel at the location. McRae sued for damages. The Commission argued that there
had been a common mistake and, accordingly, that the contract was void. If that were the case,
McRae could not acquire any rights for damages under a void contract. At trial the court relied
on Couturier v Hastie22 and held in favour of the Commission.
16.14 On appeal to the High Court, this decision was reversed and it was held that there was
no common mistake. According to Dixon and Fullagar JJ:23

19. Couturier v Hastie (1852) 155 ER 1250 at 1253–4.

20. Couturier v Hastie (1856) 10 ER 1065 at 1068–9.
21. (1951) 84 CLR 377.
22. Couturier v Hastie (1856) 10 ER 1065.
23. McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 407–8. These remarks were approved
by Lord Phillips in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 at 703;
[2002] 4 All ER 689 at 708.

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The observation of Lord Atkin in Bell v Lever Bros Ltd seems entirely appropriate to
24

Couturier v Hastie.25 In that case there was a failure of consideration, and the purchaser was
not bound to pay the price: if he had paid it before the truth was discovered, he could have
recovered it back as money had and received. The construction of the contract was the vital
thing in the case because, and only because, on the construction of the contract depended
the question whether the consideration had really failed, the vendor maintaining that, since
he was able to hand over the shipping documents, it had not failed. The truth is that the
question whether the contract was void, or the vendor excused from performance by reason
of the non-existence of the supposed subject matter, did not arise in Couturier v Hastie.26
It would have arisen if the purchaser had suffered loss through non-delivery of the corn
and had sued the vendor for damages. If it had so arisen, we think that the real question
would have been whether the contract was subject to an implied condition precedent that
the goods were in existence. Prima facie, one would think, there would be no such implied
condition precedent, the position being simply that the vendor promised that the goods
were in existence. That is the real meaning of the direction of Martin B to the jury, and so the
argument for the defendant, as has already been pointed out, included the proposition that
‘a vendor of goods undertakes that they exist and that they are capable of being transferred,
although he may not stipulate for their condition’27. So in Barr v Gibson28 where the contract
was for the sale of a ship, Parke B29 said:- ‘And therefore the sale in this case of a ship implies
a contract that the subject of transfer did exist in the character of a ship’. It should be noted
in this connection that in Solle v Butcher30 Denning LJ said that the doctrine of French law,
as enunciated by Pothier, is no part of English law. His Lordship was without doubt thinking
of the passage quoted from Pothier in a note to the report of the argument in the House of
Lords in Couturier v Hastie.31 Although we would not be prepared to assent to everything
that is said by Denning LJ in the course of this judgment, we respectfully agree with this
observation. When once the common law had made up its mind that a promise supported
by consideration ought to be performed, it was inevitable that the theorisings of the civilians
about ‘mistake’ should mean little or nothing to it. On the other hand, the question whether
a promisor was excused from performance by existing or supervening impossibility
without fault on his part was a practical every-day question of which the common law has
been vividly conscious, as witness Taylor v Caldwell,32 with its innumerable (if sometimes
dubious) successors. But here too the common law has generally been true to its theory of
simple contract, and it has always regarded the fundamental question as being: ‘What did the
promisor really promise?’ Did he promise to perform his part at all events, or only subject
to the mutually contemplated original or continued existence of a particular subject-matter?
So questions of intention or ‘presumed intention’ arise, and these must be determined in the
light of the words used by the parties and reasonable inferences from all the surrounding

24. [1932] AC 161 at 222.

25. (1852) 155 ER 1250; (1853) 156 ER 43; (1856) 10 ER 1065.
26. (1852) 155 ER 1250; (1853) 156 ER 43; (1856) 10 ER 1065.
27. (1853) 156 ER 43 at 46.
28. (1838) 150 ER 1196.
29. (1838) 150 ER 1200 at 1201.
30. (1950) 1 KB 671 at 691, 692.
31. (1856) 10 ER 1065 at 1067, 1068.
32. (1863) 122 ER 309.

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circumstances. That the problem is fundamentally one of construction is shown clearly by

Clifford v Watts.33

16.15 Their Honours34 then added the following remarks:

It was not decided in Couturier v Hastie35 that the contract in that case was void. The
question whether it was void or not did not arise. If it had arisen, as in an action by the
purchaser for damages, it would have turned on the ulterior question whether the contract
was subject to an implied condition precedent. Whatever might then have been held on the
facts of Couturier v Hastie,36 it is impossible in this case to imply any such term. The terms
of the contract and the surrounding circumstances clearly exclude any such implication.
The buyers relied upon, and acted upon, the assertion of the seller that there was a tanker
in existence. It is not a case in which the parties can be seen to have proceeded on the
basis of a common assumption of fact so as to justify the conclusion that the correctness
of the assumption was intended by both parties to be a condition precedent to the creation
of contractual obligations. The officers of the Commission made an assumption, but the
plaintiffs did not make an assumption in the same sense. They knew nothing except what the
Commission had told them. If they had been asked, they would certainly not have said: ‘Of
course, if there is no tanker, there is no contract’. They would have said: ‘We shall have to go
and take possession of the tanker. We simply accept the Commission’s assurance that there is
a tanker and the Commission’s promise to give us that tanker’. The only proper construction
of the contract is that it included a promise by the Commission that there was a tanker in the
position specified. The Commission contracted that there was a tanker there. ‘The sale in
this case of a ship implies a contract that the subject of the transfer did exist in the character
of a ship’.37 If, on the other hand, the case of Couturier v Hastie38 and this case ought to be
treated as cases raising a question of ‘mistake’, then the Commission cannot in this case rely
on any mistake as avoiding the contract, because any mistake was induced by the serious
fault of their own servants, who asserted the existence of a tanker recklessly and without
any reasonable ground. There was a contract, and the Commission contracted that a tanker
existed in the position specified. Since there was no such tanker, there has been a breach of
contract, and the plaintiffs are entitled to damages for that breach.

In other words, the conduct of the Commission was such that it was implied that it had
promised McRae that the vessel existed. There was no common mistake. The Commission had
made a mistake, but McRae had relied, and could rely, on the Commission’s assurances.
16.16 In Associated Japanese Bank (International) Ltd v Credit du Nord SA39 Associated
Japanese Bank purchased four machines from Bennett and then leased them back to him.
Credit du Nord guaranteed Bennett’s obligations to pay the rental on the machines. It turned
out that there were no machines because Bennett had been fraudulent. Associated Japanese
Bank sued Credit du Nord on the guarantee and the question for determination was whether

33. (1870) LR 5 CP 577.

34. McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 409–10.
35. (1852) 155 ER 1250; (1853) 156 ER 43; (1856) 10 ER 1065.
36. (1852) 155 ER 1250; (1853) 156 ER 43; (1856) 10 ER 1065.
37. Barr v Gibson (1838) 150 ER 1196 at 1200–1.
38. (1852) 155 ER 1250; (1853) 156 ER 43; (1856) 10 ER 1065.
39. [1988] 3 All ER 902.

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the guarantee was affected by the mistake. If this argument was accepted, then Credit du Nord
was not liable pursuant to the guarantee.
16.17 In Associated Japanese Bank (International) Ltd v Credit du Nord SA40 Steyn J held that
the contract of guarantee was subject to an express condition precedent or, alternatively, an
implied term that the four machines existed. As this condition was not satisfied, the contract
was void. However, his Honour also proffered a third justification for his decision, namely,
that the guarantee was void for a common mistake. According to his Honour, in order for
a common mistake to be operative, it must be substantially shared by both parties and the
mistake must make the subject matter of the contract essentially different from that which the
parties believed to be the case. Steyn J41 said:
It seems to me that the better view is that the majority in Bell v Lever Bros Ltd42 had in mind
only mistake at common law. That appears to be indicated by the shape of the argument,
the proposed amendment placed before the House of Lords and the speeches of Lord Atkin
and Lord Thankerton. But, if I am wrong on this point, it is nevertheless clear that mistake
at common law was in the forefront of the analysis in the speeches of the majority. The law
has not stood still in relation to mistake in equity. Today, it is clear that mistake in equity
is not circumscribed by common law definitions. A contract affected by mistake in equity is
not void but may be set aside on terms. It does not follow, however, that Bell v Lever Bros
Ltd43 is no longer an authoritative statement of mistake at common law. On the contrary, in
my view the principles enunciated in that case clearly still govern mistake at common law. It
is true that in Solle v Butcher44 Denning LJ interpreted Bell v Lever Bros Ltd45 differently. He
said that a common mistake, even on a most fundamental matter, does not make the contract
void at law. That was an individual opinion. Neither Bucknill LJ (who agreed in the result)
nor Jenkins LJ (who dissented) even mentioned Bell v Lever Bros Ltd.46

16.18 His Honour47 then continued:

The first imperative must be that the law ought to uphold rather than destroy apparent
contracts. Secondly, the common law rules as to a mistake regarding the quality of the subject
matter, like the common law rules regarding commercial frustration, are designed to cope
with the impact of unexpected and wholly exceptional circumstances on apparent contracts.
Thirdly, such a mistake in order to attract legal consequences must substantially be shared
by both parties, and must relate to facts as they existed at the time the contract was made.
Fourthly, and this is the point established by Bell v Lever Bros Ltd,48 the mistake must render
the subject matter of the contract essentially and radically different from the subject matter
which the parties believed to exist. While the civilian distinction between the substance and
attributes of the subject matter of a contract has played a role in the development of our law

40. [1988] 3 All ER 902.

41. Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902 at 911.
42. [1932] AC 161.
43. [1932] AC 161.
44. [1950] 1 KB 671 at 693.
45. [1932] AC 161.
46. [1932] AC 161.
47. Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902 at 912–13.
48. [1932] AC 161.

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… the principle enunciated in Bell v Lever Bros Ltd49 is markedly narrower in scope than
the civilian doctrine. It is therefore no longer useful to invoke the civilian distinction. The
principles enunciated by Lord Atkin and Lord Thankerton represent the ratio decidendi of
Bell v Lever Bros Ltd.50

16.19 Applying those principles to the facts, his Honour concluded that the existence of
the machines was fundamental because they formed the prime security for the contract of
guarantee. He declared the contract to be void on the basis of mistake at common law. The
consequence was that the guarantee could not be enforced. What this case demonstrates is
that ‘a defence of common mistake can succeed even if it is on the face of the contract perfectly
possible for the defendant to do precisely what he has contracted to do’.51
16.20 Another area of difficulty has been with respect to contracts for the sale of land in
situations where, for example, buildings on the property are not wholly located within the
boundaries of the land that is being sold. Are such contracts void for common mistake where
there is no allegation of fraud? In Svanosio v McNamara52 a contract was entered into by the
executors of an estate for the sale of a hotel and land together with a liquor licence. After
settlement of the transaction and after the purchasers had taken possession, it was discovered
that the hotel was only partially situated on the land that had been sold. The purchaser argued
that the sale agreement was affected by a common mistake and was therefore void. The High
Court disagreed. Dixon CJ and Fullagar J53 said:
So far as the contract is concerned, it may be assumed that all parties believed that the hotel
stood wholly on the land sold. In that sense there was a ‘common mistake’. It may also be
assumed that the appellant, if he had known that a considerable part of the building stood
on Crown land, would not have entered into the contract. But these facts do not make the
contract void.

16.21 In cases where there is a common mistake as to the nature, value, or quality of the
subject matter of the contract, the contract is not void at common law. In Bell v Lever Brothers
Ltd54 Bell and Snelling were directors of Niger Ltd, a company owned by the defendant, and
were employed under a five-year contract. The parties subsequently agreed that Bell and
Snelling would resign in return for payment of compensation. After payment, the defendant
learned that Bell and Snelling had been guilty of conduct that, if known earlier, would have
enabled the defendant to dismiss them without compensation. The issue before the House of
Lords was whether the compensation agreement was void for common mistake, given that
each party believed that the only way to get Bell and Snelling to leave before the end of their
agreement was to pay out their employment contract. If it was, Bell and Snelling were liable to
return the compensation payments.

49. [1932] AC 161.

50. [1932] AC 161.
51. Apvodedo NV v Collins [2008] EWHC 775 (Ch) at [46].
52. (1956) 96 CLR 186.
53. Svanosio v McNamara (1956) 96 CLR 186 at 195.
54. [1932] AC 161.

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16.22 The House of Lords held that the contract was not void for common mistake, there
being no mistake as to the existence of the subject matter. The mistake was as to its quality.
Lord Atkin55 said:
Mistake as to quality of the thing contracted for raises more difficult questions. In such a
case a mistake will not affect assent unless it is the mistake of both parties, and is as to the
existence of some quality which makes the thing without the quality essentially different
from the thing as it was believed to be.

16.23 Lord Atkin56 went on to say:

The contract released is the identical contract in both cases, and the party paying for release
gets exactly what he bargains for. It seems immaterial that he could have got the same result
in another way, or that if he had known the true facts he would not have entered into the
bargain. A buys B’s horse; he thinks the horse is sound, and he pays the price of a sound
horse; he would certainly not have bought the horse if he had known as [a fact that] the horse
is unsound. If B has made no representation as to soundness and has not contracted that the
horse is sound, A is bound and cannot recover back the price. A buys a picture from B; both
A and B believe it to be the work of an old master, and a high price is paid. It turns out to be
a modern copy. A has no remedy in the absence of a representation or warranty.

16.24 In Leaf v International Galleries57 the plaintiff purchased from the defendant a painting
of Salisbury Cathedral,58 which the defendant had innocently misrepresented as being by the
famous painter Constable. Both parties believed the painting to be by Constable. Five years
later the plaintiff tried to resell the painting, but discovered that it was not by Constable. He
sought to rescind the original contract. The court held that there was no mistake about the
subject matter of the sale — the subject matter was a painting of Salisbury Cathedral. The fact
that it was painted by Constable went only to the quality of the subject matter. In this case the
parties had agreed on the same terms and on the same subject matter and that was sufficient
to make a contract.
16.25 Although a common mistake, in the limited circumstances detailed above, renders a
contract void ab initio at common law, the question arises whether equitable relief is available
in circumstances where the contract is not void ab initio at common law. Typical relief in equity
would be rescission of the contract. The resolution of this issue is far from certain.
16.26 In Solle v Butcher59 Butcher agreed to lease a flat to Solle for seven years at an annual
rent of £250. Both parties believed that extensive structural alterations made to the premises
would cause it to be regarded as a new flat and not subject to rent control legislation that limited
the maximum chargeable rent. The parties were mistaken. The rent control legislation applied
to the premises and the maximum annual rent was £140. Two years after the commencement of
the lease, Solle sued for the return of the excess rent that he had paid under the lease. Butcher
argued that there had been a common mistake that made the lease void.

55. Bell v Lever Brothers Ltd [1932] AC 161 at 218.

56. Bell v Lever Brothers Ltd [1932] AC 161 at 223–4.
57. [1950] 2 KB 86.
58. Salisbury Cathedral is home to one of the four surviving copies of the original Magna Carta of 1215:
G Stewart, Britannia, 100 Documents That Shaped a Nation, Atlantic Books, London, 2010, p 46.
59. [1950] 1 KB 671; [1949] 2 All ER 1107.

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16.27 The English Court of Appeal held that the mistake did not void the contract at
common law. The subject matter of the contract had not changed. If the court had gone no
further, Solle would have several years of a lease left at a lower rental than he had agreed to pay.
This would have been unfair to the lessor. However, the court ordered equitable relief, setting
the agreement aside. Denning LJ60 said:
[M]istake is of two kinds: first, mistake which renders the contract void, that is, a nullity from
the beginning, which is the kind of mistake that was dealt with by the courts of common law;
and, secondly, mistake which renders the contract not void, but voidable, that is, liable to be
set aside on such terms as the court thinks fit, which is the kind of mistake which was dealt
with by the courts of equity.

16.28 Denning LJ61 went on to say:

A contract is … liable in equity to be set aside if the parties were under a common
misapprehension either as to the facts or as to their relative and respective rights, provided
that the misapprehension was fundamental and that the party seeking to set it aside was not
himself at fault.

16.29 Denning LJ proposed that Solle v Butcher62 had a choice between submitting to
rescission of the lease and having a lease at the rental of £250 which would have been payable.
16.30 The decision in Solle v Butcher63 allowing a contract to be set aside in equity has not
seen universal favour. As will be seen below, that decision was seen as irreconcilable with Bell
v Lever Brothers Ltd.64 It has also seen a mixed reception in Australia. However, the English
Court of Appeal has since overruled the decision in Solle v Butcher65 and has held there is no
general jurisdiction in equity to set aside a contract, valid and enforceable at law, on the ground
of common mistake. In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd66 a
salvage operator, Tsavliris Salvage, entered into a contract in September 1999 to provide salvage
services to the owners of the vessel, ‘Cape Providence’, which was in danger of sinking in the
South Indian Ocean after sustaining serious structural damage. In addition to needing the use
of a tug, which was some five days away, Tsavliris Salvage needed to hire a merchant vessel to
stand by in case it became necessary to evacuate her crew. The owners of ‘Cape Providence’
were told by a third party that the nearest vessel, a vessel known as the ‘Great Peace’, was only
35 miles away and could get to the location of the ‘Cape Providence’ in approximately 12 hours.
They forwarded that information to Tsavliris Salvage, which, in the circumstances, agreed to
hire the vessel from Great Peace Shipping at a daily rate. However, Tsavliris Salvage cancelled
that agreement as soon as they discovered that the ‘Great Peace’ was 400 miles away from where
she was needed and that it would take it 39 hours to reach the stricken vessel. Tsavliris Salvage
was presented with an invoice for five days’ hire of ‘Great Peace’, but refused to pay. Tsavliris
Salvage argued that its contract of hire with Great Peace Shipping was void at common law on

60. Solle v Butcher [1950] 1 KB 671 at 690–1; [1949] 2 All ER 1107 at 1118–19.
61. Solle v Butcher [1950] 1 KB 671 at 693; [1949] 2 All ER 1107 at 1120.
62. [1950] 1 KB 671; [1949] 2 All ER 1107.
63. [1950] 1 KB 671; [1949] 2 All ER 1107.
64. [1932] AC 161.
65. [1950] 1 KB 671; [1949] 2 All ER 1107.
66. [2003] QB 679; [2002] 4 All ER 689.

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grounds of a common mistake, namely, that the two vessels were in close proximity to each
other. Alternatively, Tsavliris Salvage contended that the facts gave it a right to rescission in
equity.
16.31 At the trial before Toulson J, Tsavliris Salvage argued that there was a fundamental
belief or assumption that ‘Great Peace’ was ‘in close proximity’ to ‘Cape Providence’, that this
formed the basis for the contract’, and that since both parties had been mistaken about the
proximity of the vessel, the agreement should not be enforced. However, his Honour found
that the contract did not require ‘Great Peace’ to be ‘in close proximity’ to ‘Cape Providence’
and that such a provision was too vague an expression to be capable of any contractual effect.
In his view, ‘Great Peace’ had not been so far away as to be incapable of providing the services
required. He concluded that Tsavliris Salvage had to pay for the hire of the vessel.
16.32 In the English Court of Appeal Tsavliris Salvage argued that the contract was void
at common law on grounds of a common mistake, namely, that the two vessels were in close
proximity to each other. Alternatively, it contended that the facts gave it a right to rescission in
equity. The Court of Appeal, however, ruled in favour of Great Peace Shipping and in doing so,
overruled Solle v Butcher67 on the basis that it was inconsistent with the House of Lords decision
in Bell v Lever Brothers Ltd.68 Accordingly, the contract concerning the salvage operation was
held to be valid.
16.33 In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd69 Lord Phillips MR,
who delivered the judgment of the Court of Appeal, considered that Lord Denning’s formulation
in Solle v Butcher70 did not provide an adequate basis for differentiating between ‘fundamental’
mistake and the common law test of a mistake that makes the subject matter of the contract
‘essentially different’. His Lordship71 said:
If the result in Solle v Butcher72 extended beyond any previous decision the scope of the
equitable jurisdiction to rescind a contract for common mistake, the terms of Denning LJ’s
judgment left unclear the precise parameters of the jurisdiction. The mistake had to be
‘fundamental’, but how far did this extend beyond Lord Atkin’s test of a mistake ‘as to some
quality which makes the thing without the quality essentially different from the thing as it
was believed to be’? The difficulty in answering this question was one of the factors that led
Toulson J to conclude that there was no equitable jurisdiction to rescind on the ground of
common mistake a contract that was valid in law. Was it open to him after half a century
and is it open to this Court to find that the equitable jurisdiction that Denning LJ identified
in Solle v Butcher73 was a chimera? Principles of both equity and common law have been
developed by the judges and that is not a process which ceased with the Judicature Act. Does
the doctrine of precedent require, or even permit, this court to hold that the jurisdiction that

67. [1950] 1 KB 671; [1949] 2 All ER 1107.

68. [1932] AC 161.
69. [2003] QB 679; [2002] 4 All ER 689.
70. [1950] 1 KB 671; [1949] 2 All ER 1107.
71. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 at 719; [2002] 4 All ER 689
at 723. The judgment of the Court of Appeal was subsequently described as a ‘judgment of conspicuous
clarity’: Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328 at [48].
72. [1950] 1 KB 671; [1949] 2 All ER 1107.
73. [1950] 1 KB 671; [1949] 2 All ER 1107.

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Denning LJ purported to exercise in Solle v Butcher74 does not exist because that decision was
in conflict with that of the House of Lords in Bell v Lever Brothers?75

16.34 Further, the Court of Appeal76 ruled that the following elements must be present if
common mistake is to avoid a contract at common law:
• There must be a common assumption as to the existence of a state of affairs.
• There must be no warranty by either party that that state of affairs exists.
• The non-existence of the state of affairs must not be attributable to the fault of either party.
• The non-existence of the state of affairs must render performance of the contract impossible.
• The state of affairs may be the existence, or a vital attribute, of the consideration to be
provided or circumstances that must subsist if performance of the contractual adventure is
to be possible.77

16.35 The mistake that was made in Great Peace Shipping Ltd v Tsavliris Salvage (International)
Ltd78 was regarded as not being of the kind that made the contract essentially different from
the thing as it was believed to be, and it did not render the contractual adventure impossible of
performance.
16.36 It is now the case in the United Kingdom that where a contract is not void at common
law for common mistake, there is no jurisdiction to grant rescission on the basis that such a
contract could be voidable in equity.

In the wake of the Court of Appeal’s decision in Great Peace Shipping Ltd v Tsavliris Salvage
(International) Ltd,79 in Dana Gas PJSC v Dana Gas Sukuk Ltd,80 Leggatt J said the following
about the law on common mistake:
First, the doctrine is not based on an inquiry into the subjective beliefs of the parties
but on an objective analysis of what they agreed. Second, the doctrine does not rest on
the notion that the parties have impliedly agreed what is to happen in the event that an
assumption underlying the contract proves to be false. It does, however, involve a question
of construction of the contract. It is only where it is to be inferred from the terms of the
contract or the surrounding circumstances that the contract was never intended to apply
in the situation which in reality existed when the contract was made that the doctrine will
apply. Such an inference will be drawn only if the difference between the state of affairs on
which the contract was premised and the actual state of affairs is sufficiently fundamental.

Thus, the doctrine of mistake can only apply if there is a gap in the contract. If the parties
have expressly or impliedly agreed what is to happen if they turn out to have been mistaken
about the matter in question — in other words, if the risk of the mistake has been allocated
by their contract — there is no scope for the doctrine. …

74. [1950] 1 KB 671; [1949] 2 All ER 1107.

75. [1932] AC 161.
76. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 at 703; [2002] 4 All ER 689
at 708.
77. These elements were seen as a starting point in Elston v King [2020] EWHC 55 (Ch) at [17].
78. [2003] QB 679; [2002] 4 All ER 689.
79. [2003] QB 679; [2002] 4 All ER 689.
80. [2017] EWHC 2928 (Comm) at [61]–[65].

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One way — although not the only way — in which the risk of a mistake may be contractually
allocated is by one party warranting that the relevant state of affairs exists. So, for example,
in McRae v Commonwealth Disposals Commission81 the defendant sold to the claimant the
wreck of an oil tanker, stated to be lying on a certain reef. Unknown to either party, the tanker
did not actually exist (nor did the reef). Before the High Court of Australia an argument
that the contract was void for mistake failed because the court held that the defendant had
impliedly warranted that there was a shipwrecked tanker. The non-existence of the tanker
was not therefore a state of affairs for which the contract failed to provide.

The main reason why pleas of mistake seldom succeed is that the risk of a mistake is usually
allocated by the contract to one of the parties. Plainly, there is no room for the doctrine to
operate if the contract states expressly what is to happen if the relevant assumption proves
to be false. It may be harder to determine whether the contract impliedly allocates the risk.
To take one of the examples given by Lord Atkin in Bell v Lever Bros:82 ‘A buys a picture
from B; both A and B believe it to be the work of an old master, and a high price is paid. It
turns out to be a modern copy.’ In practice in such a case the answer is likely to be found
through construction of the contract. If the authorship of the picture is part of the description
of the goods so that the seller has impliedly warranted its attribution, the risk will lie with
the seller. If on the other hand there is no such warranty, the ordinary inference based on the
principle of caveat emptor would be that the buyer is taking the risk.

The second reason why most arguments of mistake fail is that the doctrine only applies if
the mistake is sufficiently fundamental. Two different formulations of this requirement have
been approved. One is that the mistake in question has rendered the contract ‘impossible of
performance’. The other is that the mistake ‘must render the subject-matter of the contract
essentially and radically different from the subject-matter which the parties believed to exist’.
The two approaches may essentially amount to the same thing.83

Subsequent to Leggatt J’s decision in this case, in Triple Seven Msn 27251 Ltd v Azman Air
Services Ltd,84 Peter MacDonald Eggers QC said:
[T]he elements of a common mistake which has the effect of rendering the contract based on
that common mistake void are as follows:

(1) There must have been, at the time of the conclusion of the contract, an assumption as to
the existence of a state of affairs substantially shared between the parties.

(2) The assumption itself must have been fundamental to the contract.

(3) That assumption must have been wrong at the time of the conclusion of the contract.

(4) By reason of the assumption being wrong, the contract or its performance would be
essentially and radically different from what the parties believed to be the case at the time
of the conclusion of the contract; alternatively, the contract must be impossible to perform

81. (1950) 84 CLR 337.

82. [1932] AC 161 at 224.
83. See Kyle Bay Ltd v Underwriters subscribing under Policy No 019057/08/01 [2007] EWCA Civ 57
at [24]–[25].
84. [2018] EWHC 1348 (Comm) at [76].

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having regard to or in accordance with the common assumption. In other words, there must
be a fundamental difference between the assumed and actual states of affairs.

(5) The parties, or at least the party relying on the common mistake, would not have entered
into the contract had the parties been aware that the common assumption was wrong.

(6) The contract must not have made provision in the event that the common assumption
was mistaken.

16.37 Questions therefore now arise as to the applicability of Solle v Butcher85 in Australia.
In Clasic International Pty Ltd v Lagos,86 a decision handed down shortly after, but making no
reference to Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd,87 Palmer J in the
New South Wales Supreme Court followed Solle v Butcher.88 In Clasic International Pty Ltd
v Lagos89 there was an agreement for the lease of retail premises between the parties for one year,
with an option for a further three years. By s 16(1)–(2) of the Retail Leases Act 1994 (NSW),
a retail lease plus any option must not be for less than five years, and if the lease plus any
option is stated to be for less than five years it will be deemed to be for five years. Pursuant to
s 16(3), a retail lease can be for less than five years if a lawyer or licensed conveyancer provides
a certificate that he or she has explained to the tenant the effect of s 16(1)–(2) and that it will
not apply to that retail lease. When the lease agreement was executed by the parties in this case,
neither was represented by a lawyer and neither had any knowledge of the provisions of the
Retail Leases Act. Furthermore, the facts showed that, had they been aware of it, they would
not have entered into the agreement. The landlords claimed that the agreement was voidable in
equity on grounds of a common mistake as to the law.
16.38 Palmer J90 cited with approval the statement of principle made by Denning LJ in Solle
v Butcher.91 In applying this statement of principle to the facts of the case, his Honour92 said:
I am satisfied that the [landlords] have made good their defence of common mistake, and
that the mistake was fundamental to the Agreement for Lease. The [tenant] was not at fault
as to how the common mistake arose. There is no circumstance which militates against
setting aside the agreement at their suit. [emphasis added]

16.39 However, the acceptance of Solle v Butcher93 in Australia since Great Peace Shipping
Ltd v Tsavliris Salvage (International) Ltd,94 has not been universal. In Australia Estates Pty
Ltd v Cairns City Council95 the Queensland Court of Appeal declined to follow both Clasic

85. [1950] 1 KB 671; [1949] 2 All ER 1107.

86. (2002) 60 NSWLR 241.
87. [2003] QB 679; [2002] 4 All ER 689.
88. [1950] 1 KB 671; [1949] 2 All ER 1107.
89. (2002) 60 NSWLR 241.
90. Clasic International Pty Ltd v Lagos (2002) 60 NSWLR 241 at 249.
91. [1950] 1 KB 671; [1949] 2 All ER 1107.
92. Clasic International Pty Ltd v Lagos (2002) 60 NSWLR 241 at 250.
93. [1950] 1 KB 671; [1949] 2 All ER 1107.
94. [2003] QB 679; [2002] 4 All ER 689.
95. [2005] QCA 328.

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International Pty Ltd v Lagos and Solle v Butcher. In Australia Estates Pty Ltd v Cairns City
96 97

Council,98 Cairns City Council contracted to sell land in Grafton and Lake Streets in Cairns
(the land) to Australian Estates Pty Ltd. The purchase price was $3,000,000. The contract was
subject to Australian Estates obtaining development consent in respect of the land so that
it could construct residential and commercial buildings on the land. A term of the contract
stipulated as follows:
If the Approval is granted on terms that are unsatisfactory to the Purchaser, the Purchaser
may terminate this Contract by written notice to the vendor within said period of 5 business
days, failing which the Purchaser will be deemed to have given notice that the terms of the
Approval are satisfactory.

16.40 Australian Estates obtained a ‘decision notice’ on 26 July 2004, granting the development
approval. On 2 August 2004 Australian Estates made representations to the council to vary the
conditions of the approval. On 13 August 2004, the council’s solicitors faxed a letter to the
solicitor for Australian Estates, in which it was stated that the decision notice of 26 July 2004
was clearly an approval for the purposes of the special condition in the contract relating to the
development approval of the land, and proposed that the date of that letter (13 August 2004)
be taken as the date of satisfaction of the special condition requiring development approval,
and that 12 October 2004 be the completion date with time remaining of the essence. The
solicitor for Australian Estates confirmed that the settlement date for the contract was to be
12 October 2004. On 31 August 2004 a ‘negotiated decision notice’ was issued. On 8 October
2004 Australian Estates told the council that the ‘negotiated decision notice’, not the ‘decision
notice’, was the approval for the purposes of the special conditions of the contract, and that the
completion date was now 25 October 2004, not 12 October 2004. When Australian Estates did
not settle on 12 October 2004, the council elected to terminate the contract.
16.41 Australian Estates applied to the Supreme Court for a declaration that the contract
was not lawfully terminated by the council. The trial judge refused this application. On appeal,
Australian Estates contended that the judge should have concluded that it only received
development approval under the contract when it received the ‘negotiated decision notice’ on
31 August 2004 and, that in agreeing to vary the contract on 18 August 2004, both parties were
acting under a common mistake as to the effect of the contract so that the contract as varied
should be set aside and the parties bound only by the original contract. In order to succeed
on appeal, Australian Estates had to establish that there was a common mistake as to when
development approval was obtained and therefore a mistake as to when settlement was to take
place, and that they were ‘without fault’ — the latter being the test set out in Solle v Butcher.99
16.42 The appeal in Australia Estates Pty Ltd v Cairns City Council100 was dismissed and
the decision and test in Solle v Butcher101 was not followed. Importantly, the court applied the

96. (2002) 60 NSWLR 241.

97. [1950] 1 KB 671; [1949] 2 All ER 1107.
98. [2005] QCA 328.
99. [1950] 1 KB 671; [1949] 2 All ER 1107.
100. [2005] QCA 328.
101. [1950] 1 KB 671; [1949] 2 All ER 1107.

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decision in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd102 and expressed the
view that Solle v Butcher103 was no longer good law in Australia. Atkinson J104 said:
The common law doctrine of common mistake, as the Court of Appeal held,105 fills a gap
in the contract where it transpires that it is impossible of performance without the fault of
either party and the parties have not, expressly or by implication, dealt with their rights and
obligations in that eventuality. A common mistake at common law makes a contract void
ab initio. For example in Strickland v Turner106 neither the vendor nor the purchaser of an
annuity realised that the annuitant had died when the bargain was completed. In such a case
there was no annuity in existence, and the contract was void ab initio. A common mistake
in equity on the other hand rendered a contract voidable. An example is found in Cooper
v Phibbs107 when a contract whereby a purchaser bought property which neither he nor the
seller realised already belonged to the purchaser was liable to be set aside in equity for that
common mistake. However the Court of Appeal observed that cases of common mistake
were likely to be rare because where parties agree that something shall be done which is
impossible at the time of making the agreement, it is more likely that, on a true construction
of the agreement, one or the other will have undertaken responsibility for the mistaken state
of affairs. …

After the discussion of Bell v Lever Bros Ltd108 in Solle v Butcher,109 it was assumed in later
cases that the common law of mistake was different from the equitable jurisdiction to set
aside a contract for mistake. In Great Peace Shipping v Tsavliris Salvage,110 the Court of
Appeal held that this had led to incoherence and confusion in this area of the law. The only
way of resolving that confusion was to declare, as the court did, that there was no jurisdiction
in equity to grant rescission of a contract on the ground of common mistake where that
contract was valid and enforceable in common law on ordinary principles of contract law.
In doing so, the court overruled Solle v Butcher,111 as well as many English decisions which
had followed it. …

In this case, the persuasiveness of the court’s reasoning in Great Peace Shipping v Tsavliris
Salvage,112 together with the negative reference to Solle v Butcher113 by Heydon JA in Harris
v Digital Pulse114 and the somewhat qualified approach taken to Solle v Butcher115 by the

102. [2003] QB 679; [2002] 4 All ER 689.

103. [1950] 1 KB 671; [1949] 2 All ER 1107.
104. Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328 at [49], Jerrard JA agreeing at [64]. In
Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328, McMurdo P considered that as no mistake
had occurred, it was therefore unnecessary to consider whether the decision in Great Peace Shipping Ltd
v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689 should be followed.
105. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
106. [1852] Eng R 199; [1852] 7 Exch 208.
107. (1867) LR 2 HL 149.
108. [1932] AC 161.
109. [1950] 1 KB 671; [1949] 2 All ER 1107.
110. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
111. [1950] 1 KB 671; [1949] 2 All ER 1107.
112. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
113. [1950] 1 KB 671; [1949] 2 All ER 1107.
114. Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298.
115. [1950] 1 KB 671; [1949] 2 All ER 1107.

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High Court, the history of which is detailed below, suggests that the law as stated in Great
Peace Shipping116 should be applied by this Court in preference to the law as stated in Solle
v Butcher117 and the cases which have followed it.

16.43 Atkinson J118 then went on to state the following:

The correct question to be posed on this appeal is whether the agreement is void at common
law for common mistake. The test that should be applied is that found in the five elements
set out in Great Peace Shipping v Tsavliris.119 It is abundantly clear in applying those elements
to this case that the common law of mistake could not be used to declare the agreement
void. For the reasons discussed below, there was no mistake. Even if there had been, the
mistake (or non-existence of a state of affairs) alleged by the appellant did not render the
performance of the agreement impossible. There is no equitable jurisdiction to set aside, on
the ground of common mistake, an agreement, which is valid and enforceable at common
law.120

If, contrary to my view, the test to be posed is that found in Taylor v Johnson,121 the appellant
must show that when it entered into the agreement to vary the completion date of the
contract, the Council was aware that circumstances existed which showed that Australia
Estates entered into that agreement under a serious mistake or misapprehension about
the content or subject matter of a fundamental term and that the Council deliberately set
out to ensure that Australia Estates did not become aware of the existence of its mistake or
misapprehension.

16.44 The last paragraph quoted above from the decision of Atkinson J in Australia Estates Pty
Ltd v Cairns City Council122 highlights a significant issue and one that potentially undermines
the correctness of the overall decision. That issue is whether the court was bound to apply the
test in Taylor v Johnson.123 It is respectfully suggested that it should have done so. We are now
left with the position that the decisions in Taylor v Johnson124 and Australia Estates Pty Ltd
v Cairns City Council125 are inconsistent with each other.126

116. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
117. [1950] 1 KB 671; [1949] 2 All ER 1107.
118. Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328 at [49].
119. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
120. Capper suggests that Solle v Butcher is good law in Australia and claims that ‘[i]t is difficult to believe that
the law in Australia is much altered by the unconvincing obiter comments of the Queensland Court of
Appeal’: D Capper, ‘Reconfiguring Mistake in Contract Formation’ in M Bryan (ed), Private Law in Theory
and Practice, Routledge-Cavendish, London, 2007, p 140.
121. (1983) 151 CLR 422; 45 ALR 265.
122. [2005] QCA 328.
123. (1983) 151 CLR 422; 45 ALR 265.
124. (1983) 151 CLR 422; 45 ALR 265.
125. [2005] QCA 328.
126. This inconsistency was recognised in HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230 at
240, footnote 49.

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16.45 In HWG Holdings Pty Ltd v Fairlie Court Pty Ltd127 Sifris J did not need to consider the
correctness of the decision in Australia Estates Pty Ltd v Cairns City Council.128 His Honour129
said:
Neither Great Peace Shipping130 nor Australian Estates131 affects the common law position. In
fact it clarifies and reinforces it, in slightly different language132 by reference to and approval
of both Bell v Lever Bros133 and Associated Japanese Bank.134 Accordingly, if the parties
establish that the common mistake rendered the subject matter of the contract ‘essentially
and radically different’ from the subject matter which the parties believed to exist, or if there
is no subject matter so that the contract has no content, the contract may be void ab initio.
As pointed out there are very few cases on point. The principle, however, remains. Most
cases are of res extincta, that is where the subject matter does not exist and the contract is
incapable of fulfilment. These cases involve mistakes that are obviously very serious and
fundamental. Contracts where the subject matter does exist, but is of a lesser quality are
more difficult. Nevertheless, the mistake may still be serious and fundamental.135
Courts do not lightly declare or find contracts to be void ab initio for common mistake.
However, it is ultimately a matter of construction of the particular contract made by the
parties, particularly in relation to which party is to bear the risk.136 In the unusual case where
the contract is silent, gap filing mechanisms are not available, there is no misrepresentation
or misleading conduct, and the breach is serious, the result in a particular case may well be
the stated narrow common law position, namely that the contract is void ab initio. This is
such a case.

In this case, in my view, the subject matter of the contract is essentially and radically different
from the subject matter of the contract which the parties believed to exist. It follows that
performance of the buy-back agreement as specifically contemplated and intended by the
parties is impossible.137 The parties made a very serious mistake. The buy-back agreement is
silent as to risk allocation. There was no misrepresentation or misleading conduct and no-
one is a fault. The plaintiffs are accordingly entitled to the relief they seek.

127. (2015) 302 FLR 230. In this case Sifris J, at 236, said that the plurality of the High Court in Taylor v Johnson
(1983) 151 CLR 422; 45 ALR 265, although a unilateral mistake case, had accepted that a contract was
voidable if affected by operative mistake and accepted the position taken in Solle v Butcher [1950] 1 KB 671;
[1949] 2 All ER 1107.
128. [2005] QCA 328 at [46].
129. HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230 at 240–1.
130. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
131. Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328. The decisions in this case and Great Peace
Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689 have been criticised:
Seddon, ‘Contract: Mistake Mistake’, note 1 above, pp 95–6.
132. ‘Impossibility of performance or contractual adventure not possible.’
133. [1932] AC 161.
134. Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902.
135. J Cartwright, Misrepresentation, Mistake and Non-Disclosure, Sweet & Maxwell, 3rd ed, 2015, pp 735,
742–61.
136. The contractual allocation of risk may exclude reliance on mistake. Cases such as McRae v Commonwealth
Disposals Commission (1951) 84 CLR 377 were decided on this basis. See also Cartwright, Misrepresentation,
Mistake and Non-Disclosure, note 135 above, pp 736–42.
137. The context and circumstances of the buy-back agreement were entirely and deliberately tax driven in
order to achieve legitimate taxation benefits that are impossible to obtain.

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16.46 Subsequently, the views of the Court of Appeal in Australia Estates Pty Ltd v Cairns
City Council138 have been accepted in Menegazzo v Pricewaterhousecoopers (a firm)139 and
Westpork Pty Ltd v Bio-Organics Pty Ltd.140 In Menegazzo v Pricewaterhousecoopers (a firm)141
Applegarth J said:
The plaintiff submits that his cause of action based upon ‘equitable common mistake’ is
supported by the dicta of Denning MR in Solle v Butcher.142 However, this aspect of Solle
v Butcher143 was overturned by the Court of Appeal in England in Great Peace Shipping Ltd
v Tsavliris Salvage (International) Ltd.144 After a comprehensive analysis of authority, the
Court of Appeal found that it is impossible to reconcile Solle v Butcher145 with Bell v Lever Bros
Ltd.146 It declared that there is no jurisdiction to grant rescission of a contract on the ground
of common mistake where the contract is valid and enforceable on ordinary principles of
contract law. That decision has been considered and followed by the Queensland Court of
Appeal in Australia Estates Pty Ltd v Cairns City Council147 which preferred the decision in
Great Peace148 to Solle v Butcher.149
I should follow the Court of Appeal’s analysis of legal principle and authority in Australia
Estates.150 The analysis of Atkinson J (with whom Jerrard JA agreed) is, with respect, correct.
Even if it was open to me to take a different view of the law to that adopted in Australia
Estates,151 I would not do so since the reasoning of the English Court of Appeal in Great
Peace152 is compelling. No decision of the High Court supports a different conclusion. The
plaintiff cites Taylor v Johnson153 but the references in that decision to Solle v Butcher154
were not concerned with equitable common mistake. They were concerned with unilateral
mistake and the mistake in that case was of a fundamental kind as to whether the sale price
was $15,000 per acre or $15,000 in total. The decision to set aside the transaction turned on
the buyer’s conduct in deliberately setting out to ensure that the seller did not find out about
the mistake. It was the buyer’s inequitable conduct, rather than a common mistake as to
value, which entitled the seller to relief.

HWG Holdings Pty Ltd v Fairlie Court Pty Ltd155 was cited by the plaintiff as suggesting that
the analysis of Atkinson J in Australia Estates156 may not represent the current state of the law

138. [2005] QCA 328.

139. [2016] QSC 94.
140. [2018] WASC 291 at [107]–[117].
141. [2016] QSC 94 at [116]–[118].
142. [1950] 1 KB 671.
143. [1950] 1 KB 671; [1949] 2 All ER 1107.
144. [2003] QB 679; [2002] 4 All ER 689.
145. [1950] 1 KB 671; [1949] 2 All ER 1107.
146. [1932] AC 161.
147. [2005] QCA 328 at [63]–[64].
148. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
149. [1950] 1 KB 671; [1949] 2 All ER 1107.
150. Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328.
151. Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328.
152. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
153. (1983) 151 CLR 422; 45 ALR 265.
154. [1950] 1 KB 671; [1949] 2 All ER 1107.
155. (2015) 302 FLR 230.
156. Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328.
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in Australia. That case was concerned relevantly with the position at common law.157 HWG
Holdings158 did not endorse the expansive doctrine of equitable common mistake upon
which the plaintiff ’s proposed new cause of action depends concerning a mistake as to value.
It did not suggest (and the point was not argued) that the doctrine of common mistake in
equity extends beyond mistakes which are fundamental. Whatever the scope of the doctrine
of common mistake is under Australian law, no authority extends it to a common mistake
simply about the value of property. A more fundamental mistake is required, for example,
as to the existence, identity or fundamental character of the subject matter of the contract.

16.47 In summary, according to his Honour:159

In summary, following the English Court of Appeal in Great Peace160 and the decision of
the Queensland Court of Appeal in Australia Estates,161 I conclude that the proposed claim
for equitable common mistake is bad in law. Those decisions are to be preferred to Solle
v Butcher162 concerning equitable common mistake. In any case, such a claim would require
a fundamental common misapprehension, either as to facts or as to the parties’ respective
rights. It would not extend to a mistaken opinion as to value. Such an extension of the
principle of equitable common mistake derived from Solle v Butcher163 is not supported by
the authorities. Such a doctrine would render insecure numerous transactions entered into
by parties who have a shared, but mistaken view as to the value of the subject matter of the
transaction, but are not mistaken as to the subject matter, the terms of the contract or as to
their relative and respective rights.

16.48 Despite the decision in Australia Estates Pty Ltd v Cairns City Council,164 the correctness
or otherwise of Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd165 on the issue of
common mistake in equity was also left open in Errichetti Nominees Pty Ltd v Paterson Group
Architects Pty Ltd..166 In Schwartz Family Co Pty Ltd v Capital Carpets Pty Ltd,167 Wright J said
that in the light of the English and Queensland Court of Appeal decisions ‘there may be some
doubt whether there exists any equitable jurisdiction to set aside a contract for common mistake’.
Further, Young JA in Hawcroft v Hawcroft General Trading Co Pty Ltd168 and McMillan J in
Rees v Rees169 have taken the view that common mistake operated at both the common law and
in equity. Thus, in Hawcroft v Hawcroft General Trading Co Pty Ltd170 Young JA said:

157. HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230 at 238.
158. HWG Holdings Pty Ltd v Fairlie Court Pty Ltd (2015) 302 FLR 230.
159. Menegazzo v Pricewaterhousecoopers (a firm) [2016] QSC 94 at 124.
160. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
161. Australia Estates Pty Ltd v Cairns City Council [2005] QCA 328.
162. [1950] 1 KB 671; [1949] 2 All ER 1107.
163. [1950] 1 KB 671; [1949] 2 All ER 1107.
164. [2005] QCA 328.
165. [2003] QB 679; [2002] 4 All ER 689.
166. [2007] WASC 77 at [50]–[63].
167. [2019] NSWSC 238 at [92].
168. [2016] NSWSC 555 at [45]–[69].
169. [2016] VSC 452 at [98]–[103].
170. [2016] NSWSC 555 at [51]–[54].

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A series of English commercial cases in recent days have shown that English and Australian
commercial law have diverged over the previous few decades. Although this is a gross
oversimplification, English jurists have elected certainty over discretionary considerations,
the commercial community over consumers, whilst Australia has made the opposite
philosophical choice. It is now over 50 years since we considered ourselves actually or virtually
bound by English decisions and this fact has probably assisted this development … There
are great problems with applying both Great Peace Shipping171 and the principles espoused in
leading Australian cases such as McRae v Commonwealth Disposals Commission,172 Svanasio
v McNamara173 and Taylor v Johnson174 endorsing the role of equity in cases of mistake.
At the very least, despite what is said in Great Peace Shipping,175 there must be some room
for the operation of equitable principles. … Even if one applies Great Peace Shipping,176 there
are still some difficulties in this case in applying it. Just what is covered by the expression
‘state of affairs’ in the guidelines? The fifth guideline says that it covers ‘the existence, or a
vital attribute, of the consideration to be provided or circumstances which must subsist if
performance of the contractual adventure is to be possible.’ Clearly covered are assumptions
as to the existence and ownership of the commodity the subject of the contract and certain
fundamental conditions to performance, but does it cover a statement of the reason as to why
the parties have entered into the contract?

16.49 Similarly, in Rees v Rees177 McMillan J confirmed the existence of an equitable

jurisdiction to set aside contracts entered into under a common mistake. In this respect,
McMillan J178 said:
The plaintiff has abandoned his claim for common law rescission. He now relies on equitable
rescission. There is a debate about the existence and extent of the jurisdiction at equity to
set aside contracts on account of common mistake. … In my view, it is established that there
is an equitable jurisdiction to set aside contracts entered into under a common mistake. In
Svanosio v McNamara179 Dixon CJ and Fullagar J said:
‘Mistake’ might, of course, afford a ground on which equity would refuse specific
performance of a contract, and there may be cases of ‘mistake’ in which it would
be so inequitable that a party should be held to his contract that equity would set
it aside. No rule can be laid down a priori as to such cases … But we would agree
with Professor Shatwell that it is difficult to conceive any circumstances in which
equity could properly give relief by setting aside the contract unless there has been
fraud or misrepresentation or a condition can be found expressed or implied in the
contract.

171. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
172. (1951) 84 CLR 377.
173. (1956) 96 CLR 186.
174. (1983) 151 CLR 422; 45 ALR 265.
175. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
176. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
177. [2016] VSC 452.
178. Rees v Rees [2016] VSC 452 at [98]–[105].
179. (1956) 96 CLR 186 at 196.

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The majority, McTiernan, Williams and Webb JJ,180 said of rescission:

It may be possible in exceptional cases to obtain relief on the ground of common

mistake after a contract for the sale of land has been completed. But the cases must
be very rare. They are unlikely to go beyond cases where there has been a total failure
of consideration.

The majority discussed the availability of rescission where a contract for the sale of land had
already been completed. They recognised that it is available in exceptional circumstances. They
did not explain when that relief might be available where the contract has not been completed.

In Taylor v Johnson181 the majority, Mason ACJ, Murphy and Deane JJ, quoted the passage
from the judgment of Dixon CJ and Fullagar J in Svanosio v McNamara182 referred to above.
The majority appeared to agree with that passage if by ‘fraud’ Dixon CJ and Fullagar J were
referring to ‘fraud’ in the wide equitable sense.183

While the circumstances under which rescission is available at equity for common mistake
may not be clearly defined, there is High Court authority for the proposition that the remedy
exists for common mistake. Several cases since Taylor v Johnson have proceeded on the basis
that the remedy exists for common mistake.184 To the extent that Australia Estates Pty Ltd
v Cairns City Council185 says otherwise, I decline to follow it.

Critically, the defendant did not argue that the conditions for the exercise of the equitable
jurisdiction to set aside contracts entered into under a common mistake (whatever those
conditions may be) are not satisfied. What the defendant did argue is that there was no
mistake for two reasons: the plaintiff had imputed knowledge of the true state of affairs and
any mistake was the product of Mr Brack’s carelessness. Those two arguments have been
rejected and I have found there was a common mistake. The defendant’s case was then that
if the Court concluded that there had been a common mistake, the appropriate remedy is to
set aside the deed in equity and put the plaintiff and the defendant back in the position that
they were in prior to its execution. In other words, the defendant submitted that if a common
mistake is found, the Court should set aside the deed.

Based on what the parties have asked the Court to do, and my findings that there were two
common mistakes and that rectification is not appropriate in this case, it is appropriate to
set aside the deed.

16.50 In Canada, in Miller Paving Ltd v B Gottardo Construction Ltd,186 in relation to the
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd,187 the Court of Appeal for
Ontario said the following:

180. Svanosio v McNamara (1956) 96 CLR 186 at 207.

181. (1983) 151 CLR 422; 45 ALR 265.
182. (1956) 96 CLR 186.
183. Taylor v Johnson (1983) 151 CLR 422 at 430–1; 45 ALR 265 at 270.
184. Hunter Valley Caravan Sales Pty Ltd v Vukatan Pty Ltd (1983) NSW ConvR 55-151; Pacer v Westpac
Banking Corporation (unreported, Supreme Court of New South Wales, Santow J, 2 August 1996); and
Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555.
185. [2005] QCA 328 at [64].
186. (2007) 285 DLR (4th) 568 at 574.
187. [2003] QB 679; [2002] 4 All ER 689.

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Great Peace appears not yet to have been adopted in Canada and, in my view, there is good
188

reason for not doing so. The loss of the flexibility needed to correct unjust results in widely
diverse circumstances that would come from eliminating the equitable doctrine of common
mistake would, I think, be a backward step. In his article,189 Professor McCamus makes a
very effective case to this effect. However, I need not finally decide that question.

16.51 In Singapore, the decision in Great Peace Shipping Ltd v Tsavliris Salvage (International)
Ltd190 was not followed, and Solle v Butcher191 was reaffirmed by the Court of Appeal of Singapore
in Chwee Kin Keong v Digilandmall.com Pte Ltd.192 In that case the court noted that, while
the more simplistic approach adopted by the decision in Great Peace Shipping Ltd v Tsavliris
Salvage (International) Ltd193 avoids the difficulties in delineating precisely when equity ought
to intervene and in determining when a contract is to be void as opposed to voidable for
common mistake, the approach does not necessarily lead to a just result. The Court of Appeal
of Singapore194 stated:
We appreciate that there are difficulties in delineating precisely the considerations which
should apply for equity to intervene. One suggested way to differentiate the application of
the common law rule and equity would be to hold that the former is limited to mistakes with
regard to the subject matter of the contract (like that in Bell v Lever Bros), while the latter can
have regard to a wider and perhaps open-ended category of ‘fundamental’ mistake.195

In view of the difficulties, one may be tempted to take a clear simplistic approach, namely,
where there is actual knowledge, the contract would be void at common law. But where
there is no actual knowledge, the contract ought to be performed. There would then be no
room for equity to operate. But we believe that simplicity may not always lead to a just result,
especially where innocent third parties are involved.

We do not think this court should approach the issue in a rigid and dogmatic fashion. Equity
is dynamic. A great attribute, thus an advantage, of equity, is its flexibility to achieve the
ends of justice. Constructive notice is a concept of equity and whether constructive notice
should lead the court to intervene must necessarily depend on the presence of other factors
which could invoke the conscience of the court, such as ‘sharp practice’ or ‘unconscionable
conduct’. Negligence per se, on the other hand, should not be sufficient to invoke equity.
Parties to a contract do not owe a duty of care to each other.

16.52 The Court of Appeal196 of Singapore also stated the following:

188. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
189. J D McCamus, ‘Mistaken Assumptions in Equity: Sound Doctrine or Chimera?’ (2004) 40 Canadian
Business Law Journal 46.
190. [2003] QB 679; [2002] 4 All ER 689.
191. [1950] 1 KB 671; [1949] 2 All ER 1107.
192. [2005] 1 SLR 502. For a review of this case see Lee Pey Woan, ‘Unilateral Mistake in Law and Equity — Solle
v Butcher Reinstated’ (2005) 121 Law Quarterly Review 393.
193. [2003] QB 679; [2002] 4 All ER 689.
194. Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502 at [75]–[77].
195. William Sindall Plc v Cambridgeshire County Council [1994] 1 WLR 1016 at 1042.
196. Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR 502 at [81]–[82].

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The judge below felt that ‘the price for equitable justice is uncertainty’ and that the
recognition of an equitable jurisdiction to rescind a contract for unilateral mistake might
only encourage further litigation. That fear, with the greatest of respect, is more apparent
than real. The courts here, as well as in other common law countries, have been applying
equitable principles from time immemorial. While certainty is desirable, it is not an object
which should prevail in all circumstances, even against the dictates of justice. As Assoc
Prof Yeo Tiong Min197 in his article so aptly observed:

The fear that the use of ‘elastic’ equitable principles will lead to uncertainty and
encourage litigation is arguably exaggerated.

We share this view. It is not more difficult to determine what is ‘equitable’ than what is
‘reasonable’ at common law.

Moreover, as a matter of justice, as between a legal system having exclusively only a

common law principle of unilateral mistake, which encompasses both actual or constructive
knowledge of the non-mistaken party and a system that embraces both the common law
principle and equity in the sense which we have alluded to above, there is certainly much to
be said in favour of the latter system. We have no doubt as to which system better serves the
ends of justice. As we have said before, the great advantage of an equitable jurisdiction is its
flexibility, to do justice not only between the immediate parties, but also to innocent third
parties.

16.53 More recently, the decision in Great Peace198 has been described as ‘astonishingly
narrow’ and ‘neither coherent nor sensible’.199 According to Professor Tettenborn,200 a rational
scheme is required in relation to dealing with a party’s ability to impugn a contract on the basis
of a common error. That scheme, it is argued, would include the following features:
• a wide jurisdiction to relieve for mistake in any case other than one where there was a clear
intent to pre-empt the issue;
• a cut-off where the contract had actually been performed; and
• an automatic protection for the counter-party who had relied on the validity of the contract.

16.54 In relation to remedies, rescission201 and/or rectification202 may be available in cases

of common mistake. The modern Australian position in relation to rectification is reflected in
Ryledar Pty Ltd v Euphoric Pty Ltd203 and Franklins Pty Ltd v Metcash Trading Ltd.204

197. Yeo Tiong Min, ‘Unilateral Mistake in Contract: Five Degrees of Fusion of Common Law and Equity —
Chwee Kin Keong v Digilandmall.com Pte Ltd’ [2004] SJLS 1 at 12.
198. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
199. Other criticisms can be found: Seddon, note 1 above, pp 95–6; J Edelman, ‘An Uncommon Mistake’ (2004)
15 King’s College Law Journal 127 at 131; J McCamus, ‘Mistaken Assumptions in Equity; Sound Doctrine
or Chimera?’ (2004) 40 Canadian Business Law Journal 46 at 75ff; Errichetti Nominees Pty Ltd v Paterson
Group Architects Pty Ltd [2007] WASC 77 at [61]–[63].
200. A Tettenborn, ‘Agreement, Common Mistake and the Purpose of Contract’ (2011) 27 Journal of Contract
Law 91 at 118.
201. See Chapter 35.
202. See Chapter 34.
203. (2007) 69 NSWLR 603.
204. (2009) 76 NSWLR 603 at 711; 264 ALR 15 at 118.

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MUTUAL MISTAKE

16.55 A mutual mistake arises where the parties to a contract are at cross-purposes with
each other in the sense that they are mistaken as to a fundamental part of the contract. In such
circumstances there is no consensus ad idem or meeting of the minds.205 However, if one or
other of the meanings of the contract can be objectively ascribed to the parties, then it will be
enforced. If this test of reasonableness cannot be satisfied, then there is no contract.
16.56 In Raffles v Wichelhaus,206 a seller sold 125 bales of cotton to a buyer. It was agreed that
the cotton would be shipped from Bombay on the boat ‘Peerless’. The evidence showed that
the seller was thinking of the ship called ‘Peerless’, which sailed from Bombay in December.
In fact there was another ship called ‘Peerless’, which sailed from Bombay in October and it
was this ship which the buyer understood to be carrying the contracted goods. The goods
were shipped on the December ship, but the buyer refused to accept them. The seller sued
for damages resulting from the buyer’s failure to accept the goods. The buyer was able to give
evidence of his actual intention when entering the agreement. The court found that there was
nothing on the face of the contract to show that any particular ship called the ‘Peerless’ was
meant. However, it found that the moment it appeared that two ships called the ‘Peerless’ were
about to sail from Bombay, there was a latent ambiguity and, in those circumstances, allowed
parol evidence to be given for the purpose of showing that the buyer meant one ‘Peerless’ and
the seller another. That being the case, it was held that there was no consensus ad item and
therefore no binding contract.
16.57 It should be noted that the court in Raffles v Wichelhaus207 did not find the contract
void for mutual mistake. Indeed, Isaacs J in the High Court in Life Insurance Co of Australia Ltd
v Phillips208 stated that the decision was illustrative of the approach to be taken where a contract
was ambiguous and where, in consequence, there is a divergence of contractual intention.
16.58 Another case that illustrates an absence of consensus ad idem is Scriven Bros & Co
v Hindley & Co.209 In that case the plaintiffs gave instructions to an auctioneer to sell a quantity
of hemp and tow. An auction catalogue described the goods as such, but did not state in which
auction lot the hemp would be offered and which lot the tow would be offered. Further, the
relevant shipping mark, ‘SL’, appeared against both lots. The defendants’ bid at the auction for
two lots, believing both to contain hemp. In fact Lot A was hemp and Lot B was tow, a different
commodity which had little value. The defendants declined to pay for Lot B and the seller sued
for the price. The defendants’ mistake arose from the fact that both lots contained the same
shipping mark, ‘SL’, and witnesses stated that in their experience hemp and tow were never
landed from the same ship under the same shipping mark. The defendants’ manager had been
shown bales of hemp as ‘samples of the “SL” goods’. The auctioneer believed that the bid was
made under a mistake as to the value of the tow.

205. W & J Sharp v Thomson (1915) 20 CLR 137 at 141–2.

206. (1864) 159 ER 375.
207. (1864) 159 ER 375.
208. (1925) 36 CLR 60 at 79–80.
209. [1913] 3 KB 564.

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16.59 Lawrence J said in Scriven Bros & Co v Hindley & Co210 that in relation to Lot B, the
auctioneer intended to sell tow, whereas the defendants intended to bid for hemp. In those
circumstances, the parties were not ad idem and the plaintiffs could recover only if the
defendants were estopped from establishing what their true state of mind was when they bid
on Lot B. The judge held that the defendants were not estopped, since their mistake had been
caused by or contributed to by the negligence of the plaintiffs.
16.60 By way of contrast, in Goldsbrough, Mort & Co Ltd v Quinn211 Quinn granted
Goldsbrough, Mort an option to purchase crown land that was to be converted to freehold
title. The price was expressed as ‘30s per acre calculated on a freehold basis’. Quinn understood
this to mean that he would receive 30 shillings per acre without any deduction for the costs
of converting the land to freehold. Goldsbrough, Mort understood the option to mean that
it would pay 30 shillings per acre and receive freehold title to the land. In practical terms,
the dispute was over which of the parties was to be responsible for the cost of converting the
land to freehold title. The High Court unanimously held that there was a contract on terms as
understood by Goldsbrough, Mort.

UNILATERAL MISTAKE

16.61 A unilateral mistake arises where only one party to the contract is mistaken and where
the other contracting party is aware of and to some extent responsible for this mistake. The
mistake must be fundamental or material. In some circumstances the contract will be void as a
result of the mistake, while in other circumstances is will merely be voidable. In Casquash Pty
Ltd v NSW Squash Ltd (No 2)212 Pembroke J said the following:
There is a well recognised exception to the principle that a party who makes a unilateral
mistake is bound by what he has signed. Where the mistake is the result of conduct by the
other party that is essentially dishonest, the mistaken party may be entitled to have the
contract rescinded or rectified. The impugned conduct must however have that necessary
quality of legerdemain that justifies the intervention of equity. The conduct requisite to
enliven the remedy has been described as ‘equivalent to fraud’ or ‘involving a degree of sharp
practice’. In Taylor v Johnson213 the majority spoke of a party who ‘deliberately sets out to
ensure that the first party does not become aware of the existence of his mistake’ or who
knowing of the mistake, ‘engages deliberately in a course of conduct which is designed to
inhibit discovery of it’.214

Mistakes happen of course. And sometimes an innocent party is the fortunate beneficiary
of the other party’s mistake. In a commercial negotiation that culminates in a written
contract that is proffered by a legally represented party, one is ordinarily entitled to accept
the document at face value. In a given case, there could be any number of reasons why the
form of contract might contain a provision that is unfavourable to the proffering party.

210. [1913] 3 KB 564.

211. (1910) 10 CLR 674.
212. [2012] NSWSC 522 at [6]–[7].
213. (1983) 151 CLR 422 at 432; 45 ALR 265 at 272.
214. Taylor v Johnson (1983) 151 CLR 422 at 433; 45 ALR 265 at 272.

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That is especially so where there has been no clear resolution of the issue in the antecedent
negotiations. Unless the other party is clearly put on notice that something has gone awry, he
is not obliged to be his brother’s keeper. The principle that denies efficacy to a signed contract
in circumstances such as these only operates where there is a proper basis for impugning the
conduct of the party who seeks to take advantage of the other’s mistake. That conduct must
be blameworthy in the sense that I explained in [the] paragraph … above.

The below analysis of unilateral mistake will look at mistake as to identity of the other
contracting party and mistake as to a term of the contract.

Unilateral mistake as to identity

16.62 A unilateral mistake as to the identity of the other party will render the contract void
ab initio if the mistaken party can show that the identity of the other party was a material factor
in them entering into the contract. The party seeking to have the contract made void must also
show that the intention was to contract only with a particular identity who was not the party
with whom the contract was made and that fact was known or should reasonably have been
known to that party.
16.63 In Boulton v Jones215 the defendants sent a written order for goods to Brocklehurst’s shop.
The order was addressed to Brocklehurst by name. Unknown to the defendant, Brocklehurst
had earlier that day sold and transferred his business to Boulton. Boulton fulfilled the order
and delivered the goods to the defendants without notifying him that he had taken over the
business. The defendants accepted the goods and consumed them in the belief that they had
been supplied by Brocklehurst. When they received Boulton’s invoice they refused to pay it,
claiming that they had intended to deal with Brocklehurst personally, since they had dealt with
him previously and had a set-off on which they had intended to rely. The Court of Exchequer
held that the defendants were not liable for the price.
16.64 In Boulton v Jones216 there was a preliminary question of construction, namely, whether
the defendants’ order could be interpreted as addressed not to Brocklehurst personally, but to
the proprietor of the shop for the time being. The court held that it could not. Three of the four
judges decided the case on the ground that the offer was addressed to Brocklehurst and could
not be accepted by Boulton. Therefore, there was no contract. Pollock CB217 said:
The point raised is, whether the facts proved did not show an intention on the part of the
defendants to deal with Brocklehurst. [Boulton], who succeeded Brocklehurst in business,
executed the order without any intimation of the change that had taken place, and brought
this action to recover the price of the goods supplied. It is a rule of law, that if a person
intends to contract with A, B cannot give himself any right under it. Here the order in writing
was given to Brocklehurst. Possibly Brocklehurst might have adopted the act of the plaintiff
in supplying the goods, and maintained an action for their price. But since [Boulton] has
chosen to sue, the only course the defendants could take was to plead that there was no
contract with him.

215. (1857) 157 ER 232.

216. (1857) 157 ER 232.
217. Boulton v Jones (1857) 157 ER 232 at 233.

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16.65 In Cundy v Lindsay218 a person called Blenkarn signed an order for goods to be supplied
by Lindsay. The signature on the order appeared to be that of Blenkiron & Co. Blenkiron &
Co was a well-known and respectable business in the area. Blenkarn gave as his address the
same street as Blenkiron & Co, but with a different street number. Lindsay thought that the
contracting party was Blenkiron & Co and supplied the goods on credit. On receiving the goods,
Blenkarn sold the goods to an innocent third party, Cundy, and disappeared. He was later
convicted of obtaining goods by false pretences. When Lindsay discovered what had happened,
he claimed that the contract for the supply of the goods was void and, in consequence, sued
Cundy for conversion of the goods. The court held that Blenkarn had deliberately led Lindsay
to believe that he was contracting with Blenkiron & Co, an existing firm, and that since Lindsay
had only intended to contract with Blenkiron & Co and not with Blenkarn, the contract with
Blenkarn was void ab initio. Accordingly, as there was no contract, ownership of the goods had
never passed to Blenkarn and thus could not pass to Cundy. Lindsay was therefore entitled to
sue Cundy for conversion.
16.66 In the House of Lords, Lord Cairns LC219 said:
[H]ow is it possible to imagine that in that state of things any contract could have arisen
between the Respondents and Blenkarn, the dishonest man? Of him they [Lindsay] knew
nothing, and of him they never thought. With him they never intended to deal. Their minds
never, even for an instant of time rested upon him, and as between him and them there was
no consensus of mind which could lead to any agreement or any contract whatever.

16.67 The principles in Cundy v Lindsay220 do not apply if the contract is entered into by the
parties in each other’s presence. In such cases there is a rebuttable presumption that a contract
was entered into with the person who is present. The cases dealing with this situation are no
altogether consistent in terms of establishing what is required to rebut this presumption. In this
respect, Willmott, Christensen, Butler, and Dixon221 state the following:
What is required to rebut the presumption will depend upon an assessment of the
circumstances of the case. However, it seems that merely seeking to confirm an alleged
identity by reference to a directory will be insufficient. Similarly, attempting to rely on
identification proffered by the other person will not be sufficient to show either that the
identity of the other person is material or that there was an intention to contract with another
person. It would also seem that any distinction between a person and that person’s attributes
(such as his or her wealth or social position) does not provide a valid basis for rebutting the
presumption.

16.68 In Phillips v Brooks Ltd222 a swindler called North visited a jewellery shop operated by
Phillips. After selecting some jewellery to purchase, North asked Phillips whether he could pay
with a cheque. North produced the cheque and said that he was Sir George Bullough. Phillips
had heard of Sir George Bullough and confirmed by looking in a telephone directory that
the address given to him by North was that of Sir George. North was allowed to take some of

218. (1878) 3 App Cas 459.

219. (1878) 3 App Cas 459 at 465.
220. (1878) 3 App Cas 459.
221. L Willmott, S Christensen, D Butler, and B Dixon, Contract Law, 5th ed, Oxford University Press,
Melbourne, 2018, pp 586.
222. [1919] 2 KB 243.

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the jewellery with him. North then borrowed money from Brooks, a pawnbroker, leaving the
jewellery as security for the loan. The cheque was subsequently dishonoured. Phillips then
sought to recover the jewellery from Brooks. Phillips argued that the contract of sale between
him and the swindler was void. If this argument prevailed, ownership of the jewellery never
passed from him to North, and thus could not pass to Brooks. Phillips argued that he always
thought that he was dealing with Sir George Bullough and that if he had known that North was
not Sir George Bullough, he would not have dealt with him and allowed him to take away the
jewellery.
16.69 Horridge J held in Phillips v Brooks Ltd223 that Phillips had intended to deal with the
person who was present before him in his jewellery shop and that he would not have done so
had it not been for the fraudulent misrepresentation of North. This meant that the contract was
voidable for misrepresentation and not void ab initio. However, as Phillips had not rescinded
the contract before North pawned the jewellery with Brooks, Brooks obtained good title to that
jewellery. His Honour224 said:
I have carefully considered the evidence of [Phillips], and have come to the conclusion that,
although he believed the person to whom he was handing the ring was Sir George Bullough,
he in fact contracted to sell and deliver it to the person who came into his shop, and who was
not Sir George Bullough, but a man of the name of North, who obtained the sale and delivery
by means of the false pretence that he was Sir George Bullough. It is quite true [that Phillips]
in re-examination said he had no intention of making any contract with any other person
than Sir George Bullough; but I think I have myself to decide what is the proper inference
to draw where a verbal contract is made and an article delivered to an individual describing
himself as somebody else.

16.70 In Lewis v Averay225 Lewis advertised his Austin car for sale in a local newspaper.
Subsequently, a swindler came to inspect and test drive the car after reading the advertisement.
The swindler then announced that he wanted to buy the car. He told Lewis that he was
Richard Greene, a well-known television and film star then appearing in a television series The
Adventures of Robin Hood. He also produced an admission pass to Pinewood Film Studios for
identification purposes. The pass was in the name of Richard Greene, carried an official stamp,
and had a photograph of the swindler on it. The swindler then gave Lewis a cheque in payment,
which had been signed ‘RA Green’, and Lewis allowed him to take the car together with its
registration log book. The cheque book had been stolen and the bank subsequently dishonoured
the cheque. In the meantime, the swindler had sold the car to Averay, who purchased it in
good faith. Lewis sued Averay in conversion for the return of the car. Lewis argued that the
contract between him and the swindler was void. Averay argued that the contract was voidable
and, as it had not been avoided by the time it was sold to him, he obtained a good title to it.
The English Court of Appeal upheld Averay’s argument and held that the rogue’s fraud only
rendered voidable — not void ab initio — his contract with Lewis.

223. [1919] 2 KB 243. In Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 200, Windeyer J said that
the authority of Phillips v Brooks was ‘somewhat shaky’.
224. Phillips v Brooks Ltd [1919] 2 KB 243 at 246.
225. [1972] 1 QB 198; [1971] 3 All ER 907, followed in Papas v Bianca Investments Pty Ltd (2002) 82 SASR 581
at 583–4.

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16.71 In the Court of Appeal Lord Denning MR226 said:

As I listened to the argument in this case, I felt it wrong that an innocent purchaser (who
knew nothing of what passed between the seller and the rogue) should have his title depend
on such refinements. After all, he has acted with complete circumspection and in entire good
faith: whereas it was the seller who let the rogue have the goods and thus enabled him to
commit the fraud. … When two parties have come to a contract — or rather what appears,
on the face of it, to be a contract — the fact that one party is mistaken as to the identity of
the other does not mean that there is no contract, or that the contract is a nullity and void
from the beginning. It only means that the contract is voidable, that is, liable to be set aside
at the instance of the mistaken person, so long as he does so before third parties have in good
faith acquired rights under it. … In this case Mr Lewis made a contract of sale with the very
man, the rogue, who came to the flat. I say that he ‘made a contract’ because in this regard
we do not look into his intentions, or into his mind to know what he was thinking or into the
mind of the rogue. We look to the outward appearances. On the face of the dealing, Mr Lewis
made a contract under which he sold the car to the rogue, delivered the car and the logbook
to him, and took a cheque in return. The contract is evidenced by the receipts which were
signed. It was, of course, induced by fraud. The rogue made false representations as to his
identity. But it was still a contract, though voidable for fraud. It was a contract under which
this property passed to the rogue, and in due course passed from the rogue to Mr Averay,
before the contract was avoided.

16.72 Phillimore LJ227 considered that there was nothing to displace the prima facie
presumption that the car owner was dealing with the person present in the flat, the rogue, and
noted that ‘this case really is on all fours with Phillips v Brooks Ltd228 which has been good law
for over 50 years’.
16.73 In relation to the confusion around cases involving mistaken identity, where the parties
were in each other’s presence when the contract was entered into, in Southdown Publications
Pty Ltd v ACP Magazines Pty Ltd229 Hodgson JA said:
Problems arise in various areas of law where legal consequences attach to intentions,
and the actual intentions of the relevant persons (whether considered subjectively or as
being intentions manifested by conduct) contain inconsistencies because of mistakes and
misapprehensions. One example is in contract law, where one person deals with another
person who is immediately present but who states falsely that he or she has certain
characteristics (name, financial standing, etc.). In such cases a question can arise as to
whether a contract purportedly made in those circumstances is void, because the former
person intended to contract only with a person who had the stated characteristics, or merely
voidable, because the former person intended to contract with the person who was present
but was induced to do so by the misrepresentation. Although various explanations have been
given for the solutions arrived at in such cases, in my opinion the most satisfactory approach
is to recognise that mistake may give rise to inconsistent intentions, and to ask whether
there is an intention or consistent set of intentions which can reasonably be regarded as

226. Lewis v Averay [1972] 1 QB 198 at 207; [1971] 3 All ER 907 at 911–2.
227. Lewis v Averay [1972] 1 QB 198 at 208; [1971] 3 All ER 907 at 912.
228. [1919] 2 KB 243.
229. [2003] NSWCA 347 at [95]–[96].

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predominating over inconsistent intentions. Thus in Ingram v Little, the circumstances

230

and the conduct of the mistaken party showed that it attached far more importance to the
name and financial standing of the other party than to his presence, so that the manifested
intention to contract with the person of that name and financial standing predominated over
any intention to contract with the person who was present.

16.74 In Shogun Finance Ltd v Hudson231 a rogue entered into a hire purchase agreement
with a finance company in relation to a car. The rogue later sold the car to a third party and
then disappeared. The House of Lords was divided over the result in this case. The majority
reaffirmed the authority of Cundy v Lindsay,232 with the result that the written contract in this
case was held to be void ab initio.
16.75 However, the dissenting minority ruled that in cases of mistaken identity, a contract
should be voidable, and not void ab initio. Lord Nicholls of Birkenhead233 said:
The legal principle applicable in these cases cannot sensibly differ according to whether the
transaction is negotiated face-to-face, or by letter, or by fax, or by email, or over the telephone
or by video link or video telephone. Typically today a purchaser pays for goods with a credit
or debit card. He produces the card in person in a shop or provides details of the card over the
telephone or by email or by fax. When a credit or debit card is fraudulently misused in this
way the essence of the transaction is the same in each case. It does not differ from one means
of communication to the next. The essence of the transaction in each case is that the owner
of the goods agrees to part with his goods on the basis of a fraudulent misrepresentation
made by the other regarding his identity. Since the essence of the transaction is the same in
each case, the law in its response should apply the same principle in each case, irrespective
of the precise mode of communication of offer and acceptance. Accordingly, if the law of
contract is to be coherent and rescued from its present unsatisfactory and unprincipled state,
the House has to make a choice: either to uphold the approach adopted in Cundy v Lindsay234
and overrule the decisions in Phillips v Brooks Ltd235 and Lewis v Averay,236 or to prefer these
later decisions to Cundy v Lindsay.237 I consider the latter course is the right one.

Unilateral mistake as to the terms of a contract

16.76 According to the decision in Smith v Hughes238 a unilateral mistake as to the terms of
a contract may lead to it being declared void ab initio at common law. Thus, in Hartog v Colin
& Shields239 a seller mistakenly offered to sell a quantity of Argentine hare skins at a price
calculated on a per pound basis, whereas his intention was to sell them at a price calculated on a
per piece basis. The negotiations leading up to the making of the offer were on the basis that the

230. [1961] 1 QB 31; [1960] 3 All ER 332.

231. [2004] 1 AC 919; [2004] 1 All ER 215.
232. (1878) 3 App Cas 459.
233. Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 938–9; [2004] 1 All ER 215 at 225.
234. (1878) 3 App Cas 459.
235. [1919] 2 KB 243.
236. [1972] 1 QB 198; [1971] 3 All ER 907.
237. (1878) 3 App Cas 459.
238. (1871) LR 6 QB 597.
239. [1939] 3 All ER 566.

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price would be calculated on a per piece basis. Furthermore, it was a trade custom that a price
be set on a per piece basis. The purchaser accepted the seller’s offer. The effective price under
the contract was approximately one-third of what it would have been, had the offer been made
on the basis of a price per piece. The contract was held to be void ab initio at common law for
unilateral mistake made by the seller as to the contract price. The court was satisfied that the
buyer could not reasonably have supposed that the offer contained the seller’s real intention.
16.77 However, the principle in Smith v Hughes240 does not render a contract void ab initio
‘if one party has made a mistake about a fact on which he bases his decision to enter into the
contract, but that fact does not form a term of the contract itself ’.241 In such a case the contract
is binding. A mistaken assumption about the circumstances under which the contract was all
would be concluded is not enough.242
16.78 English authority suggests that in cases of unilateral mistake, the contract is either void
ab initio at common law or valid and binding, and that a contract cannot be rescinded in equity
for unilateral mistake. In Statoil ASA v Louis Dreyfus Energy Services SP243 Aikens J said:
I … disagree … that there is an equitable jurisdiction to grant rescission of a contract where
one party has made a unilateral mistake as to a fact or state of affairs which is the basis
upon which the terms of the contract are agreed, but that assumption does not become a
term of the contract. … The Great Peace244 decision strongly suggests that there is no such
jurisdiction in the case of a unilateral mistake. If there is no such jurisdiction in the case of
a common mistake, I fear I am unable to see how, in logic, one can devise a rationale for an
equitable jurisdiction in the case of a unilateral mistake, at least where there has been no
misrepresentation by the other party.

16.79 However, in Australia this proposition is clearly not the law, and the authority of cases
such as Hartog v Colin & Shields245 is in some doubt in the light of the decision of the High
Court in Taylor v Johnson.246 In this latter case, Mrs Johnson granted an option to Taylor or his
nominee to purchase two adjoining lots of vacant land, each comprising approximately five
acres, at McGrath’s Hill near Windsor in New South Wales, for a total purchase price of $15,000.
The option was exercised by Taylor. About one month later Johnson and Taylor’s children,
Ann Taylor and Peter Taylor, entered into a contract for the sale of the land. The purchase
price was $15,000 as provided by the option. Subsequent to entering into the contract, Johnson
declined to perform it in accordance with its terms. She claimed that at the time she granted
the option and at the time she executed the contract, she believed that the document she was
signing provided for a consideration of $15,000 per acre of the subject land, which would have
represented a total purchase price of some 10 times the $15,000 that both documents specified.
The evidence was to the effect that, under its then zoning, the value of the subject land was in

240. (1871) LR 6 QB 597.

241. Statoil ASA v Louis Dreyfus Energy Services LP [2008] 2 Lloyd’s Rep 685 at 694; UTB LLC v Sheffield United
Ltd [2019] EWHC 2322 (Ch) at [277]–[278].
242. See Quoine Pte v B2C2 Ltd [2020] SGCA(I) 02 at [82]. See also Statoil ASA v Louis Dreyfus Energy Services
LP [2008] 2 Lloyd’s Rep 685 at [91].
243. [2008] 2 Lloyd’s Rep 685 at 696.
244. Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679; [2002] 4 All ER 689.
245. [1939] 3 All ER 566.
246. (1983) 151 CLR 422; 45 ALR 265.

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the vicinity of $50,000 and that its value would have increased to around $195,000 if a proposed
rezoning of the land had become effective. Ann and Peter Taylor sought an order for specific
performance of the contract of sale.
16.80 The High Court, in applying general equitable principles, ruled that the contract was
voidable in equity for unilateral mistaken and not void ab initio at common law. However, this
was sufficient for the court, in the exercise of its discretion, to refuse to grant the order for
specific performance. Mason ACJ, Murphy, and Deane JJ247 said:
The particular proposition of law which we see as appropriate and adequate for disposing of
the present appeal may be narrowly stated. It is that a party who has entered into a written
contract under a serious mistake about its contents in relation to a fundamental term will
be entitled in equity to an order rescinding the contract if the other party is aware that
circumstances exist which indicate that the first party is entering the contract under some
serious mistake or misapprehension about either the content or subject matter of that term
and deliberately sets out to ensure that the first party does not become aware of the existence
of his mistake or misapprehension. … In such a situation it is unfair that the mistaken party
should be held to the written contract by the other party whose lack of precise knowledge of
the first party’s actual mistake proceeds from wilful ignorance because, knowing or having
reason to know that there is some mistake or misapprehension, he engages deliberately in a
course of conduct which is designed to inhibit discovery of it. …

[W]e are of the view that the proper inference to be drawn from the evidence is that, both
at the time when Mrs Johnson executed the option and at the time when she executed the
contract, Mr Taylor believed that she was under some serious mistake or misapprehension
about either the terms (the price) or the subject matter (its value) of the relevant transaction.
The avoidance of mention of the purchase price after the ‘idle curiosity’ conversation and
the circumstances in which Mr Taylor procured the execution of the option, including his
wrong statement that he did not have a copy of the option which he could make available to
Mrs Johnson, lead, in our view, plainly to the inference that he deliberately set out to ensure
that Mrs Johnson did not become aware that she was being induced to grant the option and,
subsequently, to enter into the contract by some material mistake or misapprehension as to
its terms or subject matter.

16.81 The result of Taylor v Johnson248 is to cast into doubt the effect that a unilateral mistake
as to a term of the contract has on the contract. Is the contract void ab initio at common law
or merely voidable in equity? Taylor v Johnson249 strongly suggests the latter, at least in cases
where a formal contract is entered into and it can be argued that this position has displaced any
possible common law doctrine of mistake.250 However, it is arguable that notwithstanding the
decision in Taylor v Johnson,251 in more informal contractual arrangements such as occurred in
Hartog v Colin & Shields,252 the contract will be void ab initio at common law.

247. Taylor v Johnson (1983) 151 CLR 422 at 432–3; 45 ALR 265 at 271–2.
248. (1983) 151 CLR 422; 45 ALR 265.
249. (1983) 151 CLR 422; 45 ALR 265.
250. See Quoine Pte v B2C2 Ltd [2020] SGCA(I) 02 at [90].
251. (1983) 151 CLR 422; 45 ALR 265.
252. [1939] 3 All ER 566.

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16.82 Rectification and/or rescission may be available for unilateral mistake in some
circumstances. The circumstances in which a contract can be rescinded for unilateral mistake
are limited to those in which it is unconscionable for the other party to enforce the contract.253
Coupled with the need to demonstrate unconscionability, a party alleging unilateral mistake
in equity would need to demonstrate that the non-mistaken party had at least constructive
knowledge of the mistaken party’s mistake.254
16.83 However, rescission for mistake is not available where the defendant neither shares nor
knows of the plaintiff ’s mistake, and the mistake was not attributable to anything said or done
by the defendant.255 Further, regard can be had to the degree of carelessness or negligence on
the part of the mistaken party in determining where the equities fall.256
16.84 The application of rectification in this context was illustrated in International Advisor
Systems Pty Ltd v XYYX Pty Ltd.257 In that case International Advisor Systems Pty Ltd (IAS)
was the franchisee, from Jonamill Pty Ltd, of a Michel’s Patisserie outlet. Jonamill was the
lessee of the premises, which it licensed to IAS for the term of the franchise. By contract dated
19 December 2006, IAS agreed to sell the franchise business to XYYX Pty Ltd (XYYX). In
March 2007, before the contract was completed, it appeared that the registered proprietors
of the premises would not grant Jonamill a new lease upon expiry of the existing lease on
15 September 2007, with the consequence that the franchise business would have a remaining
tenure in the premises of only about six months. XYYX purported to rescind the contract
on the basis that the contract was conditional on the grant of a new lease. IAS denied that
XYYX was entitled to rescind and claimed specific performance of the contract, which XYYX
resisted on the basis that the contract was conditional on the grant of a new lease, or ought
to be rectified so as to be so conditional, or that another condition (that Jonamill enter into a
franchise agreement with it on or before completion) had also failed. By way of cross-claim,
XYYX claimed a declaration that it was entitled to rescind and had validly and effectively done
so, and alternatively sought rectification.
16.85 By way of observation, Brereton J258 noted:
Although the remedies of rescission and rectification may not necessarily be alternatives
in every case in which mistake entitles a plaintiff to relief, both are manifestations of ‘the
ordinary jurisdiction of equity to deal with any instrument or other transaction ‘in which
the court is of opinion that it is unconscientious for a person to avail himself of the legal
advantage which he has obtained’.

16.86 His Honour259 then added:

253. Taylor v Johnson (1983) 151 CLR 422; 45 ALR 265; Gunns Finance Pty v Braham and Ludekens [2009]
TASSC 69 at [10]. Conduct which would be regarded as a sharp practice or impropriety would be regarded
as unconscionable: Quoine Pte v B2C2 Ltd [2020] SGCA(I) 02 at [109].
254. See Quoine Pte v B2C2 Ltd [2020] SGCA(I) 02 at [80] and [105]–[108]. Importantly, the distinguishing line
between actual knowledge and constructive knowledge is often difficult to draw.
255. Riverlate Properties Ltd v Paul [1975] Ch 133 at 140–1.
256. See Quoine Pte v B2C2 Ltd [2020] SGCA(I) 02 at [111].
257. [2008] NSWSC 2.
258. International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2 at [20].
259. International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2 at [22]–[23].

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As well as for common mistake, rectification can be founded on the unilateral mistake
of one party, of which the other party knew.260 The requirement for rectification in a case
of unilateral (as distinct from common) mistake is, at least, knowledge on the part of the
defendant of the plaintiff ’s mistake coupled with silence amounting to sharp practice.261 In
Easyfind (NSW) Pty Ltd v Paterson262 Young J, … following those authorities, in concluding
that a compromise of litigation was not voidable for unilateral mistake where a legal adviser,
though knowing of the other party’s mistake, neither induced nor deliberately cloaked it,
held:

In Australia a contract may be avoided not only where the mistake was induced
by the person in the part of the present plaintiff, but also where he has deliberately
cloaked the mistake or has otherwise behaved unconscionably.

Accordingly, sharp practice falling short of actual fraud may suffice. And actual knowledge of
the mistake is not required; it is sufficient that the other party ‘must have known’ or ‘strongly
suspect’ that the first party is making a mistake, as Young J explained in Misiaris v Saydels:263

In Bates’ case264 Buckley, LJ said that the following must be shown, ‘First, that one
party A erroneously believed that the document sought to be rectified contained a
particular term or provision, or possibly did not contain a particular term or provision
which, mistakenly, it did contain; secondly, that the other party B was aware of the
omission or the inclusion and that it was due to a mistake on the part of A; thirdly,
that B has omitted to draw the mistake to the notice of A. And I think there must be
a fourth element involved, namely, that the mistake must be one calculated to benefit
B. If these requirements are satisfied, the court may regard it as inequitable to allow B
to resist rectification to give effect to A’s intention on the ground that the mistake was
not, at the time of execution of the document, a mutual mistake’.

16.87 In Taylor v Johnson265 the High Court appeared to accept this statement of Buckley LJ
as representing the law.

Mistake as to the nature of the document (non est factum)

16.88 A party who, without undue carelessness, signs a document that is ‘radically different’266
to what he or she believes it to be, can plead non est factum (‘it is not my deed’). A successful
plea of non est factum renders the document void ab initio — it does not create rights and
it does not create obligations. However, the party seeking to rely upon non est factum must
show that the mistake was about the fundamental nature of the document and not merely to
its contents. The principle of non est factum is, therefore, an exception to the signature rule.267

260. A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555.

261. Taylor v Johnson (1983) 151 CLR 422 at 431; 45 ALR 265.
262. (1987) 11 NSWLR 98 at 107–108.
263. (1989) NSW Conv R 55-474.
264. Thomas Bates & Son Ltd v Wyndhams (Lingerie) Ltd [1981] 1 WLR 505 at 516.
265. Taylor v Johnson (1983) 151 CLR 422 at 431; 45 ALR 265.
266. Petelin v Cullen (1975) 132 CLR 355 at 360; 6 ALR 129 at 132.
267. See 10.26.

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In Kowalski v Mitsubishi Motors Australia Staff Superannuation Fund Pty Ltd,268 Nicholson J
noted that the principle of non est factum was governed by the following:
(i) That the person who signed the document is under a disability;
(ii) That there is a sufficient difference between the document as it is (as signed) and as the
person who signed it believed it to be; and
(iii) In cases where the rights of an innocent third party may have intervened, the person who
signed the document should not have been careless.

16.89 It can be noted that, although the plea of non est factum is ‘in one sense anomalous
in the context of the objective theory of contract’, it is nonetheless ‘an essential instrument of
justice for the protection of the weak, powerless or preyed upon’.269 Thus, in adjudicating on a
plea of non est factum, a court is engaged in balancing competing policy considerations. On the
one hand, given the importance that attaches to the act of signing a contract and to protecting
third parties who rely upon it, there is the necessity of holding a person as bound by a contract
that he or she has signed. On the other hand, there is the injustice of holding that person
to the contract if he or she did not sign it with a consenting mind. The weight given by the
law to the first policy consideration means that there is a heavy onus of proof involved in
successfully raising the defence of non est factum.270 Finally, even if the grounds for non est
factum are established, relief may be refused on the basis that an estoppel by representation271
can be raised against the mistaken party.272
16.90 In CF Asset Finance Ltd v Okonji273 Patten LJ said:
The court’s desire to confine the effectiveness of a plea of non est factum to very limited
circumstances has undoubtedly been dictated by its legal consequences. To declare the
contract a nullity has obviously serious and adverse consequences for third parties who may
have relied on the contents of the document such as the claimant in this case. Their interests
cannot be protected or at least taken into account by the court as they might have been had
the contract been voidable for misrepresentation and what the appellants were seeking was
equitable rescission.

16.91 In Saunders (Executrix of the Estate of Gallie, deceased) v Anglia Building Society274
Mrs Gallie owned a house on a long leasehold. She signed a document that she believed was
a gift of the leasehold to her nephew to enable her nephew to borrow money on the security
of the land. She did not read the document because she had broken her glasses. In fact, the
document was a transfer of the leasehold interest to Lee, the nephew’s business associate. Lee
subsequently mortgaged the house to a building society. Lee defaulted on the mortgage and the
building society sought to obtain possession of the house. Mrs Gallie argued that the transfer
of the house was void because of non est factum. If the plea was successful, the building society

268. [2018] SASCFC 44 at [98], cited with approval in Mitsubishi Motors Australia Ltd v Kowalski (2019) 134
SASR 1 at 16.
269. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 72; 257 ALR 658 at 687.
270. Petelin v Cullen (1975) 132 CLR 355 at 359; 6 ALR 129 at 133.
271. See 36.16.
272. Carlisle & Cumberland Banking Company v Bragg [1911] 1 KB 489 at 494; Prudential Trust Co Ltd v Cugnet
[1956] SCR 914 at 927.
273. [2014] EWCA Civ 870 at [27].
274. [1971] AC 1004; [1970] 3 All ER 961.

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would have had no rights under its mortgage from Lee. Her argument failed because the House
of Lords believed that there was no radical difference between what she had signed and what
she believed she had signed. Both the actual transaction and the imagined transaction were
transfers that divested her of her interest in the house. In his speech, Lord Reid noted275 that the
doctrine of non est factum ‘must be kept within narrow limits if it is not to shake the confidence
of those who habitually and rightly rely on signatures when there is no obvious reason to doubt
their validity’.
16.92 In Petelin v Cullen276 Petelin, who was almost illiterate, granted Cullen an option to
purchase his property. The option expired and Cullen asked for an extension, sending a cheque
for $50. Cullen then called to see Petelin and asked him to sign a receipt for the payment of $50.
Petelin signed the document which was actually an extension of the option. Petelin argued that
the extension of the option was void as a result of the principle of non est factum. In accepting
Petelin’s argument, the High Court277 said:
The class of persons who can avail themselves of the defence is limited. It is available to those
who are unable to read owing to blindness or illiteracy and who must rely on others for
advice as to what they are signing; it is also available to those who through no fault of their
own are unable to have any understanding of the purport of a particular document. To make
out the defence a defendant must show that he signed the document in the belief that it was
radically different from what it was in fact and that, at least as against innocent persons, his
failure to read and understand it was not due to carelessness on his part. Finally, it is accepted
that there is a heavy onus on a defendant who seeks to establish the defence.

16.93 It should also be noted that non est factum can also be established in circumstances
where the signatory to the contract lacks mental capacity to enter into the contract.278 In Ford
v Perpetual Trustees Victoria Ltd279 Ford, a man with a congenital intellectual impairment, signed
a loan agreement for the purposes of financing the purchase of a cleaning business in his name.
However, the business was for the benefit of his son, who had manipulated his father’s entry into
the transaction. The New South Wales Court of Appeal unanimously rejected the proposition
that in such cases the signatory’s only defence to liability under the contract rested with the
principles pertaining to mental incapacity, and found the loan agreement signed by Ford to
be void ab initio on the basis of the principle of non est factum. Allsop P and Young JA280 said:
[T]he central question in the operation of the plea [of non est factum] concerns the true
consent of the signer to the act of signature. … If a person, who has capacity to form a belief
that a document has a certain character, but is radically wrong in that belief, can qualify for
the defence it makes no coherent logical sense for the law to deny the same defence … to
someone without any capacity for forming any relevant belief.

16.94 In cases where third party rights have intervened the person relying on the principle
must have acted with care. Carelessness on his or her part will mean that the plea cannot be

275. Saunders (Executrix of the Estate of Gallie, deceased) v Anglia Building Society [1971] AC 1004 at 1015;
[1970] 3 All ER 961 at 963.
276. (1975) 132 CLR 355 at 359; 6 ALR 129.
277. Petelin v Cullen (1975) 132 CLR 355 at 359–60; 6 ALR 129 at 133.
278. See Chapter 9.
279. (2009) 75 NSWLR 42; 257 ALR 658.
280. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 53–4; 257 ALR 658 at 668–7.

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raised against an innocent third party who has relied on the transaction and was unaware
of its surrounding circumstances. Carelessness in this context means ‘a mere failure to take
reasonable precautions in ascertaining the character of the document before signing it’.281
In assessing whether the signatory was careless, the court does not determine the issue by
reference to the principles of negligence in the law of torts. In Ford v Perpetual Trustees Victoria
Ltd282 Allsop P and Young JA said:
It is clear … that one does not posit an objective standard of a reasonable man shorn of the
disability that the person may have — whether blindness, illiteracy or other impairment. It
is negligence or lack of reasonableness of a person in the position of the signer that is the
relevant enquiry.

16.95 Finally, if a plea of non est factum is unsuccessful, an affected party will often be able
to establish misrepresentation, undue influence, or unconscionability, thereby rendering the
contract voidable. This will generally allow the person to rescind from the contract, provided
the rights of innocent third parties are not affected.283 Furthermore, in Ford v Perpetual Trustees
Victoria Ltd284 the Court of Appeal held that an alternative basis for holding the loan agreement
void was pursuant to the Contracts Review Act 1980 (NSW).285

281. Petelin v Cullen (1975) 132 CLR 355 at 360; 6 ALR 129 at 134.
282. (2009) 75 NSWLR 42 at 54; 257 ALR 658 at 669.
283. See 35.32–35.33.
284. (2009) 75 NSWLR 42; 257 ALR 658.
285. See Chapter 20.

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 17
DURESS

INTRODUCTION
17.1 Duress is based on illegitimate commercial pressure that is found to exist after an
assessment of the nature of the pressure used and the nature of the demand which the pressure
is used to support. The doctrine of duress has developed as a ground for rescinding a contract
and for claiming restitution based on unjust enrichment. It is undecided whether duress is a
tort.1 According to Sales J in Investec Bank (Channel Islands) Ltd v Retail Group plc:2
[T]he primary object of a plea of economic duress in relation to a contract is to avoid the
contract, which is a legal consequence significantly different from establishing a cause of
action in damages. So far as a cause of action in damages is to be made out, I can see no
proper basis in principle why it should be on any basis other than a pleading of facts and
matters sufficient to establish a cause of action for the tort of intimidation.

17.2 Whether or not the pressure imposed is directed to the pressured party to commit an
unlawful act3 is not to the point, as duress can arise in circumstances where the pressure is to
get a party to commit a lawful act.4 The pressure must be illegitimate.5 A lawful threat to press
an illegitimate demand may constitute duress and the measure of legitimacy for this purpose

1. In Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe
Sentinel) [1983] 1 AC 366, Lord Scarman at 400 said ‘It is, I think, already established law … 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’. By contrast, in the same case, Lord
Diplock, at 385, said: ‘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’. Similarly, in
Dimskal Shipping Co SA v International Transport Workers Federation (The Evia Luck No 2) [1992] 2
AC 152 at 169 Lord Goff said that conduct does not have to be tortious to constitute duress for the
purpose of English law.
2. [2009] EWHC 476 (Ch) at [122].
3. See Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)
[1983] 1 AC 366; Thorne v Motor Trade Association [1937] AC 797 at 806.
4. This is so in the United Kingdom, but for reasons set out later in this chapter it may not be the case in
Australia: see Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 at 168.
5. See Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)
[1983] 1 AC 366 at 384, 400; Dimskal Shipping Co SA v International Transport Workers Federation (The
Evia Luck No 2) [1992] 2 AC 152 at 165–6.

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is not the defendant’s self-assessment but prevailing standards of morality and commercial
propriety.6 In Thorne v Kennedy7 the High Court emphasised that:
[Duress] 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.
The person submits to the demand knowing ‘only too well’ what he or she is doing.

17.3 The law in relation to duress came to be applied, first, to threats to property and,
thereafter, to threats to a person’s business or trade, that is, economic pressure.8 This
development was described by Lord Scarman in Universe Tankships Inc of Monrovia
v International Transport Workers Federation9 as ‘[t]he thread of principle which links the
early law of duress (threat to life or limb) with later developments when the law came also to
recognise as duress first the threat to property and now the threat to a man’s business or trade.’
In this respect, Lord Scarman10 said that there were two elements in the wrong of duress.
The first was pressure amounting to compulsion of the will of the victim and the second
was the illegitimacy of the pressure. Therefore, it is not the use of pressure that is the central
ingredient. Rather, it is the nature of that pressure and what that pressure has been designed
to achieve.
17.4 As to what was meant by the term ‘illegitimate’, in Universe Tankships Inc of Monrovia
v International Transport Workers Federation11 Lord Scarman said:
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 depend upon the nature of the
demand. Blackmail is often a demand supported by a threat to do what is lawful, eg to
report criminal conduct to the police.

6. CTN Cash and Carry Ltd v Gallagher Ltd [1994] 4 All ER 714 at 719; Sheikh Tahnoon Bin Saeed Bin
Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [182].
7. Thorne v Kennedy (2017) 263 CLR 85 at 97; 350 ALR 1 at 9. See also Braam v BBC Hardware Ltd [2020]
VSCA 164 at [82].
8. R v Attorney-General of England and Wales [2003] UKPC 22 at [16].
9. [1983] 1 AC 366 at 400–1; [1982] 2 All ER 67 at 88.
10. Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)
[1983] 1 AC 366 at 400; [1982] 2 All ER 67 at 88. These elements were endorsed by the Privy Council in
Attorney-General for England and Wales v R [2004] 2 NZLR 577 at 583 and in Haines v Carter [2001] 2
NZLR 167 at 189–90. See also Fair Work Ombudsman v National Jet Systems Pty Ltd [2012] FCA 243 at [18];
Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union
[2017] FCA 157 at [131].
11. [1983] 1 AC 366 at 401; [1982] 2 All ER 67 at 89.

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17.5 The first of Lord Scarman’s two matters concerning illegitimacy equates to the negation
12

of choice element or the application of pressure which has vitiated consent.13 In relation to the
second matter, focus is upon the illegitimacy of the demand and includes unlawful action.
It may also, however, include a lawful act, such as in the example given by Lord Scarman
concerning the case of blackmail constituted by threat to do a lawful act.14 This latter situation
poses more of a problem and was touched upon in Thorne v Motor Trade Association,15 where
Lord Atkin said:
The ordinary blackmailer normally threatens to do what he has a perfect right to do —
namely, communicate some compromising conduct to a person whose knowledge is likely
to affect the person threatened. … What he has to justify is not the threat, but the demand
of money.

17.6 The notion that a threat could be lawful and still constitute duress, has been reiterated
both by academics and by the courts in the United Kingdom. According to the editors of Chitty
on Contracts:16
[T]here can be no doubt that even a threat to commit what would otherwise be a perfectly
lawful act may be improper if the threat is coupled with a demand which goes substantially
beyond what is normal or legitimate in commercial arrangements.

17.7 Similarly, in CTN Cash & Carry Ltd v Gallagher Ltd17 a party to a contract (the buyer)
paid a sum of money that had been demanded by another party to the contract (the seller) in
consequence of a threat made by the seller to withdraw credit facilities it provided to the buyer.

12. The meaning of illegitimacy has been considered in the context of industrial disputes where there have
been allegations of persons engaging in an industrial activity within the meaning of s 347(b)(iv) of the Fair
Work Act 2009 (Cth). Relevantly, in that context, s 348 of the Fair Work Act 2009 (Cth) provides that a
person must not organise or take, or threaten to organise or take, any action against another person with
intent to coerce the other person, or a third person, to engage in industrial activity. The meaning of the
‘intent to coerce’ requirement in this context is well-settled and carries with it two discrete elements: the
negation of choice; and the use of unlawful, illegitimate or unconscionable conduct to do so: Seven Network
(Operations) Ltd v Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied
Services Union of Australia (2001) 109 FCR 378; 184 ALR 65; National Tertiary Education Industry Union
v Commonwealth of Australia (2002) 117 FCR 114; State of Victoria v Construction, Forestry, Mining and
Energy Union (2013) 218 FCR 172; Fair Work Ombudsman v Maritime Union of Australia [2014] FCA 440
at [300]–[304]; Australian Building and Construction Commissioner v Hall (2018) 261 FCR 347; Australian
Building and Construction Commissioner v Molina (No 2) [2019] FCA 1014 at [169]–[171].
13. Anozira Pty Ltd v Hunt [2002] ACTCA 10 at [31]; Fair Work Ombudsman v National Jet Systems Pty Ltd
[2012] FCA 243 at [21]; Australian Building and Construction Commissioner v Construction, Forestry,
Mining and Energy Union [2017] FCA 157 at [133]; Australian Building and Construction Commissioner
v Molina (No 2) [2019] FCA 1014 at [158].
14. Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)
[1983] 1 AC 366 at 401; [1982] 2 All ER 67 at 89. See also CTN Cash and Carry Ltd v Gallagher Ltd [1994] 4
All ER 714 at 719; Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm)
at [179]–[188].
15. [1937] AC 797 at 806; [1937] 3 All ER 157 at 160.
16. H G Beale and A S Burrows (eds), Chitty on Contracts, vol 1, 32nd ed, Sweet & Maxwell: Thomson Reuters,
London, 2015, [8-046].
17. [1994] 4 All ER 714. See also K L Ter, ‘Case Note: Lawful Act Duress: CTN Cash and Carry Ltd v Gallagher
Ltd [1994] 4 All ER 714’ (1995) 7 Singapore Academy of Law Journal 208; Progress Bulk Carriers Ltd v Tube
City IMS LLC [2012] EWHC 273 (Comm).
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The sum paid was not in fact due at the time of payment. The buyer said the agreement was
voidable for duress. The Court of Appeal found that duress was not available. Steyn LJ said:18
I also readily accept that the fact that the defendants have used lawful means does not by
itself remove the case from the scope of the doctrine of economic duress. Professor Birks, in
‘An Introduction to the Law of Restitution’,19 lucidly explains:

Can lawful pressures also count? This is a difficult question, because, if the answer
is that they can, the only viable basis for discriminating between acceptable and
unacceptable pressures is not positive law but social morality. In other words, the
judges must say what pressures (though lawful outside the restitutionary context) are
improper as contrary to prevailing standards. That makes the judges, not the law or
the legislature, the arbiters of social evaluation. On the other hand, if the answer is
that lawful pressures are always exempt, those who devise outrageous but technically
lawful means of compulsion must always escape restitution until the legislature
declares the abuse unlawful. It is tolerably clear that, at least where they can be
confident of a general consensus in favour of their evaluation, the courts are willing
to apply a standard of impropriety rather than technical unlawfulness.

And there are a number of cases where English courts have accepted that a threat may be
illegitimate when coupled with a demand for payment even if the threat is one of lawful
action (see Thorne v Motor Trade Association,20 Mutual Finance Ltd v John Wetton & Sons
Ltd21 and Universe Tankships Inc of Monrovia v International Transport Workers Federation.22
On the other hand, Goff and Jones Law of Restitution23 observed that English courts have
wisely not accepted any general principle that a threat not to contract with another, except
on certain terms, may amount to duress.

We are being asked to extend the categories of duress of which the law will take cognisance.
That is not necessarily objectionable, but it seems to me that an extension capable of
covering the present case, involving ‘lawful act duress’ in a commercial context in pursuit of
a bona fide claim, would be a radical one with far-reaching implications. It would introduce
a substantial and undesirable element of uncertainty in the commercial bargaining process.
Moreover, it will often enable bona fide settled accounts to be reopened when parties to
commercial dealings fall out. The aim of our commercial law ought to be to encourage fair
dealing between parties. But it is a mistake for the law to set its sights too highly when the
critical inquiry is not whether the conduct is lawful but whether it is morally or socially
unacceptable. That is the inquiry in which we are engaged. In my view there are policy
considerations which militate against ruling that the defendants obtained payment of the
disputed in-voice by duress.

Outside the field of protected relationships, and in a purely commercial context, it might be a
relatively rare case in which ‘lawful act duress’ can be established. And it might be particularly
difficult to establish duress if the defendant bona fide considered that his demand was valid.
In this complex and changing branch of the law I deliberately refrain from saying ‘never’.

18. CTN Cash & Carry Ltd v Gallagher Ltd [1994] 4 All ER 714 at 718–19.
19. P Birks, An Introduction to the Law of Restitution, 1989, p 177.
20. [1937] 3 All ER 157 at 160–1, [1937] AC 797 at 806–7.
21. [1937] 2 All ER 657; [1937] 2 KB 389.
22. [1982] 2 All ER 67 at 76, 89, [1983] 1 AC 366 at 384, 401.
23. Goff and Jones, Law of Restitution, 3rd ed, 1986, p 240.

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17.8 Similar emphasis was given in Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan
v Kent.24 In that case, Sheikh Tahnoon and Kent entered into a joint venture and became equal
shareholders in Kent’s hotel business. Sheikh Tahnoon provided significant amounts of money
to the business, which suffered from numerous cash-flow issues from time to time.

Between December 2011 and April 2012, Sheikh Tahnoon paid €6.5 million in exchange for
Sheikh Tahnoon’s equity in the group increasing to 70 per cent. However, from April 2012,
Sheikh Tahnoon refused to invest any additional funds. In consequence, the parties, through
their representatives, had discussions which led to a subsequent agreement and a promissory
note. During those discussions, Sheikh Tahnoon’s representatives threatened to take Kent to
court if he did not agree to their terms. That threat was made in circumstances where it was
known to be unfounded. In addition to the threats of litigation, ‘threats were made of a more
sinister kind’25 and, on two occasions during discussions, Sheikh Tahnoon’s representatives
made threats which implied that Kent’s life would be at risk if he did not comply with their
demands.26

Soon after these discussions, Kent and Sheikh Tahnoon entered into an oral agreement
that provided for the restructure of the business and for Kent to provide undertakings and
indemnities including a promissory note by which Kent agreed to pay Sheikh Tahnoon €5.4
million.

In proceedings, Sheikh Tahnoon claimed the value of the unpaid promissory note, together
with other amounts due under the agreement. In defending the proceedings, Kent claiming
that his consent to the agreement and the promissory note had been obtained by unfair means,
including threats of physical violence and in breach of fiduciary duties and/or a contractual
duty of good faith owed to him by Sheikh Tahnoon. The court held that Sheikh Tahnoon had
breached a contractual duty of good faith owed to Kent as his co-venturer.

Though it was found that Sheikh Tahnoon did not have any knowledge of the threats made by his
representatives, he was held to be vicariously liable as the threats were made by representatives
in the course of their employment in negotiating terms on Sheikh Tahnoon’s behalf. 27 The
court found that Kent entered into the agreement and the promissory note under duress and
that he would have been entitled to rescind those contracts had he made a claim to do so. In
addition, it was held that Kent would have been entitled to damages in consequence of the
duress. Damages would have awarded for the tort of intimidation. Despite this, the court found
that neither party was entitled to damages against the other.28

On the issue of duress, Leggatt J said that a demand coupled with a threat to commit a lawful
act will be regarded as illegitimate if:29

24. [2018] EWHC 333 (Comm).

25. Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [214]. This
conduct was found to amount to blackmail entitling Kent to damages for intimidation: Sheikh Tahnoon Bin
Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [227].
26. Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [214].
27. Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [214].
28. Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [239].
29. Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [188]–[190].

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(a) the defendant has no reasonable grounds for making the demand and (b) the threat
would not be considered by reasonable and honest people to be a proper means of
reinforcing the demand.

It used to be said that, to amount to duress, pressure had to overcome or overbear the will
of the person concerned so that they did not truly consent to whatever they had apparently
agreed to do. The better and now generally accepted view, however, is that the doctrine
is based not on lack of consent but on showing that a party’s consent was obtained in
circumstances which make it unjust to allow the other party to enforce the agreement. Just
as — contrary to what is often said — fraud does not vitiate consent, nor does duress. As
Lord Scarman stated in The Universe Sentinel:30

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.

The fact, therefore, that the decision to enter into a contract involved an exercise of rational
and independent judgment or was taken with the benefit of legal advice does not preclude a
finding of duress. What is necessary is that the illegitimate pressure caused the claimant to
enter into the contract.

The test of causation differs according to the nature of the duress. Where the illegitimate
pressure involves a threat of violence, it is sufficient that the threat was ‘a’ reason for entering
into the contract, even if the person threatened might well have entered into the contract
without the threat. On the other hand, in cases of economic duress the ordinary test of
causation applies which generally requires the claimant to show that he or she would not
have entered into the contract ‘but for’ the defendant’s act.

17.9 In Times Travel (UK) Ltd v Pakistan International Airlines Corporation,31 an airline sent
a notice exercising a right to terminate agreements with travel agents who sold flight tickets
in return for commission. The airline offered to enter into new agreements with the travel
agents on less favourable terms which also required the agents to give up accrued claims for
commission. Some of those commission claims were held to be valid. To increase pressure on
the travel agents, during the notice period the airline reduced the number of tickets allocated
to the agents (as it was contractually entitled to do) and promised to restore the allocations if
the new agreement was signed. The travel agents, whose business depended critically on selling
tickets for the airline, signed the new agreement.

The trial judge32 declined to find that the airline had acted in bad faith in requiring the agents to
give up their claims for past commission, but found that the agents had been induced to enter
into the new agreement by illegitimate pressure and were entitled to rescind it.

17.10 On appeal in Times Travel (UK) Ltd, the English Court of Appeal held33 that ‘where
lawful acts or threats are made by A in support of a demand which A genuinely believes he is

30. Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)
[1983] 1 AC 366 at 400.
31. [2019] EWCA Civ 828.
32. [2017] EWHC 1367 (Ch).
33. [2019] 3 WLR 445 at 463.

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entitled to make … [and] that belief is reasonably, as well as genuinely, held … [there is] no
basis on which a plea of economic duress [can] succeed’. However, if A’s belief, though genuine,
was unreasonable, the court,34 after reviewing relevant authorities, including Australian cases,
held that ‘the doctrine of lawful act duress does not extend to the use of lawful pressure to
achieve a result to which … [A] believes in good faith it is entitled, and that is so whether or
not, objectively speaking, it has reasonable grounds for that belief ’. In justifying that ruling the
court35 said:
The common law and equity set tight limits to setting aside otherwise valid contracts. In
this way undesirable uncertainty in a commercial context is reduced. I appreciate that in the
context of the present case, which concerns the reasonableness of the grounds for resisting a
claim, it can be said that a test of unreasonableness is not uncertain, because it can be tested
and decided according to conventional legal standards. But that will not be the case in the
much more common situation of a party using lawful commercial pressure in support of a
purely commercial demand. There is no yardstick by which to judge such demands, save
those that can be set out in legislation such as that applying to consumer contracts. Such
demands are a matter of negotiation against the background of the pressures operating on
both parties.

17.11 In Australia, the concept of duress appears to be now limited to threats that amounted
to threatened or actual unlawful conduct. In Crescendo Management Pty Ltd v Westpac Banking
Corporation,36 McHugh JA, speaking on behalf of the Court of Appeal, focussed on legitimacy
of pressure whether amounting to unconscionable or unlawful conduct. According to his
Honour:
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 implied 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. … It is unnecessary, however, for the victim
to prove that the illegitimate pressure was the sole reason for him entering the contract. It
is sufficient that the illegitimate pressure was one of the reasons for the person entering
into the agreement. Once the evidence establishes that the pressure exerted on the victim
was illegitimate, the onus lies on the person applying the pressure to show that it made no
contribution to the victim entering into the agreement. …

17.12 The suggestion in the extract from the judgment of McHugh JA that ‘unconscionable
conduct’ can amount to illegitimate pressure has since been rejected by the New South Wales

34. Times Travel (UK) Ltd v Pakistan International Airlines Corporation [2019] 3 WLR 445 at 471.
35. Times Travel (UK) Ltd v Pakistan International Airlines Corporation [2019] 3 WLR 445 at 471–2.
36. (1988) 19 NSWLR 40 at 45–6. These remarks were cited in Fair Work Ombudsman v National Jet Systems
Pty Ltd [2012] FCA 243 at [24]; Australian Building and Construction Commissioner v Construction,
Forestry, Mining and Energy Union [2017] FCA 157 at [134].

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Court of Appeal in Australia & New Zealand Banking Group Ltd v Karam37 in the context of the
field of industrial relations.38 In that case the court39 said:
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.

17.13 Further, in Australia & New Zealand Banking Group Ltd v Karam40 the court, in seeking
to delimit the boundaries of duress, went on to say that:
[Where] 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.41 [Furthermore], 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 range of circumstances than those considered relevant under the general
law. Pursuant to both the 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 in bargaining power, a contract
between such parties will necessarily be set aside.

17.14 In the wake of the decision in Australia & New Zealand Banking Group Ltd v Karam,42
Ward J in A v N43 said the following:
If … Karam44 [is] correct, then the concept of duress … is now limited to unlawful conduct.
This limitation is not difficult to reconcile with the classic cases on duress to the person.
In Barton v Armstrong, the ‘duress’ was constituted by several death threats. In McLarnon
v McLarnon,45 the threats were of incarceration. In Saxon v Saxon,46 death threats were made
against not the signer, but the signer’s children. The threatened acts in each of those cases
are unlawful. Moreover, even if Karam47 is incorrect in limiting duress to unlawful acts, the
cases show that there is a high threshold to be met with respect to the conduct of the party
alleged to be exerting pressure, as these cases all exhibit a high degree of threatened violence.

37. (2005) 64 NSWLR 149.

38. See, for example, ss 343 and 348 of the Fair Work Act 2009 (Cth). The authorities dealing with coercion
under this legislation or its predecessors were reviewed in Fair Work Ombudsman v National Jet Systems Pty
Ltd [2012] FCA 243 at [29]–[34]. In that case Buchanan J stated that the element of illegitimacy generally
involved either unlawful or unconscionable conduct.
39. Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 at 168.
40. (2005) 64 NSWLR 149 at 168.
41. Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447; 46 ALR 402.
42. (2005) 64 NSWLR 149.
43. [2012] NSWSC 354 at [509].
44. Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149.
45. (1968) 112 Sol J 419.
46. [1976] 4 WWR 300.
47. Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149.
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17.15 The need for threats to amount to threatened or actual unlawful conduct to constitute
duress was also emphasised in Sukkar v Sukkar48 and in Scott & Scott (No 3)49 where, in the
latter case, the following was stated:
To establish duress, the wife had to prove she was the subject of threatened or actual unlawful
conduct, which applied illegitimate pressure upon her and caused her to capitulate and
execute the agreement against her better judgment.

17.16 The above views, however, have not been met with judicial unanimity in Australia,
with the way left open to suggest that even lawful pressure may amount to illegitimate conduct
in the circumstances. In Fair Work Ombudsman v National Jet Systems Pty Ltd50 Buchanan J
said the following:
The other element, illegitimacy, may be more elusive. In his further discussion of this issue
Lord Scarman observed that unlawful action would be illegitimate. A more difficult question
arises in cases where action, or threatened action, might be lawful, but is nevertheless
‘illegitimate’. Lord Scarman gave, as an example, a case of blackmail constituted by a threat
to do a lawful act, such as reporting a matter to the police. With respect, the example has a
tendency to confuse because blackmail itself may be an unlawful act. However, it is clear that
Lord Scarman intended to draw attention to the difference between an illegitimate demand
(eg blackmail) and the means (perhaps a threat of otherwise lawful action) by which the
demand was, if necessary, to be enforced. The point is an important one. If the means used
to apply pressure are unlawful, the pressure will be illegitimate. The use of lawful means to
achieve an unlawful demand will also constitute illegitimate pressure. And, as earlier observed,
the pressure must be accurately described as compulsive, in the sense that it vitiates consent.

17.17 In Electricity Generation Corporation v Woodside Energy Ltd,51 which was cited with
approval in the Court of Appeal in Victoria in Doggett v Commonwealth Bank of Australia,52
McLure P said:
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. An actual
or threatened breach of contract is unlawful conduct for the purposes of the economic
duress doctrine.

17.18 Further, in Thorne v Kennedy53 Nettle J suggested that Australia & New Zealand
Banking Group Ltd v Karam54 was wrong, when his Honour said:

48. [2019] NSWSC 691.

49. [2019] FamCA 936 at [56].
50. [2012] FCA 243 at [22]. These remarks were referred to in Australian Building and Construction
Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCA 157 at [133].
51. [2013] WASCA 36 at [25].
52. (2015) 47 VR 302 at 321.
53. (2017) 263 CLR 85 at 114–5; 350 ALR 1 at 22–3. In Rodolico v Rodolico [2020] VSC 535 at [33], in the
context of a claim based in duress, Daly AsJ said: ‘There is some conflict in the authorities as to whether
an otherwise lawful action, such as bringing civil proceedings or threatening to bring civil proceedings,
can amount to illegitimate pressure: I shall assume for present purposes that lawful conduct may, in some
circumstances, amount to illegitimate pressure’.
54. (2005) 64 NSWLR 149.

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[T]here appears to be much to be said for the view that, rather than persist with a blanket
restriction of illegitimate pressure to pressure exerted by unlawful means, it would better
accord with equitable principle, and better align with English and American authority, if
the test of illegitimate pressure were whether the pressure goes beyond what is reasonably
necessary for the protection of legitimate interests. … Karam’s55 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 any more
uncertain than the equitable conceptions of unconscionable conduct and undue influence to
which Karam56 held it should be consigned.
17.19 However, because this issue was not a matter relevant to the decision of the court
in this case, his Honour57 conceded that ‘there would need to be detailed argument and
deep consideration of the ramifications of departing from Karam58 before this Court would
contemplate that course’.
17.20 In assessing whether there has been coercion or compulsion, the courts consider all
of the relevant circumstances, including the characteristics of the victim, the relation of the
parties, the availability of professional independent advice to the victim, and whether the party
said to have been coerced did or did not protest or, after entering the contract, took steps to
avoid it.59 The presence of such determining factors makes it apparent that economic duress
claims are hard to evaluate. Some commentators have suggested that in assessing such conduct,
the following enquiries are relevant:60
• whether the pressure can be described as ‘improper’ in these circumstances;
• whether there is a prior relationship between the plaintiff and the defendant;
• whether the defendant’s motivation in exerting the pressure can be described as ‘improper’
in these circumstances;
• whether the outcome is inappropriate, either because the contract should not have been
procured by these means or is intrinsically unfair; and
• whether the plaintiff felt sufficiently pressured to enter into a contract that he or she might
not otherwise have entered into.
However, mere inequality of bargaining position, even great inequality, between the parties is
not enough to constitute duress.61
17.21 The presence of duress allows the oppressed party to rescind the contract. Thus, the
contract is voidable and not void ab initio.62 In assessing whether duress (as well as undue

55. Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149.
56. Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149.
57. Thorne v Kennedy (2017) 263 CLR 85 at 115; 350 ALR 1 at 23.
58. Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149. It is noteworthy that in
Sukkar v Sukkar [2019] NSWSC 691 at [189] Darke J noted the observations of Nettle J in Thorne v Kennedy
(2017) 263 CLR 85; 350 ALR 1 without criticism.
59. Pharmacy Care Systems Ltd v Attorney-General (2004) 2 NZCCLR 187 at [96]; Pao On v Lau Yiu Long
[1980] AC 614 at 635; [1979] 3 All ER 65 at 78; Progress Bulk Carriers Ltd v Tube City IMS LLC [2012]
EWHC 273 (Comm) at [24].
60. S Scott, ‘Duress and the Variation of Contracts — Looking Beyond General Statements of Principle to the
Results in Particular Cases’ (2010) 12 Otago Law Review 391 at 418.
61. Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 at 290.
62. Bloomingdale Holdings Pty Ltd v 63 Buckley Street Pty Ltd [2008] VSC 168 at [436]; Electricity Generation
Corporation v Woodside Energy Ltd [2013] WASCA 36 at [201]; Chaggar v Chaggar [2018] EWHC 1203 (QB)
at [233].
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influence) is present, the court focuses on the quality of the consent to the contract that is
given by the victim of duress. In Hussain v Haynoum Developments Pty Ltd63 Leeming JA stated
that this was not the question that was addressed in cases of unconscionability in equity. In
these cases, his Honour said, the focus is on whether the conduct of the stronger party is, in all
the circumstances, unconscionable. However, although his Honour’s statement does point to
differences in terms of the focus of attention between duress and undue influence on the one
hand, and unconscionability, on the other, a finding of unconscionability does, nevertheless,
mean that the weaker party’s consent was impaired when he or she entered into the contract.
17.22 In New Zealand in McIntyre v Nemesis DBK Ltd64 the New Zealand Court of Appeal,
drawing upon Lord Scarman’s remarks in Universe Tankships Inc of Monrovia v International
Transport Workers Federation,65 said the following in relation to duress and its effect on a
contract:
Contractual duress is the imposition of improper pressure by threats that coerce a party to
enter a contract. Contracts that have been procured by duress are voidable at the discretion
of the coerced party, unless that party has subsequently affirmed the contract. While
originally duress was restricted to threats of physical injury, it has subsequently expanded
to encompass both threats in relation to property and the exertion of economic pressure.

17.23 As will be seen below, there are three categories of duress:

• duress of the person;
• duress of goods; and
• economic duress.

17.24 It is sometimes difficult to distinguish duress from undue influence66 and

unconscionability.67 However, as will be seen, the key to ascertaining whether any type of duress
occurred is to ask whether any applied pressure induced the victim to enter into the contract
and then to ask whether that pressure went beyond what the law is prepared to countenance as
legitimate. Importantly, it is not necessary in order to establish duress that an individual’s will
has been overborne.

DURESS TO THE PERSON

17.25 Duress of the person involves actual or threatened violence to, or actual or threatened
imprisonment of, the person coerced or a close associate of that person.68 The threat must be
of death, bodily harm, or imprisonment; it must be calculated to cause fear and must actually
cause fear. An associate of the person threatened has been held to include a spouse or child.69

63. [2015] NSWCA 420 at [5].

64. [2010] 1 NZLR 463 at 467.
65. [1983] 1 AC 366 at 400; [1982] 2 All ER 67 at 88.
66. See Chapter 18.
67. See Chapter 19.
68. Holyoake v Candy [2017] EWHC 3397 (Ch) at [397].
69. Barton v Armstrong [1973] 2 NSWLR 598 at 610. See also [1976] AC 104.

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17.26 In Barton v Armstrong70 Barton entered into a contract to sell shares to Armstrong.
Barton sought to have the sale set aside on the grounds that he had entered into the contract as
a result of Armstrong’s threats to kill him. Armstrong argued that Barton’s pressing financial
situation was the only reason that he sold the shares. The Privy Council held that, for a right
to rescind a contract for duress to arise, the duress need only be a reason why the victim of
duress entered into a contract. It was not necessary that it be the reason for contracting. On the
facts of the case, the majority of the Privy Council held that the duress was a factor in Barton’s
decision to contract, and granted a declaration to the effect that the contract was entered into
as the result of duress. The minority took the view that Barton’s pressing financial situation was
the reason that he had entered into the contract and held that the right to rescind for duress
was not established.

DURESS OF GOODS
17.27 Where one party unlawfully seizes or detains, damages, or destroys the goods of
another or threatens to do so, there is a duress of goods. Traditionally there was a need to show
more than duress of goods in order to have an available remedy in contract law. However, that
is no longer the case.71

ECONOMIC DURESS
17.28 In recent years, courts have recognised the principle of economic duress, which relates
to improper pressure by a person aimed at the contractual, proprietary, or other rights of a
party, whether actual or by threat, in order to obtain some benefit to which that person is not
entitled. The difficulty in this area is the fine line between proper and improper commercial
pressure. In this respect, in DSND Subsea v Petroleum Geo-Services72 Dyson J said:
In determining whether there has been illegitimate pressure, the court takes into account
a range of factors. These include whether there has been an actual or threatened breach
of contract; whether the person allegedly exerting the pressure has acted in good or bad
faith; whether the victim had any realistic practical alternative but to submit to the pressure;
whether the victim protested at the time; and whether he confirmed and sought to rely on
the contract. These are all relevant factors. Illegitimate pressure must be distinguished from
the rough and tumble of the pressures of normal commercial bargaining.

17.29 In North Ocean Shipping Company Ltd v Hyundai Construction Company Ltd73 Hyundai
agreed to build a ship for North Ocean for a fixed price with progress payments to be made in
US dollars. The American dollar fell by 10 per cent in value after the first progress payment had
been made and Hyundai demanded an appropriate increase (10 per cent) in the construction

70. [1973] 2 NSWLR 598; [1976] AC 104.

71. Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 306; Occidental Worldwide
Investment Corporation v Skibs A/S Avanti (The Siboen and the Sibotre) [1976] 1 Lloyd’s Rep 293 at 335.
72. [2000] BLR 530 at [13]. Dyson J’s comment was cited with approval by the Queensland Court of Appeal
in Mitchell v Pacific Dawn Pty Ltd [2011] QCA 98 at [52]. See also M H Ogilvie, ‘Economic Duress: An
Elegant and Practical Solution’ [2011] Journal of Business Law 239.
73. [1979] 1 QB 705; [1978] 3 All ER 1170.

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price to be paid over the remaining instalments. Furthermore, Hyundai threatened that it
would not proceed with the construction if the increase was not agreed to by North Ocean.
North Ocean agreed to the increase because it had made profitable shipping contracts that
were dependent on the ship being constructed on time. Nine months after taking delivery of
the ship, North Ocean sought to recover the additional payments that they had made on the
ground that they were extracted as a result of economic duress. Mocata J held that the money
was recoverable because of economic duress, but North Ocean had lost the right to rescind by
their delay in bringing proceedings in seeking to rescind. This delay, it was held, amounted to
an affirmation of the contract.74
17.30 In Pao On v Lau Yiu Long75 the Paos owned shares in a private company, Shing
On. The Laus were the majority shareholders in a public investment company, Fu Chip. In
February 1973, the Paos contracted to sell their shares in Shing On to Fu Chip in exchange for
an allotment of 4.2 million shares in Fu Chip with a deemed value of $2.50 a share. The Paos
also agreed not to sell 2.5 million of these shares prior to the end of April 1974. By a subsidiary
agreement on the same day, the Laus agreed to buy back 2.5 million shares in Fu Chip from the
Paos on or before 30 April 1974 at $2.50 per share. The Paos then realised that, when they sold
the shares to the Laus pursuant to this agreement, they would not get the benefit of any increase
in the value of the shares in the meantime. The Paos therefore refused to proceed with the sale
of their shares in Shing On to Fu Chip, unless the Laus replaced the subsidiary agreement with
an agreement by which the Laus would guarantee the price of the 2.5 million shares at $2.50
a share. On 4 May 1973, the Laus entered into the replacement guarantee agreement. Prior to
30 April 1974, the price of Fu Chip shares had fallen to 36 cents a share. The Paos sought to
enforce the guarantee. The issue before the Privy Council was whether the Laus were victims of
economic duress in relation to the guarantee. The Privy Council held that there was no duress
in this case and that nothing more than ordinary commercial pressure was involved in the
execution of the guarantee by the Laus.
17.31 In Crescendo Management v Westpac Banking Corp76 the question arose as to whether
Crescendo Management had executed a mortgage to Westpac because of alleged illegitimate
economic duress by Westpac. Westpac had declined to release $27,000 which it retained from
the proceeds of the sale of a property, unless a number of specified documents were executed,
including a mortgage. The proceeds of the sale of the property had belonged to Mr and
Mrs Hilbrink. Two companies of which Mr Hilbrink was a director were in debt to Westpac.
Westpac wanted to secure the debts of these companies. Westpac stated that it would not
release the sale proceeds to the Hilbrinks unless Crescendo Management, controlled by the
Hilbrinks, executed certain security documents in favour of Westpac. Subsequently Crescendo
Management executed the documents. The issue was whether Westpac was guilty of economic
duress. The New South Wales Court of Appeal unanimously found that, although the action
by Westpac in withholding the money was unlawful and prima facie amounted to economic
duress, that pressure played no part in Crescendo Management’s decision to execute the
documents. Therefore, there was no operative economic duress.

74. See 35.25–35.31.

75. [1980] AC 614; [1979] 3 All ER 65.
76. (1988) 19 NSWLR 40.

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17.32 In Australia & New Zealand Banking Group Ltd v Karam,77 Karam Bros Footwear
Pty Ltd was a family owned and operated business. Karam Bros borrowed money from ANZ
Bank, which, in turn, obtained securities over the assets of Karam Bros and over the personal
assets of Karam Bros’ directors. Initially the directors were unaware that they were personally
liable for Karam Bros’ debts. They became aware of the full extent of their exposure when
they requested further financial accommodation at a time when Karam Bros was in a perilous
financial condition. In return for the extra finance being made available, the bank requested
that the directors execute further documents, including acknowledgments that they were
personally liable for Karam Bros’ debts. In addition, at the request of the bank, the directors
sold various properties to reduce Karam Bros’ indebtedness. The company argued that the
security transactions should be set aside on various grounds, including economic duress. The
Court of Appeal78 held that there was no economic duress in this case, stating:
It is of importance that the absence of practical choice is only one of two elements in
establishing economic duress. The critical issue is whether the pressure placed on the
Karams by the Bank was ‘illegitimate’. The Bank emphasised in argument that all it was
proposing was an offer to extend the credit available to the Company on condition that
the acknowledgment was signed by the Karams personally. No doubt the Company had a
commercial expectation that the credit available to it would be maintained, but it had no
realistic expectation of additional credit nor that the existing facilities would be allowed to
continue, were it to default. Accordingly, on the Bank’s case, it was offering an indulgence
in return for improved security. … Once it is accepted, correctly, that the perilous financial
circumstances of the Company were ‘not the Bank’s doing’, there is no basis for saying that
the Bank, in a legal sense, subjected the Karams to pressure. Rather, it was the Karams who
were seeking that the Bank provide additional credit, without which the Company would
have to cease trading. The Bank was under no obligation to extend the credit facilities
already granted, nor to do so without securing its own position. Nor was the Bank reacting
over hastily to some sudden and unexpected downturn in the affairs of the Company.

17.33 In Progress Bulk Carriers Ltd v Tube City IMS LLC79 Tube City chartered a ship from
Progress Bulk to transport its cargo of shredded scrap from the Mississippi River to China. In
breach of the contract, Progress Bulk hired the ship to Daewoo, a third party. Progress Bulk
then ‘lulled Tube into a false sense of security’ by offering to provide a substitute ship and cover
Tube’s losses. In reality Progress Bulk was ‘quietly manoeuvring [Tube] into a corner’. By the
time a replacement ship was found, Tube had been forced to accept a significant price reduction
from its Chinese buyer for failing to deliver the shredded scrap on time. It was also facing
escalating storage costs. Knowing that Tube had no real alternatives as the price of shredded
scrap had, in the meantime, significantly fallen, Progress Bulk then backed out of its promise
to compensate Tube in full. Rather, it made a ‘take it or leave it’ offer, which required Tube to
waive all of its claims against Progress Bulk. Under protest, Tube agreed to the terms put to it
by Progress Bulk. The issue before the court was whether Progress Bulk’s conduct amounted to
economic duress, even though its conduct was lawful.

77. (2005) 64 NSWLR 149.

78. Australia & New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149 at 171–2.
79. [2012] EWHC 273 (Comm).

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17.34 After referring to Pao On v Lau Yiu Long and Universe Tankships Inc of Monrovia
80

v International Transport Workers Federation (The Universe Sentinel),81 and citing a passage
from CTN Cash and Carry Ltd v Gallagher Ltd,82 Cooke J,83 in finding that Progress Bulk was
guilty of duress, said:
The question of law posed is whether [Progress’ conduct] … amounted to ‘the illegitimate
pressure’ required to establish economic duress in law. … It is, in my judgement, clear from
the authorities that ‘illegitimate pressure’ can be constituted by conduct which is not in itself
unlawful, although it will be an unusual case where that is so, particularly in the commercial
context. It is also clear that a past unlawful act, as well as a threat of a future unlawful act can,
in appropriate circumstances, amount to ‘illegitimate pressure’.

REMEDIES IN RELATION TO DURESS

17.35 As noted above,84 a contract obtained by duress is voidable. The primary remedy for
duress is, if available, rescission.85 It would also seem to be the case that courts may order
recovery of money in cases of economic duress pursuant to a claim in restitution.86 This was
confirmed in Universe Tankships of Monrovia v International Transport Workers Federation
(The Universe Sentinel),87 where Lord Scarman suggested that because duress is a tort, a plaintiff
will have a right to damages. However, this obiter comment should be compared with remarks
by Lord Diplock in the same case,88 who disagreed on this point and said that the only remedy
was restitution, not damages. It is respectfully suggested that the better view is the view of Lord
Scarman. Courts have subsequently allowed restitutionary claims in such circumstances, as
long as the contract has been rescinded.89
17.36 If, after the illegitimate pressure has ceased to be operative, the victim of duress ‘has
acted voluntarily with full knowledge of all the circumstances’ he or she will be taken to have
affirmed the contract and will, thus, have lost the right to rescind.90 As already noted, in North
Ocean Shipping v Hyundai Construction Company91 the failure to take action for eight months
to avoid the contract was held to amount to affirmation. It was also tantamount to undue delay,
which is also a ground that causes rescission to be lost.92 Furthermore, in Halpern v Halpern93 it
was held, by way of a preliminary issue determination, that a party could not avoid a contract

80. [1980] AC 614; [1979] 3 All ER 65.

81. [1983] 1 AC 366; [1982] 2 All ER 67.
82. [1994] 4 All ER 714. See also 17.7.
83. [2012] EWHC 273 (Comm) at [36]. See also Chaggar v Chaggar [2018] EWHC 1203 (QB) at [233].
84. See 17.21.
85. See Chapter 35 and Borrelli v Ting (Bermuda) [2010] UKPC 21 at [34].
86. Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] EWHC 273 (Comm) at [25].
87. [1983] 1 AC 366 at 400; [1982] 2 All ER 67 at 88.
88. [1983] 1 AC 366 at 385; [1982] 2 All ER 67 at 76.
89. Electricity Generation Corporation v Woodside Energy Ltd [2013] WASCA 36 at [201].
90. Chaggar v Chaggar [2018] EWHC 1203 (QB) at [233].
91. [1979] 1 QB 705; [1978] 3 All ER 1170.
92. See 35.34–35.35.
93. [2006] 3 All ER 1139 at 1147.

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that was procured by duress in circumstances where he or she could not afford the other party
substantial restitutio in integrum. On appeal, in Halpern v Halpern (No 2),94 Carnworth LJ
(Waller and Sedley LJJ agreeing) said that, although he was inclined to agree that rescission for
duress should be no different in principle from rescission for other vitiating factors:
… the practical effect of counter-restitution, in the terms explained by Lord Blackburn in
Erlanger v New Sombrero Phosphate Co,95 will depend on the circumstances of the particular
case. In the present case, if … the defendants are able to establish that their consent to the
compromise agreement was procured by improper pressure (whether that is characterised
as duress or undue influence), it would be surprising if the law could not provide a suitable
remedy.

17.37 In relation to the rights of third persons in cases of rescission96 for duress, it is suggested
(there being no authority on the point) that the third person’s acquisition of an interest in
property is protected if it is acquired after the pressure has ceased to be operative, but not if
purchased before the pressure ceases to be operative.
17.38 It should also be noted that statutory remedies may be available for conduct that
otherwise amounts to duress at common law. For example, s 50 of the Australian Consumer
Law prohibits the use of physical force, undue harassment, or coercion by a corporation in
relation to the provision of goods or services to consumers. Some cases of duress to the person
clearly would be breaches of s 50. In addition, s 50 of the Australian Consumer Law prohibits
the same form of conduct in certain contracts relating to the sale of land. Section 152 of the
Australian Consumer Law may also be triggered. Breaches of these sections can be compensated
by the award of damages pursuant to s 236 of the Australian Consumer Law or by other orders
pursuant to ss 232, 234, 237(1), 238(1), 239(1), and 243 of the Australian Consumer Law.
17.39 In many cases duress will amount to a finding that a contract is unjust pursuant to
s 9(2)(j) of the Contracts Review Act 1980 (NSW).97
17.40 Finally, some cases of duress may also amount to the tort of intimidation, in which
cases common law damages would be available.98 The essential elements of this tort are: 99
(i) a threat by the defendant to do something unlawful or illegitimate; (ii) the threat must be
intended to coerce the claimant to take or refrain from taking some course of action; (iii) the
threat must in fact coerce the claimant to take such action; (iv) loss or damage must be incurred
by the claimant as a result.

94. [2007] 3 All ER 478 at 484.

95. (1878) 3 App Cas 1218.
96. See 35.32–35.33.
97. See Chapter 20.
98. Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [227]–[234].
99. See Berezovsky v Abramovich [2011] EWCA Civ 153 at [5].

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UNDUE INFLUENCE

INTRODUCTION
18.1 Whereas the common law generally assumes that the parties to particular transactions
have equal bargaining power, equity recognises that often this may not be the case, and it may
enable a party to set aside a transaction where it can be shown that the relationship between the
parties was tainted by inequality, unfairness, or actual abuse.
18.2 For the purpose of assessing whether a transaction offends equity’s insistence on good
conscience, there are two main equitable principles that examine the circumstances in which a
transaction is made, namely:
• the doctrine against unconscionable conduct; and
• the doctrine of undue influence.

18.3 The broader of the two and the more significant in Australian law is the doctrine against
unconscionable conduct, which is discussed in Chapter 19. Closely related, yet quite distinct, is
the narrower doctrine of undue influence.1 These two concepts can be distinguished as follows:
unconscionable conduct refers to a situation where one party to a transaction is under a special
disadvantage that was knowingly exploited by the other in securing the deal. The focus of
unconscionable conduct is upon the conduct of the stronger party.2 Undue influence is similar,
in that it also acts to prevent the unconscientious effects of inequality.3 However, rather than
looking to the actions of the stronger party, undue influence focuses upon the relationship
that existed between the parties and asks whether the nature of that relationship impaired
the quality of the consent that was given. In particular, what triggers equity’s involvement is a
powerful ascendancy by one party over the other.
18.4 Although related but distinct, the High Court in Bridgewater v Leahy4 recognised
that the facts of a case may be such that a plaintiff can establish both undue influence and

1. Johnson v Smith [2010] NSWCA 306 at [2]; Times Travel (UK) Ltd v Pakistan International Airlines
Corporation [2019] 3 WLR 445 at 455; Brown v Barber [2020] WASC 84 at [333].
2. Neale v Bank of Western Australia Ltd [2014] NSWSC 315 at [171]; Thorne v Kennedy (2017) 263 CLR 85
at 119; 350 ALR 1 at 25.
3. Green v Green [2017] 2 NZLR 321 at 330.
4. (1998) 194 CLR 457 at 477–8; 158 ALR 66 at 80.

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unconscionability. In Thorne v Kennedy,5 the High Court held that, on the facts of the case,
pre-nuptial and post-nuptial agreements between the parties were voidable on the grounds of
undue influence and unconscionable conduct.
18.5 It should be noted that the material in this chapter and Chapter 19 is considered in the
context of inter vivos transactions, rather than testamentary dispositions. Undue influence and
unconscionability are conceptually quite different in the context of wills.6

THE NATURE OF UNDUE INFLUENCE

18.6 At common law there are various principles upon which the quality of the consent given
by one party to a transaction is called into question, that will enable the affected party to seek
relief. Thus, a written contract will be void if it is radically different in nature to that which
the party signing the contract believed he or she was signing (non est factum)7 and a contract
can be set aside if procured as the result of duress.8 It is easy to appreciate that real consent
is absent in such transactions. In equity, the principle of undue influence also focuses on the
quality of consent to the transaction given by the weaker party to the relationship.9 The fact that
the proposal to enter a contract or make a gift came from the weaker party does not preclude
a finding of undue influence.10 In relation to the basis upon which equity intervenes in cases
of undue influence, in Allcard v Skinner,11 Cotton LJ said that, in cases of undue influence,
‘the Court interferes, not on the ground that any wrongful act has in fact been committed by
the [the stronger party to the transaction], but on the ground of public policy, and to prevent the
relations which existed between the parties and the influence arising therefrom being abused’.
18.7 However, while it is acknowledged that a relationship of influence need not be
characterised by anything so obvious as outright domination,12 the influence must still be
‘undue’. To speak merely of ‘influence’ is to fail to appreciate the high level of ascendancy that is
required in order for a party to obtain relief. In Anderson v McPherson (No 2)13 Edelman J said:
The party seeking to set aside a transaction for undue influence must prove … a relationship
going beyond mere confidence and influence. It must be a relationship involving dominion and
ascendancy by one person over the will of the other, and correlative dependence by the other.

5. (2017) 263 CLR 85; 350 ALR 1. See also Verduci v Golotta [2010] NSWSC 506; Brown v Barber [2020]
WASC 84. In Olsen v Mentink [2019] NSWSC 1299, both unconsionability and undue influence were found
on the facts of the case. On appeal in Mentink v Olsen [2020] NSWCA 182, the Court of Appeal upheld the
finding of unconscionability and held that it did not need to consider the trial judge’s finding in relation to
undue influence.
6. Trustee for the Salvation Army (NSW) Property Trusts v Becker [2007] NSWCA 136 at [62]–[64].
7. See 16.88–16.95.
8. See Chapter 17.
9. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474; 46 ALR 402 at 423.
10. Spong v Spong (1914) 18 CLR 544 at 549; Brown v Barber [2020] WASC 84 at [368].
11. Allcard v Skinner (1887) 36 Ch D 145 at 171. See also Shephard v Galea [2020] WASCA 152 at [102].
12. Tufton v Sperni [1952] 2 TLR 516 at 525; Goldsworthy v Brickell [1987] Ch 378 at 402; [1987] 1 All ER 853
at 866; Perry v Gao [2019] NSWSC 1022 at [30].
13. [2012] WASC 19 at [247]–[248]. See also Watkins v Combes (1922) 30 CLR 180 at 193–4; Tufton v Sperni
[1952] 2 TLR 516 at 532; Mahon v Mahon [2016] NZCA 642 at [29].

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CATEGORIES OF UNDUE INFLUENCE

18.8 There are three distinct categories of transactions that attract equitable intervention
on the basis of the principles of undue influence.14 The distinguishing characteristic between
them is whether there is a special relationship between the parties to the transaction. The first
category arises where there is no special relationship between the parties and cases are generally
referred to as ones of actual or express undue influence. The second and third categories arise
where a special relationship exists between the parties are generally referred to as ones of
presumed undue influence.15 These categories are distinguished on the basis upon which the
existence of the special relationship is established. These three categories of undue influence
are often referred to as ‘Class 1 undue influence’, ‘Class 2A undue influence’, and ‘Class 2B
undue influence’ respectively.16
18.9 In cases of actual undue influence, the focus of attention is on the nature and extent of
influence that must be established, whereas in cases of presumed undue influence, a rebuttable
presumption arises that undue influence existed where the presumed relationship is found to
arise.

ACTUAL UNDUE INFLUENCE

18.10 In cases where there is no special relationship between the parties to the transaction, a
person seeking equitable relief on the basis of the principles of undue influence must establish
that the other party to the transaction exerted actual undue influence.17 In Johnson v Buttress,18
Dixon J said:
The source of power to practise such a domination may be found in no antecedent relation
but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts
must be proved showing that the transaction was the outcome of such an actual influence
over the mind of the alienor that it cannot be considered his free act.

18.11 In Allcard v Skinner,19 Cotton LJ indicated that a case of actual undue influence could
be established if ‘there has been some unfair and improper conduct, some coercion from
outside, some overreaching, some form of cheating, and generally, though not always, some
personal advantage by a donee in some close and confidential relation to the donor’. In Royal
Bank of Scotland v Etridge (No 2),20 Lord Nicholls said that actual undue influence involved
‘overt acts of improper pressure or coercion such as unlawful threats’ and that ‘there is much
overlap with the principle of duress’.

14. Thorne v Kennedy (2017) 263 CLR 85 at 101–2; 350 ALR 1 at 12.
15. Allcard v Skinner (1887) 36 Ch D 145 at 171; Brown v Barber [2020] WASC 84 at [310].
16. Barclays Bank Plc v O’Brien [1994] 1 AC 180 at 189; [1993] 4 All ER 417 at 423.
17. Mercanti v Mercanti (2016) 50 WAR 495 at 551.
18. (1936) 56 CLR 113 at 134.
19. (1887) 36 Ch D 145 at 171.
20. [2002] 2 AC 773 at 795; [2001] 4 All ER 449 at 457.

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18.12 Once actual undue influence has been established, the onus is upon the party exerting
the influence to rebut the presumption that the transaction was entered into by the other party
as a result of the influence.21
18.13 Cases of actual undue influence are rare and difficult to prove. In Frederick v State of
South Australia,22 a South Australian magistrate resigned from his position during a meeting
with the Chief Magistrate. The magistrate had been recently convicted of two criminal
offences. However, the convictions were subsequently set aside. The magistrate argued that the
resignation was ineffective on the basis that it was procured by the exertion of actual undue
influence by the Chief Magistrate. White J rejected23 the claim on the basis that the magistrate,
as a person who had had a long career as a lawyer and magistrate, was not in a position of being
the victim of actual undue influence.
18.14 A case in which actual undue influence was established is Desir v Alcide.24 In that case
the Privy Council25 upheld a trial judge’s findings of actual undue influence in which the facts,
referred to by the Privy Council,26 were summarised by the trial judge as follows:
[I]t is pellucidly clear in my view that Marguerite Desir ably assisted by her friend confidante
and legal adviser Leandra Verneuil took advantage of her dominant position and influence
over the vulnerable and seriously ailing Albertha Bella Butcher following the death of her
husband to so contrive and manipulate her personal business and financial affairs that in
short order nearly all of the deceased’s money and the bulk of her estate and possessions fell
into her hands and in so doing she had the also contrived to supplant the claimant Sabina
Alcide James which up to Mr Butcher’s death on 1st November 2005 had been ‘Bella’s little
girl’ whom she had repeatedly declared during her lifetime would have inherited everything
which she owned.

PRESUMED UNDUE INFLUENCE

18.15 Cases dealing with presumed undue influence involve the existence of a special
relationship between the parties to the transaction. The existence of the special relationship
gives rise to a presumption that the transaction was obtained as a result of undue influence by
the stronger party in the relationship over the weaker party. The effect of the presumption is
that the weaker party will be able to seek equitable relief, unless the presumption is rebutted
by the stronger party. In Johnson v Buttress,27 Dixon J set out the relevant principles as follows:
But the parties may antecedently stand in a relation that gives to one an authority or influence
over the other from the abuse of which it is proper that he should be protected. When they
stand in such a relation, the party in the position of influence cannot maintain his beneficial

21. See 18.34–18.44.

22. (2006) 94 SASR 545.
23. Frederick v State of South Australia (2006) 94 SASR 545 at 580–2.
24. [2015] UKPC 24. Other examples include Mutual Finance Ltd v John Wetton & Sons [1937] 2 KB 389;
Farmers Co-operative Executors & Trustees Ltd v Perks (1989) 52 SASR 399.
25. Desir v Alcide [2015] UKPC 24 at [61].
26. Desir v Alcide [2015] UKPC 24 at [52].
27. (1936) 56 CLR 113 at 134.

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title to property of substantial value made over to him by the other as a gift, unless he satisfies
the court that he took no advantage of the donor, but that the gift was the independent and
well-understood act of a man in a position to exercise a free judgment based on information
as full as that of the donee.

18.16 In analysing cases of presumed undue influence, the two critical matters to be discussed
are:
• establishing the special relationship; and
• rebutting the presumption of undue influence.

Establishing the special relationship

18.17 There are two ways in which the special relationship in presumed undue influence
cases can be established. The first relates to cases where the relationship falls into one of the
traditionally accepted relationships of influence. The second relates to cases where a relationship
of influence has to be proved on the individual facts of any given case. These two categories
of undue influence are often referred to as ‘Class 2A undue influence’ and ‘Class 2B undue
influence’.28

Class 2A undue influence

18.18 The relationships that the courts have recognised as ones in which it can be presumed
that any transaction made favouring the stronger party was brought about by the undue exercise
of that party’s influence, include:
• parent and child,29 but not the other way around;30
• guardian and ward;31
• solicitor and client;32
• doctor and patient;33 and
• religious leader and follower.34

18.19 In Royal Bank of Scotland v Etridge (No 2),35 Lord Nicholls asserted that a presumption
arising by virtue of a recognised class of relationship is ‘irrebuttable’. This approach has been
rejected in Australia.36 However, it is often difficult to rebut such a presumption, and even
being able to explain the relationship in some other way, such as that the parties were also in a
de facto relationship, will not guarantee success.37

28. Barclays Bank Plc v O’Brien [1994] 1 AC 180 at 189; [1993] 4 All ER 417 at 423.
29. Lancashire Loans Ltd v Black [1934] 1 KB 380 at 405, 409, 419; Johnson v Buttress (1936) 56 CLR 113 at 134.
30. Brown v New South Wales Trustee and Guardian [2011] NSWSC 1203 at [46]; Courtney v Powell [2012]
NSWSC 460 at [38]; Campbell v TL Clacher No 2 Pty Ltd [2019] QSC 218 at [69].
31. Johnson v Buttress (1936) 56 CLR 113 at 134; Hylton v Hylton (1754) 28 ER 349.
32. Westmelton (Vic) Pty Ltd v Archer & Shulman [1982] VR 305.
33. Bar-Mordecai v Hillston [2004] NSWCA 65.
34. Allcard v Skinner (1887) 36 Ch D 145; Khan v Khan (2004) 62 NSWLR 229.
35. [2002] 2 AC 773 at 797; [2001] 4 All ER 449 at 460.
36. Janson v Janson [2007] NSWSC 1344 at [93].
37. Bar-Mordecai v Hillston [2004] NSWCA 65 at [149].

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18.20 An important feature of the use of these relationships is that the presumption does
not apply to the mere conferral of a benefit by one party to the other — in order to attract
the equitable presumption, the benefit must flow from the ‘weaker’ party to the ‘stronger’.
This requirement can be easily appreciated in the last three of the relationships listed above.38
It is fair to assume that the solicitor, doctor, and religious leader will have far more influence
over their clients, patients, and followers respectively, so that a significant gift or transaction
from members of the latter group to their stronger counterpart among the first group would
raise suspicions which one would not have if the gift or transaction flowed from the stronger
party to the weaker. The direction of the presumption is, of course, particularly clear in the case
of a gift. However, in cases of contracts where the obligations or benefits flow from both parties,
the same principle will still apply — it is the undue influence of the recognised stronger party
over the weaker that will set aside the transaction.
18.21 The presumption in cases of parent/guardian and child/ward might seem less obvious
than those where there is a particular relationship of trust and reliance flowing from the weaker
party to the stronger. Are not the relationships between parent/guardian and child/ward much
more mutual than the other recognised categories, especially when the child is no longer
a minor? Why is ‘child and parent’ not also a special relationship? Certainly, these familial
relationships appear distinct from those arising elsewhere. However, it should be borne in mind
that all that is established by the relationship is a presumption that can be rebutted if not truly
reflective of the parties’ positions. Thus, while a benefit conferred by a parent to a child does
not automatically raise a presumption of undue influence39 and one from a child to a parent
does, evidence may be produced in both instances to show the contrary.40 The reason for not
admitting the reverse of the ‘parent and child’ relationship to the special class appears to be the
traditional view of parental authority and control over a child, which was particularly strong
throughout the Victorian era when the special categories were consolidated by the courts. It is
also seen as entirely natural for parents to bestow benefits on their offspring out of a desire to
assist them to get on in life.41 However, the facts of any given case may establish that a child has
undue influence over a parent, giving rise to a Class 2B undue influence case.42 For example, a
parent’s age and ill health may give rise to such a situation.43
18.22 Some clarification of the scope of the presumption arising in religious circumstances is
warranted. While the category of ‘religious leader and follower’ clearly refers to a situation where
a religious minister or leader receives a personal benefit from a follower, such as occurred in
McCulloch v Fern,44 the influence bearing upon the donor will not always be so individualised.
Instead, it will often be the case that the donor’s free will is overcome simply as a result of
subscribing to the beliefs and doctrines of the religious order. Thus, in Hartigan v International

38. See 18.18.

39. Brown v NSW Trustee and Guardian [2011] NSWSC 1203 at [46]; Walton v Walton [2015] NSWSC 218
at [30].
40. Stone v Registrar of Titles [2012] WASC 21 at [207]; Anderson v Anderson [2013] QSC 8 at [55]–[59];
Shephard v Galea [2020] WASCA 152 at [109].
41. Wilby v St George Bank Ltd (2001) 80 SASR 404 at 414; Permanent Mortgages Pty Ltd v Vandenbergh (2011)
41 WAR 353 at 389. See also Grace v Grace [2012] NSWSC 976; Mace v Mace [2015] NSWSC 1659.
42. Daunt v Daunt [2015] VSCA 58 at [43].
43. Matouk v Matouk (No 2) [2015] NSWSC 74 at [34].
44. [2001] NSWSC 406.

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Society for Krishna Consciousness Inc the court set aside a gift of land made by Hartigan to the
45

Hare Krishna movement, despite admitting that no one person could be identified by evidence
as a spiritual adviser who directly or indirectly suggested that she make the donation.
18.23 There are suggestions that the trustee/beneficiary relationship is a Class 2A relationship.46
However, as Heydon, Leeming, and Turner47 observe, there is no justification, in the absence
of special circumstances, for suggesting that there is a relationship of undue influence between
a trustee and beneficiary and that, unless the transaction is one involving trust property, there
should be no presumption invalidating the transaction.48 In cases where trust property is
involved, a beneficiary is already protected by the rules relating to fiduciary obligations. It should
also be noted that the fact that there is a fiduciary relationship between the parties, does not
automatically lead to there being a relationship of undue influence.49
18.24 The relationship of a husband and wife is not a Class 2A relationship.50 However,
in Mavaddat v HSBC Bank Australia Ltd (No 2),51 McClure P held that, although a wife had
the benefit of the principle in Yerkey v Jones,52 this did not mean that the husband and wife
relationship could not give rise to a finding of Class 2B undue influence.
18.25 Although the relationship of a husband and wife is not a Class 2A relationship, there
are older authorities that recognise a man’s influence over a woman to whom he is engaged.53
Later cases suggested that the relationship of a man and his fiancée is no longer a Class 2A
relationship.54 However, in the recent English decision of Leeder v Stevens,55 the Court of Appeal
assumed that it was still a Class 2A relationship. The court even extended it by analogy to a
relationship between a married man and a woman with whom he was having an affair, where
the couple had talked about getting married at some time in the future. However, in Thorne
v Kennedy56 the majority joint judgment in the High Court rejected this approach when it said
that ‘[c]ommon experience today of the wide variety of circumstances in which two people
can become engaged to marry negates any conclusion that a relationship of fiancé and fiancée
should give rise to a presumption that either person substantially subordinates his or her free
will to the other’.

45. [2002] NSWSC 810.

46. Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 at 577; Johnson v Buttress (1936) 56 CLR
113 at 119, seemingly cited with approval by the High Court in Thorne v Kennedy (2017) 263 CLR 85 at 101;
350 ALR 1 at 12; Meiners v Gunn [2020] WASC 18 at [287].
47. J D Heydon, M J Leeming, and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies,
5th ed, LexisNexis Butterworths, Sydney, 2015, pp 491–2.
48. White v Wills [2014] NSWSC 1160 at [76].
49. Re Coomber [1911] Ch 723 at 730–1; White v Wills [2014] NSWSC 1160 at [78].
50. Yerkey v Jones (1939) 63 CLR 649 at 675.
51. [2016] WASCA 94 at [6].
52. (1939) 63 CLR 649 at 675. See 18.57–18.79.
53. Re Lloyd’s Bank; Bomze v Momze [1931] 1 Ch 289 at 302; Johnson v Buttress (1936) 56 CLR 113 at 134.
54. Zamet v Hyman [1963] 3 All ER 933 at 937–8; Louth v Diprose (1992) 175 CLR 621 at 630; 110 ALR 1 at 7.
55. [2005] EWCA Civ 50.
56. Thorne v Kennedy (2017) 263 CLR 85 at 102; 350 ALR 1 at 13.
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Class 2B undue influence

18.26 If the parties to the transaction do not fall within a Class 2A relationship, a special
relationship can nevertheless be established on the particular facts and circumstances of their
relationship. These Class 2B relationships arise ‘where it is proved that the party benefiting
from the transaction occupies or assumes towards another a position naturally involving an
ascendancy or influence over that other, or a dependency or trust on the latter’s part’.57
18.27 The range of evidence that may be adduced in order to show that the relationship gives
rise to a presumption of undue influence is unlimited. While evidence directly relevant to the
transaction at issue is not required, as is the case with actual undue influence,58 the applicant
will be seeking to draw the court’s attention to any number of factors that frame the relationship
as appropriately influential. While extreme age (young or old), mental or physical disability,
illiteracy, poor education, and lack of business knowledge and experience are all important in
this regard, it is how these matters colour the relationship that is crucial. The nature of such
factors is that they place the applicant in a weak and dependent position vis-à-vis the other
party. This will be particularly so when the applicant can show that he or she has relied upon
the other in the past and places a high level of trust in that party. If the ‘stronger’ party is a
family member or old friend, the presumption will arise more readily.
18.28 In this respect, in Tulloch (deceased) v Braybon (No 2)59 Brereton J said:
In my opinion … more than mere confidence and reciprocal influence is required to
establish a ‘special relationship of influence’ from the existence of which undue influence will
be presumed unless rebutted; for a relationship to be brought within the doctrine, it must
go beyond one of mere confidence and influence, to one involving dominion or ascendancy
by one over the will of the other, and correlatively dependence and subjection on the part of
the other. It is true that some cases suggest that it is not necessary to establish a relationship
of actual dominion by one party over another and that it is enough to show that the party in
whom trust and confidence is reposed is in a position to exert influence over the party who
reposes it. But more is required than the ‘influence’ that any person might have on another
by making a recommendation or giving advice. What is required, as a minimum, is that one
have some element of authority or superiority (which may be moral or practical as distinct
from legal) over the other. … It is where the relationship is such that one party is seen or
supposed to be in some way beholden, obliged, or disadvantaged in relation to the other
that such relationships … can be proved, and dominion or ascendancy is at least usually an
important factor.

18.29 In Johnson v Buttress,60 the facts involved Buttress, a man of 67 years of age, and Johnson,
a distant relative by marriage. Buttress had limited capabilities — he was entirely illiterate,
inexperienced in business, and possessed less than average intelligence. He was regarded as
unstable in his affections and in forming his intentions. He had difficult relations with his
children. His relationship with Johnson became closer after the death of his wife. Johnson cared
for Buttress and he often stayed at her home with her family for periods of time. It was while

57. Janson v Janson [2007] NSWSC 1344 at [72].

58. See 18.10–18.14.
59. [2010] NSWSC 650 at [51].
60. (1936) 56 CLR 113.

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he was living with Johnson that he and she went to a solicitor’s office and executed a transfer
of his property to her. The rent paid by tenants of this property was Buttress’s sole source of
income. Buttress understood, at that time, that he was dealing, and parting, with his property.
But nothing was said to direct his attention to the fact that he was in effect divesting himself of
the whole of his property without obtaining any equivalent benefit, and it was not suggested
that the advice he received in the office of Johnson’s solicitor was independent advice. Soon
after the transfer, Buttress moved to Johnson’s block of land in the Blue Mountains, where he
lived in a tent. After his death, the administrator of his estate brought an action to set aside the
gift to Johnson on the ground that it was tainted by undue influence.
18.30 The High Court unanimously set aside the transaction on the grounds of undue
influence. In explaining how this conclusion was reached, Dixon J61 made clear the role of
factors indicating weakness:
The first and most important consideration affecting the question is the standard of
intelligence, the equipment and character of Buttress. No doubt, once it is established that
a relation of influence exists, the presumption arises independently of these matters. It has
been said that it is an error to treat the subjects of capacity and of influence as if they were
separate elements. But, in any case, in this peculiar case it is the man’s illiteracy, his ignorance
of affairs, and his strangeness in disposition and manner that provide the foundation for the
suggested relation.

18.31 Latham CJ, Evatt, and McTiernan JJ agreed that the case was one where the relationship
brought about a presumption of undue influence. However, Starke J,62 in finding that the
evidence indicated that the case was more properly viewed as one of actual undue influence,
said:
Now I feel some difficulty in assenting to the learned judge’s view that the facts disclose a
peculiar relationship of trust and confidence between [Buttress] and [Johnson] which brings
[Buttress] within the ‘protected class’ in respect of which there is a presumption of undue
influence. But the age and capacity of [Buttress], the improvident and unfair nature of the
transaction, the want of proper advice, the retention of the rents of the property transferred,
the various testamentary dispositions, and the other circumstances mentioned, afford
evidence from which the learned judge might justly infer that the transfer was not the result
of the free and deliberate judgment of [Buttress], but the result of unfair and undue pressure
on the part of [Johnson].

18.32 In Bester v Perpetual Trustee Co Ltd,63 Bester, as a young woman, was encouraged
to make a settlement of a substantial inheritance received from her father. The effect of this
irrevocable document was to put the assets, which comprised her inheritance, beyond her
control and provide her with only a modest annual income from the property. At the time of
settlement Bester was 21 years of age, without parental guidance, and possessed of extremely
limited business experience. She was influenced by three much older men — the representative
from her trustee company and her two uncles, one of whom was the solicitor who drafted the
deed of settlement. In ruling that there was undue influence in this case, Street J64 said:

61. Johnson v Buttress (1936) 56 CLR 113 at 136–7.

62. Johnson v Buttress (1936) 56 CLR 113 at 126.
63. [1970] 3 NSWR 30.
64. Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 at 34–5.

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The present relationship is very close to, if not indeed, within, the scope of the traditional
relations. But whether within or without the traditional relations, the present facts involve a
degree of confidence equivalent thereto. … Indeed, the very presence, in the circumstances
surrounding this deed, of the paternal element that pervades the discussions between all
concerned is consistent with, and corroborates, the existence of the special relationship of
influence.

18.33 In Thorne v Kennedy,65 Kennedy, a very wealthy 67-year-old Greek Australian property
developer, and Thorne, an Eastern European woman living in the Middle East, met on an
online website. Because Thorne only had very limited English language skills, the parties
generally communicated in Greek. Seven months later, after meeting and holidaying in Europe
with Kennedy, Thorne moved to Australia to marry him. Several days prior to the wedding,
Thorne, who had no substantial assets and no family in Australia, signed, because of Kennedy’s
insistence, a binding financial agreement, notwithstanding that she received legal advice that
it was ‘entirely inappropriate’ and that she should not sign it. Soon after the marriage, Thorne
signed a post-marriage binding financial agreement, which she was also advised not to sign.
Just under four years later, Kennedy and Thorne separated. After the separation, Thorne
commenced legal proceedings to have the two binding financial agreements set aside on the
ground of undue influence. The High Court upheld Thorne’s claim. In relation to the first
financial agreement, the court’s plurality judgment66 held that Thorne was powerless and had
no choice but to sign it for the following reasons:
(i) her lack of financial equality with Mr Kennedy; (ii) her lack of permanent status in
Australia at the time; (iii) her reliance on Mr Kennedy for all things; (iv) her emotional
connectedness to their relationship and the prospect of motherhood; (v) her emotional
preparation for marriage; and (vi) the ‘publicness’ of her upcoming marriage.

The plurality judgment67 went on to say that the second agreement was also vitiated for undue
influence ‘[i]n effect, [for] … the same matters which vitiated the first agreement, with the
exception of the time pressure caused by the impending wedding’.

REBUTTAL OF UNDUE INFLUENCE

18.34 Once the applicant has satisfied the court that there is a case of actual undue influence
or the existence of a special relationship of influence, the stronger party to the transaction has
the task of rebutting the presumption that the transaction was the result of undue influence.68
The aim of the stronger party is not necessarily to rebut the nature of the relationship, but
rather to focus upon proving that ‘the gift was the independent and well-understood act of a
man in a position to exercise a free judgment based on information as full as that of the donee’.69
This test is not satisfied simply by establishing that the donor understood the transaction.70

65. (2017) 263 CLR 85; 350 ALR 1.

66. Thorne v Kennedy (2017) 263 CLR 85 at 106; 350 ALR 1 at 15‒16.
67. Thorne v Kennedy (2017) 263 CLR 85 at 107; 350 ALR 1 at 16.
68. Johnson v Buttress (1936) 56 CLR 113 at 138.
69. Johnson v Buttress (1936) 56 CLR 113 at 134.
70. Bar-Mordecai v Hillston [2004] NSWCA 65 at [167], [183].

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As was pointed out by Lord Eldon in Huguenin v Baseley, the question is not whether the
71

applicant knew what he or she was doing, but how the intention to do it was produced.
In Hodson v Hodson,72 Patten J said:
It is commonly the case that the donor has a full understanding of the nature of what he or
she is being asked to do but no real ability to resist the demands being made of them. It is lack
of independence which is the key to the intervention of equity.

18.35 The rebuttal of the presumption of influence is a question of fact, based upon the
facts and circumstances of the case.73 The difficulty in rebutting the presumption of undue
influence will vary from case to case.74 In cases of presumed undue influence, ‘no proof of
actual undue influence is required before the burden is cast upon the donee. Nor is it necessary
to show actual ascendancy’.75 In relation to the rebuttal of undue influence in the parent/child
relationship, in Tillett v Varnell Holdings Pty Ltd,76 Brereton J said:
The relationship between parent and child is one of presumed influence, but only for so
long as the child is yet to be ‘emancipated’ from the control of their parent. At what point a
child becomes emancipated is not fixed. While some authorities have focused on the age of
the child, and assumed that a child becomes emancipated in the years shortly after attaining
majority,77 the better view is that emancipation is to be determined by reference to the
ongoing nature of the relationship between parent and child. … How long the influence can
be regarded as continuing depends upon each particular case. However, where the parent is
elderly and the child is in middle age — having left home years before — it is unlikely that
there will be an ongoing relationship of undue influence.

Independent advice
18.36 The single most important feature of the transaction that can assist the stronger party
rebutting the presumption of undue influence, is the receipt by the weaker party of independent
advice.78 For independent advice to have that effect, the independent advice should be
particularly thorough and address all aspects of the transaction at hand, including advice as to
the propriety of the transaction.79 As was stated by Macfarlan JA in Rahme v Benjamin & Khoury
Pty Ltd,80 the ‘independent advice must be “‘meaningful’ advice enabling the person advised
to make an independent, intelligent choice concerning the transaction’. For that to occur, the
adviser must be fully informed of all material facts relevant to the transaction.81 Finally, advice

71. (1807) 33 ER 526 at 636.

72. [2006] EWHC 2878 (Ch) at [27].
73. Baker v Affoo [2014] QSC 46 at [96]; Brown v Barber [2020] WASC 84 at [321].
74. Johnson v Buttress (1936) 56 CLR 113 at 134; Westmelton (Vic) Pty Ltd v Archer & Shulman [1982] VR 305 at
312; Thorne v Kennedy (2017) 263 CLR 85 at 122; 350 ALR 1 at 27–8; Birch v Birch [2020] QCA 31 at [75].
75. Brown v Barber [2020] WASC 84 at [319].
76. [2009] NSWSC 1040 at [80]. See also Lancashire Loans Ltd v Black [1934] 1 KB 380 at 410.
77. Lamotte v Lamotte (1942) 42 SR (NSW) 99 at 102–3.
78. McIvor v Westpac Banking Corporation [2012] QSC 404 at [20]; Baker v Affoo [2014] QSC 46 at [92].
79. Bester v Perpetual Trustee Co [1970] 3 NSWR 30 at 36; Janson v Janson [2007] NSWSC 1344 at [82]–[83];
Birch v Birch [2020] QCA 31 at [62]–[63].
80. (2019) 100 NSWLR 550 at 571. See also Shephard v Galea [2020] WASCA 152 at [106]–[107].
81. Jenyns v Public Curator Qld (1953) 90 CLR 113 at 131; Brusewitz v Brown [1923] NZLR 1106 at 1116–7.

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from a solicitor acting for both parties is not independent advice.82 Nor will advice given to the
weaker party in the presence of the stronger party, be held to be independent legal advice.83
18.37 The giving of independent advice is not required as a matter of law.84 However, it is of
particular importance in many cases.85 In Union Fidelity Trustee Co of Australia Ltd v Gibson,86
Gillard J summed up the position as follows:
Although there is no rule of law that where such a relationship exists the donor should
have independent advice at the time of making the gift in order to rebut the presumption,
and, particularly if the court is of opinion that independent advice would not have had any
effect on the transaction, or that the gift was trifling or of a simple character, nevertheless
independent advice is an important factor in determining whether the gift is the pure
voluntary and well-understood act of the donor. This is particularly so if the gift should be
of a large sum of money, or the circumstances of the relationship, however proper the court
may regard them, strongly suggest that the donor was in a position of grave inequality in
relation to the donee, or where the transaction may be of a complicated character. … [I]t is
undoubtedly true that in many authorities the presence or absence of independent advice
has had a great influence on the court’s decision on this vital question. If the donor, however,
should receive independent advice, and either misunderstands the advice or is given possibly
erroneous advice whereby he fails to appreciate or realize the financial implications and
the detriment to himself involved in the gift, a court of equity will not set aside the gift if
the donor otherwise understood the nature of the transaction and acted therein in the full
exercise of his will.

18.38 In relation to evidence of independent legal advice and the weight to be attached to it,
in Royal Bank of Scotland v Etridge (No 2),87 Lord Nicholls said:
The weight, or importance, to be attached to such advice depends on all the circumstances.
In the normal course, advice from a solicitor or other outside adviser can be expected to
bring home to a complainant a proper understanding of what he or she is about to do.
But a person may understand fully the implications of a proposed transaction, for instance,
a substantial gift, and yet still be acting under the undue influence of another. Proof of
outside advice does not, of itself, necessarily show that the subsequent completion of the
transaction was free from the exercise of undue influence. Whether it will be proper to infer
that outside advice had an emancipating effect, so that the transaction was not brought about
by the exercise of undue influence, is a question of fact to be decided having regard to all the
evidence in the case.

18.39 Thus, in Bester v Perpetual Trustee Co Ltd,88 the onus was upon the trustee company to
show that the influence had not hindered Bester in the free exercise of her own will in making
the settlement. It sought to do so on the basis that she had received advice from a disinterested

82. Powell v Powell [1900] 1 Ch 243 at 246–7; Aboody v Ryan [2012] NSWCA 395 at [26].
83. Anderson v Anderson [2013] QSC 8 at [62].
84. Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 at 135; Johnson v Buttress (1936) 56 CLR 113 at 119;
Birch v Birch [2020] QCA 31 at [61].
85. Brown v Barber [2020] WASC 84 at [370].
86. [1971] VR 573 at 577–8.
87. [2002] 2 AC 773 at 798; [2001] 4 All ER 449 at 460.
88. [1970] 3 NSWR 30. See 18.32.

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solicitor prior to signing the deed. The solicitor had read the document to Bester and asked if
she had any questions about it, to which she answered ‘No’. Street J found that response to be
a powerful indicator to the solicitor that Bester had no real understanding of the effect of the
transaction at all. His Honour89 questioned the value of the independent advice received in this
case and its ability to offset the presumption:
I am of the view, however, that such part as he played in connexion with this settlement
could not fairly be described as meeting that degree of independent advice that [Bester], as
a person subject to a relationship of influence, was entitled to receive. [The solicitor] was,
I accept, most careful to read the document through, and to invite questions of [Bester].
But it was not textual advice upon the engrossment which was of prime importance in this
regard: rather, it was advice upon the more general topic of whether a settlement should be
entered into at all, and, if so, the general nature of the settlement, which in my view ought to
have been provided for [Bester].

For this, and other reasons which are discussed below,90 Street J found for Bester and allowed
the settlement deed to be set aside.

Lack of improvidence
18.40 Another factor towards rebutting the presumption of undue influence is to show that
the transaction is not improvident for the applicant. If the stronger party can show that the
transaction does not cause excessive loss to the other, then it is more plausible that it was entered
into freely. Obviously, the situation differs between instances where the applicant has made a
gift and those where he or she has formed a contract with the stronger party. In the former
case, the making of a gift will always be a loss to the applicant, and thus the courts examine the
extent of that gift vis-à-vis his or her total holdings in order to assess providence. For example,
in Union Fidelity Trustee Co of Australia Ltd v Gibson,91 the applicant was an executor seeking
to set aside the discharge of a mortgage made by the deceased that effectively forgave a £15,000
debt owed by her business advisers. In setting aside the discharge of mortgage, Gillard J92 said:
[T]he alleged gift was of a very substantial sum of money, even for a woman of means. …
It was a sum far greater than any set aside by her in trust for her brother or given to him by
will. … Although it was urged, with some justification, that she was grateful to the defendant
… the size of the amount, in my view, make[s] it very difficult to accept this as being the
explanation.

18.41 Similarly, in Bester v Perpetual Trustee Co Ltd,93 Street J found that the settlement was
improvident, as it tied up Bester’s property and effectively removed any control she might have
over it. His Honour94 said:

89. Bester v Perpetual Trustee Co [1970] 3 NSWR 30 at 35.

90. See 18.41.
91. [1971] VR 573.
92. Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 at 580. See also Brown v Barber [2020]
WASC 84 at [322].
93. [1970] 3 NSWR 30.
94. Bester v Perpetual Trustee Co [1970] 3 NSWR 30 at 35.

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[T]he absence of any power of revocation, absolute or qualified, the absence of any right to
have resort to the corpus, absolute or qualified, the absence of any right to intervene in the
activities of the trustees, either in particular matters or in point of the selection of trustees,
are all factors which go, in my view, to justify this transaction being categorized as in some
respects improvident.

The fact that the weaker party to the relationship intended to make the gift or that the proposal
to make the gift came from the weaker party is, of itself, not enough to rebut the presumption
of influence.95
18.42 Contractual dealings are perhaps slightly easier, as the focus of the court is upon
the adequacy of consideration. It can be recalled that in contract law consideration need not
be adequate, and a court is not concerned with whether the consideration is fair for what is
received in return.96 The court will not help parties avoid bad bargains. However, in equity, a
closer look at consideration is warranted for the purpose of examining whether the transaction
is made in good conscience. Thus, if it can be seen that the consideration provided by the
stronger party in return for the benefit conferred by the weaker is adequate, then that may be
used to help rebut the presumption of undue influence.
18.43 Two additional points need to be made in regard to establishing the providence of
contracts as a means of rebuttal. First, there is no corresponding requirement upon the weaker
party that he or she must show improvidence when making out the grounds for relief. The
weaker party must simply establish undue influence of any class. The actual effect of the undue
influence is not relevant — thus a transaction can be set aside using this equitable doctrine,
even when it is a contract that provides very real benefits to the weaker party.
18.44 Second, special problems are posed by contracts of guarantee, where no direct benefit
flows to the guarantor who has merely acted as surety for a loan from the other party to a third
party — the borrower. In this way, it seems that an applicant who has acted as guarantor is
in a position similar to one who has bestowed a gift and that improvidence must be viewed
accordingly. But the situation is in fact more complex, as it is recognised that often the
guarantor will receive indirect benefits from his or her part in the transaction — particularly
when he or she is related to the person receiving the loan. Duggan97 suggests that the main
factors relevant to the improvidence or otherwise of a contract of guarantee are, first, the nature
and extent of any indirect benefits and, second, the risk of loss to the guarantor. This risk factor
is assessed by reference to the extent of the guarantee relative to the guarantor’s wealth, and the
probability that he or she will be called upon to pay in accordance with the guarantee. Thus,
what is required is a combination of the approaches taken in regard to gifts and non-guarantee
contracts. The size of the benefit provided by the applicant and also what he or she may expect
in return are both relevant in evaluating providence. It is to be appreciated that such an exercise
is not straightforward and the motivations of guarantors are not always clear. The problems
that arise in respect of contracts of guarantee where the undue influence is actually exercised
by a third party are addressed below.98

95. Spong v Spong (1914) 18 CLR 544 at 549; White v Wills [2014] NSWSC 1160 at [94].
96. See 6.34–6.39.
97. A J Duggan, ‘Undue Influence’, in P Parkinson (ed), The Principles of Equity, 2nd ed, Lawbook Co, Sydney
2003, p 411.
98. See 18.48–18.79.

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GENERAL EQUITABLE DEFENCES

18.45 Although not strictly a means of rebutting the applicant’s case, the stronger party
may be able to resist a claim based upon undue influence on general equitable grounds.
In particular, the doctrine of laches (unreasonable delay) may prevent relief being given where
it appears that, after the influence has been removed, the weaker party has not taken any steps
to set aside the transaction. Does this indicate that he or she, in the independent exercise of his
or her free will, accepts the transaction?
18.46 In Allcard v Skinner,99 Allcard entered a Protestant religious order that required a
vow of poverty to be taken by members of its sisterhood. She transferred substantial property
holdings to the mother superior of the order for her to hold on trust for the general purposes of
the sisterhood. She also made a will leaving all her property to the sisterhood. After eight years
as a sister, Allcard left the sisterhood and soon thereafter joined the Roman Catholic Church.
She revoked her will, but made no demand for the return of property from the sisterhood
until a further five years had elapsed. The evidence established that, soon after leaving the
sisterhood, she had a conversation with her brother, a barrister, about getting her money back.
He said she did not need the trouble and had better leave it alone. She also consulted a solicitor
about making a new will and discussed with him the gifts she had made to the sisterhood.
He told her it was too large a sum to leave behind without asking for it back. Despite that
advice, she did nothing about it for a further four years. Although the gift to the sisterhood was
the result of undue influence, the Court of Appeal held that Allcard’s claim to have it returned
was defeated by confirmation, estoppel, acquiescence, and/or laches. Lindley LJ said that it was
not necessary to decide whether or not delay alone was a sufficient defence, because the case
did not rest on mere lapse of time. His Lordship100 said that ‘[t]here is far more than inactivity
and delay on the part of [Allcard]. There is conduct amounting to confirmation of her gift.’
Bowen LJ101 said:
Five years is a long time in the life of anybody, and is a long time in the life of a person who
has passed her life in seclusion like [Allcard]. Every day and every hour during those five
years she has had the opportunity of reflecting upon her past life and upon what she has
done. … Having belonged to the Church of England she at once entered the Church of Rome.
The influence, therefore, ceased completely. She was surrounded by persons perfectly
competent to give her proper advice. She had her solicitor. She had her brother, a barrister
himself, and she had the directors of the consciences of the community which she had
entered. … In my view, [Allcard’s claim] ought to be dismissed, and dismissed on the ground
that the time which has elapsed, though not a bar in itself, though not accurately to be
described as mere laches which disentitles [Allcard] to relief, is nevertheless, coupled with
other facts of the case, a matter from which but one reasonable inference ought to be drawn
by men of the world — namely, that the lady considered her position at the time, and elected
and chose not to disturb the gift which she then at that moment felt, if she had the will, she
had the power to disturb.

18.47 The crucial determinant of whether laches will apply to block relief is not the length
of the delay per se. While that is obviously highly significant, it is the delay after the applicant

99. (1887) 36 Ch D 145.

100. Allcard v Skinner (1887) 36 Ch D 145 at 186.
101. Allcard v Skinner (1887) 36 Ch D 145 at 192–3.

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is freed from the influence and is aware of the possibilities of setting aside the transaction that
really matters. Thus, in Bester v Perpetual Trustee Co Ltd,102 a delay of 20 years was held as
no bar to the weaker party’s claim for relief. Street J103 made it clear that what is required for
laches to be found is ‘an act or a course of conduct subsequent to becoming aware of the initial
invalidity of the transaction, which act or course of conduct has such significance as in law
or in equity to amount to a conscious and deliberate affirmation of the original transaction’.
So, a delay of many years while the plaintiff seeks resources in order to bring his or her action
will not constitute a bar to relief — especially when those financial difficulties stem from the
improvidence of the gift.104

UNDUE INFLUENCE AND THIRD PARTIES

18.48 It is well established that operative undue influence can arise in a situation where the
dominant party to a relationship of undue influence is not a direct recipient of some benefit
or property from the weaker party, but rather a beneficiary through the involvement of a third
party. Undue influence involving third parties may arise in the following situations:
• where there is a relationship of undue influence between A (the dominant party) and B (the
weaker party) that results in a transfer of property or conferral of some benefit from B to C
(a third party) where C is a volunteer or has notice of the undue influence;105 or
• where there is a relationship of undue influence between A (the dominant party) and B (the
weaker party) that results in B undertaking obligations to C (a third party), which will be
for the benefit of A — for example, where B acts as a guarantor of A’s loan from C.
An illustration of the first situation is the case of Verduci v Golotta,106 where the court set aside
a loan and mortgage in circumstances involving a solicitor/client relationship, where the client
borrowed money from the solicitor’s father. Illustrations of the second situation are more fully
discussed in the next section of this chapter.

UNDUE INFLUENCE AND THIRD PARTY GUARANTEES

18.49 Reference was made earlier107 to the difficulty of assessing the improvidence of a
contract of guarantee. Such contracts are generally problematical because the guarantor is
much more likely to be influenced by the third party for whom they are acting as surety, than
the party with whom they are actually transacting — the lender. How then can the contract of
guarantee be set aside when the lender has exercised no undue influence personally, but the
guarantor’s entrance into the agreement has been coloured by influence from another source?
18.50 Unsurprisingly, the approach is to see whether the undue influence of the third party
can be sufficiently connected to the contracting party. In instances where the lender has

102. [1970] 3 NSWR 30.

103. Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 at 37.
104. Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC 810.
105. Reilly v Reilly [2017] NSWSC 1419 at [152].
106. [2010] NSWSC 506 at [67]–[74].
107. See 18.44.

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appointed an agent to bring about the contract and have the relevant documents executed
by the guarantor, any undue influence the agent has over the guarantor is sheeted home to
the lender under basic agency principles. An agency will arise where the party charged with
obtaining the guarantor’s agreement and signature is actually appointed as an agent, or where
there is sufficient investiture in such person of ostensible authority, so that to external eyes it
seems that the lender holds that person out as its agent.
18.51 Regardless of whether an agency situation exists — and in many cases that may be
difficult to establish — the lender will be tainted by the undue influence of any third party of
which it has actual or constructive notice.
18.52 In Bank of New South Wales v Rogers,108 Rogers was a mature woman of sound
intelligence, although lacking in business experience. She had, since the death of her parents,
lived with her uncle (Gardiner) and relied upon his advice in commercial matters. In order to
assist his business venture, which was in trouble, Rogers put forward the bulk of her property as
security for a loan to Gardiner from the Bank of New South Wales. In fact, Gardiner was on the
brink of bankruptcy and the guarantee was unlikely to save him. When his business did indeed
collapse, the bank moved to recover from Rogers under the contract of guarantee she had made
with it. She sought to set aside the contract on the ground of undue influence.
18.53 The High Court found that a presumption of undue influence arose from the
relationship that existed between Gardiner and his niece, and that finding was not successfully
rebutted. The transaction was blatantly improvident to Rogers. Nor had she had received
independent advice prior to making it. As to the bank’s knowledge of the situation, Starke J,109
in ruling that it knew that Rogers lived with Gardiner, even if it was unaware that they were
niece and uncle, said:
[T]he bank knew that some special relationship existed between Gardiner and [Rogers],
some relationship that was not merely one of business but of confidence and trust, which
enabled Gardiner to exercise influence over her. And if this is so, then it was for the bank to
establish that the security given to it by [Rogers] was free from any undue influence and was
the voluntary and well-understood act of her mind.

McTiernan J110 was even clearer in setting forth the approach in third party cases:
The proof of [Rogers’] claim to relief is twofold. It is necessary for her to prove that Gardiner
procured the securities to be given to the bank by undue influence or other fraudulent
means, and that the [bank] through [its manager] … had notice either actual or constructive
that the securities were obtained by such means. If this state of circumstances is established,
the bank has the onus of justifying the retention of the securities. It must show that the giving
of them was the free and well-understood act of [Rogers].

18.54 Additionally, the High Court found that the bank itself had been less than forthcoming
to her. As was noted by Starke J,111 Rogers ‘was not told that Gardiner’s position was hopeless
and that her securities would be engulfed in his ruin’.

108. (1941) 65 CLR 42.

109. Bank of New South Wales v Rogers (1941) 65 CLR 42 at 55.
110. Bank of New South Wales v Rogers (1941) 65 CLR 42 at 61.
111. Bank of New South Wales v Rogers (1941) 65 CLR 42 at 55.

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18.55 Thus, the undue influence attaches to a lender if it merely has constructive notice of
it. Once that is established to the court’s satisfaction, the lender is tasked with rebutting the
presumption. The basic approach to rebuttal has already been examined,112 but it should be
recalled that providence is generally an uncertain indicator in contracts of guarantee and, if
anything, even more store is placed upon the receipt by the guarantor of independent advice
than is usual.
18.56 In Gardiner v Westpac New Zealand Ltd,113 the Court of Appeal said the following
in relation to whether a third-party guarantor will be able to establish that the guarantee was
obtained as the result of undue influence:
Undue influence is likely to be presumed if the guarantor has limited commercial ability,
has a minimal financial stake in the enterprise guaranteed and is in a relationship involving
an emotional tie or dependency on the part of the guarantor towards the principal debtor.

The Court114 went on to say the following in relation to what a lender should do in order to
avoid a finding of undue influence in such cases:
[I]t will be prudent for a financier to insist that the guarantor be given advice by an
independent solicitor, and to obtain from that solicitor a certificate that the effect and
implications of the documents have been explained to the guarantor and that the guarantor
appears to have understood the explanation. … [I]t cannot be assumed that a solicitor loses
the ability to function independently in advising a guarantor where the solicitor also has
some involvement with the principal debtor. Depending on the circumstances, a solicitor in
that position may be in a better position than a stranger to give balanced advice and to assess
whether its significance has been appreciated by the guarantor. Where the guarantor declines
to obtain independent advice, a prudent financier will endeavour to ensure that somebody
(and preferably a solicitor) explains the documents and their consequences. Furthermore,
while it is prudent for a financier to insist that the guarantor is advised by a solicitor who is
not acting for another party to the transaction, it is not for the financier to tell a solicitor how
to perform his or her duties or to inquire about the solicitor’s independence or the adequacy
of the advice.

The Yerkey v Jones principle — the wife as guarantor

18.57 The principles discussed above are treated somewhat differently in cases where the
guarantor is the wife of the debtor, and the latter has used his influence over his wife to procure
her agreement to the contract of guarantee with the lender. Following Dixon J’s judgment in
Yerkey v Jones,115 where, in such a situation, the lender relies upon the husband to procure the
wife’s consent to the agreement, she need not prove actual or constructive notice of the undue
influence. In short, she is relieved of compliance with the second stage of what McTiernan J

112. See 18.34–18.44.

113. [2015] 3 NZLR 1 at 9.
114. Gardiner v Westpac New Zealand Ltd [2015] 3 NZLR 1 at 11.
115. (1939) 63 CLR 649.

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in Bank of New South Wales v Rogers identified as a ‘twofold’ process. The behaviour of the
116

husband is sheeted home to the bank, independent of agency or notice.

18.58 In Yerkey v Jones,117 Dixon J referred to the existence of a special equity that protects
the position of a wife acting as a guarantor in relation to her husband’s debts in the following
terms:
Although the relation of husband to wife is not one of influence, yet the opportunities it gives
are such that if the husband procures his wife to become surety for his debt a creditor who
accepts her suretyship obtained through her husband has been treated as taking it subject
to any invalidating conduct on the part of her husband even if the creditor be not actually
privy to such conduct.

Later, Dixon J118 said:

[I]f a married woman’s consent to become a surety for her husband’s debt is procured by
the husband and without understanding its effect in essential respects she executes an
instrument of suretyship which the creditor accepts without dealing with her personally she
has a prima-facie right to have it set aside.

18.59 The special equity referred to by Dixon J in Yerkey v Jones119 has been mired in
controversy. It is hard to reconcile it with equity’s refusal to admit spousal relationships into
the special class of relationships giving rise to a presumption of undue influence. If such a
presumption cannot automatically arise from a spousal relationship, then why should lenders
be automatically responsible for undue influence that can only be subsequently proven and of
which they had no means of knowing? It has been argued that the principle reflects a sexist and
paternalistic attitude towards women. It has also been asked, if it applies in favour of a wife, why
it should not also apply to situations where a husband becomes a guarantor for loans taken out
by his wife.120 By the early 1990s, it was assumed by many that the Yerkey v Jones121 principle had
become anachronistic and therefore no longer binding upon the courts.122
18.60 However, in Garcia v National Australia Bank Ltd,123 the majority of the High Court
reaffirmed the principle in Yerkey v Jones.124 In that case a married woman and her husband
executed a mortgage secured over their matrimonial home in 1979 in favour of the National
Australia Bank. The mortgage not only secured all money owing under the mortgage, it also
secured any money owing pursuant to future guarantees given by either the husband or the wife
to the bank. Between 1985 and 1987 the wife signed several guarantees relating to loans made
to businesses conducted by the husband. There was no explanation by the bank to the wife of
the precise extent of these transactions. Although she was a capable and professional woman
who had her own business as a physiotherapist, she did not realise that the guarantees were

116. (1941) 65 CLR 42.

117. (1939) 63 CLR 649 at 678.
118. Yerkey v Jones (1939) 63 CLR 649 at 683.
119. (1939) 63 CLR 649.
120. Warburton v Whiteley (1989) 5 BPR 97,388.
121. (1939) 63 CLR 649.
122. Akins v National Australia Bank (1994) 34 NSWLR 155 at 168–73.
123. (1998) 194 CLR 395; 155 ALR 614.
124. (1939) 63 CLR 649.

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also linked to the mortgage entered into in 1979. Importantly, the wife obtained no personal
benefit from the transactions. In 1989, the woman and her husband were divorced and she
commenced proceedings to have the guarantees set aside.
18.61 The High Court majority, in setting aside the guarantees, found that despite there
being no actual undue influence by the husband, it was nevertheless unconscientious for the
bank to enforce a guarantee in such circumstances. The High Court majority noted that there
were two possible ways in which a wife in such circumstances could seek equitable relief.
The first is where there is actual undue influence by a husband over a wife. The second is where,
in the absence of actual undue influence, the Yerkey v Jones125 principle applies. In relation to
these two situations, the High Court majority126 said:
The former kind of case is one concerning what today is seen as an imbalance of power.
In point of legal principle, however, it is actual undue influence in that the wife, lacking
economic or other power, is overborne by her husband and goes surety for her husband’s
debts when she does not bring a free mind and will to that decision. The latter case is not
so much concerned with imbalances of power as with lack of proper information about the
purport and effect of the transaction.

18.62 In relation to the Yerkey v Jones127 principle, the High Court majority128 noted that
the principle was an equitable one, distinct from, and not subsumed by, the rules that applied
in relation to unconscionable transactions129 as set out in cases such as Commercial Bank
of Australia Ltd v Amadio.130 The majority131 then said that, pursuant to this principle, the
enforcement of a guarantee against the wife would be unconscientious where:
(a) in fact the surety did not understand the purport and effect of the transaction; (b) the
transaction was voluntary (in the sense that the surety obtained no gain from the contract
the performance of which was guaranteed); (c) the lender is to be taken to have understood
that, as a wife, the surety may repose trust and confidence in her husband in matters of
business and therefore to have understood that the husband may not fully and accurately
explain the purport and effect of the transaction to his wife; and yet (d) the lender did not
itself take steps to explain the transaction to the wife or find out that a stranger had explained
it to her.

The majority132 noted that, for the principle to apply, the lender had to have notice ‘at the time
of taking the guarantee that the surety was then married to the creditor’. However, it is not
necessary to establish that the lender had notice of the fact that the wife was a volunteer.133

125. (1939) 63 CLR 649.

126. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 405; 155 ALR 614 at 620.
127. (1939) 63 CLR 649.
128. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 408; 155 ALR 614 at 622.
129. See Chapter 19.
130. (1983) 151 CLR 447; 46 ALR 402.
131. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 409; 155 ALR 614 at 623.
132. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 411; 155 ALR 614 at 625.
133. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [138]; Commonwealth Bank of Australia
v Starrs [2012] SASC 222 at [233]–[237].

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It can also be noted that the Yerkey v Jones principle only operates in the context of guarantees.
134

It does not apply to other instruments or transactions.135

18.63 In relation to the requirement that the wife did not understand the import and
effect of the transaction, there is no need to establish that the lender knew of the wife’s
misunderstanding.136 In Schultz v Bank of Queensland Ltd,137 Jackson J summarised the relevant
principles as follows:
The plurality judgment in Garcia138 is clear that there must be misunderstanding by
the wife. What is a material misunderstanding? From Yerkey,139 it includes that the wife
‘does not understand the effect of the document or the nature of the transaction’, or has
a ‘misunderstanding or want of understanding of its contents or effect’, or that there is a
‘misunderstanding or failure to understand the document or transaction’. From Garcia,140
it includes that the wife ‘did not understand the purport and effect of the transaction of
suretyship’, ‘did not understand the purport and effect of the transaction’, ‘[was] mistaken
about the purport and effect of the transaction’, ‘[is seen] not to have understood the purport
and effect of the transaction’, and ‘did not understand the purport or effect of the transaction’.
However, in Yerkey,141 Dixon J said that if a wife understood ‘the general nature and effect of
an instrument such as a mortgage ... it is no ground for setting it aside that some of its details
or its possible consequences or application are not comprehended’.

The onus of proof here rests with the wife to show that she did not understand the import and
effect of the transaction.142 On the other hand, if the wife has executed a document in which she
represents that she has read and understood the guarantee documentation, her claim for relief
will not be denied if, in fact, she did not read or understand the documentation.143
18.64 An illustrative case in this context is Yerkey v Jones,144 where Mr Jones entered
into a contract for the purchase of a poultry farm at Payneham near Adelaide from Mr and
Mrs Yerkey. The purchase price was to be paid in instalments. However, it was a condition
that part of the purchase price be secured by way of a second mortgage over another
property owned by Mrs Jones. Mr Jones negotiated the sale conditions with Mr Yerkey and
it was not until a week after agreeing to buy the property that he advised his wife that he
had agreed to buy the Payneham property and that he might get into trouble if she did not
provide a mortgage over her property. Shortly thereafter, Mrs Jones gave a second mortgage
as was requested. Mr and Mrs Jones received advice from Mr Yerkey’s solicitors. Subsequently,
Mrs Jones took proceedings to have the mortgage set aside. However, the High Court denied her

134. (1939) 63 CLR 649.

135. Narain v Euroasia (Pacific) Pty Ltd (2009) VR 387 at 393–6.
136. Ramadan v ACN 098 408 176 Pty Ltd (2018) 129 SASR 584 at 600.
137. [2014] QSC 305 at [42]–[43]. The decision in this case was affirmed on appeal in Schultz v Bank of
Queensland Ltd [2016] 2 Qd R 86.
138. Garcia v National Australia Bank Ltd (1998) 194 CLR 395; 155 ALR 614.
139. Yerkey v Jones (1939) 63 CLR 649 at 684–6.
140. Garcia v National Australia Bank Ltd (1998) 194 CLR 395 at 408–11; 155 ALR 614.
141. Yerkey v Jones (1939) 63 CLR 649 at 689.
142. Groves v Groves [2013] QSC 277 at [198]; Twenty Ninth Macorp Nominees Pty Ltd v George [2017] VSC 136
at [180].
143. National Australia Bank Ltd v Savage [2013] NSWSC 1718 at [81]–[82].
144. (1939) 63 CLR 649.

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any equitable relief. Dixon J145 explained that her claim to set aside the mortgage failed because
she understood that ‘she was to give a mortgage over her house ... and that the mortgage would
operate as a guarantee, so that the burden would fall on her house if her husband then failed
to find the [principal amount]’. Material misunderstandings would have included a failure by
Mrs Jones to understand that the mortgage-secured interest made the principal fall due on
default, and provided for a power of sale in such an event.
18.65 As to the issue of the transaction being voluntary, the wife/guarantor will be held to
be a volunteer unless the benefit of gain is direct or immediate. An incidental benefit received
by the wife will not lead to a finding that she is not a volunteer.146 In Agripay Pty Ltd v Byrne,147
on facts not substantially dissimilar to those in Garcia v National Australia Bank Ltd,148 the
husband used the guaranteed loan funds to invest in a joint superannuation fund and managed
agricultural investment. Margaret McMurdo P149 observed that, even though, at best, there
was some prospect of eventual profits that may have benefited the wife, this did not mean
that the wife was not a volunteer. Furthermore, even if there was to be some eventual modest
benefit in the future, the same result would apply because the benefit would be ‘neither direct
or immediate’. In State Bank of New South Wales Ltd v Chia,150 Einstein J set out the following
summary of whether the transaction was voluntary:
It is not sufficient that the wife has received consideration as would be recognised in the
law of contract. The consideration for the guarantee must be of ‘real benefit’ to the wife.
Incidental benefit which accrues generally to the family of which the wife is a member
is not sufficient benefit to render a transaction which does not otherwise contain a ‘real
benefit’, non-voluntary. Where the wife expects to reap direct profit from the transaction, the
transaction cannot be said to be voluntary. Neither can it be said to be voluntary where the
monies secured by the guarantee are used to purchase an asset in which the wife is equally
interested with her husband. However, where the interest of the wife is a shareholding in the
company through which her husband conducted his business and in which she has no real
involvement, then a guarantee given by the wife over that company’s debts will be voluntary.
But where the wife has an active and substantial interest in the conduct of, and the fortunes
of, the business run by her husband, she will not be a volunteer in relation to any guarantee
over the debts of that business. Where the transaction is not ex facie for the benefit for the
wife, then the onus will lie on the party seeking to enforce the security to show that the wife
was not, relevantly, a volunteer.

18.66 In both Westpac Banking Corporation v Diagne151 and National Australia Bank Ltd
v Wehbeh152 a wife failed to establish that she was a volunteer, as she had an interest in and
worked in the business for which the loans were raised by the husband. On the other hand,

145. Yerkey v Jones (1939) 63 CLR 649 at 688.

146. Mavaddat v HSBC Bank Australia Ltd (No 2) [2016] WASCA 94 at [58].
147. [2011] 2 Qd R 501.
148. (1998) 194 CLR 395; 155 ALR 614.
149. Agripay Pty Limited v Byrne [2011] 2 Qd R 501 at 508.
150. (2000) 50 NSWLR 587 at 601, cited with approval by the Court of Appeal in Schultz v Bank of Queensland
Ltd [2016] 2 Qd R 86 at 103. See also Mavaddat v HSBC Bank Australia Ltd (No 2) [2016] WASCA 94
at [51], [58]; Bank of Queensland v Edwards [2017] QSC 191 at [196]–[209].
151. [2014] NSWSC 822 at [64].
152. [2014] VSC 431 at [53]–[55].

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where the wife guarantees a loan for a discretionary trust of which she is a beneficiary, she will,
in the absence of any other circumstances, be a volunteer.153
18.67 In the case of a wife acting as guarantor for her husband’s loans where the guarantee
was entered into as the result of actual undue influence by the husband, in order to enforce
the guarantee the lender must rebut the presumption that the transaction was the result of
the husband’s influence. This requires the lender to show that the wife received independent
advice that freed her from the husband’s influence.154 The meaning of independent advice in
this context is the same as discussed above.155
18.68 In cases where the Yerkey v Jones156 principle applies in relation to a wife’s guarantee,
the High Court majority in Garcia v National Australia Bank Ltd157 said that it is enough if the
lender or ‘stranger’ had explained the transaction to her. This requirement is less stringent than
that required in cases of undue influence.
18.69 In so far as the lender explaining the transaction to the wife is concerned, in Yerkey
v Jones158 Dixon J said:
If the creditor takes adequate steps to inform [the wife] and reasonably supposes that she
has an adequate comprehension of the obligations she is undertaking and an understanding
of the effect of the transaction, the fact that she has failed to grasp some material part of the
document, or, indeed, the significance of what she is doing, cannot … in itself give her an
equity to set [the guarantee] aside.

18.70 As to what is required to amount to a sufficient explanation, in Schultz v Bank of

Queensland Ltd,159 Boddice J said:
The level of explanation needed to be undertaken by the creditor will depend on the nature
of the transaction, the degree of risk associated with the transaction, the sophistication of
the vulnerable party and the nature of the relationship that party enjoys with the spouse.
The explanation need not disabuse the vulnerable party of all misapprehensions. It must,
however, give the creditor reasonable grounds for believing that party does have an adequate
understanding of the nature and purport of the transaction.

18.71 It is suggested that these principles would apply to advice given by the lender’s solicitor,
as it would be viewed as an explanation by the lender, rather than by an independent solicitor.
Where an explanation of the transaction was given to the wife by the husband’s solicitor, the
cases are divided as to whether such an explanation would be sufficient to allow the lender
to enforce the guarantee. In State Bank of New South Wales Ltd v Chia,160 an explanation

153. Schultz v Bank of Queensland Ltd [2014] QSC 305 at [39], affirmed on appeal in Schultz v Bank of Queensland
Ltd [2016] 2 Qd R 86 at 103–4.
154. Yerkey v Jones (1939) 63 CLR 649 at 684.
155. See 18.36–18.39.
156. (1939) 63 CLR 649.
157. (1998) 194 CLR 395 at 409; 155 ALR 614 at 623.
158. (1939) 63 CLR 649 at 685, cited with approval in Garcia v National Australia Bank Ltd (1998) 194 CLR 395
at 407; 155 ALR 614 at 621–2.
159. Schultz v Bank of Queensland Ltd [2016] 2 Qd R 86 at 101.
160. [2000] NSWSC 552 at [233]. This part of the decision in this case was not reported in the official report of
this case at (2000) 50 NSWLR 587.

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provided by the husband’s solicitor was held, in the circumstances of that case, to be sufficient.
The opposite conclusion was reached in ANZ Banking Group v Fuller.161
18.72 In England the Yerkey v Jones162 principle is not recognised, and the question of the
enforcement of a guarantee given by a wife for her husband’s debt is a matter determined
under undue influence principles. However, the question of a wife’s consent to the guarantee in
such circumstances was considered by the House of Lords in Royal Bank of Scotland v Etridge
(No 2).163 In discussing what a lender would need to do to ensure that the guarantee could be
enforced against a wife, the House of Lords recognised that, although advice from a completely
independent solicitor would be ideal, ‘[t]he advantages attendant upon the employment of a
solicitor acting solely for the wife do not justify the additional expense this would involve for
the husband’.164 However, if ‘there are any facts known to the bank which increase the inherent
risk that the wife’s consent to the transaction may have been procured by the husband’s undue
influence or misrepresentation, it may be necessary for the bank to be satisfied that the wife has
received advice about the transaction from a solicitor independent of the husband before the
bank can reasonably rely on the wife’s apparent consent’.165
18.73 Ogilvie has summarised the effect of the House of Lords decision as follows:166
[T]o be relieved from potential tainting by the husband’s conduct, all the bank need do is
require a certificate that independent legal advice has been given. Where the advice is poor,
or the wife signs nevertheless, either the lawyer or the wife, respectively, must bear the loss.

As Dal Pont167 suggests, the decision of the House of Lords ‘heralds, it seems, a shift in focus
from creditors, whose duties are clear, to solicitors, whose task is potentially more complex,
thus making solicitors more likely targets for litigation’.
18.74 As a final point regarding the principle in Yerkey v Jones,168 it can be noted that the
majority in Garcia v National Australia Bank Ltd169 recognised that it could extend to beyond
the situation where the parties are in a marriage relationship and that it could extend to other
close relationships, such as ‘to long term and publicly declared relationships short of marriage
between members of the same or of opposite sex’.
18.75 In relation to cases involving a married couple that have separated, mere separation of
the married couple does not prevent the principle applying.170 However, in Groves v Groves,171

161. [2004] NSWSC 305 at [115].

162. (1939) 63 CLR 649.
163. [2002] 2 AC 773; [2001] 4 All ER 449.
164. Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 at 810; [2001] 4 All ER 449 at 471–2.
165. Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 at 850; [2001] 4 All ER 449 at 510.
166. M H Ogilvie, ‘The Reception of Etridge (No 2) in Canada’ [2008] Journal of Business Law 191 at 194.
167. G E Dal Pont, Equity and Trusts in Australia, 6th ed, Lawbook Co, Sydney, 2015, p 262. For a discussion on
the issue of the lender being able to rely on explanations of guarantee entered into by a wife see M Brown,
‘The Bank, the Wife and the Husband’s Solicitor’ (2007) 14 Australian Property Law Journal 147.
168. (1939) 63 CLR 649.
169. (1998) 194 CLR 395 at 404; 155 ALR 614 at 620. See also Bendigo & Adelaide Bank Ltd v Torbay Enterprises
Pty Ltd [2014] WASC 191 at [14]; Ramadan v ACN 098 408 176 Pty Ltd (2018) 129 SASR 584 at 596.
170. Wenczel v Commonwealth Bank of Australia [2006] VSC 324 at [135]; Dowdle v Pay Now For Business Pty
Ltd [2012] QSC 272 at [101].
171. [2013] QSC 277 at [191].
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Martin J expressed ‘doubt about its applicability in cases of long separation’. As to whether
the principle applies in favour of a husband who guarantee’s his wife’s loan, in Capital One
Securities Pty Ltd v Soda Kids Holdings Pty Ltd172 Ginnane J said that ‘[t]he Garcia defence only
applies to instruments of suretyship, which operate to a wife’s or husband’s advantage or which
confer a voluntary benefit on them’. However, on the facts of that case, Ginnane J held that the
husband had not established the elements of the Yerkey v Jones173 principle as set out in Garcia
v National Australia Bank Ltd.174
18.76 With relationships that extend beyond that of married couple to which the Yerkey
v Jones175 principle applies, a generally broad approach was advocated by Margaret McMurdo P
in Agripay Pty Ltd v Byrne,176 where her Honour said:
There seems to be no sound reason why these principles should be limited to wives entering
into guarantees of their husbands’ liabilities. Human weaknesses and unconscionable
conduct are not limited to heterosexual marriage relationships. These legal principles should
apply equally to all vulnerable parties in personal relationships.

18.77 However, the issue of whether the Yerkey v Jones177 principle extends relationships
such as elderly parent and child and friends sharing an ethnic background, has received a
mixed reception from the courts and commentators.178 In Australian Regional Credit v Mula,179
McCallum J said:
The principle in Garcia180 is premised on an assumption as to what lenders are ‘taken to have
understood’ about the ways in which wives and husbands are disposed to deal with each
other. An equally well-founded assumption can be made as to a lender’s understanding of the
likely conduct of, at least, elderly parents towards their adult children.

18.78 On the other hand, a more cautious approach was taken in Permanent Mortgages Pty
Ltd v Vandenbergh,181 where Murphy JA said:
I would not see the burden of current authority as supporting an extension of the Garcia182
principles enunciated in the High Court by treating the relationship of aged parent/child as,
in itself, synonymous with the husband/wife relationship for the purposes of the application
of those principles.

172. [2014] VSC 168 at [233].

173. (1939) 63 CLR 649.
174. (1998) 194 CLR 395; 155 ALR 614.
175. (1939) 63 CLR 649.
176. [2011] 2 Qd R 501 at 507.
177. (1939) 63 CLR 649.
178. A Stavrianou, ‘Expanding the Equitable Doctrine of Wife’s Special Equity’ (2007) 18 Journal of Banking and
Finance Law and Practice 105 at 115–17.
179. [2009] NSWSC 325 at [138].
180. Garcia v National Australia Bank Ltd (1998) 194 CLR 395; 155 ALR 614.
181. (2011) 41 WAR 353 at 393.
182. Garcia v National Australia Bank Ltd (1998) 194 CLR 395; 155 ALR 614.

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18.79 Whatever the position may be in relation to relationships beyond that of husband
and wife, it may well be that guarantees in the context of such relationships are adequately
covered by the equitable principles relating to unconscionable transactions or by statutory
unconscionability provisions, such as those in the Australian Consumer Law.183

REMEDIES
18.80 The principal remedy for undue influence is that of rescinding the contract or
transaction and for the defendant to account for any profits gained from the transaction.184
However, rescission will not always be available.185 In some cases, equitable compensation will
be ordered186 or a remedial constructive trust imposed.187 If the contract or transaction is yet to
be performed, specific performance will not be available.188

183. See Chapter 19.

184. Mahoney v Purnell [1996] 3 All ER 61 at 88.
185. See 35.24–35.37.
186. Hartigan v International Society for Krishna Consciousness at [2002] NSWSC 810 at [98]; Hart v Burbidge
[2013] EWHC 1628 (Ch) at [141]–[144].
187. McCulloch v Fern [2001] NSWSC 406 at [118].
188. See 31.74.

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UNCONSCIONABLE TRANSACTIONS

INTRODUCTION
19.1 Pursuant to the doctrine of unconscionability, equitable relief is given ‘against a stronger
party to a transaction exploiting some special disadvantage which has operated to impair the
ability of a weaker party to form a judgment as to his or her interests’.1 In Neale v Bank of
Western Australia Ltd2 Hammerschlag J described this equitable jurisdiction as follows:
The focus, in the exercise of this jurisdiction, is … upon the conduct of the stronger party.
The weaker party must have a disabling condition, or the circumstances must be such, so as
seriously to affect the ability of that party to make a judgment as to his, her or its own best
interests. The weaker party’s need or distress must be such as to leave that party in the power
of the stronger. … Where a stronger party has taken advantage of the weaker party to obtain
a beneficial bargain, the onus is on the stronger party to show that his conduct was fair, just
and reasonable.

19.2 In Kakavas v Crown Melbourne Ltd,3 the High Court said that ‘the abiding rationale
of the principle [of unconscionability] is to ensure that it is fair, just and reasonable for the
stronger party to retain the benefit of the impugned transaction’. Thus, as noted by Gordon J
in Thorne v Kennedy,4 ‘[i]n contrast to undue influence, establishing a special disadvantage
or disability for the purposes of unconscionable conduct does not require asking whether the
weaker party lacked the capacity to exercise independent judgment’.
19.3 In exercising its jurisdiction, an equity court looks beyond the fiction of equality of
bargaining power that the common law takes for granted. However, in doing so, ‘[d]etermining
whether a party to a transaction has engaged in unconscionable conduct will entail “a precise
examination of the particular facts” and “every connected circumstance” as well as “a scrutiny
of the exact relations established between the parties”’.5

1. Australian Securities and Investments Commission v Kobelt (2019) 368 ALR 1 at 22.
2. [2014] NSWSC 315 at [170]–[171]. See also Australian Competition and Consumer Commission v Radio
Rentals Ltd (2005) 146 FCR 292 at 297; Aboody v Ryan [2012] NSWCA 395 at [65].
3. (2013) 250 CLR 392 at 425; 298 ALR 35 at 58.
4. (2017) 263 CLR 85 at 122; 350 ALR 1 at 27.
5. Serventy v Commonwealth Bank of Australia (No 2) [2016] WASCA 223 at [19].

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19.4 The growth of the doctrine of unconscionability has been significant since the
High Court decision of Commercial Bank of Australia Ltd v Amadio6 and it is suitably flexible
to apply to all transactions, regardless of the length of dealing or relationship which exists
between the parties. The doctrine is much more accessible than that relating to undue influence.
Nevertheless, there is a distinct connection between the two doctrines and they may both
arise from the same facts.7 The Australian courts’ propensity to offer relief using this equitable
doctrine has also been matched by the introduction of several legislative enactments giving
wide powers to the courts to respond to contracts made with an absence of good conscience.
The most significant of these are the statutory unconscionability provisions set out in the
Australian Consumer Law.8
19.5 It is important to appreciate the subtleties of terminology if confusion is to be avoided. It
has often been said that the very nature of equity is founded upon good conscience and that the
notion of unconscionability is a theme that runs throughout its entire jurisdiction and exists in
numerous forms and contexts. However, in Tanwar Enterprises Pty Ltd v Cauchi,9 the High Court
held that, in describing the underlying basis of equitable doctrine, ‘unconscientious’ is a more
accurate term than ‘unconscionable’. For the purposes of this chapter, unconscionability is used
in the specific sense relating to transactions involving the knowing exploitation by one party of
a special disadvantage of another.

ELEMENTS OF UNCONSCIONABLE TRANSACTIONS

19.6 For the doctrine of unconscionability to be established in relation to a transaction
between A and B, the essential elements were set out by Deane J in Commercial Bank of
Australia Ltd v Amadio.10 They are:
• A is under a special disadvantage or disability;
• B had knowledge of A’s disadvantage; and
• B proceeds to exploit that disadvantage unconscientiously in order to obtain A’s consent to
the transaction.
19.7 In considering these elements, in Kakavas v Crown Melbourne Ltd,11 the High Court
made the following important point:
It does not accord with … [principle] to consider [A’s] ‘special disadvantage’ separately, in
isolation from the other circumstances of the impugned transactions which bear upon the
principle [of unconscionability]. The issue as to special disadvantage must be considered as
part of the broader question, which is whether the impugned transactions were procured by
[B’s] taking advantage of an inability on [A’s] part to make worthwhile decisions in his own
interests, which inability was sufficiently evident to [B] to render [B’s] conduct exploitative.

6. (1983) 151 CLR 447; 46 ALR 402.

7. See 18.3–18.4.
8. See 19.45–19.79.
9. (2003) 217 CLR 315 at 324–5; 201 ALR 359 at 364–5.
10. (1983) 151 CLR 447 at 474; 46 ALR 402 at 422.
11. (2013) 250 CLR 392 at 426–7; 298 ALR 35 at 59.

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19.8 Furthermore, in many cases of unconscionable transactions, there is an inadequacy of

consideration. In relation to such cases, in Blomley v Ryan,12 Fullagar J said:
[I]nadequacy of consideration, while never of itself a ground for resisting enforcement, will
often be a specially important element in cases of this type. It may be important in either
or both of two ways — firstly as supporting the inference that a position of disadvantage
existed, and secondly as tending to show that an unfair use was made of the occasion.

19.9 Before analysing the elements of the doctrine of unconscionability, it is appropriate to

note the following general observations in relation to unconscionability made by Spigelman CJ
in Attorney General (NSW) v World Best Holdings Ltd:13
Unconscionability is a well-established but narrow principle in equitable doctrine. It has been
applied over the centuries with considerable restraint and in a manner which is consistent
with the maintenance of the basic principles of freedom of contract. It is not a principle of
what ‘fairness’ or ‘justice’ or ‘good conscience’ requires in the particular circumstances of the
case. … [R]estraint in decision-making remains appropriate. … If it were to be applied as if
it were equivalent to what was ‘fair’ or ‘just’, it could transform commercial relationships. …
The principle of ‘unconscionability’ would not be a doctrine of occasional application, when
the circumstances are highly unethical, it would be transformed into the first and easiest port
of call when any dispute … arises.

Thus, as was pointed out by Leeming JA in Wu v Ling,14 ‘[k]nowledge or belief of a plaintiff ’s

foolishness alone is not sufficient to affect a defendant’s conscience’. In Louth v Diprose,15
Deane J observed that ‘[t]he intervention of equity is not merely to relieve the plaintiff from the
consequences of his own foolishness. It is to prevent his victimization’.
19.10 Practical recognition of these observations can be seen in the fact that mere inequality
of bargaining power between parties does not give rise to a situation of unconscionability.16 In
Thorne v Kennedy,17 Gordon J pointed out that ‘a special disadvantage is one that “seriously
affects” the weaker party’s ability to safeguard their interests’. Nor is relief available simply
because the weaker party has suffered some hardship or the transaction is improvident.18
Furthermore, ‘[c]onduct which is unfair or unreasonable is not for those reasons alone
unconscionable’.19 Finally, in commercial contracts, the availability of relief on the basis of
principles of unconscionable transactions is limited. This is so because ‘the state of affairs on
which the application of equitable doctrines is usually predicated — vulnerability, dependence,
mistaken assumption or inducement — will rarely exist in such circumstances’.20

12. (1956) 99 CLR 362 at 405. See also Hanna v Raoul [2018] NSWCA 201 at [100].
13. (2005) 63 NSWLR 557 at 583; 223 ALR 346 at 370–1, referred to with approval by Gageler J in the High
Court in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 587; 333 ALR 569
at 609–10.
14. [2016] NSWCA 322 at [11]. See also Anderson v McPherson (No 2) [2012] WASC 19 at [255]; Barry
v Carlisle [2016] NZCA 551 at [65].
15. (1992) 175 CLR 621 at 638; 110 ALR 1 at 14.
16. Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at
64; 197 ALR 153 at 157; Thorne v Kennedy (2017) 263 CLR 85 at 112, 126; 350 ALR 1 at 20, 31.
17. Thorne v Kennedy (2017) 263 CLR 85 at 126; 350 ALR 1 at 31.
18. Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 401–2; 298 ALR 35 at 39.
19. Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) [2015] FCA 368 at [39].
20. FMT Aircraft Gate Support Systems v Sydney Ports Corporation [2010] NSWSC 1108 at [35].
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

19.11 In assessing whether any transaction is unconscionable, the relevant time frame is
when the transaction was entered into. This is of particular importance in relation to conditional
contracts. In Gustav & Co Ltd v Macfield Ltd,21 the Supreme Court held that the appropriate
time to assess whether a conditional contract was unconscionable was when the contract was
entered into and not when it became, or was declared, unconditional. However, the court22 went
on to note that ‘material variations to a contract should be examined for unconscionability as at
the date upon which they are agreed’.

Special disadvantage or disability

19.12 There is no fixed list of what constitutes a special disadvantage. What is required is
some characteristic ‘which seriously affects the ability of the innocent party to make a judgment
as to his own best interests’.23 In Wu v Ling,24 Leeming JA noted that ‘the absence of immoral or
dishonest motives [on the party benefiting from the transaction] is not sufficient to preclude
equitable intervention’. Nor does the absence of legal advice, of itself, appear to be sufficient to
give rise to a special disadvantage.25 The special disadvantage need not have been created by the
party that benefits from the transaction.26 Nor does that party, unless he or she is a fiduciary,
need to take steps to ascertain whether a disadvantage exists. That party is judged on the basis
of facts that were known to it. In this respect, in Turner v Windever,27 Giles JA said:
Mere unawareness of a matter material to the interests of a party to a transaction is not a
special disadvantage. That is a commonplace of commercial and other negotiations, and good
conscience does not require the other party to guard against the party inadequately informing
himself any more than it requires the forfeiture of a superior bargaining position. … [However,]
if the unawareness is … due to misrepresentation or statutory misleading or deceptive conduct
or amounts to vitiating mistake under contractual principles, relief may be available.

However, as was noted in Owerhall v Bolton & Swan Pty Ltd,28 ‘[i]t is not necessary … that there
be full knowledge of the special disability. It is enough that the party has sufficient awareness to
be placed on inquiry so that ignorance of the special disability may be characterised as wilful.’
19.13 In Australian Competition and Consumer Commission v Samton Holdings Pty Ltd,29
the Full Court stated that factors going to establishing a special disadvantage fell into one of
following two categories:
The special disadvantage may be constitutional, deriving from age, illness, poverty, inexperience
or lack of education. Or it may be situational, deriving from particular features of a relationship
between actors in the transaction such as the emotional dependence of one on the other.

21. [2008] 2 NZLR 735 at 741.

22. Gustav & Co Ltd v Macfield Ltd [2008] 2 NZLR 735 at 745.
23. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462; 46 ALR 402 at 413. See also
Mentink v Olsen [2020] NSWCA 182 at [3]–[4].
24. [2016] NSWCA 322 at [8].
25. Rodolico v Rodolico [2020] VSC 535 at [36]-[40].
26. Louth v Diprose (1992) 175 CLR 621 at 629; 110 ALR 1 at 7; Commissioner of Fair Trading v Jonval Builders
Pty Ltd [2019] NSWSC 1893 at [37].
27. [2005] NSWCA 73 at [72]–[73].
28. [2016] VSC 91 at [49].
29. (2002) 117 FCR 301 at 318; 189 ALR 76 at 92.

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19.14 However, as was pointed out by Gleeson CJ in Australian Competition and Consumer
Commission v CG Berbatis Holdings Pty Ltd,30 as useful as such categorisation of special
disadvantage may be, ‘[t]here is a risk that categories, adopted as a convenient method of
exposition of an underlying principle, might be misunderstood, and come to supplant the
principle. The stream of judicial exposition of principle cannot rise above the source.’
19.15 Bearing in mind Gleeson CJ’s caveat, examples of constitutional factors that can lead to
establishing a special constitutional disadvantage were set out by Fullagar J in Blomley v Ryan31
as follows:
The circumstances adversely affecting a party, which may induce a court of equity either to
refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily
classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body
or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where
assistance or explanation is necessary. The common characteristic is that they have the effect
of placing one party at a disadvantage vis-à-vis the other.

19.16 In Kakavas v Crown Melbourne Ltd,32 the High Court seemingly indicated that being
a widowed pensioner was also a constitutional factor. On the other hand, in Hampton v BHP
Billiton Minerals Pty Ltd (No 2),33 Edelman J also noted that ‘[l]eaving school at an early age is
not an established special disability’.
19.17 The mere presence of one or more of these characteristics in a party to a transaction will
not automatically amount to a special disadvantage in all cases. In Blomley v Ryan,34 Fullagar J
said that what is required is that the characteristic amounts to a position of disadvantage as
against the other party. Thus, in Kakavas v Crown Melbourne Ltd35 the High Court said:
Equitable intervention to deprive a party of the benefit of its bargain on the basis that it
was procured by unfair exploitation of the weakness of the other party requires proof of a
predatory state of mind. Heedlessness of, or indifference to, the best interests of the other
party is not sufficient for this purpose. The principle is not engaged by mere inadvertence,
or even indifference, to the circumstances of the other party to an arm’s length commercial
transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation
with which the principle is concerned.

19.18 In Commercial Bank of Australia Ltd v Amadio,36 the personal circumstances of

two guarantors (the Amadios) of their son’s failing building business involved a number of
characteristics that amounted to placing them in a position of special disadvantage. The son
had arranged to obtain further finance from the Commercial Bank of Australia to a total value

30. (2003) 214 CLR 51 at 63; 197 ALR 153 at 157.

31. (1956) 99 CLR 362 at 405. Mentink v Olsen [2020] NSWCA 182 is a case in which most of these factors were
present.
32. (2013) 250 CLR 392 at 404‒5; 298 ALR 35 at 42.
33. [2012] WASC 285 at [179].
34. (1956) 99 CLR 362 at 405. See also Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at
[291]–[293]; PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446 at [93]–[106]; Thorne v Kennedy
(2017) 263 CLR 85 at 126; 350 ALR 1 at 30‒1.
35. (2013) 250 CLR 392 at 439–40; 298 ALR 35 at 68. See also Anderson v McPherson (No 2) [2012] WASC 19
at [265].
36. (1983) 151 CLR 447; 46 ALR 402.

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of $270,000 and in order to receive this increase on his company’s overdraft, he was required
by the bank to arrange for a guarantee. The son approached the Amadios, who were elderly
Italian migrants with a limited grasp of English. He told them that he needed them to execute
a contract of guarantee in favour of the bank that would be limited to $50,000 and six months’
operation. The Amadios agreed to this. When the bank manager arrived at their home to have
them execute a deed of mortgage over that property, its terms were not limited to any amount
or time period. Although the issue of time length was discussed at this meeting, there was no
doubt that the Amadios were unsure as to the nature and extent of their liability under the
contract. The bank manager was aware of the virtually hopeless state of the son’s business, but
made no inquiries as to whether his parents also appreciated this situation. Nor did he or the son
suggest that the Amadios receive independent advice about the providence of the transaction.
The Amadios executed the deed and the bank sought to recover against them when their son’s
business collapsed. They sought to avoid the contract on the basis of unconscionability.
19.19 The High Court found for the Amadios, with a majority basing their decision upon
principles of unconscionability. Their Honours viewed the Amadios as being at a special
disadvantage for a number of reasons. Deane J37 said:
The bank … was a major national financial institution. It was privy to the business affairs and
financial instability of Amadio Builders. … It had actually suggested, through Mr Statton,
that Mr and Mrs Amadio enter into the mortgage transaction to secure Amadio Builders’
indebtedness to it. It was aware of the contents of its own document which Mr Virgo presented
to Mr and Mrs Amadio for their signature. In contrast was the position of Mr and Mrs Amadio.
Their personal circumstances have already been mentioned. They were advanced in years.
Their grasp of written English was limited. They relied on [their son] for the management
of their business affairs and believed that he and Amadio Builders were prosperous and
successful. They were approached in their kitchen by the bank, acting through Mr Virgo,
at a time when Mr Amadio was reading the newspaper after lunch and Mrs Amadio was
washing dishes. They were presented with a complicated and lengthy document for their
immediate signature. They had received no independent advice in relation to the transaction
which that document embodied and about which they had learned only hours earlier from
[their son] who … had misled them as regards the extent and duration of their potential
liability under it. Apart from indicating that the guarantee/mortgage was unlimited in point
of time, Mr Virgo made no personal attempt to explain it to them.

19.20 It should be noted that the circumstances of the Amadios went beyond mere inequality
of position. It will be rare for both parties to a transaction to come to the negotiating table in a
state of perfect equality. Special circumstances are required to warrant equitable intervention.
This was emphasised by Mason J in Commercial Bank of Australia Ltd v Amadio,38 who said
that the purpose of qualifying ‘disadvantage’ by the adjective ‘special’ was to ‘disavow any
suggestion that the principle applies whenever there is some difference in the bargaining power
of the parties’. His Honour39 insisted that ‘the disabling condition or circumstance [be] one
which seriously affects the ability of the innocent party to make a judgment as to his own best
interests’. The combination of factors present in the case had that effect.

37. (1983) 151 CLR 447 at 476; 46 ALR 402 at 424.

38. (1983) 151 CLR 447 at 462; 46 ALR 402 at 413.
39. (1983) 151 CLR 447 at 462; 46 ALR 402 at 413.

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19.21 In relation to situational special disadvantage, the decision of the High Court
in Louth v Diprose40 is instructive. In that case, the transaction under review was a gift
of $58,000 from Diprose to Louth in order that she could purchase a house in which to
live with her children. Diprose was romantically infatuated with Louth and, despite her
disinterest, they maintained contact over the course of seven years. During that time they
had sexual intercourse only twice in the early months. Louth made it clear that she was not
possessed of similar feelings for Diprose and in fact had relationships with other men. The
parties did not live together, but when Louth moved to Adelaide, he followed her. Diprose
spent time at Louth’s house and provided financial assistance and help to her generally.
She rented a house at a reduced rate from her sister and brother-in-law. When that couple
announced an intention to separate, the brother-in-law suggested to Louth that she might
have to pay a more realistic amount of rent or look for alternative accommodation. Louth
was unsettled by this development and told Diprose that if she were forced to move from
the house she would commit suicide. It was after this conversation that Diprose made the
gift of money to her, despite the fact that the sum comprised most of his own holdings and
he had children of his own to support. Diprose subsequently brought an action to claim the
beneficial interest in the property that Louth had purchased with the money he gave her.
The High Court found in his favour on the ground that the transaction should be set aside
as unconscionable.
19.22 A bare assessment of the parties’ positions did not portray Diprose as being specially
disadvantaged. On the contrary, he seemed to be the stronger of the two, as Toohey J41 was keen
to highlight in his vigorous dissent:
It was [Diprose] who continued to seek her out. She did not mislead him in regard to her
position; she did not hold out any false hopes to him. They were both adults; each had
been married before … and [Diprose] was a practising solicitor who must have appreciated
fully the consequences that the law would ordinarily attach to the gifts he made to [Louth]
including the money involved in the purchase of the Tranmere house. It was [Diprose’s] idea
to buy the house, not [Louth’s].

19.23 However, the majority did not look at the facts in the same light as Toohey J, but rather
focused upon Diprose’s infatuation. Deane J42 said:
[The] special disability arose not merely from [Diprose’s] infatuation. It extended to the
extraordinary vulnerability of [Diprose] in the false ‘atmosphere of crisis’ in which he
believed that the woman with whom he was ‘completely in love’ and upon whom he was
emotionally dependent was facing eviction from her home and suicide unless he provided
the money for the purchase of the house. [Louth] was aware of that special disability. Indeed,
to a significant extent, she had deliberately created it. She manipulated it to her advantage to
influence [Diprose] to make the gift of the money to purchase the house.

40. (1992) 175 CLR 621; 110 ALR 1. For an analysis of this and similar cases see D Thampapillai, ‘What
Becomes of the Broken-Hearted? Unconscionable Conduct, Emotional Dependence, and the “Clouded
Judgement” Cases’ (2016) 34 Law in Context 76.
41. (1992) 175 CLR 621 at 651; 110 ALR 1 at 24.
42. (1992) 175 CLR 621 at 638; 110 ALR 1 at 14.

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19.24 Throughout the case, reference is repeatedly made to the ‘emotional dependence’ and
‘infatuation’ of Diprose, but it is clear that it was the ‘manipulation’ of this situation by Louth
that gave Diprose’s unrequited love its status as a ‘special disadvantage’.
19.25 By way of contrast to Louth v Diprose,43 in Mackintosh v Johnson44 the Court of Appeal
held that consecutive gifts of $175,000 and $480,000 were not unconscionable transactions.
In that case, in a period of seven months, Johnson, then aged 73, had an intimate relationship
with Mackintosh, then aged 45. It was during that time that Johnson made the payments to
Mackintosh. The court45 held that Johnson was not affected by a special disability at the time he
made the payments to Mackintosh, stating:
The facts of this case are a long way from those in Louth v Diprose. Mr Johnson was a wealthy,
successful businessman who, although infatuated with Ms Mackintosh, was not emotionally
dependent upon her in the way the donor was in Louth v Diprose. He made payments to
her which were well within his means in the hope of an enduring relationship with her.
Having regard to his wealth, the payments were not of a size which permit any inference of
emotional dependence, or inability to make decisions in his own interests. This is a case of
mere folly by Mr Johnson.

19.26 In Kakavas v Crown Melbourne Ltd,46 the High Court dealt with the case of Kakavas,
a pathological gambler who, between June 2005 and August 2006, lost over $20 million playing
baccarat at a casino. The court found that Kakavas was not at any special disadvantage with
respect to the casino. In so deciding, the High Court47 observed that ‘[g]ambling transactions
are a rare, if not unique, species of economic activity in a civilised community, in that each
party sets out openly to inflict harm on the counterparty’. The court48 went on to say:
[T]here is little scope for the intervention of equity to undo the result of transactions
undertaken on the unmistakable footing that no quarter is asked and none is given by either
party to the transaction, at least so long as the transaction has been conducted honestly
in accordance with the rules of the game. It was not suggested that Crown ran a dishonest
game. It is necessary to be clear that one is not concerned here with a casino operator
preying upon a widowed pensioner who is invited to cash her pension cheque at the casino
and to gamble with the proceeds. One might sensibly describe that scenario as a case of
victimisation. One could also speak sensibly of a gambler, who presents at a casino with the
cash necessary to play the game, as a victim of the casino, if there are factors in play other
than the occurrence of the outcome that was always on the cards. For example, the gambler
may be evidently intoxicated, or adolescent, or senescent, or simply incompetent. But absent
additional factors of this nature, it is difficult sensibly to describe the accommodation by
an operator of a casino of a patron’s desire to gamble as a case of victimisation. That is
especially so in the case of the high roller who has the means, should he or she enjoy a run
of luck, to hurt the casino.

43. (1992) 175 CLR 621; 110 ALR 1.

44. (2013) 37 VR 301.
45. Mackintosh v Johnson (2013) 37 VR 301 at 317.
46. (2013) 250 CLR 392; 298 ALR 35.
47. Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 403; 298 ALR 35 at 40–1.
48. Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 404–5; 298 ALR 35 at 41–2.

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Finally, the Court concluded:

49

[W]e do not accept that [Kakavas’] pathological interest in gambling was a special
disadvantage which made him susceptible to exploitation by [the casino]. He was able to
make rational decisions to refrain from gambling altogether had he chosen to do so. He was
certainly able to choose to refrain from gambling with [the casino].

19.27 In Thorne v Kennedy,50 Kennedy, a wealthy 67-year-old Greek Australian property

developer, and Thorne, an Eastern European woman living in the Middle East, met on an
online website. Because Thorne only had very limited English language skills, the parties
generally communicated in Greek. Seven months later, after meeting and holidaying in Europe
with Kennedy, Thorne moved to Australia to marry him. Several days prior to the wedding
Thorne, who had no substantial assets and no family in Australia, signed, because of Kennedy’s
insistence, a binding financial agreement, notwithstanding that she received legal advice that
it was ‘entirely inappropriate’ and that she should not sign it. Soon after the marriage, Thorne
signed a post-marriage binding financial agreement, which she was again advised not to sign.
Just under four years later Kennedy and Thorne separated.
19.28 In addition to holding that the two financial agreements were vitiated on grounds of
undue influence,51 the High Court held that the agreements were vitiated on the grounds of
Kennedy’s unconscionable conduct. In so deciding, the court’s plurality judgment52 said:
Ms Thorne’s special disadvantage was known to Mr Kennedy. Her special disadvantage
had been, in part, created by him. He created the urgency with which the pre-nuptial
agreement was required to be signed and the haste surrounding the post-nuptial
agreement and the advice upon it. While Ms Thorne knew Mr Kennedy required her
acknowledgement that his death would not result in her receiving a windfall inheritance
at the expense of his children, she had no reason to anticipate an intention on his part
to insist upon terms of marriage that were as unreasonable as those contained in the
agreements. Further, Ms Thorne and her family members had been brought to Australia
for the wedding by Mr Kennedy and his ultimatum was not accompanied by any offer
to assist them to return home. These matters increased the pressure which contributed
to the substantial subordination of Ms Thorne’s free will in relation to the agreements.
Mr Kennedy took advantage of Ms Thorne’s vulnerability to obtain agreements which, on
Ms Harrison’s uncontested assessment, were entirely inappropriate and wholly inadequate.
Even within that class of agreement, the agreements which Ms Thorne signed involved
‘gross inequality’.

Knowledge
19.29 A defendant must have knowledge of the special disadvantage of the other party. This
requirement is necessary because the defendant cannot be said to have acted unconscientiously

49. Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at 432; 298 ALR 35 at 63.
50. (2017) 263 CLR 85; 350 ALR 1.
51. See 18.33.
52. Thorne v Kennedy (2017) 263 CLR 85 at 112; 350 ALR 1 at 20.

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if he or she had no knowledge of the plaintiff ’s special disadvantage.53 In Commercial Bank of

Australia Ltd v Amadio,54 Mason J said:
[I]f A having actual knowledge that B occupies a situation of special disadvantage in
relation to an intended transaction, so that B cannot make a judgment as to what is in his
own interests, takes unfair advantage of his (A’s) superior bargaining power or position by
entering into that transaction, his conduct in so doing is unconscionable. And if, instead of
having actual knowledge of that situation, A is aware of the possibility that that situation
may exist or is aware of facts that would raise that possibility in the mind of any reasonable
person, the result will be the same.

If the defendant has knowledge of the special circumstances, the ‘onus is cast upon [him or her]
to establish that the transaction was fair, just and reasonable’.55
19.30 In Kakavas v Crown Melbourne Ltd,56 the High Court made it clear that, although
wilful ignorance is a form of actual knowledge, the concept of constructive knowledge is not
within the concept of knowledge in relation to the application of unconscionability principles.
Subsequently, in Thorne v Kennedy,57 Kiefel CJ, and Bell, Gageler, Keane and Edelman JJ said
that ‘[b]efore there can be a finding of unconscientious taking of advantage, it is also generally
necessary that the other party knew or ought to have known of the existence and effect of the
special disadvantage’.
19.31 It is rare for knowledge to pose much difficulty for an applicant, as the circumstances
will normally be so clear that the knowledge of the other party is easily established. The facts of
Commercial Bank of Australia Ltd v Amadio58 are a good example of the stronger party having
sufficient awareness of the various weaknesses present in the other. The bank in that case had
actual knowledge of the commercial risk that the guarantee posed to the Amadios. The bank
must also have known of the Amadios’ inability to fully comprehend this risk due to their
poor language skills, advanced age, and misrepresentations by their son in whom they clearly
reposed a high level of trust.
19.32 The facts of Louth v Diprose59 were more pronounced. There it was beyond doubt
that Louth was aware of the infatuation of Diprose. His dogged persistence in pursuit of her
affections for seven years made that only too plain. The finding of actual knowledge in this
case led the court to its acceptance of the portrayal of Louth as a woman who ‘manipulated’ the
situation by the creation of an ‘atmosphere of crisis’.
19.33 In this vein, the facts of Blomley v Ryan60 demonstrate another instance of actual
knowledge. Ryan was an elderly sheep farmer who sold his property at a significant undervalue

53. Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1 at 107; Aldous v State of New South Wales [2018]
NSWCA 261 at [75].
54. (1983) 151 CLR 447 at 467; 46 ALR 402 at 417.
55. Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474; 46 ALR 402 at 422.
56. (2013) 250 CLR 392; 298 ALR 35. See also Serventy v Commonwealth Bank of Australia (No 2) [2016]
WASCA 223 at [18].
57. (2017) 263 CLR 85 at 103; 350 ALR 1 at 13.
58. (1983) 151 CLR 447; 46 ALR 402. See 19.18.
59. (1992) 175 CLR 621; 110 ALR 1. See 19.21.
60. (1956) 99 CLR 362.

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to Blomley, a neighbouring grazier. The negotiations with Ryan were conducted by Blomley
and his agent, the manager of the area’s stock and station store. The court found that Ryan
had a well-known fondness for liquor and both Blomley and his agent knew of his regular
indulgence in drinking bouts. Indeed, the agent sold him his rum through his store. At the
time Ryan was called upon to negotiate with the others, he had been drinking heavily for days
and looked extremely old and sick, yet neither Blomley nor the agent claimed to have noticed
anything untoward. The court greeted their ignorance with extreme disbelief and readily found
that they did, in fact, have actual knowledge of Ryan’s disadvantage. Of particular significance
in reaching this conclusion was the fact that Blomley and his agent had produced a bottle of
rum at the negotiations, which took place during the afternoon on the relevant day. Thus,
they had indicated their knowledge of Ryan’s fondness for drink and had actually assisted
him to reach the intoxicated state under which he made the unfavourable transaction. The
High Court refused to grant specific performance of the contract to Blomley on the ground
that it was unconscionable. Ryan’s drunkenness was not viewed as an incapacity to contract,
but rather as a characteristic causing weakness, which was known and exploited by Blomley.
This exploitation was apparent from the highly favourable terms received by Blomley and the
corresponding improvidence of the transaction for Ryan.
19.34 In Elkofairi v Permanent Trustee Co Ltd,61 the issue of the defendant’s knowledge arose
in the context of a case involving the practice commonly known as asset lending.62 In this case,
the lender was found to be aware that Mrs Elkofairi had no income and that the loan was for
a large amount and secured over her only asset. The lender had made virtually no enquiries
relating to the purpose of the loan. The lender, who knew that Mrs Elkofairi had not received
any legal advice about the loan, did not make any enquiries about Mrs Elkofairi’s income or
capacity to service the loan. Speaking for the Court of Appeal, Beazley JA63 noted that these
circumstances should have ‘sounded a warning bell’ to the lender. Her Honour,64 in finding that
the lender had knowledge of Mrs Elkofairi’s special disadvantage, said:
In my opinion, notwithstanding that the [lender] did not have knowledge of the
[Mrs Elkofairi’s] lack of education and her language and domestic difficulties, her lack of
income, in the circumstances of this transaction — that is a large borrowing secured over
her only asset, in circumstances where the application form failed to disclose any income for
either husband or wife — placed her in a special position of disadvantage. Though the full
extent of that special position of disadvantage was not known to the [lender], nonetheless the
absence of any relevant financial information was sufficient to put the respondent on notice
of [Mrs Elkofairi’s] lack of capacity to meet the repayment obligations under the mortgage.
That left as the only source of repayment the selling of her only asset, as again the [lender]
must be taken to have known.

19.35 Although the court in this case found that the loan was unconscionable, it is clear that
asset lending per se does not give rise to an unconscionable transaction. Other factors have to be

61. [2002] NSWCA 413.

62. In Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41 at [128], Basten JA described asset
lending as being ‘to lend money without regard to the ability of the borrower to repay by instalments under
the contract, in the knowledge that adequate security is available in the event of default’. See also Fast Fix
Loans Pty Ltd v Samardzic [2011] NSWCA 260 at [43]; Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 at [1].
63. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [55].
64. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [56].

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present.65 Furthermore, in cases where asset lending is found to constitute an unconscionable

transaction, ‘relief setting aside a mortgage … will usually be granted only on condition that
the mortgagor do equity by paying or securing to the mortgagee the amount of any benefit
obtained by the mortgagor from the relevant mortgage advance’.66

Unconscientious exploitation of the disadvantage

19.36 A special disadvantage and the other party’s knowledge of it does not make a transaction
unconscionable. It is the third element that crystallises these two factors into a situation where
equitable relief is merited. The stronger party must exploit the weakness that he or she knows
to exist in the other in order to procure consent to a transaction. In Thorne v Kennedy,67 the
majority joint judgment said that this requirement ‘has been variously described as requiring
“victimisation”, “unconscientious conduct”, or “exploitation”’. Inequality of bargaining power
will often be a factor to be taken into account in assessing whether the stronger party has taken
advantage of the weaker party’s special disability.
19.37 In cases where the elements of special disadvantage and knowledge have been
established and the transaction is shown to be improvident, there arises ‘an equitable
presumption to the effect that the improvident transaction was a consequence of the special
disadvantage, and that the defendant has unconscientiously taken advantage of the opportunity
presented by the disadvantage’.68 However, a transaction may still be unconscionable even if it
is not improvident.
19.38 Several of the cases discussed above readily demonstrate the requirement of
unconscientious exploitation of the disadvantage. In Commercial Bank of Australia Ltd
v Amadio,69 the Amadios’ special disadvantage was knowingly used to procure them into signing
a contract of guarantee, which was not limited by time or extent of liability, to secure a loan
to their son who was in serious financial trouble. In Louth v Diprose,70 the infatuated Diprose
made a gift of $58,000 to Louth so that she could purchase a house. In Blomley v Ryan,71 the
drunken Ryan sold his entire landholding to Blomley at a price described by McTiernan J72 as
‘strikingly disproportionate’ to the estimated market value.
19.39 In none of these cases did the weaker party agree to a transaction that was in their
best interests. In all of them, the courts found that the stronger party had used his or her
position of strength to gain the agreement of the other. This is the kernel of the doctrine of

65. Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 at 227, 252 ALR 55 at 76–7; Violet Homes
Loans Pty Ltd v Schmidt (2013) 44 VR 202 at 219; 300 ALR 770 at 786; Serventy v Commonwealth Bank
of Australia (No 2) [2016] WASCA 223 at [20]; Bank of Queensland Ltd v Banjanin [2017] QSC 209
at [62]–[63]; Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 at [2], [121]; Westgem Investments Pty Ltd
v Commonwealth Bank of Australia Ltd (No 6) [2020] WASC 302 at [977].
66. Butler v Vavladelis [2012] VSC 186 at [17].
67. (2017) 263 CLR 85 at 103; 350 ALR 1 at 13.
68. Turner v Windever [2003] NSWSC 1147 at [106], a decision upheld on appeal: Turner v Windever [2005]
NSWCA 73.
69. (1983) 151 CLR 447; 46 ALR 402. See 19.18.
70. See 19.21.
71. (1956) 99 CLR 362. See 19.33.
72. (1956) 99 CLR 362 at 392.

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unconscionability and what attracts equity’s intervention. In this respect, in Kakavas v Crown
Melbourne Ltd,73 the High Court, in the context of the facts of that case, said:
Equitable intervention to deprive a party of the benefit of its bargain on the basis that it
was procured by unfair exploitation of the weakness of the other party requires proof of a
predatory state of mind. Heedlessness of, or indifference to, the best interests of the other
party is not sufficient for this purpose. The principle is not engaged by mere inadvertence,
or even indifference, to the circumstances of the other party to an arm’s length commercial
transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation
with which the principle is concerned.

DEFENCES
19.40 As always, a successful defence will challenge one or more of the assertions made
by the party seeking relief. The most likely ground for defence is to rebut the argument that
the transaction was unfair or that the special disadvantage was exploited. As was noted by
the High Court in Kakavis v Crown Melbourne Ltd,74 ‘the abiding rationale of the principle is
to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the
impugned transaction’. However, the defence need not focus solely upon the third element.
It will be recalled that the most contentious issue in Louth v Diprose75 was whether an unrequited
romantic infatuation was a ‘special disadvantage’. It was on this point, more than any other, that
Toohey J’s dissent seemed to rest.
19.41 In rejecting the element of unconscionability, the stronger party may point to a number
of things in his or her defence. In showing that the special disadvantage was not exploited, the
provision of assistance to the weaker party will be crucial. For example, in Commercial Bank
of Australia Ltd v Amadio,76 the language assistance that an interpreter would have provided
to the Amadios would have helped in rebuttal. The provision of independent advice generally
will be the most significant defence in any case.77 That is not to say that independent advice
will always exonerate the stronger party. Although in Blomley v Ryan,78 the same solicitor acted
for both vendor and purchaser in executing the unfavourable contract, the state of Ryan, the
behaviour of Blomley up to that point, and the improvidence of the deal would be unlikely to be
of no consequence, even if independent advice had been given. Just as with instances of undue
influence, independent advice will go a long way to showing freedom of consent and lack of
unconscientious exploitation, but ultimately the outcome of any given case will depend upon
the quality of the advice given in the light all the surrounding circumstances.79
19.42 The improvidence or otherwise of the transaction will also be of importance. In the
case of a non-guarantee contract, this factor raises the question of adequacy of consideration.

73. (2013) 250 CLR 392 at 439–40; 298 ALR 35 at 68.

74. (2013) 250 CLR 392 at 425; 298 ALR 35 at 58.
75. (1992) 175 CLR 621; 110 ALR 1. See 19.21.
76. (1983) 151 CLR 447; 46 ALR 402.
77. The principles relating to the giving of advice are discussed in Hanna v Raoul [2018] NSWCA 201
at [111]–[119].
78. (1956) 99 CLR 362.
79. Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30. See 18.39.

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Where the transaction is a gift or a guarantee contract, there is no obvious benefit to the party
giving, so improvidence must be looked at against their total interests. In both Commercial
Bank of Australia Ltd v Amadio80 and Louth v Diprose81 the weaker party could ill afford the
benefit they were seeking to transfer, by guarantee and gift respectively. Thus, the other party in
each case failed to establish a defence of lack of unconscientious exploitation — all the evidence
pointed in that direction.
19.43 Finally, as with all other equitable remedies, relief may be denied if a party can raise
an equitable defence, such as laches or other equitable misconduct that amounts to a failure to
come to equity with clean hands.82

REMEDIES
19.44 A party who successfully raises the doctrine of unconscionability will usually seek
to avoid the transaction. This may occur in a number of ways. He or she may do so by means
of resisting the stronger party’s action for specific performance of the contract, as occurred
in Blomley v Ryan.83 Alternatively, he or she may seek the return of property by rescission
of the impugned transaction.84 In Commercial Bank of Australia Ltd v Amadio,85 the option
of imposing conditions upon an order for rescission was discussed. Furthermore, in Schipp
v Cameron,86 equitable compensation was ordered.

STATUTORY UNCONSCIONABILITY PURSUANT TO THE

AUSTRALIAN CONSUMER LAW
19.45 The area of unconscionability is one in which statute meets and complements the
judge-made law to dramatic effect. The federal, state, and territory legislatures have all enacted
legislation that covers unconscionable conduct and/or related concepts dealing with what might
generally be referred to as unfair conduct. This chapter will only discuss the unconscionability
provisions of the Australian Consumer Law,87 the provisions of which are set out in Sch 2 of
the Competition and Consumer Act 2010 (Cth).88 The unconscionability provisions of the
Australian Consumer Law are found in ss 20–22A. These sections were previously enacted
as ss 51AA, 51AB, and 51AC of the Trade Practices Act 1974 (Cth). Section 131A(1) of the
Competition and Consumer Act stipulates that the provision of financial services or products

80. (1983) 151 CLR 447; 46 ALR 402. See 19.18.

81. (1992) 175 CLR 621; 110 ALR 1. See 19.21.
82. See Chapter 39.
83. (1956) 99 CLR 362. See 19.33.
84. See Chapter 35.
85. (1983) 151 CLR 447 at 481; 46 ALR 402 at 428.
86. [1998] NSWSC 997.
87. Examples of other relevant legislation include the Independent Contractors Act 2006 (Cth); the Contracts
Review Act 1980 (NSW); the Industrial Relations Act 1996 (NSW) s 106. Furthermore, consumer credit
legislation in all states and territories contain provisions dealing with unjust transactions — ‘unjust’ being
defined to include ‘unconscionable, harsh or oppressive’.
88. Prior to 2010, the Competition and Consumer Act 2010 (Cth) was known as the Trade Practices Act 1974 (Cth).

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is not subject to the Australian Consumer Law. However, financial services and products are
regulated by equivalent provisions in ss 12CA, 12CB, and 12CC of the Australian Securities and
Investments Commission Act 2001 (Cth).89
19.46 The unconscionability provisions of the Australian Consumer Law relate to the actions
of persons. Pursuant to Australian constitutional law, the Commonwealth government’s
competence to legislate in relation to unconscionable conduct is confined to doing so in
relation to persons who are corporations. In relation to persons who are not corporations, such
legislative competence rests with the various states and territories. Although the provisions
of the Australian Consumer Law do effectively cover unconscionable conduct by any person,
s 131(1) of the Competition and Consumer Act confines the application of the Australian
Consumer Law as a law of the Commonwealth to the activities of corporations. In relation to
unconscionable conduct by persons who are not corporations, the provisions of the Australian
Consumer Law are enforced as a law of the state or territory where such conduct occurred. This
stems from the fact that all states and territories have passed legislation adopting the provisions
of the Australian Consumer Law as part of their law. Thus, depending upon the nature of
the person engaged in unconscionable conduct, the provisions of the Australian Consumer
Law will be enforced, either as a law of the Commonwealth or as a law of the relevant state or
territory.
19.47 The statutory unconscionability provisions of the Australian Consumer Law relate to
the conduct of persons ‘in trade or commerce’. Section 2 of the Australian Consumer Law
defines ‘trade or commerce’ as meaning:
(a) trade or commerce within Australia or
(b) between Australia and places outside Australia; and includes any business or professional
activity (whether or not carried on for profit).

19.48 In Concrete Constructions (NSW) Pty Ltd v Nelson,90 the majority of the High Court
gave the following interpretation to the meaning of the words ‘in trade or commerce’:
[T]he reference to conduct ‘in trade or commerce’ … can be construed as referring only to
conduct which is itself an aspect or element of activities or transactions which, of their nature,
bear a trading or commercial character. So construed, to borrow and adapt words used by
Dixon J … in Bank of NSW v The Commonwealth,91 the words ‘in trade or commerce’ refer
to ‘the central conception’ of trade or commerce and not to the ‘immense field of activities’
in which [persons] may engage in the course of, or for the purposes of, carrying on some
overall trading or commercial business. … [The words relate to] the conduct of a [person]
towards persons, be they consumers or not, with whom it … has or may have dealings in the
course of those activities or transactions which, of their nature, bear a trading or commercial
character. … In some areas, the dividing line between what is and what is not conduct ‘in
trade or commerce’ may be less clear and may require the identification of what imports a
trading or commercial character to an activity which is not, without more, of that character.

89. Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [290].
90. (1990) 169 CLR 594 at 603–4; 92 ALR 193 at 197. See also Re Ku-ring-gai Co-op Building Society (No 12) Ltd
(1978) 36 FLR 134 at 167; 22 ALR 621 at 648–9.
91. (1948) 76 CLR 1 at 381.

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19.49 The major purpose of the unconscionability provisions of the Australian Consumer
Law is to provide a greater and more flexible range of remedies to aggrieved parties than is
available pursuant to general law principles.92 The legislative initiatives in this area do not
render the equitable doctrine of unconscionable conduct redundant. While litigants may prefer
the remedial flexibility of the various statutes, they still have the option of pursuing relief under
the equitable principles.
19.50 The critical issue, however, with the statutory unconscionability sections in the
Australian Consumer Law is to what extent to which they are broader than pursuant to
equitable principles. In relation to s 20, this is a matter of some dispute. However, it is clear
that the notion of unconscionable conduct set out in s 21(1) in relation to goods and services is
broader than unconscionable conduct in equity.
19.51 It should also be noted that s 20(2) of the Australian Consumer Law states that the
prohibition set out in s 20(1) does not apply to conduct prohibited by s 21. Thus, if conduct is
caught by s 21, no action can be pursued under s 20.

Unconscionable conduct pursuant to the unwritten law — s 20

19.52 Section 20(1) stipulates as follows:
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.

19.53 The reference to ‘unwritten law’ is a reference to the equitable doctrine of

unconscionability. The Explanatory Memorandum to s 20, when originally enacted as
s 51AA of the Trade Practices Act, states that the section ‘embodies the equitable concept of
unconscionable conduct as recognised by the High Court in Blomley v Ryan and Commercial
Bank of Australia Ltd v Amadio’.
19.54 The critical question in relation to s 20 relates to whether or not its reference to
unconscionable conduct extends beyond that associated with the conduct caught by the equitable
doctrine of unconscionability. In Australian Competition and Consumer Commission v Samton
Holdings Pty Ltd,93 the court identified the following four ways in which unconscionable
conduct has been used in the case law:
1. As an organising idea informing specific equitable rules and doctrines which do not in
terms refer to, or require, an explicit finding of unconscionable conduct — eg rules on
stipulations as to time and notices to complete.
2. In relation to specific equitable doctrines of which estoppel, unilateral mistake, relief
against forfeiture and undue influence are examples. They are united by the idea that
equity will prevent an unconscionable insistence on strict legal rights and are conditioned
upon the explicit finding of unconscionable conduct in the persons against whom they
are invoked.

92. Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 316–7;
189 ALR 76 at 91; Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd
(2003) 214 CLR 51 at 834, 197 ALR 153 at 173; Ottoway Engineering Pty Ltd v Westpac Banking Corporation
(No 3) [2017] FCA 1500 at [193].
93. (2002) 117 FCR 301 at 317; 189 ALR 76 at 91.

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3. In relation to the discrete doctrine of unconscionable dealing which concerns one species
of unconscionable conduct.
4. In relation to unconscionable conduct founding a cause of action not mediated by any
discrete doctrine.

19.55 The first category is simply a reflection of the general nature of equity and it has
no relevance as to the meaning of unconscionable conduct in s 20. In relation to the fourth
category, it too is not a basis for defining unconscionable conduct in the context of s 20. As
the court in Australian Competition and Consumer Commission v Samton Holdings Pty Ltd94
observed, ‘equitable doctrine does not presently provide a remedy against conduct simply on
the basis that it is unfair in the opinion of a judge. It cannot be applied to unconscionable
conduct at large’. The court held that the second and third ways in which unconscionability has
been used in the case law come under the ‘rubric of unconscionable conduct’ caught by s 20.
The court95 held that, at the very least, under this rubric of unconscionable conduct, equity will:
(i) Set aside a contract or disposition resulting from the knowing exploitation by one party of
the special disadvantage of another. The special disadvantage may be constitutional, deriving
from age, illness, poverty, inexperience or lack of education. Or it may be situational, deriving
from particular features of a relationship between actors in the transaction such as the
emotional dependence of one on the other. (ii) Set aside as against third parties a transaction
entered into as the result of the defective comprehension by a party to the transaction, the
influence of another and the want of any independent explanation to the complaining party.
(iii) Prevent a party from exercising a legal right in a way that involves unconscionable
departure from a representation relied upon by another to his or her detriment. (iv) Relieve
against forfeiture and penalty. (v) Rescind contracts entered into under the influence of
unilateral mistake.

19.56 The first category refers to the traditional equitable understanding of unconscionability
and there is no doubt that it comes within the meaning of unconscionable conduct in s 20. This
is confirmed by the High Court decision in Australian Competition and Consumer Commission
v CG Berbatis Holdings Pty Ltd.96 In that case the High Court97 left open the question whether
unconscionable conduct in s 20 extended to four other categories of conduct listed in Australian
Competition and Consumer Commission v Samton Holdings Pty Ltd.98 However, Gyles J in GPG
(Australia Trading) Pty Ltd v GIO Australia Holdings Ltd,99 Edelman J in Hampton v BHP Billiton
Minerals Pty Ltd (No 2),100 and Gageler J in Australian Securities and Investments Commission
v Kobelt101 have all held that s 20 does not include these four other categories of conduct.

94. (2002) 117 FCR 301 at 319; 189 ALR 76 at 93.

95. Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301 at 318;
189 ALR 76 at 92.
96. (2003) 214 CLR 51; 197 ALR 153.
97. Australian Competition and Consumer Commission v Berbatis Holdings Pty (2003) 214 CLR 51 at 74, 114;
197 ALR 153 at 165, 199.
98. (2002) 117 FCR 301; 189 ALR 76.
99. (2001) 117 FCR 23 at 76; 191 ALR 342 at 389, cited with approval in Razdan v Westpac Banking Corporation
[2014] NSWCA 126 at [150].
100. [2012] WASC 285 at [190].
101. (2019) 368 ALR 1 at 22.

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19.57 The facts of Australian Competition and Consumer Commission v CG Berbatis Holdings
Pty Ltd102 concerned the desire by lessees (Mr and Mrs Roberts) of premises in a shopping
centre to renew or extend their lease in order that they could make an advantageous sale of
their business. The lessees were keen to do so, as their daughter suffered from a serious illness
and they felt unable to keep their business going and provide her with sufficient care. Their
existing lease made no provision for renewal or extension and so the Roberts were required to
negotiate with the lessors to this end. The lessors agreed to the granting of a new lease, enabling
the sale of the business by the Roberts, but as a condition of doing so, required the Roberts
to abandon a legal claim against the lessors based upon overcharging of centre management
fees. The Roberts were uncomfortable about surrendering this claim, which other tenants in
the centre were also making, believing it entitled them to approximately $50,000. However,
they did so, secured the new lease, and sold their business. Although settlement of the tenants’
claim subsequently showed that the Roberts would have received only a little under $3000
had they continued participation, the Australian Competition and Consumer Commission
sought orders alleging that the conduct on the part of the lessors, in insisting that the claim be
abandoned if a new lease was to be granted, amounted to unconscionable conduct under s 20.
19.58 The majority of the High Court held that unconscionability under s 20 had not been
made out. It found that there was no ‘special disability’ under which the Roberts could be said
to have been operating when they negotiated the new lease with the lessors. In explaining the
reasoning of the majority, Gleeson CJ103 said the following on the nature of ‘special disadvantage’:
In the present case, there was neither a special disadvantage on the part of the lessees, nor
unconscientious conduct on the part of the lessors. All the people involved in the transaction
were business people, concerned to advance or protect their own financial interests. The
critical disadvantage from which the lessees suffered was that they had no legal entitlement
to a renewal or extension of their lease; and they depended upon the lessors’ willingness to
grant such an extension or renewal for their capacity to sell the goodwill of their business
for a substantial price. They were thus compelled to approach the lessors, seeking their
agreement to such an extension or renewal, against a background of current claims and
litigation in which they were involved. They were at a distinct disadvantage, but there was
nothing ‘special’ about it. They had two forms of financial interest at stake: their claims, and
the sale of their business. The second was large; as things turned out, the first was shown to
be relatively small. They had the benefit of legal advice. They made a rational decision, and
took the course of preferring the second interest. They suffered from no lack of ability to
judge or protect their financial interests. … In truth, there was no lack of ability on their part
to make a judgment about anything. Rather, there was a lack of ability to get their own way.
That is a disability that affects people in many circumstances in commerce, and in life. It is
not one against which the law ordinarily provides relief.

On the basis of the High Court’s decision in this case, in Cao v Zhu,104 Kunc J said that ‘[u]sing
a superior bargaining position in arms’ length commercial negotiations does not engage s 20 of
the Australian Consumer Law’.

102. (2003) 214 CLR 51; 197 ALR 153.

103. Australian Competition and Consumer Commission v Berbatis Holdings Pty (2003) 214 CLR 51 at 64–5; 197
ALR 153 at 157–8.
104. [2020] NSWSC 321 at [158].

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19.59 As to the scope of s 20, the Australian Competition and Consumer Commission
conceded that this case could have been decided on an understanding of the section that
represented simply the equitable doctrine relating to unconscionable transactions. Nevertheless,
the High Court majority was clearly aware of the emerging rival interpretations of s 20, and that
it would need to be addressed at some future point. In this respect, Gummow and Hayne JJ105
said:
[T]he question as to which particular manifestations of equity’s concern with unconscientious
or unconscionable conduct are reached by [s 20] … is an important one because [s 20]
does more than re-enact for application in trade and commerce the general law principles
concerned. Contravention of [s 20] attracts particular remedies under the Act which may
not otherwise be available and provides, as this case illustrates, for litigation to be instituted
and conducted by a public body, the ACCC.

19.60 In Australian Competition and Consumer Commission v CG Berbatis Holdings Pty

Ltd,106 only Kirby J,107 in dissent, was prepared to say that the reach of s 20 went further than
the equitable doctrine of unconscionability. Although his Honour108 referred to ‘the place of
[s 20] in the Act, its history and its educative and deterrent purposes’ in support of a wider
view, it was left unclear how those considerations could square with the very clear words
of the Explanatory Memorandum. However, cases such as GPG (Australia Trading) Pty Ltd
v GIO Australia Holdings Ltd109 and Hampton v BHP Billiton Minerals Pty Ltd (No 2)110 strongly
suggest that the broader interpretation of s 20, as suggested by Australian Competition and
Consumer Commission v Samton Holdings Pty Ltd,111 does not reflect a proper interpretation
of that section.

Unconscionable conduct in connection with goods and

services — s 21
19.61 Section 21 of the Australian Consumer Law applies to contracts made between persons
for the supply or acquisition of goods and services. Section 21(1) stipulates as follows:
A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person; or
(b) the acquisition or possible acquisition of goods or services from a person;
engage in conduct that is, in all the circumstances, unconscionable.

The prohibitions set out in s 21(1) apply equally with respect to consumer and business
transactions.

105. Australian Competition and Consumer Commission v Berbatis Holdings Pty (2003) 214 CLR 51 at 72; 197
ALR 153 at 163–4.
106. (2003) 214 CLR 51; 197 ALR 153.
107. Australian Competition and Consumer Commission v Berbatis Holdings Pty (2003) 214 CLR 51 at 84; 197
ALR 153 at 174.
108. Australian Competition and Consumer Commission v Berbatis Holdings Pty (2003) 214 CLR 51 at 96; 197
ALR 153 at 183.
109. (2001) FCR 23 at 76; 191 ALR 342 at 389.
110. [2012] WASC 285 at [189]–[190].
111. (2002) 117 FCR 301; 189 ALR 76. See 19.54–19.55.

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19.62 Section 21(2) makes it clear that the institution of formal dispute resolution to
proceedings through the courts or arbitration proceedings does not constitute unconscionable
conduct for the purposes of s 21.
19.63 In determining whether a person has breached s 21(1), s 21(3) states:
(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.

19.64 In relation to the meaning of unconscionability for the purposes of s 21(1), s 21(4)(a)
makes it clear that it has a broader meaning than understood in equity.112 However, the precise
scope of unconscionability in this section remains uncertain.113 Section 21(4) stipulates as follows:
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.

19.65 In Australian Securities and Investments Commission v Kobelt,114 Gageler J said the
following in relation to s 12CB of the Australian Securities and Investments Commission
Act 2001 (Cth), which is the equivalent to s 21:
The correct perspective is that s 12CB operates to prescribe a normative standard of conduct
which the section itself marks out and makes applicable in connection the supply or possible
supply of financial services. The function of a court exercising jurisdiction in a matter arising
under the section is to recognise and administer that normative standard of conduct. The
court needs to administer that standard in the totality of the circumstances taking account of
each of the considerations identified in s 12CC if and to the extent that those considerations
are applicable in the circumstances.

His Honour115 went on to say:

[C]onduct proscribed by [s 12CB] 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. …

112. TMA Australia Pty Ltd v Indect Electronics & Distribution GmbH [2015] NSWCA 343 at [144]; Australian
Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at 140;
Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421 at 439, 442–3; 341 ALR 572 at 588, 591–2;
Australian Securities and Investments Commission v Kobelt (2019) 368 ALR 1 at 22.
113. Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2014] NSWSC 55 at [2068].
114. (2019) 368 ALR 1 at 24, cited with approval by the Full Court in Jams 2 Pty Ltd v Stubbings [2020] VSCA
200 at [90].
115. Australian Securities and Investments Commission v Kobelt (2019) 368 ALR 1 at 25.
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For a court to pronounce conduct unconscionable is for the court to denounce that conduct
as 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. Those values are not entirely confined to, or entirely removed from, the values which
historically informed courts administering equity in the development of the unwritten law of
unconscionable conduct. They include respect for the dignity and autonomy and equality of
individuals. They include respect for the cultural diversity of communities.

19.66 In relation to the concept of unconscionability pursuant to s 21, in Unique International

College Pty Ltd v Australian Competition and Consumer Commission,116 the Full Court said:
To behave unconscionably should be seen, as part of its essential conception, as serious,
often involving dishonesty, predation, exploitation, sharp practice, unfairness of a
significant order, a lack of good faith, or the exercise of economic power in a way worthy of
criticism. None of these terms is definitional. The Shorter Oxford Dictionary on Historical
Principles (1973) gives various definitions including ‘having no conscience, irreconcilable
with what is right or reasonable’. The Macquarie Dictionary (1985) gives the definition
‘unreasonably excessive; not in accordance with what is just or reasonable’. (The search
for an easy aphorism to substitute for the words chosen by Parliament (unconscionable
conduct) should not, however, be encouraged). These are descriptions and expressions of
the kinds of behaviour that, viewed in all the circumstances, may lead to an articulated
evaluation (and criticism) of unconscionability. It is a serious conclusion to be drawn about
the conduct of a businessperson or enterprise. It is a conclusion that does the subject of
the evaluation no credit. This is because he, she or it has, in a human sense, acted against
conscience. The level of seriousness and the gravity of the matters alleged will depend on the
circumstances. Courts are generally aware of the character of a finding of unconscionable
conduct and take that into account in determining whether an applicant has discharged its
civil burden of proof.

19.67 In several cases judges have stated that, for conduct to be unconscionable in this
context, ‘a high level of moral obloquy’ is required.117 However, the weight of judicial opinion
is that this expression is unhelpful and should be avoided. In Ipstar Australia Pty Ltd v APS
Satellite Pty Ltd,118 Leeming JA said:
‘Moral’ is a notoriously imprecise adjective. … When combined with ‘obloquy’, which is
scarcely a word in common parlance, the imprecision is heightened. To insist on the presence
of a ‘high level’ of such an imprecise quality does not, in my respectful opinion, assist in the
task of giving legal meaning to unconscionable in s 22 of the Australian Consumer Law.

116. (2018) 266 FCR 631 at 667; 362 ALR 66 at 100. See also Australian Competition and Consumer Commission
v Medibank Private Ltd [2018] FCAFC 235 at [233]–[255]; De Belin v Australian Rugby League Commission
Ltd [2019] FCA 688 at [387].
117. Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583; 223 ALR 346 at 371;
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291]; Australian Securities and
Investments Commission v Kobelt (2019) 368 ALR 1 at 31.
118. (2018) 356 ALR 440 at 496, cited with approval in Mastronardo v Commonwealth Bank of Australia [2018]
NSWCA 136 at [20]; Adani Abbot Point Terminal Pty Ltd v Lake Vermont Resources Pty Ltd [2020] QSC
260 at [154]; Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd (No 6) [2020] WASC 302
at [445].

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In Australian Securities and Investments Commission v Kobelt,119 Gageler J said:

‘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 [in Paciocco v Australia and New Zealand Banking
Group Ltd120] has been criticised judicially and academically. The criticism is justified.
I regret having mentioned it.

The supply of goods or services

19.68 In relation to the supply of goods or services provision set out in s 21(1)(a) of the
Australian Consumer Law, although the court is not limited in relation to what matters it can
take into account in determining whether that provision has been breached, s 22(1) of the
Australian Consumer Law states that the court may have regard to the following matters:
(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 person, 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; and
(e) the amount for which, and the circumstances under which, the customer could have
acquired identical or equivalent goods or services from a person other than the supplier;
and
(f) the extent to which the supplier’s conduct towards the customer was consistent with the
supplier’s conduct in similar transactions between the supplier and other like customers;
and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the customer acted on the reasonable
belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the customer:
(i) any intended conduct of the supplier that might affect the interests of the customer;
and
(ii) any risks to the customer arising from the supplier’s intended conduct (being risks
that the supplier should have foreseen would not be apparent to the customer); and
(j) if there is a contract between the supplier and the customer for the supply of the goods
or services:
(i) the extent to which the supplier was willing to negotiate the terms and conditions
of the contract with the customer; and
(ii) the terms and conditions of the contract; and

119. (2019) 368 ALR 1 at 25, cited with approval in Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 at [91].
120. (2016) 258 CLR 525 at 587; 333 ALR 569 at 609–10.

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(iii) the conduct of the supplier and the customer in complying with the terms and
conditions of the contract; and
(iv) any conduct that the supplier or the customer engaged in, in connection with their
commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (k), whether the supplier has a contractual right to vary
unilaterally a term or condition of a contract between the supplier and the customer for
the supply of the goods or services; and
(l) the extent to which the supplier and the customer acted in good faith.

19.69 Although the courts have made it clear that it is undesirable to attempt a comprehensive
definition of the word ‘unconscionable’ as it appears in s 21(1)(a), the Court of Appeal in
Victoria, in Wolfe v Permanent Custodians Ltd,121 said:
[U]nreasonableness and unfairness are not to be regarded as automatically rendering
conduct unconscionable, and that a distinctive quality of unconscionable conduct as against
unreasonable or unfair conduct is that it is unethical. Unreasonableness or unfairness may
form the basis of a conclusion that conduct is unconscionable but there must also be … at
least ‘some degree of moral tainting in the transaction of a kind that permits the opprobrium
of unconscionability to characterise the conduct of the party’.122

19.70 In Australian Competition and Consumer Commission v Keshow123 the court ruled
that an earlier iteration of s 21(1)(a) had been breached in relation to the sale of educational
materials and household goods to members of an Indigenous community in the Northern
Territory. Mansfield J124 summarised the basis upon which he reached his decision as follows:
The overall picture which the evidence presents is that the respondent is what is
sometimes called a ‘humbugger’. … He took advantage of the lack of education and
commercial experience of those in the communities … In many instances, the educational
materials were not needed or useful having regard to the age of the child or children of
the consumer. The products he contracted to provide were most commonly not supplied,
or not supplied in their entirety. Whether a contract to provide educational materials was
met was haphazard. The payment arrangements in each instance involved an open-ended
periodic payment authority, procured at the instance of the respondent, and authorising
payment on the day which Centrelink or like benefits were regularly received by the
particular complainant or other community resident. The respondent in a number of
instances continued to receive periodic payments well after the value of the goods to be
provided by him (whether or not they had been provided) had been received. In fact, there
is no evidence to show that the respondent maintained adequate records of what products
had been sold to which consumers, whether the products had been provided, as agreed, or
what had been paid for them.

19.71 In Australian Securities and Investments Commission v Kobelt,125 Kobelt operated a

general store in Mintabie in South Australia, which sold second-hand cars, food, groceries,

121. [2013] VSCA 331 at [28]. See also Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168
at 180–6.
122. Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [293].
123. [2005] FCA 558.
124. Australian Competition and Consumer Commission v Keshow [2005] FCA 558 at [3].
125. (2019) 368 ALR 1.

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and fuel. His customers included members of two remote Aboriginal communities who were
mostly poor with low levels of literacy and numeracy. For them, Kobelt operated a credit
system by which payment for purchases was deferred subject to them giving him their keycards
and PINs linked to bank accounts into which their wages or social security payments were
deposited. From these accounts Kobelt withdrew funds until debts were repaid. This often
meant that customers were left with no or inadequate funds to meet daily living expenses,
although Kobelt allowed them to buy groceries during a particular pay period by using up to
50 per cent of what he had withdrawn for that pay period. The effect of this system was to tie
customers to purchasing groceries from his store or other stores in Mintabie. The majority of
the High Court held that this system of providing credit did not constitute unconscionable
conduct pursuant to s 12 CB of the ASIC Act — the equivalent of s 21(1)(a) of the Australian
Consumer Law. The reasons for this conclusion included that the arrangements were entered
into voluntarily by customers, and that Kobelt did not victimise customers or act in bad faith.

The acquisition of goods or services

19.72 In relation to the acquisition of goods or services provision set out in s 21(1)(b) of
the Australian Consumer Law, although the court is not limited in relation to what matters it
can take into account in determining whether that provision has been breached, s 22(2) of the
Australian Consumer Law states that the court may have regard to the following matters:
(a) the relative strengths of the bargaining positions of the acquirer and the supplier; and
(b) whether, as a result of conduct engaged in by the acquirer, the supplier was required
to comply with conditions that were not reasonably necessary for the protection of the
legitimate interests of the acquirer; and
(c) whether the supplier was able to understand any documents relating to the acquisition
or possible acquisition of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were
used against, the supplier or a person acting on behalf of the supplier by the acquirer
or a person acting on behalf of the acquirer in relation to the acquisition or possible
acquisition of the goods or services; and
(e) the amount for which, and the circumstances in which, the supplier could have supplied
identical or equivalent goods or services to a person other than the acquirer; and
(f) the extent to which the acquirer’s conduct towards the supplier was consistent with the
acquirer’s conduct in similar transactions between the acquirer and other like suppliers;
and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the supplier acted on the reasonable
belief that the acquirer would comply with that code; and
(i) the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i) any intended conduct of the acquirer that might affect the interests of the supplier;
and
(ii) any risks to the supplier arising from the acquirer’s intended conduct (being risks
that the acquirer should have foreseen would not be apparent to the supplier); and
(j) if there is a contract between the acquirer and the supplier for the acquisition of the
goods or services:
(i) the extent to which the acquirer was willing to negotiate the terms and conditions
of the contract with the supplier; and

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(ii) the terms and conditions of the contract; and

(iii) the conduct of the acquirer and the supplier in complying with the terms and
conditions of the contract; and
(iv) any conduct that the acquirer or the supplier engaged in, in connection with their
commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (j), whether the acquirer has a contractual right to
unilaterally a term or condition of a contract between the acquirer and the supplier for
the acquisition of the goods or services; and
(l) the extent to which the acquirer and the supplier acted in good faith.126

In Transerve Pty Ltd v Blue Ridge WA Pty Ltd127 Barker J observed that ‘the factors listed in s 22
plainly are not exhaustive and are intended to be an aid to the Court, rather than control it’.
19.73 In Australian Competition and Consumer Commission v Dukemaster Pty Ltd,128 in a case
that applied an earlier iteration of s 21(1)(b) and involved renewals of retail leases, Gordon J
held that a landlord was in breach of the section in circumstances where the landlord had set
an inflated figure for the rent, required a quick response from a tenant who spoke little or no
English, and threatened eviction if the terms of the new lease were not accepted. Her Honour
also found that the landlord had engaged in misleading or deceptive conduct in violation of
s 18 of the Australian Consumer Law. What is clear from this decision is that misleading or
deceptive conduct can be utilised in ascertaining whether there has been a breach of s 21.129
19.74 Another example of a successful claim pursuant to an earlier iteration of s 21(1)(b)
is Australian Competition and Consumer Commission v Dataline.Net.au Pty Ltd,130 in which
a wholesale internet provider acted unconscionably in relation to its dealings with particular
internet service providers. The conduct included refusing to permit the providers to obtain
independent legal advice and threats of disconnection if the providers did not sign further
agreements.

Remedies
19.75 The remedies available for breaches of ss 20–21 of the Australian Consumer Law are
set out in Ch 5 of the Australian Consumer Law. First, s 232 allows for injunctions to be ordered
to restrain breaches of any of the two sections. Injunctive relief can be sought by the relevant
Minister, the Australian Competition and Consumer Commission, or by any person who has
suffered loss or is likely to suffer loss as a result of any such breach.
19.76 Second, damages can be recovered pursuant to s 236 for loss or damage suffered as the
result of a breach of any of the two sections.

126. For a brief discussion of these circumstances, see N Y Nahan and E Webb, ‘Unconscionable Conduct
in Consumer and Business Transactions’, in J Malbon and L Nottage (eds), Consumer Law and Policy in
Australia and New Zealand, Federation Press, Sydney, 2013, pp 170–5.
127. [2015] FCA 953 at [244].
128. [2009] FCA 682.
129. For a discussion of this case see E Webb, ‘Unconscionable Conduct in Australian Competition and
Consumer Commission v Dukemaster Pty Ltd — A Recognition of “Acoustic Segregation” in Retail Leasing
Transactions?’ (2010) 18 Australian Property Law Journal 48.
130. [2006] FCA 1427.

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19.77 Third, s 243 is particularly significant as it enables a range of ancillary orders to

be made, including voiding or varying the contract, return of money or property, repair of
property, and payment of money to compensate for loss or damage suffered. Courts rarely
order a variation of a contract.131 In Milchas Investments Pty Ltd v Larkin,132 Young J suggested
that this was because ‘ordinarily the courts find that damages or setting aside contracts is the
appropriate remedy or possibly a restraining injunction and it is only in very rare circumstances
that the court will think that one of the other discretionary remedies is appropriate’. The ability
to void a contract is especially important as this is a stronger remedy than that of rescission
under the equitable doctrine and may be used despite the existence of a bona fide third party
who has provided valuable consideration, although the courts will be very cautious in affecting
such a person’s rights.
19.78 Any person who has suffered, or is likely to suffer, loss as a result of a breach of any of
the two sections can seek an order under s 243. Furthermore, the Australian Competition and
Consumer Commission can seek s 243 orders on behalf of persons who have suffered loss as a
result of breaches of any of the two sections.
19.79 Finally, the Australian Competition and Consumer Commission is able to institute
proceedings seeking the imposition of a civil pecuniary penalty under s 224(1)(a)(i).

131. Westpac Banking Corporation v Zilzie Pty Ltd [2017] 2 Qd R 214 at 234–5.
132. (1989) 96 FLR 464 at 477.

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CONTRACTS REVIEW ACT

INTRODUCTION
20.1 There exist several pieces of legislation that empower courts to review contracts and
to make orders relating to those contracts, including declaring the contracts void in whole
or part. Illustrative are the Australian Consumer Law (which is Sch 2 to the Competition
and Consumer Act 2010 (Cth)), the Independent Contractors Act 2006 (Cth), the Industrial
Relations Act 1996 (NSW), and the Contracts Review Act 1980 (NSW). This chapter focuses
on the provisions contained in the Contracts Review Act 1980 (NSW).
20.2 The general policy is that persons should honour their contracts.1 However, the
Contracts Review Act 1980 (NSW) has been seen as ‘beneficial legislation’ to be ‘interpreted
liberally’2 and has been described as ‘revolutionary legislation whose evident purpose is to
overcome the common law’s failure to provide a comprehensive doctrinal framework to deal
with unjust contracts’.3
20.3 In Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd4 the Full Court observed
that the Contracts Review Act 1980 (NSW) ‘wrought an important, indeed, fundamental
change to the commercial legal landscape in New South Wales’. In Gray v Latter5 Adamson J
described the purpose of the Act as follows:
Although equitable considerations are relevant to the application of the Contracts Review
Act, they neither define, nor confine, it. The purpose of the Act is not to punish wrongdoers.
The Act is not directly, or even primarily, concerned with the conscience of the party other
than the party seeking relief. Rather, it empowers the Court to provide redress to those who
are subjected to unjust contracts and, where required, to relieve them from compliance with
some or all of their legal obligations arising from an unjust contract or provision in certain
circumstances.

1. Baltic Shipping Co, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1 at 9.

2. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 611, 631.
3. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621. See also NWC Finance Pty Ltd v Borsellino [2018]
NSWSC 134 at [64].
4. (2014) 222 FCR 13 at 38; 312 ALR 254 at 278.
5. [2014] NSWSC 122 at [100].

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20.4 The genesis of the Contracts Review Act 1980 (NSW) lay in a report to the
New South Wales Government titled Harsh and Unconscionable Contracts: Report to the Minister
for Consumer Affairs and Co-operative Societies and the Attorney-General for New South Wales.6
Attached to that Report was a draft Bill titled the Contracts Review Bill 1979. That Bill was
eventually replaced with a further Bill that became law in April 1980.
20.5 The Contracts Review Act 1980 (NSW) contains no definition of the word ‘contract’.
However, ss 14 and 15 give a wide ambit to the type of arrangements that could attract relief
from the court. Section 14 provides that such relief may be granted notwithstanding that the
contract is fully executed, and s 15 provides that a court can have regard to other contracts
or arrangements if it is of the opinion that the particular contract forms part of a series of
contracts or arrangements.
20.6 Reviewable contracts under the Contracts Review Act 1980 (NSW) include deeds,7 as
well as releases, such as those in Baltic Shipping Co, The Mikhail Lermontov v Dillon8 where
passengers who settled claims in consequence of a passenger ship sinking were required to sign
general releases.

THE OPERATION OF THE CONTRACTS REVIEW ACT 1980 (NSW)

20.7 Section 7(1) of the Contracts Review Act 1980 (NSW) confers on certain
New South Wales courts9 the power to review a ‘contract or a provision of a contract’ if it is
‘unjust’. Usually that will mean that the contract is a product of the combination of substantive
and procedural unfairness although procedural unfairness by itself may be enough to make the
contract unjust.10 For the purposes of the Act ‘contract’ has the same meaning as ‘contract’ has
at common law.11
20.8 The aim of the Contracts Review Act 1980 (NSW) is ‘to provide for the protection
of those who might be referred to as consumers’.12 In Lauvan v Bega13 Gleeson JA said that
‘one of the general legislative purposes of the Contracts Review Act is to protect persons who,

6. Harsh and Unconscionable Contracts: Report to the Minister for Consumer Affairs an Co-operative Societies
and the Attorney-General for New South Wales, October 1976.
7. Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 at 149.
8. Baltic Shipping Co, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1.
9. Courts are defined in s 4 of the Contracts Review Act 1980 (NSW) to mean: (a) the Supreme Court of
New South Wales, or (b) in accordance with section 134B of the District Court Act 1973, and without
affecting the jurisdictional limitations referred to in that section, the District Court of New South Wales,
or (c) in accordance with section 32 of the Local Court Act 2007, and without affecting the jurisdictional
limitations referred to in that section, the Local Court, or (d) in accordance with section 89D of the Home
Building Act 1989, and without affecting the jurisdictional limitations referred to in that section, the
Tribunal, or (e) in accordance with section 123 of the Retirement Villages Act 1999, and without affecting
the jurisdictional limitations referred to in that section, the Tribunal.
10. Heilpern v Anasco [2010] NSWSC 317; Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at
[64]–[92]; Gunns Finance Pty Ltd (recs and mgrs apptd) (in liq) v Sithiravel [2016] NSWSC 1543 at [273].
11. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 64; 257 ALR 658 at 679; Simmons v Simmons
[2019] NSWSC 1050 at [114]–[116].
12. Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd (2014) 222 FCR 13 at 39; 312 ALR 254 at 279.
13. Lauvan v Bega (2018) 330 FLR 1 at 57.

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for various reasons, are not able to look after their own interests, and who are preyed upon
by dishonesty, trickery and other forms of predation’. As will be seen, there are a number of
Court of Appeal decisions in New South Wales that provide guidance on the application of the
Contracts Review Act.14
20.9 Importantly, unless otherwise excluded by the terms of the Contracts Review Act 1980
(NSW), parties cannot contract out of it and any provision of a contract that purports to do this
is void.15 However, the Contracts Review Act only applies where the proper law of the contract
is the law of New South Wales.16
20.10 The Contracts Review Act 1980 (NSW) binds the Crown and will apply to all contracts
made with the Crown not only in right of NSW, but also, so far as the legislative power of
Parliament permits, the Crown in all its other capacities.17
20.11 It is important to appreciate that the Contracts Review Act 1980 (NSW) contains
restrictions on the grant of relief. In this respect relief cannot be granted to the Crown or to a
public or local authority, or a corporation.18 Further, a person may not be granted relief under
the Act in relation to a contract so far as the contract was entered into in the course of or for the
purpose of a trade, business or profession carried on by the person or proposed to be carried on
by the person, other than a farming undertaking (including, but not limited to, an agricultural,
pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or
proposed to be carried on by the person wholly or principally in New South Wales.19 Thus,
relief is not available to corporations other than bodies corporate registered under the Strata
Schemes Management Act 2015 (NSW) or the predecessor legislation relating to strata titles.
20.12 The application of s 6(2) is viewed as a matter of substance and not form,20 with the
consequence that it can be somewhat problematic in interpreting some situations where relief
is claimed under the Act. In Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd,21
after a careful consideration of previous authorities, the Full Court ruled that shareholders of a

14. See, for example, West v AGC (Advances) Ltd (1986) 5 NSWLR 610; Antonovic v Volker (1986) 7 NSWLR
151 at 157; Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256; Nguyen v Taylor (1992) 27
NSWLR 48; Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296; Citicorp Australia Ltd v O’Brien
(1996) 40 NSWLR 398 at 420; Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; Perpetual Trustee
Co Ltd v Khoshaba [2006] NSWCA 41; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389.
15. Contracts Review Act 1980 (NSW) s 17.
16. Contracts Review Act 1980 (NSW) ss 5–6.
17. Contracts Review Act 1980 (NSW) s 5.
18. Contracts Review Act 1980 (NSW) s 6(1).
19. Contracts Review Act 1980 (NSW) s 6(2). See also Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR
145 at 149; Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 at 176; Chen v Song [2005] NSWSC 19
at [187]; Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 65–6; 257 ALR 658 at 679–81;
Brighton v Australian and New Zealand Banking Group Ltd [2011] NSWCA 152 at [114ff]; Re Elsmore
Resources Ltd [2016] NSWSC 856 at [60].
20. Commercial Banking Co of Sydney Ltd v Pollard [1983] 1 NSWLR 75 at 79–80; Commonwealth Bank
of Australia v Roubas (unreported, Supreme Court of New South Wales, Hunter J, 27 March 1997);
Agricultural & Rural Finance Pty Ltd v Atkinson [2010] NSWSC 635 at [27]–[28]; Bank of Western Australia
Ltd v Primanzon [2010] NSWSC 862 at [84]–[85]; ANZ Banking Group Ltd v Tiricovski [2012] NSWSC
1304 at [59].
21. (2014) 222 FCR 13 at 39–44; 312 ALR 254 at 279–83. See also Re Elsmore Resources Ltd [2016] NSWSC 856
at [62]–[63].

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company could not be said to be carrying on a business that was owned by the company. This
was so even in a case where a so-called two dollar company was the owner. The Full Court,22 in
recognising the difficulties that such an interpretation of s 6(2) leads, referred, with approval,
to Australian Bank Ltd v Stokes,23 where Rogers J said:
It seems illogical in the extreme that Parliament should have excluded, from the purview
of the Act, relief to a two dollar company which is carried on by the corner grocer and to
the grocer carrying on business in his own name, yet if that grocer carries on business in
the name of the two dollar company and then gives a guarantee in respect of the business
of the company, on the face of it he is not carrying on business for the purposes of s 6(2)
and the Act operates in relation to a guarantee.

20.13 The words ‘trade, business or profession’ in s 6(2) are very wide and have been held
to ‘cover the whole gamut of professional and commercial activity’.24 In interpreting that
expression, the following part of the judgment of Lee J in Collins v Parker25 is apt:
[T]he expression ‘for the purpose of ’ has the meaning that the contract under consideration
is entered into as an ordinary incident of the carrying on of a particular trade, business or
profession then being carried on or proposed to be carried on.

20.14 The issue of when a contract is entered into for the purpose of a business was considered
in Ford v Perpetual Trustees Victoria Ltd.26 In that case Ford signed a loan agreement for the
purposes of financing the purchase of a cleaning business in his name. However, the business
was for the benefit of his son who had manipulated his father’s entry into the transaction. The
Court of Appeal unanimously held that Ford had not entered into a contract for the purpose of
a business. Allsop P and Young JA27 said:
The application of s 6(2) should be looked at as a matter of substance and not form. … Mr Ford
was in no real sense a participant in the scheme, but a hapless victim of manipulation. The
primary judge described [his son] as the ‘actual, but not the legal, proprietor’ of the business.
In such circumstances, as a matter of fact and substance, the business was not ‘carried on’ or
‘proposed to be carried on’ by Mr Ford for the purposes of s 6(2).

20.15 Similarly in Zhang v VP302 SPV Pty Ltd,28 although the plaintiff purchased a property
‘off the plan’ for investment purposes, White J held that the contract was not caught by s 6(2)
and granted relief under Contracts Review Act 1980 (NSW).

22. Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd (2014) 222 FCR 13 at 40; 312 ALR 254 at 280.
23. (1985) 3 NSWLR 174 at 176.
24. GE Mortgage Solutions Ltd v Fassos [2012] NSWSC 1446 at [134]. See also Ellison v Vukicevic (1986) 7
NSWLR 104 at 111; Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [222];
HomeSec Finance Express Pty Ltd v Richardson [2012] NSWSC 1375 at [185]–[189]. These cases can be
compared with Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145; Australian Bank Ltd v Stokes
(1985) 3 NSWLR 174.
25. Unreported, Supreme Court of New South Wales, Lee J, 11 May 1984 at 18.
26. (2009) 75 NSWLR 42; 257 ALR 658.
27. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 65; 257 ALR 658 at 680.
28. (2009) 223 FLR 213. See also 3Meg.com Pty Ltd v TM & SM Pike Pty Ltd (2012) 43 WAR 350 at 363.

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APPLICATIONS FOR RELIEF UNDER S 7 OF THE CONTRACTS

REVIEW ACT 1980 (NSW)
20.16 Section 7(1) of the Act provides that where the court finds a contract or a provision
of a contract to have been unjust in the circumstances relating to the contract at the
time it was made, the court may, if it considers it just to do so, and for the purpose of
avoiding as far as practicable an unjust consequence or result, do any one or more of the
following:
(a) it may decide to refuse to enforce any or all of the provisions of the contract,
(b) it may make an order declaring the contract void, in whole or in part,
(c) it may make an order varying, in whole or in part, any provision of the contract,
(d) it may, in relation to a land instrument, make an order for or with respect to requiring
the execution of an instrument that:
(i) varies, or has the effect of varying, the provisions of the land instrument, or
(ii) terminates or otherwise affects, or has the effect of terminating or otherwise
affecting, the operation or effect of the land instrument.

In considering an application for relief under s 7 of the Contracts Review Act 1980 (NSW), the
court must undertake a three-stage process (in any particular order). This was described in
Perpetual Trustee Co Ltd v Khoshaba29 by Basten JA in the following way:
The first step is to make findings of primary fact as to the circumstances revealed in the
evidence. …

The second step in the process is a finding that a contract or a provision of a contract is ‘unjust’.
This … is variously described in s 7(1) as a finding and in s 9(1) and (4) as a determination.
On either description, the Court is not exercising a discretionary power, but making an
evaluative judgment as to the whether the facts as found satisfy a statutory description which
in turn engages a discretionary power. …

Section 9(2) requires a court to take in to account, in determining whether a contract is

unjust, a set of matters, some of which are defined with reasonable precision, but others
of which are not. In the latter category may be found the requirement that the Court
shall have regard to ‘the public interest’ and to the circumstances of the case, including
the consequences or results which may arise from compliance with any or all of the
provisions of the contract.30

The third step involves the exercise of the power to grant relief which may, but need not,
follow from the conclusion that a contract or a provision thereof is unjust. That is truly
a discretionary power to be exercised if the Court ‘considers it just to do so, and for the
purpose of avoiding as far as practicable an unjust consequence or result’.31

29. [2006] NSWCA 41 at [106]–[109]. See also Canty v PaperlinX Australia Pty Ltd [2014] NSWCA
309 at [123]; Gunns Finance Pty Ltd (recs and mgrs apptd)(in liq) v Sithiravel [2016] NSWSC 1543
at [269].
30. Contracts Review Act 1980 (NSW) s 9(1).
31. Contracts Review Act 1980 (NSW) s 7(1).

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20.17 The ‘evaluative judgment’ referred to by Basten JA has sometimes been referred to as ‘the
unjustness calculus’.32 However, others have avoided this expression on the basis that it suggests
that the exercise is mechanistic rather than being largely impressionistic and evaluative.33
20.18 These identified steps have been applied and endorsed on numerous subsequent
occasions.34 In some of those cases the courts have bundled the three steps into two, but
nothing of substance turns on this interpretation. Importantly, a contract may be unjust for
the purposes of s 7 of the Contracts Review Act 1980 (NSW) because of the way it operates
in relation to a person, or because of the way in which it was made, or both.35 This duality of
application has been described as being derived from substantive injustice because its terms,
consequences, or effects were unjust or because of procedural injustice brought about by the
unfairness of the methods used to make it.36

The normative evaluation that a contract is unjust

20.19 Case law suggests that the Contracts Review Act 1980 (NSW) has a very wide
application. In the hearing for leave to appeal in Baltic Shipping Co, The Mikhail Lermontov
v Dillon37 Mason CJ said:
The jurisdiction conferred by the Contracts Review Act is extremely wide. Once there is a
finding that a contract was unjust, the Court may refuse to enforce the contract or grant the
other relief prescribed by s 7(1).

‘Unjust’ is defined in s 4 of the Contracts Review Act in a non-exhaustive way to include

‘unconscionable, harsh or oppressive’.38 ‘Unjustness’ has been held not to be a concept or word
with immutable or unvarying content.39 In May v Brahmbhatt40 Beazley P noted that that
‘justness’ is both a ‘general and inherently variable’ notion, which Parliament undoubtedly
intended to respond to contemporary community standards. Further, in Perpetual Trustee

32. St George Bank Ltd v Trimarchi [2004] NSWCA 120 at [36].

33. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [101] (Handley JA), [112] (Basten JA). See also
Fuge v Commonwealth Bank of Australia [2019] FCA 1621 at [107].
34. Commonwealth Bank v Munro [2011] NSWSC 128 at [25]; Perpetual Trustee Co Ltd v Khoshaba [2006]
NSWCA 41 at [34]; Riz v Perpetual Trustee Australia [2007] NSWSC 1153 at [51]; Kowalczuk v Accom
Finance Pty Ltd (2008) 77 NSWLR 205; 252 ALR 55 at 75; Heilpern v Anasco [2010] NSWSC 317 at [34];
Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 635 at [46]; Verduci v Golotta [2010]
NSWSC 506 at [51]; Bendigo and Adelaide Bank Ltd v Karamihos [2014] NSWCA 17 at [29]; Nemeth
v Australian Litigation Funders Pty Ltd [2014] NSWCA 198 at [97]; William Tomac & Anor v Antonia Elsa
Papp; The Estate of Tomo Tomac [2016] NSWSC 1472.
35. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620; Re Elsmore Resources Ltd [2016] NSWSC 856
at [66].
36. Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; 252 ALR 55 at 75; Re Elsmore Resources Ltd
[2016] NSWSC 856 at [66].
37. (Unreported, High Court of Australia, 7 February, 1992).
38. Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 at 221; Perpetual Trustee Co Ltd v Khoshaba
[2006] NSWCA 41 at [114]; Fuge v Commonwealth Bank of Australia [2019] FCA 1621 at [106].
39. Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [266].
40. [2013] NSWCA 309 at [36].

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Co Ltd v Khoshaba Basten JA observed that the statutory definition of ‘unjust’ is clearly
41

intended to give the term an expansive meaning.

20.20 The meaning of ‘unjust’ overlaps with general law principles, especially those dealing
with unconscionable transactions. In relation to these two principles, in Spina v Permanent
Custodians Ltd42 Young JA said:
Broadly speaking, the same sort of factors are relevant in a case based on unconscionability
as those based to get relief under the statute. However, … to succeed in showing there is
unconscionable conduct, a plaintiff must show that the defendant’s conduct fell short of
the standards accepted by courts of equity and the focus is on the defendant. Under the
Contracts Review Act, the focus is on the weaker party as to whether the contract operates
unjustly towards the weaker party.

20.21 However, in Perpetual Trustee Co Ltd v Khoshaba43 Basten JA added the following
rider:
That is not to say that the Court is launched on an uncharted sea with no navigational
guides, but rather that constraints which would preclude intervention according to
established principles of legal or equitable doctrine, may not be decisive under the Act.
Thus, while equity provides relief against the unconscientious conduct of the defendant,
the Act may permit relief in circumstances where the conscience of the defendant is not
affected. Similarly, a contract, or a provision thereof, may be unjust in circumstances
where there was no pre-existing duty owed by, say, a lender to a borrower to act in a
particular way.

20.22 Importantly, the threshold for relief under the Contracts Review Act 1980 (NSW) is
lower than for a claim of unconscionability under the general law.44 In relation to cases where
a plaintiff seeks relief under the Contracts Review Act and in the alternative pursuant to
unconscionability under the general law, in Spina v Permanent Custodians Ltd45 Young JA said:
On the remaining issues, the judge first dealt with unconscionability and then with the
Contracts Review Act. I do not intend to follow that order of proceeding because it seems
to me that with the possible exceptions listed below, it is always preferable to deal with
the Contracts Review Act point first. Not only is the jurisdiction probably wider under
that Act than when dealing with equitable principles of unconscionability, but where,
as has happened time and time again through history, statute has been enacted to cover
the same ground as an equitable principle, the equitable principle is usually put into
abeyance.

41. [2006] NSWCA 41 at [114].

42. [2009] NSWCA 206 at [124].
43. [2006] NSWCA 41 at [115].
44. Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; 223 ALR 346; Bakarich
v Commonwealth Bank of Australia [2007] NSWCA 169; Mighell v Gargoura [2009] NSWSC 248 at [62];
Commonwealth Bank v Munro [2011] NSWSC 128 at [24]; Paciocco v Australia and New Zealand
Banking Group Ltd (2015) 236 FCR 199 at 286; Fuge v Commonwealth Bank of Australia [2019] FCA
1621 at [106].
45. [2009] NSWCA 206 at [74].

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20.23 In Provident Capital Ltd v Papa46 Allsop P referred to a normative evaluation that
was to be undertaken in determining in any given case whether a contract was unjust. That
evaluation was described by his Honour47 as follows:
The broad evaluation of unjustness under the Contracts Review Act 1980, ss 4, 7 and 9 involves
the normative evaluation of the totality of relevant circumstances. Inevitably minds may
differ as to conclusions about such questions. Also, it is often not fruitful to compare other
cases with the particular circumstances at hand, lest one be deflected from an appropriate
overall assessment by focus on particular aspects relevant to any such comparison. Central
to the normative evaluation is the recognition that there is a need for the protection of some
people in some circumstances, who are not able fully to protect their own interests against
factors that may cause injustice. That vulnerability may come from one or more of many
circumstances, such as lack of education or of intelligence, from gullibility, from the predation
of fraud and greed, and also sometimes from loyalty and love. The characterisation of a
contract as unjust and the sheeting home to the other contracting party of the consequences
of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition
of the inadequacy of one party to protect her or his interests in the circumstances.

20.24 In ascertaining whether the contract is unjust, there is no need to find that there was
any moral obloquy on the part of the defendant.48
20.25 In West v AGC (Advances) Ltd49 McHugh JA observed that a contract could be unjust
‘because of the way it operates in relation to the claimant or because of the way in which it was made
or both’. His Honour noted that a contract could be unjust because it contained ‘substantive injustice’
(which arises ‘because its terms, consequences or effects are unjust’), or because of ‘procedural
injustice’ (which arises ‘because of the unfairness of the methods used to make it’), or both.
20.26 In reaching its decision in Perpetual Trustee Co Ltd v Khoshaba50 the Court of Appeal
highlighted the need to consider the public interest and all the circumstances of the case. In
relation to the public interest, in Tonto Home Loans Australia Pty Ltd v Tavares51 Allsop P said:
The public interest is the subject of particular reference in … s 9(1). One aspect of the
public interest recognised early is keeping people to their freely entered bargains.52 By
stating the importance of this aspect of the public interest shortly, I should not be thought
to be consigning it as a matter of mere note only. It is fundamental, indeed it inheres in the

46. (2013) 84 NSWLR 231.

47. Provident Capital Ltd v Papa (2013) 84 NSWLR 231 at 233–4, cited with approval in W & K Holdings (NSW)
Pty Ltd v Lauren Margaret Mayo [2013] NSWSC 1063 at [155]; Nemeth v Australian Litigation Funders
Pty Ltd [2014] NSWCA 198 at [96]; Re Elsmore Resources Ltd [2016] NSWSC 856 at [67]; Al Maha Pty Ltd
v Coplin [2017] NSWCA 318 at [40]; Magann v Trustees of the Roman Catholic Church of the Diocese of
Parramatta [2019] NSWSC 1453 at [215] (decision upheld on appeal in Magann v Trustees of the Roman
Catholic Church of the Diocese of Parramatta [2020] NSWCA 167); Sukkar v Sukkar [2019] NSWSC 691
at [147]; Private Mortgages Australia Pty Ltd ACN 600 628 813 as trustee for the PMA Trust v Stever [2019]
NSWSC 462 at [82].
48. Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260 at [50].
49. (1986) 5 NSWLR 610 at 620. See also Nemeth v Australian Litigation Funders Pty Ltd [2014] NSWCA 198
at [94]–[95]; Sukkar v Sukkar [2019] NSWSC 691 at [146].
50. [2006] NSWCA 41.
51. [2011] NSWCA 389 at [269]–[270].
52. Baltic Shipping Co, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1 at 9.

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CRA [Contracts Review Act 1980 (NSW)] itself. It is an aspect of society that is of vital
importance. As Story J53 said, writing extra-judicially, ‘confidence in promises is … essential
to the existence of social intercourse among men …’. Its strength as an operative legal norm
that can be seen as fundamental is directly related to circumstances which give it strength —
the just and free circumstances that give rise to the bargain. As Finn J54 said, writing extra-
judicially, if parties are to be held to their bargains once made, the law should act with vigour
to promote the conditions necessary to make the freedom of contract effective, free and just.

Another aspect of the public interest is the advancement of the protection, which the CRA
manifestly intends to give, to those not able fully to protect themselves and to those preyed
upon by dishonesty, trickery and other forms of predation.

20.27 It is clear from these and other cases that ‘because of the flexibility in the [Contracts
Review] Act, it is more difficult for a party who is seeking to resist compliance with a contract
to succeed pursuant to the principles unconscionability than it is to succeed pursuant to the
Act’.55 On the other hand, in Lauvan v Bega56 Gleeson JA indicated some of the types of cases
that have been found not to be unjust:
[I]t is … well-established that a contract will not be unjust merely because it was not in
someone’s interest to enter into it:57 or because it was inopportune or produced a loss;58 or
because the party seeking relief was foolish, gullible or greedy;59 or because the contract was
burdensome, a hard bargain, strongly in the interests of the party against whom relief is
sought, or in some sense unreasonable.60

20.28 Section 7(1) of the Contracts Review Act 1980 (NSW) stipulates that the time for
determining whether a contract or any of its provisions is determined by reference to ‘the
circumstances relating to the contract at the time it was made’. Those circumstances are not
limited to those that were known to the party seeking to rely on the contract at the relevant
time, although it has been held that a lack of knowledge of relevant matters may well be relevant
to the exercise of the court’s discretion.61 Importantly, post-contractual contract is inadmissible
in this context.62
20.29 However, it is also clear that the purpose for which a loan is obtained is a relevant
circumstance in applying s 763 and that post-contractual conduct can be admitted to ascertain
the purpose or motive for entering into the transaction, as occurred in Perpetual Trustee Co
Ltd v Papantoniou.64

53. ‘Contract’ (1832) 9 Encyclopaedia Americana, p 156.

54. Justice P Finn, ‘Unconscionable Conduct’ (1994) 8 Journal of Contract Law 37, p 49.
55. Ling v Pan Pac Investment Pty Ltd [2015] NSWSC 850 at [110].
56. Lauvan v Bega (2018) 330 FLR 1 at 57, cited with approval in Magann v Trustees of the Roman Catholic
Church of the Diocese of Parramatta [2020] NSWCA 167 at [50].
57. Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491.
58. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [78].
59. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [128].
60. Conley v Commonwealth Bank of Australia [2000] NSWCA 101 at [96].
61. Re Elsmore Resources Ltd [2016] NSWSC 856 at [65].
62. Agricultural & Rural Finance Pty Ltd v Atkinson [2010] NSWSC 635 at [48]–[52].
63. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [67]–[68].
64. [2012] NSWSC 1415.

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20.30 Furthermore, subsequent events and circumstances may be considered in the exercise of
the court’s discretion to grant relief which is to be directed, in accordance with the express terms
of s 7(1), to ‘the purpose of avoiding as far as practicable an unjust consequence or result’.65
20.31 Pursuant to ss 7 and 8 of the Contracts Review Act 1980 (NSW) a court may, on the
application of a party to a contract made within two years of the date of the contract, or within
three months before or two years after the time for the exercise or performance of any power or
obligation under the contract, or during the pendency of maintainable proceedings relating to
the contract, do all or any of the following things:
• refuse to enforce a contract or any part of it;
• void or vary the contract or any part of it;66
• order the execution of an instrument varying or terminating the operation of a land
instrument;
• grant ancillary relief, including orders for the payment of compensation, the supply or
repair of goods, and the supply of services.

20.32 As the relief obtainable is discretionary,67 a court may refuse to grant any relief in
the circumstances.68 Further, in determining whether or not a remedy for an unjust contract
should be ordered, the court ‘must decide whether any orders are necessary to avoid … unjust
consequences’.69 In S H Lock (Australia) Ltd v Kennedy70 Priestley JA said:
Once a court finds a contract unjust … it is faced with the next and quite separate task, for
which the Act provides less guidance. … As I understand s 7(1), wide though the court’s
powers are to find a contract unjust, the remedies it may grant in respect of such injustice are
strictly limited to avoiding an unjust consequence or result of the unjust contract.

20.33 In Esanda Finance Corporation Ltd v Tong71 Handley JA said:

[Section 7(1)] gives the Court powers to grant civil remedies to remove injustice. These
powers are neither penal nor disciplinary, and should not be exercised for such purposes.
Once injustice to the weaker party has been remedied, the Court should not further interfere
with the rights of the parties. Interference beyond that point will cause injustice to the other
party, and is not authorised by the section.

RELIEF UNDER THE CONTRACTS REVIEW ACT

20.34 As referred to above,72 in the court, where it finds that a contract, or a provision of a
contract is unjust in the circumstances relating to the contract at the time it was made, it may,
if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust

65. CIT Credit Pty Ltd v Keable [2006] NSWCA 130 at [65].
66. Egan v Egan [2018] NSWSC 202 at [109], a case in which a loan contract was varied.
67. Bank of Western Australia v Tannous [2010] NSWSC 1319 at [33]–[35]; First Mortgage Managed Investments
Ltd v Pitman [2012] NSWSC 1332.
68. Nguyen v Taylor (1992) 27 NSWLR 48; Tomac v Papp; Estate of Tomac [2016] NSWSC 1472.
69. First Mortgage Management Investments Pty Ltd v Pittman [2014] NSWCA 110 at [168].
70. (1988) 12 NSWLR 482 at 492.
71. (1997) 41 NSWLR 482 at 489.
72. See 20.16.
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consequence or result, make any one or more of the orders set out in s 7(1). The applicable
principles in respect of an application under s 7 of the Contracts Review Act 1980 (NSW) have
been considered by the courts on numerous occasions.73
20.35 In Agricultural & Rural Finance Pty Ltd v Atkinson (No 2)74 Ball J said the following
about the public interest requirement:
The public interest requirement in s 9(1) involves the advancement of the general legislative
purpose of the [Act]. That general purpose has been identified by the authorities as the
protection of people who are not able fully to protect themselves and who are preyed upon
by dishonesty, trickery and other forms of predation. However, s 9(1 requires that legislative
purpose to be balanced against the public interest in ‘keeping people to their freely entered
bargains’75 and in ‘maintaining certainty of contract’.76

20.36 In order to determine whether relief under the Contracts Review Act 1980
(NSW) ought to be granted, it would appear that a court must look at both the bargaining
process (procedural unconscionability) and the outcome of the contract (substantive
unconscionability). This is so notwithstanding that the Contracts Review Act does not require
factors to be characterised as either substantive or procedural injustice.77 In Riz v Perpetual
Trustee Australia Ltd78 Brereton J said:
I am prepared to accept that procedural unfairness may be sufficient to make a contract
unjust, even though its terms are objectively reasonable, if the party claiming relief would not
have entered into the contract if properly advised or informed of its legal and practical effect,
consequences and risks. However, characterisation of a contract as unjust requires adoption
of a more objective view than the subjective perspective of one party to the contract. As
McHugh JA said in West:79

… a contract will not be unjust against a party unless the contract or one of its
provisions is the product of unfair conduct on his part either in the terms which he
has imposed or in the means which he has employed to make the contract.

That is not to say a contract cannot be unjust even though the vitiating circumstance is
not known to the other party; there are plainly cases in which a contract will be unjust
even though the other party is unaware of the relevant circumstance.80 Nonetheless,
evaluation of injustice requires that the court have regard to the position of all the
contracting parties.

73. For a summary of those principles see White v Wills [2014] NSWSC 1160 at [107ff]; Crane Distribution Ltd
v Yang [2016] NSWSC 620; Re Elsmore Resources Ltd [2016] NSWSC 856 at [67]; Sukkar v Sukkar [2019]
NSWSC 691 at [184]–[185].
74. [2014] NSWSC 1397 at [105].
75. Baltic Shipping Co, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1 at 9.
76. Blacker v National Australia Bank Ltd [2000] NSWSC 805 at [159]. See also Kowalczuk v Accom Finance Pty
Ltd (2008) 77 NSWLR 205 at 241, 243; 252 ALR 55 at 75.
77. H Saunders, ‘Relief from Unconscionable Contracts: The Contracts Review Act 1980 (NSW) and the
“Unwritten Law”’ (2007) Australian Bar Review 290 at 306–7.
78. [2007] NSWSC 1153 at [74]–[75].
79. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 622.
80. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [117]–[119].

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20.37 In relation to the circumstances of the case, the court shall not have regard to any
injustice arising from circumstances that were not reasonably foreseeable at the time the
contract was made.81 In addition, the court, without affecting the generality of s 9(1) of the
Contracts Review Act 1980 (NSW),82 must take into account the following non-exhaustive
criteria — largely concerned with matters of procedural injustice — set out in s 9(2):
(a) whether or not there was any material inequality in bargaining power between the
parties to the contract;
(b) whether or not prior to or at the time the contract was made its provisions were the
subject of negotiation;
(c) whether or not it was reasonably practicable for the party seeking relief under this Act
to negotiate for the alteration of or to reject any of the provisions of the contract;
(d) whether or not any provisions of the contract impose conditions which are unreasonably
difficult to comply with or not reasonably necessary for the protection of the legitimate
interests of any party to the contract;
(e) whether or not —
(i) any party to the contract (other than a corporation) was not reasonably able to
protect his interests; or
(ii) any person who represented any of the parties to the contract was not reasonably
able to protect the interests of any party whom he represented, because of his age
or the state of his physical or mental capacity;
(f) the relative economic circumstances, educational background and literacy of —
(i) the parties to the contract (other than a corporation); and
(ii) any person who represented any of the parties to the contract;
(g) where the contract is wholly or partly in writing, the physical form of the contract, and
the intelligibility of the language in which it is expressed;
(h) whether or not and when independent legal or other expert advice was obtained by the
party seeking relief under this Act;
(i) the extent (if any) to which the provisions of the contract and their legal and practical
effect were accurately explained by any person to the party seeking relief under this Act,
and whether or not that party understood the provisions and their effect;
(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used
against the party seeking relief under this Act —
(i) by any other party to the contract;
(ii) by any person acting or appearing or purporting to act for or on behalf of any other
party to the contract; or
(iii) by any person to the knowledge (at the time the contract was made) or any other
party to the contract or of any person acting or appearing or purporting to act for
or on behalf of any other party to the contract;
(k) the conduct of the parties to the proceedings in relation to similar contracts or courses
of dealing to which any of them has been a party.

81. Contracts Review Act 1980 (NSW) s 9(4).

82. West v AGC (Advances) Ltd (1986) 5 NSWLR 610; Spina v Permanent Custodians Limited [2009] NSWCA
206 at [105]; Re Elsmore Resources Ltd [2016] NSWSC 856 at [70]; Australian Competition and Consumer
Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [58]; Sukkar v Sukkar [2019] NSWSC 691
at [152].

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20.38 In relation to s 9(2), in May v Brahmbhatt Beazley P said:

83

[A] party is not necessarily entitled to relief merely by establishing circumstances that fall
into one or other of the factors specified in s 9(2). It must be established that the contract
was unjust. This is a question of fact, although there are broadly-based value judgements
involved in the ultimate factual determination. Further the grant of relief is a matter of
judicial discretion.

20.39 Further, in relation to the criteria set out in s 9(2), in Nemeth v Australian Litigation
Funders Pty Ltd84 Gleeson JA said:
In an appropriate case gross disparity between the price of goods or services and their value
may render the contract unjust even though none of the provisions of s 9(2) (which are
mostly concerned with matters of procedural injustice) can be invoked by the claimant …
[Furthermore,] if a defendant has not been engaged in conduct depriving the claimant of a
real or informed choice to enter into a contract and the terms of the contract are reasonable
as between the parties, the contract could not be considered unjust simply because it was
not in the interest of the claimant to make the contract or because she had no independent
advice.

20.40 The statutory mandate for the court to consider ‘all of the circumstances of the case’
may be, to some degree, qualified by the notion that the ‘circumstances’ are the pleaded
circumstances — in other words, what has been put into issue by the originating process or
other pleadings. To suggest otherwise may lead to procedural unfairness.85
20.41 The court can grant injunctive relief where there has been a breach of the Contracts
Review Act 1980 (NSW). In Australian Guarantee Corporation Ltd v McClelland86 the court
refused to exercise its discretion to grant relief, as the court found that the relevant lease of a
truck was not unfair in the circumstances.
20.42 Although there is an undoubtedly broad jurisdiction conferred by the Contracts
Review Act 1980 (NSW), it is clear that a court will be cautious in making any order in favour
of a person with some disability in circumstances where the other party is unaware of the
disability. However, the court will do so in appropriate circumstances.87 In this respect, in
Perpetual Trustee Co Ltd v Khoshaba88 Spigelman CJ said:
Plainly, the conduct, whether by act or omission, of the party resisting a finding of unjustness
under the Act is highly relevant, and will often be determinative. However, the scope of
relevant circumstances is not confined to what the person resisting an order under s 7(1)
did or did not do and knew or ought to have known. The critical phrase in s 7(1) — ‘the
circumstances relating to the contract at the time it was made’ — cannot be so limited.
Section 9(1) provides that when determining unjustness ‘the court shall have regard to the

83. [2013] NSWCA 309 at [37].

84. [2014] NSWCA 198 at [95]. See also Private Mortgages Australia Pty Ltd ACN 600 628 813 as trustee for the
PMA Trust v Stever [2019] NSWSC 462 at [81].
85. Agricultural and Rural Finance Pty Ltd v Atkinson [2010] NSWSC 635 at [29]; Commonwealth Bank
v Munro [2011] NSWSC 128 at [42].
86. (1993) ASC 56-230.
87. Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; 252 ALR 55.
88. [2006] NSWCA 41 at [76].

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public interest and to all the circumstances of the case’. Furthermore, s 9(2)(l) includes …
amongst the relevant circumstances ‘the commercial or other setting, purpose and effect of
the contract’.

20.43 Thus, in Ford v Perpetual Trustees Victoria Ltd89 the court varied the loan agreement,
notwithstanding that the lender did not know of Ford’s disability. Allsop P and Young JA90 said:
Given the helpless position of Mr Ford, the plain injustice of the loan and mortgage contracts
from his perspective, … we would make an order varying the contract of loan and mortgage
to limit his liability to $24,857 plus interest. This conclusion is reinforced by the recognition
that [the lender] took no steps whatsoever to ascertain the circumstances of [Mr Ford].

20.44 In Sharman v Kunert91 Holland J applied the Contracts Review Act 1980 (NSW) to void
a land contract. In that case the land was sold at a gross undervalue on a loan-back basis at a
below-market rate of interest. His Honour found that the vendor was disadvantaged because
of his lack of literacy in the English language, his depressed emotional state, his friendship
with the purchaser, and his lack of independent advice. As a result there was such a degree
of unconscionability as to require the contract to be set aside. According to his Honour,92 the
Contracts Review Act 1980 (NSW) called for:
… a fresh and direct approach to the individual case, without preconceived notions of
conditions on which a court may set aside or vary a contract derived exclusively from
established doctrines, whilst at the same time giving due recognition to the public interest in
generally holding parties to their bargains.

20.45 In West v AGC (Advances) Ltd93 Mrs West executed a mortgage over her home to a
finance company. The funds were used to pay out an existing mortgage on the property and to
provide funds for her husband’s business that was in poor shape. She had no independent legal
advice94 as such, but did talk it over with her son, an accountant, and a barrister friend of hers.
The majority of the Court of Appeal held that there should be no relief under the Contracts
Review Act 1980 (NSW). McHugh JA95 said:
Under s 7(1) a contract may be unjust in the circumstances existing when it was made because
of the way it operates in relation to the claimant or because of the way in which it was made or
both. Thus a contractual provision may be unjust simply because it imposes an unreasonable
burden on the claimant when it was not reasonably necessary for the protection of the

89. (2009) 75 NSWLR 42; 257 ALR 658.

90. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 68; 257 ALR 658 at 683.
91. [1985] 1 NSWLR 225.
92. Sharman v Kunert [1985] 1 NSWLR 225 at 231.
93. West v AGC (Advances) Ltd (1986) 5 NSWLR 610.
94. Obtaining independent legal advice is simply a factor in determining whether the contract or provision
in a contract is unjust. It is relevant to the extent that it relates to whether the person has an appreciation
of the effect of the contract or term of the contract. In some cases, the nature and terms of the contract
may require that such advice is given. It will, in the end, depend upon all the circumstances: West v AGC
(Advances) Ltd (1986) 5 NSWLR 610 at 627; Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309
at [142]–[144]; Lauvan v Bega (2018) 330 FLR 1 at 57; Westlawn Finance Ltd v Tagg [2018] NSWSC 1491
at [84]; Dlakic v Vaughan [2018] NSWSC 1455 at [208]–[210].
95. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620. See also Private Mortgages Australia Pty Ltd ACN
600 628 813 as trustee for the PMA Trust v Stever [2019] NSWSC 462 at [80].

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legitimate interests of the party seeking to enforce the provision.96 In other cases the contract
may not be unjust per se but may be unjust because in the circumstances the claimant did not
have the capacity or opportunity to make an informed or real choice as to whether he should
enter into the contract.97 More often, it will be a combination of the operation of the contract
and the manner in which it was made that renders the contract or one of its provisions
unjust in the circumstances. Thus a contract may be unjust under the Act because its terms,
consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust
because of the unfairness of the methods used to make it. This is procedural injustice. Most
unjust contracts will be the product of both procedural and substantive injustice.

20.46 His Honour98 then drew a distinction between the contract and the underlying
transaction and said:
It is important to bear in mind that it is the contract or its provisions which must be unjust. …
If a defendant has not been engaged in conduct depriving the claimant of a real or informed
choice to enter into a contract and the terms of the contract are reasonable as between the
parties, I do not see how that contract can be considered unjust simply because it was not in
the interests of the claimant to make the contract or because she had no independent advice.
… [U]nder this Act, a contract will not be unjust as against a party unless the contract or one
of its provisions is the product of unfair conduct on his part either in the terms which he has
imposed or in the means which he has employed to make the contract.

20.47 According to Rein J in Tomac v Papp; Estate of Tomac,99 the following principles can
be derived from the decision in West v AGC (Advances):100
1. The CRA [Contracts Review Act 1980 (NSW)] is ‘beneficial legislation’ to be ‘interpreted
literally;’101
2. The Court can consider circumstances which were not known to the other contracting
party but:
(i) The Court cannot have regard to any injustice arising from the circumstances that
was not reasonably foreseeable at the time the contract was made.
(ii) While knowledge of a circumstance by the other party ‘is not a condition precedent
to the consideration of that circumstance, his lack of knowledge may render the
circumstances of less materiality than it would if he was aware of it’; 102
3. A contract can be unjust because of the way it operates, or because it imposes an
unreasonable burden on the claimant when it was not reasonable for the protection
of the legitimate interest of the other party103 — ie what might be labelled ‘substantive
injustice.’ A contract may be unjust because in the circumstances the claimant ‘did not
have the capacity or opportunity to make an informed or real choice as to whether he
should enter into the contract’104 — ie what might be labelled ‘procedural injustice.’

96. Contracts Review Act 1980 (NSW) s 9(2)(d).

97. See Contracts Review Act 1980 (NSW) s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j).
98. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621–2.
99. [2016] NSWSC 1472 at [45].
100. West v AGC (Advances) Ltd (1986) 5 NSWLR 610.
101. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 611, 618, 631.
102. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620.
103. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 618, 620.
104. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620.

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4. In relation to procedural injustice ‘if a contract or one of its relevant provisions is neither
unfair nor unreasonable so far as the applicant is concerned it is difficult to see how the
existence of inequality in bargaining power or lack of independent advice, for example,
can render the contract or a provision of the contract unjust’;105
5. The CRA regulates contracts not transactions;106
6. Lack of independent advice or the fact that the contract was not in the interest of the
applicant is insufficient;107
7. The CRA makes it plain that whether or not the contract or any provision of it is unjust
‘requires an examination of the position and rights of the party against whom relief is
claimed.’108

20.48 In Beneficial Finance Corporation Ltd v Comer109 Rogers CJ in Comm, in referring to

the approach of the majority in West v AGC (Advances) Ltd,110 observed that ‘further experience
with the [Contracts Review] Act may conceivably show that approach to be too restrictive’.
20.49 Furthermore, in Baltic Shipping Co, The Mikhail Lermontov v Dillon111 Kirby P said:
With every respect to those of a different view, I consider that it is a mistake to read into
the language of s 9 an obligation to show that the contract was unjust because it was
produced by unfair conduct or unjust conduct on the part of one of the parties to it. This
is not what the section says. It addresses attention to the resulting contract itself. It is true
that in many cases a contract will not be ‘unjust’ without some elements of unfairness or
injustice on the part of one of the parties leading to the making of the contract. Hence
the concentration on procedural questions in the check list of circumstances referred to
in s 9(2). But that list is not, as the subsection makes plain, exclusive. The duty of a court
remains to have regard to ‘all the circumstances of the case’. It must consider the ‘public
interest’, including in the observance of agreements duly entered. But in the end, the focus
of attention must be on the contract. The court must decide whether ‘in the circumstances’,
the contract is ‘unjust’. A contract may be ‘unjust’ because of peculiarities inherent in the
circumstances of one of the parties of which the other party was quite ignorant. It may be
‘unjust’ although the other party has acted quite honourably and lawfully. This is not such
a shocking notion.

20.50 Kirby P then went on to point out that there are restraints within the Contracts Review
Act 1980 (NSW) to preserve the freedom to contract such as the countervailing considerations
in s 9(2), limitation of the applicability of the Contracts Review Act to non-commercial
contracts, and the fact that relief is discretionary. His Honour then reinforced his earlier views
in Beneficial Finance Corporation Ltd v Karavas112 where his Honour had made the following
cautionary remarks:
[Beneficial Finance] says that this result will have a highly undesirable effect on freedom to
contract. The decision will send a signal, so it was implied, that, at least in circumstances similar

105. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621.

106. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621.
107. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621.
108. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 626.
109. (1991) ASC 56-042.
110. (1986) 5 NSWLR 610.
111. (1991) 22 NSWLR 1 at 20.
112. (1991) 23 NSWLR 256 at 266–7.
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to the present, a financier will have to ensure that guarantors and family mortgagors receive
proper, independent advice on the financial wisdom of the transaction which they have agreed
to support. Necessarily, this would import a cost component which, inevitably, would have to
be borne by the borrowing public. It would necessitate delay. In some cases it would impede
risk-taking and this at a time when the public interest might be better served in entrepreneurial
activities which necessarily involve the taking of risks. … [A]s a result of the decision in the
present case, it was suggested, considerable uncertainty would be introduced into financial
contracts. It would not always be clear as to when the financier, out of self-protection, and to
avoid a possible later claim for relief under the Act, should insist upon evidence of the provision
of independent advice. The introduction of such paternalistic inhibitions on what should be the
economic freedom of the individuals concerned to make their own decisions as they think fit
was criticised. There is force in these criticisms. In a number of decisions I have expressed my
reluctance to permit common law principles, or those developed by courts of equity, to disturb
the agreements reached by parties, particularly where they are of equal bargaining capacity, well
advised or able to look after themselves. … [However], Parliament has now provided for the
making of consequential orders where the court finds that certain contracts are ‘unjust’. Statutes
cannot be ignored. As has been repeatedly said, the present Act was designed to achieve reform
and indeed its plain object was in some ways ‘revolutionary’.113 By s 9(2), the Act requires the
court to have regard to a number of circumstances expressly specified as relevant to the task of
characterisation. These include, relevantly to the present case, whether there was any material
inequality in bargaining power between the parties; whether the contract was subject to
negotiation or whether it was reasonably practicable to negotiate for the alteration or rejection of
any provision; the relative economic circumstances, educational background and literacy of the
parties to the contract; whether or not and when independent expert advice was obtained; the
extent to which the practical effect of the contract was accurately explained; and whether unfair
pressure was exerted. In these circumstances, it is clear that, just as the court must consider such
issues when a claim for relief is made to it, necessarily those entering into contracts to which
the Act applies must order their affairs against the possibility that, later, the Act may be invoked.

20.51 The Contracts Review Act 1980 (NSW) and the decision of McHugh JA in West v AGC
(Advances) Ltd114 have been the subject of close judicial analysis. In this regard, according to
McDougall J in Small v Gray115 the following propositions can be stated:
(1) There is a distinction between the s 9 issue (whether the contract is unjust) and the s 7
issue (whether relief should be granted, and if so in what form);116
(2) Thus, a contract may be found to be unjust but nonetheless, in the exercise of its
discretion, the court may refuse to grant relief (for example, because the party against
whom relief is claimed was innocent of relevantly unfair conduct);117
(3) Where a contract has been found to be unjust, it would in general be unsound to grant
relief under s 7 where the party against whom relief is claimed was both innocent and
ignorant of the circumstances giving rise to that injustice;118

113. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621.

114. (1986) 5 NSWLR 610.
115. [2004] NSWSC 97 at [85]. See also Jams 2 Pty Ltd v Stubbings [2016] VSC 711; Gunns Finance Pty Ltd (recs
and mgrs apptd)(in liq) v Sithiravel [2016] NSWSC 1543 at [268].
116. Nguyen v Taylor (1992) 27 NSWLR 48 at 54–5, 71.
117. West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 621–2; Nguyen v Taylor (1992) 27 NSWLR 48 at 70.
118. Collier v Morlend Finance Corporation (Vic) Pty Ltd (1989) ASC 55-716 at 58,433; Beneficial Finance
Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 277.

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(4) In considering whether or not to grant relief, it is appropriate to take into account the
policy of the law that contracts should be honoured;119
(5) The distinction between the contract and the underlying transaction may be illusory
rather than real where the person against whom relief is sought was closely involved in
the decision to enter into the underlying transaction;120
(6) Nonetheless, a contract will not be unjust merely because it was not in the claimant’s
interests to enter into it, or because the claimant cannot perform when called upon to do
so, or because enforcement of the contract will lead to the loss of the claimant’s home;121
(7) In considering whether a contract is unjust, the court may look not only at the terms of
the contract to see whether they are unjust, but also at the circumstances in which the
contract was made, and at the effect that performance of the contract would have, having
regard to those circumstances.122

FACTORS CONTRIBUTING TO A CONTRACT BEING

DETERMINED TO BE UNJUST
20.52 Courts have identified a number of factors which have formed the basis of findings
that particular contracts were unjust. Importantly, what is unjust in one case will not make
the identified factor automatically unjust in another case. The individuality of cases was
emphasised by Garling J in First Mortgage Managed Investments Ltd v Pitman123 where his
Honour found that:
A contract may be unjust:

(a) because of the way it operates in relation to the claimant, or because of the way in which
[it] was made or both;
(b) because it contained substantive injustice arising because of its terms, consequences or
its effects are unjust;
(c) because of procedural injustice which arises because of the unfairness of the methods
used to make it;
(d) even if it is not unconscionable, harsh or oppressive; or else
(e) a contract may be unjust even though circumstances that give rise to that injustice are
not known [to] the other party.

20.53 The above list in First Mortgage Managed Investments Ltd v Pitman124 is not exhaustive,
with the following factors being found to be relevant to the analysis of whether particular
contracts were unjust:
• the purpose for which the loan was obtained; 125

119. Nguyen v Taylor (1992) 27 NSWLR 48 at 61, 71; Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 9.
120. Elders Rural Finance Ltd v Smith (1996) 41 NSWLR 296 at 309.
121. Esanda Finance Corp Ltd v Tong (1997) 41 NSWLR 482 at 491.
122. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [78].
123. [2012] NSWSC 1332 at [356].
124. [2012] NSWSC 1332.
125. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [70], [104]; First Mortgage Managed Investments
Ltd v Pitman [2012] NSWSC 1332 at [358].

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• where the security for a loan is the borrower’s home, which fact is of significant relevance.
In Kowalczuk v Accom Finance Pty Ltd126 Campbell JA said:
Cases under the Contracts Review Act have regarded the fact that a security is being
proposed over the borrower’s home, rather than over some investment asset, as a relevant
factor to whether a loan is unjust. The reason is that, at least in the usual case, loss of a
home imposes particular hardships on a borrower and any of his or her dependents who
live there, and the notions of justice that underpin the Contracts Review Act call for a
lender to exercise greater care in circumstances where a borrower’s home might be lost if
there is a default than if the security is of some other type.

• where a lender is indifferent to the borrower’s ability to service the loan because it is content
with the security offered by the borrower.127 However, such a practice, known as ‘asset
lending’, is not easy to identify;128
• where the lender has failed to observe its own lending guidelines. This will be particularly
so where the lender’s guidelines were designed to enable the lender to assess and minimise
its own risk and were therefore for the lender’s benefit, but where following the guidelines
conferred an indirect benefit on the borrower by minimising risky loans being made. Also,
where the lender had no idea of the purpose of the loan, the failure to observe the guidelines
assisted an inference that the lender was lending on the value of the security;129
• where a mortgage originator/broker is involved, as lenders will need to ensure that such
introducer/brokers adhere to lending guidelines. This is so even if there is no strict agency
relationship between the lender and an introducer/broker. Failure to do so may result in a
declaration on terms under the Contracts Review Act 1980 (NSW) that no valid loan has
been entered.130
In Tonto Home Loans Australia Pty Ltd v Tavares,131 although the court found there was no
agency relationship between a lender and an introducer, it still held that particular loans
which had been procured as a result of misleading errors in the application due to conduct
of the introducers, were unjust and attracted relief under the Contracts Review Act. It was
held that a failure to follow guidelines permitted the fraud to occur.
In Provident Capital Ltd v Papa132 certain ‘low doc’ loans were made by Provident to
Mrs Papa. As security for the loans, Mrs Papa mortgaged the premises in which she lived
and conducted a business selling children’s clothes. The mortgage was given to secure an

126. (2008) 77 NSWLR 205 at 232; 252 ALR 55 at 82.

127. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [128]; Fast Fix Loans Pty Ltd v Samardzic [2011]
NSWCA 260 at [43]; Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 at [1].
128. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [128]; Riz v Perpetual Trustee Australia [2007]
NSWSC 1153 at [70]; Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 at 227–8; 252 ALR
55 at 76–7; Banksia Mortgage Ltd v Croker [2010] NSWSC 1447 at [17]–[26]; Tonto Home Loans Australia
Pty Ltd v Tavares [2011] NSWCA 389 at [152ff], [248]; Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA
260 at [43].
129. Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 at 228; 252 ALR 55; First Mortgage Managed
Investments Ltd v Pitman [2012] NSWSC 1332 at [358].
130. Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [269]–[270].
131. [2011] NSWCA 389.
132. (2013) 84 NSWLR 231 at 233–4. See also Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [74];
Commonwealth Bank v Munro [2011] NSWSC 128 at [24].

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advance to her by Provident of $700,000, obtained mainly to assist her son in relation to
equipment and working capital for a gymnasium business he had acquired through his
company. A subsequent advance of $125,000 was also applied to the gymnasium business.
Provident required Mrs Papa to obtain independent legal advice regarding the loan and
security documents. Mrs Papa obtained this advice from her solicitor, Mr Caramanlis.
The gymnasium business failed and Provident commenced proceedings for possession of
Mrs Papa’s property. Mrs Papa claimed that the loan agreements were unjust within the
meaning of s 7 of the Contracts Review Act. At first instance, Mrs Papa’s Contracts Review
Act claim was upheld and her liability to Provident was reduced by the amounts that were
applied to the gymnasium business. On appeal it was held that the loan agreements were
not unjust. However, Mrs Papa’s claims against her solicitors were upheld. In reviewing the
main authorities on asset lending,133 MacFarlan JA134 found as follows:
It is apparent from these authorities that it can be relevant in the determination of whether
a contract is unjust, and whether relief should be granted against a financier, under the
Contracts Review Act that the financier has shown no interest in the borrower’s ability
to service the loan. However the significance of that fact must be assessed in the context
of all the circumstances surrounding the loan. In my opinion, of particular significance
will be the financier’s knowledge of the borrower’s circumstances, the purpose of the
loan and whether the borrower has obtained independent legal advice. Public interest
does not necessarily require so-called asset lending to be proscribed, or even deterred.
It may advance the interests of the parties to many transactions, and facilitate commerce
generally, for financiers to be able to lend on a ‘low doc’ basis without requiring the
expenditure of time and effort in ascertaining and verifying the ability of borrowers to
service loans. In any event, that exercise will often be difficult. For example if Provident
had sought to undertake it in the present case, it would have had to make a difficult
business judgment about the viability and prospects of the gymnasium business, a topic
about which even well-informed minds could undoubtedly have differed. Financiers
should not be required to make such assessments if they do not wish to do so. If, instead,
a financier is satisfied that a borrower is able to make the decision for him or herself or
has received appropriate advice, the public interest reflected in the Contracts Review Act
will ordinarily have been satisfied.

Similar sentiments were echoed in Buccoliero v Commonwealth Bank of Australia,135 where

Young JA said:
Although there are a number of authorities for the proposition that a lender who makes
inadequate enquiries as to the borrower’s ability to service the loan and relies on realising
the security may find that the court may set aside the mortgage, there is no rule of law
that that will occur in every case. ... It is true that in the instant case the borrower had no
repayment plans, however, the proposition remains true that there is no duty owed by
a lender to make reasonable enquiries to be satisfied that the borrower can service the
loan. If it does not do so, that fact with other circumstances may add up to make a court
consider the loan transaction was unjust, but that is a separate question.

133. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; Perpetual Trustee Co Ltd v Khoshaba [2006]
NSWCA 41; Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; 252 ALR 55; Fast Fix Loans Pty
Ltd v Samardzic [2011] NSWCA 260.
134. Provident Capital Ltd v Papa (2013) 84 NSWLR 231 at 260.
135. [2011] NSWCA 371 at [68], [71].
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In Knezevic v Perpetual Trustees Victoria Ltd 136

Meagher JA said the following in relation to
‘asset lending’:
Judges of this Court have avoided making generalised remarks about the unjustness or
otherwise of what is referred to as ‘asset lending’ or the making of ‘lo doc’ loans. As
Allsop P observed in Tonto Home Loans137 the use of such labels ‘should be eschewed as
determinative of legal reasoning’. His Honour made similar remarks … in Fast Fix Loans
Pty Ltd v Samardzic.138 In Khoshaba139 Basten JA observed:
To engage in pure asset lending, namely to lend money without regard to the ability
of the borrower to repay by instalments under the contract, in the knowledge that
adequate security is available in the event of default, is to engage in a potentially
fruitless enterprise, simply because there is no risk of loss. At least where the
security is the sole residence of the borrower, there is a public interest in treating
such contracts as unjust, at least in circumstances where the borrowers can be
said to have demonstrated an inability reasonably to protect their own interests.
… That does not mean that the Act will permit intervention merely where the
borrower has been foolish, gullible or greedy. Something more is required.

In Kowalczuk v Accom Finance Pty Ltd,140 referring to the observation by Basten JA in

Khoshaba,141 Campbell JA added that ‘whether lending on the basis that the loan can
adequately be repaid from the security, is in the circumstances of any particular case
unconscionable or unjust, depends on other matters as well’. His Honour then referred
by way of example to the decisions in Elkofairi v Perpetual Trustee Co Ltd142 and Perpetual
Trustee Co Ltd v Khoshaba.143
In Elkofairi v Perpetual Trustee Co Ltd144 a husband and wife gave a mortgage over their
jointly owned property to secure a loan that was to be used principally by the husband
in his own business activities. The lender knew that the wife had no income or ability
to make repayments and that the husband had limited business experience. The lender
had no information as to the nature of the business or investment to be undertaken,
or as to the income it was likely to generate. In circumstances where there was to be a
large borrowing secured over the wife’s asset and the lender knew that her only source of
repayment would be the sale of her asset, the transaction was held, so far as the wife was
concerned, to be unjust within the meaning of s 7.

In Perpetual Trustee Co Ltd v Khoshaba145 a husband and wife, who were pensioners,
borrowed money which was to be invested by their daughter in Karl Suleman Enterprizes,
which was subsequently found to be operating a Ponzi scheme. The loan application was

136. [2013] NSWCA 199 at [73]–[76].

137. Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [3].
138. [2012] NSWCA 260 at [43].
139. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [128].
140. (2008) 77 NSWLR 205 at 227; 252 ALR 55 at 76.
141. Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at [128]. See also Egan v Egan [2018] NSWSC
202 at [85]–[100].
142. [2002] NSWCA 413.
143. [2006] NSWCA 41.
144. [2002] NSWCA 413.
145. [2006] NSWCA 41.

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prepared by a broker associated with Karl Suleman Enterprizes. The application falsely
stated that the husband was employed and earning $43,000 a year. It also contained the
forged signature of the wife. The husband and wife had no knowledge of, or involvement
in, the making of the false statements or the forgery. The mortgage originator to whom
the application was submitted did not take steps to check the correctness of the statements
made. Had enquires been made in accordance with the lender’s guidelines, the husband’s
true employment position would have been revealed and the loan would not have gone
ahead. That breach of the guidelines allowed the broker dishonestly to procure the loan
without the knowing involvement of the borrowers, in circumstances where it should not
have gone ahead.

• matters personal to the borrower, such as poor educational background or illiteracy; lack of
commercial experience or some other disability.146
In St George Bank Ltd v Trimarchi147 the St George Bank sought to enforce a loan agreement
and mortgage entered into by the Trimarchis in late 1995 and early 1996. The mortgaged
lands were two rented investment properties previously acquired by Trimarchis, and their
matrimonial home. There was also a property at 72–74 Bathurst Street, Liverpool in which
Domenico Trimarchi had a one-third interest. The loan agreement and mortgage were part
of a wider set of interlocking agreements that included mortgages over other properties
owned by the Trimarchis’ son and daughter-in-law. The Trimarchis’ son, Anthony
Trimarchi, was a solicitor at the time, who was subsequently struck-off the roll of legal
practitioners, convicted, and imprisoned. The loan agreement and mortgage treated the
Trimarchis, their son, and their daughter-in-law as joint borrowers. In fact, the parents were
the guarantors of their son’s debt, as between themselves and their son. The son defaulted
and the mortgaged properties in which he had an interest were sold by St George Bank, with
the proceeds being applied towards the outstanding debt. As at 8 July 2002 over $1,000,000
remained outstanding and it was this sum that St George Bank sought to recover from
the Trimarchis. The agreements and mortgages entered into in favour of St George Bank
were in consideration of St George Bank advancing $2,675,000, of which $75,000 was made
available to the son by way of overdraft accommodation for use in his law practice, and
the balance of $2,600,000 was paid to National Mutual Trustees Ltd (National Mutual) to
discharge borrowings from that institution that were in default. Those borrowings had also
been secured upon mortgages given by the members of the Trimarchi family over the same
properties as were the subject of the St George Bank transaction.
Pursuant to s 7(1) of the Contracts Review Act, Dunford J found that the mortgages granted
by the Trimarchis and the underlying loan agreement, so far as it affected them, were unjust
contracts at the time they were made. Pursuant to s 7(1)(b) the mortgage was declared
wholly void ab initio. The loan agreement in so far as it purported to relate to the Trimarchis
was also declared void ab initio. The Court of Appeal dismissed the appeal from the decision

146. Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260 at [91]. There may however be some limit. For
example, in Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256 at 277, Meagher JA stated that
‘there is jurisdiction under the Act to make orders in favour of a party to a contract who proves that at the
date of the contract he suffers from a relevant disability even though the other party to the contract is
unaware of that disability, although in general it would be unsound to exercise the jurisdiction in those
circumstances’. See also Nguyen v Taylor (1992) 27 NSWLR 48.
147. [2004] NSWCA 120.

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of Dunford J. In coming to its decision, the Court of Appeal adopted the findings of the trial
judge. Mason P148 referred to the following findings of the trial judge:
There was nothing in the age or the state of their physical or mental capacity which
rendered either of the [Trimarchis] unable to protect their interests, but their economic
circumstances, educational background and literacy were all of a poor standard. Because
of their economic circumstances, which included their lack of business experience,
their educational background and limited literacy, I am satisfied that [they] had no real
meaningful appreciation of what they were becoming involved in, either at the time
of the St George loan or at the time of the National Mutual loan. It was all completely
over their heads, they were signing what their son, whom they trusted, told them to
sign. He was the person who represented them in their so-called dealings with both the
Bank and National Mutual and he was well educated and had an understanding of the
relevant matters, but although purporting to act in their interests, he was acting in his
own interests and using his parents to support those interests.

In Small v Gray149 the plaintiffs sought to enforce their rights under a registered
mortgage over a property at St Marys in Sydney’s western suburbs. The third and fourth
defendants were the registered proprietors of that property. It was accepted that the
third defendant’s signature on the mortgage was forged. Nonetheless, the mortgage had
been registered. It was also common ground that, subject to the fourth defendant’s
defences, the plaintiffs, being innocent of the forgery, were entitled to enforce their
rights. The defences that were propounded — of unconscionability and under the
Contracts Review Act — raised what McDougall J stated as ‘the familiar problem,
namely which of two innocent parties should suffer for the wrongdoing of a third’.150
In finding that the mortgage could not be enforced against the fourth defendant on the
ground of unconscionability, McDougall J151 said:
In Elkofairi v Permanent Trustee Co Ltd152 Beazley JA set out a number of circumstances
that led to the conclusion that the appellant [in that case] was in a special position
of disadvantage. Her Honour, however, noted that ‘none of the matters were known
to the respondent [in that case]’ so that ‘it is necessary to consider whether there
were any other features of the transaction which made it unconscientious for the
respondent to enter into this transaction with the appellant given the circumstances in
which her execution of the contract was procured’. In reaching the conclusion that the
transaction was unconscientious, her Honour153 focused on the circumstance that ‘the
respondent was only concerned with its ability to recoup any amount outstanding on
the loan in circumstances where it must be taken to have known … that the appellant,
who was exposed to liability for the whole of the loan, had no ability to make even the
first payment’. There was therefore ‘both immediate and real’ risk that the appellant
would lose her only asset. This was not excused by the ‘vague and unparticularised’
accountant’s letters dealing with the appellant’s husband’s ability to repay: her Honour

148. St George Bank Ltd v Trimarchi [2004] NSWCA 120 at [10].

149. [2004] NSWSC 97.
150. Small v Gray [2004] NSWSC 97 at [1].
151. Small v Gray [2004] NSWSC 97 at [105]–[109].
152. [2002] NSWCA 413 at [53].
153. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 at [58].

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concluded that the material that was available to the respondent could not support the
proposition that he would (and, I infer, could) ‘bear the liability for the repayments’.
In the present case, what might be called the personal circumstances of special
disadvantage that were present in Elkofairi154 (educational background, inability to
read or write English or to understand other than the most basic spoken English,
and difficult domestic circumstances) are absent. Further, in the present case, the
plaintiffs were entitled to assume that [the fourth defendant] had received legal advice
on the documents that she signed. However, as Beazley JA made clear in Elkofairi,155 a
finding of unconscionability may be made even though the particular circumstances
of the claimant have not been made known to the respondent. Her Honour’s judgment
shows, in the passages to which I have referred, that unconscionability may be
demonstrated from the circumstances in which, to the knowledge of the respondent,
the transaction is entered into coupled with the nature of the transaction. It is, of
course, correct to say that the application of the reasoning in Elkofairi156 is a matter
for the circumstances of each particular case. It cannot be said that, because the
particular loan in Elkofairi157 was unconscionable for the particular reasons given,
that every other loan that exhibits those features must likewise be unconscionable.
However, the reasons do show that it may be unconscionable for a lender to lend on
the basis of security only, knowing that the borrower has no means of repayment and
knowing that default will cost the borrower his or her only asset.

In Baltic Shipping Co, The Mikhail Lermontov v Dillon158 Mrs Dillon contracted with
Baltic Shipping Company for a 14-day cruise. The cruise was cut short when the vessel,
the Mikhail Lermontov, sank after striking a shoal just off the coast of the South Island
of New Zealand, some nine days into the voyage. Dillon suffered physical and significant
emotional injuries as a result. Dillon consulted a solicitor in relation to her injuries, but
subsequently terminated the retainer. She then signed a release form by which she agreed
not to sue Baltic Shipping Company for damages in relation to any losses and injuries
suffered as a result of the sinking of the Mikhail Lermontov. In return, Baltic Shipping
Company paid her $4786 ‘in settlement of [her] claim’. Dillon subsequently claimed that
the release was an unjust contract pursuant to the Contracts Review Act and sought to
have it declared void, so that she could then pursue her claim against Baltic Shipping
Company for damages for breach of contract. The Court of Appeal upheld her claim and
awarded her damages in excess of $50,000. In relation to the release agreement being
unjust, Kirby P159 said:
The two considerations which are crucial involve the special vulnerability of [Mrs
Dillon] at the time the release was proffered to her and the serious inequality between
her entitlements and what she recovered under the release. Both of these considerations
were adequately within the particulars relied upon by [her] in support of her claim for
relief under the Contracts Review Act.

154. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413.

155. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413.
156. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413.
157. Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413.
158. Baltic Shipping Co, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1.
159. Baltic Shipping Co, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1 at 21.

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• where there has been a lack of meaningful negotiation and the contract contains difficult or
unreasonable conditions.
In Verduci v Golotta160 Golotta, a solicitor, was approached for assistance in obtaining a loan
for his clients, Mr and Mrs Verduci. Golotta arranged for a loan between the Verducis and
Mr and Mrs Pizzuto, who were also Golotta’s clients. Subsequently, the Verducis required
further funds and the Pizzuto loan was replaced with a loan between the Verducis and Golotta’s
father. The loan documents for this loan included a term providing for the compounding
of interest — a term which was not present in the Pizzuto loan. The Verducis were Italian
migrants with little education and very limited capabilities in the English language. At the
time of the loan it was for a period of 12 months and the expectation was that it would be
repaid from pension funds that the Verducis expected to receive from Italy. Although some
payments were made over the ensuing years, the loan was significantly in arrears when, some
20 years later, Golotta’s father sought to enforce recovery of the loan. The Verducis argued
that the loan contract was void as an unjust contract. In upholding the Verducis’ claim,
Slattery J161 held that the loan contract was unjust because of a variety of factors, including
the lack of any meaningful negotiations taking place in relation to the loan, the inclusion of
unreasonably difficult or unnecessary conditions, the personal backgrounds of the Verducis
in relation to their education, language capabilities, lack of commercial experience, and the
lack of independent legal or financial advice. His Honour162 said:
The fact that the Verducis were borrowing this money upon their home for a non income
earning domestic purpose is of particular significance in this case. Where the security for
a loan is the family home of a low income earner, the decision of a lender not to verify
employment and income and thereby in substance to engage in the practice of asset
lending is of significant weight against the lender in the determination of unjustness.
This was a wholly domestic borrowing in circumstances where the Verducis had not
been able to pay off the Pizzuto loan.

In terms of the relief granted, his Honour163 said:

The minimum relief necessary to remedy the unjustness which has been found would be
effected in this case by relieving the Verducis of the punishing burden of compounding
interest at interest rates that had long ceased to bear any relationship to modern
commercial reality. The remedy appropriate in this case is to remove [the compound
interest clause] from the contract and to vary clause 2 of the contract to reduce the
amount of interest payable to the rate payable on judgments in this Court.

It should be noted that Slattery J164 found that the loan contract with the Verducis was
also amenable to relief pursuant to the principles of undue influence and unconscionable
transaction.

160. [2010] NSWSC 506.

161. Verduci v Golotta [2010] NSWSC 506 at [57]–[64].
162. Verduci v Golotta [2010] NSWSC 506 at [64].
163. Verduci v Golotta [2010] NSWSC 506 at [66].
164. Verduci v Golotta [2010] NSWSC 506 at [67]–[80].

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• where there has been a failure to obtain independent advice or for a lender to recommend
the obtaining of independent advice;165
• where there has been pressure to enter into the loan in a limited time by the real beneficiary
of the loan. 166
20.54 Finally, a number of general principles have been developed in relation to when relief
under the Contracts Review Act 1980 (NSW) may not be available. In summary, these include:
• where the court does not think it just to grant relief in the circumstances.167 In Collier
v Morlend Finance Corporation (Victoria) Pty Ltd168 Hope JA said:
If a plaintiff establishes facts which bring the case within any one of the paragraphs in
s 9(2) the court may, depending on all the circumstances of the case, exercise its discretion
to grant relief under the Act. Although from their very nature the defendant would of
necessity know of the matters giving rise to the claim in some cases and in other cases
may know of them, in some cases this would not necessarily or might not be so. In the
latter cases any lack of knowledge is relevant in the exercise of discretion, but does not
preclude the court exercising its discretion in the plaintiff ’s favour.

• if the contract is found to be unjust by reason of circumstances not known to one of the
contracting parties;169
• where relief is sought against an innocent party,170 unless it can be said that the innocent
party’s agent’s conduct was unfair;171
• merely because the circumstance relating to the transaction did not work out in favour of
one party;172
• merely because one person did not obtain legal advice in circumstances where there was
no predation and no unconscionable conduct or behaviour by which the plaintiff sought to
take advantage of the first defendant.173
20.55 Further, it has been held that where a court is minded to grant relief, it should not
interfere with the rights of the parties any more than is necessary to remedy or to avoid the
injustice to the party seeking relief.174

165. Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260 at [95]; Perpetual Trustee Co Ltd v Khoshaba [2006]
NSWCA 41 at [75]; Egan v Egan [2018] NSWSC 202 at [95].
166. Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260 at [92].
167. See Contracts Review Act 1980 (NSW) s 7(1).
168. (1989) 6 BPR 13,337. See also Buccoliero v Commonwealth Bank of Australia [2011] NSWCA 371
at [57]–[59].
169. Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205 at 225; 252 ALR 55 at 74–5; Verduci v Golotta
[2010] NSWSC 506 at [52].
170. Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 277.
171. Anotonvic v Volker (1986) 7 NSWLR 151.
172. Verduci v Golotta [2010] NSWSC 506 at [53].
173. Private Mortgages Australia Pty Ltd ACN 600 628 813 as trustee for the PMA Trust v Stever [2019] NSWSC
462 at [100] and [106].
174. S H Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482 at 487, 492, 493–4.

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UNFAIR CONTRACTS

INTRODUCTION
21.1 In Chapter 19 the equitable principles related to unconscionable transactions were
analysed and it was noted that courts have exercised jurisdiction to set aside contracts on the
basis of unconscionable conduct. Other remedies for such conduct may also be available.1
Further, attention has been given to statutory unconscionability pursuant to the Australian
Consumer Law.2 It will be recalled that, at common law, before any setting aside of a contract
occurred there was a need to demonstrate that an unconscientious advantage had been taken
of an innocent party whose will was overborne to the extent that the exercise of the will was not
independent and voluntary.
21.2 In addition to this equitable doctrine of unconscionability and the statutory regime set
out in the Australian Consumer Law, legislation has been passed, both at Commonwealth and
state levels, which enables courts to grant relief for parties who have entered into contracts or
arrangements in circumstances where it is demonstrated that those contracts or arrangements
were unfair or unconscionable or unjust. In this regard the Contracts Review Act legislation is

1. See 19.44, 19.75–19.79.

2. See Chapter 19. As to the meaning of ‘unconscionable’, see Australian Competition and Consumer
Commission v Allphones Retail Pty Ltd (No 2) (2009) 253 ALR 324 at 347, where Foster J said that the
word ‘unconscionable’ requires that ‘the actions of the alleged contravenor show no regard for conscience,
and be irreconcilable with what is right or reasonable. Inevitably the expression imports a pejorative
moral judgement, … Normally, some moral fault or moral responsibility would be involved. This would
not ordinarily be present if the critical actions are merely negligent. There would ordinarily need to be a
deliberate (in the sense of intentional) act or at least a reckless act.’ Further, in Australian Competition and
Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 at [23], Allsopp CJ, and Jacobson and
Gordon JJ observed that ‘the task of the court is the evaluation of the facts by reference to a normative
standard of conscience. That normative standard is permeated with accepted and acceptable community
values. In some contexts, such values are contestable.’ Their Honours, at [41], then added the following:
‘The word ‘unconscionability’ means something not done in good conscience.’ See also Mbuzi v Griffith
University (2014) 323 ALR 248 at 275; Australian Competition and Consumer Commission v Coles
Supermarkets Australia Pty Ltd [2014] FCA 1405 at [36]; Australian Competition and Consumer Commission
v Origin Energy Electricity Ltd [2015] FCA 278 at [9]; Paciocco v Australia and New Zealand Banking
Group Ltd (2015) 236 FCR 199 at 276; Australian Competition and Consumer Commission v Multimedia
International Services Pty Ltd (2016) 243 FCR 392 at 399–400; Australian Competition and Consumer
Commission v Clinica Internationale Pty Ltd (No 2) [2016] FCA 62 at [144]; NRM Corporation Pty Ltd
v Australian Competition and Consumer Commission [2016] FCAFC 98 at [162].

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relevant.3 In this chapter a similar theme will be pursued, namely, the regulation of contracts
that are regarded as ‘unfair’ or which contain unfair contract terms in the context of the
Australian Consumer Law and the Industrial Relations Act 1996 (NSW).
21.3 The regulation of standard form consumer contracts and of contracts or arrangements
that enable a person to work in an industry represent particular challenges for the classic
common law principles of contract law. While these principles work reasonably well where
both parties to the contract are engaged in commercial activity, they do not function as well
where one of the parties is a consumer or a person who is able to work in an industry pursuant
to a contract or arrangement with another party. Thus, in relation to standard form consumer
contracts in the United States of America, Becher4 has written as follows:
Standard Form Contracts (‘SFCs’) and the traditional paradigm of contract law seem
to have nothing in common. Unlike the conventional contract envisioned by the classic
contract law paradigm, SFCs are pre-drafted by one party; they cannot be altered or
negotiated; they are executed between unfamiliar contracting parties that substantially
differ in their market power and sophistication; they are offered frequently by agents
who act on behalf of the seller; and they are not read or understood by promisees
(ie, consumers). While these particular characteristics make SFCs apt for usage in
modern consumer markets of mass production, they also call some fundamental notions
of contract law into question.

21.4 It has been the legislature that has assumed responsibility for addressing the problems
posed by standard form consumer contracts and certain contracts or arrangements within the
meaning of the Industrial Relations Act 1996 (NSW). Past examples of the former can be seen in
the provisions of the Trade Practices Act 1974 (Cth) and the Contracts Review Act 1980 (NSW).
Most recently there is the introduction of what is referred to as the Australian Consumer Law,
which constitutes a single national consumer law that applies as a law of the Commonwealth
and of each state and territory. The Australian Consumer Law was implemented principally
through amendments to the Commonwealth’s Trade Practices Act 1974 and Trade Practices
Regulations 1974, as well as appropriate complementary legislation in each of the states and
territories. At the end of this chapter5 reference will be made to the Industrial Relations
Act 1996 (NSW).

AUSTRALIAN CONSUMER LAW

21.5 The unfair contract terms provisions of the Australian Consumer Law became operative
nationally and in some state jurisdictions on 1 July 2010, while the remainder of the Australian
Consumer Law commenced across all of Australia on 1 January 2011. The provisions of the
Australian Consumer Law are found in Sch 2 of the Competition and Consumer Act 2010 (Cth).
Schedule 2 is headed, ‘The Australian Consumer Law’ and is divided into a number of Chapters,

3. See Chapter 20. Also relevant are other provisions that are in Pt 2 Div 2 Subdiv BA of the Australian
Securities and Investments Commission Act 2001 (Cth), including ss 12BA, 12BAA, 12BAB, 12BF, 12BG,
12BH(1), 12BI, 12BK, 12DA, 12DB, 12GA, 12GBA, 12GBB, 12GLA, 12GLB, 12GND, and 102.
4. S I Becher, ‘A “Fair Contracts” Approval Mechanism: Reconciling Consumer Contracts and Conventional
Contract Law’ (2009) 42 University of Michigan Journal of Law Reform 747 at 748.
5. See 21.35–21.42.

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which in turn are sub divided into a number of Parts. Provisions already dealt with in respect
of misleading or deceptive conduct have been ‘relocated’ to Sch 2. Thus, s 52 of the Trade
Practices Act 1974 (Cth) is now s 18 of the Australian Consumer Law.6
21.6 As noted, the Australian Consumer Law applies as the result of both Commonwealth
and state legislation. The Commonwealth legislation will relate to circumstances where
a corporation is the party that is bound to comply with the provisions of the Australian
Consumer Law.7 In all other cases the complementary state or territory legislation is applicable.8

Unfair contract terms

21.7 The principal new provisions in relation to contract law introduced by the Australian
Consumer Law are those relating to unfair contract terms. These terms are derived from the
Productivity Commission’s Report.9 The regime is concerned with terms in standard form
contracts and applies in respect of standard form contracts between a business and a consumer.
One of the objectives is to ensure that standard form contracts are drafted in terms which
are transparent, are expressed in reasonably plain language, are presented clearly, and are
readily available to any party affected by the terms. In such contracts an unfair term will be
void ab initio.10 However, if the contract is capable of operating without the unfair term, it will
continue. Principles relating to severance will be relevant to this issue. The provisions do not
apply to contracts between businesses.
21.8 In relation to cases governed by the Competition and Consumer Act 2010 (Cth), the
unfair contract terms provisions are contained in Pt 2-3 of Ch 2 of the Australian Consumer
Law.11 Section 23(1) of the Australian Consumer Law stipulates that a term of a ‘consumer
contract’ will be void if it is unfair and the consumer contract is a standard form contract. If a
term is unfair and thus void, the contract remains binding between the parties if it is capable
of operating without the unfair term.12 Section 23 thus requires an understanding of what is
meant by:
• a ‘consumer contract’;
• standard form contract; and
• ‘unfair’.

6. See 15.1–15.71. For an in-depth analysis of these provisions see J Paterson, Unfair Contract Terms in
Australia, Thomson Reuters, Australia, 2012; S Harder, ‘Problems in Interpreting the Unfair Contract Term
Provisions of the Australian Consumer Law’ (2011) 34 Australian Bar Review 306.
7. Competition and Consumer Act 2010 (Cth) s 131.
8. See, for example, the Fair Trading (Unfair Contract Terms) Act 2010 (NSW); the Fair Trading Amendment
(Unfair Contract Terms) Act 2010 (Vic).
9. Australia Productivity Commission, Review of Australia’s Consumer Policy Framework: Productivity
Commission Inquiry Report, Melbourne, 2008, at <http://www.pc.gov.au/inquiry/consumer/docs/finalreport>.
It should be noted that the Fair Trading Act 1999 (Vic) s 32Y contained provisions dealing with unfair terms.
Further, as detailed in Chapter 20, the Contracts Review Act 1980 (NSW) contains provisions regulating
‘unjust’ contracts.
10. Paterson, Unfair Contract Terms in Australia, note 6 above, p 101.
11. Australian Consumer Law ss 23–28.
12. Australian Consumer Law s 23(2).

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Consumer contract
21.9 Section 23(3) of the Australian Consumer Law defines a ‘consumer contract’ as
one for the supply of goods13 or services, or the sale or grant of an interest in land14 to an
individual whose acquisition of such is wholly or predominantly for personal, domestic, or
household consumption. As to whether a consumer contract is one for for the supply of
goods or services, or the sale or grant of an interest in land to an individual, this should be
assessed objectively.15
21.10 Further, s 23(3) contains a subjective element because of its focus in the expression ‘is
wholly or predominantly for personal, domestic or household consumption’. Although the test
for ascertaining the meaning of this expression is not prescribed, no doubt the Explanatory
Memorandum and ss 15AA and 15AB of the Acts Interpretation Act 1901 (Cth) (and
relevantly the state and territory equivalents of that interpretation legislation)16 together with
other intrinsic and extrinsic materials relevant to statutory interpretation17 will be applicable.
However, the deliberate use of the word ‘is’ introduces the need to consider the acquirer’s actual
purpose in acquiring the goods, services, or land. There can be little doubt that the expression
‘is wholly or predominantly for personal, domestic or household consumption’, gives a high
degree of paramountcy to the acquirer’s actual intention,18 rather than to any stated intention.
The expression however leaves uncertain situations where the acquirer may have been
deceptive to the seller in stating their true intention. Importantly, the wording of s 23(3) does
not restrict the operation of the section to things that are of a personal, domestic, or household
nature — rather, the emphasis is upon whether what was supplied under the contract is wholly
or predominantly for personal, domestic, or household consumption.
21.11 The person who acquires the goods, services, or land need not be a ‘consumer’ as
defined in s 3. Although the Australian Consumer Law focuses upon the conduct of suppliers
which are corporations, the application laws of the states and territories apply it to all persons
in the role of supplier. The acquirer has to be an individual.

13. Section 2(1) defines the words, ‘goods’, ‘acquire’, interest’, interest in land’, ‘services’, and ‘supply’. See also s 11
for the references to ‘acquisition’ and ‘supply’.
14. An interest in land is defined in s 2 of the Australian Consumer Law as follows:
‘(a) a legal or equitable estate or interest in the land; or
(b) a right of occupancy of the land, or of a building or part of a building erected on the land, arising
by virtue of the holding of shares, or by virtue of a contract to purchase shares, in an incorporated
company that owns the land or building; or
(c) a right, power or privilege over, or in connection with, the land.’
15. See Director of Consumer Affairs v AAPT Ltd [2006] VCAT 1493 in the context of s 3 of the Fair Trading
Act 1999 (Vic).
16. See CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408.
17. Explanatory Memorandum, Trade Practices Amendment (Australian Consumer Law) Bill (No 2)
2010 (Cth). See also ACCC, A Guide to the Unfair Contract Terms Law, 2010; Commonwealth Parliamentary
Debates, House of Representatives, 24 June 2009; Treasury of the Australian Government, The Australian
Consumer Law: Consultation on Draft Provisions on Unfair Contract Terms, 2009.
18. Paterson, Unfair Contract Terms in Australia, note 6 above, p 56.

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Standard form contract

21.12 In any proceedings relating to a consumer contract, s 27(1) of the Australian Consumer
Law stipulates that if a party to such proceedings alleges that the contract is a standard form
contract, it is presumed to be so unless the other party proves otherwise. It is hard to imagine
it being otherwise because such allegations will usually be made by the individual/consumer.
21.13 The Australian Consumer Law does not define what is meant by a ‘standard form
contract’. It is a question of fact. In essence, it is typically a contract prepared by one of the
parties, not subject to negotiation, and offered to the other party on a ‘take it or leave it’ basis.19
In determining whether the contract is a standard form contract, s 27(2) stipulates that the
court can take into account such matters as it thinks relevant, but must take into account the
following:
• whether one of the parties has all or most of the bargaining power relating to the transaction;
• whether the contract was prepared by one party before any discussion relating to the
transaction occurred between the parties;
• whether another party was, in effect, required either to accept or reject the terms of the
contract (other than the terms referred to in s 26(1)) in the form in which they were
presented;
• whether another party was given an effective opportunity to negotiate the terms of the
contract that were not the terms referred to in s 26(1);
• whether the terms of the contract (other than the terms referred to in s 26(1)) take into
account the specific characteristics of another party or the particular transaction; and
• any other matter prescribed by the regulations.
21.14 The words of s 27 focus on all of the terms of a contract20 and its structure acknowledges
that it is appropriate that the onus of proof in relation to the existence of a standard form contract
rests with businesses, rather than the consumer.21 Circumstances of the actual negotiation of
a contract will no doubt be relevant and be admissible evidence. Typical examples of standard
form contracts would include mobile telephone and gymnasium contracts. The wording
is broad enough to capture electronic contracts,22 such as contracts made through internet
websites where it often is the case that the acquirer will have no say in negotiating the terms
of any agreement (other than not to purchase) and where they are merely asked to tick a box
on the website labelled something like, ‘I accept the printed terms’, in order to indicate their
agreement.
21.15 In Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd
(in liq)23 the facts involved contracts entered into by customers for treatment for male sexual
dysfunction, which stipulated a time for which the contract, and therefore the treatment, would
last. The relevant clause that was found to be unfair related to cancellation of the contract

19. Lecdor Construction Ltd v Northbridge Indemnity Insurance Co [2016] 2 SCR 23 at 44.
20. Paterson, Unfair Contract Terms in Australia, note 6 above, p 93.
21. Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) [2015] FCA 368
at [946].
22. Paterson, Unfair Contract Terms in Australia, note 6 above, p 90.
23. [2015] FCA 368.

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before the treatment time had elapsed. In relation to the treatment centre (NRM) not being able
to establish that the contract was not a standard form contract, North J24 said:
NRM failed to show that these circumstances [in s 27(2)] did not exist. In fact, the evidence
positively established that NRM had a dominant bargaining position obtained by using high-
pressure selling techniques. The pressure applied to the patients denied them the power
to resist entering into the agreement. This was manifested in the NRM patients who said
they felt pressured and in the case of some who tried to cancel their contracts immediately
following the phone call. Patients did not have the chance to negotiate the terms of the
contract apart from price. The terms were set by the parameters of the business model of
NRM. The terms were set out in the instruction booklet sent to patients, often after they
had entered into the contract, and were in the same form irrespective of the individual
circumstances of the patient.

Unfair
21.16 Section 24 of the Australian Consumer Law deals with the meaning of ‘unfair’ and
states as follows:
(1) A term of a consumer contract or small business contract is unfair if:
(a) it would cause a significant imbalance in the parties’ rights and obligations arising
under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests of the party
who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it were to be
applied or relied on.
(2) In determining whether a term of a contract is unfair under subsection (1), a court
may take into account such matters as it thinks relevant, but must take into account the
following:
(a) the extent to which the term is transparent;
(b) the contract as a whole.
(3) A term is transparent if the term is:
(a) expressed in reasonably plain language; and
(b) legible; and
(c) presented clearly; and
(d) readily available to any party affected by the term.
(4) For the purposes of subsection (1)(b), a term of a contract is presumed not to be
reasonably necessary in order to protect the legitimate interests of the party who would
be advantaged by the term, unless that party proves otherwise.

21.17 As noted in the previous paragraph, in determining whether such a term is unfair,
s 24(2) of the Australian Consumer Law stipulates that the court can take into account such
matters as it thinks relevant,25 but must take into account the extent to which the term is
transparent; and the contract as a whole. Matters that a court thinks relevant are in addition

24. Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) [2015] FCA 368
at [947].
25. Paterson, Unfair Contract Terms in Australia, note 6 above, p 93.

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to the mandatory matters prescribed in s 24(2). Importantly, as set out below,26 s 25 sets out
examples of terms that may be considered unfair.
21.18 The necessary assessment of transparency is dealt with in accordance with the criteria
set out in s 24(3) above. Issues concerning the degree of transparency of the term, in the sense
of its comprehensibility, the way it appears, as well as the timing of its availability to an acquirer
of goods, services, or land are relevant matters to be considered.
21.19 It has been suggested that although unfairness was ‘of a lower moral or ethical standard
than unconscionability’,27 the three criteria set out in s 24(1) need to be satisfied in order to
obtain relief.28
21.20 In Australian Competition and Consumer Commission v CLA Trading Pty Ltd29 Gilmour J
summarised some of the principles relating to unfair contracts terms30 in the following way:
(a) the underlying policy of unfair contract terms legislation respects true freedom of
contract and seeks to prevent the abuse of standard form consumer contracts which, by
definition, will not have been individually negotiated;31
(b) the requirement of a ‘significant imbalance’ directs attention to the substantive
unfairness of the contract;32

26. See 21.27.

27. Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at 287; 321 ALR 584 at 664,
cited with approval in Australian Securities and Investments Commission v Bendigo and Adelaide Bank Ltd
[2020] FCA 716 at [20].
28. In Commerce Commission v Home Direct Ltd [2019] NZHC 2943 Muir J noted at [36] that the following
Australian cases have proved further guidance on application of the unfairness test. The most important of
these are:
(a) ACCC v CLA Trading Pty Ltd [2016] FCA 377 (where unlimited liability clauses in a car rental contract
were found to be unfair).
(b) ACCC v J J Richards & Sons Pty Ltd [2017] FCA 1224 (where an automatic renewal clause in a waste
management contract was found to be unfair).
(c) Jetstar Airways Pty Ltd v Free [2008] VSC 539 (which considered the fairness of terms requiring
passengers to pay fees to transfer airline tickets to others).
(d) Paciocco v Australia & New Zealand Banking Group Ltd (2016) 258 CLR 525 (where the High Court of
Australia considered that terms providing for late payment fees were not unfair).
(e) ACCC v TPG Internet Pty Ltd [2019] FCA 1677 (where telephone rental top-up provisions, which
automatically debited a customer’s credit card, and could see a consumer who changed providers
forfeiting a credit balance of between $10 and $20, were not considered unfair).
29. Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377 at [54],
cited with approval in Australian Competition and Consumer Commission v J J Richards & Sons Pty Ltd
[2017] FCA 1224 at [19]; Turner v MyBudget Pty Ltd [2018] FCA 1407 at [63]; Australian Competition
and Consumer Commission v TPG Internet Pty Ltd (2019) 375 ALR 537 at 552–3; Australian Competition
and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [43]; Australian Competition and
Consumer Commission v Mitolo Group Pty Ltd [2019] FCA 1257 at [11].
30. This summary was provided in the context of the unfair contract terms regimes in Victoria and the United
Kingdom. See also OPR WA Pty Ltd v Marron [2016] WASC 395 at [46].
31. Jetstar Airways Pty Ltd v Free [2008] VSC 539 at [112].
32. Director-General of Fair Trading v First National Bank plc [2002] 1 AC 481 at 500.

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(c) it is useful to assess the impact of an impugned term on the parties’ rights and
obligations by comparing the effect of the contract with the term and the effect it would
have without it;33
(d) the ‘significant imbalance’ requirement is met if a term is so weighted in favour of the
supplier as to tilt the parties’ rights and obligations under the contract significantly in its
favour — this may be by the granting to the supplier of a beneficial option or discretion
or power, or by the imposing on the consumer of a disadvantageous burden or risk or
duty;34
(e) significant in this context means ‘significant in magnitude’, or ‘sufficiently large to be
important’, ‘being a meaning not too distant from “substantial”’;35
(f) the legislation proceeds on the assumption that some terms in consumer contracts,
especially in standard form consumer contracts, may be inherently unfair, regardless of
how comprehensively they might be drawn to the consumer’s attention;36 and
(g) in considering ‘the contract as a whole’, not each and every term of the contract is equally
relevant, or necessarily relevant at all. The main requirement is to consider terms that
might reasonably be seen as tending to counterbalance the term in question.37

21.21 In Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd38
Edelman J reviewed the origins of s 24 and concluded, in part, as follows:
In his eloquent submissions, senior counsel for Chrisco emphasised a number of matters
concerning the construction of s 24, all of which I accept:

(1) for a term to be unfair it must satisfy the requirements of all of s 24(1)(a) to (c);
(2) the onus is upon the applicant to prove the matters in ss 24(1)(a) and 24(1)(c) but
it is upon the respondent in relation to s 24(1)(b);
(3) Section 24(2)(a) only requires the Court to consider transparency in relation to
the particular term that is said to be unfair and only in relation to the matters
concerning that term in s 24(1)(a) to (c);
(4) similarly, the assessment of the contract as a whole in s 24(1)(c) only requires the
Court to consider the contract as a whole in relation to the particular term that
is said to be unfair and only in relation to the matters concerning that term in
s 24(1)(a) to (c);
(5) as the Explanatory Memorandum to the Trade Practices Amendment (Australian
Consumer Law) Bill (No 2) 2010 (Cth) provided at [5.39], ‘if a term is not

33. Director-General of Fair Trading v First National Bank plc [2002] 1 AC 481 at 505.
34. Director-General of Fair Trading v First National Bank plc [2002] 1 AC 481 at 494, applied in ACCC v ACN 117
372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd) [2015] FCA 368 at [950].
35. Jetstar Airways Pty Ltd v Free [2008] VSC 539 at [104]–[105]. See also Director of Consumer Affairs Victoria
v AAPT Ltd [2006] VCAT 1493 at [32]–[33]; OPR WA Pty Ltd v Marron [2016] WASC 395 at [48].
36. Jetstar Airways Pty Ltd v Free [2008] VSC 539 at [115].
37. Jetstar Airways Pty Ltd v Free [2008] VSC 539 at [128].
38. (2015) 239 FCR 33 at 41–2; 334 ALR 309 at 318. This passage was referred to by the Full Court of the
Federal Court in NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016]
FCAFC 98 at [193]; Australian Competition and Consumer Commission v J J Richards & Sons Pty Ltd [2017]
FCA 1224 at [23]–[24]; Turner v MyBudget Pty Ltd [2018] FCA 1407 at [63]; Australian Competition and
Consumer Commission v Servcorp Ltd [2018] FCA 1044 at [16]–[21]. See also Australian Competition and
Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [44]–[51]. Note also Plevin v Paragon
Personal Finance Ltd [2014] UKSC 61 at [10].

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transparent it does not mean that it is unfair and if a term is transparent it does
not mean that it is not unfair’; and
(6) guidance can be had to s 25 which provides examples of unfair terms.

Although there was some dispute about (5), a contextual approach to statutory interpretation
cannot ignore the matters provided in s 25 which are specifically provided for the purpose of
giving examples of potentially unfair terms. …

21.22 As noted above, s 24(1) operates as a threefold threshold test that needs to be satisfied.
First, it involves an assessment of whether the term causes an imbalance in the parties’ rights
and obligations under the contract.39 Second, it involves an assessment as to whether that
imbalance is significant.40 Third, it involves an assessment of whether the term would cause
financial or other detriment to a consumer if it were to be applied or relied on. All three criteria
must be satisfied.
21.23 In relation to the first of these tests, that is, the imbalance test, in Australian
Competition and Consumer Commission v J J Richards & Sons Pty Ltd41 a number of clauses
in a waste management services contract were held to create a significant imbalance. One
of the clauses was an automatic renewal clause that bound a customer of J J Richards to
a subsequent contract, unless the customer cancelled the contract within 30 days before
the end of the initial or any subsequent contract term. In the 11 months before the
decision in this case, J J Richards had entered into, or renewed, over 26,000 contracts with
its customers. In the majority of cases the subsequent contracts, which customers were
automatically bound by, were of equal duration to the initial contract’s duration. In finding
that the automatic renewal clause created a significant imbalance between J J Richards and
a customer, Moshinsky J42 said:
The clause and, in particular, the limited period of time within which a [customer] can
terminate the contract and the lack of any requirement in the contract for J J Richards to
provide notice to a customer that the contract is about to expire and that the automatic
renewal will otherwise occur, may result in [the customer] inadvertently missing the
opportunity to terminate the contract and therefore remaining contracted to J J Richards
for extensive periods with no opportunity to change to an alternative supplier during the
term of the renewed contract. In the context of the whole contract, the automatic renewal
clause creates a significant imbalance in the respective rights and obligations of the parties
as J J Richards is more likely to be aware of when customers’ contracts are coming up for
renewal than small business customers, who as small businesses have limited resources and
competing demands that mean they may not have effective systems in place to identify the
termination period for their waste management contract.

39. See, for example, Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd
(2015) 239 FCR 33; 334 ALR 309; Director General of Fair Trading v First National Bank plc [2000] QB 672
at 687; Rural Press Ltd v ACCC (2002) 118 FCR 236; 193 ALR 399; Commerce Commission v Home Direct
Ltd [2019] NZHC 2943.
40. Director of Consumer Affairs Victoria v AAPT Ltd [2006] VCAT 1493 at [33].
41. [2017] FCA 1224. This case was considered and applied in Australian Competition and Consumer
Commission v Servcorp Ltd [2018] FCA 1044 at [22] and in Australian Competition and Consumer
Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [47]–[52].
42. Australian Competition and Consumer Commission v J J Richards & Sons Pty Ltd [2017] FCA 1224 at [56].

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21.24 In relation to the second of the necessary tests, ‘significant’ in this context, means
‘significantly large to be important’43 and the significant imbalance assessment requires the
court to compare the trader’s rights and liabilities as a result of the impugned term, with
the rights and liabilities of the consumer as the result of that term, to see whether there is a
significant imbalance between the two. The requirement of a ‘significant imbalance’ directs
attention to the substantive unfairness of the contract, which needs to be considered in the
context of the contract as a whole.44 This latter requirement could have the result that although
a contract contains unfair terms in the relevant sense, it may nevertheless not be regarded as
unfair given all of its terms. That will be a matter for construction and one that a careful pleader
of originating process will have to have special regard to when drafting such process.
21.25 In relation to the third of the necessary tests, that is, the necessary detriment test, that
requires a causal link to be satisfied between the unfair terms and any resulting financial or
other detriment to a consumer if it were to be applied or relied on.
21.26 In Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd
(in liq),45 in relation to the unfairness of the cancellation clause, North J said:
The NRM refund term required the patient to pay a 15 per cent administration fee, a pro-
rata fee for the expired portion of the treatment, a pro-rata fee for the 30-day notice period,
and the cost of medication supplied or prepared for the patient. The term operated whether
the reason for the termination was a change of mind very soon after the phone consultation,
a severe adverse side effect, or where the medication proved ineffective. The term thus
caused detriment to the patient, if relied upon, within the meaning of s 24(1)(c). It also
caused a significant imbalance in the parties’ rights and obligations because it had the effect
of binding patients to continue treatment in disadvantageous circumstances, or alternatively
suffer a financial penalty.

In determining whether a term of consumer contract is unfair, the Court must take into
account the extent to which the term is transparent and also take into account the contract
as a whole (s 24(2)). A term is transparent if it is expressed in reasonably plain language, is
legible, is presented clearly, and is readily available to any party affected by the term (s 24(3)).

The NRM refund term lacked transparency to a significant extent. The basis on which the
administration fee was calculated was not disclosed to the patient at all. The method of
calculation of the cost of the medication was not disclosed to the patient at all. At the time
that the agreement was made, the patient was told about the NRM refund term in a recorded
message which suffered from the deficiencies outlined at [858] of these reasons for judgment.
The patient was not provided with a written copy of the refund term until after the contract
was entered into, save in the case of patients who attended clinics.

When regard is had to the contract as a whole, the unfairness of the term becomes
incontrovertible. The contract provided for the supply of medications which were not
regarded by the medical profession as the usual forms of treatment and there was no cogent

43. Jetstar Airways Pty Ltd v Free [2008] VSC 539 at [104]–[105]; ACCC v CLA Trading Pty Ltd [2016] FCA 377
at [54](e); Commerce Commission v Home Direct Ltd [2019] NZHC 2943 at [35].
44. ACCC v CLA Trading Pty Ltd [2016] FCA 377 at [54](b), [57]; Commerce Commission v Home Direct Ltd
[2019] NZHC 2943 at [35], [42].
45. [2015] FCA 368 at [951]–[954].
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evidence that they were effective to treat [erectile dysfunction] or [premature ejaculation]. In
those circumstances it was unfair to hold the patient to the agreement on penalty of payment
of fees, the method of calculation of which was unknown, imposed in order to cancel the
treatment.

21.27 Section 25(1) of the Australian Consumer Law sets out ‘examples of the kinds of terms
of a consumer contract that may be unfair’,46 being:
a) a term that permits, or has the effect of permitting, one party (but not another party) to
avoid or limit performance of the contract;
b) a term that permits, or has the effect of permitting, one party (but not another party) to
terminate the contract;
c) a term that penalises, or has the effect of penalising, one party (but not another party)
for a breach or termination of the contract;
d) a term that permits, or has the effect of permitting, one party (but not another party) to
vary the terms of the contract;
e) a term that permits, or has the effect of permitting, one party (but not another party) to
renew or not renew the contract;
f) a term that permits, or has the effect of permitting, one party to vary the upfront price
payable under the contract without the right of another party to terminate the contract;
g) a term that permits, or has the effect of permitting, one party unilaterally to vary the
characteristics of the goods or services to be supplied, or the interest in land to be sold
or granted, under the contract;
h) a term that permits, or has the effect of permitting, one party unilaterally to determine
whether the contract has been breached or to interpret its meaning;
i) a term that limits, or has the effect of limiting, one party’s vicarious liability for its
agents;
j) a term that permits, or has the effect of permitting, one party to assign the contract to
the detriment of another party without that other party’s consent;
k) a term that limits, or has the effect of limiting, one party’s right to sue another party;
l) a term that limits, or has the effect of limiting, the evidence one party can adduce in
proceedings relating to the contract;
m) a term that imposes, or has the effect of imposing, the evidential burden on one party in
proceedings relating to the contract;
n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.

In Australian Securities and Investments Commission v Bendigo and Adelaide Bank Ltd,47
Gleeson J observed that although ‘[t]here is no presumption that terms of the kind listed in
[s 25(1)] are unfair … a contextual approach to statutory interpretation cannot ignore the
matters at [s 25(1)] which are specifically provided for the purpose of giving examples of
potentially unfair terms’.
21.28 From the above list a number of questions of construction and principle arise — for
example, it could be said that many of the examples contained in s 25(1) of unfair terms are

46. See NRM Corporation Pty Ltd v Australian Competition and Consumer Commission [2016] FCAFC 98
at [200]; Australian Competition and Consumer Commission v Chrisco Hampers Australia Ltd (2015) 239
FCR 33 at 318; 334 ALR 309 at 41–2.
47. [2020] FCA 716 at [18].

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indeterminate48 and could have an impact on varying long established contract principles.
Using some examples:
• What if a contract contains a provision for one party to terminate where the other party is
in breach of a condition? Such a situation is common and would be a common law right in
any case if the grounds for rescission are satisfied.
• What of the situation where there is an agreed damages clause that properly assesses loss
in the event of non-performance? Absent the term being a penalty, at common law such a
term would ordinarily be enforceable.
• What of a contractual term which is agreed upon whereby one party has the ability to
substitute goods that have been specified? Such a term is not uncommon and is designed
to deal with situations where a buyer is prepared to accept comparable goods or services.
• What of where one party is given an option to renew or extend the time for performance or
to extend the term of a contract, for example pursuant to an option?
• What of where the parties agree that the price is to be a provisional one and will not be
accurately determined until it is ready for supply or until something else occurs, such as a
building being completed pursuant to a construction contract with a homeowner?
• What relevance to consumer contracts do limitations on vicarious liability have?
• What interaction (if any) will there be between the law relating to assignment (either at law
or in equity) and, for example, s 25(1)(j) of the Australian Consumer Law, which seems to
categorise such terms as unfair?
• How will arbitration/alternate dispute resolution clauses fare in the light of s 25(1)(k)?
• How will exclusion or disclaimer clauses in such contracts be interpreted?49
• What if one party has the right to suspend the operation of the contract in certain situations? 50
• How will contracts with a non-refund clause be construed — are such contracts unfair in
all the circumstances?51
21.29 Section 26(1) of the Australian Consumer Law stipulates that s 23 does not apply to a
term of a consumer contract to the extent, but only to the extent, that the term:
• defines the main subject matter of the contract; or
• sets the upfront price payable under the contract; or
• is a term required, or expressly permitted, by a law of the Commonwealth, a State or a
Territory.
In relation to the second bullet, the upfront price payable under a consumer contract is
the consideration that is provided, or is to be provided, for the supply, sale, or grant under
the contract, and is disclosed at or before the time the contract is entered into. Clearly
this operates as a two-part definition and will not include any other consideration that is
contingent on the occurrence or non-occurrence of a particular event. The latter exclusionary
event is crucial, as the presence or absence of such will have a bearing on the definition of
upfront price.

48. J W Carter, ‘The Commercial Side of Australian Consumer Protection Law’ (2010) 26 Journal of Contract
Law 221, pp 239–41.
49. See, for example, Director of Consumer Affairs Victoria v Backloads.com Pty Ltd [2009] VCAT 754.
50. Adoko v Freeserve.Com.Plc [2002] EWCA 869.
51. Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd [2008] VCAT 2092.

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21.30 Furthermore, s 28 of the Australian Consumer Law stipulates that the unfair contract
terms provisions of the Australian Consumer Law do not apply to the following types of contracts:
• a contract of marine salvage or towage;
• a charterparty of a ship; or
• a contract for the carriage of goods by ship.

21.31 In addition, the provisions do not apply to a contract that is the constitution of a
company,52 to managed investment schemes, or to other kinds of body. Insurance contracts are
excluded by the operation of s 15 of the Insurance Contracts Act 1984 (Cth). Further, s 131A
of the Competition and Consumer Act 2010 (Cth) states that the unfair terms provisions of
the Australian Consumer Law do not apply to contracts that relate to the supply of financial
products or services. Such contracts are covered by essentially identical provisions in the
Australian Securities and Investments Commission Act 2001 (Cth).53

Consequences of unfair terms or contracts

21.32 As already noted, s 23(1) of the Australian Consumer Law stipulates that a term of a
consumer contract will be void if it is unfair and if the consumer contract is a standard form
contract. However, if a term is unfair and thus void, the contract will still remain binding
between the parties if it is capable of operating without the unfair term.54
21.33 Section 250 of the Australian Consumer Law allows the court, on an application
by the regulator or a party to a consumer contract or small business contract,55 to grant
a declaration,56 that a term of a consumer contract or a small business contract is an
unfair term. In order for the declaration to be made, the consumer contract and the small
business contract must be a standard form contract and Pt 2-3 must apply to the contract.
Where such a declaration is made and a party seeks to rely on that term, it is considered a
contravention of the Australian Consumer Law and a court can grant one of the following
remedies:
• an injunction.57 This will be so where the particular injunctive relief sought is not vague
or imprecise; is designed to prevent a repetition of the contravening conduct; does
not require continuing supervision by the court; and where there is no multiplicity
of overlapping injunctions that may give rise to confusion about the scope of the
obligations being imposed.58 Without limiting the power in s 232, the court may require

52. Corporations Act 2001 (Cth) s 9.

53. See ss 12BAA and 12BAB.
54. Australian Consumer Law s 23(2).
55. For a small business contract, the party to the contract needs to be a business of the kind referred to in
s 23(4)(b) at the time the contract was entered into: Australian Consumer Law s 250(2).
56. Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436 at [216];
Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd (No 2) [2019] FCA 1739.
57. Australian Consumer Law s 232.
58. Trade Practices Commission v Mobil Oil Australia Ltd (1984) 4 FCR 296; Australian Competition and
Consumer Commission v Mandurvit Pty Ltd [2014] FCA 464 at [85]; Australian Competition and Consumer
Commission v Breast Check Pty Ltd (No 2) [2014] FCA 1068.

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a person to refund money; transfer property; honour a promise; destroy or dispose of

goods;59 or
• an order to redress loss or damage suffered by non-party consumers.60
21.34 A person who, because of the conduct of a party, suffers loss or damage that constitutes
a contravention of the unfair terms provisions of the Australian Consumer Law may recover
the loss or damages suffered.61 Compensation orders are also possible.62

THE INDUSTRIAL RELATIONS ACT

21.35 Section 106 of the Industrial Relations Act 1996 (NSW) provides that the Supreme
Court of New South Wales may make an order declaring wholly or partly void, or varying, any
‘contract’ whereby a person performs work in any industry if the court finds that the contract
is an unfair contract.
21.36 Sections 105 and 106 of the Industrial Relations Act 1996 (NSW) are in the following
terms:
105 Definitions

(1) In this Part:

‘contract’ means any contract or arrangement, or any related condition

or collateral arrangement, but does not include an industrial
instrument.

‘unfair contract’ means a contract:

(a) that is unfair, harsh or unconscionable, or

(b) that is against the public interest, or
(c) that provides a total remuneration that is less than a
person performing the work would receive as an employee
performing the work, or
(d) that is designed to, or does, avoid the provisions of an
industrial instrument.

106 Power of Commission to declare contracts void or varied

(1) The Supreme Court may make an order declaring wholly or partly void, or varying, any
contract whereby a person performs work in any industry if the Supreme Court finds
that the contract is an unfair contract.
(2) The Supreme Court may find that it was an unfair contract at the time it was entered
into or that it subsequently became an unfair contract because of any conduct of the
parties, any variation of the contract or any other reason.

59. Australian Consumer Law s 232(6).

60. Australian Consumer Law ss 239–240.
61. Australian Consumer Law s 236.
62. Australian Consumer Law s 237.

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(2A) A contract that is a related condition or collateral arrangement may be declared void
or varied even though it does not relate to the performance by a person of work in an
industry, so long as:
(a) the contract to which it is related or collateral is a contract whereby the person
performs work in an industry, and
(b) the performance of work is a significant purpose of the contractual arrangements
made by the person.
(3) A contract may be declared wholly or partly void, or varied, either from the
commencement of the contract or from some other time.
(4) In considering whether a contract is unfair because it is against the public interest,
the matters to which the Supreme Court is to have regard must include the effect that
the contract, or a series of such contracts, has had, or may have, on any system of
apprenticeship and other methods of providing a sufficient and trained labour force.
(5) In making an order under this section, the Supreme Court may make such order as to
the payment of money in connection with any contract declared wholly or partly void,
or varied, as the Supreme Court considers just in the circumstances of the case.
(6) In making an order under this section, the Supreme Court must take into account
whether or not the applicant (or person on behalf of whom the application is made)
took any action to mitigate loss.

21.37 It can also be noted that the Industrial Relations Act 1996 (NSW) is not confined
to traditional work agreements, but is broad enough to possibly include leases and franchise
agreements as long as the particular contract or arrangement (or a related one) enables a person
to work in any industry. Pursuant to s 106(2A) of the Industrial Relations Act 1996 (NSW), a
contract that is a related condition or collateral arrangement may be declared void or varied,
even though it does not relate to the performance by a person of work in an industry, so long as:
• the contract to which it is related or collateral is a contract whereby the person performs
work in an industry, and
• the performance of work is a significant purpose of the contractual arrangements made by
the person.
21.38 The essential ingredient that is needed to ground jurisdiction is that the contract, or
the contract to which another contract is collateral to, must enable a person to perform work in
an industry. For example, a franchisee who operates an ice-cream franchise at a retail shopping
centre pursuant to a franchise agreement may well be able to invoke s 106 of the Industrial
Relations Act 1996 (NSW) in circumstances where the franchise agreement is unfair, as long as
the franchisee can establish that the contract or arrangement with the franchisor enables them
to work in any industry.63 Problems will no doubt arise whereby the person is not working in
any industry pursuant to a contract or arrangement with the franchisor, but is in fact doing so
pursuant to some other arrangement (such as a contract with their own service company which
has contracted with the franchisor). Similarly, it may be argued that a lessee, who pursuant to
a lease arrangement with a lessor is regarded as being enabled to perform work in an industry
because of that lease, may be able to invoke s 106 in circumstances where the lease is unfair. The
High Court has considered this area in several of its decisions.64

63. Pilgrim v Wendy’s Supa Sundaes Pty Ltd [2002] NSWIR Comm 238. However, see also Autobake Pty Ltd
v Budd (1986) 8 IPR 435.
64. Fish v Solution 6 Holdings Ltd (2006) 225 CLR 180; 227 ALR 241; Batterham v QSR Ltd (2006) 225 CLR 237;
227 ALR 212; Old UGC Inc v Industrial Relations Commission (2006) 225 CLR 274; 227 ALR 190.
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21.39 Pursuant to the Industrial Relations Act 1996 (NSW) compensation can be ordered
for breach of the unfair contract provisions. This compensation includes an allowance for
the cost of the interest on the moneys borrowed paid by the applicants to their banks.65 This
is consistent with the approach to assessment of damages expressed by the High Court in
Hungerfords v Walker,66 where Mason CJ and Wilson J spoke of a loss which ‘may arise in the
form of the borrowing cost, that is, interest payable on borrowed money or interest forgone
because an existing investment is realised or reduced’.
21.40 The scope of relief under s 106 was considered by the Court of Appeal in McDonald’s
Australia Holdings Ltd v Industrial Relations Commission of NSW.67 While Spigelman CJ
dissented on other issues, his judgment with respect to the scope of relief68 was agreed to by
Mason P69 and Handley JA.70 Mason P held that the relief sought must closely relate to the
performance of work. Spigelman CJ also expressed this test as being that the relief must relate
to the performance of work in a reasonably direct manner.71 In reaching these conclusions, his
Honour applied his own judgment in Solution 6 Holdings Ltd v Industrial Relations Commission
of NSW.72
21.41 Since this decision, s 106(2A) was enacted. The effect of s 106(2A) on the extent to
which relief can be granted under s 106 was considered by the Court of Appeal in Caterpillar
of Australia Pty Ltd v Industrial Court of New South Wales.73 In that case, Spigelman CJ74
concluded:
Where the legislature, albeit only with respect to a ‘related condition’ and ‘collateral
arrangement’, has indicated that orders can be made which do not involve performance of
work in an industry, then it can no longer be said that the power to vary a contract, which
does lead to such performance, must be so limited. As the respondents submitted, it would
be perverse if a particular non-work related element could be set aside or varied if found in
a collateral arrangement, but could not be set aside or varied if found in the contract for the
performance of work itself.

21.42 The notion of there being a significant connection between the arrangements and the
performance of work is picked up in s 106(2A)(b), which requires that work be a ‘significant
purpose’ of the contractual arrangements in order to attract the operation of s 106(2A).

65. Industrial Relations Commission of NSW, 5 November 1997, unreported.

66. (1989) 171 CLR 125 at 143; 84 ALR 119 at 128.
67. (2005) 223 ALR 78.
68. McDonald’s Australia Holdings Ltd v Industrial Relations Commission of NSW (2005) 223 ALR 78 at 94–7.
69. McDonald’s Australia Holdings Ltd v Industrial Relations Commission of NSW (2005) 223 ALR 78 at 98.
70. McDonald’s Australia Holdings Ltd v Industrial Relations Commission of NSW (2005) 223 ALR 78 at 98.
71. McDonald’s Australia Holdings Ltd v Industrial Relations Commission of NSW (2005) 223 ALR 78 at 94, 97.
72. (2004) 60 NSWLR 558.
73. (2009) 78 NSWLR 43.
74. Caterpillar of Australia Pty Ltd v Industrial Court of New South Wales (2009) 78 NSWLR 43 at [156]–[158].

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Discharge
 22
DISCHARGE BY PERFORMANCE

INTRODUCTION
22.1 It is important to realise what is meant by the term ‘discharge’ of a contract. When we
say that one party is discharged, we mean that party is excused from further performance of
his or her obligations under that contract. There is nothing further that the law requires that
party to do.
22.2 A party may be discharged from a contract by performance of the promises made,
or because something has happened that discharges the obligation. In the ideal situation,
everything goes according to plan — the parties perform their promises properly, the contract
is fully executed, and there is nothing further for the parties to do. Not all contracts end in
this way.
22.3 There are several ways in which a party, or each contracting party, may be discharged
from further performance of their contractual obligations. Such a discharge can occur:
• by performance of contractual obligations;
• by agreement between the contractual parties;1
• by breach of certain contractual obligations by one or more of the parties to the contract;2 or
• by frustration of the contract.3
22.4 This chapter is concerned with discharge of a contract through performance by or
on behalf of the contracting parties. Questions arise in this regard as to the time, meaning,
and order of performance. In regards to the latter, reference needs to be made to the stated
intention of the parties in the contract. Clearly, to ascertain the parties’ intention in this regard
is a question of construction. The resolution of this issue is a matter of law.

TIME FOR THE PERFORMANCE OF OBLIGATIONS

22.5 The time at which contractual obligations are to be performed is governed by the
contract. Relevantly, an important consideration in relation to contractual time obligations is

1. See Chapter 23.

2. See Chapter 24.
3. See Chapter 25.

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whether a breach of such a time provision is properly to be regarded as a breach of an essential

obligation that gives the party not in breach a right to terminate the contract and/or claim
damages. In Bunge Corporation, New York v Tradax Export SA, Panama4 Lord Wilberforce said:
As to such a clause there is only one kind of breach possible, namely, to be late, and the
questions to be asked are, first, what importance have the parties expressly ascribed to this
consequence, and secondly, in the absence of expressed agreement, what consequence ought
to be attached to it having regard to the contract as a whole.

22.6 If the contract expressly stipulates the time for performance, then a failure to perform on
the stipulated date constitutes a breach of contract. In relation to contracts that do not expressly
stipulate the time for performance, it is often said that the obligation must be performed
within a reasonable time.5 However, as Campbell JA pointed out in Handley v Gunner,6 ‘[s]uch
statements are empirical generalisations, not propositions of law — it well may be that in all
or practically all contracts such an implication would be made, but that is because the tests
for implication of the term are satisfied in relation to each particular contract’. The correct
statement of principle is that, where time for performance is not specified in the contract, ‘[a]n
implication of [performance within] a reasonable time … is, in general, to be made unless there
are indications to the contrary’.7
22.7 What is a reasonable time is determined, not by reference to the circumstances as at the
date of the contract, but in the light of circumstances existing at the time when performance
takes place or when the party demanding performance asserts it should have taken place.8
22.8 In relation to whether a reasonable time has been exceeded in such cases, in Peregrine
Systems Ltd v Steria Ltd9 Kay LJ approved the following statement of principle by Seymour J in
Astea (UK) Ltd v Time Group LTD:10
After all, an obligation to do something under a contract within a reasonable time will only
arise if either the parties have expressly agreed that that is the time within which performance
will be given or, more commonly, the parties have not stipulated any particular time by
which performance is to take place or the benefit of any such stipulation has been waived.
What … [this] involves … is a broad consideration, with the benefit of hindsight, and
viewed from the time as at which one party contends that a reasonable time for performance
has been exceeded, of what would, in all the circumstances which are by then known to
have happened, have been a reasonable time for performance. That broad consideration is
likely to include taking into account any estimate given by the performing party of how

4. [1981] WLR 711 at 715. This approach was echoed in Samarenko v Dawn Hill House Ltd; [2012] 2 All
ER 476 at 481 and was followed in RJR Holdings Pty Ltd v Balleroo Pty Ltd (1991) 56 SASR 151; Canberra
Advance Bank Ltd v Benny (1992) 38 FCR 427; 115 ALR 207.
5. Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20 at 26.
6. [2008] NSWCA 113 at [124]. See also Lahoud v Lahoud [2009] NSWSC 623 at [393].
7. Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1 at 13; Griffiths v LMM Holdings Pty Ltd [2017] FCA
1212 at [86]; Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd [2019] NSWCA 185 at [99]; Greencapital Aust
Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd [2019] NSWCA 53 at [39].
8. Handley v Gunner [2008] NSWCA 113 at [97]; Business and Professional Leasing Pty Ltd v Akuity Pty Ltd
[2008] QCA 215 at [46].
9. [2005] EWCA Civ 239 at [15].
10. [2003] EWHC 725 (TCC) at [144].

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long it would take him to perform; whether that estimate has been exceeded and, if so, in
what circumstances; whether the party for whose benefit the relevant obligation was to be
performed needed to participate in the performance, actively, in the sense of collaborating
in what was needed to be done, or passively, in the sense of being in a position to receive
performance, or not at all; whether it was necessary for third parties to collaborate with the
performing party in order to enable it to perform; and what exactly was the cause, or were
the causes of the delay to performance. This list is not intended to be exhaustive.

22.9 In Electronic Industries Ltd v David Jones Ltd11 the plaintiff conducted an electrical
business in Melbourne and the defendant conducted a large department store in Sydney. The
plaintiff and defendant made a contract whereby the plaintiff was to give demonstrations
of televisions in the defendant’s store and, to that end, to install temporarily the necessary
equipment. The demonstrations were fixed to take place in a specified period. Prior to the
demonstrations occurring, a serious coal strike began in New South Wales, resulting in
a falling off of the number of shoppers coming in to Sydney. The defendant decided not to
proceed with the television display and requested the plaintiff to postpone the demonstration.
The defendant advised the plaintiff that it would require four to six weeks after the strike
was over to make appropriate arrangements for the demonstration to go ahead. The plaintiff
advised that it would vary the agreement to fit in with the defendant’s proposed new timetable.
Accordingly, the plaintiff, although willing and able to perform on the date contemplated
by the contract, refrained from doing so at the request of the defendant. Unfortunately, a
substitute agreement had not been made and the original contract was still operative. This
meant that the plaintiff, who was not in breach, had let the date for performance slip by.
Subsequently, correspondence between the parties yielded no agreement about a new time to
hold the exhibition. Notwithstanding the settlement of the coal strike, the defendant refused to
go on. The plaintiff thereupon treated the contract as repudiated by the defendant and sued for
damages. The defendant argued that the contract had become unenforceable for lack of a time
certain for its performance. As part of this argument the defendant contended that the parties
had agreed between themselves to remove the time stipulated for performance. Without such a
term, the defendant said, the contract was void for uncertainty.
22.10 The Supreme Court held that the contract had been varied or rescinded. On appeal
the High Court12 held that the plaintiff did not intend to terminate the original contract and
never did so. The plaintiff always meant to perform it and hold the defendant bound to it.
All the plaintiff meant to do, and all it did do, was to accede to the defendant’s request for a
postponement in order to oblige the defendant. In this regard the High Court13 said:
In the situation which resulted both parties remained bound by the contract. The fact that
there was no longer a fixed date for performance brought into application the principles
which impose on parties, in all cases where the performance of their obligations requires
co-operative acts, the duty of complying with the reasonable requests for performance made
by the other. …

What it was reasonable for the plaintiff to demand was that within a specified time when
the plaintiff ’s apparatus was not unreasonably committed elsewhere the defendant should

11. (1954) 91 CLR 288.

12. Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288.
13. Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 at 297–8.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

name a time for the plaintiff to commence the fortnight’s exhibition or demonstration
and should make available its store for a reasonable period in advance of the date for
the plaintiff to install its equipment and make the necessary preparations. Of course
the plaintiff could not give the defendant an unreasonably short period of time or one
specially inopportune to the defendant, having regard to the purposes to be served by
the exhibition. All that the plaintiff was bound to do was to take reasonable measures
to obtain from the defendant a time when he might enter the store for the purpose of
performing his part of the contract and no doubt there were more ways than one in which
the plaintiff might have acted. By any appropriate demand the plaintiff was entitled to
require the defendant to make its store available to the plaintiff to perform its obligation
at some proper and reasonable time. It is hardly necessary to repeat the commonplace
statement that what is reasonable depends on all the circumstances including the nature
and purpose of the express stipulations.

22.11 When a party fails to perform in accordance with a time stipulation, the innocent party
is, of course, entitled to recover damages for losses suffered as a result of that breach.14 However,
whether the innocent party can also terminate the contract for breach of a time stipulation
depends upon the classification of the time stipulation.

THE ORDER OF PERFORMANCE OF CONTRACTUAL

OBLIGATIONS
22.12 The order for performance of contractual obligations by the parties is normally
determined by the terms of the contract. If, however, the contract is silent on this matter, it
becomes a question of construction of the contract to ascertain the intention of the parties as
to the order in which obligations are to be performed.15
22.13 In determining the order of performance, courts will usually distinguish between
independent and dependent obligations. Contractual obligations made to each other by
A and B are said to be independent when A’s obligation is absolute and not conditional upon
the performance of B. On the other hand, they are dependent when A’s obligation depends
upon the performance, or the readiness and willingness to perform, of B.16 Where the
parties’ obligations are independent of one another, the order of performance is irrelevant.
In such cases party A can call upon party B to perform, irrespective of whether party A
has performed. In Segboer v A J Richardson Properties Pty Ltd17 Sackville AJA, speaking for
the Court of Appeal, said that ‘[w]hether an obligation is dependent … or independent, is a
question of construction of the instrument’. However, if an obligation constitutes the whole or
a substantial part of the consideration for the contract, it is likely to be viewed as a dependent
obligation.18

14. Canning v Temby (1905) 3 CLR 419 at 426.

15. Burton v Palmer [1980] 2 NSWLR 878 at 895.
16. Doherty v Fannigan Holdings Ltd [2018] EWCA Civ 1615 at [22].
17. [2012] NSWCA 253 at [82]. See also Hillam v Iacullo (2015) 90 NSWLR 422 at 441.
18. Doherty v Fannigan Holdings Ltd [2018] EWCA Civ 1615 at [23].

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It can be noted that historically obligations were always viewed as being independent unless
there were words that linked the parties’ obligations. However, today the presumption is that
obligations are dependent.19 In this context Carter20 states:
In the absence of an express agreement, whether obligations are dependent or independent is
resolved as a matter of presumption. … Originally, obligations were treated as independent in
the absence of words linking the parties’ obligations. … Towards the end of the 18th century
the courts took a more practical approach and were less willing to apply a presumption of
independency. Accordingly, the relationship between performance obligations was said to
depend on the ‘good sense of the case’21 and not on any ‘formal arrangement of the words’.22
The more practical approach prevailed, with the result that, today, the presumption is that
obligations are dependent in character.

22.14 In determining whether obligations are independent or dependent, the court is engaged
in an exercise to ascertain the objective intention of the parties.23 In Sydney Attractions Group
Pty Ltd v Schulman24 Sackar J noted that, in ascertaining the parties’ intention, the following
principles would apply:
(1) the question is one of construction;
(2) the more closely the obligations are linked to the rights, the easier it will be to construe
the rights as qualified by due observance of the obligation;
(3) if the obligation constitutes a substantial part of the consideration for the contract or
right the court is likely to construe it as a dependent obligation. That is, to construe the
right as qualified by due observance of the obligation; and
(4) a practical approach prevails, whereby the presumption is that obligations are dependent
in character.

22.15 As a result, independent obligations are rarely found in contemporary times.25 An

illustration of independent obligations occurs in the sale of goods legislation in all Australian
jurisdictions, which allows a seller to recover the price of goods if the buyer’s promise is to pay
for the goods on a particular date, irrespective of actual delivery.26 Another example concerns
the obligation of the tenant to pay rent which is generally independent of the landlord’s
obligations under the lease.27

19. Hillam v Iacullo (2015) 90 NSWLR 422 at 443.

20. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Australia, 2018, p 631. See also
Hillam v Iacullo (2015) 90 NSWLR 422 at 441.
21. Campbell v Jones (1796) 101 ER 708 at 709.
22. Ritchie v Atkinson (1808) 103 ER 787 at 791.
23. Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 450; Hillam v Iacullo (2015) 90 NSWLR 422 at 441.
24. [2013] NSWSC 858 at [45].
25. Hillam v Iacullo (2015) 90 NSWLR 422 at 441; McDonald Murholme Pty Ltd v Victorian Radio Network Pty Ltd
[2018] VSC 434 at [122].
26. Sale of Goods Act 1954 (ACT) s 52(2); Sale of Goods Act 1923 (NSW) s 51(2); Sale of Goods Act 1972 (NT)
s 51(2); Sale of Goods Act 1896 (Qld) s 50(2); Sale of Goods Act 1895 (SA) s 48(2); Sale of Goods Act 1896
(Tas) s 53(2); Goods Act 1958 (Vic) s 55(2); Sale of Goods Act 1895 (WA) s 48(2).
27. Surplice v Farnsworth (1844) 135 ER 232 at 235; Edge v Boileau (1884) 16 QBD 117; Taylor v Webb [1937]
2 KB 283 at 290; Chatfield v Elmstone Resthouse Ltd [1975] 2 NZLR 269 at 275; Aalders v P A Putney Finance
Australia Pty Ltd [2011] NSWSC 756 at [59].

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22.16 Obligations are far more likely to be held to be dependent obligations. In such cases
party A’s obligation to perform will be dependent upon performance by party B, unless the
parties have agreed to perform their obligations concurrently. An important illustration of
dependent obligations concerns the employment contract. In such a contract, unless the
contract stipulates otherwise,28 the employer’s obligation to pay wages is dependent upon
the employee performing his or her work for the relevant pay period. If the employee has
not performed, the employer is not obliged to make payment of wages or salary, even if
the employee is wrongfully dismissed and thereby precluded from performing his or her
contractual obligation to perform work. However, in such a case the employee can sue for
damages for breach of contract.29
22.17 In many cases there is a presumption that parties will perform their obligations
concurrently. An important example relates to contracts for the sale of land, where it
is presumed that the vendor’s obligation to hand over title deeds to the purchaser and the
purchaser’s obligation to pay the purchase price are to performed concurrently on settlement or
completion of the transaction.30 Another illustration relates to contracts for the sale of goods.31
If one party is not ready, willing, and able to perform his or her obligation, the other party is
relieved from his or her obligation to perform, provided that party is ready willing, and able to
perform. In this respect in Foran v Wight32 Brennan J said:
Where the respective obligations of parties to a contract are mutually dependent and
concurrent, the primary rule is that neither party who fails to perform his obligation when
the time for performance arrives can [terminate] for the other party’s failure at that time to
perform his obligation. Each party’s obligation is conditional on performance by the other;
neither can complain of non-performance by the other when the condition governing the
other’s obligation goes unfulfilled. But if one party intimates to the other that it is useless for
the other to fulfil his obligation and the other acts on the intimation, the party to whom the
intimation is given is dispensed from a nugatory tender of performance.

Co operation, good faith, and performance

22.18 It is often the case that one party’s ability to perform its obligations under a contract
will depend upon the other party’s co operation in carrying out its own obligations. This
was seen in Electronic Industries Ltd v David Jones Ltd.33 It may be that such co operation is
expressly provided for and, in consequence, parties will have to co operate with each other in
order to fulfil their contractual obligations — that is, in order to perform. If such a provision
for co operation is not express, it may have to be implied.34

28. Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 465.
29. Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 465; Mimmo v Fernando [2016] VSC 510
at [310]–[311].
30. Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553 at 571; Sharjade Pty Ltd v The Commonwealth [2009]
NSWCA 373 at [55]; Lavigne v Kumar [2020] NSWSC 1120 at [120].
31. Sale of Goods Act 1954 (ACT) s 32; Sale of Goods Act 1923 (NSW) s 31; Sale of Goods Act 1972 (NT) s 31;
Sale of Goods Act 1896 (Qld) s 30; Sale of Goods Act 1895 (SA) s 28; Sale of Goods Act 1896 (Tas) s 33;
Goods Act 1958 (Vic) s 35; Sale of Goods Act 1895 (WA) s 28.
32. (1989) 168 CLR 385 at 417; 88 ALR 413 at 435.
33. (1954) 91 CLR 288.
34. See 11.39–11.41.

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22.19 In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd35
Mason J referred to the Mackay v Dick,36 where Lord Blackburn said:
[A]s a general rule … where in a written contract it appears that both parties have agreed
that something shall be done, which cannot effectually be done unless both concur in doing
it, the construction of the contract is that each agrees to do all that is necessary to be done
on his part for the carrying out of that thing, though there may be no express words to that
effect.

22.20 Indeed, Mason J added that this rule of construction is not confined to the imposition
of an obligation on one contracting party to co operate in doing all that is necessary to be
done for the performance by the other party of his or her obligations under the contract. In
this regard his Honour37 cited with approval the following remarks in Butt v M’Donald38 by
Griffith CJ:
It is a general rule applicable to every contract that each party agrees, by implication, to do
all such things as are necessary on his part to enable the other party to have the benefit of
the contract.

22.21 However, as was pointed out by the Court of Appeal in Wolfe v Permanent Custodians,39
‘the scope of the duty [to co operate] is defined by what has been promised under the contract;
it is not a general duty to ensure another party obtains an anticipated benefit’.
22.22 In Servcorp WA Pty Ltd v Perron Investments Pty Ltd40 Buss JA said:
[A] duty to cooperate cannot be imposed on a party so as to compel that party:

(a) to bring about a circumstance or result which the contract does not require; or
(b) to do something which the contract, on its proper construction, would relieve him or
her from doing.

22.23 In relation to the limits on the duty to co operate, in Stepping Stones Child Care Centre
(ACT) Pty Ltd v Early Learning Services Ltd41 Refshauge J said:
There are, however, limits to the [duty to co operate]. It only appears to be relevant to what
cannot be done without the concurrence or co operation of both parties. As McMurdo J …
said in Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd:42

In the same way, the duty to do what is necessary to enable the other party to have
the benefit of the contract is limited to acts which are necessary to the performance
of obligations under the contract. To assess the scope of the duty in a particular case,
it is first necessary to define the relevant obligations, and in particular, to define the

35. (1979) 144 CLR 596 at 607; 26 ALR 567 at 576–7.

36. (1881) 6 App Cas 251 at 263.
37. Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607;
26 ALR 567.
38. (1896) 7 QLJ 68 at 70–1.
39. [2013] VSCA 331 at [28]; AGC Industries Pty Ltd v Karara Mining Ltd [2019] WASC 140 at [367].
40. [2016] WASCA 79 at [83].
41. [2013] ACTSC 173 at [541]–[545].
42. [2006] QCA 126 at [51]–[52].

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circumstances in which the parties have agreed that a certain obligation must be
performed. It is not a duty upon one party to act so as to enhance the commercial
value to the other party of the contract.

As appears from the above passage, in Mackay v Dick,43 the duty of co-operation is
one which applies to a certain type of contract, which is where the parties have agreed
that something shall be done which cannot be done unless both concur in doing it.

There are other limits. In particular, it is not required that the duty be to preserve the benefit
of a party but only the benefit of the contract. As the NSW Court of Appeal put it in Australia
Media Holdings Pty Ltd v Telstra Corporation Ltd:44
[T]here cannot be a duty to co-operate in bringing about something which the
contract does not require to happen. … A contract may ‘contemplate’ many benefits
for the respective parties, but each can only call on the other to provide, or co-operate
in the providing of, benefits promised by that party.

The obligation is also limited to what can reasonably be required in the circumstances, as
decided by Mason J, with whom the other members of the High Court agreed, in Secured
Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd.45
Further, the duty will not exist if inconsistent with the express terms of the contract.

22.24 Contracts will often have terms requiring the parties to use ‘reasonable endeavours’
or ‘best endeavours’ to enable the contract to be carried out. In Electricity Generation
Corporation v Woodside Energy Ltd,46 a case concerning the construction and application of
a long-term gas supply agreement between Electricity Generation Corporation and various
gas suppliers in Western Australia, including Woodside Energy Ltd, the relevant gas supply
agreements required the various gas sellers including Woodside Energy Ltd to use best
endeavours to make available a maximum daily quantity of gas to Electricity Generation
Corporation. One of the issues on appeal was whether the suppliers of gas breached the
‘reasonable endeavours’ obligation under the supply agreements. In applying an objective
approach to determine the rights and liabilities of the parties to a contract, the High Court
affirmed that the meaning of the terms of a commercial contract is to be determined by what
a reasonable businessperson would have understood those terms to mean and that required
consideration of the language used by the parties, the surrounding circumstances known to
them and the commercial purpose or objects to be secured by the contract. According to
their Honours:47
Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the
genesis of the transaction, the background, the context [and] market in which the parties are
operating’.48

43. (1881) 6 App Cas 251.

44. (1998) 43 NSWLR 104 at 124–5.
45. (1979) 144 CLR 596 at 615.
46. (2014) 251 CLR 640. See also Knights Quest Pty Ltd v Daiwa Can Co (2018) 366 ALR 557 at 578; Primary
Flooring Pty Ltd v Australian Comfort Group Pty Ltd [2019] VSC 104 at [59].
47. (2014) 251 CLR 640 at 658; 306 ALR 25 at 33.
48. Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350; 41 ALR 367 at 374.

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22.25 On the issue of what constituted reasonable endeavours, French CJ, and Hayne,
Crennan, and Kiefel JJ said:49
Contractual obligations framed in terms of ‘reasonable endeavours’ or ‘best endeavours (or
efforts)’ are familiar. Argument proceeded on the basis that substantially similar obligations
are imposed by either expression. Such obligations are not uncommon in distribution
agreements, intellectual property licences, mining and resources agreements and planning
and construction contracts. Such clauses are ordinarily inserted into commercial contracts
between parties at arm’s length who have their own independent business interests.

Three general observations can be made about obligations to use reasonable endeavours
to achieve a contractual object. First, an obligation expressed thus is not an absolute or
unconditional obligation. Second, the nature and extent of an obligation imposed in such
terms is necessarily conditioned by what is reasonable in the circumstances, which can
include circumstances that may affect an obligee’s business. This was explained by Mason J
in Hospital Products Ltd v United States Surgical Corporation,50 which concerned a sole
distributor’s obligation to use ‘best efforts’ to promote the sale of a manufacturer’s products.
His Honour51 said:

The qualification [of reasonableness] itself is aimed at situations in which there would
be a conflict between the obligation to use best efforts and the independent business
interests of the distributor and has the object of resolving those conflicts by the
standard of reasonableness. … It therefore involves a recognition that the interests of
[the manufacturer] could not be paramount in every case and that in some cases the
interests of the distributor would prevail.

As Sellers J observed of a corporate obligee in Terrell v Mabie Todd & Co Ltd,52 an obligation
to use reasonable endeavours would not oblige the achievement of a contractual object ‘to
the certain ruin of the Company or to the utter disregard of the interests of the shareholders’.
An obligee’s freedom to act in its own business interests, in matters to which the agreement
relates, is not necessarily foreclosed, or to be sacrificed, by an obligation to use reasonable
endeavours to achieve a contractual object.

Third, some contracts containing an obligation to use or make reasonable endeavours to

achieve a contractual object contain their own internal standard of what is reasonable, by
some express reference relevant to the business interests of an obligee.

22.26 A not too dissimilar view was taken in Gaia Ventures Ltd v Abbeygate Helical (Leisure
Plaza) Ltd53 where Norris J said:
The term ‘reasonable endeavours’ is a descriptive phrase without any immutable content.
Its application requires a judge to make a value judgment in the light of all the facts of the
particular case, so that reference to other decided cases is of limited assistance. … In the
course of [his judgment in Rhodia International Holdings Limited v Huntsman54 Mr Julian

49. (2014) 251 CLR 640 at 658–9; 306 ALR 25 at 35–6.

50. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41.
51. Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 92.
52. (1952) RPC 234 at 236.
53. [2018] EWHC 118 (Ch) at [80].
54. [2007] EWHC 292 (Comm).
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Flaux QC (as he then was)] pointed out that the content of the duty lies on a spectrum
dependent upon the precise language used. He55 said:

… There may be many reasonable courses which could be taken in a given situation
to achieve a particular aim. An obligation to use reasonable endeavours to achieve
the aim only requires a party to take one reasonable course, not all of them, whereas
an obligation to use best endeavours probably requires a party to take all reasonable
courses he can. In that context, it may well be that an obligation to use all reasonable
endeavours equates with using best endeavours.

Prevention of performance
22.27 Issues have arisen with respect to a party or their agents56 preventing the other party from
performing his or her obligations. This prevention will often discharge a contract. A contract
may contain an express term to the effect that a party will not prevent the performance of an
obligation by the other party. In appropriate cases the courts can find that there is an implied
term to that effect.57
22.28 There are two main ways in which contractual obligations may be obstructed:
• prevention of performance; and
• refusal of tender of performance.

THE LEVEL OF PERFORMANCE REQUIRED TO DISCHARGE

A CONTRACT
22.29 Where both parties have performed their respective contractual obligations, the
contract is discharged by performance. A party to the contract is discharged by performance
if he or she has performed his or her obligations. In this context, for performance to lead to a
discharge, the party or parties must perform obligations exactly as required by the contract. In
Arcos Ltd v EA Ronaasen & Son58 the strictness with which the court applies this principle was
confirmed by Lord Atkin, when he said:
It was contended that in all commercial contracts the question was whether there was a
‘substantial’ compliance with the contract: there always must be some margin: and it is for
the tribunal of fact to determine whether the margin is exceeded or not. I cannot agree. If the
written contract specifies conditions of weight, measurement and the like, those conditions
must be complied with. A ton does not mean about a ton, or a yard about a yard. … If the
seller wants a margin he must and in my experience does stipulate for it. … No doubt there

55. Rhodia International Holdings Limited v Huntsman [2007] EWHC 292 (Comm) at [33].
56. Hunyor v Tilelli (1997) 8 BPR 15,629 at 15,631.
57. This view is substantially based upon the principle that a person is not entitled to take advantage of his
or her own wrong: New Zealand Shipping Co v Societe des Ateliers et Chantiers de France [1919] AC 1
at 6–7; CSS Investments Pty Ltd v Lopiron Pty Ltd (1987) 16 FCR 15 at 31–2; 76 ALR 463 at 479; Mhanna
v Sovereign Capital Limited [2004] FCA 1252 at [16]; Hera Project Pty Ltd v Bisognin (No 3) [2017] VSC 268
at [105].
58. [1933] AC 470 at 479–80.

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may be microscopic deviations which business men and therefore lawyers will ignore. ... It
will be found that most of the cases that admit any deviation from the contract are cases
where there has been an excess or deficiency in quantity which the Court has considered
negligible. But apart from this consideration the right view is that the conditions of the
contract must be strictly performed.

22.30 Performance by payment of money must be by legal tender unless otherwise agreed.
Where payment is made by other than legal tender, there is no discharge of the promise to
pay until the money is actually paid. Legal tender in Australia means payment in Australian
currency, although there are limits to the amounts that can be paid in coins. Where performance
is by way of payment of money, attempted performance does not discharge the payer from the
promise to pay but it does relieve that party of the obligation of seeking out the creditor again.
With payment by cheque, the promise is not discharged until the cheque is honoured.
22.31 The crucial issue that arises with discharge by performance is the meaning of
‘performance’. Certainly, without assent by the other contractual party, performance must be
exact. This is, as will be seen, at least subject to the de minimis non curat lex rule59 or the
doctrine of substantial performance,60 both of which are discussed later in this chapter and
which may allow performance of less than what was agreed to nevertheless discharge the
contract. However, in the absence of those rules or doctrines, the position is that a promisor is
not discharged unless he or she has performed his or her obligation exactly and completely in
accordance with the terms of the contract.
22.32 This is a rule of construction and not a rule of law.61 The rationale behind this rule is
that the promisor’s obligations are seen as entire and indivisible.62 In practice this will mean, for
example, in relation to a contract for the sale of goods, that a seller must make delivery of goods
exactly in accordance with the terms of the contract so that if he or she delivers more goods
than have been ordered, the buyer may reject the whole consignment.63
22.33 The strictness of this rule is further illustrated by the decision in Re Moore & Co and
Landauer & Co,64 where a seller contracted to deliver a certain quantity of tinned fruit in cases
of 30 tins per case. Not all the tinned fruit was delivered in cases of 30 tins per case and it was
held that the buyer was entitled to refuse to take delivery of all the tinned fruit because the
seller had not performed its obligation exactly in accordance with the terms of the contract.
22.34 The requirement for exact performance has occasionally led to unjust results. In Cutter
v Powell 65 Cutter signed on as a merchant seaman on a ship named the ‘Governor Parry’ sailing
from the West Indies to England. The contract provided that Cutter would be paid the sum of
30 guineas by the defendant ‘provided he proceeds, continues and does his duty as second mate’.
Cutter died about seven weeks into the voyage. The defendant refused to pay any part of the
promised salary to Cutter’s wife who sued for recovery of a proportionate amount. Mrs Cutter

59. See 22.44.

60. See 22.45–22.49.
61. Hoenig v Isaacs [1952] 2 All ER 176.
62. Cutter v Powell (1795) 101 ER 573.
63. Cunliffe v Harrison (1851) 155 ER 813.
64. [1921] 2 KB 519.
65. Cutter v Powell (1795) 101 ER 573.

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was unsuccessful. The court held that Cutter had promised to serve as second mate for the
whole of the voyage, but had not done so.
22.35 The reason that Mrs Cutter failed in Cutter v Powell66 was that the contract in question
was an entire contract. In Baltic Shipping Co v Dillon (The Mikhail Lermontov)67 Mason CJ
said that ‘[a]n entire contract, or more accurately, an entire obligation, is one in which the
consideration for the payment of money or for the rendering of some counter-performance
is entire and indivisible’. If a contract or obligation is entire, its complete performance is a
condition precedent to payment or counter performance. In Cutter v Powell68 Cutter did not
perform his promise and there was, thus, no entitlement to any part of the salary because, as
was noted in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd,69 in such a
case as that ‘the court has no power to apportion the consideration which, in the case of money,
is thus regarded as a “lump sum”’.
22.36 A party who partially performs cannot recover anything for work that they have
done. Importantly, the person cannot recover the whole contract price less damages that are
attributable to their breach of contract. This is because that party’s performance is in essence
a condition precedent to their right to demand payment.70 In Appleby v Myers71 the plaintiffs
agreed to erect specific machinery at the defendant’s premises. It was a term of the contract that
the plaintiff would not be paid until completion of the work. The work was partially completed
when the premises, together with the machinery, was destroyed by fire. The court held that the
fire frustrated the contract and that the plaintiff could not recover for the value of work that was
done. In essence, it was regarded that the plaintiff had contracted to undertake an entire work
for a specific sum of money.
22.37 Further, a party who partially performs cannot make a restitutionary claim based on
quantum meruit because of the principle that where an enforceable contract remains on foot,
such a restitutionary claim is not available.72
22.38 Despite the rule that performance of a contract must be exact, the law does recognise
that there are exceptions to the rule. In these cases performance that is less than exact can still
discharge the obligations of the party in default and that party’s rights to the stipulated return
performance will remain intact. The so-called exceptions are set out below.

Divisible contracts
22.39 If a contract is divisible into discrete parts, a party who performs a discrete part has
rights in relation to the part performed, even though he or she does not fully perform the whole
of the contract. Divisible contracts commonly arise in building contracts. In GEC Marconi

66. Cutter v Powell (1795) 101 ER 573.

67. (1993) 176 CLR 344 at 350; 111 ALR 289 at 292.
68. Cutter v Powell (1795) 101 ER 573.
69. (2003) 128 FCR 1 at 164.
70. Appleby v Myers (1867) LR 2 CP 651.
71. Appleby v Myers (1867) LR 2 CP 651.
72. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 577. See 38.36–38.38.

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Systems v BHP Information Technology Pty Ltd Finn J set out the following in relation to this
73

issue:
(i) An entire contract, or an entire obligation, is one in which, or in relation to which,
the consideration for the payment of money or the rendering of some other counter
performance is entire, indivisible and not severable.74
(ii) If a contract or an obligation is entire its complete performance is a condition precedent
to payment or counter performance.75 The court has no power to apportion the
consideration which, in the case of money, is thus regarded as a ‘lump sum’.
(iii) The question whether a contract or an obligation is entire or is, in contrast, divisible, is a
question of construction.76 While building contracts (which have significant similarities
with the present type of contract) have commonly been regarded, prima facie, as entire
or ‘lump sum’ contracts77 such contracts commonly provide to the contrary by, for
example, apportioning the consideration78 where the contract provided both for the
payment of instalments and for their refund if the contract was cancelled in specified
circumstances. As was said in the first edition of Halsbury’s Laws of England:79
The large expenditure which builders and contractors have to incur in carrying
out the works which they have undertaken to construct renders it usual
for the contract to provide for payments on account of the price during the
construction of the works. The manner in which these payments on account
are regulated varies according to the terms of the contract. Sometimes the
several instalments become due on the completion of particular stages of the
work … sometimes the interim payments are to be not less than a fixed sum
… or, again, at fixed periods, irrespective of amount.

22.40 In such a contract payment of the contract price is by instalments, with each instalment
due and payable upon performance of each divisible part of the contract. In GEC Marconi
Systems v BHP Information Technology Pty Ltd80 Finn J said that ‘[o]nce the right to payment
has accrued it is enforceable as a debt and that right is not lost notwithstanding that the contract
is subsequently terminated because of the default of the party possessing the right to payment’.
22.41 Another important example of a divisible contract is a contract for the sale of goods
by instalments. Thus, if A contracts to supply B a total of 1000 tonnes of wheat for an agreed
price with delivery to take place by 10 monthly instalments of 100 tonnes each, A is entitled to
be paid for each instalment that is delivered, irrespective of whether A delivers the remaining
instalments. Similarly, in Cutter v Powell,81 had the terms of the contract been that Cutter would

73. (2003) 128 FCR 1 at 164–5.

74. Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344 at 350; 111 ALR 289 at 292; Steele
v Tardiani (1946) 72 CLR 386 at 401; Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 at 233ff.
75. Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221; Hoenig v Isaacs [1952] 2 All ER 176 at 181.
76. Ownit Homes Pty Ltd v Batchelor [1983] 2 Qd R 124; Hoenig v Isaacs [1952] 2 All ER 176 at 181.
77. Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717.
78. Walsh v Kinnear (1876) SCR (NSW) 434; but cf Hyundai Heavy Industries Co Ltd v Papadopoulos [1980]
1 WLR 1229.
79. Vol 3, §458–9.
80. (2003) 128 FCR 1 at 165.
81. (1795) 101 ER 573.

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be paid a certain sum as wages for each week of the voyage, his wife would have been able to
recover wages for the weeks that he had worked before he died.
22.42 The principle of divisible contracts is also given statutory effect in the ‘apportionment
legislation’ relating to rents and dividends in property law.82 These provisions, when they apply,
provide that such rent accrues from day to day. Similarly, the legislation dealing with frustrated
contracts in New South Wales, South Australia, and Victoria make provision for recovery of
money in the circumstances contemplated by the relevant legislation.83

Obstruction of performance
22.43 A party to a contract who has partially performed his or her obligations and whose
further performance is prevented by the other contracting party may be able to bring a
restitutionary claim against the party who obstructed performance.84

The de minimus non curat lex rule

22.44 The Latin expression de minimus non curat lex means ‘the law does not concern itself
with trivialities’. Thus, where it has been alleged that a contract has been breached, a court ‘will
not regard or give effect to what are undoubtedly, in the view of the court, trivialities, matters
of little moment, or of a trifling or negligible nature’.85 Whether or not a breach is within the de
minimis rule ‘depends on a consideration of the nature and extent of the breach and the nature
and scope of the term breached, having regard to the presumed intention of the parties based
on the proper construction of the contract’.86

Substantial performance
22.45 Where there is substantial performance, though not enough to activate the de minimus
non curat lex rule, the defaulting party may still retain and enforce rights. Whether there is, or
is not, substantial performance is a matter of construction. Although this area of the law is not
without its difficulties, it is suggested that, unless the contract clearly and expressly makes exact
performance of the obligation a condition precedent to the payment of the contractual price,
if the plaintiff has substantially performed his or her obligation, he or she is entitled to recover
the contract price subject to a reduction for the cost of any remedial work that has to be done.
Thus, in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd87 Bathurst CJ said:
In the case of contracts which at least on their face appear to be entire contracts, particularly
lump sum building contracts, courts have been reluctant to construe complete performance
of the works as an essential pre-condition for payment. Rather, in circumstances where there

82. Civil Law (Property) Act 2006 (ACT) s 250; Conveyancing Act 1919 (NSW) s 144(1); Law of Property
Act 2000 (NT) s 212(1); Property Law Act 1974 (Qld) s 232; Law of Property Act 1936 (SA) s 64;
Apportionment Act 1871 (Tas) s 2; Supreme Court Act 1986 (Vic) s 54; Property Law Act 1969 (WA) s 131.
83. See 25.72–25.98.
84. Restitutionary claims are discussed in Chapter 38.
85. Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 2 QB 430 at 444; [1964]
3 All ER 333 at 335.
86. Attorney-General of Botswana v Aussie Diamond Products Pty Ltd (No 3) [2010] WASC 141 at [214].
87. [2012] NSWCA 184 at [94].

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has been substantial performance, they have treated a failure to complete as a breach of a
non-essential term of the contract not disentitling the builder to contractual payment for the
work done but, rather, giving the proprietor a right of setoff or claim for damages for the cost
of completing the work or rectifying any defects.

22.46 His Honour then cited with approval a statement of principle in Hoenig v Isaacs,88
where Denning LJ said:
[T]he first question is whether, on the true construction of the contract, entire performance
was a condition precedent to payment. [In this case it] was a lump sum contract, but that
does not mean that entire performance was a condition precedent to payment. When a
contract provides for a specific sum to be paid on completion of specified work, the courts
lean against a construction of the contract which would deprive the contractor of any
payment at all simply because there are some defects or omissions. The promise to complete
the work is, therefore, construed as a term of the contract, but not as a condition. It is not
every breach of that term which absolves the employer from his promise to pay the price, but
only a breach which goes to the root of the contract, such as an abandonment of the work
when it is only half done. Unless the breach does go to the root of the matter, the employer
cannot resist payment of the price. He must pay it and bring a cross-claim for defects and
omissions, or alternatively, set them up in diminution of price. The measure is the amount
which the work is worth less by reason of the defects and omissions, and is usually calculated
by the cost of making them good. It is, of course, always open to the parties by express words
to make entire performance a condition precedent.

22.47 In Hoenig v Isaacs89 Isaacs agreed to redecorate Hoenig’s flat for a sum of £750. He was
to be paid ‘as the work proceeds, and balance on completion’. Hoenig made some progress
payments, but refused to pay the balance because of poor workmanship and because some of
the work needed to be remedied. Isaacs sued for the outstanding amount. Hoenig argued that
the contract was an entire contract in which Isaacs had promised to complete the job and that
this was a prerequisite to full payment. The cost of doing the remedial work was just over £55.
The English Court of Appeal held that, although the work was partially defective, the defects
were easily correctable. Furthermore, it held that the plaintiff had substantially performed
his obligations. This meant that Isaacs was entitled to the contract price less the cost of the
necessary remedial work.
22.48 If, however, the extent of the defective performance is serious and the cost of
rectification is high by comparison to the contract price, the court will conclude that
substantial performance has not occurred. Thus, in Bolton v Mahadeva,90 where the contract
price for installing a water heating system was £560 and the costs of remedial work was £174,
the court held that substantial performance had not taken place when one took into account
‘both the nature of the defects and the proportion between the cost of rectifying them and the
contract price’.
22.49 On the other hand, in Highmist Pty Ltd v Tricare Ltd91 the principle of substantial
performance did not apply because it was a condition of the contract that performance be exact.

88. [1952] 2 All ER 176 at 180–1.

89. [1952] 2 All ER 176 at 180–1.
90. [1972] 2 All ER 1322.
91. [2005] QCA 357.

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In that case, the facts concerned the sale of land to be subdivided. The contract permitted the
size of the land to be no more than 3 per cent less than was shown on a draft plan of subdivision
attached to the contract. The subdivision that was approved resulted in the land being 3.015 per
cent less than that indicated on the draft plan. In a complex set of facts and claims an issue
arose as to whether the vendor had substantially performed its obligation in relation to the
plan of subdivision. The Queensland Court of Appeal ruled that the question of substantial
performance did not arise in this case. Keane JA92 said:
It is, therefore, not to the point to consider whether or not the [purchaser] would have
received ‘substantially what it had contracted to purchase’. The clear terms of the contract
required the [vendor] to register a plan of subdivision in conformity with the explicit
requirements of special condition 47.4 [of the contract]. This was not done. To excuse this
failure because the amount by which the specifications of the registered plan deviated from
those stipulated in the contract was ‘small’ would be to deprive the terms agreed upon by the
parties and contained in that special condition of any real meaning. The common law does
not operate in this way.

Acceptance of partial performance

22.50 In cases where there has not been complete and exact performance of an obligation, the
party who has not so performed may be able to bring a restitutionary claim93 for a reasonable
sum for the work done and materials supplied, if the other party has accepted the partial
performance. The critical aspect of such claims is that the other party has a real choice as to
whether or not to accept the partial performance. If there is no real choice but to accept the
partial performance, a restitutionary claim is not available.94

92. [2005] QCA 357 at [41].

93. See Chapter 38.
94. See Sumpter v Hedges [1898] 1 QB 673; Steele v Tardiani (1946) 72 CLR 386, discussed at 38.40.

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DISCHARGE BY AGREEMENT

INTRODUCTION
23.1 The parties to a contract may discharge it by a subsequent agreement or pursuant to
a term within the original contract. Either way the parties’ outstanding obligations under the
original contract are discharged, with the result that no enforcement action can be taken against
them with respect to those obligations. Thus, the parties’ future obligations and rights will be
brought to an end. Discharge by agreement can be achieved in a number of ways, including:
• by abandonment;
• by a contractual term within the original contract; and
• by a subsequent agreement.
Furthermore, a party to a contract may relinquish enforceable rights against the other party
under the doctrine of waiver. Each of these ways in which parties are effectively discharged
from their contractual obligations will be examined in turn.

DISCHARGE BY ABANDONMENT
23.2 Parties to a contract can achieve its discharge if they have abandoned it. Abandonment
of a contract cannot be effected by one party alone. The abandonment, if it occurs, is
abandonment by both parties. In Summers v The Commonwealth1 Isaacs J considered that,
whatever the terms of a contract may be, it is possible for the parties to conduct themselves
so as to mutually abandon or abrogate it. In other words, if the parties by their ‘external
manifestations’ evinced an intention to abandon or abrogate the agreement, the agreement
will be discharged.2 Thus, there is no need for a formal offer and acceptance for the parties to
discharge a contract between them.3

1. (1918) 25 CLR 144 at 151–2. This case concerned a contract for the supply of marble for Australia House
in London.
2. Summers v The Commonwealth (1918) 25 CLR 144 at 151–2; DTR Nominees Pty Ltd v Mona Homes Pty Ltd
(1978) 138 CLR 423 at 434; Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 at [40], [50];
Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd [2014] VSCA 32 at [19]; Técnicas Reunidas SA v Andrew
[2018] NSWCA 192 at [51]–[52]; Clifton (Liquidator) v Kerry J Investment Pty Ltd [2020] FCAFC 5 at [325].
3. Técnicas Reunidas SA v Andrew [2018] NSWCA 192 at [47].

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23.3 The classic statement of principle relating to abandonment is found in Fitzgerald

v Masters,4 where Dixon CJ and Fullagar J said:
There can be no doubt that, where what has been called an ‘inordinate’ length of time has
been allowed to elapse, during which neither party has attempted to perform, or called upon
the other to perform, a contract made between them, it may be inferred that the contract
has been abandoned. … What is really inferred in such a case is that the contract has been
discharged by agreement, each party being entitled to assume from a long-continued ignoring
of the contract on both sides that (in the words of Rowlatt J5), ‘the matter is off altogether’.

23.4 Refinements as to when abandonment will be regarded as occurring have been

developed by the courts. For example, in J R Marine Systems Pty Ltd v Wavemaster International
Pty Ltd (in liq)6 Murphy JA said:
A contract may be said to be abandoned where the court infers that the parties, by their
conduct, have discharged their contract by further agreement. The further agreement, being
inferred from the parties’ conduct, does not depend upon sequential offer and acceptance.
Also, being an inferred agreement, it does not depend upon the subjective intention of the
parties, but upon whether, objectively, their conduct manifests an intention to discharge the
contract.

Later, and consistent with these views, in Fazio v Fazio7 Murphy JA said:
The abandonment of a contract, in the sense of the mutual release of future obligations,
being an inferred agreement, does not depend upon the subjective intention of the parties,
but upon whether their conduct (both acts and omissions) viewed objectively manifests an
intention to discharge the contract. The length of the term of the agreement is a matter
of some relevance in assessing the likelihood of abandonment. It seems to me that the
formalities of a particular agreement may also be a relevant factor. It may, depending on all
the circumstances, be more difficult to infer an agreement of abandonment where the parties
have, in setting up their contractual relationship, expressed in detail in a formal instrument,
the terms of their relationship, including the terms as to termination.

23.5 Focus upon whether the circumstances were such as to be able to objectively infer that
the contract had been abandoned were emphasised in Ryder v Frohlich,8 where McColl JA said:
Where it is plain from the conduct of parties to a contract that neither intends that the
contract should be further performed the parties will be regarded as having so conducted
themselves as to abandon or abrogate the contract. … Whether there is abandonment or
abrogation of a contract is a matter of fact to be inferred from an objective assessment
of the conduct of the parties. The underlying premise of the abandonment cases is
that a period of time elapses during which neither party to the contract manifests any
intention to perform the contract, leading to the inference that the contract has been
abandoned. It is clear that the question whether an ‘inordinate length of time has been

4. (1956) 95 CLR 420 at 432. See also Jafari v 23 Developments Pty Ltd [2019] VSCA 201 at [191]–[195].
5. Pearl Mill Co Ltd v Ivy Tannery Co Ltd [1919] 1 KB 78 at 82.
6. [2011] WASCA 1 at [42].
7. [2012] WASCA 72 at [74].
8. [2004] NSWCA 471 at [135]–[137], cited with approval in Belflora Pty Ltd v Vinflora Pty Ltd [2020]
NSWSC 1229 at [52].

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allowed to elapse’ is relative. In DTR Nominees Pty Limited v Mona Homes Pty Limited9
the High Court was prepared to infer abandonment after a period of less than five
months had elapsed during which neither party took any steps to perform the contract.
In Fitzgerald v Masters10 it was held that a contract for the sale of land had not been
abandoned even though proceedings for its specific performance were not commenced
until 26 years after its execution.

23.6 The question of whether there is abandonment of a contract is therefore a matter of fact
to be inferred from an objective assessment of the conduct of the parties. Importantly, it is not
necessary for the court to examine whether the parties themselves actually had the intention
of abandoning the agreement. The only question for the court is whether the parties’ conduct,
when viewed objectively, manifests such an intention.11 In determining whether a contract is
abandoned, extrinsic evidence of the parties’ conduct is admissible.12
23.7 In Wallera Pty Ltd v CGM Investments Pty Ltd13 Kiefel J said:
While the Australian cases may not have discussed the theoretical basis for abandonment
to any great extent it is clear that regard is to be had to the conduct of the parties and what
might be inferred from it. Abandonment may be seen as a conclusion that parties have no
further interest in a contract continuing, even though they may have said nothing to that
effect. It may nevertheless be clear that they both regard it as at an end. This can more readily
be discerned where one or more of the parties have ineffectively attempted to bring the
agreement to an end and both behave as if it was ended.

If a contract has been partly performed, ‘it is not lightly to be supposed that parties intend to
abandon accrued rights’.14
23.8 In cases where a contract has been held to be abandoned, any deposit that may have
been paid pursuant to that contract is to be returned to the party that paid the deposit.15

DISCHARGE PURSUANT TO A TERM OF THE ORIGINAL CONTRACT

23.9 A term of a contract may enable the contract to be terminated if a certain breach occurs.
Alternatively, the term may discharge the contract if certain circumstances arise. In such a case,
depending upon the circumstances, the term is usually referred as a condition precedent or a
condition subsequent. The use of the word ‘condition’ in this context can lead to confusion and
should not be equated with the meaning of condition in the sense of a term of a contract which,
when breached, gives the innocent party the right to terminate the contract.16

9. (1978) 138 CLR 423.

10. (1956) 95 CLR 420.
11. CGM Investments v Chelliah (2003) 196 ALR 548 at 553.
12. Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 321, 334, 339; Cohen v iSoft
Group Pty Ltd [2012] FCA 1071 at [36].
13. [2003] FCAFC 279 at [40].
14. Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd [2014] VSCA 32 at [19].
15. Summers v The Commonwealth (1918) 25 CLR 144 at 153.
16. See 24.87–24.95.

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Contractual right to terminate

23.10 Sometimes a contract contains a provision whereby, if a certain type of breach
occurs, a party has a right to terminate the contract. Such a termination is one pursuant to a
contractual power that has been conferred. It is not a termination that arises from a repudiation
of the agreement. In contrast, repudiation arises in circumstances that the common law itself
recognises, without any express statement by the parties as conferring an entitlement to
terminate a contract.17
23.11 If the contract is silent on what will discharge the parties’ obligations or on the
consequences of termination, it may be that such a term can to be implied into the contract. In
Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd18 McHugh JA said:
When the question arises whether a commercial agreement for an indefinite period may
be terminated, the answer depends upon whether the agreement contains an implied term
to that effect. The existence of the term is a matter of construction. But the question of
construction does not depend only upon a textual examination of the words or writings
of the parties. It also involves consideration of the subject matter of the agreement, the
circumstances in which it was made, and the provisions to which the parties have or have
not agreed.

23.12 If such a term has to be implied, the normal rules relating to implication of terms set
out in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council19 apply. It may be possible to
imply a term to terminate a contract where it has been abandoned after being partly performed.20

Conditions precedent
23.13 A condition precedent is a provision that sets out one of two consequences in the
event of a certain event not occurring. The first possible consequence is that a contract will
not come into existence unless a certain event occurs. The second is that a party’s obligation
to perform does not arise unless a certain event occurs. In relation to this dichotomy, in Perri
v Coolangatta Investments Pty Ltd Pty Ltd21 Mason J said:
[There is an] obvious difference between the condition which is precedent to the formation
or existence of a contract and the condition which is precedent to the obligation of a party
to perform his part of the contract and is subsequent in the sense that it entitles the party
to terminate the contract on non-fulfilment. In the first category the transaction creates no
rights enforceable by the parties unless and until the condition is fulfilled. In the second
category there is a binding contract which creates rights capable of enforcement, though the
obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the
condition and non-fulfilment entitles him to terminate.

23.14 When construing such provisions, courts tend to favour a construction that the
provision is a condition precedent to the performance of a contract and will only rule that

17. Repudiation is analysed in 24.63–24.86.

18. (1988) 14 NSWLR 438 at 443.
19. (1977) 180 CLR 266 at 282–3; 16 ALR 363 at 347. See also 11.8, 11.13, 11.23, 11.29.
20. Fitzgerald v Masters (1956) 95 CLR 420 at 432.
21. (1982) 149 CLR 537 at 551; 41 ALR 441 at 450–1.

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it is a condition precedent to the existence of a contract where the contract, read as a whole,
compels such a conclusion.22 If the provision is a condition precedent to the formation of a
contract, either party can withdraw from the transaction at any time before the occurrence of
the event without being liable for damages for breach of contract. If the provision is a condition
precedent to the performance of an obligation by one of the parties, depending upon the court’s
construction of the clause, the non-occurrence of the event either automatically terminates the
contract or confers a right to terminate the contract on one or both of the contracting parties.23
In such cases the courts tend to prefer the latter alternative wherever possible.24
23.15 In M K & J A Roche Pty Ltd v Metro Edgley Pty Ltd25 the New South Wales Court of
Appeal held that nothing in Suttor v Gundowda Pty Ltd26 precluded a court giving effect to a
clear and explicit term in a contract which stipulated that the contract would be automatically
terminated if a condition precedent was not satisfied. This view was reinforced by reference to
the principles of construction of contracts that require the court to give effect to the ordinary
and clear meaning of the words used. However, this approach was rejected by the Queensland
Court of Appeal in Quinn Villages Pty Ltd v Mulherin.27
23.16 Perri v Coolangatta Investments Pty Ltd28 is an example of a case involving a condition
precedent to the performance of an obligation. In that case the Perris contracted to purchase
land in April 1978. A term of the contract stated that the contract was ‘entered into subject to
[the Perris] completing a sale of their property No 9 Karokan Road, Lilli Pilli’. The contract
did not fix a time for the completion of the sale of the Lilli Pilli property, nor did it contain
any promise that the sale would occur. The Perris made no arrangements to sell their property
until March 1979. In August 1978, the vendor gave notice requiring completion of the contract
and on expiry of this notice formally issued a notice of termination. The Perris challenged the
validity of the termination and asked the court to order specific performance of the contract.
The High Court, in a majority judgment, held that the vendor had validly terminated the
contract before the Perris began proceedings for specific performance. The condition making
the contract subject to the sale of the Lilli Pilli property was a condition precedent to the
performance of the contract and not one going to its formation. The court held that a contract
existed, but the obligation to proceed to completion of the sale was contingent on fulfilment
of the condition. Neither party could withdraw and there were obligations on both sides.
Furthermore, the court implied an obligation that the Perris would make all reasonable efforts
to achieve the sale of the Lilli Pilli property. The High Court29 held that failure to do this would
lead to breach of contract and a liability for damages. Non-fulfilment entitled the other party

22. Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 552; 41 ALR 441 at 451; Fowler v Commissioner
of Taxation (2013) 212 FCR 149 at 180; Australian Federation of Air Pilots v Jetstar Airways Pty Ltd [2014]
FCA 15 at [6]; Re Carpenter International Ltd (2016) 307 FLR 37 at 75–6.
23. Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 440–2.
24. Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 544–5, 567; 41 ALR 441 at 445, 463.
25. [2005] NSWCA 39 at [44].
26. (1950) 81 CLR 418.
27. [2006] QCA 433 at [46]–[50].
28. (1982) 149 CLR 537; 41 ALR 441.
29. Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 541, 553, 559, 566; 41 ALR 441 at 442, 452,
457, 462.

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to terminate. Gibbs CJ30 and Brennan and Stephen JJ31 thought that non-fulfilment entitled the
innocent party to terminate the contract without notice if time was not of the essence. Wilson J,
however, believed that notice was necessary. If neither party elects to terminate, the contract
continues on foot.
23.17 An example of a condition precedent to the formation of a contract arose in George
v Roach,32 where an agreement for the sale of a newsagency stipulated that the sale would be
at a price to be determined by a named valuer. The valuer refused to value the newsagency.
The High Court held that the valuation by the named valuer was a condition precedent to the
existence of a contract.
23.18 In some circumstances a condition precedent will also contain a promise for which
the promisor will be liable for damages of breach of contract if the promise is not carried out.
Thus, if A and B contract for the sale of property on the basis that the sale to A is conditional on
B obtaining an export licence by a certain date and B promises to obtain the licence by a certain
date, there is both a condition precedent and a promise. A’s obligation to perform is contingent
on B getting an export licence. B’s failure to obtain the licence is the breach of a promise,
which renders him or her liable to A for damages for breach of contract. Whether A can also
terminate the contract depends upon the classification of the provision in the contract as either
a condition or a serious breach of an intermediate term.33
23.19 In relation to the act that constitutes the condition precedent, it must be strictly
performed before the condition precedent becomes operative. In Tricontinental Corporation
Ltd v HDFI Ltd34 Samuels JA said:
[W]here a provision lays down an act by one party as a condition precedent to the existence
of an obligation on the part of the other party, the condition precedent will not be fulfilled
until the former party does an act that strictly matches that described in the contract.

Thus, if the condition precedent specifies a time for performance, time is of the essence.35

Conditions subsequent
23.20 A condition subsequent is a provision which states that, on the occurrence of a
particular event, further performance of the contract automatically comes to an end or the
contract can be terminated by one or both of the parties. Courts tend to favour finding that
one or both parties have the right to terminate the contract, rather than it coming to an end
automatically. If the benefit of the condition is construed to be for the benefit of one party, only
he or she can waive the benefit of the condition. If the benefit is construed to be for the benefit
of both parties, then the clause can only be waived with the consent of both parties.

30. Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 554; 41 ALR 441 at 452.
31. Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 569; 41 ALR 441 at 465.
32. (1942) 67 CLR 253.
33. See Chapter 24.
34. (1990) 21 NSWLR 689 at 704.
35. See 24.42–24.57. See also Meares Nominees Pty Ltd v Permanent Custodians Ltd [2009] NSWCA 235
at [26].

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23.21 An example of a condition subsequent arose in Head v Tattersall,36 where a seller of a

horse stated that the horse had hunted with Bicester hounds and further that the buyer could
return the horse if it did not fit that description. The horse did not answer the description and
the buyer returned the horse. The buyer was held to be entitled to a refund of the purchase price.
23.22 In Meehan v Jones37 Gibbs CJ cautioned that the distinction between conditions
precedent and conditions subsequent should not be over-emphasised on the basis that the
difference between them ‘seems largely a matter of words’. In the same case Mason J observed38
that the distinction was merely ‘an artificial and theoretical distinction’. This is because whether
a provision is a condition precedent or subsequent depends on the perspective of the individual
parties. Accordingly, the critical question is the effect of the event stipulated in the provision.

DISCHARGE BY SUBSEQUENT AGREEMENT

23.23 The parties to a contract may enter into a subsequent agreement to vary or terminate
the original contract. In Commissioner of Taxation v Sara Lee Household & Body Care (Australia)
Pty Ltd39 Gleeson CJ, and Gaudron, McHugh, and Hayne JJ said:
When the parties to an existing contract enter into a further contract by which they vary
the original contract, then, by hypothesis, they have made two contracts. For one reason
or another, it may be material to determine whether the effect of the second contract is to
bring an end to the first contract and replace it with a second, or whether the effect is to
leave the first contract standing, subject to the alteration. For example, something may turn
upon the place, or the time, or the form, of the contract, and it may therefore be necessary to
decide whether the original contract subsists.

Importantly, the second contract that varies or discharges the original contract must fulfill the
normal rules as to the formation of a contract.40
23.24 In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd41 Dixon CJ and
Fullagar J described the distinction made between variation and termination as ‘not a satisfactory
distinction’ and said that it appeared to be ‘a matter of degree’. In the same case Taylor J42 said:
It is firmly established by a long line of cases … that the parties to an agreement may
vary some of its terms by a subsequent agreement. They may, of course, [terminate] the
earlier agreement altogether, and this may be done either expressly or by implication, but
the determining factor must always be the intention of the parties as disclosed by the later
agreement.

36. (1871) LR 7 Ex 7.
37. (1982) 149 CLR 571 at 582; 42 ALR 463 at 470.
38. Meehan v Jones (1982) 149 CLR 571 at 592; 42 ALR 463 at 478.
39. (2000) 201 CLR 520 at 533–4; 172 ALR 346 at 350–1.
40. GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at 63; Jafari v 23
Developments Pty Ltd [2019] VSCA 201 at [190].
41. (1957) 98 CLR 93 at 133.
42. Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 at 144. See also Frontlink
Pty Ltd v Feldman [2017] VSCA 319 at [31].

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The question of which of the two possibilities occurs in any particular case is ultimately a
question of objectively determining the intention of the parties.43
23.25 The intention of the parties in entering into the subsequent agreement will result in
one of the following three outcomes:
• termination of the original contract, sometimes referred to as discharge simpliciter;
• variation of the original contract; or
• termination of the original contract and entry into of a new contract.
In relation to whether the parties intended the second or third of these outcomes, in Karam
v Varga,44 the Full Court said:
The law surrounding contracts that are said to vary or replace an earlier contract is not in
doubt. The parties to a contract may vary its terms by a subsequent agreement or may
terminate it altogether. These results may be achieved expressly or by implication but the
determining factor is always the intention of the parties as disclosed by the later agreement. The
identification of this ‘determining factor’ is achieved by a comparison of the earlier and later
contracts, and an assessment of the significance, if any, of the differences between them in light
of the circumstances surrounding the contracts. To establish that the earlier contract had been
terminated and replaced by the later contract, the later contract must be entirely inconsistent
with the former contract or, at least, inconsistent with it to an extent that goes to the root of it.

23.26 The subsequent agreement in the third of these outcomes is known as a novation
agreement. In Fightvision Pty Ltd v Onisforou; Tszyu v Fightvision Pty Ltd45 the New South Wales
Court of Appeal said:
Novation is a transaction by which all parties to a contract agree that a new contract is
substituted for one that has already been made. … Novation involves the extinguishment of
one obligation and the creation of a substituted obligation in its place. Intention is crucial to
show a novation. … A novation may be express or implied from the circumstances.

23.27 In Di Giovanni v Dark Horse Developments Pty Ltd (in liq)46 McLure P described
novation as follows:
A novation comprises the formation of a new contract in place of the old contract, with the
consequence that there must be contractual intention and consideration for the new contract.
Ordinarily, the consideration for the new contract is the continuing party … releasing
the original party … from the old contract and the new contracting party … standing in
the shoes of the released party. A novation does not effect a transfer of liability but is the
replacement of one liability with another and requires the involvement of all parties to the
old and new contracts. Novation may be express or implied from the conduct of the parties.

43. Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 at 135, 144; Commissioner
of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at 534; 172 ALR
346 at 351; Hillam v Iacullo (2015) 90 NSWLR 422 at 434; Australia and New Zealand Banking Group Ltd
v Manasseh [2016] WASCA 41 at [82], [220]; Balanced Securities Ltd v Dumayne Property Group Ltd (2017)
53 VR 14 at 28–32.
44. [2019] QCA 82 at [23]. See also Lahoud v Lahoud [2009] NSWSC 623 at [367]–[369]; Roderick v Washington
H Soul Pattinson & Company Ltd (No 2) [2020] NSWSC 1224 at [118]–[120].
45. (1999) 47 NSWLR 473 at 490–1.
46. [2014] WASCA 188 at [26].

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23.28 To similar effect, in ALH Group Property Holdings Pty Ltd v Chief Commissioner of
State Revenue (NSW)47 the plurality of the High Court described ‘novation’ in the following
terms:
A novation, in its simplest sense, refers to a circumstance where a new contract takes the
place of the old.48 It is not correct to describe novation as involving the succession of a third
party to the rights of the purchaser under the original contract. Under the common law
such a description comes closer to the effect of a transfer of rights by way of assignment.
Nor is it correct to describe a third party undertaking the obligations of the purchaser under
the original contract as a novation. The effect of a novation is upon the obligations of both
parties to the original, executory, contract. The inquiry in determining whether there has
been a novation is whether it has been agreed that a new contract is to be substituted for the
old and the obligations of the parties under the old agreement are to be discharged.

In Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd,49 after citing the above passage from the
High Court, Barrett AJA said:
Where … there are two parties to the original contract (vendor and purchaser), a novation
by which a new purchaser is introduced in the place of the original purchaser will not be
established unless it is found that a subsequent ‘tripartite agreement’ … was made among
the two original parties and the incoming party (that is, the substituted purchaser). Essential
elements of the tripartite compact are: first, agreement by the substituted purchaser with
the vendor that, upon the vendor’s releasing the original purchaser from his obligation to
purchase, the substituted purchaser will accept and perform, as against the vendor, the
obligation to purchase undertaken at inception by the original purchaser (including, of
course, the obligation to pay the balance of the purchase moneys); second, agreement by
the vendor with the substituted purchaser both to sell to the substituted purchaser and to
accept the substituted purchaser’s promise to perform the purchase obligation in place of the
original purchaser’s; and third, agreement between the vendor and the original purchaser
with the concurrence of the substituted purchaser, that the purchase obligation undertaken
by the original purchase at inception is discharged.

Also essential is an intention of the vendor to discharge the original purchaser. In earlier
times, scholars struggled with that aspect. Often, a party agreeing to accept a substituted
obligor would not expressly release the original obligor, with the result that the true position
may have been that each obligor was under the obligation. That matter was addressed in
some detail by Windeyer J in his dissenting judgment in Olsson v Dyson (above).50 After
referring to the way that Roman law had dealt with the ‘difficulty’ of finding extinguishment
of the original obligation of the departing party, Windeyer J51 said:

However, the requirements of our law are satisfied by a tacit agreement to extinguish
the former obligation, and this is inferred when an inconsistent obligation is by
agreement substituted.

47. (2012) 245 CLR 338 at 346; 286 ALR 1 at 4, followed in Kai Ling (Australia) Ltd v Rosengreen [2019]
NSWCA 3 at [18].
48. Olsson v Dyson (1969) 120 CLR 365 at 389.
49. [2018] NSWCA 282 at [31]–[32].
50. (1969) 120 CLR 365.
51. Olsson v Dyson (1969) 120 CLR 365 at 390.

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23.29 A novation may result in a new contract between the parties or a new contract between
one of the parties and a new party.52 In the latter case ‘[n]ovation will, ordinarily, require the
agreement of the original and the substituted party although the original contract may, on its
proper construction, authorise a party to substitute a contracting party in its place without need
for a further tri-partite agreement’.53 For example, in a contract between A and B, if B is authorised
to substitute C as the new contracting party, it can do so without A being a party to the novation
agreement. However, the departing party to the old contract (B) must join in the novation because
the novation agreement extinguishes its rights and obligations under the original contract.54
23.30 In contrast to entering into a novation agreement, the parties to a contract may execute
a deed in substantially similar terms as the original contract. This is known as a merger. In such
a case the rights and obligations of the parties will be determined solely by reference to the deed.
In a land transaction there are usually two agreements entered into between the parties. First,
the parties exchange binding contracts. Second, at some future time the parties complete the
contract. The purchaser hands over the purchase price and the vendor signs and hands over the
document transferring title (called a conveyance or transfer) and the title deeds. The effect of
this is to merge the contract (the lesser document) into the conveyance or transfer (the greater
document), with the parties’ rights and obligations thereafter governed by the conveyance or
transfer, unless the original contract expressly or impliedly stipulates the obligations that are to
remain enforceable even though merger has occurred.
23.31 Where parties to a contract enter into a subsequent agreement to vary, terminate,
or novate the original contract, there are two important issues that arise as to the validity of
the subsequent agreement. They relate to whether the subsequent agreement needs to be in
writing and consideration. Each of these issues will be considered in the context of discharge
of executory and executed contracts. An executory contract is one in which neither party has
performed or completely performed his or her obligations. An executed contract is one in
which one party has fully performed his or her obligations, but the other party has not.

Discharge of executory contracts

23.32 In relation to the issue of whether the discharge of an executory contract by a subsequent
agreement needs to be in writing, it first must be determined which of the outcomes is intended
by the subsequent agreement.
23.33 If the parties simply want to terminate the original contract, the subsequent agreement
does not have to be in writing. Thus, in British and Beningtons Ltd v N W Cachar Tea Co Ltd55
Lord Atkinson said:
A written contract may be rescinded by parol either expressly or by the parties entering into a
parol contract entirely inconsistent with the written one, or, if not entirely inconsistent with,
inconsistent with it to an extent that goes to the very root of it.

52. Scarf v Jardine (1882) 7 App Cas 345 at 351; Olsson Dyson (1969) 120 CLR 356 at 388–9.
53. Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395 at 405; 230 ALR 56 at 64.
This case was cited with approval and discussed in Leveraged Equities Ltd v Goodridge (2011) 191 FCR 71
at 108–10; 274 ALR 655 at 691–3.
54. Toikan International Insurance Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641
at 645–6.
55. [1923] AC 48 at 62.
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Although contracts for the sale of land or an interest in land must be evidenced in writing to be
enforceable,56 parties can discharge such a contract orally.57
23.34 If the parties want to vary the original contract, the subsequent agreement must be
in writing if the original contract itself was of a type that had to be evidenced in writing to be
enforceable.58 Thus, a later oral contract varying an enforceable contract for the sale of land is
ineffective.59 If the contract is in the form of a deed, for a variation to be effective at common
law it must be in a deed form. However, if the variation is not in deed form, it will be effective
in equity if supported by valuable consideration and, where relevant legislation requires it, is
evidenced in writing or in written form.60
23.35 It can be noted that in the United Kingdom the Supreme Court in MWB Business
Exchange Centres Ltd v Rock Advertising Ltd61 in 2018 ruled that, if the parties to a written
contract have included a clause stipulating that any variation to the contract must be in
writing (No Oral Modification clause), such a contract cannot be varied orally. In the
leading judgment in this case, Lord Sumption62 offered the following reasons in support of
the ruling:
There are at least three reasons for including such clauses. The first is that it prevents attempts
to undermine written agreements by informal means, a possibility which is open to abuse,
for example in raising defences to summary judgment. Secondly, in circumstances where
oral discussions can easily give rise to misunderstandings and crossed purposes, it avoids
disputes not just about whether a variation was intended but also about its exact terms.
Thirdly, a measure of formality in recording variations makes it easier for corporations to
police internal rules restricting the authority to agree [to] them. These are all legitimate
commercial reasons [for No Oral Modification clauses] …

23.36 Although Lord Briggs reached the same decision on the facts of this case as did the rest
of the court, his reasoning differed from that of the majority. His Lordship said:63
Two (or more) persons may of course bind themselves contractually as to their future
conduct, and that will prevail for as long as one of them desires that this regime should
remain in place. But if they both (or all) agree, in some form recognised by the law, that
they should no longer be bound, why should their previous agreement to the contrary
stand in their way? While statute may, in the public interest, require certain formalities for
the making of certain types of contract, the common law leaves the parties to choose their

56. See 8.8.

57. Goss v Lord Nugent (1835) 110 ER 713 at 716; Tallerman & Co v Nathan’s Merchandise (Vic) Pty Ltd (1957)
98 CLR 93 at 113.
58. Tallerman & Co v Nathan’s Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 at 113; Agricultural and Rural
Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at 593; 251 ALR 322 at 339–40.
59. Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221 at 243.
60. Berry v Berry [1929] KB 316 at 320; Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91
at [35].
61. [2019] AC 119; [2018] 4 All ER 21, followed in NHS Commissioning Board (Known as NHS England)
v Vasant [2019] EWCA Civ 1245 at [32]–[33].
62. MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 at 127–8; [2018] 4 All ER 21
at 27.
63. MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 at 132; [2018] 4 All ER 21 at 31.

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own, so long as the essential elements of offer, acceptance and consideration are observed.
These matters are as applicable to the variation of an existing contract as they are to the
making of a contract in the first place.

This basic concept, that parties to a contract have complete freedom by further agreement
to ‘unbind’ themselves as to their future conduct, is in principle applicable not merely
to their substantive mutual obligations, but also to any procedural restraints upon which
they may agree, including restraints as to how they may vary their existing contractual
relationship. …

The critical questions for present purposes are, first: whether the parties can agree to
remove a NOM [No Oral Modification] clause from their bargain orally and, second:
whether, if so, such an agreement will be implied where they agree orally upon a variation
of the substance of their relationship (which the NOM clause would require to be in
writing) without saying anything at all about the NOM clause. Must they be taken so to
have agreed by the very fact that they have made the substantive variation orally? Lord
Sumption would answer the first question in the negative, so that, for him, the second
question would not arise.... I would answer the first question in the affirmative, but not
(generally at least) the second.

23.37 In relation to risks associated with the rule, Lord Sumption64 said:
The enforcement of No Oral Modification clauses carries with it the risk that a party may
act on the contract as varied, for example by performing it, and then find itself unable
to enforce it. It will be recalled that both the Vienna Convention and the UNIDROIT
model code qualify the principle that effect is given to No Oral Modification clauses, by
stating that a party may be precluded by his conduct from relying on such a provision to
the extent that the other party has relied (or reasonably relied) on that conduct. In some
legal systems this result would follow from the concepts of contractual good faith or
abuse of rights. In England, the safeguard against injustice lies in the various doctrines
of estoppel.

23.38 However, on the basis of statements in cases such as GEC Marconi Systems Pty Ltd
v BHP Information Technology Pty Ltd65and Hawcroft General Trading Co Pty Ltd v Hawcroft,66
in Cenric Group v TWT Property Group,67 McDougall J held that in Australia ‘a NOM clause
cannot prevent the parties to a contract containing it from agreeing orally to vary it’, and further
that he did not find the approach of the Supreme Court decision in MWB Business Exchange
Centres Ltd v Rock Advertising Ltd68 ‘to be particularly persuasive’.

64. MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 at 130–1; [2018] 4 All ER 21
at 30.
65. (2003) 128 FCR 1 at 61–2.
66. [2017] NSWCA 91 at [35].
67. [2018] NSWSC 1570 at [102]–[103]. His Honour’s ruling on this issue was not challenged on appeal, with
the Court of Appeal stating that it was therefore ‘not necessary to discuss the contrary view of such clauses
taken by the Supreme Court of the United Kingdom’: Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd
(2019) 373 ALR 591 at 614. See also K D Kanopy Australasia Pty Ltd v Insta Image Pty Ltd [2007] FCA 481
at [93]; Gardenisle Pty Ltd v Johnson [2019] WASC 271 at [244].
68. [2019] AC 119; [2018] 4 All ER 21.

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23.39 In White v Phillips Electronics Australia Ltd, although the Court of Appeal left open
69

the question of whether a no oral modification clause precludes an oral variation of a contract,
Bell P70 made the following comment:
The point can conveniently be made in this context, however, that ‘no-oral modification’
clauses, even if not necessarily preclusive of oral modifications, provide important context in
considering whether the requisite contractual intention to modify or vary a written contract,
objectively ascertained, exists. It may also be observed, parenthetically, that one of the virtues
of such clauses might be thought to be the avoidance of disputes of the very kind that arose
in the present case as to whether there had in fact been a variation of the contract and, if so,
what the terms of that variation were. Variations in writing leave no room for dispute as to
what was actually agreed, subject to any ambiguity in the agreed form of written words.

23.40 In New Zealand, where the United Kingdom Supreme Court decision has not yet been
considered, the position in relation to No Oral Modification clauses is that ‘[w]hile such clauses
have been enforced in a number of cases, the approach has generally been based on evidential
grounds — in the face of a no oral variation clause, strong evidence will be required to prove
the parties intended to enter into a legally binding variation’.71
23.41 If the parties want to terminate the original contract and replace it with a new
agreement, the subsequent agreement needs to be in writing if the new agreement is one of a
type that has to be evidenced in writing to be enforceable.
23.42 In relation to the issue of consideration, unless the subsequent agreement is in the form
of a deed, both parties to the subsequent agreement must provide consideration. However, this
is rarely much of a problem in such cases because the consideration given by each party is the
promise not to sue on the unperformed obligations of the other party.72

Discharge of executed contracts

23.43 In relation to the issue of whether the discharge of an executed contract by a subsequent
agreement needs to be in writing, the same principles apply as with executory contracts.73
23.44 In relation to the issue of consideration, unless the subsequent agreement is in the
form of a deed, the party that has not completely performed its obligations must provide
consideration for the other party’s promise not sue the first party on his or her unperformed
obligations under the original contract. By providing such consideration, the party that has not
completely performed its obligations under the original contract is released from its obligations
under that contract. This is often referred to as accord and satisfaction.
23.45 According to Coote,74 the role of an accord is to replace the former contract with a
new one. The essence of accord and satisfaction is the acceptance by the plaintiff of something

69. [2019] NSWCA 115 at [42].

70. White v Phillips Electronics Australia Ltd [2019] NSWCA 115 at [43].
71. Ecolibrium Biologicals Ltd v Biotelliga Holdings Ltd [2019] NZHC 2628 at [33].
72. See 6.40–6.64.
73. See 23.32–23.42.
74. B Coote, ‘Common Forms, Consideration and Contract Doctrine’ (1999) 14 Journal of Contract Law 116
at 123.

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in place of his or her cause of action.75 The accord is the agreement or consent to accept the
satisfaction. Whatever it is that constitutes the satisfaction must be provided and accepted by
the other party. Until what has been promised as the satisfaction has been performed there
is no discharge that extinguishes the cause of action.76 In Thompson v Australian Capital
Television Pty Ltd77 Gummow J emphasised that accord and satisfaction ‘requires acceptance of
something in place of the full remedy to which the recipient is entitled’.78
23.46 In Osborn v McDermott79 Phillips JA said:
Where there is an accord and satisfaction, the agreement for compromise may be enforced, and
indeed only that agreement may be enforced, because ex hypothesi the previous cause of action
has gone; it has been ‘satisfied’ by the making of the new agreement constituted by abandonment
of the earlier cause of action in return for the promise of other benefit. If there be mere accord
executory, there is no compromise unless and until what has been agreed upon is performed,
with the consequence that not only is there no discharge of the existing cause of action pending
that performance, but also there is no completed agreement which can be enforced. In that sense,
the enforcement of performance under a mere accord executory is a contradiction in terms.
The agreement is conditional upon performance so that until performance there is nothing to
enforce; and although once performance occurs the agreement becomes unconditional, there
will ordinarily then be no performance left to enforce — although the resultant discharge of
existing obligations may of course be insisted upon.

23.47 Later in his judgment Phillips JA80 said the following:

Where there is accord and conditional satisfaction, the plaintiff is bound to await
performance and accept it if tendered, but if there be no performance, then the plaintiff may
proceed according to general principles called into play when any agreement is repudiated:
the plaintiff may either treat the agreement (the accord) as at an end and proceed on his
original cause of action; or he may, at his option, sue on the compromise agreement, in place
of the original cause of action.

23.48 In McDermott v Black81 Dixon J said:

The essence of accord and satisfaction is the acceptance by the plaintiff of something in place
of his cause of action. What he takes is a matter depending on his own consent or agreement.
It may be a promise or contract or it may be the act or thing promised. But, whatever it
is, until it is provided and accepted, the cause of action remains alive and unimpaired.
The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is
given the accord remains executory and cannot bar the claim. The distinction between an
accord executory and an accord and satisfaction remains as valid and as important as ever.
An accord executory neither extinguishes the old cause of action nor affords a new one
… of accord and satisfaction there are two cases, one where the making of the agreement

75. El-Mir v Risk [2005] NSWCA 215 at [48].

76. Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 at 544; 154 ALR 1 at 33; Jingalong Pty Ltd v Todd
[2015] NSWCA 7 at [63]–[66].
77. (1996) 186 CLR 574 at 610; 141 ALR 1 at 27.
78. See also Scaffidi v Perpetual Trustees Victoria Ltd (2011) 42 WAR 59 at 65–9.
79. [1998] 3 VR 1 at 8.
80. Osborn v McDermott [1998] 3 VR 1 at 10–11.
81. (1940) 63 CLR 161 at 183–5.

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itself is what is stipulated for, and the other, where it is the doing of the things promised
by the agreement. The distinction depends on what exactly is agreed to be taken in place
of the existing cause of action or claim. An executory promise or series of promises given
in consideration of the abandonment of the claim may be accepted in substitution or
satisfaction of the existing liability. Or, on the other hand, promises may be given by the
party liable that he will satisfy the claim by doing an act, making over a thing or paying an
ascertained sum of money and the other party may agree to accept, not the promise, but the
act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in
satisfaction, the discharge of the liability is immediate; if the performance, then there is no
discharge unless and until the promise is performed.

23.49 In Ballantyne v Phillott82 Menzies J observed that if it could be inferred that the parties
composed their differences by each promising to give up claims against the other, it would not
matter that the language used was not promissory in nature. However, as was confirmed by
Bathurst CJ in Ashton v Pratt,83 for an acceptance of an offer to resolve a dispute by an agreement
to amount to an accord and satisfaction, it ‘must be clear and unequivocal’. As Keane J observed
in Blue Moon Grill Pty Ltd v Yorkey’s Knob Boating Club Inc,84 what is important is to focus on
what the parties have agreed, rather than the categorisation of their agreement as either an
accord and satisfaction or an accord executory. The classification of agreements itself depends
on a true appreciation of the effect of the terms agreed between the parties and the binary
classification of agreements is not always adequate.85 An accord executory, whereby a promisor
promises to abandon a claim or cause of action in exchange for some active performance by the
promisee, is a type of unilateral contract.
23.50 If after that accord and satisfaction, a party then attempts to revert to the original cause
of action, the accord could be pleaded as having operated as a release. In McDermott v Black86
Dixon J said:
At law, ‘the only case in which a covenant or promise not to sue is held to be pleadable as
a bar, or to operate as a suspension and by consequence a release or extinguishment of the
right of action, is where the covenant or promise not to sue is general, not to sue at any time.
In such cases, in order to avoid circuity of action, the covenants may be pleaded in bar as a
release … for the reason assigned, that the damages to be recovered in an action for suing
contrary to the covenant would be equal to the debt … or sum to be recovered in the action
agreed to be forborne’.87

23.51 The question of whether there has been an accord and satisfaction is one of fact.88 It
turns on determining the parties’ intentions, which may be discerned from the terms of any
document said to constitute all or part of the agreement or in the surrounding circumstances.89

82. (1961) 105 CLR 379 at 397.

83. (2015) 88 NSWLR 281 at 311; 318 ALR 260 at 291. See also Bullhead Pty Ltd v Brickmakers Place Pty Ltd
(in liq) [2018] VSCA 316 at [86].
84. [2006] QCA 253 at [20].
85. See also Scaffidi v Perpetual Trustees Victoria Ltd (2011) 42 WAR 59 at 65–9.
86. (1940) 63 CLR 161 at 186–7.
87. Ford v Beech [1848] EngR 10; (1848) 11 QB 852 at 871; 116 ER 693 at 700.
88. Bagnall v National Tobacco Corporation of Australia Ltd (1934) 34 SR (NSW) 421 at 427.
89. Ballantyne v Phillott (1961) 105 CLR 379 at 398.
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23.52 The accord may or may not be contractual. If it is contractual, there can be different
types of contract involved. In Osborn v McDermott90 Phillips JA said the following on this issue:
Thus, there are three possibilities, not two. First, there is the mere accord executory which,
on the authorities, does not constitute a contract and which is altogether unenforceable,
giving rise to no new rights and obligations pending performance and under which, when
there is performance (but only when there is performance), the plaintiff ’s existing cause of
action is discharged. Secondly, at the other end of the scale is the accord and satisfaction,
under which there is an immediate and enforceable agreement once the compromise is
agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing
claim against the defendant the new promise by the defendant in substitution for any
existing obligation. Somewhere between the two, there is the accord and conditional
satisfaction, which exists when the compromise amounts to an existing and enforceable
agreement between the parties for performance according to its tenor but which does
not operate to discharge any existing cause of action unless and until there has been
performance.

23.53 If there is accord and satisfaction and the promisor fails to perform the promise,
the promisee’s only remedy is to sue for breach of the promise. There cannot be a return to
the original obligation or claim.91 If a party to the accord and satisfaction seeks to revert
to the original cause of action, the accord could be pleaded as having operated as a release.
23.54 To illustrate the operation of the principles of accord and satisfaction, reference can be
made to the following cases. In McDermott v Black92 a purchaser claimed to have been induced
to enter into a contract of sale of shares by a number of fraudulent misrepresentations made
by the vendor. Prior to the date of completion of the contract the purchaser complained of
the misrepresentations. However, in a subsequent letter he withdrew all allegations imputing
anything improper to the vendor conditionally on the basis that the vendor of the property
grant him an extension of time to complete the contract. This extension of time was granted by
the vendor. The High Court held that the withdrawal of the allegations in consideration of an
extension of time for completion was not too vague so as to constitute a contract of accord and
satisfaction. Dixon J93 said:
The ‘withdrawal of all allegations imputing anything improper to’ the defendant conditionally
upon the latter’s agreeing to three-weeks’ further time for payment of the balance of purchase
money clearly amounts to an election to affirm the contract. It does, I think, imply a promise
not to revive the allegations. … The untechnical and inexact expression, ‘withdraw allegations’,
no doubt causes some difficulty. But it must be borne in mind that the purpose was to settle
or compromise a very definite dispute. … The withdrawal of the allegations of improper
conduct meant, in my opinion, that he would make no claim based upon misrepresentation
but would accept the promise of further time instead. … But I think that, consistently with
principle, the agreement to withdraw in consideration of a grant of time can be regarded as
an accord and satisfaction.

90. [1998] 3 VR 1 at 10.

91. Koutsourais v Metledge & Associates [2004] NSWCA 313 at 49–51.
92. (1940) 63 CLR 161.
93. McDermott v Black (1940) 63 CLR 161 at 185–6.

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23.55 In D & C Builders Ltd v Rees the Rees owed some £482 to D & C Builders for work
94

done by them as builders. Several months later Rees’ wife telephoned the builders and said,
‘My husband will offer £300 in settlement. That is all you will get. It is to be in satisfaction.’ The
builders were a small firm that was in desperate financial straits and for this reason decided
to accept the offer of £300. Thereupon the builders telephoned Mrs Rees and told her that
‘£300 will not even clear our commitments on the job. We will accept £300 and give you a
year to find the balance.’ Mrs Rees replied, ‘No. We will never have enough money to pay the
balance. £300 is better than nothing.’ The next day Mrs Rees gave the builders a cheque from
her husband for £300 and asked for a receipt that bore the words, ‘In completion of account’.
Subsequently the builders brought proceedings to recover the balance of £182 and a question
arose as to whether there had been accord and satisfaction so as to discharge the £482 debt.
23.56 The English Court of Appeal in D & C Builders Ltd v Rees95 held there had been no
accord and satisfaction and that the builders were not barred from recovering the balance.
According to Lord Denning MR96 there was no true accord so as to found a defence of accord
and satisfaction. Mrs Rees had held the builder to ransom by making a threat to break the
contract by paying nothing. Danckwerts LJ agreed. Winn LJ97 also agreed and said:
[I]t is an essential element of a valid accord and satisfaction that the agreement which
constitutes the accord should itself be binding … unless it is either made under seal or
supported by consideration. Satisfaction, viz, performance, of an agreement of accord does
not provide retroactive validity to the accord, but depends for its effect on the legal validity
of the accord as a binding contract at the time when it is made: this I think is apparent when
it is remembered that, albeit rarely, existing obligations of debt may be replaced effectively by
a contractually binding substitution of a new obligation.

23.57 A number of more recent cases illustrate similar principles. In Illawong Village Pty Ltd
v State Bank of New South Wales98 Illawong’s business operations involved the construction and
operation of a neighbourhood shopping centre. In order to carry out its business operations,
Illawong borrowed money from State Bank over a period from 1988 to 1998. Illawong
contended that during two periods of time, namely from April 1991 to July 1993 and from
January 1997 to August 1998, State Bank charged Illawong more interest than it was entitled
to charge. Illawong sought to recover the excess interest it claims to have paid, together with
interest. In addition, Illawong had borrowings from financiers other than State Bank. Illawong
contended that because State Bank was charging it too much interest, it was less able to reduce
its borrowings from those other financiers. Illawong claimed damages for the losses it had
suffered by reason of this lessened ability to pay the other financiers. In January 1997 there
was an agreement whereby interest would be paid to State Bank at the rate of $70,000 per
month until the repayment of the finance. State Bank argued that this agreement gave rise to
an accord and satisfaction of any claim which Illawong had to have overpaid interest for an
earlier period.

94. [1966] 2 QB 617; [1965] 3 All ER 837.

95. [1966] 2 QB 617; [1965] 3 All ER 837.
96. D & C Builders Ltd v Rees [1966] 2 QB 617 at 625; [1965] 3 All ER 837 at 841.
97. D & C Builders Ltd v Rees [1966] 2 QB 617 at 632; [1965] 3 All ER 837 at 846.
98. [2004] NSWSC 18.

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23.58 According to Campbell J in Illawong Village Pty Ltd v State Bank of New South Wales,99 to
succeed in establishing an accord and satisfaction, State Bank needed to establish that Illawong
agreed to give up its claim that it had been overcharged interest, in return for something which
the bank gave it. In this case the court was not satisfied that the dealings between Illawong and
State Bank could be so characterised. Accordingly, the defence of accord and satisfaction failed.
23.59 In Flowers v Vescio100 a question arose as to whether a trial judge had fallen into error
by finding that there had been accord and satisfaction between parties who had entered into
a deed. The New South Wales Court of Appeal ultimately found that there had been no such
error. In that case the Vescios had, at trial, claimed a sum of money under a deed of settlement
which the Flowers failed to pay, thereby breaching the deed of settlement. There had earlier
been a breakdown of relations between the parties, who were participants in a liquor and
provisions business. This breakdown had led to litigation, which the deed of settlement settled.
As part of the settlement arrangements the Flowers were required to pay $180,000 to the
Vescios. It was undisputed that this sum was never paid, leading to the Vescios accepting the
Flowers’ repudiation and so terminating the deed of settlement. At trial the Flowers submitted
that the deed of settlement demonstrated ‘an accord executory’ and that it ‘did not operate to
discharge existing rights and duties unless and until the accord was performed’. In contrast, the
Vescios successfully took the position that they were not obliged under the deed of settlement
to transfer their shares in the business because of the Flowers’ failure to pay the $180,000,
though they had remained able and willing to do so. The Flowers then contended on appeal
that the trial judge wrongly awarded damages in the sum of $180,000, when payment of the
$180,000 should have been conditioned on transfer of the shares, and the true measure of any
damages was in any event loss of bargain, not $180,000.
23.60 In Flowers v Vescio101 Santow JA said:
The starting point is the proper characterisation of the deed of settlement and its proper
construction. The trial judge based her conclusion in favour of the [Vescios] upon a
successful claim for damages. However, I consider that the only proper basis for recovery of
the $180,000 by the [Vescios] depended upon their establishing that they possessed, in terms
of the notice of contention, an accrued right to receive payment of the debt on the stipulated
date and time, such that the accepted repudiation of the deed of settlement did not vitiate
that right. The [Vescios] must also show that payment of the $180,000 was not dependent
upon any continuing obligation to be performed by the [Vescios], specifically transfer of
their shares.

23.61 Finally, in El-Mir v Risk102 a dispute arose between a builder and his clients over
residential building work performed pursuant to a building contract in 1994. The builder
claimed that he was owed money. The clients complained about the quality of the work that
the builder had performed. The builder, relying on a provision in the building contract,
sought to recover the moneys said to be owing to him by recourse to commercial arbitration
pursuant to the Commercial Arbitration Act 1984 (NSW). The clients cross-claimed, alleging
that the builder’s work was defective. The arbitration proceeded, at which both parties had

99. [2004] NSWSC 18 at [262].

100. [2006] NSWCA 342.
101. [2006] NSWCA 342 at [33]–[36].
102. [2005] NSWCA 215.

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legal representation. After some evidence had been taken, the matter was, as the arbitrator
was informed by the builder’s solicitor, ‘settled’. The terms of settlement were read onto the
transcript as well as being reduced to writing in a document signed by the parties’ solicitors.
The document was headed ‘Terms of Settlement’, dated 27 June 1997, and stated:
1. Each party, without admission, withdraws their respective claims and cross claims
against the other party.
2. Each party is to bear its own costs of the arbitration.
3. Each party to bear equally the costs of the arbitrator.

23.62 The issue before the court was whether the Terms of Settlement document signed
in June 1997 constituted accord and satisfaction. In the New South Wales Court of Appeal
McColl JA103 said:
In my view the [clients] have an arguable case that the 1997 Settlement amounted to accord
and satisfaction. It is capable of being construed as mutual promises by the [clients] and the
[builder] to forbear from pursuing their respective rights under the building contract by
not proceeding with the arbitration. The requirement of consideration would, in this case,
be fulfilled by the parties’ mutual promises not to proceed, to bear their own costs and to
contribute equally to the arbitrator’s costs.

23.63 In relation to releases and the process of accord and satisfaction, in Scaffidi v Perpetual
Trustees Victoria Ltd104 the Court of Appeal said:
Technically, at common law, a release is a discharge under seal of an existing obligation or
right of action. The common law rule was that the release of a cause of action once accrued
must be by deed under seal. Consideration is not required for a promise in a deed. The
existence of a release by deed did not necessarily indicate the receipt by the plaintiff of
satisfaction in respect of the original wrong in question. Under the common law, the release
of an obligation created other than by deed could also be brought about by an agreement for
valuable consideration if it amounted to an accord and satisfaction. In Thompson v Australian
Capital Television Pty Ltd,105 Gummow J said:
Accord and satisfaction (the former being the agreement or consent to accept the
latter) requires acceptance of something in place of the full remedy to which the
recipient is entitled, coupled with provision of the consideration agreed upon.

In the case of both release by deed and release by accord and satisfaction, the release
‘discharges and extinguishes the obligation’.106 At law, an obligation created by deed, however,
could only be released by deed and not by accord and satisfaction. For that reason, an accord
and satisfaction was not pleaded in bar of an action upon a specialty.107

On the other hand, equity would enforce an agreement for value to release an obligation,
whether the obligation was originally created by deed or not. Hence, the statements in cases

103. El-Mir v Risk [2005] NSWCA 215 at [69].

104. (2011) 42 WAR 59 at 65–9.
105. (1996) 186 CLR 574 at 610.
106. Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 at 544.
107. As to specialty debts, see Saunders v Milsome (1866) LR 2 Eq 573 at 575.

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that ‘such agreements operated as releases and thus as discharges’108 … Further, at common
law, a covenant not to sue involving a single promisor, although not a release under seal or
an accord and satisfaction, if it were unlimited in time and general and unconditional, could
also be pleaded in bar in order to avoid circuity of action. [In] Thompson v Australian Capital
Television Pty Ltd109 Gummow J said:

The reason why a covenant not to sue of this nature has been held to provide a plea in
bar was more fully explained by Williston in the following passage:

This is to avoid circuity of action; for, if the plaintiff in the original action
should recover, the defendant could recover precisely the same damages
back for breach of the covenant to forbear or not to sue. Instead of permitting
the double action, the court produces the same effect more simply by giving
judgment for the defendant in the original action. (Emphasis added.)
Similarly, in Smith v Mapleback110 Buller J said:

[I]t is a maxim in law so to judge of contracts as to prevent a multiplicity of actions;

therefore this must be taken to be a surrender, in order to prevent two actions instead
of one. … And it is on that ground, that the Courts have construed express words of
covenant into a release. As supposing the obligee of a bond covenanted that he would
not sue on it, the Courts say that shall operate as a release; for if it operated only as a
covenant, it would produce two actions.

Where, however, there were several joint promisors, the law did not apply the circuity of
action principle so as to treat a covenant not to sue one as the release of the other. A covenant
not to sue one joint obligor was treated as simply a covenant not to enforce the obligation.
The law with reference to the difference between joint promisors and single promisors, was
summarised in this regard by Glanville Williams in Joint Obligations:111

Whereas a release of one joint debtor discharges all, a covenant not to sue, it is held,
does not. The argument, for what it is worth, is that where there is a single promisor
a release will discharge him by putting an end to the obligation; whereas a covenant
not to sue does not directly put an end to the obligation but is a contract not to
enforce it. It is true that if the creditor were able to claim on the obligation in breach
of his covenant the defendant would be able to counterclaim for damages for breach
of covenant; and as the two claims would cancel out the court short-circuits the
whole proceeding by dismissing the plaintiff ’s claim in the first instance. But this
is only where there is a single promisor; if there are several joint promisors, and the
creditor sues others than those whom he covenanted not to sue, the argument based
on circuity of proceedings does not apply, and the action will succeed. The point was
clearly put in Clayton (Lacy) v Kynaston:112
A perpetual and absolute covenant, for example, to an obligor, that the obligee
would never sue upon the obligation, is a release; or if it be with condition

108. Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 at 544.
109. (1996) 186 CLR 574 at 609.
110. (1786) 99 ER 1186 at 1189.
111. G Williams, Joint Obligations, Butterworth & Co, 1949, pp 107–8.
112. (1701) 88 ER 1510 at 1512.

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never to sue, it will be a defeasance, though there be no words not to sue

in the obligation, but only in the condition of it; and the reason of this is
to avoid a circuity of action; because there one should precisely recover the
same damage that he has suffered by the other’s suing the bond. A is bound
to B and B covenants never to put the bond in suit against A; if afterwards B
will sue A on the bond, he may plead the covenant by way of release. But if A
and B be jointly and severally bound to C in a sum certain, and C covenants
with A not to sue him, that shall not be a release, but a covenant only; because
he covenants only not to sue A but does not covenant not to sue B for the
covenant is not a release in its nature, but only by construction, to avoid
circuity of action; for where he covenants not to sue one, he still has a remedy,
and then it shall be construed as a covenant, and no more.

WAIVER
23.64 In relation to a discharge of contractual obligations, the doctrine of waiver arises
where one party to the contract leads another party who is in breach of contract to reasonably
believe that strict performance of his or her obligations is not required. In Commonwealth
v Verwayen,113 Mason CJ said that ‘waiver is an intentional act done with knowledge whereby
a person abandons a right by acting in a manner inconsistent with that right’. To constitute
a waiver, the act ‘must be in clear and unequivocal terms and must be communicated to
the other party’.114 However, ‘waiver will only occur if the party waiving had knowledge of
all material facts’.115 Furthermore, ‘the doctrine does not require proof that detriment will be
suffered’.116 Thus, if a person has waived a right or remedy, he or she will be denied the right
to subsequently pursue that right or remedy against another person. Such a definition often
catches applications of the equitable doctrine of election between inconsistent rights. However,
it needs to be remembered that the equitable doctrine of election has a distinct character and
application.117 On this issue, in Agricultural & Rural Finance Pty Ltd v Gardiner118 Gummow,
Hayne, and Kiefel JJ stated the following:
The doctrine of election is long established at common law. As Jordan CJ pointed out in
O’Connor v SP Bray Ltd,119 ‘[s]ince the days of the Year Books it has been recognised that
you cannot have the egg and the halfpenny too’. If, then, something happens which gives
rise to the existence of two alternative rights, and one of those rights is satisfied, the other is
no longer available. A breach of contract by one party always gives the other party a right to
recover damages for the breach. If serious, the breach will give the innocent party the right to
treat the contract as at an end. But the innocent party need not accept the repudiatory breach

113. (1990) 170 CLR 394 at 406; 95 ALR 321 at 328; See also Agricultural & Rural Finance Pty Ltd v Gardiner
(2008) 238 CLR 570 at 588; 251 ALR 322 at 335.
114. Bowen v Alsanto Nominees Pty Ltd [2011] WASCA 39 at [16], [98].
115. Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd (2015) 298 FLR 147 at 167;
323 ALR 570 at 588.
116. Commonwealth v Verwayen (1990) 170 CLR 394 at 485; 95 ALR 321 at 386. See also Uren v Uren (2018) 359
ALR 518 at 552–3.
117. Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at 588; 251 ALR 322 at 335.
118. (2008) 238 CLR 570 at 588; 251 ALR 322 at 335.
119. (1936) 36 SR (NSW) 248 at 257.

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and avoid the contract; the innocent party may choose to insist upon further performance.
And as Craine v Colonial Mutual Fire Insurance Co Ltd120 shows, the exercise, despite
knowledge of a breach entitling one party to be discharged from its future performance,
of rights available only if the contract subsists, will constitute an election to maintain the
contract on foot.

In many cases about election, the central issue is whether an election has been made or only
foreshadowed. So, for example, an election between alternative remedies in contract and in
tort is not made merely by bringing one claim rather than the other. An election is not made
at least until entry of judgment.121

Circumstances in which there is an election between inconsistent rights are radically

different from some others in which there is said to be a waiver of rights.

23.65 The precise definition of waiver is difficult to pin down, as the term is used in different
ways in different contexts. However, in that regard a useful statement is found in Pacific Brands
Sport & Leisure Pty Ltd v Underworks Pty Ltd,122 where Finn and Sundberg JJ said:
The term ‘waiver’ is commonly used loosely to encompass doctrines as diverse as election,
estoppel and contract variation. … To the extent that waiver has an independent province —
and this is a matter of some contest in Australian law — the best that probably can be said is
that it applies to those circumstances in which the law recognises a voluntary or intentional
relinquishment or renunciation of a known right, claim or privilege.

23.66 In Commonwealth of Australia v Verwayen123 Brennan J said:

As a right is waived only when the time comes for its exercise and the party for whose sole
benefit it has been introduced knowingly abstains from exercising it, a mere intention not to
exercise a right is not immediately effective to divest or sterilize it.

23.67 In Tele2 International Card Co SA v Post Office Ltd124 Aikens LJ provided the following
summary of Lord Goff ’s analysis in Motor Oil Helas (Corinth) Refineries SA v Shipping
Corporation of India (The Kanchenjunga):125
Lord Goff ’s analysis of the doctrine of affirmation of a contract by election can be summarised,
for the purposes of the present case, as follows:

(1) If a contract gives a party a right to terminate upon the occurrence of defined actions or
inactions of the other party and those actions or inactions occur, the innocent party is
entitled to exercise that right. The innocent party has to decide whether or not to do so.
Its decision is, in law, an election.
(2) It is a prerequisite to the exercise of the election that the party concerned is aware of the
facts giving rise to its right and the right itself.
(3) The innocent party has to make a decision, because if it does not do so then ‘the time
may come when the law takes the decision out if [its] hands, either by holding [it] to

120. (1920) 28 CLR 305.

121. United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Baxter v Obacelo Pty Ltd (2001) 205 CLR 635.
122. (2006) 149 FCR 395 at 421; 230 ALR 56 at 81.
123. (1990) 170 CLR 394 at 427; 95 ALR 321 at 343.
124. [2009] EWCA Civ 9 at [53].
125. [1990] 1 Lloyd’s Rep 391.

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have elected not to exercise the right which has become available to [it], or sometimes
by holding [it] to have elected to exercise it’.
(4) Where, with knowledge of the relevant facts, the party that has the right to terminate the
contract acts in a manner which is consistent only with it having chosen one or other of
two alternative and inconsistent courses of action open to it (ie to terminate or affirm
the contract), then it will be held to have made its election accordingly.
(5) An election can be communicated to the other party by words or conduct. However, in
cases where it is alleged that a party has elected not to exercise a right, such as a right
to terminate a contract on the happening of defined events, it will only be held to have
elected not to exercise that right if the party ‘has so communicated [its] election to the
other party in clear and unequivocal terms’.

It is clear from Lord Goff ’s analysis that when a party to a contract is put in a position where
it has to decide whether or not to exercise a right to terminate that it is given by the terms
of a contract and it is disputed whether that party has terminated or has elected to abandon
the right to terminate, then a court has to make a finding one way or the other. Whether a
party has elected to terminate or to affirm the contract is a question of fact: either a party has
affirmed the contract or it has not. If the innocent party has not affirmed the contract, then
the right to terminate will be exercisable still.

23.68 In Motor Oil Helas (Corinth) Refineries SA v Shipping Corporation of India (The
Kanchenjunga)126 a ship was caught in harbour when an air raid broke out. The master took
the ship to sea, where it suffered damage. It was held that the shipowners were protected by a
war risks clause in the charterparty agreement. However, as to waiver by election, Lord Goff of
Chieveley127 said:
In the present case, we are concerned with an election which may arise in the context of a
binding contract, when a state of affairs comes into existence in which one party becomes
entitled, either under the terms of the contract or by the general law, to exercise a right,
and he has to decide whether or not to do so. His decision, being a matter of choice for
him, is called in law an election. Characteristically, this state of affairs arises where the other
party has repudiated the contract or has otherwise committed a breach of the contract which
entitles the innocent party to bring it to an end, or has made a tender of performance which
does not conform to the terms of the contract. In all cases, he has in the end to make his
election, not as a matter of obligation, but in the sense that, if he does not do so, the time may
come when the law takes the decision out of his hands, either by holding him to have elected
not to exercise the right which has become available to him, or sometimes by holding him to
have elected to exercise it. Instances of this phenomenon are to be found in s 35 of the Sale of
Goods Act 1979. In particular, where with knowledge of the relevant facts a party has acted
in a manner which is consistent only with his having chosen one of the two alternative and
inconsistent courses of action then open to him — for example, to determine a contract or
alternatively to affirm it — he is held to have made his election accordingly. …

23.69 In Commonwealth v Verwayen128 the Commonwealth made statements to the effect

that it would not plead limitations legislation as a defence to a claim for damages by Verwayen.

126. [1990] 1 Lloyd’s Rep 391.

127. Motor Oil Helas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990]
1 Lloyd’s Rep 391 at 397.
128. (1990) 170 CLR 394; 95 ALR 321.

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The High Court, by a bare majority, held that the Commonwealth could not resile from
its statements. Two of the majority judges found for Verwayen by applying the principles
of equitable estoppel. However, the other two judges (Toohey and Gaudron JJ) based their
judgments on the doctrine of waiver.
23.70 There has been considerable debate as to whether there exists a doctrine of waiver
that is independent of the law of contract and the doctrines of estoppel and election. However,
the prevailing view is that an independent waiver doctrine does exist.129 In any event, there is
considerable overlap between the doctrine of waiver and other forms of discharge or release.
Thus, in Agricultural & Rural Finance Ltd v Gardiner130 Gummow, Hayne, and Kiefel JJ said:
Waiver has often been used in senses synonymous with election or estoppel. It has been
suggested that waiver is indistinguishable from one or other of those doctrines. Sometimes,
although expressed in terms of waiver, the reasoning adopted in cases reveals the elements
for applying a more specific principle, typically election or estoppel. And it may be that in
cases of the several kinds last mentioned, the term is used as no more than a conclusionary
word stating the consequences of the operation of that more specific principle, rather than as
indicating the application of any distinct and independent principle. Nonetheless, it is clear
that there are cases in which the word has been used in senses other than those embraced by
principles of election, estoppel or variation of contract. So, for example, waiver has been used
in the sense of rescission where what has occurred is ‘an entire abandonment and dissolution
of the contract’. It has been used in connection with a party not insisting upon a term of a
contract which is identified as a term for that party’s sole benefit. And from time to time
‘waiver’ has been used to describe some modification of the terms of a contract without the
formalities, or consideration, necessary for an effective contractual variation.

23.71 At common law, rights under a deed can be waived by another deed or by an agreement
for valuable consideration. Rights arising outside the scope of a deed can be waived at common
law by a deed or by accord and satisfaction.131
23.72 In equity, an agreement for valuable consideration to waive a right is in all cases
effective, and this rule applies to both legal and equitable rights. Whether legal rights can be
waived in equity in the absence of valuable consideration is not clear. The weight of authorities
suggests that, in these circumstances, equity will not recognise a waiver unless it has been
waived in law — that is, if there is a deed of waiver for which no valuable consideration has been
given. Heydon, Leeming, and Turner132 suggest that there are some exceptional circumstances
in which departures from this view are possible.
23.73 With respect to the waiver of equitable rights, in the absence of an agreement for
valuable consideration, such rights can be waived under hand or even orally. Furthermore, a

129. Badat v DTZ Australia (WA) Pty Ltd [2008] WASCA 83 at [51]–[52], [141]–[148]. In Clifton (Liquidator)
v Kerry J Investment Pty Ltd [2020] FCAFC 5, the Federal Court held at [531] that, on the evidence, a
particular payment arrangement under taxation legislation did not operate as a waiver of an obligation
to pay a tax debt. The court did not address the conceptual issue as to whether an independent waiver
doctrine existed.
130. (2008) 238 CLR 570 at 588; 251 ALR 322 at 335.
131. McDermott v Black (1940) 63 CLR 161 at 187–8.
132. J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies,
5th ed, LexisNexis Butterworths, Sydney, 2015, p 1081.

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waiver can be inferred by conduct. However, a mere promise to waive or a mere expression
133

of intent to waive is insufficient.134 However, for the equitable waiver to be effective in these
circumstances, it must be shown that the plaintiff fully appreciated the nature and circumstances
of the transaction from which his or her right arose, and that he or she had at least constructive
knowledge of the equitable right against the defendant.135

133. Re Hall [1941] 2 All ER 358 at 370.

134. Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 539.
135. Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 at 129–30.

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DISCHARGE BY BREACH

INTRODUCTION
24.1 Contractual obligations may be discharged for several reasons. It will be recalled that
such obligations could be discharged where there has been exact performance of contractual
obligations1 or where there has been agreement between the parties.2 In addition, as will
be seen,3 a contract at common law is terminated through the operation of the doctrine of
frustration and, in such cases, future obligations will cease as the termination operates in
futuro. A contract can also be terminated for breach of certain contractual terms. This chapter
is concerned with an analysis of the conduct that constitutes a breach of contractual terms so as
to justify termination by an innocent party.
24.2 Initially, it should be noted that in many of the cases and writings dealing with
termination for breach of contract, one will see reference to ‘rescission’ for breach. As was
noted by Meagher JA in Carbone v Metricon Pty Ltd,4 ‘[i]n isolation, the word “rescind”
and its derivatives are notoriously ambiguous.5 They may relevantly refer either to the
prospective discharge of executory rights and obligations under a contract (termination) or
to the treatment of a contract as never having been formed (rescission ab initio)’. Although
cases such as McDonald v Dennys Lascelles Ltd,6 have used the word ‘rescission’ to refer to
‘termination’,7 its use should be confined to the context of setting aside contracts because
of some vitiating factor, with the word ‘termination’ applied to discharge for a breach of

1. See 22.29–22.38.
2. See Chapter 23.
3. See Chapter 25.
4. [2018] NSWCA 296 at [3]. J D Heydon, M J Leeming & P G Turner, Meagher Gummow and Lehane’s Equity:
Doctrines and Remedies, 5th ed, LexisNexis Butterworths, Chatswood, 2015 at 898–9, identify five senses
of ‘rescission’, namely: (i) termination of the contract by one party as a consequence of the other party’s
repudiation or breach; (ii) rescission pursuant to a contractual term entitling a party to bring the contract
to an end; (iii) rescission at common law; (iv) rescission in equity by order of the court where equity regards
the contract as having been improperly procured; and (v) rescission as a statutory remedy.
5. Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 at 223; 290 ALR 595 at 603.
6. (1933) 48 CLR 457. For a recent example see Harris v K7@Surry Hills Pty Ltd [2019] VSC 551 at [41], [44],
[77]–[78], [83], [127].
7. See Remax Developments Pty Ltd v Chamwell Pty Ltd [2011] NSWSC 695 at [103].

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contract. In this respect, in Strzelecki Holdings Pty Ltd v Jorgensen8 the Court of Appeal in
Western Australia said:
The common law and equity distinguish between the effects of termination of a contract
for breach or repudiation, on the one hand, and the rescission of a contract for frustration,
fraud, misrepresentation or mistake on the other hand.9 Termination for breach operates to
discharge the parties from their obligation to perform their respective contractual duties.
However, the terms of the contract continue to inform the rights and liabilities arising from
past conduct of the parties, which may be enforced in the courts (usually by action sounding
in damages for breach of contract).10 By contrast the common law and equitable remedies
of rescission set aside the contract from the beginning.11 From the point of rescission, the
rights and liabilities of the parties, including those arising from past conduct, are generally
determined as if the contract was never made.

24.3 Similar cautionary remarks were made by the High Court in Commissioner of Taxation
v Reliance Carpet Co Pty Ltd,12 where the following was stated:
Something should be said immediately of the use here of the term ‘rescission’. A relevant
distinction is expressed in the well-known passage in the reasons of Dixon J in McDonald
v Dennys Lascelles Ltd.13 A contract may be rescinded because of matters, such as fraud,
which affect its formation, with the consequence that, so far as possible, the parties are
restored to their pre-contract positions. Rescission in that sense is distinct from rescission
(or termination) at the election of one party for breach by the other, with the consequence
that the contract, so far as it remains executory, is determined, and damages for breach may
be recovered.

24.4 The distinction between termination and rescission ab initio was also made in Highfield
Property Investments Pty Ltd v Commercial & Residential Developments (SA) Pty Ltd,14 where
Blue J said:
Termination for breach of contract is a different act to rescission ab initio for misrepresentation.
The former discharges the parties from future performance of the contract and does not
affect past performance (subject to potential adjustments). By contrast, the latter involves
setting aside the contract from its inception, including acts of performance (including any
transfers of property made pursuant to the contract).

24.5 It was previously noted15 that a failure to exactly perform a contractual obligation when
promised was a breach of contract and may entitle the other party to terminate that contract.
Whether or not the party in default has any rights in that situation because, for example,

8. [2016] WASCA 177 at [99]. See also Johnson v Agnew [1980] AC 367 at 392–3; [1979] 1 All ER 883 at 889.
9. Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147 at [193]; Holland v Wiltshire (1954) 90
CLR 409 at 416.
10. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 469–70, 476–7; Heyman v Darwins Ltd [1942] AC
356, 362–3, 371–4, 379, 399.
11. Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 111; (1995) 130 ALR 570; Alati v Kruger
(1955) 94 CLR 216 at 223–5.
12. (2008) 236 CLR 342 at 345; 246 ALR 448 at 449–50.
13. (1933) 48 CLR 457.
14. [2012] SASC 165 at [286]. See also NWC Finance Pty Ltd v Borsellino [2018] NSWSC 134 at [36].
15. See 24.1.
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they may have substantially performed their obligations, is a different question as to whether
they are in breach of contract for not performing exactly as promised and whether or not the
innocent party can terminate the contract. Importantly, in order to understand these grounds,
the type of conduct that constitutes a breach of contract needs to be appreciated.
24.6 According to Seddon and Bigwood,16 the law recognises that there are two forms of
conduct that constitute a breach of contract and thus form the basis of a right to terminate. First,
where the parties agree that the contract is to be performed by a certain time, any failure to
completely perform the contract at the time agreed will constitute an actual breach of contract,
and could form the basis of an application to terminate the contract by the innocent party. In
Foran v Wight17 Brennan J said:
A stipulation for completion on a fixed day creates both a substantive and a temporal
obligation; an obligation to complete and an obligation to do so on the fixed day.

24.7 However, such a basis to terminate is not restricted to a failure to perform on time.
A right to terminate may also exist where there has been a failure to perform in the manner
contemplated by the contract — for example, to a particular standard. A breach of any such
obligations, if regarded as a condition or particular type of intermediate or innominate
term,18 may be a basis to terminate the contract. With respect to these types of breaches,
the emphasis is on objectively deciding whether performance, either in substance or on
time, has occurred (breach of a condition) or whether the breach is serious enough (breach
of an intermediate term). In either case the innocent party may be able to terminate the
contract.
24.8 The second type of breach of contract occurs where a party indicates an unwillingness
or inability to perform their contractual obligations.19 This is known as ‘repudiatory breach’,
‘repudiation’, or ‘renunciation’. These expressions are analysed further in this chapter.
According to Carter,20 ‘repudiation’ means “repudiation of obligation” and describes a
situation in which a promisor’s absence of readiness or willingness to perform gives rise to
a right to terminate’.
24.9 Unfortunately, however, the word ‘repudiation’ is used in different senses by the
courts.21 First, the word ‘repudiation’ has been used to refer to conduct which evinces
an unwillingness or an inability to render substantial performance of the contract. This
is sometimes described as conduct of a party which evinces an intention no longer to
be bound by the contract or to fulfil it only in a manner substantially inconsistent with
the party’s obligations.22 Unfortunately, such a description has also been referred to by the

16. N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract, 11th Aust ed, LexisNexis Butterworths,
Sydney, 2017, p 413.
17. (1989) 168 CLR 385 at 420; 88 ALR 413 at 437.
18. See 24.24–24.38.
19. Kraguljac v A & B Property Developments Pty Ltd (No2) [2012] SASC 1 at [76]–[77].
20. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Australia, 2018, p 673.
21. Heyman v Darwins Ltd [1942] AC 356 at 378; Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625–6.
22. Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at 351; Laurinda Pty Ltd v Capalaba Park Shopping Centre
Pty Ltd (1989) 166 CLR 623 at 634; 85 ALR 183 at 190.
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courts as ‘renunciation’. The test is whether the conduct of one party is such as to convey
23

to a reasonable person, in the situation of the other party, renunciation either of the contract
as a whole or of a fundamental obligation under it.24
24.10 Second, the word ‘repudiation’ has been used to refer to any breach of contract which
justifies termination by the other party.25 In Koompahtoo Local Aboriginal Land Council
v Sanpine Pty Ltd26 Gleeson CJ, and Gummow, Heydon, and Crennan JJ said:
The term repudiation is used in different senses. First, it may refer to conduct which evinces
an unwillingness or an inability to render substantial performance of the contract. This is
sometimes described as conduct of a party which evinces an intention no longer to be bound
by the contract or to fulfil it only in a manner substantially inconsistent with the party’s
obligations. It may be termed renunciation. The test is whether the conduct of one party is
such as to convey to a reasonable person, in the situation of the other party, renunciation
either of the contract as a whole or of a fundamental obligation under it. … Secondly, it may
refer to any breach of contract which justifies termination by the other party. … There may
be cases where a failure to perform, even if not a breach of an essential term, … manifests
unwillingness or inability to perform in such circumstances that the other party is entitled to
conclude that the contract will not be performed substantially according to its requirements.
This overlapping between renunciation and failure of performance may appear conceptually
untidy, but unwillingness or inability to perform a contract often is manifested most clearly
by the conduct of a party when the time for performance arrives. In contractual renunciation,
actions may speak louder than words.

24.11 In Velik v Steingold,27 after citing the definition of repudiation referred to in Koompahtoo
Local Aboriginal Land Council v Sanpine Pty Ltd,28 Sackville AJA said:
Koompahtoo Council v Sanpine,29 as the plurality noted, was not concerned with issues
that arise when the alleged repudiation takes the form of one party asserting an erroneous
interpretation of a contractual provision. However, the authorities establish a number of
principles relevant to such a case. A convenient statement of ‘some of the key principles’ is to
be found in the judgment of Ashley JA (with whom Kellam JJA, and Osborn AJA agreed) in
R & A Cab Co Pty Ltd v Kotzman.30 What follows is in part drawn on that statement:
• whether a party to a contract has acted in such a way as to evince an intention not to
carry out the contract is a question of fact;
• repudiation of a contract is a serious matter and is not to be lightly found or inferred;
• the question of repudiation requires a consideration of all of the circumstances, including
the conduct of the party claiming to have accepted the repudiation;
• repudiation is not determined by inquiring into the subjective state of mind of the party
in default, but by reference to conduct (verbal or otherwise) which conveys to the other

23. Heyman v Darwins Ltd [1942] AC 356 at 397.

24. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 659; 85 ALR 183 at 208.
25. J W Carter, Carter’s Breach of Contract, LexisNexis Butterworths, Sydney, 2011, p 300.
26. (2007) 233 CLR 115 at 135–6; 241 ALR 88 at 100–1.
27. [2013] NSWCA 303 at [86]–[87].
28. (2007) 233 CLR 115 at 135–6; 241 ALR 88 at 100–1.
29. (2007) 233 CLR 115; 241 ALR 88.
30. [2008] VSCA 68, at [44]–[49].

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

party the defaulting party’s intention not to perform the contract or to perform it only in
a manner inconsistent with that party’s obligations and in no other way;
• where one party to a contract persists in maintaining that it will only perform an
obligation of essential importance in accordance with an untenable construction of that
obligation, that conduct amounts to a repudiation of the contract;
• in some circumstances, an honest misapprehension as to the proper construction of the
contract will not justify a claim of repudiation, especially if the defaulting party indicates
that he or she may be open to correction; and
• whether the party propounding an erroneous construction of the contract has put
forward that construction in good faith is relevant to the question of whether he or she
evinces an intention not to be bound by the contract.

In DTR Nominees Pty Ltd v Mona Homes Pty Ltd,31 in considering the consequences of one
party acting on a mistaken interpretation of a contract for the sale of land, Stephen, Mason,
and Jacobs JJ said:

No doubt there are cases in which a party, by insisting on an incorrect interpretation of a

contract, evinces an intention that he will not perform the contract according to its terms.
But there are other cases in which a party, though asserting a wrong view of a contract
because he believes it to be correct, is willing to perform the contract according to its
tenor. He may be willing to recognize his heresy once the true doctrine is enunciated
or he may be willing to accept an authoritative exposition of the correct interpretation.
In either event an intention to repudiate the contract could not be attributed to him.
As Pearson LJ observed in Sweet & Maxwell Ltd v Universal News Services Ltd:32 ‘In the
last resort, if the parties cannot agree, the true construction will have to be determined
by the court. A party should not too readily be found to have refused to perform the
agreement by contentious observations in the course of discussions or arguments. …’

In this case the [vendor] acted on its view of the contract without realizing that the
[purchasers] were insisting upon a different view until such time as they purported
to rescind. It was not a case in which any attempt was made to persuade the [vendor]
of the error of its ways or indeed to give it any opportunity to reconsider its position
in the light of an assertion of the correct interpretation. There is therefore no basis on
which one can infer that the [vendor] was persisting in its interpretation willy nilly in
the face of a clear enunciation of the true agreement. …

24.12 In DCT Projects Pty Ltd v Champion Homes Pty Ltd33 Gleeson JA in the Court of Appeal
in New South Wales, in light of High Court authorities discussing repudiation, summarised the
relevant principles as follows:
For the conduct of a party to constitute a renunciation of its contractual obligations it must
be shown that the party is either unwilling or unable to perform its contractual obligations,
that is, it has evinced an intention to no longer be bound by the contract, or stated that it
intends to fulfil the contract only in a manner substantially inconsistent with its obligations
and in no other way. Repudiation is a serious matter and is not to be lightly found or inferred.

31. (1978) 138 CLR 423 at 432–3; 19 ALR 223 at 230. See also Sopov v Kane Constructions Pty Ltd (2007) 20 VR
127 at 132–3; Playford Vineyard Pty Ltd v Wishford Nominees Pty Ltd [2019] SASCFC 99 at [112].
32. [1964] 2 QB 699 at 734.
33. [2016] NSWCA 117 at [39].

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24.13 The differing use of the word ‘repudiation’ has attracted some criticism. In Koompahtoo
Local Aboriginal Land Council v Sanpine Pty Ltd34 Gleeson CJ, and Gummow, Heydon, and
Crennan JJ said:
In the past, some judges have used the word ‘repudiation’ to mean termination, applying it,
not to the conduct of the party in default, but to the conduct of the party relying upon such
default. It would be better if this were avoided.

24.14 Furthermore, where a party indicates an unwillingness or inability to perform their

contractual obligations in advance of the time that that party was due to perform pursuant to
the contract, this type of repudiatory breach is known as an anticipatory breach of contract. It
is to be contrasted with an actual breach of contract, which will occur where there has been a
failure to perform contractual obligations at a time when those contractual obligations were
due to be performed — in other words, where there has been a breach which fits into the
first category of breach of contract referred to above.35 Having said this, however, it should be
understood that there can be some overlap between the two types of breach — for example,
where a failure to perform is also tantamount to an indication of unwillingness or inability to
perform contractual obligations.
24.15 A right to terminate performance of a contract exists at common law and may arise
pursuant to statute. According to Carter,36 unless the parties have agreed otherwise there are
three situations in which the right to terminate will be implied:
• for breach of condition;
• for a sufficiently serious breach of an intermediate term; and
• in respect of an absence of readiness or willingness to perform constituting a repudiation of
obligation or capable of being treated as an anticipatory breach of contract.

24.16 These views have been echoed by others.37 However, by way of contrast, Seddon and
Bigwood38 classify the circumstances where termination is justified as follows:

34. (2007) 233 CLR 115 at 136; 241 ALR 88 at 101.

35. See 24.6–24.7.
36. Carter, Contract Law in Australia, note 20 above, p 672.
37. See A Burrows, A Restatement of the English Law of Contract, Oxford University Press, Oxford, 2016,
pp 116–17. Professor Burrows described the situation where an innocent party is entitled to treat the
contract at an end in the following way: ‘Breaches of contract entitling the innocent party to treat the
contract as at an end may be classified as follows:
(a) Breach of condition;
(b) Repudiatory breach, ie, an actual breach of an innominate term where the consequences are such as
to entitle the innocent party to treat the contract as at an end;
(c) Renunciatory breach, ie, an anticipatory breach of contract (ie, in advance of the due date for
performance), where the other party makes clear to the innocent party that it is not going to perform
the contract at all or is going to commit a breach of a condition or is going to commit a breach of
an innominate term and the consequences will be such as to entitle the innocent party to treat the
contract as at an end; in each case here, the innocent party has an election to accept the renunciatory
breach at once and to terminate the contract, without waiting for the due date of performance.’
These remarks by Professor Burrows were cited with approval in Grand China Logistics Holding (Group)
Co Ltd v Spar Shipping AS [2016] EWCA Civ 982 at [21].
38. Seddon and Bigwood, Cheshire and Fifoot Law of Contract, note 16 above, p 1105.

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• repudiation — this is breach consisting of a manifestation of unwillingness or inability to

perform the contract in substance or at all, before or at the time when performance is due;
• breach of essential term (or condition) — this breach consists of failure to perform a term
regarded as essential by the parties or by law at the time when performance is due;
• breach causing substantial loss of benefit — this consists of a failure to perform at the time
when performance is due, thereby depriving the injured party of the substantial benefit of
the contract.

24.17 These rights to terminate apply to leases as well.39

FAILURE TO PERFORM CONTRACTUAL OBLIGATIONS

24.18 The ascertainment of whether a failure to perform contractual obligations entitles the
innocent party to terminate a contract is a question of construction which is to be determined
‘by reference to its text, context (the entire text of the contract as well as any contract, document
or statutory provision referred to in the text of the contract) and purpose of the agreement’.40
This exercise will involve a consideration of whether the contractual obligations that are alleged
to have been breached are conditions, warranties, or intermediate terms.41 Importantly, it does
not matter what name the parties call the term.42
Failure to perform can be in whole or part and can involve performing differently to what
was expressly or impliedly required by a contract. It can also apply where one contracting
party has engaged someone else such as a subcontractor or agent to perform their contractual
obligations in circumstances where personal performance43 was required and where
performance obligations could not be performed vicariously. For example, if a contract
prohibits Party A to a contract from assigning contractual obligations to perform without
Party B’s prior approval and, despite this restriction, Party A subcontracts some or all of its
performance obligations to C, Party A will have breached its contractual obligations to Party
B. The consequence in such circumstances will depend upon whether there has been a breach
of contract, for example, by failing to perform personally and, if so, whether the required
performance obligations are to be regarded as conditions, warranties, or intermediate terms.
The consequences may also depend upon whether Party A can make any restitutionary
claim such as a claim based on quantum meruit for any work they may have done.

39. Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237
at 259; 244 ALR 1 at 18.
40. Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 116; 325 ALR 188 at 197.
See also Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656–7; 306 ALR
25 at 33–4; Rinehart v Hancock Prospecting Pty Ltd (2019) 366 ALR 635 at 645.
41. Intermediate terms are sometimes called ‘innominate’ terms. See, for example, Cehave NV v Bremer
Handelgesellschaft (The Hansa Nord) [1976] QB 44; Bremer v Vanden [1978] 2 Lloyd’s Rep 109; Bunge
v Tradax [1981] 1 WLR 711; Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016]
EWCA Civ 982 at [92], [98].
42. L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 250, 251; Mealey v Mountains Development
Group Pty Ltd [2003] NSWSC 830 at [7]; Ardizzone v Valentino Nominees Pty Ltd [2019] WASC 55 at [539].
43. Tolhurst v Associated Portland Cement Manufacturers [1903] AC 414 at 417; Bruce v Tyley (1916) 21 CLR
277 at 284–5 (Barton J) and 288–9 (Isaacs J); Davies v Collins [1945] 1 All ER 247 at 249–50; Advanced
National Services Pty Ltd v Daintree Contractors Pty Ltd [2019] NSWCA 270 at [56]–[63].

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24.19 The general approach in relation to the classification of contractual terms, at least in
the United Kingdom, is that a term is innominate unless it is clear that it is intended to be a
condition or a warranty.44 In Bunge v Tradax 45 Lord Scarman said:
Unless the contract makes it clear, either by express provision or by necessary implication
arising from its nature, purpose, and circumstances … that a particular stipulation is a
condition or only a warranty, it is an innominate term, the remedy for a breach of which
depends upon the nature, consequences, and effect of the breach.

24.20 A condition is sometimes also referred to as an essential term. In Wallis v Pratt46

Fletcher Moulton LJ described conditions as terms ‘which go so directly to the substance of the
contract or, in other words, are so essential to its very nature that their non-performance may
fairly be considered by the other party as a substantial failure to perform the contract at all’.
Thus, if the term breached is a condition, the innocent party may choose to proceed with the
contract or to terminate it and/or claim damages. The right to terminate arises for any breach
of a term that is classified as a condition.47 Until the innocent party elects to terminate, the
contract still stands.48 Alternatively, the innocent party ‘may treat the contract as continuing
on foot, in which case it will remain in force for the benefit of both parties’.49 In such a case the
innocent party may be able to enforce the contract by an order for specific performance.
24.21 If the term is properly construed to be a warranty as opposed to being simply described
by the contracting parties as a warranty, there is no right to terminate the contract for breach of
the term.50 The remedy of the innocent party lies in damages or specific performance.
24.22 Historically, terms were classified as either conditions or warranties. Today, although
most terms will be classified as either conditions or warranties, a small number of terms will
be classified as intermediate terms. With intermediate terms the issue of termination is not
determined merely by the existence of a breach. Rather, the court ascertains whether the extent
of the breach is sufficiently serious to give rise to a right to terminate. If it is not sufficiently
serious, there is only a right to damages or specific performance.
24.23 In addition to the rights of termination conferred by the common law, the parties
to the contract itself may agree that a right to terminate arises in particular circumstances.51
The basis of each of these rights to terminate will be examined in more detail.

44. Cehave NV v Bremer Handelgesellschaft (The Hansa Nord) [1976] QB 44 at 70–1; Bremer v Vanden [1978]
2 Lloyd’s Rep 109 at 113; Bunge v Tradax [1981] 1 WLR 711 at 715–16, 717, 727. See also Grand China
Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982 at [92].
45. [1981] 1 WLR 711 at 717.
46. [1910] 2 KB 1003 at 1012.
47. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at 138; 241 ALR 88
at 102; Allco Equity Partners v Allco Equity Partners Management Pty Ltd [2008] NSWSC 1401 at [47];
Red Pepper Property Group Pty Ltd v S3 Sth Melb Pty Ltd [2019] VSC 41.
48. Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; ALR 390.
49. Peter Turnbull and Company Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235.
50. Bettini v Gye [1876] 1 QBD 183 at 188.
51. Stocznia Golynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 36.

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Conditions, warranties, and intermediate or innominate terms

24.24 A contract can expressly stipulate what type of term is involved. For example, terms
implied by sale of goods legislation52 are explicitly stated to be either conditions or warranties.
Furthermore, it is open to the parties to expressly agree to what type of term is involved. For
example, ‘[t]he use of the word “condition” will usually (although not always) be sufficient’
for the term to be seen as a condition.53 Similarly, in Personal Touch Financial Services Ltd
v Simplysure Ltd54 the Court of Appeal said:
Agreements often refer to all their terms as conditions, as in ‘conditions of sale’. However, this
was not such a case. … While [the use of the word ‘condition’] is not conclusive, it must be
given due weight when the agreement is construed.

24.25 In the absence of any express stipulation, the court will construe the term.55 In
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd56 Mason ACJ, and Wilson,
Brennan, and Dawson JJ said that ‘courts are not too ready to construe a term as a condition
and at least where other considerations are finely balanced, will hold that a term is of such
a kind that a breach of it does not give rise to an automatic right to [terminate]’. This,
their Honours said, ‘is explained by a preference for a construction that will encourage
performance rather than avoidance of contractual obligations’. The distinction between
conditions, warranties, and innominate terms has been conveniently set out by Professor
Burrows57 in the following way:
A condition is a major term of the contract any breach of which entitles the innocent party
to terminate the contract. … [A] warranty is, in contrast, a minor term of the contract such
that no breach will entitle the innocent party to terminate the contract. An innominate term
(sometimes referred to as an ‘intermediate term’) is neither a condition nor a warranty;
and it would appear that most terms are now regarded as innominate. Where a term is
innominate, the question as to whether the contract can be terminated turns on the
seriousness of the consequences of the breach (judged at the time of the termination taking
into account what has happened and is likely to happen …) rather than on the importance
of the term broken.

The classification of a term turns on the intention of the parties.58

Conditions
24.26 In Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd59 Jordan CJ set out the test for
determining whether a term is a condition, when he said:

52. See 11.32.

53. Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 36.
54. [2016] EWCA Civ 461 at [28].
55. Shone v Davies [2012] WASCA 83 at [80].
56. (1987) 162 CLR 549 at 556–7; 70 ALR 641 at 645.
57. See Burrows, A Restatement of the English Law of Contract, note 37 above, pp 113–4.
58. Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 633 at 641; Shone v Davies
[2012] WASCA 83 at [81].
59. (1938) 38 SR (NSW) 633 at 641–2.

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The question whether a term in a contract is a condition or a warranty ie an essential or a

non-essential promise, depends upon the intention of the parties as appearing in or from
the contract. The test of essentiality is whether it appears from the general nature of the
contract considered as a whole, or from some particular term or terms, that the promise is
of such importance to the promisee that he would not have entered into the contract unless
he had been assured of a strict, or a substantial, performance of the promise, as the case
may be, and that this ought to have been apparent to the promisor. … If the innocent party
would not have entered into the contract unless assured of a strict and literal performance of
the promise, he may in general treat himself as discharged upon any breach of the promise,
however slight. If he contracted in reliance upon a substantial performance of the promise,
any substantial breach would ordinarily justify a discharge. In some cases it is expressly
provided that a particular promise is essential to the contract, eg by a stipulation that it is the
basis or of the essence of the contract … but in the absence of express provision the question
is one of construction for the Court, when once the terms of contract have been ascertained.

24.27 In DTR Nominees Pty Ltd v Mona Homes Pty Ltd60 Stephen, Mason, and Jacobs JJ said:
[Jordan CJ’s] … statement of the law … emphasises that the quality of essentiality depends
for its existence on a judgment which is made of the general nature of the contract and its
particular provisions, a judgment which takes close account of the importance which the
parties have attached to the provision as evidenced by the contract itself as applied to the
surrounding circumstances.

24.28 The reference to ‘surrounding circumstances’ are to ‘the circumstances in which a

contract was made, and in which the parties, objectively, should be taken to have understood
that it would be performed’.61 In construing the contract, a court ‘will encourage performance
rather than avoidance of contractual relations’.62 Thus, in Ankar Pty Ltd v National Westminster
Finance (Australia) Ltd,63 Mason ACJ, Wilson, Brennan and Dawson JJ said:
In deciding whether a promise has the status and effect of a condition, courts are not too
ready to construe a term as a condition and, at least where other considerations are finely
balanced, will hold that a term is of such a kind that breach of it does not give rise to an
automatic right to rescind.

24.29 In Associated Newspapers Ltd v Bancks64 the test stated by Jordan CJ was applied to a
case in which Bancks was contracted by a newspaper to provide a weekly comic strip involving
the character, Ginger Meggs. The newspaper promised that the comic strip would appear on
the front page of its Sunday comic section. The newspaper breached its obligation by publishing
the comic strip on page three of the comic section. Bancks sought to terminate the contract.
The High Court upheld his claim, holding that the newspaper’s obligation was a condition, on
the basis that Bancks would not have entered into the contract unless he had been assured that
the comic strip would appear on the front page of the comic section.

60. (1978) 138 CLR 423 at 431; 19 ALR 223 at 230.

61. South Dowling v Cody Outdoor Advertising [2005] NSWSC 391 at [54]. See also Kraguljac v A & B Property
Developments Pty Ltd (No 2) [2012] SASC 1 at [69]–[71].
62. Shone v Davies [2012] WASCA 83 at [83].
63. (1987) 162 CLR 549 at 556; 70 ALR 641 at 645.
64. (1951) 83 CLR 322.
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24.30 In the United Kingdom general guidance as to whether a term of a contract is to

be classified as a condition was given in Bunge v Tradax.65 This guidance was described in
Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS66 by Gross LJ as follows:
(i) First, the question was one of ascertaining the intentions of the parties and thus of the
true construction of the contract: As Lord Scarman67 put it:
‘The first question is always, therefore, whether upon the true construction of a
stipulation and the contract of which it is part, it is a condition, an innominate
term, or only a warranty.’
It follows that where on the true construction of the contract a term was to be classified
as a condition, then it was unnecessary and inappropriate to explore the gravity of the
breach; it was open to the parties to agree that any breach of a particular obligation
(regardless of its gravity) would entitle the innocent party to treat the contract as at an
end.
(ii) Secondly, if, on the true construction of the contract, the parties have not made a
particular term a condition and if the breach of that term may result in trivial, minor or
very grave consequences, then the term is innominate.
(iii) Thirdly, unless the contract made it clear that a particular stipulation was a condition or
only a warranty, it was to be treated as an innominate term; the courts should not be too
ready to interpret contractual clauses as conditions.

24.31 In Bunge v Tradax68 a buyer had an obligation under a contract to give 15 days’
loading notice to the seller. Until that notice had been given, the seller could not nominate
the loading port, which it was their contractual right to do. These contractual terms were
interdependent, as performance of the nomination by the buyer was necessary in order to
enable the seller to fulfil their obligation to nominate the loading port and ship the goods.
It was therefore an illustration of a case in which performance of a term by one party was
a condition precedent to the ability of the other party to perform another term, which was
itself a condition.

Warranties
24.32 Historically, if a term was not a condition it was only a warranty. A breach of warranty
did not give rise to a right to terminate.69 The innocent party could only seek damages
at common law for breach of a warranty. Today, this remains the case, unless the term is
classified as an intermediate or innominate term that has resulted in serious consequences to
the innocent party.

Intermediate or innominate terms

24.33 Following the judgment of Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki
Kisen Kaisha Ltd,70 a third type of term, today referred to as an intermediate or innominate
term, has been recognised by the common law. Treitel regards Diplock’s judgment in this

65. [1981] 1 WLR 711.

66. [2016] EWCA Civ 982 at [52], Hamblen LJ, at [91], agreed with these comments.
67. Bunge v Tradax [1981] 1 WLR 711 at 717.
68. [1981] 1 WLR 711.
69. Bettini v Gye [1876] 1 QBD 183 at 188.
70. [1962] 2 QB 26; 1 All ER 474.

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case as being one with ‘a fair claim to being the most important judicial contribution to
English contract law in the past century’.71 In Australia, the concept of intermediate terms was
approved by the High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd72
With intermediate terms, a right to terminate only arises if the consequences of the breach
are sufficiently serious. This issue raises the need to identify the applicable test for deciding
whether the consequences of an actual or anticipatory breach of contract (other than an actual
or threatened breach of condition) are sufficiently serious to entitle the innocent party to treat
the contract as at an end. As Carter73 points out, the terminology of intermediate or innominate
terms indicates that ‘the character of the term in question cannot be judged by construction, so
that it takes on the “character” of a condition or a warranty in accordance with the seriousness
of the actual breach established’.
24.34 In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd74 a seaworthiness term
in a charterparty stipulated that the vessel was ‘in every way fitted for ordinary cargo service’.
This term was breached when the vessel, ‘Hongkong Fir’, was delivered to the charterers with an
incompetent and insufficient engine room crew. This resulted in considerable inconvenience
to the charterers, who decided to terminate the charterparty for breach. The owners of the
vessel claimed that there was no right to terminate and brought an action against the charterers
for damages for wrongful termination of the charterparty. The dispute turned on whether
the breach of the seaworthiness term justified termination by the charterers. The Court of
Appeal unanimously held that it did not. Sellers and Upjohn LJJ based their decisions upon the
construction of the seaworthiness term as a warranty. Diplock LJ regarded the term as what we
now refer to as an intermediate or innominate term. In coming to this conclusion Diplock LJ75
discussed the classification of terms as follows:
No doubt there are many simple contractual undertakings, sometimes express, but more
often because of their very simplicity … to be implied, of which it can be predicated that
every breach of such an undertaking must give rise to an event which will deprive the party
not in default of substantially the whole benefit which it was intended that he should obtain
from the contract. And such a stipulation, unless the parties have agreed that breach of it shall
not entitle the non-defaulting party to treat the contract as repudiated, is a ‘condition’. So,
too, there may be other simple contractual undertakings of which it can be predicated that
no breach can give rise to an event which will deprive the party not in default of substantially
the whole benefit which it was intended that he should obtain from the contract; and such
a stipulation, unless the parties have agreed that breach of it shall entitle the non-defaulting
party to treat the contract as repudiated, is a ‘warranty’. There are, however, many contractual
undertakings of a more complex character which cannot be categorised as being ‘conditions’
or ‘warranties’. … Of such undertakings, all that can be predicated is that some breaches
will, and others will not, give rise to an event which will deprive the party not in default
of substantially the whole benefit which it was intended that he should obtain from the
contract; and the legal consequences of a breach of such an undertaking, unless provided for

71. G Treitel, Some Landmarks of Twentieth Century Contract Law, Oxford University Press, Oxford, 2002,
p 113. See also Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982
at [18]–[19].
72. (2007) 233 CLR 115; 241 ALR 88.
73. Carter, Contract Law in Australia, note 20 above, p 284.
74. [1962] 2 QB 26; 1 All ER 474.
75. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 69–70; 1 All ER 474 at 487.

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expressly in the contract, depend on the nature of the event to which the breach gives rise
and do not follow automatically from a prior classification of the undertaking as a ‘condition’
or a ‘warranty’.

24.35 In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd76 Koompahtoo
was the owner of a large area of land near Morisset, south of Newcastle. In 1997 it entered
into a joint venture agreement with Sanpine, a property development company, to develop
the land on rezoning. The agreement did not expressly set out the circumstances in which
either party could unilaterally terminate the agreement. The development generated
considerable controversy within the local Aboriginal community, attracted criticism over
environmental issues, and suffered from lack of capital. Despite considerable expense
and delay, rezoning was not secured by the time an administrator was appointed to take
over Koompahtoo in February 2003. The administrator sought information from Sanpine
about the financial position of the joint venture, including details about joint venture
loans that were secured by the land. After Sanpine failed to provide all the requested
details, the administrator claimed there had been serious breaches by Sanpine of its joint
venture obligations, including unexplained expenses, banking irregularities, and improper
documentation and records. In December 2003 the administrator terminated the joint
venture agreement on the basis of the alleged breaches. Sanpine sought a declaration that
the termination was invalid.
24.36 The High Court held that Sanpine’s actions amounted to serious breaches of an
intermediate term of the agreement, in that they deprived Koompahtoo’s representatives on
the joint venture management committee of the capacity to make informed decisions about the
project that was the very subject of the agreement. In reaching that conclusion the High Court77
said that whether a breach of an intermediate term gives rise to a right to terminate involves
consideration of a number of factors such as ‘the nature of the contract and the relationship it
creates; the nature of the term; the kind and degree of the breach; and the consequences of the
breach for the other party’.
24.37 In Almond Investors Ltd v Kualitree Nursery Pty Ltd78 it was held that a particular
breach of a non-essential term did not justify termination. By contrast, in Ardizzone v Valentino
Nominees Pty Ltd79 it was held that a breach of a particular intermediate term ‘went to the root
of the contract’ with the consequences of a breach ranging from insignificant to serious. In the
circumstances the innocent part had a right to terminate.
24.38 In contracts for the sale of goods, because the sale of goods legislation only refers to
conditions or warranties, the question that arises is whether there can be intermediate terms
in contracts for the sale of goods. In England, at least, the Court of Appeal has answered this
question in the affirmative.80 Although the decision has not been applied in any Australian

76. (2007) 233 CLR 115; 241 ALR 88.

77. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at 140; 241 ALR 88
at 104. See also Valilas v Januzaj [2014] EWCA Civ 436 at [54].
78. [2011] NSWCA 198.
79. [2019] WASC 55 at [538]–[544].
80. Cehave MV v Bremer Handelsgesellschaft GmbH (The Hansa Nord) [1976] QB 44; [1975] 3 All ER 739.

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case, New South Wales has amended its sale of goods legislation to introduce the tripartite
classification of terms in sale of goods contracts.81

The future of conditions, warranties, and intermediate terms

24.39 The notion of intermediate terms is justified by Treitel82 as follows:
[T]he policy of ‘leaning in favour’ of classifying stipulations as intermediate terms can be
said to promote the interests of justice by preventing the injured party from terminating on
grounds that are technical or unmeritorious.

24.40 On the other hand, Carter83 suggests that the tripartite classification of terms as either
conditions, warranties, or intermediate terms is unnecessary and that the warranty classification
has now been rendered essentially redundant with what were formerly considered warranties,
now to be considered intermediate terms.
24.41 Whether this view would apply in the context of warranties implied by sale of goods
legislation is doubtful, because of the definition of warranty in the legislation which precludes
termination for breach. On the other hand, in Cehave MV v Bremer Handelsgesellschaft GmbH
(The Hansa Nord),84 Ormrod LJ suggested that termination for breach of an implied warranty
could be justified on the ground of a de facto failure of consideration.

Terminate for breach of a time stipulation

24.42 A time stipulation is an important contractual term and the question that arises is
whether a contract can be terminated for breach of such a stipulation.85
24.43 Historically, time stipulations were treated differently by the separate courts of
common law and equity. At common law, time stipulations in a contract are of the essence
and a failure to perform in a timely manner entitles the innocent party to terminate the
contract.86 However, although equity recognises that time is of the essence, it will not allow
an innocent party to terminate the contract if it would be unconscientious to do so.87 As
was stated by Sir Terence Etherton C in Urban 1 (Blonk Street) Ltd v Ayres,88 ‘[e]quity’s role,
in this context, always has been to relieve a contract-breaker against the strict legal rights
of the other party’.
24.44 That said, courts of equity would generally preclude the exercise of the common law
right to terminate for breach of a time stipulation and only permit termination of the contract
in the following circumstances:
• if the contract expressly declared time to be of the essence;

81. Sale of Goods Act 1923 (NSW) s 4(5).

82. E Peel, Treitel: The Law of Contract, 14th ed, Sweet & Maxwell, London, 2015, p 989.
83. Carter, Contract Law in Australia, note 20 above, pp 286.
84. [1976] QB 44 at 84; [1975] 3 All ER 739 at 766.
85. The time for performance of contractual obligations is discussed in 22.5–22.11.
86. Noble v Edwardes (1877) 5 Ch D 378 at 393.
87. Stickney v Keeble [1915] AC 386 at 400.
88. [2014] 1 WLR 756 at 767.

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• if there was an implication that time was of the essence89; or

• if time, not being of the essence, was made of the essence by the service of a notice to
complete on a party who breached the time stipulation.90
In these three situations, equity is effectively saying that it is not unconscientious for the
innocent party to terminate the contract.
24.45 If time is of the essence and one party requests an extension of time to perform that is
agreed to by the other party, it does not mean that time ceases to be of the essence in relation
to the new date for performance.91
24.46 A consequence of equity’s approach to time stipulations is that a party who has
breached a time stipulated where the innocent party cannot terminate the contract is not, by
reason of that breach, precluded from subsequently seeking an order for specific performance
of the contract.92 However, he or she will be liable to the other party for damages at common
law in relation to losses arising from the breach.93
24.47 Following the fusion of the administration of the courts of common law and equity
into one court in 1873, legislation resolved this issue by giving effect to the equitable approach
to time stipulations.94 At the time this legislation was passed, this would have meant that unless
the circumstances were such that equity would have regarded it as being of the essence, a time
stipulation was regarded as being a warranty only, with the consequence that the contract could
not be terminated. However, following the development of the notion of intermediate terms, a
time stipulation is clearly now to be seen as an intermediate term. This is because, depending
upon the circumstances of the case, a breach of the time stipulation may or may not give rise
to a right to terminate.
24.48 The circumstances that will give rise to a right to terminate are those in which equity
has always permitted termination of the contract for breach of a time stipulation: This was
made clear in Zaccardi v Caunt,95 where Campbell JA said:
The effect of [the legislation that gave effect to the equitable rules of construction of time
stipulations] is to change the status of a provision fixing the time for taking a step in
performance of a contract from an essential term to an intermediate term. By ‘intermediate
term’ I mean a term the breach of which in some circumstances can give rise to a right to
terminate, but the breach of which in other circumstances does not give rise to a right to
terminate. [One of t]he circumstances in which breach of such a term now gives rise to a right
to terminate … is when … a valid notice to complete has been served and not complied with.
24.49 In relation to time being of the essence by implication, it is the facts and circumstances
of the case that lead to the conclusion that the parties intended time to be of the essence. Thus,
a finding that time is of the essence by implication can often arise in circumstances where

89. Summers v Cocks (1927) 40 CLR 321.

90. G R Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80 at 87–9, 92–3, 97–9.
91. Mehmet v Benson (1965) 113 CLR 295 at 305; Du Buisson Perrine v Chan (2016) 49 WAR 432 at 467.
92. Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 533 at 572.
93. Canning v Temby (1905) 3 CLR 419 at 426; R V Pty Ltd v Connector Park Pty Ltd (No 2) [2017] TASSC 22 at [21].
94. See Civil Law (Property) Act 2006 (ACT) s 501; Conveyancing Act 1919 (NSW) s 13; Law of Property
Act 2000 (NT) s 65; Property Law Act 1974 (Qld) s 62; Law of Property Act 1936 (SA) s 16; Supreme Court
Civil Procedure Act 1932 (Tas) s 11(7); Property Law Act 1958 (Vic) s 41; Property Law Act 1969 (WA) s 21.
95. [2008] NSWCA 202 at [92].
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goods that are sold are perishable in nature or where the property that is the subject of the
contract is the subject of a volatile trading market in so far as price is concerned. It is also the
case that a term stipulating for the payment of a deposit in a contact for the sale of land almost
always gives rise to an implication that the time for payment of the deposit is of the essence. In
this respect, in Samarenko v Dawn Hill House Ltd96 Lewison LJ said:
Since the payment of a deposit at the executory stage of the contract is an earnest (or
guarantee) of further performance, it is no surprise that a failure to pay the deposit on time
is taken to demonstrate that the buyer is unwilling to perform the contract as a whole. In
addition without actual receipt of the deposit the seller does not know where he stands. Is
the buyer serious about the contract or not? A right to call off the contract for failure to pay
the deposit on time restores to the seller his freedom to market the property. In the case of late
completion, the seller at least has the deposit in his hands as part compensation for any loss.
If the deposit itself is not paid, he has nothing except a fetter on his freedom to deal with his
property. That is why in my judgment failure to make timely payment of a deposit amounts to
a repudiatory breach of contract. Any presumption that time is not of the essence is rebutted.
24.50 In relation to making time of the essence by service of a notice to complete, in Neeta
(Epping) Pty Ltd v Phillips97 Barwick CJ and Jacobs J said:
In cases where the contract contains a stipulation as to time, but that stipulation is not an
essential term, then before a notice can be given fixing a time for performance, not only must
one party be in breach or guilty of unreasonable delay, but also the party giving the notice
must himself be free of default by way of breach or antecedent relevant delay. Only then may
a notice be given fixing a day a reasonable time ahead for performance and making that time
of the essence of the contract.
The requirement that the party issuing the notice not be in breach does not preclude that party
issuing a notice to complete if the breach is ‘minor or trivial, or ... not connected with the
securing of completion of the contract’.98
24.51 In Louinder v Leis99 Mason J accepted this statement as being correct, and Brennan J
said the following in relation to the meaning of unreasonable delay:
[W]hatever time ‘unreasonable’ may connote, it is an epithet to describe a delay on the part
of a purchaser in performing an obligation after the time when he was bound to do so; delay
is not to be found in an interval of time between the making of the contract and the time
for performing the obligation, though that interval may be relevant to the description of any
subsequent delay.
24.52 In Carrapetta v Rado100 Barrett JA summarised the law on when a notice to complete
could be served as follows:
Case law … makes it plain that the party seeking to make time of the essence must be
an ‘innocent’ party who is not ‘in default’ or ‘in breach’ and is ‘ready, willing and able’ to

96. [2012] 2 All ER 476 at 486.

97. (1974) 131 CLR 286 at 299; 3 ALR 151 at 161.
98. Sandpiper Kooragang Pty Ltd v Fortis Products Pty Ltd [2020] NSWSC 1256 at [70].
99. (1982) 149 CLR 509 at 531; 41 ALR 187 at 204.
100. [2012] NSWCA 202 at [27] cited with approval in Sandpiper Kooragang Pty Ltd v Fortis Products Pty Ltd
[2020] NSWSC 1256 at [61].
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

proceed to completion in accordance with the contract. The underlying concept is that
a party who gives a notice to complete and thereby calls on the other party to adhere to
the contract must be in a state of both present and prospective adherence to the contract.
When it is the vendor who serves the notice, he or she must be seen to be willing and able
to perform, on the day the notice fixes for completion, the obligations that the vendor
is required to perform on completion — predominantly, in a ‘cash on completion’ case
such as the present, the obligation of delivering a clear title in return for the money that
the contract requires the purchaser to pay in cash on completion — and to have adopted
up to the time of service of the notice a stance consistent with that future performance.
If the vendor is in breach of contract when the notice is given, he or she is not in such
a state of willingness and ability. Likewise, if the vendor has taken and made known
an uncompromising stance that he or she will not deliver title on completion except in
return for payment of a sum greater than that required by the contract, that vendor will
be ‘in default’ (or ‘in breach’) and not be ‘innocent’ or relevantly ‘ready, willing and able’
because the unequivocal stance inconsistent with the contract bespeaks lack of adherence
in the nature of anticipatory breach.

24.53 According to Lindgren,101 in order for a notice to complete to be valid:

• the recipient of the notice must be in default under the relevant contract;
• the person who gives the notice must themselves be ready, willing, and able to perform their
own obligations under the agreement;
• the time fixed by the notice for completion of the contract must be a reasonable time;
• the notice must be valid in form and must clearly call on the recipient of the notice to
perform the contract.
Once a notice to complete is served, it operates to make time of the essence for both parties to
the contract.102 However, the time fixed by the notice may, by agreement between the parties,
be extended to some later time.103
24.54 To understand the function of a notice to complete, one must appreciate the approach
of equity towards time stipulations. Equity always construed time stipulations in the same
way as did the common law. However, equity generally prevented a party from insisting on an
unconscientious exercise of his or her strict legal right to terminate a contract for breach of a
time stipulation by the other party.104
24.55 The commonly accepted explanation for equitable intervention here is that
equity was exercising a jurisdiction akin to its jurisdiction to relieve against penalties and
forfeiture. Equity’s intervention meant that a court of equity would, subject to its discretion,
grant the party not complying with a time stipulation a decree of specific performance of
the contract, notwithstanding that party’s prior failure to perform his or her contractual
obligations on the agreed date. On the other hand, if time was expressly or impliedly of
the essence, the equitable bar to termination of the contract was removed. Furthermore,
the service of a valid notice to complete where time was not originally of the essence, also

101. K Lindgren, Time in the Performance of Contracts, 2nd ed, Butterworths, Sydney, 1982.
102. Falconer v Wilson [1973] 2 NSWLR 131 at 143; Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd
[2016] NSWCA 32 at [39]; Lavigne v Kumar [2020] NSWSC 1120 at [111].
103. Manufacturers House Pty Ltd v Ashington No 147 Pty Ltd [2005] NSWSC 767 at [37]; Cole v Raykir Holdings
Pty Ltd [2019] NSWSC 1017 at [65].
104. Stickney v Keeble [1915] AC 386 at 410.

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operated to remove the equitable bar to the exercise of the common law right to terminate
the contract. In effect, a notice to complete disentitles the party not complying with it to
subsequently obtain an order that the contract be specifically enforced. Thus, in Michael
Realty Pty Ltd v Carr105 Mahoney JA said:
In determining what is appropriate notice to complete … the essential question is not
what time does the purchaser in fact need to do that which is necessary for completion,
and is in fact not yet done. At law, a party is not entitled to rely upon his own wrong or
default. Given that a reasonable time for completion has already elapsed, the function
of a notice specifying a time for completion is, at law, prima facie to enable a party, who
is assumed to be in an appropriate state of readiness to perform his obligations, to do
those things, eg, have ready the appropriate conveyance and title deeds, relevant for the
performance of those obligations. But the purchaser, if he desires effectively to terminate
the contract, must also do what, in equity, will be seen as a sufficient reason for refusing
specific performance. In general, equity will order specific performance, notwithstanding
that a plaintiff is in breach as to a provision as to time, unless the circumstances over and
above the mere breach make it unjust or inequitable to do so. But non-compliance with
a notice effectively making time of the essence for completion will normally be seen as a
reason for refusing specific performance. The notice to complete, therefore, serves this
function in equity. … Equity has … always required that … a notice [to complete] give
a reasonable time for completion. … [T]he stipulation as to time is, in such a case, not
directed to securing performance of the contract. It is directed to giving such a time that,
at the end of the time specified, it would be inequitable or unjust for specific performance
to be ordered. The time is, therefore, to be calculated by reference, inter alia, to the
interests of the party giving the notice, and the inequity of maintaining him effectively
bound by the contract thereafter.

24.56 In the context of a case involving a vendor’s failure to comply with a non-essential time
stipulation, in Michael Realty Pty Ltd v Carr106 Glass JA summarised the position on notices to
complete as follows:
(1) Where the contract fails to make time of the essence, failure to complete by the time
fixed for completion is at law, but not in equity, an essential breach, which entitles the
purchaser to [terminate].
(2) The vendor will, however, be guilty of an essential breach, in equity also, if he fails to
complete within the time limited by a valid notice to complete. For such breach the
purchaser may validly [terminate].
(3) A notice to complete will not be valid unless, inter alia, it limits a time for completion
which is, in all the circumstances, reasonable. In determining the reasonableness of the
time limited, the Court should consider, not merely what remains to be done by the
vendor at the date of notice, but all the circumstances of the case.
(4) The question whether the time limited by the notice is, in all the circumstances
reasonable, is identical with the question whether equity would consider it just and
equitable to relieve the vendor who fails to complete at the expiration of the notice, and
to grant specific performance at his instance.
(5) It follows that the question whether it is reasonable to allow the vendor less time than he
needs to prepare for completion is a correlative of whether it is just and equitable to hold

105. [1977] 1 NSWLR 553 at 571–2.

106. [1977] 1 NSWLR 553 at 566.

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the purchaser to the contract for as long as the vendor requires before he will be able to
complete.
(6) All the circumstances of the case in light of which these questions are to be decided
include, but are not confined to, the delay of the vendor and the urgency of the
purchaser’s need to complete. Other variants of the behaviour of vendor and purchaser,
the categories of which cannot be determined in advance, may raise circumstances
which make it unjust and inequitable to allow the defaulting vendor as much time as he
needs.

In my opinion, each of these propositions is consonant with principle. … It follows that

there is no principle of law that the notice to complete must always limit a period which is
sufficient to meet the preparatory needs of the party in default.

24.57 In some contexts, such as conveyancing, it is possible for a vendor, having first
purported by notice to make time of the essence of a contract and thereafter having purported
to terminate the contract for failure to comply with the time so delimited, to then, without
prejudice to the claimed validity of the termination, give a second notice purporting to make
time of the essence of the contract. According to Einstein J in Monzer Tabbouch v Devlin,107
‘such a second notice is properly construed as an “offer to start up again” [that is to say as an
offer to re-instate the contract, being an offer capable of being accepted by the purchaser]’.

Contractual right to terminate

24.58 In addition to the above situations, a right to terminate may exist where the contract
itself provides for termination in the event of a breach of any of its terms. The right to terminate
may be for breach of any term, whether it is a major or minor breach. Such terms within a
contract which purport to confer a right to terminate on a party are enforceable unless they
are uncertain, ambiguous, or unconscientious, or they involve a breach of any implied term of
good faith in relation to the exercise of the right to terminate, or where the right to terminate
has been lost.108
24.59 Where a contract provides for a right to terminate on a breach, it is presumed that
such a clause operates concurrently with any other right given by law to terminate.109 However,
the common law right to terminate can be excluded, so that the right to terminate is governed
solely by the terms of the contract. Thus, on the facts of Commonwealth of Australia v Amann
Aviation Pty Ltd,110 the contractual right to terminate was the only means by which the contract
could be terminated, and the Commonwealth’s termination of it was wrongful because it did
not abide by the termination procedures set out in the contract.
24.60 It is usually the case that contractual rights to terminate also require notice of
termination to be given. Any such notice requirement must be complied with, or the termination
will be invalid.111

107. [2008] NSWSC 600 at [29].

108. Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558.
109. Concut Pty Ltd v Worrell (2000) 176 ALR 693 at 699.
110. (1991) 174 CLR 64; 104 ALR 1.
111. Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558.

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24.61 In Sargent v ASL Developments Ltd three contracts for the sale of land were entered
112

into between a purchaser and the respective vendors of three different properties. Clause 16 in
each contract was in the following form:
Should it be established prior to completion that at the date of this Agreement the property
was affected by any town and country planning scheme or interim development prepared or
prescribed under the provisions of the State Planning Authority Act or Part XIIA of the Local
Government Act 1919 as amended otherwise than as stated in the Fourth Schedule hereto
or was affected by any Residential District Proclamation under Section 309 of the Local
Government Act 1919, or by any existing proposals for re-alignment widening or siting of
a road by any competent authority otherwise than as disclosed in the said Fourth Schedule,
either party shall be entitled to rescind this Agreement by notice in writing to the other.

It was stated in the schedule to each of the three contracts that the respective properties were
affected as shown in a council zoning certificate that was said to be annexed to those contracts.
However, no such certificate was annexed. At the times when the contracts were entered into,
the properties the subject of the contracts were zoned as ‘Non-Urban Zone No 1 (a) (County
Green Belt)’ under the Shire of Baulkham Hills Planning Scheme Ordinance made under
Pt XIIA of the Local Government Act 1919 (NSW), as amended (and were affected by the
County of Cumberland Planning Scheme). After the date of the contracts the vendors received
payments of interest, instalments of principal, and increased rates from the purchaser, and they
joined with the purchaser in taking steps to bring the land under the operation of the Real
Property Act 1900 (NSW). Subsequently each of the vendors gave notice of rescission of their
contract to the purchaser, relying upon the circumstance that the lands were affected by the
planning schemes. The purchaser then brought proceedings for specific performance of the
contracts.
24.62 The High Court113 held that, as no certificate was annexed to the particular contracts,
cl 16 operated to confer a right of termination. However, by their unequivocal conduct with
knowledge of the facts giving the right to terminate the contract, the vendors had elected to
treat the contract as subsisting and were precluded from exercising the rights of termination.

REPUDIATION
24.63 As noted above, the word ‘repudiation’ is used by lawyers in various different ways.
It is also known as ‘renunciation’. In this chapter the word is used to describe conduct by a
contracting party that entitles the other contracting party to terminate a contract. Further, it
is well established that ‘repudiation of a contract is a serious matter, not to be lightly found or
inferred’.114 With repudiation, emphasis is on the conduct or attitude of the party who manifests
an unwillingness or inability to perform. According to Seddon and Bigwood:115

112. (1974) 131 CLR 634; 4 ALR 257.

113. Sargent v ASL Developments Ltd (1974) 131 CLR 634; 4 ALR 257.
114. Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 at 71; Laurinda Pty Ltd v Capalaba Park
Shopping Centre Pty Ltd (1989) 166 CLR 623 at 643, 657; 85 ALR 183 at 196, 207 (in the context of contracts
for sale of land and leases).
115. Seddon and Bigwood, Cheshire and Fifoot Law of Contract, note 16 above, p 1106–7.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Breach of contract by repudiation occurs when a party evinces an intention no longer to be

bound by it, or to fulfil it only in a manner substantially inconsistent with his or her obligations.
An alternative formula defines repudiation as the manifestation of an intention to perform
‘if and when it suits’ or ‘as and when it suits’. Repudiation can be manifested by breach of
a substantively inessential term. … An actual intention to repudiate is not necessary: the
issue is resolved objectively by reference to the effect it would have on a reasonable person.
Repudiation comprises the manifestation of inability as well as of recalcitrance. Conduct that
is clearly self-disabling is repudiatory; for example, disposal to a third party of the subject-
matter of a sale, or going out of business. Words or conduct by a party which indicate an
unwillingness to perform may constitute repudiation.

24.64 The above classifications are consistent with and derived from case law, where the
following illustrative remarks on the meaning of repudiation made by Gibbs CJ in Shevill
v Builders Licensing Board116 have been approved and adopted:117
[R]epudiation is an ambiguous word and is used in various senses. We are of course concerned
only with a case in which it is admitted that there was a valid and binding contract. Such a
contract may be repudiated if one party renounces his liabilities under it — if he evinces an
intention no longer to be bound by the contract or shows that he intends to fulfil the contract
only in a manner substantially inconsistent with his obligations and not in any other way.
In such a case the innocent party is entitled to accept the repudiation, thereby discharging
himself from further performance, and sue for damages. … However, if one party, although
wishing to perform the contract, proves himself unable to do so, his default in performance
will give the other party a right to [terminate] the contract, if the breach goes ‘so much
to the root of the contract that it makes further commercial performance of the contract
impossible’.118 There is high authority for treating such cases as a form of repudiation of
the contract.119 In Honner v Ashton120 Mahoney JA said that he thought that the right to
terminate for fundamental breach should be seen as, in principle, distinct from the right to
terminate for repudiation.

24.65 In Romero v Farstad Shipping (Indian Pacific) Pty Ltd121 the Full Court discussed the
meaning of repudiation as follows:
A breach of a contract by repudiation occurs when a party evinces an intention no longer to
be bound by it or to fulfil it only in a manner substantially inconsistent with the contractual
obligations. Repudiation will arise where there is conduct consistent with a renunciation
either of the contract as a whole or a fundamental obligation under it. Repudiation of a
contract is a serious matter and is not to be lightly found or inferred. To amount to a refusal
to perform the contract, the breach must be sufficiently serious …

116. (1982) 149 CLR 620 at 625–6; 42 ALR 305 at 308.

117. Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 33, 40; 57 ALR 609 at 620, 626;
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634, 643, 664; 85 ALR
183 at 190, 196, 212; Diploma Construction Pty Ltd v Marula Pty Ltd [2009] WASCA 229 at [87]–[97].
118. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 64.
119. Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361
at 421–2; Federal Commerce v Molena Alpha [1979] AC 757 at 778–9.
120. [1979] 1 BPR 9478 at 9490.
121. (2014) 231 FCR 403 at 435; 315 ALR 243 at 275.

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24.66 An example of repudiation in the form of performing a contract substantially

inconsistent with one’s contractual obligations is where an employer unilaterally reduces
an employee’s pay or diminishes the value of his or her salary package. Such conduct
undermines the entire foundation of the contract of employment and thus constitutes
repudiation of it.122
24.67 As noted above, a repudiation can arise either from a party showing an intention not to
be bound by the entire contract, or by showing that he or she does not intend to be bound by a
term or terms which are of sufficient importance in the contract.123 One way of describing this
is to focus upon whether the repudiatory conduct deprives the innocent party of substantially
the whole of the benefit they are intended to receive as consideration for performance of their
future obligations under the contract.124 Indeed, the question of whether a party in breach of
contract has shown the requisite intention which enables termination to occur, is decided by
reference to how their conduct would appear to a reasonable person in the position of the other
contracting party. A party’s subjective intentions are irrelevant to this test, as an objective test
is applied in assessing conduct.125
24.68 In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd126 Deane and Dawsxon JJ,
relying upon a description of repudiatory conduct by Fullagar J in Carr v J A Berriman Pty
Ltd,127 said that such conduct arises where the facts are such that ‘a reasonable man could hardly
draw any other inference than that the building owner does not intend to take the contract
seriously, that he is prepared to carry out his part of the contract only if and when it suits him’.
In the same case Mason CJ128 noted that:
There is a difference between evincing an intention to carry out a contract only if and when it
suits the party to do so and evincing an intention to carry out a contract as and when it suits
the party to do so. In the first case the party intends not to carry out the contract at all in the
event that it does not suit him. In the second case the party intends to carry out the contract,
but only to carry it out as and when it suits him. It is much easier to say of the first than of
the second case that the party has evinced an intention no longer to be bound by the contract
or to fulfil it only in a manner substantially inconsistent with his obligations and not in any
other way. But the outcome in the second case will depend upon its particular circumstances,
including the terms of the contract. In some situations the intention to carry out the contract
as and when it suits the party may be taken to such lengths that it amounts to an intention
to fulfil the contract only in a manner substantially inconsistent with the party’s obligations
and not in any other way.

122. Actrol Parts Ltd v Coppi (No 2) [2015] VSC 694 at [40]–[41].
123. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634, 641–2; 85 ALR 183
at 190, 195–6; Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625–6; 42 ALR 305 at 308; Almond
Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 at [62].
124. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 66, 72; Federal Commerce
v Molena Alpha (The Nanfri, Benfri and Lorfri) [1979] AC 757 at 778–9.
125. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 643, 647–8, 666; 85 ALR
183 at 196, 207–8, 213; Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127 at 130.
126. (1989) 166 CLR 623 at 658; 85 ALR 183 at 208.
127. (1953) 89 CLR 327 at 351.
128. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 634; 85 ALR 183 at 190.

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24.69 Relevantly, Deane and Dawson JJ129 observed the following:

It is not necessary for repudiation of a contract that the repudiator make plain that he will
never perform his contractual obligations at all. What Lord Dunedin described [in Forslind
v Bechely-Crundall130] as the assumption of ‘a shilly-shallying attitude in regard to the contract’
and what Lord Shaw of Dunfermline131 called ‘procrastination … persistently practised’
can in some circumstances reach the stage of repudiation even though accompanied by
assurances of ultimate performance at some future time.

24.70 Deane and Dawson JJ132 then referred with approval to the following passage of
Lord Shaw in Forslind v Bechely-Crundall:133
If in short, A, a party to a contract acts in such a fashion of ignoring or not complying with
his obligations under it, B, the other party is entitled to say: My rights under this contract
are being completely ignored and my interests may suffer by non-performance by A of his
obligations, and that to such a fundamental and essential extent that I declare he is treating
me as if no contract existed which bound him’ … in business over and over again it occurs
— as, in my opinion, it occurred in the present case — that procrastination is so persistently
practised as to make a most serious inroad into stage the rights of the other party to a
contract. There must be a stage when the person suffering from that is entitled to say ‘this
must be brought to an end.

24.71 In Galafassi v Kelly134 Gleeson JA said:

For the conduct of a party to constitute a renunciation of its contractual obligations it must
be shown that the party is either unwilling or unable to perform its contractual obligations,
that is, it has evinced an intention to no longer be bound by the contract or stated that it
intends to fulfil the contract only in a manner substantially inconsistent with its obligations
and in no other way. Where inability to perform is declared the conduct amounts to a refusal
to perform and the innocent party need not prove that the other party was actually unable
to perform as a matter of fact.

A renunciation can be made either by words or conduct, provided it is clearly made. The
test is whether the conduct of one party is such as to convey to a reasonable person, in the
situation of the other party, renunciation either of the contract as a whole or of a fundamental
obligation under it.135

24.72 In determining whether a party has repudiated the contract, the party’s conduct must
be evaluated taking account of all of the circumstances.136

129. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658–9; 85 ALR 183.
130. [1922] SC (HL) 173 at 190.
131. Forslind v Bechely-Crundall [1922] SC (HL) 173 at 192.
132. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 659; 85 ALR 183 at 208.
133. [1922] SC (HL) 173 at 191–2.
134. (2014) 87 NSWLR 119 at 113.
135. Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 50. See also Diploma Construction Pty Ltd
v Marula Pty Ltd [2009] WASCA 229 at [87]–[97]; Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127
at 130, 147.
136. Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291 at [102].

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24.73 Finally, it must be kept in mind that repudiation of a contract ‘is a serious matter, not
to be lightly found or inferred’.137 Repudiation ‘is a drastic conclusion’.138
24.74 Refusal to perform a contract because of an erroneous interpretation of provisions
contained in it could be repudiatory conduct, and if it is found that a party has terminated without
justification, this will be a repudiatory act in itself that entitles the other party to terminate.139
However, not every wrongful termination of a contract will amount to repudiation.140 Thus, in
Woodar Investment Development Ltd v Wimpey Construction UK Ltd,141 Lord Wilberforce said
that ‘it would be a regrettable development of the law of contract to hold that a party who bona
fide relies upon an express stipulation in a contract in order to rescind or terminate a contract
should, by that fact alone, be treated as having repudiated his contractual obligations if he
turns out to be mistaken as to his rights’. It is also the case that delay in performance of one’s
obligations may be such as to demonstrate an unwillingness or an inability to render substantial
performance of the contract so as to amount to a repudiation.142
24.75 Repudiation can also take place in consequence of a party making an anticipatory
breach of contract. A party who by words or conduct indicates an intention not to perform a
promise in advance of the due date for performance commits an anticipatory or renunciatory
breach. Anticipatory breach can occur expressly or by implication. However, the innocent party
will only have a right to accept the renunciatory breach forthwith and to terminate the contract
without waiting for the due date of performance, where the other party makes clear to the
innocent party that it is not going to perform the contract at all, or is going to commit a breach
of a condition, or is going to commit a breach of an innominate term, with the consequences
such as to entitle the innocent party to treat the contract as at an end.143
24.76 The applicable legal principles relating to renunciation were set out by Gross LJ in
Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS144 as follows:
First, it is readily apparent that there are a variety of formulations of the test for renunciation
in the authorities. Thus, in Ross T Smyth & Co Ltd v T D Bailey Son & Co145 Lord Wright put
it this way:

I do not say that it is necessary to show that the party alleged to have repudiated
should have an actual intention not to fulfil the contract. He may intend in fact to
fulfil it, but may be determined to do so in a manner substantially inconsistent with
his obligations, and not in any other way.

137. Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 at 71.
138. Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571 at 576.
139. Kennedy v Vercoe (1960) 105 CLR 521; Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27
NSWLR 326.
140. Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 453; 9 ALR 309 at 315–6; DTR Nominees Pty
Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432; 19 ALR 223 at 230.
141. [1980] 1 All ER 571 at 576.
142. Galafassi v Kelly (2014) 87 NSWLR 119 at 140.
143. Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS [2016] EWCA Civ 982 at [21].
144. [2016] EWCA Civ 982 at [73]–[78].
145. [1940] 3 All ER 60 at 72.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

In Hong Kong Fir146 Diplock LJ in the context of repudiation, posed the question whether the
events which had occurred as a result of the breach:

… deprived the charterers of substantially the whole benefit which it was the intention
of the parties as expressed in the charterparty that the charterers should obtain from
the further performance of their own contractual undertakings.

In Decro-Wall International SA v Practitioners in Marketing Ltd147 Buckley LJ expressed the

test as follows:

To constitute repudiation, the threatened breach must be such as to deprive the

injured party of a substantial part of the benefit to which he is entitled under the
contract. … Will the consequences of the breach be such that it would be unfair
to the injured party to hold him to the contract and leave him to his remedy in
damages …?

Secondly, although efforts have been made to seize on the difference between ‘substantially
the whole benefit’148 and ‘a substantial part of the benefit’,149 there is less to this difference
than meets the eye. As Lord Wilberforce observed, authoritatively, in Federal Commerce
v Molena Alpha (The Nanfri, Benfri and Lorfri):150

The difference in expression between these two last formulations does not … reflect a
divergence of principle, but arises from and is related to the particular contract under
consideration: they represent, in other words, applications to different contracts, of
the common principle that, to amount to a repudiation a breach must go to the root
of the contract. …

Thirdly, although these expressions are necessarily open-textured, that is a consequence of

the need to apply them in the widest range of factual circumstances. I respectfully agree
with and adopt in this regard the following passage from Arden LJ’s judgment in Valilas
v Januzai:151

The common law adopts open-textured expressions for the principle used to
identify the cases in which one contracting party (‘the victim’) can claim that the
actions of the other contracting party justify the termination of the contract. I will
use the formulation that asks whether the victim has been deprived of substantially
the whole of the benefit of the contract. The expression ‘going to the root’ of the
contract conveys the same point: the failure must be compared with the whole of
the consideration of the contract and not just a part of it. There are other similar
expressions. I do not myself criticise the vagueness of these various expressions of the
principle since I do not consider that any satisfactory fixed rule could be formulated
in this field. …

146. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 72.
147. [1971] 1 WLR 361 at 380.
148. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26; 1 All ER 474.
149. Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361 at 380.
150. [1979] AC 757 at 779.
151. [2014] EWCA Civ 436 at [59].

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Fourthly, the starting point when considering the seriousness of the anticipated breach of
contract is the benefit the innocent party was intended to obtain from performance of the
contract.152 This intended benefit serves as the yardstick against which the divergence of
the anticipated breach is to be measured. In this regard, it is important to keep in mind
that a renunciation is not confined to an evinced unwillingness to perform the contract
at all; an evinced unwillingness to perform the contract according to its terms (whether
through inability or otherwise) may likewise amount to a renunciation if the performance
proffered is substantially inconsistent with that party’s obligations thereunder.153 Further,
renunciation may be inferred where it is apparent that the defaulting party is doing no more
than procrastinating in the hope that something may turn up.154

Fifthly, as is clear from the authorities, the test for renunciation is, mutatis mutandis,
essentially similar to that for repudiation. However, as renunciation looks to the future, it
may be inferred from both the nature and causes of past breaches (even if by themselves
insufficient or irrelevant for repudiation) and the evinced unwillingness to perform in the
future. As the test for repudiation has been equated with that for frustration,155 the same
could be said of the test for renunciation; if so, then it is to be kept in mind that:

frustration occurs whenever the law recognizes that without default of either party
a contractual obligation has become incapable of being performed because the
circumstances in which performance is called for would render it a thing radically
different from that which was undertaken by the contract. Non haec in foedera veni.
It was not this that I promised to do. 156

24.77 The above remarks are consistent with the following remarks by Lord Scarman in
Woodar Investment Development Ltd v Wimpey Construction UK Ltd:157
If an anticipatory breach is relied on, the renunciation must be ‘an intimation of an intention
to abandon and altogether to refuse performance of the contract’, or to put it in other but
equally clear words, ‘the true question is whether the acts and conduct of the party evince an
intention no longer to be bound by the contract’. … The emphasis upon communication of
the party’s intention by his acts and conduct is a recurring theme in the abundant case law.

24.78 In relation to the development of the concept of anticipatory breach, in Bunge SA

v Nidera BV158 Lord Sumption said the following:
Anticipatory breach of contract, probably more accurately referred to as ‘renunciation’, is
a concept which can be traced back to the earliest years of the common law but was first
coherently formulated in terms of legal principle in Hochster v De La Tour159 in England and

152. Ampurius Nu Homes Holdings v Telford Homes [2013] 4 All ER 377 at 393–4; Koompahtoo Local Aboriginal
Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at 140.
153. Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60.
154. Forslind v Bechely-Crundall 1922 SC (HL) 173 at 191.
155. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 69.
156. Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729.
157. [1980] 1 All ER 571 at 589.
158. [2015] 3 All ER 1082 at 1088.
159. (1853) 118 ER 922.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Howie v Anderson160 in Scotland. In its modern form it is a response to the pragmatic concern
of Victorian judges to avoid the waste of economic resources implicit in any inflexible rule
which required the parties to go through the motions of performing a contract which was for
practical purposes dead. The same concern informs much of the law of contract, notably in
the area of frustration and remedies. The early rules of pleading, reflecting the terms of the
contract, had required the plaintiff in an action for damages to plead that he had tendered
performance of any obligation to be performed by him as a condition precedent to the
defaulting party’s obligation. But as Lord Campbell CJ explained in Hochster v De la Tour,161
the effect of the renunciation of a contract in advance of the time agreed for performance
was (i) to confer on the injured party an option to accept the renunciation as bringing the
contract to an end and to treat himself as discharged from that time onward from further
performance; (ii) to enable the injured party to deal with the financial consequences by suing
for damages at once, without waiting for the time fixed for performance; and (iii) to bring
forward the injured party’s duty to mitigate to the time when the renunciation was accepted.

24.79 The anticipatory breach may be established by reference to an act of abandonment of

the contract by the party concerned or by the party demonstrating an intention to fulfil in a
manner inconsistent with the obligation under the contract. Conduct amounting to repudiation
may be motivated by impossibility of performance or by an unwillingness to perform.
24.80 In Foran v Wight162 Mr and Mrs Wight contracted to sell land to Mr and Mrs Foran
on 24 December 1982. The Forans paid a deposit of 10 per cent upon entry into the contract.
A term of the contract required the Wights to register a right of way in relation to the land
prior to completion. The contractual completion date of 22 June 1983 was made of the essence.
On 20 June 1983 the Wights advised the Forans that they had not yet registered the right of
way and would not be in a position to complete the contract on the due date. In the light of
the Wights’ stated inability to complete on the due date, the Forans abandoned their efforts to
secure the necessary finance for completion. On 22 June 1983 the Forans did not attempt to
perform their obligation under the contract of tendering the balance of the purchase price. On
24 June 1983, the Forans purported to terminate the contract. The Wights denied the validity
of the termination notice on the ground that the Forans would not have been able to raise
the necessary finance to complete the purchase on 22 June 1983. After having the right of
way registered on 22 July 1983, the Wights unsuccessfully sought to enforce completion of
the contract by the Forans. The Wights then purported to terminate the contract. The Wights
subsequently sold the property to other purchasers. The dispute between the parties was as to
whether the Forans had validly terminated the contract and were therefore entitled to a refund
of the deposit. If the termination was invalid, the Wights were entitled to forfeit the deposit on
account of the Forans’ failure to complete the purchase of the property.
24.81 The High Court held that even though the Forans failed to tender performance or
were not ready and able to complete on the contractual date for performance, the Wights’
anticipatory breach was converted by repudiation into an actual breach, entitling the Forans
to terminate. Brennan J held that an intimation of non-performance of an essential term

160. (1848) 10 D 355.

161. (1853) 2 E & B 678.
162. (1989) 168 CLR 385; 88 ALR 413.

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amounted to repudiation, which releases a party who acts on it from performance. This party
does not have to terminate the contract. Brennan J163 said:
When a party gives an intimation of non-performance to another and the other acts upon
it, the other is dispensed from performing his obligation but if the other would not have
completed his obligation in any event, liability for breach cannot be visited on the party who
gave the intimation.

24.82 Deane and Dawson JJ said the applicable principle was estoppel by conduct. The
Wights had indicated in advance that they would not be settling and this led the Forans to alter
their positions, with the consequence that it would be inequitable to allow the Wights to take
advantage of this situation. Gaudron J decided the issue on the principles of waiver and held
that the Wights had waived their rights.
24.83 In Ryder v Frohlich164 Ryder was an investment banker and Protected Equity Investments
Pty Ltd (Protected), was a private company wholly owned by Ryder’s family trust. Frohlich was
also an investment banker and Coastal Capital Ltd (Coastal) was his family company. Ryder
was a director, but not shareholder, of Coastal. In early 1999 Frohlich and Ryder agreed to
create an ‘absolute return’ investment fund and to attract subscribers to it, and in June 2000 the
Coastal Magma Diversified Performance Fund (the Diversified Fund) was established. Coastal
was the ‘responsible entity’ for the Diversified Fund. Ryder contributed equally with Frohlich
to the establishment of the Diversified Fund and to attracting subscribers to it until March
2001. As at March 2001 the Diversified Fund had not made a profit and as a consequence
Ryder decided to take full-time employment with Salomon Barney Smith (Salomons). Due to
Frohlich’s efforts in attracting additional subscribers, investment capital in the Diversified Fund
rose substantially between March 2001, when Ryder left to work for Salomons, and the time of
the court proceedings. Ryder played no part in attracting the additional subscribers. The trial
judge found that a partnership existed between Ryder and Frohlich, a fundamental term of
which was that Ryder and Frohlich would contribute equally in terms of time and effort to the
establishment of the Diversified Fund, to advising in respect to it, and to attracting subscribers
to it. His Honour held that that partnership had been dissolved when Ryder went to work
for Salomons. Ryder appealed to the New South Wales Court of Appeal, which dismissed the
appeal and affirmed that the partnership had been terminated by Ryder’s anticipatory breach
and Frohlich’s acceptance of that breach by his agreement to Ryder’s departure.
24.84 In the Court of Appeal165 McColl JA cited with approval Lord Porter’s speech in
Heyman v Darwins Ltd,166 where his Lordship said:
The three sets of circumstances giving rise to a discharge of contract are … :

(1) renunciation by a party of his liabilities under it;

(2) impossibility created by his own act; and
(3) total or partial failure of performance, …

163. Foran v Wight (1989) 168 CLR 385 at 426; 88 ALR 413 at 442.
164. [2004] NSWCA 472.
165. Ryder v Frohlich [2004] NSWCA 472 at [104].
166. [1942] AC 356 at 397.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

[A]ll these acts may be compendiously described as repudiation, though that expression is
more particularly used of renunciation before the time for performance has arrived.

24.85 McColl JA also noted that in Universal Cargo Carriers Corporation v Citati167 Devlin J,
after referring to the three illustrations given by Lord Porter, said that ‘[t]he third of these is
the ordinary case of actual breach and the first two state the two modes of anticipatory breach’.
24.86 In Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd,168 Bathurst CJ described
repudiation as an unwillingness or inability to render substantial performance of a contract,
and observed that the test of whether repudiation has occurred is whether there has been
conduct that would convey to a reasonable person repudiation of the contract as a whole or of
a fundamental obligation under it.

TERMINATION AND ITS EFFECTS

24.87 Termination of a contract at common law for a failure by a party to perform his or
her contractual obligations requires an election by some unequivocal words or conduct to
terminate the contract. In most cases this is done by means of service of a notice of termination
upon the party in breach.
24.88 A notice of termination must be expressed in sufficiently clear terms such that a
reasonable person would understand the notice to be one terminating the contract.169 Thus, in
Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd170 the alleged notice of termination was a letter
headed ‘Notice to Vacate the Premises’, which went on to state that the ‘Landlord’s solicitor
has advised us that you are in breach of your lease’ and further stated that ‘you are in breach
of your lease and we have been instructed to terminate this current lease’. The court held that
this was not an effective termination of the lease. The letter merely stated that the landlord had
given instructions to terminate the lease. Furthermore, the letter did not state that the lease was
terminated forthwith, nor did it contain any demand for immediate possession of the premises.
Sackville AJA171 reaffirmed the basic proposition that ‘an election to terminate a contract for
repudiation or fundamental breach must be communicated by an unequivocal act or statement
that the innocent party is treating the contract as at an end’.
24.89 If a party terminates a contract and the stated ground is not a valid reason to terminate,
but there are other grounds of justification, the termination will be valid even if the promisee was
not aware of the justified reasons to terminate at the time he or she terminated the contract.172
Thus, in Sunbird Plaza Pty Ltd v Maloney173 Mason CJ said:

167. [1957] 2 QB 401 at 436; [1957] 2 All ER 70 at 84.

168. [2012] NSWCA 184 at [179]–[180].
169. Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 768; Ryder v Frohlich [2004]
NSWCA 472 at [117]–[120]; State of New South Wales v Shaw (2015) 97 NSWLR 169 at 202.
170. [2010] NSWCA 374.
171. Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2010] NSWCA 374 at [56].
172. Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 377; Downer EDI Ltd v Gillies [2012]
NSWCA 333 at [131]; Gramotnev v Queensland University of Technology [2019] QCA 108 at [207].
173. (1988) 166 CLR 245 at 262.

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Shepherd v Felt & Textiles of Australia Ltd stands as authority for the general proposition
174

that a termination of a contract may be justified by reference to any ground that was valid
at the time of termination, even though it was not relied on at the time and even though the
ground actually relied on is found to be without substance.

24.90 However, in such cases, the other right to terminate must exist at the time termination
took place. In cases of independent obligations, it may be the case that the right to terminate
may only have arisen after the purported termination took place. As was pointed out by Gleeson JA
in Bibby Financial Services Australia Pty Ltd v Sharma,175 ‘in the case of independent rights of
termination, a promisee who purports to terminate on one contractual basis, cannot rely upon
a contractual right to terminate which would have come into existence at a later date’.
24.91 The effect of termination is that it discharges both parties from their future obligations
under the contract. Obligations that were to be performed prior to the terminating breach are
enforceable. In McDonald v Dennys Lascelles Ltd,176 Dixon J outlined the position as follows:
Both parties are discharged from the further performance of the contract, but rights are
not divested or discharged which have already been unconditionally acquired. Rights and
obligations which arise from the partial execution of the contract and causes of action which
have accrued from its breach alike continue unaffected … [W]hen a contract … is dissolved
at the election of one party because the other has not observed an essential condition or has
committed a breach going to its root, the contract is determined so far as it is executory only
and the party in default is liable for damages for his breach.

24.92 Termination pursuant to a contractual right to terminate is governed by the procedures

set out in the contract. If the contract is silent on what is required to be done to terminate the
contract, the common law right to terminate for a failure to perform applies. The effect of a
contractual right to terminate is that it discharges both parties from their future obligations
under the contract.
24.93 In the context of repudiation, for termination to occur the repudiation must be
accepted by the innocent party. To achieve this, ‘all that is required … is for the injured party
to communicate clearly and unequivocally his intention to treat the contract as discharged’.177
24.94 Acceptance of the repudiation can also occur through equally unequivocal conduct by
the injured party.178 Prior to acceptance of the repudiation, the party in breach may be able to
retract the repudiation and insist upon performance of the contract. However, for retraction
to occur, the party in breach must give notice of the retraction and the circumstances must be
such that it is, at the time of the retraction, reasonable for the innocent party to be expected
to be able to perform the contract.179 The effect of acceptance of the repudiation is that both
parties are discharged from their future obligations under the contract.180

174. (1931) 45 CLR 359.

175. [2014] NSWCA 37 at [126].
176. (1933) 48 CLR 457 at 476–7.
177. Stocznia Golynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 46.
178. Vitol SA v Norelf Ltd [1996] AC 800 at 810–11; [1996] 3 All ER 193 at 200.
179. Foran v Wight (1989) 168 CLR 385; 88 ALR 413; Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 298.
180. Stocznia Golynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 41.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

24.95 A question arises in the context of anticipatory breach as to whether termination

by acceptance of anticipatory breach requires the assent of all the parties to the contract in
circumstances where only one of two jointly liable parties to a contract repudiated. In Net Parts
International Pty Ltd v Kenoss Pty Ltd181 the Court of Appeal in New South Wales held that dicta
in the High Court decision in Lion White Lead Ltd v Rogers182 was authority for the proposition
that termination by acceptance of an anticipatory breach requires the assent of all the parties to
a contract, at least where the non-assenting party is a joint (but not several) contracting party.

RESTRICTIONS ON A PARTY’S ABILITY TO

TERMINATE A CONTRACT
24.96 A party who has a prima facie right to terminate a contract may, nevertheless, be
precluded from exercising that right for a number of reasons, including:
• that party is in breach of the contract or not ready, willing, and able to perform;
• that party has elected not to terminate the contract;
• that party has not acted in good faith; or
• the equitable doctrine of relief against forfeiture precludes that party from terminating the
contract.

Party not ready, willing, and able or in breach

24.97 A party who is unable or unwilling to perform his or her obligations under a
contract is not able to exercise common law rights to terminate for a breach by the other
contracting party. This is so even if the other party’s breach is one that would otherwise justify
termination of the contract.183 In this regard it is important to identify whether the contract
provides for contemporaneous performance of contractual obligations. If this is the case,
then each contracting party must tender performance and it is not until one party fails to
tender performance that a breach occurs. Where such a tender of performance is not required
under the contract, the party who elects to terminate must nevertheless demonstrate that they
were ready and willing to perform in substance at the time of termination. With respect to
anticipatory breach, the party terminating the contract does not have to show that he or she
would have been ready to perform on the day performance was due. However, they must show
that at the time of termination they were not already unwilling or unable to perform.184 Thus,
in Amaya v Everest Property Holdings Pty Ltd185 the facts concerned contacts for sale in which
purchasers had failed to comply with notices to complete issued by the vendor in relation to
three separate contracts. The vendor then terminated the contracts. The three purchasers
challenged the validity of the terminations on the basis that the vendor was not, as a matter of
fact, ready, willing, and able to complete on the date stipulated in the notices to complete. This
was true, in that the vendor had not arranged for all the necessary documentation necessary

181. [2008] NSWCA 324 at [17]–[29].

182. (1918) 25 CLR 533.
183. DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 433; 19 ALR 223 at 231; Barrak
Corporation Pty Ltd v Jaswil Properties Pty Ltd [2016] NSWCA 32 at [48], [59].
184. Foran v Wight (1989) 168 CLR 385 at 408, 430–1, 452; 88 ALR 413 at ALR 428, 444, 460–1.
185. [2010] NSWCA 315.

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for settlement on the said date. The Court of Appeal held that the vendor would not need to be
actually ready, willing, and able to settle on the relevant date if:
• the purchasers had sufficiently intimated that they would not be attending settlement, and
• the vendor had acted on that intimation by not getting ready to settle on the due date.
Only if both these requirements were established on the facts, would the vendor be excused
from being ready, willing, and able and thereby entitled to terminate the contracts. On the facts,
this was found to be the case in relation to two of the contracts, but not the third.186
24.98 The right to terminate where both parties to a contract commit a terminating breach,
depends on the order in which the breaches occurred. If party A’s breach is followed by party
B’s breach, party B has the right to terminate the contract because party B had not breached the
contract at the time party A did.
24.99 In relation to the situation where party A, having already committed a terminating breach
of the contract, seeks to terminate the contract for party B’s subsequent terminating breach of the
contract, it is suggested that if party B had affirmed the contract after party A’s breach, then party
A can terminate the contract for party B’s subsequent breach. This is so because affirmation of
the contract by party B leaves the primary obligations of both parties unchanged and the contract
remains in existence for the benefit of both parties. As a result, party A should be able to terminate
if party B subsequently commits a terminating breach of the contract.187
24.100 In relation to a contractual right to terminate, the question of whether the terminating
party has also to be ready, willing, and able to perform has been the subject of doubt and
controversy. However, in Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd188 Perram J held that
existing authority on the issue did not support the proposition that a contractual right to
terminate required the terminating party to be free of any breach of wrongful conduct in order
to be able to terminate the contract pursuant to a contractual right to do so.
24.101 Finally, it can be noted that if one party to a contract has committed a terminating breach,
the other is not precluded from exercising his or her right to terminate merely because he or she has
committed a non-terminating breach of the contract. In this context the rule applies irrespective of
whether the terminating party’s breach is an actual or anticipatory breach.189 A party in breach can
terminate a contract, despite its own breach unless the obligations breached are interdependent or
the breach by the party wishing to terminate has caused the breach that the party wishes to rely on.190

Election
24.102 The decision in Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd (No 2)191
contains the following non-exhaustive summary by Kenneth Martin J of the principles relating
to election:

186. For a critique of this decision see, R Angyal SC, ‘Ready, Willing and Able, Court Makes New Law on
Notices to Complete’ (2011) 49(2) Law Society Journal 66.
187. State Trading Corporation of India v M Golodetz Ltd [1989] 2 Lloyd’s Rep 277 at 286.
188. (2009) 178 FCR 57 at 68–72.
189. Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 at [73], [78]; Sharjade Pty Ltd v The
Commonwealth (2009) NSWCA 373 at [174]; Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd
(1997) 42 NSWLR 462 at 479.
190. Sharjade Pty Ltd v The Commonwealth (2009) NSWCA 373 at [56].
191. [2020] WASC 14 at [257].
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1. An act amounting to an election between inconsistent rights must be unequivocal.

2. The electing party should know of the facts which give rise to their right to elect between
alternative rights, or at least be taken to have known of such facts.
3. Notwithstanding principle 2 above, the nature of a curial assessment of conduct that is
alleged to constitute an election as between inconsistent rights is always an objective one.
The assessment made is never subjective as regards what the electing party actually knew.
4. Concerning a party electing as between alternative rights conferred under a contract
and correlative questions over delay in exercising a contractual right, Jordan CJ in
O’Connor192 … said this:
… where there has been no intimation of avoidance, the question whether
delay, after knowledge of the facts giving rise to avoidability, or things said or
acts done during the delay, constitute such an election to go on with the contract
as puts an end to the right to avoid, depends upon ‘the length of the delay and
the nature of the acts done during the interval, which might affect either party,
and cause a balance of justice or injustice in taking the one course or the other, so
far as relates to the remedy’. (my emphasis in bold) …

5. The effects of a delay resulting from a party not exercising a contractual right to avoid
(a contract) must be assessed by reference to such period of delay viewed within the
bespoke context of the particular contract whose terms provide the underlying subject
matter. …
6. An election as between inconsistent rights, once made and communicated, is irrevocable.
7. An election made as between inconsistent rights needs to be communicated by the
electing party to the recipient party.
8. The party confronted with a choice as between the exercise of alternative and inconsistent
rights is not bound to elect at once. That party is entitled to keep the question open, so
long as they do not affirm the contract and do not cause prejudice to the other party.
9. Words or conduct which do not communicate an exercise of a right to choose as between
alternative rights or remedy, but merely involve the recognition of a contract, will not
amount to an election to affirm the contract.
10. The essence of a common law election made as between inconsistent rights, requires the
electing party to be ‘confronted’ with mutually exclusive courses of action as between
which that party must in fairness to the other party, make their choice. …
11. As demonstrated in the facts underlying the decision in Immer,193 the confrontation,
which in turn generates the necessity for a party making a choice as between inconsistent
rights, is not merely the act of affirming the agreement involved, but is as well the
abandonment by that party of the other right … .
12. An abandonment will be more readily inferred in certain circumstances such as, for
instance, where the required choice arises once and for all. Again, as stated by the
plurality in Immer:194
… The point is that where the right to rescind is a continuing one, it is not
so readily concluded that the party entitled to rescind has abandoned that right
completely as opposed to taking no action to exercise the right at the time in
question. (my emphasis in bold)

192. O’Connor v S P Bray Ltd (1936) 36 SR (NSW) 248 at 261.

193. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26.
194. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 42.

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See also Brennan J in Immer: 195

… Where a contract can be terminated at the option of a promisee, the right to

terminate is not necessarily lost by the promisee doing any act consistent with the
continuance of the contract. If the act is also consistent with the reservation of
a right to terminate in certain events, the right to terminate is not lost by doing
the act. …

13. In Immer,196 the plurality drew attention to earlier remarks by Mason J (as his Honour
then was) in Sargent.197 Mason J198 had observed, concerning elements essential towards
assessing a party’s binding election, that:

The question is complicated because in some instances election may take place
as a matter of conscious choice with knowledge of the existence of the alternative
right and in other cases it may occur when the law attributes the character of an
election to the conduct of a party.

The plurality in Immer199 clarified Mason J’s observation, … saying:

But, in drawing this distinction, Mason J was focusing on the dichotomy between
awareness of the right to rescind and awareness of the facts giving rise to the right.
We do not read that passage from his Honour’s judgment as implying that a party
to a contract who is aware either of the right to rescind or of facts giving rise to a
right to rescind will necessarily be held to have elected to affirm a contract if he
or she acts on the basis that the contract remains on foot. Such an implication
is at odds with the notion of being confronted with the necessity of making a
choice. In the present case it cannot truly be said that Immer was confronted
with the necessity of making a choice at the time the letter in question was
written, even less that it was abandoning for all time its rights under cl 7 of the
deed. (my emphasis in bold)

14. The Immer200 plurality left open ‘[t]he precise roles which a mistake in the mind of a party
said to have made an election and an awareness by the other party of that misapprehension
will play in this context’ as the Immer appeal did not call for a consideration of that
question.

24.103 In Capitanio v PPG Developments Pty Ltd,201 Lovell J said:

Election involves the abandonment of a right that is available. Once a party is confronted
with a choice between two inconsistent legal rights he or she must, in fairness to the other
party, make his or her choice. … A party is bound to elect as between the inconsistent rights
…

195. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 30.
196. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 42.
197. Sargent v ASL Developments Ltd (1974) 131 CLR 634.
198. Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 656.
199. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 42.
200. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 43.
201. [2018] SASC 54 at [34].

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24.104 If the innocent party elects to terminate the contract he or she is thereafter bound
by that election.202 However, the innocent party may also elect not to terminate the contract,
but rather to affirm it.203 Once he or she has so elected, he or she cannot later seek to terminate
the contract. Whether the innocent party has elected to terminate or affirm the contract is a
question of fact.204
24.105 In Bibby Financial Services Australia Pty Ltd v Sharma205 Gleeson JA said:
An election occurs where a person has two truly alternative rights or sets of rights and with
knowledge of the facts giving rise to the inconsistent rights acts in a manner consistent only
with the exercise of one of those rights and inconsistent with the exercise of the other.

24.106 In Sargent v ASL Developments Ltd206 Mason J said the following in relation to election:
It will make for greater certainty, therefore, if the present cases are regarded as cases of
election. A person is said to have a right of election when events occur which enable him to
exercise alternative and inconsistent rights, ie when he has the right to determine an estate
or terminate a contract for breach of covenant or contract and the alternative right to insist
on the continuation of the estate or the performance of the contract. It matters not whether
the right to terminate the contract is conferred by the contract or arises at common law for
fundamental breach — in each instance the alternative right to insist on performance creates
a right of election.

Essential to the making of an election is communication to the party affected by words or

conduct of the choice thereby made and it is accepted that once an election is made it cannot
be retracted. … No doubt this rule has been adopted in the interests of certainty and because
it has been thought to be fair as between the parties that the person affected is entitled to
know where he stands and that the person electing should not have the opportunity of
changing his election and subjecting his adversary to different obligations.

A person confronted with a choice between the exercise of alternative and inconsistent rights
is not bound to elect at once. He may keep the question open, so long as he does not affirm
the contract or continuance of the estate and so long as the delay does not cause prejudice to
the other side. An election takes place when the conduct of the party is such that it would be
justifiable only if an election had been made one way or the other. … So, words or conduct
which do not constitute the exercise of a right conferred by or under a contract and merely
involve a recognition of the contract may not amount to an election to affirm the contract.

24.107 In relation to the requirement of communication referred to by Mason J, it is clear

that the innocent party can only be said to have elected if he or she has communication his or
her election to the other party in clear and unequivocal terms.207

202. Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 at 733.
203. Altan Mehmet v Nikitas Kesidis [2009] NSWSC 1087 at [7]–[12].
204. Capitanio v PPG Developments Pty Ltd [2018] SASC 54 at [37].
205. [2014] NSWCA 37 at [115].
206. (1974) 131 CLR 634 at 655–6.
207. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39;
Cong Xu v Austino Property Developments Pty Ltd [2013] NSWSC 1177 at [34].

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24.108 As was pointed out by Sackar J in Yogesh Enterprises Pty Ltd v Jury,208 before an election
can be said to have been made between two inconsistent rights, the elector ‘must at least know
of the material facts that give rise to those legal rights as between which an election can be
made’.
24.109 In relation to conduct amounting to an election to affirm a contract, in Immer
(No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW)209 Brennan J said:
A basic requirement of an election between alternative rights arising under a contract is that
the party electing should know the facts which gave rise to those rights or, perhaps, at least be
taken to have known of those facts. … An act amounting to an election must be unequivocal.
Where a contract can be terminated at the option of a promisee, the right to terminate is
not necessarily lost by the promisee doing any act consistent with the continuance of the
contract. If the act is also consistent with the reservation of a right to terminate in certain
events, the right to terminate is not lost by the doing of the act.

24.110 In Ailakis v Olivero (No 2)210 Martin CJ said:

In assessing the consequences of an election to affirm a contract after breach, there
is a vital distinction between those cases in which the election occurs after an act or
omission which constitutes a single breach, and those cases in which the conduct of the
party in breach manifests a continuing intention not to be bound by the contract, and
thereby constitutes a continuing repudiatory breach. In cases falling within the former
category, an election to affirm the contract will result in the loss of the right to accept a
breach as bringing the contract to an end at any time thereafter. However, in cases falling
within the latter category, if the conduct of the party in breach manifests a continuing
intention not to be bound by the contract, unless and until the party in breach retracts its
implicit or express assertion to the effect that it is not bound by the contract and agrees
to perform its terms, the innocent party can at any time accept the breach and bring the
contract to an end.

24.111 Thus, in Ogle v Comboyuro Investments Pty Ltd211 it was held that even though a
vendor may have commenced proceedings for a decree of specific performance of a contract
for the sale of land where time is of the essence, he or she has not necessarily lost the right to
terminate the contract for the purchaser’s breach. This is so because, if there is an ongoing
failure of the purchaser to perform, it may have the consequence that the vendor may have to
sell the land to another person and thus lose his or her right to specific performance. However,
the vendor may still retain the right to terminate the contract and seek damages. Furthermore,
even if the vendor in such a case obtains an order for specific performance, he or she may,
with the approval of the court, elect to have the contract terminated. In Johnson v Agnew212
Lord Wilberforce said:
Election, though the subject of much learning and refinement, is in the end a doctrine based
on simple considerations of common sense and equity. It is easy to see that a party who

208. [2011] NSWSC 131 at [33].

209. (1993) 182 CLR 26 at 30; 112 ALR 609 at 611.
210. [2014] WASCA 127 at [115].
211. (1976) 136 CLR 444; 9 ALR 309.
212. [1980] AC 367 at 398; [1979] 1 All ER 883 at 894.

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has chosen to put an end to a contract by accepting the other party’s repudiation cannot
afterwards seek specific performance. This is simply because the contract has gone — what
is dead is dead. But it is no more difficult to agree that a party, who has chosen to seek
specific performance, may quite well thereafter, if specific performance fails to be realised,
say, ‘Very well, then, the contract should be regarded as terminated.’ It is quite consistent
with a decision provisionally to keep alive, to say, ‘Well, this is no use — let us now end the
contract’s life’. A vendor who seeks (and gets) specific performance is merely electing for a
course which may or may not lead to implementation of the contract — what he elects for is
not eternal and unconditional affirmation, but a continuance of the contract under control
of the court which control involves the power, in certain events, to terminate it. If he makes
an election at all, he does so when he decides not to proceed under the order for specific
performance, but to ask the court to terminate the contract

24.112 Furthermore, ‘acts consistent with the continuance of the contract but also consistent
with the reservation of a right to terminate may in certain events not amount to an election’.213
An example is when a party to a time of the essence contract grants the other party an extension
of time to perform. This will not necessarily be seen as an affirmation of the contract. On the
other hand, ‘the exercise, despite knowledge of a breach entitling one party to be discharged
from its future performance, of rights available only if the contract subsists, will constitute an
election to maintain the contract on foot’.214
24.113 Finally, words or conduct that merely recognises the existence of a contract do
not, of themselves, amount to an election to affirm the contract.215 The same applies to ‘[a]
cts maintaining a position while consideration is given to what action should be taken in
relation to the other party’s breach also fall into this category’.216 In assessing the question
of whether election by conduct has occurred, the subjective intent of the party is not
relevant.217
24.114 In Tele2 International Card Company SA v Post Office Ltd218 Aikens LJ summarised
the principles of election as follows:
(1) if a contract gives a party a right to terminate upon the occurrence of defined actions
or inactions of the other party and those actions or inactions occur, the innocent party is
entitled to exercise that right. The innocent party has to decide whether or not to do so.
Its decision is, in law, an election. (2) It is a prerequisite to the exercise of the election that
the party concerned is aware of the facts giving rise to its right and the right itself. (3) The
innocent party has to make a decision, because if it does not do so then ‘the time may come
when the law takes the decision out if [its] hands, either by holding [it] to have elected not
to exercise the right which has become available to [it], or sometimes by holding [it] to have
elected to exercise it’.219 (4) Where, with knowledge of the relevant facts, the party that has
the right to terminate the contract acts in a manner which is consistent only with it having

213. The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1 at 773.
214. Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at 589; 251 ALR 322 at 336.
215. Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 656; 4 ALR 257 at 274.
216. The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1 at 773.
217. Craine v Colonial Mutual Insurance Co Ltd (1920) 28 CLR 305 at 325.
218. [2009] EWCA Civ 9 at [53].
219. Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1
Lloyd’s Rep 391 at 398.

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chosen one or other of two alternative and inconsistent courses of action open to it (ie to
terminate or affirm the contract), then it will be held to have made its election accordingly.
(5) An election can be communicated to the other party by words or conduct. However,
in cases where it is alleged that a party has elected not to exercise a right, such as a right to
terminate a contract on the happening of defined events, it will only be held to have elected
not to exercise that right if the party ‘has so communicated [its] election to the other party
in clear and unequivocal terms’.220

24.115 In Galafassi v Kelly,221 Gleeson JA said the following in relation to the doctrine of
election:
At the heart of election is the idea of confrontation which in turn produces the necessity
of making a choice. Thus where a party, faced with the choice of terminating the contract
or keeping it on foot, terminates the contract ordinarily that conduct leaves no doubt
as to the choice being made. This is because the contract no longer exists. But … the
question is not answered so readily where the situation is the converse. This is because
a party may act on the basis that the contract remains on foot without necessarily being
confronted with the necessity of making a choice to either terminate or affirm the
contract.

This is to be contrasted with a situation of inconsistent remedies to enforce a right where

no question of election arises until one or other claim has been pursued until judgment.
The institution of proceedings for alternative remedies (including relief of an equitable
nature) is not an election by the promisee in favour of either remedy. The very purpose of
seeking alternative relief is to keep the promisee’s options open. The distinction between
alternate rights and remedies and its consequences has been described by the High Court as
‘fundamental’.222

Although an election between inconsistent rights once made is irrevocable, it does not follow
that an innocent party who seeks (and gets) specific performance is treated as affirming the
contract irrevocably so as to prevent the innocent party from later bringing the contract to
an end if the repudiating party persists in its failure to perform.

24.116 His Honour223 after examining relevant authorities then concluded as follows:
[T]he legal significance of commencing proceedings for specific performance is as follows
— a vendor who elects to sue for specific performance is not thereby precluded from later
terminating the contract and claiming damages for the continued refusal by the purchaser to
complete if the purchaser, after the institution of the proceedings, either committed a breach
of an essential term of the contract or otherwise evinced an intention to no longer be bound
by the contract.

220. Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga) [1990] 1
Lloyd’s Rep 391 at 398.
221. (2014) 87 NSWLR 119 at 135.
222. Ciavarella v Balmer (1983) 153 CLR 438 at 449.
223. Galafassi v Kelly (2014) 87 NSWLR 119 at 137.

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Termination not in good faith

24.117 The right to terminate a contract for breach is subject to an obligation to act in
good faith.224 According to Seddon and Bigwood,225 factors that have been held relevant in
determining whether a termination was in good faith include:
• the deliberation and seriousness of the breach relied on;226
• dishonest conduct by the breaching party;227
• the degree to which the relationship has been damaged;228
• the length of notice;229
• whether the terminating party was prejudiced or misinformed;230
• whether the terminating party’s conduct was a cause of the breach;231 and
• whether the terminating party was aware that specific harm would follow from termination.232

Relief against forfeiture

24.118 In many cases termination of a contract for its breach may lead the breaching party
to lose some interest in property because of his or her breach of contract, or as a result of the
contract being terminated for some other reason. However, that interest may be protected by a
court pursuant to principles relating to the equitable doctrine of relief against forfeiture. In the
context of cases involving forfeiture for non-payment of money, in Çukurova Finance Ltd v Alfa
Telecom Turkey Ltd (Nos 3 to 5)233 Lord Neuberger PSC said:
Relief from forfeiture for non-payment of money was … a creation of the Court of Chancery
born of equity’s distaste for property-owners losing their property for failing to pay money
strictly on time. Accordingly, … relief from forfeiture … involved equity extending time for
a property-owning debtor to pay money, thereby enabling it to recover that property, which
had been taken away from it lawfully (in the eyes of the common law) because of its failure
to pay in time. To invoke another well-known (if not infrequently misapplied) principle, …
[this] relief may be said to be based on the fact that equity did not generally regard time as
being of the essence of an obligation, particularly an obligation to pay money.

In Hyman v Rose234 Lord Loreburn LC said that equity’s jurisdiction here was ‘to prevent one
man from forfeiting what in fair dealings belongs to someone else, by taking advantage of a
breach from which he is not commensurately and irreparably damaged’.
24.119 Thus, the jurisdiction to relieve against forfeiture is underpinned by the principle of
unconscientiousness. Relief will be granted if it would be unconscientious to the contract to be

224. Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558.
225. Seddon and Bigwood, Cheshire and Fifoot Law of Contract, note 16 above, p 1148.
226. Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd [2000] VSC 443.
227. Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd [2000] VSC 443.
228. Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) FCA 903.
229. Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) FCA 903.
230. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.
231. Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558.
232. Walker v ANZ Banking Group Ltd (No 2) [2001] 39 ACSR 557.
233. [2015] 2 WLR 875 at 936.
234. [1912] AC 623 at 631.

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terminated. In Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd236 the Court of Appeal
235

observed that, in a case where a vendor terminates a contract following a purchaser’s breach,
relief against forfeiture is ‘appropriately conceptualized as relief against unconscientious
reliance by the Vendor on the right of termination, as opposed to relief against forfeiture of the
Purchaser’s equitable interest’. The extent of this jurisdiction was outlined in Lord Wilberforce’s
speech in Shiloh Spinners Ltd v Harding,237 where he said:
[E]quity expects men to carry out their bargains and will not let them buy their way out by
uncovenanted payment. But it is consistent with these principles that we should reaffirm
the right of courts of equity in appropriate and limited cases to relieve against forfeiture
for breach of covenant or condition where the primary object of the bargain is to secure
a stated result which can effectively be attained when the matter comes before the court,
and where the forfeiture provision is added by way of security for the production of that
result. The word ‘appropriate’ involves consideration of the conduct of the applicant for
relief, in particular whether his default was wilful, of the gravity of the breaches, and of the
disparity between the value of the property of which forfeiture is claimed as compared with
the damage caused by the breach.

24.120 In broad terms, equitable intervention on the basis of these principles relates to
circumstances involving fraud, accident, mistake, or surprise.238 In cases other than those
involving accident or mistake, one must establish that the conduct of the party seeking to
enforce the right of forfeiture has ‘in some significant respect caused or contributed’ to the
breach of contract by the other party.239
24.121 In RHG Mortgage Securities v BNY Trusts Company240 McDougall J observed that, in
order to establish a case for relief against forfeiture, a plaintiff needs to do the following:
• identify the right or rights that would be forfeited;
• identify the legal rights, the exercise of which would effect the forfeiture; and
• identify the reasons why the exercise of those legal rights would be unconscientious.
24.122 In ascertaining whether the exercise of legal rights is unconscientious, the court does
not confine its enquiry only to the conduct of the person exercising the legal right. In ING Bank
(Australia) Ltd v O’Shea241 Giles JA said:
Unconscientiousness does not mean attention is given only to the conduct of the person
exercising the right, and regard is had to the conduct of the party seeking relief and to other
matters providing the circumstances in which the unconscientiousness of the exercise of the
right must be judged. But it remains the ultimate question.

235. Stern v McArthur (1988) 165 CLR 489 at 526–7; 81 ALR 463 at 488; Greenshell NZ Ltd (in receivership)
v Kennedy Bay Mussel Co (NZ) Ltd [2016] 2 NZLR 44 at 57.
236. [2016] NSWCA 32 at [69].
237. [1973] AC 691 at 723–4; [1973] 1 All ER 90 at 101.
238. Shiloh Spinners Ltd v Harding [1973] AC 691 at 723–4; [1973] 1 All ER 90 at 101, cited with approval in
Legione v Hateley (1983) 152 CLR 406 at 424; 46 ALR 1 at 12–13; Çukurova Finance Ltd v Alfa Telecom
Turkey Ltd (Nos 3 to 5) [2015] 2 WLR 875 at 898–9.
239. Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 335; 201 ALR 359 at 373.
240. [2009] NSWSC 1432 at [137].
241. [2010] NSWCA 71 at [19].

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24.123 In the context of relief against forfeiture of rights in leases, in Greenshell NZ Ltd (in
receivership) v Kennedy Bay Mussel Co (NZ) Ltd242 Harrison and Stevens JJ in the Court of
Appeal in New Zealand, in elaborating on the principles upon which relief should be given,
said:
[T]he courts determine the appropriateness or otherwise of invoking the jurisdiction to
grant relief with reference to the particular facts of the case at hand. The broad principles
governing when such jurisdiction may be invoked can be summarised as follows:

(a) A critical question is whether B can show that it would be unconscionable for A
to insist on enforcing a clause designed as security for a primary stipulation. This
depends on whether the clause would impose a burden on the forfeiting party, or
give the party insisting on forfeiture a benefit that is excessive when compared to
that arising through the performance of the secured duty.
(b) Relief can be granted even in the absence of bad faith or improper purpose.
(c) The fact that the party seeking to enforce the contractual provision may have
some additional, collateral motivation for enforcing a security right by means of a
forfeiture clause does not of itself provide grounds for relief against forfeiture.
(d) The paradigm case for relief is where the primary object of a bargain is to secure
a stated result which can be effectively attained when the matter comes before
the court, and where the forfeiture provision is added by way of security for the
production of the result.
(e) Usually, relief will only be available if the party in default is ready and willing to
remedy that default or breach by providing the other party with the benefits the
forfeiture clause is aimed to secure.
(f) In the cases of equitable relief against forfeiture of a lease, it is no longer the case
that the doctrine is limited to non-payment of rent. Relief can be granted in relation
to other duties.

Their Honours243 then went on to say the following:

In terms of the factors guiding the exercise of discretion to grant relief, the following
considerations are likely, among others, to be relevant:

(a) the conduct of the applicant for relief (in particular, whether there was wilful
conduct leading to the breach/default);
(b) the gravity of the breach/default;
(c) the disparity between the property forfeited and damage caused by the breach;
(d) whether it is reasonable for a Court to impose relief on a party with a contractual
right to re-enter or cancel the agreement in question.

24.124 The willingness of courts to exercise their jurisdiction to relieve against forfeiture
fluctuates from time to time. In Australia the most recent High Court decision on the matter in
Tanwar Enterprises Pty Ltd v Cauchi244 suggests that the courts are currently less willing to grant
relief than in the immediately preceding decades. In that case the High Court made it clear that
a court should be reluctant to interfere with deliberately negotiated contractual rights, and that

242. [2016] 2 NZLR 44 at 58–9.

243. Greenshell NZ Ltd (in receivership) v Kennedy Bay Mussel Co (NZ) Ltd [2016] 2 NZLR 44 at 61–2.
244. (2003) 217 CLR 315 at 328; 201 ALR 359 at 368. See also Damco Nominees Pty Ltd v Moxham [2012] VSC
79 at [76].

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the jurisdiction to relieve against forfeiture does not authorise it to remake a contract into a
form that it thinks is more reasonable or fair. Furthermore, the High Court stated that a court
will not intervene where some supervening event operates more to the advantage of one party
than the other, and the event was one for which the parties might have made, but did not make,
some express provision. The High Court went on to approve a comment made by Mason CJ
in Stern v McArthur,245 where his Honour said that ‘the jurisdiction to grant relief against
forfeiture does not authorize a court to reshape contractual relations into a form the court
thinks more reasonable or fair where subsequent events have rendered one side’s situation more
favourable’. On the other hand, the parties to a contract cannot oust the jurisdiction to relieve
against forfeiture by including an express term to that effect in their contract.246
24.125 Although the principle of relief against forfeiture can apply in a number of contexts,
this chapter will confine its analysis to contracts for the sale of land where a purchaser seeks
relief against forfeiture of his or her interest following termination of the contract by a vendor.
24.126 In this context, relief against forfeiture will be permitted if it would be unconscientious
for the defaulting purchaser to lose his or her interest in land as a result of the termination of the
contract by the vendor. In such cases the defaulting purchaser will seek the remedy of specific
performance rather than relief against forfeiture, because at that time, the contract having been
validly terminated by the vendor, the purchaser no longer has any interest — the vendor has
already forfeited the interest. The logical consequence is that the purchaser cannot seek relief
against forfeiture of a non-existent interest. He or she must seek specific performance of the
contract.247 In determining whether the contract should be specifically enforced, the court will
need to ascertain whether it was, in all the circumstances, unconscientious for the vendor to
have forfeited the purchaser’s interest.
24.127 A common example of the operation of these principles arises in cases where the
purchaser has failed to complete a transaction within the time stated in an essential contractual
time stipulation and the vendor subsequently terminates the contract. In Union Eagle Ltd
v Golden Achievement Ltd248 the House of Lords rejected a purchaser’s application for specific
performance in circumstances where the vendor had terminated the contract after the purchaser
was late by 10 minutes in seeking to tender the balance of the purchase price in circumstances
where the contract provided that time was of the essence. This aspect of the decision has been
criticised by Stevens249 as follows:
It seems unconscionable that a failure to comply with a time stipulation by a mere 10 minutes
should entitle the vendor to both the benefit of the substantial deposit and immediate resale
at a higher price. The degree of fault on the part of the purchaser is slight compared to
the detriment he will suffer. … In such circumstances the only reason why a vendor would
want to [terminate], rather than accept performance tendered almost immediately after the
appointed time, is that he anticipates obtaining an increased price by reselling his asset, and
the breach is exploited to escape the bargain originally entered. … It is suggested that a

245. Stern v McArthur (1988) 165 CLR 489 at 503; 81 ALR 463 at 471.
246. Federal Airports Corporation v Makucha Developments Pty Ltd (1993) 115 ALR 679 at 700.
247. Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 334–5; 201 ALR 359 at 372–3.
248. [1997] AC 514; [1997] 2 All ER 215.
249. J Stevens, ‘Having Your Cake and Eating it? Union Eagle Ltd v Golden Achievement Ltd’ (1998) 61 Modern
Law Review 255 at 260.

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purchaser who has tendered performance a de minimis period of time after it was due should
be entitled to seek equitable relief against forfeiture of his deposit if it can be shown that the
vendor has not in fact suffered any loss as a result of the failure to perform on time, which
would prima facie be the case if he resold the property at a profit.

24.128 Nevertheless, in very similar circumstances in Rick Dees Ltd v Larsen250 the
New Zealand Supreme Court followed the approach of the House of Lords in Union Eagle Ltd
v Golden Achievement Ltd.251
24.129 The leading Australian authority in this context is Tanwar Enterprises Pty Ltd
v Cauchi.252 In that case a purchaser of land pursuant to three separate contracts was granted
two lengthy extensions of time to complete the transactions. A further date was agreed on for
completion, with time being of the essence. The purchaser failed to complete on this date and
the vendors terminated the contracts. The purchaser’s failure to complete was due to delay in
getting finance in place to complete the transactions. The purchaser was, however, in a position
to complete the contracts on the next day. The purchaser sought specific performance of the
contracts. The High Court unanimously ruled against the purchaser. In the joint judgment of
Gleeson CJ, and McHugh, Gummow, Hayne, and Heydon JJ253 their Honours said that there was
nothing unconscientious in the vendors being able to terminate the contract for the purchaser’s
failure to comply with an essential time stipulation. They also noted that, in broad terms, such
unconscientious conduct arose in circumstances involving fraud, accident, mistake, or surprise,
and that in cases other than those involving accident or mistake, the conduct of the vendor had
to have ‘in some significant respect caused or contributed’ to the breach of contract by the other
party. On the facts of the case there was no such conduct by the vendors.
24.130 Their Honours254 noted that ‘the court will not readily intervene against the loss
of a contract for sale validly [terminated] by the vendor for breach of an essential condition’.
In this respect their Honours referred to the outcome of the earlier case of Union Eagle Ltd
v Golden Achievement Ltd.255 Although their Honours recognised that the English courts were
less flexible in applying relevant principles in this area of the law, they were in agreement with
the sentiments expressed by Lord Hoffmann,256 where his Lordship observed that it was a
‘beguiling heresy’ to suggest that the jurisdiction to relieve against forfeiture was ‘unlimited
and unfettered’ and then continued as follows:
It is worth pausing to notice why it continues to beguile and why it is a heresy. It has the
obvious merit of allowing the court to impose what it considers to be a fair solution in the
individual case. The principle that equity will restrain the enforcement of legal rights when it
would be unconscionable to insist upon them has an attractive breadth. But the reasons why
the courts have rejected such generalisations are founded … upon practical considerations of
business. These are, in summary, that in many forms of transaction it is of great importance
that if something happens for which the contract has made express provision, the parties

250. [2007] 3 NZLR 577.

251. [1997] AC 514; [1997] 2 All ER 215.
252. (2003) 217 CLR 315; 201 ALR 359.
253. Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 336; 201 ALR 359 at 373.
254. Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 328; 201 ALR 359 at 368.
255. [1997] AC 514; [1997] 2 All ER 215.
256. Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 at 519; [1997] 2 All ER 215 at 218–9.

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should know with certainty that the terms of the contract will be enforced. The existence of
an undefined discretion to refuse to enforce the contract on the ground that this would be
‘unconscionable’ is sufficient to create uncertainty. Even if it is most unlikely that a discretion
to grant relief will be exercised, its mere existence enables litigation to be employed as a
negotiating tactic. The realities of commercial life are that this may cause injustice which
cannot be fully compensated by the ultimate decision in the case.

24.131 Lord Hoffmann257 then said the following in relation to the vendor’s right to terminate
a contract for breach of an essential term:
Its purpose is … to restore to the vendor his freedom to deal with his land as he pleases. In
a rising market, such a right may be valuable but volatile. Their Lordships think that in such
circumstances a vendor should be able to know with reasonable certainty whether he may
resell the land or not.

24.132 Finally, in Tanwar Enterprises Pty Ltd v Cauchi258 their Honours observed that mere
supervening events and changes in circumstances are insufficient to render forfeiture by a
vendor unconscientious.
24.133 As already noted, in cases where fraud or surprise are the grounds on which
unconscientiousness is based, the vendor must have caused or contributed to the purchaser’s
breach. In Tanwar Enterprises Pty Ltd v Cauchi259 the High Court referred to and explained the
decision in the earlier case of Legione v Hateley260 as being an instance of surprise. In that case,
on the basis of somewhat uncertain statements made by the office of the vendors’ solicitors, the
purchasers were lulled into a belief that the vendors would accept completion of the contract
if it occurred within a couple of days of the due date for completion, time being of the essence
in respect of that date. In these circumstances, the High Court ruled that the forfeiture by the
vendors was unconscientious.
24.134 In establishing unconscientiousness based on fraud or surprise the conduct by the
vendor will in many cases give rise to a separate cause of action in favour of the purchaser
— for example, it may constitute a vitiating factor such as a misrepresentation,261 mistake,262
and undue influence,263 or it may give rise to a claim based upon the principles of equitable
estoppel.264 However, it is clear from the decision in Legione v Hateley265 that the conduct of the
vendor does not of itself have to give rise to a cause of action. In that case, notwithstanding that
the vendors’ conduct did not give rise to an estoppel, the purchasers succeeded in establishing
that the vendors’ forfeiture was unconscientious.

257. Union Eagle v Golden Achievement [1997] AC 514 at 520; [1997] 2 All ER 215 at 220.
258. (2003) 217 CLR 315 at 328; 201 ALR 359 at 369.
259. (2003) 217 CLR 315 at 335–6; 201 ALR 359 at 374.
260. (1983) 152 CLR 406; 46 ALR 1.
261. See Chapter 14.
262. See Chapter 16.
263. See Chapter 18.
264. See Chapter 36.
265. (1983) 152 CLR 406; 46 ALR 1.

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INTRODUCTION
25.1 An event may occur between the making of a contract and its performance that makes
performance of the contract substantially different from what the parties agreed, or that makes
performance impossible. In such cases there may be no fault or pre-knowledge by either party
of that supervening event. In these circumstances the contract will be regarded as having been
frustrated and is, thus, automatically terminated from the time of the supervening event.1 As
a consequence, the parties do not have to perform any future obligations that they would have
been required to perform had the contract been carried out. The event which brings about such
a change to the circumstances is known as a ‘frustrating event’.
25.2 Historically, contract law did not have a doctrine of frustration. A radical change of
circumstances did not affect the contract at all. Thus, in Paradine v Jane2 the court expressed
the view that, even in the event of some unforeseen circumstances, parties are bound by the
obligations under a contract because they could have made provision in the contract to govern
what would happen in case of such circumstances. The doctrine of frustration began to develop
with the decision in Taylor v Caldwell.3 In that case there was a contract for the hiring of the
Surrey Gardens and Music Hall to stage grand concerts over four nights during the summer of
1861. Before the first day of the first concert the hall was destroyed by fire. The court held that
this event excused the parties from performance of their contractual obligations.
25.3 Taylor v Caldwell4 was treated as an exception to the general principle in Paradine v Jane5
until the early decades of the 20th century. A further erosion of the principle in Paradine v Jane6
occurred in Jackson v Union Marine Insurance Company.7 This was an important case, as it

1. Hirji Mulji v Cheong Yue Steamship Ltd [1926] AC 497 at 505; Planet Kids Ltd v Auckland Council [2014]
1 NZLR 149 at 169.
2. (1648) 82 ER 897.
3. (1863) 122 ER 309. For a detailed study of this case see C MacMillan, ‘Taylor v Caldwell (1863)’, in
C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Contract, Hart Publishing, Oxford, 2008,
pp 167–203.
4. (1863) 122 ER 309.
5. (1648) 82 ER 897.
6. (1648) 82 ER 897.
7. (1873) LR 8 CP 572.

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was in a clearly commercial context. The facts involved an insurance contract of a commercial
cargo ship.
25.4 However, the doctrine of frustration only became firmly entrenched as part of
the common law following to so-called ‘Coronation Cases’ that arose in the wake of the
postponement of celebrations marking the coronation of Edward VII and the flood of cases
arising from interruptions to commercial activity that flowed from the outbreak and course of
World War I.
25.5 Events such as the global financial crisis in 2007–08, the increase in counter-terrorism
measures, the Fijian constitutional crisis, and the earthquakes in in New Zealand created
disruptive conditions for the fulfillment of contractual obligations. With the impact in Australia
of the widespread bushfires in late 2019 and the early months of 2020 and the worldwide
impact of the coronavirus COVID-19 and of legislative reaction to that pandemic, it will not be
surprising to see a resurgence of arguments orientated around the application of the doctrine
of frustration to contracts that came into existence before those events occurred. Such events,
often unforeseeable in the beginning, can and have rendered changes to circumstances in
which contractual obligations are to be performed. The result may be that a contract is post-
event unable to be performed or is now far more costly and difficult to perform, such that in
the case of the latter situation, the contract bears little or no resemblance to the one the subject
of the original agreement. The question is what impact does the supervening event have on
contractual performance.
25.6 The classical statement of the modern law on frustration are the following remarks of
Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council:8
[F]rustration occurs whenever the law recognises that without default of either party a
contractual obligation has become incapable of being performed because the circumstances
in which performance is called for would render it a thing radically different from that which
was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to
do.

In the same case Lord Reid9 said:

[T]here is no need to consider what the parties thought or how they or reasonable men in
their shoes would have dealt with the new situation if they had foreseen it. The question is
whether the contract which they did make is, on its true construction, wide enough to apply
to the new situation: if it is not, then it is at an end.

25.7 In National Carriers Ltd v Panalpina (Northern) Ltd10 Lord Simon confirmed the
approach taken in Davis Contractors Ltd v Fareham Urban District Council ,11 when his Lordship
said:
Frustration of a contract takes place when there supervenes an event (without default of
either party and for which the contract makes no sufficient provision) which so significantly

8. [1956] AC 696 at 729; [1956] 2 All ER 145 at 160.

9. Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 721; [1956] 2 All ER 145.
10. [1981] AC 675 at 696; [1981] 1 All ER 161.
11. [1956] AC 696 at 729; [1956] 2 All ER 145 at 160.

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changes the nature (not merely the expense or onerousness) of the outstanding contractual
rights and/or obligations from what the parties could reasonably have contemplated at the
time of its execution that it would be unjust to hold them to the literal sense of its stipulations
in the new circumstances; in such case the laws declares both parties to be discharged from
further performance.

25.8 In Planet Kids Ltd v Auckland Council12 the Supreme Court noted that the doctrine of
frustration was developed ‘to mitigate the effects of the doctrine of absolute contracts, under
which a party who had bound him or herself by contract could not escape liability for damages
on the basis that performance had become impossible or futile’. The court13 also noted that
‘[f]or fundamental policy reasons related to the sanctity of contract, the threshold for frustration
is high’ and then listed five theories that provide a jurisitic basis for the doctrine:
• the implied term theory that holds that there is an implied term to the effect that the
occurrence of certain events leads to the discharge of the contract;14
• the failure of consideration theory, which is based on the idea that the party does not receive
the performance he or she bargained for;
• the just solution theory, which states that doctrine of frustration is justified as to meet the
demands of justice;15
• the foundation of the contract theory, which states that the doctrine refers to an occurrence
of an event that sweeps away what the parties contemplated as the foundation of the
contract;16
• the construction of contract theory, which asks whether the contract is ‘on its true
construction, wide enough to apply to the new situation: if it is not, then it is at an end’.17

25.9 As will be seen later in this chapter,18 not every supervening event which prevents
performance of the contract will result in the contract being frustrated because it may be
apparent from the general nature of the contract, its particular terms, and the context in
which it was made that it was intended to apply in the circumstances that have arisen. In Davis
Contractors v Fareham Urban District Council19 Lord Reid said:
It appears to me that frustration depends, at least in most cases, not on adding any implied
term, but on the true construction of the terms which are in the contract read in the light of
the nature of the contract and of the relevant surrounding circumstances when the contract
was made. … On this view there is no need to consider what the parties thought or how they
or reasonable men in their shoes would have dealt with the new situation if they had forseen
it. The question is whether the contract which they did make is, on its true construction,
wide enough to apply to the new situation. If it is not, then it is at an end.

12. [2014] 1 NZLR 149 at 169.

13. Planet Kids Ltd v Auckland Council [2014] 1 NZLR 149 at 169. See also Canary Wharf (BP4) Ltd v European
Medicines Agency [2019] EWHC 335 (Ch) at [26]–[27].
14. F A Tamplin Co Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 at 403–4.
15. Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 at 510.
16. F A Tamplin Co Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 at 406.
17. Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 715 at 720–1; [1956] 2 All ER 145
at 154.
18. See 25.47.
19. [1956] AC 720 at 720–1; [1956] 2 All ER 145 at 153–4.

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25.10 Consistent with this is the recognition that parties to a contract may agree that certain
events will suspend the contract temporarily, rather than terminate it.20 In addition, contracting
parties may provide for the termination of the contract if supervening events occur that affect
performance. In such cases the parties may agree that their contract will end on the happening
of a specified event beyond their control. Illustrative are certain construction and transport
contracts that contain force majeure clauses which are designed to have the effect of terminating
a contract if events occur that are beyond the control of the contracting parties. Such a clause,
when properly drafted, enables contracting parties to stipulate and agree in the contract which
events will constitute frustrating events. This will enable the parties to be excused from future
performance of their contractual obligations. If parties do not include force majeure clauses
in their contract, the common law doctrine of frustration may apply, resulting in undesirable
consequences.
25.11 The question then becomes what effect such a supervening event will have on an
existing contract where the event occurs through no fault of the parties and where it has not
been provided for in the contract. Will it impact upon the enforceability of the contract? Will
it have an effect on obligations that are yet to be performed? What about obligations that were
due to be performed, but which have not been performed at the time the event occurred?
25.12 In relation to the court’s approach to ascertaining whether a contract has been
frustrated, in Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage)
Ltd (The ‘Sea Angel’)21 Rix LJ said:
In my judgment, the application of the doctrine of frustration requires a multi-factorial
approach. Among the factors which have to be considered are the terms of the contract
itself, its matrix or context, the parties’ knowledge, expectations, assumptions and
contemplations, in particular as to risk, as at the time of contract, at any rate so far as these
can be ascribed mutually and objectively, and then the nature of the supervening event, and
the parties’ reasonable and objectively ascertainable calculations as to the possibilities of
future performance in the new circumstances. Since the subject matter of the doctrine of
frustration is contract, and contracts are about the allocation of risk, and since the allocation
and assumption of risk is not simply a matter of express or implied provision but may
also depend on less easily defined matters such as ‘the contemplation of the parties’, the
application of the doctrine can often be a difficult one. In such circumstances, the test of
‘radically different’ is important: it tells us that the doctrine is not to be lightly invoked; that
mere incidence of expense or delay or onerousness is not sufficient; and that there has to be
as it were a break in identity between the contract as provided for and contemplated and its
performance in the new circumstances.

What the ‘radically different’ test, however, does not in itself tell us is that the doctrine is one
of justice, as has been repeatedly affirmed on the highest authority. Ultimately the application
of the test cannot safely be performed without the consequences of the decision, one way
or the other, being measured against the demands of justice. Part of that calculation is the
consideration that the frustration of a contract may well mean that the contractual allocation of
risk is reversed. A time charter is a good example. Under such a charter, the risk of delay, subject

20. Ringstad v Gollin & Co Pty Ltd (1924) 35 CLR 303.

21. [2007] 2 Lloyd’s Rep 517 at 537, cited with approval in Planet Kids Ltd v Auckland Council [2014] 1 NZLR
149 at 172; Canary Wharf (BP4) Ltd v European Medicines Agency [2019] EWHC 335 (Ch) at [39].

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to express provision for the cessation of hire under an off-hire clause, is absolutely on the
charterer. If, however, a charter is frustrated by delay, then the risk of delay is wholly reversed:
the delay now falls on the owner. If the provisions of a contract in their literal sense are to make
way for the absolving effect of frustration, then that must, in my judgment, be in the interests of
justice and not against those interests. Since the purpose of the doctrine is to do justice, then its
application cannot be divorced from considerations of justice. Those considerations are among
the most important of the factors which a tribunal has to bear in mind.

25.13 A determination that a contract has or has not been frustrated is a conclusion of law.
This is important because in some cases parties may only be allowed to appeal such a decision
if there are arguable errors of law.22 Further, in order to determine whether frustration has
occurred, a court or tribunal has recourse to the contractual documents and the events that
occurred after the contract was made.23 Reference should be made to Chapter 12 in relation to
the rules which apply to the interpretation of contracts. Where parties have contemplated the
supervening event, the ordinary rules of contractual construction apply.
25.14 Finally, it is important to note the limits to the doctrine of frustration. In British
Movietonews Ltd v London and District Cinemas Ltd24 Viscount Simon said:
It is of the utmost importance that the action of a court, when it decides that in view of a
supervening situation the rights and obligations under a contract have automatically ceased,
should not be misunderstood. The suggestion that an ‘uncontemplated turn of events’ is
enough to enable a court to substitute its notion of what is ‘just and reasonable’ for the
contract as it stands, even though there is no ‘frustrating event’, appears to be likely to lead to
some misunderstanding. The parties to an executory contract are often faced, in the course
of carrying it out, with a turn of events which they did not at all anticipate — a wholly
abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle
to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on
the other hand, a consideration of the terms of the contract, in the light of the circumstances
existing when it was made, shows that they never agreed to be bound in a fundamentally
different situation which has now unexpectedly emerged, the contract ceases to bind at that
point — not because the court in its discretion thinks it just and reasonable to qualify the
terms of the contract, but because on its true construction it does not apply in that situation.

25.15 Similarly, in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema)25 Lord Roskill
cautioned that ‘the doctrine [of frustration] is not lightly to be invoked to relieve contracting
parties of the normal consequences of imprudent commercial bargains’.

The elements of frustration

25.16 In National Carriers Ltd v Panalpina (Northern) Ltd,26 the primary question was
whether the doctrine of frustration could be applied to a lease. A majority of their Lordships
decided that it could, but ‘hardly ever’. Lord Wilberforce27 said of the doctrine of frustration:

22. Chapman v Taylor [2004] NSWCA 456 at [32]–[34].

23. Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 at 274–5; [1944] 1 All ER 678 at 683.
24. [1952] AC 166 at 185; [1952] 2 All ER 617 at 625.
25. [1982] AC 724 at 752.
26. [1981] AC 675; [1981] 1 All ER 161.
27. National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 at 693; [1981] 1 All ER 161 at 170.

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Various theories have been expressed as to its justification in law: as a device by which the
rules as to absolute contracts are reconciled with a special exception which justice demands,
as an implied term, as a matter of construction of the contract, as related to removal of the
foundation of the contract, as a total failure of consideration. It is not necessary to attempt
selection of any one of these as the true basis: my own view would be that they shade into
one another and that a choice between them is a choice of what is most appropriate to the
particular contract under consideration. One could see, in relation to the present contract,
that it could provisionally be said to be appropriate to refer to an implied term, in view of
the grant of the right of way, or to removal of the foundation of the contract — viz use as
a warehouse. In any event, the doctrine can now be stated generally as part of the law of
contract; as all judicially evolved doctrines it is, and ought to be, flexible and capable of new
applications.

25.17 In National Carriers Ltd v Panalpina (Northern) Ltd28 Lord Simon of Glaisdale said
that frustration can only arise if the following conditions are met:
• There must be a supervening event that ‘significantly changes the nature (not merely the
expense or onerousness) of the outstanding contractual rights’.
• There must be no fault in either party.
• The supervening event must not have been ‘reasonably contemplated by the parties’ at the
time of the contract.
• It must be unjust to hold the parties to the original contract.
In Planet Kids Ltd v Auckland Council,29 the Supreme Court held that hardship is not an element
of frustration, although the ‘lack of hardship is a factor to be taken into account in considering
the nature of the supervening event and the parties’ reasonable and objectively ascertainable
expectations as to future performance in those circumstances’.
25.18 In Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema),30 Lord Diplock said that the
question of frustration:
… is never a pure question of fact but does in the ultimate analysis involve a conclusion
of law as to whether the frustrating event or series of events has made performance of the
contract a thing radically different from that which was undertaken by the contract; however
closely that conclusion of law may seem to follow from a commercial arbitrator’s findings as
to mercantile usage and the understanding of mercantile men about the significance of the
commercial differences between what was promised and what in the changed circumstances
would now fall to be performed.

25.19 In J Lauritzen AS v Wijsmuller BV (The Super Servant Two)31 Bingham LJ stated the
following propositions in relation to frustration:
1. The doctrine of frustration was evolved to mitigate the rigour of the common law’s
insistence on literal performance of absolute promises. The object of the doctrine was
to give effect to the demands of justice, to achieve a just and reasonable result, to do
what is reasonable and fair, as an expedient to escape from injustice where such would

28. [1981] AC 675 at 700; [1981] 1 All ER 161 at 175.

29. [2014] 1 NZLR 149 at 182.
30. [1982] AC 724 at 738; [1981] 2 All ER 1030 at 1036.
31. [1990] 1 Lloyd’s Rep 1 at 8.

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result from enforcement of a contract in its literal terms after a significant change in
circumstances.
2. Since the effect of frustration is to kill the contract and discharge the parties from further
liability under it, the doctrine is not to be lightly invoked, must be kept within very
narrow limits and ought not to be extended.
3. Frustration brings the contract to an end forthwith, without more and automatically.
4. The essence of frustration is that it should not be due to the act or election of the party
seeking to rely on it. A frustrating event must be some outside event or extraneous
change of situation.
5. A frustrating event must take place without blame or fault on the side of the party seeking
to rely on it.

25.20 A number of Bingham LJ’s propositions were applied and identified in oOh! Media
Roadside Pty Ltd v Diamond Wheels Pty Ltd,32 in which Nettle JA said:
I take the law to be that a contract is not frustrated unless a supervening event:

(a) confounds a mistaken common assumption that some particular thing or state of affairs
essential to the performance of the contract will continue to exist or be available, neither
party undertaking responsibility in that regard; and
(b) in so doing has the effect that, without default of either party, a contractual obligation
becomes incapable of being performed because the circumstances in which performance
is called for would render it a thing radically different from that which was undertaken
by the contract.

Frustrating events
25.21 One can best understand frustration by looking at categories of events that the courts
have considered to be frustrating events. However, it should be understood that each of the
cases discussed below was decided on its own facts. The examples below illustrate where
the particular type of supervening event has resulted in a fundamental or radical change in
the nature of the contractual obligation. In describing the nature of the frustrating event, the
expression ‘radically different’ is often used. Such an expression has been criticised as imprecise
and vague. Thus, in oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd33 Nettle JA, after
referring to this and other expressions that have been used, said:
One difficulty with general conceptions of that kind is that they do not provide much
guidance as to the degree or extent an event must overturn expectations, or affect the
foundation upon which the parties contracted, or how unjust and unreasonable a result must
follow, or how radically different from that originally undertaken must a contract become,
before the contract is taken to be frustrated. As Stephen J noted, … they ‘provide little more
than single instances of solutions to these questions’.34

32. (2011) 32 VR 255 at 273, cited in Chinatex (Australia) Pty Ltd v Bindaree Beef Pty Ltd [2018] NSWCA 126
at [44]; Greencapital Aust Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd [2019] NSWCA 53 at [56].
33. (2011) 32 VR 255 at 272.
34. Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 at 162.

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25.22 As Lord Simon of Glaisdale observed in National Carriers Ltd v Panalpina (Northern)
Ltd,35 if the event merely makes the contractual obligations more onerous or expensive to
perform, it will not make it a frustrating event. Thus, in Tsakiroglou & Co v Noblee36 the appellant
agreed to sell nuts to the respondent. The cost of freight between the port of departure in Africa
and the port of delivery in Europe was to be borne by the sellers. The normal transit route was
via the Suez Canal. The canal was closed by government order and the only other available
route via the Cape of Good Hope was more lengthy and costly. The sellers refused to complete
the contract, arguing that the closure of the canal had frustrated the contract. The court held
that there was no frustration. The journey was longer and the seller’s costs would increase, but
performance was still possible.
25.23 In relation to National Carriers Ltd v Panalpina (Northern) Ltd,37 and other cases
dealing with the Suez Canal closure, in oOh! Media Roadside Pty Ltd v Diamond Wheels Pty
Ltd38 Nettle JA said:
[In] the Suez Canal closure charterparty cases, … despite the closure of the canal, it was still
possible to use the ship for the permitted purpose of the charter, albeit via another route, at
greater cost and thus for less or no profit. It was held that it was not enough to invoke the
doctrine of frustration that the venture would therefore yield far less profit or perhaps no
profit at all. Similar reasoning informs some of the more recent English cases concerned
with the international sale of goods in which it was held that a supervening event did not
frustrate the contract simply because it made performance more expensive and therefore
less profitable.39

25.24 Cases where the performance has become more onerous or expensive are, however,
often difficult to distinguish from situations such as in Codelfa Construction Pty Ltd v State
Rail Authority of New South Wales,40 where the parties have made an underlying assumption in
relation to a commercial venture that has failed.

Court order
25.25 It may be that, after parties have made an agreement, an order is made by a court
that has an impact on the parties’ ability to carry out the terms of that agreement. In Codelfa
Construction Pty Ltd v State Rail Authority of New South Wales41 Codelfa and the State Rail
Authority entered into a major construction contract relating to the construction of the Eastern
Suburbs Railway in Sydney. Pursuant to this contract, Codelfa agreed to excavate two large
tunnels for the State Rail Authority. The price to be paid for the work to be undertaken by
Codelfa was based upon them working 24 hours a day, six days a week. The relevant contract
contained a clause pursuant to which Codelfa agreed to complete the works within a specified
period of time. After starting the excavation work, complaints were made by local residents

35. [1981] AC 675 at 700; [1981] 1 All ER 161 at 175.

36. [1962] AC 93; [1961] 2 All ER 179.
37. [1981] AC 675 at 700; [1981] 1 All ER 161 at 175.
38. (2011) 32 VR 255 at 281.
39. See, for example, CTI Group Inc v Transclear SA (The Mary Nour) [2008] 2 Lloyd’s Rep 526 and the cases
there cited.
40. (1982) 149 CLR 337; 41 ALR 367.
41. (1982) 149 CLR 337; 41 ALR 367.

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and the local council concerning the noise being made and the vibration associated with the
excavation work. Injunctions were granted restricting the ability of Codelfa to work between
10pm and 6am. In addition, and to compromise the ongoing litigation, undertakings were
given by Codelfa not to excavate and cart debris on Sundays. As a result of the injunctions
and undertakings, performance of the work was significantly disrupted and this led to delay
in completion of the work and added expense to Codelfa. It was in those circumstances that
Codelfa claimed that the contract had been frustrated and, as a consequence, it submitted
that it was entitled to higher remuneration because of the increased costs associated with the
injunction-related litigation. If the work performed by Codelfa was performed pursuant to the
contract, it could recover no more than the contract price. Codelfa alleged that the contract was
frustrated on the date when the first injunction was granted.
25.26 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales42 the High
Court held by a majority that the contract had been frustrated, as there had been a fundamental
or radical change to the circumstances that were contemplated by the contract.
25.27 In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd43 Nettle JA said the following
about the Codelfa Construction Pty Ltd v State Rail Authority of New South Wales44 decision:
In [that case] it was plain from the evidence of surrounding circumstances that the parties
entered into the construction agreement on the basis of a common assumption that
[Codelfa] would be able to carry out the contract works operating three shifts per day, six
days a week, and could not be restrained by injunction from proceeding in that fashion. The
evidence included that [Codelfa] tendered on the basis that it would complete the works
using three shifts per day, six days a week; that it would have been impossible to complete the
works in the required time using less than three shifts per day six days a week; and that the
[State Rail Authority] had taken legal advice, which it passed on to [Codelfa] with the intention
that [Codelfa] should rely on it (which [Codelfa] did when tendering for the contract), that
injunction could not go to restrain [Codelfa] from working three shifts per day working
six days a week. Thus, as Aickin J45 summarised the position:
It may be that in other circumstances the parties might have made some express
provision for possible legal action, especially in the light of the location of the
site in a heavily populated residential area, or at least taken it into account in
arriving at or considering the tender price. The erroneous belief entertained by the
[State Rail] Authority and communicated to and accepted by [Codelfa] clearly led to
that possibility not being contemplated by either party. It is plain on the findings of
the Arbitrator that both parties proceeded upon the assumption that the works could
be lawfully completed within the specified time by continuous work on a three-shift
basis for six days a week. The situation became one in which it was impossible to
perform the contract in accordance with its terms, impossible because court orders
restrained the mode of performance, which was held to constitute a nuisance, but
which was critical to the completion of the works within the time allowed.

42. (1982) 149 CLR 337; 41 ALR 367.

43. (2011) 32 VR 255 at 291.
44. (1982) 149 CLR 337; 41 ALR 367.
45. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 381; 41 ALR
367 at 398–9.

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Commercial impracticability
25.28 In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd46 Redlich JA said:
Commercial impracticability because performance has become excessively and unreasonably
onerous, or which alters the economic equilibrium of the agreement, will not enable a party
to avoid its obligations, unless the supervening circumstance has fundamentally changed or
is radically different from the nature of the performance agreed upon.

The impact of bans on non-essential services in Australia in 2020 due to the COVID-19
virus may result in contracts becoming unreasonably onerous.

Supervening illegality
25.29 Where a subsequent change in the law makes performance impossible, the contract is
frustrated. Thus, in Gamerco SA v ICM/Fair Warning (Agency) Ltd47 the promoters of a concert
at a stadium in Spain were prevented from holding the concert at the stadium because the
stadium was made unsafe as the result of government authorities revoking a relevant permit.
25.30 Frustration under this category could also occur if there is a supervening event, rather
than a change in the law, that renders the performance of a contract illegal. Many examples of
this situation arose during the two world wars, when the outbreak of hostilities made all Anglo-
German contracts illegal, the illegality being that of trading with the enemy. Thus, in Fibrosa
Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd48 there was a contract between a British
company and a Polish company for the supply of goods for delivery in Poland. The outbreak of
World War II made it illegal for a British company to supply goods to a country occupied by an
enemy country, as Poland had been by Germany. The House of Lords held that this frustrated
the contract.49
25.31 It can be persuasively argued that these cases of supervening illegality are not cases
properly dealt with by the doctrine of frustration. Cases of supervening illegality are not, as are
other cases of frustration, governed by the principle of foreseeability. Frustration cannot arise
if the supervening event was foreseeable. However, with supervening illegality, parties will be
discharged from the contract even if the supervening event was foreseeable or even expressly
provided for. Furthermore, even before the doctrine of frustration emerged with the decision
in Taylor v Caldwell,50 a supervening illegality resulted in the parties being discharged from
further performance of the contract.

Destruction of the subject matter

25.32 Destruction or substantial alteration of the subject matter without fault after contract
and before completion frustrates the contract. Thus, in Taylor v Caldwell51 the owner of the

46. (2011) 32 VR 255 at 284.

47. [1995] 1 WLR 1126.
48. [1943] AC 32; [1942] 2 All ER 122. See 25.69.
49. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; [1942] 2 All ER 122.
50. (1863) 122 ER 309. See 25.32.
51. (1863) 122 ER 309. See also Nickoll & Knight v Ashton, Edridge & Co [1901] 2 KB 126.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Surrey Gardens and Music Hall agreed to hire the hall for five days for the purpose of giving a
series of concerts. It was a term of the contract that a payment of £100 would be made for each
day that the hall was used. After the contract was made, and six days before the first concert,
the hall was destroyed by fire. The plaintiff (the hirers) sued for breach of contract. The Court
of Queens Bench,52 in holding that the contract was frustrated, said:
In contracts in which the performance depends on the continued existence of a given person
or thing, a condition is implied that the impossibility of performance arising from the
perishing of the person or thing shall excuse the performance.

25.33 The timing of destruction or alteration is all important. In Taylor v Caldwell53 the
destruction of the subject matter took place after the contract was entered into with the result
that the contract was frustrated. However, if the fire occurred during the time the contract was
being negotiated and neither party was aware that the fire had occurred, this would amount to
a common mistake,54 the common mistake being that the hall existed. Because the hall did not
exist, the contract would be void ab initio.

Contracts of personal service

25.34 In a contract of personal service the death, long-term illness or injury, or unavoidable
absence of the person supplying the services, such as imprisonment or compulsory military
service, may lead to frustration of the contract. Thus, in Morgan v Manser55 compulsory military
service by an entertainer resulted in the frustration of his contract with his manager. In Hare
v Murphy Brothers56 a 12-month custodial sentence of a foreman who had been with a company
for 25 years frustrated his contract of employment. However, in Chakki v United Yeast Co Ltd57
the court held that there was no frustration of an employment contract in circumstances where
a worker was given an 11-month custodial sentence, but was released on bail after serving one
day pending an appeal which resulted in him being put on probation, rather than in prison.
The worker was on holiday at the time he served the one day sentence and was otherwise
available to work for his employer. In Blankley v Central Manchester and Manchester Children’s
University Hospitals NHS Trust58 a client’s short-term mental incapacity did not frustrate the
contract of retainer with her solicitor. In coming to his conclusion on the facts of this case,
Phillips J59 said:
In deciding whether the employment is frustrated by such incapacity, the court will consider
the nature and likely duration of the incapacity, the prospects of recovery and whether
performance of the contractual duties would be either impossible or radically different.
A client’s role in a contract of retainer is far less personal than a contract of employment

52. Taylor v Caldwell (1863) 122 ER 309 at 314.

53. Taylor v Caldwell (1863) 122 ER 309.
54. See 16.7–16.54.
55. [1947] 2 All ER 666.
56. [1974] 3 All ER 940.
57. [1982] 2 All ER 446.
58. [2014] EWHC 168 (QB).
59. Blankley v Central Manchester and Manchester Children’s University Hospitals NHS Trust [2014] EWHC 168
(QB) at 43.
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and can readily be assumed by a deputy, further indicating that incapacity does not in itself
frustrate such a contract.

25.35 If the party provokes or causes the circumstance, there is no frustration of contract
and that party is liable for breach. In the example in 25.34 above, if X drinks alcohol to such an
excess that he or she is unable to perform, the contract is not frustrated; rather, X has breached
the promise to perform and is liable for the breach.
25.36 In Chapman v Taylor60 Mr and Mrs Taylor and Chapman entered into a contract on
29 August 1999 for residential building work to be carried out at their property. The contract
was to be performed by Chapman personally or under his supervision. On 15 April 2000
Chapman was injured on a building site that was not the property, receiving injuries that
included an injury to the brain. As a result, Chapman was admitted to hospital on 15 April
2000 and remained in a coma as a result of his injuries for a period of approximately five
weeks. Chapman was unable to undertake or supervise the building work until at least about
September 2000. The New South Wales Court of Appeal held that the contract was frustrated.
In coming to this conclusion, Hodgson JA61 said:
The conclusions I reach overall therefore are that this was a contract which was to be
performed either by Mr Chapman personally or else under his supervision. The fall he
suffered on 15 April meant that he was unable to continue to perform those tasks. Whilst
perhaps it could not have been said on 15 April that the contract was frustrated, a person
looking back on events by the beginning of May would have said that the contract could not
have gone ahead as envisaged by the parties by reason of the fall. … [T]he thing undertaken
would, if performed, be a different thing from that which contracted for. The [Taylors] would
not be receiving performance of the contract by Mr Chapman.

25.37 In relation to whether injuries received by a contracting party will frustrate a contract,
Hodgson JA62 said:
It is not correct to say that a temporary injury is not sufficient to frustrate a contract of
employment: it may or may not be, depending on whether it would make performance of the
contract radically different from that promised.

Failure of a condition
25.38 Where the basis of the contract is the happening of a future specific event, the failure
of that event to happen will frustrate the contract. Where the parties expressly or by necessary
implication acknowledge that the basis of the contract is the happening of the future event,
there are no problems in recognising that frustration operates. For example, A purchases a
ticket from Ticket Sellers Ltd to watch a performance on a specified day in the following month
by a famous rock band. If there is no performance by the band on that day, then the contract
is frustrated. Both parties proceeded on the basis that the performance would take place on
that day. However, it is often difficult to determine whether the parties have proceeded on
a common assumption. Two decisions decided within a couple of weeks of each other by an

60. [2004] NSWCA 456.

61. Chapman v Taylor [2004] NSWCA 456 at [19].
62. [2004] NSWCA 456 at [30].

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identically constituted English Court of Appeal illustrate this problem. Both cases arose in
circumstances related to the accession to the throne of King Edward VII.
25.39 In Krell v Henry63 Krell sued to recover £50, being the balance said to be due under an
agreement by which Henry was to have the use of Krell’s flat during the daytime only for several
days. The contract required the payment of a £25 deposit and the payment of an additional
£50 two days before Henry was to be given possession of the flat. Henry had intended to use
the flat to view the coronation of Edward VII, scheduled to take place on 26 June 1902, and
both parties understood that this was the purpose of the hiring. Due to the King’s peritonitis,
the coronation procession was postponed and Henry refused to pay the £50. (Edward VII’s
coronation finally took place on 9 August 1902.) The English Court of Appeal held that
there was a necessary inference from the circumstances, recognised by both parties, that the
coronation procession and the relative position of the flat was the foundation of the contract.
The cancellation of the procession discharged the parties, as it was no longer possible to achieve
the substantial purpose of the contract. Furthermore, the fact that the purpose for using the
flat was not stated in the contract was not fatal to a finding of frustration in this case. Vaughan
Williams LJ,64 speaking for a unanimous Court of Appeal, said:
I think that you first have to ascertain, not necessarily from the terms of the contract, but, if
required, from necessary inferences, drawn from surrounding circumstances recognised by
both contracting parties, what is the substance of the contract, and then to ask the question
whether that substantial contract needs for its foundation the assumption of the existence of
a particular state of things. If it does, this will limit the operation of the general words, and in
such case, if the contract becomes impossible of performance by reason of the non-existence
of the state of things assumed by both contracting parties as the foundation of the contract,
there will be no breach of the contract thus limited.

25.40 In relation to Edward VII’s postponed coronation, the mass of food prepared for the
occasion was used to feed the poor in London, during which the Prince and Princess of Wales
and other members of the royal family made a tour of these deprived areas, bringing the king’s
good wishes and reporting on his improving health.65
25.41 In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd 66 Nettle JA said:
The decision in Krell v Henry67 has been criticised. In Larrinaga & Co Ltd v Société Franco-
Americaine des Phosphates de Medulla, Paris,68 Viscount Finlay suggested that, although
the parties in Krell v Henry have contracted in the expectation that the procession would
take place, it was difficult to see why the happening of the procession was the basis of the
contract. Latham CJ took a similar view in Scanlan’s New Neon Ltd v Tooheys Ltd.69 On the
other hand, the majority of the court in Scanlan’s New Neon, McTiernan and Williams JJ70

63. [1903] 2 KB 740.

64. Krell v Henry [1903] 2 KB 740 at 749.
65. S Groom, At the King’s Table, Royal Dining Through the Ages, Merrell Publishers, London, 2013, pp 164–70.
66. (2011) 32 VR 255 at 277–8.
67. [1903] 2 KB 740.
68. (1922) 29 Com Cas 1 at 7.
69. (1943) 67 CLR 169 at 194.
70. (1943) 67 CLR 169 at 194 at 215, 222.

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considered that Krell v Henry was correctly decided in accordance with the principle that
71

a contract may be frustrated where ‘the underlying object’ of it is rendered impossible of

achievement or where there is cessation or non-existence of an express condition or ‘state of
things going to the root of the contract, and essential to its performance’. Mason J approached it
in the same way in Codelfa72 and described Latham CJ’s approach as based on an outmoded
view that it is impermissible to take account of extrinsic evidence in determining whether
the parties entered into the contract on the basis of a mistaken common assumption that
some particular thing or state of affairs would continue to exist or be available. Perhaps the
better view of Krell v Henry73 is that it was rightly decided because it was apparent on the
particular facts of the case that the occurrence of the coronation procession on the appointed
dates was the basis of the contract and that neither party contemplated the possibility that
the procession might be cancelled. But as Lord Wright explained in Maritime National Fish
Ltd v Ocean Trawlers Ltd:74
The authority [of Krell v Henry75] is not one to be extended: it is particularly difficult
to apply where, as in the present case, the possibility of the event relied on as
constituting a frustration of the adventure (here the failure to obtain a licence) was
known to both parties when the contract was made, but the contract entered into was
absolute in terms so far as concerned the known possibility. It may be asked whether
in such cases there is any reason to throw the loss on those who have undertaken
to place the thing or service for which the contract provides at the other parties’
disposal and are able and willing to do so … In a case such as the present it may be
questioned whether the Court should imply a condition resolutive of the contract
(which is what is involved in frustration) when the parties might have inserted an
express condition to that effect but did not do so, though the possibility that things
might happen as they did, was present in their minds when they made the contract.

25.42 Krell v Henry76 can be contrasted with Herne Bay Steamship Company v Hutton.77
In this case Hutton had agreed to hire a steamship for the day of a naval review, which was to
take place two days after the Edward VII’s coronation. The contract referred to the ship being
at Hutton’s disposal ‘for the purpose of viewing the naval review and for a day’s cruise round
the fleet’. However, the King’s appendicitis meant that the review was cancelled. The Court of
Appeal nonetheless concluded that the contract for the hire of the steamship had not been
frustrated. Vaughan Williams and Romer LJJ (the same judges that constituted the Court of
Appeal in Krell v Henry78) each took the view that the purpose for which Hutton had hired
the steamship did not represent the ‘foundation’ or ‘essence’ of the contract. Thus, Vaughan
Williams LJ79 said:
Mr. Hutton, in hiring this vessel, had two objects in view: first, of taking people to see the
naval review, and, secondly, of taking them round the fleet. Those, no doubt, were the

71. [1903] 2 KB 740.

72. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; 41 ALR 367.
73. [1903] 2 KB 740.
74. [1935] AC 524 at 529.
75. [1903] 2 KB 740.
76. [1903] 2 KB 740.
77. [1903] 2 KB 683.
78. [1903] 2 KB 740.
79. [1903] 2 KB 683 at 689.

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purposes of Mr. Hutton, but it does not seem to me that because, as it is said, those purposes
became impossible, it would be a very legitimate inference that the happening of the naval
review was contemplated by both parties as the basis and foundation of this contract. … On
the contrary, when the contract is properly regarded, I think the purpose of Mr. Hutton,
whether of seeing the naval review or of going round the fleet with a party of paying guests,
does not lay the foundation of the contract within the authorities.

Similarly, Romer LJ in Herne Bay Steamship Company v Hutton80 said:

[I]t is a contract for the hiring of a ship by the defendant for a certain voyage, though having,
no doubt, a special object, namely, to see the naval review and the fleet; but it appears to
me that the object was a matter with which the defendant, as hirer of the ship, was alone
concerned, and not the plaintiffs, the owners of the ship.

Romer LJ81 continued:

[S]o far as the plaintiffs are concerned, the objects of the passengers on this voyage with
regard to sight-seeing do not form the subject-matter or essence of this contract.

Stirling LJ referred specifically to the fact that part of the stated purpose, the ‘day’s cruise round
the fleet’, had remained possible. His Lordship82 said:
It seems to me that the reference in the contract to the naval review is easily explained; it was
inserted in order to define more exactly the nature of the voyage, and I am unable to treat
it as being such a reference as to constitute the naval review the foundation of the contract
so as to entitle either party to the benefit of the doctrine in Taylor v Caldwell.83 I come to
this conclusion the more readily because the object of the voyage is not limited to the naval
review, but also extends to a cruise round the fleet. The fleet was there, and passengers might
have been found willing to go round it. It is true that in the event which happened the object
of the voyage became limited, but, in my opinion, that was the risk of the defendant whose
venture the taking the passengers was.

This passage suggests that a partial failure of a contractual purpose will not frustrate a contract.
On the other hand, in Krell v Henry,84 because the hiring was for the daytime only, the only
conceivable purpose of the contract was to have a view of the coronation parade.85

Government intervention
25.43 Substantial government intervention that prevents proper performance of an obligation
may frustrate the contract. In Metropolitan Water Board v Dick Kerr & Co Ltd86 the respondent
had agreed with the appellant to build a reservoir within six years. The contract contained
a clause extending this time limit ‘if delays were occasioned by difficulties or obstructions

80. Herne Bay Steamship Company v Hutton [1903] 2 KB 683 at 690.

81. Herne Bay Steamship Company v Hutton [1903] 2 KB 683 at 691.
82. Herne Bay Steamship Company v Hutton [1903] 2 KB 683 at 692.
83. (1863) 122 ER 309.
84. [1903] 2 KB 740.
85. For a judicial discussion of these two English Court of Appeal decisions see Canary Wharf (BP4) Ltd
v European Medicines Agency [2019] EWHC 335 (Ch) at [36]–[38].
86. [1918] 2 KB 1 at 30 (later affirmed on appeal in [1918] AC 119).

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howsoever occasioned’. War broke out and the Minister of Munitions ordered that the work
cease indefinitely. The court held that the substantial time interruption arising from the war
and the circumstances would make performance of the contract, if it took place, so different
from that originally contemplated by the parties, that there was frustration.
25.44 In C Czarnikow Ltd v Rolimpex87 the respondent, Rolimpex, a Polish marketing
authority, contracted to sell beet sugar to Czarnikow. However, the Polish government banned
all sugar exports before delivery of the beet sugar. Rolimpex informed Czarnikow that this
action had frustrated the contract and that the obligation to deliver was at an end. Czarnikow
disputed this and claimed damages for non-delivery. The court held that the contracts had been
frustrated by government intervention beyond Rolimpex’s control, even though Rolimpex
was an arm of the government. Rolimpex had no further obligations under the contract.
Czarnikow’s action failed.

Delay
25.45 In some cases, as was seen in Codelfa Construction Pty Ltd v State Rail Authority of
New South Wales,88 delay in performing a contractual obligation could be tantamount to a
frustrating event. Similarly, in Jackson v Union Marine Insurance Co Ltd89 it was held that a
contract for the hire of a ship was frustrated because of the unreasonable delay causing the
venture to be different from what was contemplated by the original contract. In Embiricos
v Sydney Reid & Co90 a ship was chartered for a voyage from a port in the Sea of Azoff to the
United Kingdom with a cargo of grain. The ship sailed under the Greek flag and loading was
interrupted in consequence of war being declared between Greece and Turkey on 18 October
1912. The ship was constantly delayed in its voyage through the Dardanelles. The delay was
held to be a frustrating event.

War
25.46 On occasions war has led to a contract being frustrated, as was seen in Embiricos
v Sydney Reid.91 In Kodros Shipping Corp of Monrovia v Empresa Cubana de Fletes (The Evia)
(No 2)92 a shipping contract provided that the vessel was to be employed between ‘good and safe
ports’. A particular vessel, after it had loaded its cargo in Cuba, proceeded to the Shatt-al-Arab
waterway. After unloading its cargo, war broke out between Iran and Iraq and the vessel was
trapped in the waterway. The owners claimed payment for the extended period that the vessel
remained in the waterway. The hirers claimed the contract had been frustrated. The House of
Lords, after applying the principles of frustration of contract from Panalpina’s case,93 found that
frustration occurred because the fighting made the waterway too dangerous.

87. [1979] AC 351; [1978] 2 All ER 1043.

88. (1982) 149 CLR 337; 41 ALR 367.
89. (1874) LR 10 CP 125.
90. [1914] 3 KB 45.
91. [1914] 3 KB 45.
92. [1983] 1 AC 736; [1982] 3 All ER 350.
93. National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675; [1981] 1 All ER 161.

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Non-frustrating events
25.47 As noted earlier,94 not all events will be regarded as frustrating events. Certainly,
disappointed expectations do not lead to frustrated contracts.95 In National Carriers Ltd
v Panalpina (Northern) Ltd96 Lord Simon of Glaisdale noted that a contract would not be
frustrated if the supervening event was due to the fault of either party or was reasonably
contemplated at the time of their contract. Each of these circumstances needs to be examined
in more detail.

Fault
25.48 If the change in circumstances is self-induced, there is no frustration. In Maritime
National Fish Ltd v Ocean Trawlers Ltd97 hirers of a trawler attempted to rely on a government
failure to license the use of the trawler as a basis for frustration. It was noted that the relevant
government minister had issued three licences for the hirers’ five trawlers. However, the
hirers had decided not to apply any of those licences to this particular vessel. Accordingly, the
predicament was self-induced and there was no frustration.
25.49 Self-induced acts need not be breaches of the contract, although they will usually be
so,98 nor do they need to be intentional. It is enough if the act is the result of negligence.
25.50 Although Lord Simon’s statement of principle in National Carriers Ltd v Panalpina
(Northern) Ltd99 refers to the lack of fault of either party, that is not an entirely accurate
statement. For example, if in a contract between Alan and Barry, Alan is subsequently convicted
of a crime and imprisoned for a lengthy period of time so that there is a radical change to
the nature of the contractual obligations, can Alan assert that the contract is not frustrated
because his imprisonment was self-induced? The decision in F C Shepherd & Co Ltd v Jerrom100
suggests that the contract is frustrated in such a situation. In that case an employer successfully
argued that a contract was frustrated where its employee was imprisoned following a criminal
conviction, even though the criminal conviction was the result of the employee’s own actions.
25.51 The onus of proof in establishing that the change in circumstances was self-induced
rests with the party so alleging.101 This can be of crucial significance in cases where the cause of
the supervening event is unknown. For example, if we assume facts similar to those in Taylor
v Caldwell,102 if the hirer of the premises alleges that the owner was responsible for the fire, the
hirer will have to prove that to be the case, rather than the owner having to prove that he or she
was not responsible for the fire. If the cause of the fire is unknown, the contract is frustrated
because the hirer will not be able to establish that the owner was at fault. However, if the owner

94. See 25.9.

95. Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 715; [1956] 2 All ER 145. See also
Ross v IceTV [2010] NSWCA 272 at [78].
96. [1981] AC 675 at 700; [1981] 1 All ER 161 at 175.
97. [1935] AC 524.
98. Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 at 186.
99. [1981] AC 675 at 700; [1981] 1 All ER 161 at 175. See 25.7, 25.16–25.17.
100. [1897] 2 QB 301.
101. Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154.
102. (1863) 122 ER 309.

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had to establish that he or she was not at fault, he or she will not be able to do so, with the result
that the contract would not be frustrated.

Foreseeability of the supervening event

25.52 Aside from instances of supervening illegality, a contract is not frustrated where the
change in circumstances or supervening event was foreseeable.103 Carter104 states the principle
as follows:
[I]t is usually said that the event relied upon as frustrating a contract must not have been
foreseen by the parties. … [I]f the event was foreseen, and the contract contains no provisions
covering the event, the inference may be drawn that the parties agreed to bear the risk of the
event. The contract will not be frustrated.

25.53 In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd105 Nettle JA said:
As Lord Wright said in Maritime National Fish Ltd v Ocean Trawlers Ltd,106 where a
supervening event is not only foreseeable but actually foreseen at the time of entry into a
contract, it is more difficult to conceive of the parties as having entered into the contract
on the basis of a common understanding that the event could not occur during the life of
the contract. Where, however, a supervening event, although foreseeable, was not foreseen
at the time of entry into the contract, the fact that it was foreseeable may not be of much
significance unless the degree of foreseeability is particularly high. Consequently … it is
important to be precise about the nature and degree of foresight. So far as foreseen events are
concerned, the parties to a contract may have foreseen an event but not foreseen the nature
or extent of it. In The Sea Angel,107 Rix LJ gave as an example, based on Pioneer Shipping Ltd
v BTP Tioxide Ltd (The Nema) 108 a case where the possibility of an industrial strike was
foreseen, and actually provided for in the contract, but lasted so long as to go beyond the risk
assumed under the contract. It was held to have frustrated the contract. Cheshire and Fifoot’s
Law of Contract109 suggests that in some cases it may also appear that, Failure to provide
expressly for an event that was foreseen [is] due to … a deliberate decision to leave matters
to be sorted out by the parties, or by the law. In the case of foreseeable but unforeseen events,
the nature and extent of foreseeability is critical. Since most events are foreseeable in one
sense or another, the parties to a contract will not ordinarily be taken to have assumed the
risk of an event occurring during the life of the contract unless the degree of foreseeability of
that event is very substantial. Hence, as the position is summarised in Chitty on Contracts:110
Much turns on the extent to which the event was foreseeable. The issue which the
court must consider is whether or not one or other party has assumed the risk of
the occurrence of the event. The degree of foreseeability required to exclude the
doctrine of frustration is … a high one: ‘foreseeability’ will support the inference

103. Walton Harvey Ltd v Walker & Homfrays Ltd [1931] Ch 274.
104. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Chatswood, 2018, p 761.
105. (2011) 32 VR 255 at 273.
106. [1935] AC 524 at 529 (PC).
107. Worldwide Salvage & Towage Ltd (The ‘Sea Angel’) [2007] 2 Lloyd’s Rep 517.
108. [1982] AC 724.
109. Seddon and Ellinghaus, 9th ed, (2008), at [19.12].
110. H G Beale (ed), Chitty on Contracts, Volume I: General Principles, 30th ed, Sweet & Maxwell, London, 2008,
at [23-060].

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

of risk-assumption only where the supervening event is one which any person of
ordinary intelligence would regard as likely to occur or … ‘one which the parties
could reasonably be thought to have foreseen as a real possibility.111

25.54 However, there is dicta against this proposition. In Ocean Tramp Tankers Corp v V/O
Sovfracht (The Eugenia)112 Lord Denning MR said that ‘the only thing that is essential is that the
parties should have made no provision for it in their contract’. This statement is, however, at odds
with the definition of ‘frustration’ referred to earlier,113 which emphasises that the key ingredient is
a change in circumstances to make performance radically different from what was contemplated.
Generally speaking, if it was contemplated, then it was foreseen and there was no frustration.
25.55 As a logical consequence of this proposition, where the contract specifically provides
for the change in circumstances or supervening event (a so-called force majeure clause), there
is no frustration.114 This is so ‘because the express terms of the contract leave no room for the
operation of the doctrine of frustration’.115 In Claude Neon Ltd v Hardie116 the parties contracted
for the hire of a neon sign, but the premises on which the sign was erected were resumed by
the landlord. The Queensland Supreme Court held that this event did not frustrate the contract
because the contract included a term that deemed the hirer of the sign to have defaulted if
his ‘interest’ in the premises was extinguished or transferred. The contract was not frustrated
because the term in the contract applied in relation to the event that occurred and thus excluded
the operation of the doctrine of frustration.
25.56 However, ‘[w]hether or not a contractual provision deals with the frustrating event
sufficiently will depend on the construction of the contract’. In this process of construction,
the courts take a fairly strict approach.117 Thus, in Metropolitan Water Board v Dick Kerr & Co
Ltd118 the clause providing for extensions of time in cases of delay ‘howsoever occasioned’ was
not held to have included within its ambit delays occasioned by government intervention. It
was construed to mean delays occasioned by factors such as weather, shortages in the supply of
materials, industrial action, and the like.

The relationship between frustration and common mistake

25.57 Principles relating to common mistake and frustration both deal with situations
that become or are different from what the parties to an agreement thought at the time. Both
doctrines only become relevant when the parties themselves have not determined who will
bear the risk of the unexpected event or circumstance. The crucial factor that distinguishes
the two doctrines, as is illustrated in the case of Amalgamated Investment & Property Co v John
Walker & Sons,119 is the timing of the unexpected or unforeseen event or circumstance. In the
case of common mistake, one is concerned with circumstances that exist at the time of the

111. Treitel, Frustration and Force Majeure, 2nd ed, (2004).

112. [1964] 2 QB 226 at 239; [1964] 1 All ER 161 at 166.
113. See 25.6–25.8.
114. Thors v Weekes (1989) 92 ALR 131 at 142.
115. Ange v First East Auction Holdings Pty Ltd [2011] VSCA 335 at [78].
116. [1970] Qd R 93.
117. Thaluntha Pty Ltd v Citic Pacific Mining Management Pty Ltd [2019] WASC 196 at [107].
118. [1918] 2 KB 1 at 30 (later affirmed on appeal in [1918] AC 119).
119. [1977] 1 WLR 164.
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contract, whereas with frustration, one is concerned with circumstances that arise after the
contract has been entered into.
25.58 Furthermore, the consequences of the two doctrines are different. With common
mistake the contract is void at common law. If not void at common law, and if Solle v Butcher120
is still good law in Australia, it may be that the contract is voidable in equity. On the other hand,
with frustration the contract is automatically terminated upon the happening of the frustrating
event. Despite this consequence, at common law parties’ pre-frustrating event obligations are
enforceable.

THE EFFECT OF FRUSTRATION

25.59 Common law principles relating to termination govern the consequences of frustration
in all jurisdictions in Australia except for New South Wales, Victoria, and South Australia,
where legislation also applies. Notwithstanding this legislation, however, the common law
principles will still apply in these jurisdictions in cases where the legislation does not apply or
where it has been excluded by the parties.

Common law
25.60 At common law, the contract automatically ends the moment that the frustrating event
takes place.121 As a general rule, the parties are released and discharged from all future obligations
that arose under the contract that has now been frustrated. There are some exceptions to this
that relate to partial frustration. For example, it may well be that the frustrating event operates
only as a partial discharge of the main agreement, with the balance still remaining on foot.122
25.61 Termination after frustration occurs automatically. This is known as termination in
futuro. Importantly, frustration does not rescind the contract in the ab initio sense, such as is
the case with respect to misrepresentation, undue influence, unconscionability, and certain
types of mistake in equity.123 As a general rule frustration does not ground a cause of action
in damages. However, all rights, duties and liabilities acquired or incurred by the parties
before the frustrating event remain on foot and may form the basis of a claim for damages.124
Importantly, once frustration occurs, the parties must enter into a new agreement should they
want to continue.125 It follows that there can be no estoppel after frustration in relation to the
termination of the contract.
25.62 Just why frustration results in an automatic discharge of the contract is not made clear
in the cases. The major policy argument for this consequence is that if it were for the courts to

120. [1950] 1 KB 671; [1949] 2 All ER 1107. This case is discussed in Chapter 16.
121. Re Continental C & G Rubber Co Pty Ltd (1919) 27 CLR 194 at 201; Hirji Mulji v Cheong Yue Steamship Co
Ltd [1926] AC 497 at 510. For a critical evaluation of this rule see E McKendrick, ‘Frustration: Automatic
Discharge of Both Parties?’, in A Dyson, J Goudkamp, and F Wilmot-Smith (eds), Defences in Contract,
Hart Publishing, Oxford, 2017, p 141.
122. Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202.
123. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; [1942] 2 All ER 122.
124. Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 at 510.
125. Bank Line Ltd v Arthur Capel & Co [1919] AC 435 at 455.

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adjust the contract, rather than it being automatically discharged, it would mean that the courts
would be making the contract for the parties, something they have routinely rejected in other
areas of contract law.
In relation to the effect of frustration, in The Flying Music Company Ltd v Theater Entertainment
SA126 Martin Griffiths QC said:
Since frustration terminates the contract without fault or recourse on either side, it alters
the effect of the frustrating event on the parties’ rights and obligations. After the allegedly
frustrating event, one party will be better off if the contract continues to apply, while another
will be better off if it is immediately terminated by the doctrine of frustration. To that extent,
it alters the bargain between the parties, and that is why it only applies when the frustrating
event can truly be said to take the situation outside the reasonable contemplation of the
parties so as to make it just that the contract no longer applies. In a commercial contract,
which allocates the risk of future events between the parties by agreement, it is particularly
important not to pronounce a general absolution from contractual obligations simply on the
basis of unexpected events. Most bargains would be struck differently with the benefit of
hindsight. It is not the function of the doctrine of frustration to re-write contracts with the
benefit of hindsight in every case. To do so, even on the basis of some assessment of a just and
reasonable result, would be to undermine the certainty and purpose of commercial relations
and agreements, which are commonly doing business in uncertain environments without
knowing which side will benefit most from the deal, and which side may come to regret it.
On the other hand, when events entirely overtake the deal, the doctrine of frustration has
its place.

25.63 According to Carter,127 at common law, if partial performance of a contract occurs

prior to the frustrating event, this will not ground a restitutionary claim128 such as one based
on quantum meruit. Carter refers to Appleby v Myers,129 where the Exchequer Chamber held
that the plaintiffs could not recover for work done prior to a frustrating event in circumstances
where the contract provided for payment on completion of the work. However, Carter
suggests130 that it may be possible to bring a claim in such circumstances under the modern law
of restitution, provided that it can be established that the defendant did receive a benefit — a
fact not altogether clear in the circumstances of the facts in Appleby v Myers.131
25.64 If a benefit to the defendant occurs after the frustrating event, restitutionary remedies
are likely, as the contract does not govern payment for work performed after frustration. Such
an action would include an action for quantum meruit based on the value of that work, not on
the basis of what was agreed.132
25.65 On the other hand, in some circumstances payments made before frustration occurs
may be recovered. The contract could expressly or impliedly stipulate whether, and in what
circumstances, payments made before frustration are to be retained or repaid.

126. [2017] EWHC 3192 (QB) at [18].

127. Carter, Contract Law in Australia, note 104 above, p 791.
128. See Chapter 38.
129. (1867) LR 2 CP 651.
130. Carter, Contract Law in Australia, note 104 above, p 778.
131. (1867) LR 2 CP 651.
132. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 355, 366,
391; 41 ALR 367 at 377, 386, 408.

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25.66 In the absence of such provisions, if the payment is earned prior to frustration, no
restitutionary claim can be made for a return of the money.133
25.67 If there is a total ‘failure of consideration’ as the result of frustration, payments made
before frustration can be recovered under the law on restitution. The expression, ‘failure of
consideration’ can mean a number of things. According to Stoljar:134
First, a consideration fails because the defendant’s promise is insufficient or illusory or
formally void, the failure thus being an initial invalidity preventing a contract from being
formed. Secondly, we say that the consideration fails where a promisor fails to perform; the
failure is now simply a breach of contract, though usually a substantial or important breach.
But, thirdly, failure of consideration has also a much older and specialised sense, one that
describes a specific remedy when, upon the collapse of a bargain, the promisee seeks to
recover money had and received by the promisor. Thus failure of consideration specifies not
only a claim, but also the particular basis for that claim.

25.68 The third meaning above of ‘total failure of consideration’ raises several issues. First,
the ‘bargain’ that is referred to is not confined to being contractual in nature.135 Second, if there
is a total failure of consideration, when will equity, as Deane J stated in Muschinski v Dodds,136
operate upon a ‘legal entitlement to prevent a person from asserting or exercising a legal right in
circumstances where the particular assertion or exercise of it would constitute unconscionable
conduct’? In such cases the ‘failure of consideration identifies the failure to sustain itself of the
state of affairs contemplated as a basis for the payments a party seeks to recover’.137
25.69 In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd138 Fairbairn Lawson
contracted to supply to Fibrosa some machines to be delivered at Gdynia in Poland. Fibrosa
paid £1000 in advance. War broke out with Germany before delivery and the Germans occupied
Gdynia. This event frustrated the contract. Fibrosa sued to recover the deposit. The House of
Lords held that there was a total failure of consideration for the payment made by Fibrosa.139
Fibrosa was entitled to the return of its money. Viscount Simon LC140 said:
While this result obviates the harshness with which the previous view in some instances
treated the party who had made a prepayment, it cannot be regarded as dealing fairly

133. Re Continental C & G Rubber Co (1919) 27 CLR 194 at 204.

134. S Stoljar, ‘The Doctrine of Failure of Consideration’ (1959) 75 Law Quarterly Review 53 at 53.
135. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 555 where Gummow J noted the
position with respect to claims for money had and received.
136. (1985) 160 CLR 583 at 619–20; 62 ALR 429 at 455.
137. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382; Baltic Shipping Co
v Dillon (1993) 176 CLR 344 at 389; Goss v Chilcott [1996] AC 788 at 797; Roxborough v Rothmans of Pall
Mall Australia Ltd (2001) 208 CLR 516 at 557.
138. [1943] AC 32; [1942] 2 All ER 122. This decision has been followed in numerous cases, such as: Aurel Forras
Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202; Terrex Resources NL v Magnet Petroleum Pty
Ltd (1988) 98 FLR 328; McCasker v Lovett (1995) 12 BCL 146; Australian Securities Commission v ASC
Timber Pty Ltd (1996) 20 ACSR 457; Goss v Chilcott [1996] 3 NZLR 385.
139. The House of Lords expressly overruled the decision in Chandler v Webster [1904] 1 KB 493 in which a
claim, based upon a total failure of consideration, for recovery of payments made before a frustrating event
was rejected.
140. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 49–50; [1942] 2 All ER 122
at 129–30.

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between the parties in all cases, and must sometimes have the result of leaving the recipient
who has to return the money at a grave disadvantage. He may have incurred expenses in
connexion with the partial carrying out of the contract which are equivalent, or more than
equivalent, to the money which he prudently stipulated should be prepaid, but which he now
has to return for reasons which are no fault of his. He may have to repay the money, though
he has executed almost the whole of the contractual work, which will be left on his hands.

25.70 In Baltic Shipping Co v Dillon (The Mikhail Lermontov)141 Mason CJ indicated that
the decision in Fibrosa142 correctly reflected the law in Australia. However, the principle in
Fibrosa143 only applies when there has been a total failure of consideration. Where there has
been a partial failure in performance of a contractual promise, there is no right to recover back
a proportionate part of the money paid on an action for money had and received. According to
Gummow J in Roxborough v Rothmans of Pall Mall Australia Ltd:144
One reason for this requirement that the failure be ‘total’ appears to be that, in cases in which
the question has arisen, the plaintiff already will have a remedy in damages which will be
governed by principles of compensation under which the plaintiff may recover no more
than the loss sustained; to allow the plaintiff to claim restitution in respect of any breach,
particularly where the plaintiff had made a bad bargain by paying the defendant more than
the defendant’s performance was worth, would cut across the compensatory principle.

25.71 The common law position still fails to deal adequately with the position where
before the frustrating event occurs, large sums are paid, but only a small benefit is received.
As anticipated by Viscount Simon in Fibrosa,145 this has been addressed by the legislatures
in some jurisdictions. Further, Treitel146 suggests that ‘the requirement of a “total” failure of
consideration should be restricted to those instances in which the reasons for it, … still have
force’. According to Trietel:147
It should, in other words, no longer apply where the payor has no remedy, or no satisfactory
remedy, for breach (eg by way of action for damages) in respect of the part left unperformed
by the payee, or where there is in fact no difficulty in apportioning that part to the whole in
respect of which the payor’s advance payment had been made.

Frustrated Contracts Act 1978 (NSW)

25.72 The common law rules on frustration, in essentially stating that the loss lies where it
falls, can result in hardship and injustice, as is illustrated by the Fibrosa case.148 In consequence,

141. (1993) 176 CLR 344 at 355; 111 ALR 289 at 296–7.
142. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; [1942] 2 All ER 122.
143. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; [1942] 2 All ER 122.
144. (2001) 208 CLR 516 at 557; 185 ALR 335 at 365–6. See also, G H Treitel, The Law of Contract, 10th ed
(1999), p 978.
145. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; [1942] 2 All ER 122.
146. Treitel, The Law of Contract, note 111 above, p 979.
147. Treitel, The Law of Contract, note 111 above, p 979. These remarks were cited with approval by Gummow J
in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 558; 185 ALR 335 at 366.
148. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; [1942] 2 All ER 122.

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the New South Wales parliament has legislated to provide a scheme to meet some of these
injustices. The relevant legislation is the Frustrated Contracts Act 1978 (NSW).
25.73 The first thing to note about the Frustrated Contracts Act 1978 (NSW) is that it does
not apply to all contracts. Some of the most significant examples of contracts to which the Act
does not apply include:
• contracts made before the commencement of the Frustrated Contracts Act 1978 (NSW) on
1 May 1979;149
• a charter-party which is not a time charter-party or a charter-party by way of demise;150
• contracts (other than a charter-party) for the carriage of goods by sea;151
• contracts of insurance;152
• contracts in which the parties have agreed that the Frustrated Contracts Act 1978 (NSW)
does not apply;153 and
• contracts that are embodied in the constitution of companies, certain registrable bodies,
co-operatives, incorporated associations and partnerships.154

25.74 The Frustrated Contracts Act 1978 (NSW) provides that a promise that was to have
been performed before frustration, but was not so performed, is discharged except to the extent
that it is necessary to support a claim for damages brought by the other party for breach of
contract.155 In assessing damages in such a case the court must have regard to the fact that the
contract has been frustrated.156
25.75 In situations where one party has fully performed its obligation prior to frustration,
the liability of the other party with respect to that performance is dealt with in s 10 of the
Frustrated Contracts Act 1978 (NSW). Although not clear, it is suggested by Carter157 that the
other party is obliged to pay the market value of that performance. Section 10 does not apply
to situations where the obligation performed prior to frustration involves, in whole or in part,
the payment of money.158
25.76 Where one party has partially performed its obligation prior to frustration, the liability
of the other party is dealt with in s 11 of the Frustrated Contracts Act 1978 (NSW). The section
sets out a complex formula by which the compensation payable to the first party is calculated.
Again, s 11 does not apply to situations where the obligation performed prior to frustration
involves, in whole or in part, the payment of money. 159
25.77 Section 12 of the Frustrated Contracts Act 1978 (NSW) deals with the situation where
the obligation performed prior to frustration involves the payment of money. The section

149. Frustrated Contracts Act 1978 (NSW) s 6(1)(a).

150. Frustrated Contracts Act 1978 (NSW) s 6(1)(b).
151. Frustrated Contracts Act 1978 (NSW) s 6(1)(c).
152. Frustrated Contracts Act 1978 (NSW) s 6(1)(d).
153. Frustrated Contracts Act 1978 (NSW) s 6(1)(e).
154. Frustrated Contracts Act 1978 (NSW) s 6(2).
155. Frustrated Contracts Act 1978 (NSW) s 7.
156. Frustrated Contracts Act 1978 (NSW) s 8.
157. Carter, Contract Law in Australia, note 104 above, p 782.
158. Frustrated Contracts Act 1978 (NSW) s 9.
159. Frustrated Contracts Act 1978 (NSW) s 9.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

stipulates that such payments are to be returned to the other party, provided that the money
paid by the first party was paid as consideration for performance by the other party.
25.78 Section 13 of the Frustrated Contracts Act 1978 (NSW) deals with the situation
illustrated by Fibrosa,160 namely, where expenditure has been incurred by one party prior to
frustration and that expenditure is effectively wasted as a result of frustration. In such cases that
amount of the wasted expenditure is equally apportioned between the parties. If something
can be salvaged from the partially completed work by the first party, then that too is equally
apportioned between the parties.
25.79 The impact of s 13 of the Frustrated Contracts Act 1978 (NSW) can be illustrated by
the following example. Suppose A enters into a contract with B to build a specific machine for
$100,000. The contract stipulates that B is to pay a deposit of $10,000. The deposit is paid by B.
A then does work on the machine to the value of $12,000, and then a frustrating event occurs
which terminates the contract. The work done on the machine can be salvaged by selling it off
for $2000.
25.80 Pursuant to s 12 of the Frustrated Contracts Act 1978 (NSW), B would be entitled to
recover the $10,000 deposit, but, in accordance with s 13, that would have to be reduced by half
the value of the work done — that is, $6000. At this stage B would thus recover $4000. However,
because the work done can be salvaged for $2000 by A, B is entitled to half of that sum — that
is, $1000. Thus, B is entitled to recover $5000 of the original $10,000 deposit.
25.81 Finally, it must be noted that the provisions set out in ss 9–13 of the Frustrated
Contracts Act 1978 (NSW) can be excluded by a court order if applying the provisions would
be manifestly inadequate or inappropriate, or would cause a manifest injustice, or would be
excessively difficult to apply. In such cases, the court can make orders in the form of money
payments or otherwise as it considers proper.161

Australian Consumer Law and Fair Trading Act 2012 (Vic)

25.82 Prior to its repeal, ss 32ZF–32ZO of the Fair Trading Act 1999 (Vic) dealt with the
impact of frustration where performance of a contract became impossible or was otherwise
frustrated. Those provisions repealed the provisions of the Frustrated Contracts Act 1959 (Vic).
25.83 The position in Victoria now is that the provisions contained in Pt 3.2 of the Australian
Consumer Law and Fair Trading Act 2012 (Vic) apply to certain contracts that are said to be
frustrated. Pursuant to this Part of the legislation, the following legislative regime applies:
• The provisions will apply to a contract if the parties to the contract are discharged from
further performance of the contract (where the contract is made before or after 1 July 2008
if the time for discharge of the contract is after 29 September 1959) because performance of
the contract becomes impossible, or the contract is otherwise frustrated, or the contract is
avoided by operation of s 12 of the Goods Act 1958.162

160. Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour [1943] AC 32; [1942] 2 All ER 122.
161. Frustrated Contracts Act 1978 (NSW) s 15.
162. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 35(1) and (2).

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• The provisions do not apply to any charterparty, except a time charterparty or a charterparty
by way of demise, or to any contract (other than a charterparty) for the carriage of goods by
sea; or to any contract of insurance except as provided for in s 40.163
• All amounts paid to any party under a discharged contract before the time of discharge are
recoverable,164 and all amounts payable to any party under a discharged contract before
the time of discharge cease to be payable.165 However, if the party to whom the sums were
paid or to whom they are payable, incurred expenses before the time of discharge in or for
the purpose of the performance of the contract, the court may, if it considers it just to do
so, having regard to all the circumstances, allow the party to retain or recover (as the case
may be) the whole or any part of the amounts so paid or payable. The retained or recovered
amount cannot be an amount in excess of the expenses incurred.166
• Where any party to a discharged contract has obtained a valuable benefit (other than a
payment of money to which s 37 or s 38 applies) before the time of discharge because of
anything done by another party in or for the purpose of the performance of the contract,
there shall be recoverable from that person such sum that does not exceed the value of the
benefit as the court considers just having regard to all the circumstances of the case. In
particular, the court is to have regard to:
• the amount of any expenses the benefited party incurred before the time of discharge,
including any amount paid or payable by the benefited party to any other party under
the contract and retained or recoverable by that party under s 36 or s 37; or
• the effect, in relation to the benefit obtained, of the circumstances giving rise to the
frustration or avoidance of the contract.167
• Where any party has assumed obligations under the contract in consideration of the
conferring of a benefit by any other party to the contract on any other person whether a
party to the contract or not, the court may, if in all the circumstances of the case it considers
it just to do so, treat any benefit so conferred as a benefit obtained by the party who has
assumed the obligations.168
• A formula for calculating expenses incurred is contained in s 39.
• Circumstances are set out whereby amounts payable under a contract of insurance are
excluded.169
• The legislation also sets out the circumstances in which contract provisions continue to
have effect despite frustration.170
• The provisions also provide that a contract will not be frustrated where it has been wholly
performed before the time of discharge or is wholly performed except for payment in respect
of that part of the contract of amounts that are or can be ascertained under the contract.171

163. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 35(3).
164. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 36(1).
165. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 36(2).
166. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 37.
167. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 38(1), (2) and (3). See John Holland Group
Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2010] VSC 322 at
[27]–[32].
168. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 38(4).
169. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 40.
170. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 41.
171. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 42.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Frustrated Contracts Act 1988 (SA)

25.84 The relevant South Australian legislation in relation to some frustrated contracts is
the Frustrated Contracts Act 1988 (SA), which came into operation on 1 April 1988. That
Act binds the Crown172 and applies to a frustrated contract (including a severable part of a
contract) irrespective of whether there is a total failure of consideration under the contract.173
‘Frustration’ is defined in relation to a contract for the sale of goods as including avoidance of
the contract under s 7 of the Sale of Goods Act 1895 (SA).174 However, application of the Act
is subject to any provision made in the contract itself as to the consequences of frustration.175
25.85 The Frustrated Contracts Act 1988 (SA) does not apply to:
• a contract made before the commencement of the Act;
• a charter-party (not being a time charter-party or a charter-party by way of demise);
• a contract (other than a charter-party) for the carriage of goods by sea;
• a contract of insurance;
• a contract under which an association is constituted or rules governing the administration
of, or rights of membership in, an association are laid down; or
• a partnership agreement.176
25.86 Under the Frustrated Contracts Act 1988 (SA) a contract will not be regarded as
being wholly frustrated by a frustrating event that affects a particular part of the contract in
circumstances where that part is severable from the remainder of the contract.177
25.87 Section 6 of the Frustrated Contracts Act 1988 (SA) prescribes that the frustration of
a contract discharges the parties from all contractual obligations (including obligations that
should have been, but were not, performed before the date of frustration). Importantly, ‘party’
does not include a person who is a party to the contract only in the capacity of a guarantor
or indemnifier.178 However, the frustration of a contract does not affect an obligation that is,
according to the proper construction of the contract, to survive frustration or a right of action
that arose before frustration for damages for breach of contract.179 These obligations and rights
are still enforceable.
25.88 A key feature of the Frustrated Contracts Act 1988 (SA) is the requirement for an
adjustment to be made between the parties where a contract is frustrated.180 The aim of this
adjustment is to avoid the consequence of a party being unfairly advantaged or disadvantaged
as a consequence of frustration. In order to facilitate the adjustment, s 7(2) stipulates that the
following methodology be utilised:
(a) The value of ‘contractual benefits’ received up to the date of frustration by each party to
the contract is to be assessed as at the date of frustration and those values aggregated.

172. Frustrated Contracts Act 1988 (SA) s 4(3).

173. Frustrated Contracts Act 1988 (SA) s 4(1)(a).
174. Frustrated Contracts Act 1988 (SA) s 3.
175. Frustrated Contracts Act 1988 (SA) s 4(1)(b).
176. Frustrated Contracts Act 1988 (SA) s 4(2).
177. Frustrated Contracts Act 1988 (SA) s 5.
178. Frustrated Contracts Act 1988 (SA) s 3.
179. Frustrated Contracts Act 1988 (SA) s 6(2).
180. Frustrated Contracts Act 1988 (SA) s 7(1).

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(b) The value of the contractual performance up to the date of frustration of each party to
the contract is to be calculated and those values aggregated.
(c) The aggregate amount arrived at under (b) above will be subtracted from the aggregate
amount arrived at under (a) above, and the remainder notionally divided between the
parties in equal shares.
(d) An adjustment will be made between the parties so that there is an equalisation of the
contractual return of each at the figure attributed under (c) above. ‘Contractual return’ is
defined in s 3.

25.89 Some assistance is obtained from the interpretation section contained in s 3 of the
Frustrated Contracts Act 1988 (SA) in order to make the above adjustments into a practical and
workable formula. Relevantly, the expression ‘contractual benefit’ is defined as follows:
‘Contractual benefit’, in relation to a contract, means:

(a) a benefit received by a party under the contract;

(b) a benefit that is received by a party otherwise than under the contract but —
(i) at a cost to the party that is taken into account under this Act in calculating the value
of the contractual performance of that party; or
(ii) in circumstances in which the receipt of the benefit constitutes part of the contractual
performance of that party.

25.90 ‘Contractual performance’ or ‘performance’, of a party to a contract, is defined as

meaning the performance by the party of contractual obligations and includes anything done
by the party preparatory to the performance of a contractual obligation. It should also be noted
that s 3 of the Frustrated Contracts Act 1988 (SA) sets out further definitions including the
following definition of the ‘value of the contractual performance’ in s 3(2):
(a) where the performance consists of a monetary payment — a reference to the amount of
the payment;
(b) where the contract itself places a value on the performance or such a value can be deduced
from the contract — that value;
(c) in any other case — a reference to an amount calculated as follows:
(i) the costs incurred by the party in carrying out, or preparatory to carrying out,
contractual obligations (including, in addition to actual expenditures, a reasonable
allowance for work done by the party) will be calculated; and
(ii) if it appears that the party would, assuming that the contract had been fully
performed, have made a profit or loss, the percentage profit or loss will be estimated,
and the amount arrived at under subparagraph (i) increased or reduced by that
percentage,

(and for the purposes of this paragraph it is immaterial that the other parties to the contract
may have received no benefit from the performance referred to above).

25.91 Where a contract is frustrated by an event that affects the value of contractual benefits
received under the contract, that effect on value will be taken into account in any valuation of
those benefits made for the purposes of the Frustrated Contracts Act 1988 (SA).181

181. Frustrated Contracts Act 1988 (SA) s 3(3).

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25.92 Where an event occurring before or resulting in the frustration of a contract diminishes
the value of a contractual benefit and:
• the event consists of or arises from a negligent act or omission for which a particular party
to the contract is responsible;
• the risk of the event occurring is, by law or custom, to be borne by a particular party to the
contract or is a risk against which a particular party to the contract should, in accordance
with ordinary prudence or good business practice, have insured;
• that event consists of or arises from an act or omission for which a particular party to the
contract is responsible, but which is extraneous to the contract,
that party will, for the purposes of the Frustrated Contracts Act 1988 (SA), be taken to have
received a contractual benefit (in addition to any benefits actually received) equivalent to the
amount of that diminution of value.182
25.93 Where the contractual performance of a party to a contract is referable to a number of
separate contracts, the value of that contractual performance is to be apportioned between the
various contracts in such proportions as may be just.183
25.94 Where, in the opinion of a court, there is, in the circumstances of a particular case, a
more equitable basis for making the adjustment referred to in s 7(1) of the Frustrated Contracts
Act 1988 (SA) than the one set out in s 7(2), the court may make an adjustment on that basis,
rather than on the basis of s 7(2).184
25.95 For the purpose of giving effect to an adjustment under s 7 of the Frustrated Contracts
Act 1988 (SA), a court may make orders for:
• the payment of money (including interest);
• the disposition, sale, or realisation of property;
• the creation of a charge on property;
• the appointment and powers of a receiver; and
• any incidental or ancillary matter.185

25.96 Where a party to a contract purportedly performs a contractual obligation or an act

preparatory to the performance of a contractual obligation after frustration of the contract, but
the party did not know and could not reasonably be expected to have known that the contract
had been frustrated, the value of the performance (and of any consequent contractual benefits)
will be brought into account for the purposes of an adjustment under s 7 of the Frustrated
Contracts Act 1988 (SA) as if it had occurred before frustration of the contract.186
25.97 Where two or more persons are jointly parties to a contract in the same capacity, those
parties will be grouped together and treated as a single party to the contract for the purposes of
s 7 of the Frustrated Contracts Act 1988 (SA).187

182. Frustrated Contracts Act 1988 (SA) s 3(4).

183. Frustrated Contracts Act 1988 (SA) s 7(3).
184. Frustrated Contracts Act 1988 (SA) s 7(4).
185. Frustrated Contracts Act 1988 (SA) s 7(5).
186. Frustrated Contracts Act 1988 (SA) s 7(6).
187. Frustrated Contracts Act 1988 (SA) s 7(7).

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25.98 An action for an adjustment under the Frustrated Contracts Act 1988 (SA), and for
consequential orders to give effect to such an adjustment, may be commenced before a court
as if it were an action under the contract that arose at the time of frustration of the contract.188

IS THE DOCTRINE OF FRUSTRATION NECESSARY?

25.99 Critics of the doctrine of frustration argue that the risk that comes with a supervening
event is something that should be left to the parties to resolve. Ultimately, this is a process
of negotiating risk. If the contract is silent in relation to some supervening event, there is,
according to these critics, nothing that justifies shifting the risk of loss by means of the doctrine
of frustration.
25.100 In effect, parties do often negotiate the risk associated with supervening events by
express provisions in the contract which commonly provide what is to happen in the case of
specified supervening events. These force majeure clauses are very common, so much so that it
has been argued that force majeure clauses, rather than the doctrine of frustration, in fact, deal
with the vast majority of cases where supervening events arise.189
25.101 Force majeure clauses have advantages over reliance upon the doctrine of frustration
in that they can be flexible, allowing the parties to choose from a range of consequences
(for example, suspension of obligations or re-pricing according to an agreed formula) that
follow the supervening event, whereas, if frustrated, the only possible consequence is that both
parties are discharged from further performance of the contract. Force majeure clauses can also
provide for a wider range of ‘triggering events’ than occurs in the application of the doctrine
of frustration. All in all, as McKendrick190 suggests, the ‘remedial rigidity of the general law
contrasts unfavourably with the flexibility’ of force majeure clauses. The only real downside
associated with force majeure clauses is the strict approach the courts have taken in interpreting
them.191 Despite this, unintended and unforeseen consequences arise and in such cases the
doctrine of frustration may work to achieve a fair result in circumstances where the parties
have omitted reference to a force majeure clause.

188. Frustrated Contracts Act 1988 (SA) s 8.

189. E McKendrick, ‘Force Majeure Clauses: The Gap Between Doctrine and Practice’, in A Burrows and E Peel
(eds), Contract Terms, Oxford University Press, Oxford, 2007, p 233.
190. E McKendrick, ‘Force Majeure Clauses: The Gap Between Doctrine and Practice’, note 189 above, p 239.
191. Such a strict approach was illustrated in Metropolitan Water Board v Dick Kerr & Co Ltd [1918] 2 KB 1 at
30 (later affirmed on appeal in [1918] AC 119).

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Part VI:
Illegality
 26
STATUTORY ILLEGALITY

INTRODUCTION
26.1 The validity and subsequent enforceability of contracts is often affected by legislative
intervention in the form of statutes, regulations, ordinances, and by-laws. The affectation
by statute may make the contract illegal and void or it may just make it unenforceable. The
consequence will depend upon construction of the particular statute after applying rules of
statutory interpretation in ascertaining the intention behind the statute and its effect.
26.2 In this chapter no distinction will be made as to whether different rules apply depending
upon the type of regulatory provision that affects a contract. In other words, it will be taken that
it makes no difference whether legislative intervention takes the form of a statute, regulation,
ordinance, or by-law. The issue that will be focused on is what effect, if any, any relevant
legislative provision has on the formation of a contract and on its performance, and how that
effect is determined. For example, does the particular piece of legislation prohibit the entry into
a contract of a particular type? If so, it is often the case that such a contract is void ab initio.
Alternatively, if the legislative provision is silent on the question of whether parties are able
to enter into such a contract, but nevertheless prescribes a particular manner of performance
of that contract, what is the position if the parties are not performing their obligations in the
prescribed way? Could such a contract be regarded as being impliedly illegal and void? Further,
what principles regulate such a determination?
26.3 An illustration is useful at this stage. For example, what if a statute prescribes that
therapeutic goods are to be registered and approved by a government regulatory body. Would
a sale of non-approved or non-registered therapeutic goods be enforceable or void? Does it
make any difference that the purpose of the statute or regulation was to protect the public
and that it prescribes an offence for breach? What about related contracts to the sale contract?
Using another example, it may be that a regulatory provision expressly or impliedly prohibits
a particular contract between X and Y. However, what if Y, as a purchaser from X, enters into a
finance agreement with Z so as to enable Y to pay X for the goods the subject of the contract?
The finance agreement is a related contract to the contract of sale that is regulated by the statute
and the statute may be silent on the question of the enforceability of such related contracts.
Would contracts such as loan agreements, lease agreements, and guarantees be enforceable
even though the principal agreement for sale was affected by a breach of a statutory provision?

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The answers to each of these questions are that it is ultimately a question of construction of the
particular statute using ordinary principles of statutory interpretation.1
26.4 In relation to illegality concerning statutes, there has been shift in the approach by
courts. In the 19th century there was a tendency by courts to approach the question of deciding
whether a contract was rendered void as a result of a particular statutory provision by applying
fixed rules by reference to the text and effect of the provision. Illustrative was the commonly
invoked rule that, if the statutory provision prohibited entry into or performance of a contract,
a court would generally regard the contract as void.2 Later courts began to apply ordinary
principles of statutory interpretation to that question, rather than the application of fixed
rules.3 There is an abundance of evidence pointing to this change of approach. In Archbolds
(Freightage) Ltd v S Spanglett Ltd4 Devlin LJ said:
The general considerations which arise on this question were examined at length in St John
Shipping Corporation v Joseph Rank Ltd.5 … Fundamentally they are the same as those that
arise on the construction of every statute; one must have regard to the language used and to
the scope and purpose of the statute. I think that the purpose of this statute is sufficiently
served by the penalties prescribed for the offender; the avoidance of the contract would
cause grave inconvenience and injury to innocent members of the public without furthering
the object of the statute.

26.5 Later, in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd,6 the facts of which are
set out below,7 Gibbs ACJ set out the proper approach that needs to be taken by the court when
he said:
It is often said that a contract expressly or impliedly prohibited by statute is void and
unenforceable. That statement is true as a general rule, but for complete accuracy it needs
qualification, because it is possible for a statute in terms to prohibit a contract and yet to
provide, expressly or impliedly, that the contract will be valid and enforceable. However,
cases are likely to be rare in which a statute prohibits a contract but nevertheless reveals an
intention that it shall be valid and enforceable, and in most cases it is sufficient to say, as has
been said in many cases of authority, that the test is whether the contract is prohibited by the
statute. Where a statute imposes a penalty upon the making or performance of a contract,
it is a question of construction whether the statute intends to prohibit the contract in this
sense, that is, to render it void and unenforceable, or whether it intends only that the penalty
for which it provides shall be inflicted if the contract is made or performed.

The question whether a statute, on its proper construction, intends to vitiate a contract
made in breach of its provisions, is one which must be determined in accordance with the
ordinary principles that govern the construction of statutes. … One consideration that has

1. Maxcon Constructions Pty Ltd v Vadasz (No 2) [2017] SASCFC 2 at [39].

2. Maxcon Constructions Pty Ltd v Vadasz (No 2) [2017] SASCFC 2 at [38].
3. QuestCrown Pty Ltd v Insignia Towers (Southport) Pty Ltd [2007] QCA 378; Maxcon Constructions Pty Ltd
v Vadasz (No 2) [2017] SASCFC 2 at [39].
4. [1961] 1 QB 374 at 390; [1961] 1 All ER 417. See 26.28.
5. [1957] 1 QB 267; [1956] 3 All ER 683.
6. (1978) 139 CLR 410 at 413–15; 21 ALR 585 at 588–9. A similar approach was taken in Dover Beach Pty Ltd
v Geftine Pty Ltd [2008] 21 VR 442 at 454.
7. See 26.31–26.39.

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been regarded as important in a great many cases … is whether the object of the statute —
or one of its objects — is the protection of the public. An antithesis is commonly suggested
between an intention to protect the public and an intention simply to secure the revenue, and
it is said that when the former intention appears the contract must be taken to be prohibited,
whereas if the intention is only to protect the revenue the statute will not be construed as
imposing a prohibition on contracts. The question whether the statute was passed for the
protection of the public is one test of whether it was intended to vitiate a contract made
in breach of its provisions, but … it is not the only test. It would be contrary to reason and
principle to allow one circumstance to override all other considerations in the interpretation
of a statute. As Devlin J said in St John Shipping Corporation v Joseph Rank Ltd:8 ‘The
fundamental question is whether the statute means to prohibit the contract. The statute is to
be construed in the ordinary way: one must have regard to all relevant considerations and no
single consideration, however important, is conclusive’.

26.6 In the same case Mason J9 said:

Where, as here, a statute imposes a penalty for contravention of an express prohibition
against carrying on a business without a licence or an authority and the business is carried
on by entry into contracts, the question is whether the statute intends merely to penalize
the person who contravenes the prohibition or whether it intends to go further and prohibit
contracts the making of which constitute the carrying on of the business. In deciding this
question the court will take into account the scope and purpose of the statute and the
consequences of the suggested implication with a view to ascertaining whether it would
conduce to, or frustrate, the object of the statute.

26.7 Emphasis upon ascertaining the intention behind a statute or what has been called ‘the
policy of the legislature’ featured in Nelson v Nelson,10 where McHugh J said:
If Courts withhold relief because of an illegal transaction, they necessarily impose a sanction
on one of the parties to that transaction, a sanction that will deprive one party of his or
her property rights and effectively vest them in another person who will almost always be
a willing participant in the illegality. Leaving aside cases where the statute makes rights
arising out of the transaction unenforceable in all circumstances, such a sanction can only be
justified if two conditions are met.

First, the sanction imposed should be proportionate to the seriousness of the illegality
involved. It is not in accord with contemporaneous notions of justice that the penalty for
breaching a law or frustrating its policy should be disproportionate to the seriousness of the
breach. The seriousness of the illegality must be judged by reference to the statute whose
terms or policy is contravened. It cannot be assessed in a vacuum. The statute must always
be the reference point for determining the seriousness of the illegality; otherwise the Courts
would embark on an assessment of moral turpitude independently of and potentially in
conflict with the assessment made by the legislature.

8. [1957] 1 QB 267 at 287; [1956] 3 All ER 683 at 690.

9. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 426; 21 ALR 585 at 598.
These remarks were also approved by the Victorian Court of Appeal in Dover Beach Pty Ltd v Geftine Pty
Ltd (2008) 21 VR 442 at 455.
10. (1995) 184 CLR 538 at 612–3; 132 ALR 133 at 192–3.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Secondly, the imposition of the civil sanction must further the purpose of the statute and
must not impose a further sanction for the unlawful conduct if Parliament has indicated
that the sanctions imposed by the statute are sufficient to deal with conduct that breaches
or evades the operation of the statute and its policies. In most cases, the statute will provide
some guidance, express or inferred, as to the policy of the legislature in respect of a
transaction that contravenes the statute or its purpose. It is this policy that must guide the
Courts in determining, consistent with their duty not to condone or encourage breaches of
the statute, what the consequences of the illegality will be. Thus, the statute may disclose an
intention, explicitly or implicitly, that a transaction contrary to its terms or its policy should
be unenforceable. On the other hand, the statute may inferentially disclose an intention that
the only sanctions for breach of the statute or its policy are to be those specifically provided
for in the legislation.

26.8 These views were echoed in Master Education Services Pty Ltd v Ketchell,11 where the
question before the High Court was whether s 51AD of the Trade Practices Act 1974 (Cth)12
rendered void any franchise agreement that had not been made in accordance with the relevant
Franchise Code of Conduct. In holding that the section did not have that effect, Gummow ACJ,
and Kirby, Hayne, Crennan, and Kiefel JJ13 said:
The question on the appeal is whether a franchise agreement is vitiated where it has been
entered into by a corporate franchisor which has contravened the Code, by entering into an
agreement without receiving the required statement from the franchisee, confirming the
receipt of information about the franchise and the franchisor and that the franchisee has had
sufficient time to understand that information. It is not to be assumed that the common law
sanction is to apply in the case of every contravention of a prohibition directed to one of the
parties to a contract unless the statute contradicts or displaces such an effect, …

Section 51AD is not expressed to prohibit entry into a franchise agreement where a franchisor
has not complied with the Code. It does not make performance of such an agreement
unlawful in that circumstance. Like the statutory provisions in Yango Pastoral Co v First
Chicago,14 it contains no reference to contracts or transactions. Its prohibition is directed to
compliance with industry codes, which are central to the operation of Pt IVB. An industry
code is defined to mean ‘a code regulating the conduct of participants in an industry towards
other participants in the industry or towards consumers in the industry’.15

As was pointed out in … Yango Pastoral Company v First Chicago,16 … it does not always
follow from a prohibition directed to one party to an agreement that the contract is void.
In Yango Pastoral Co v First Chicago17 the statutory prohibition in question prohibited a
corporation from carrying on any banking business without an authority to do so, and
provided a daily penalty for contravention. It was held that securities taken by a corporation

11. (2008) 236 CLR 101 at 107–9; 249 ALR 44 at 47–9. For a recent discussion of this case in the United
Kingdom, see Quinn v Irish Bank Resolution Corporation Ltd (in Special Liquidation) [2015] IESC 29 at
[7.45].
12. See now s 51AD of the Competition and Consumer Act 2010 (Cth).
13. Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at 107–9; 249 ALR 44 at 47–9.
14. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; 21 ALR 585.
15. Trade Practices Act 1974 (Cth) s 51ACA(1).
16. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; 21 ALR 585.
17. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; 21 ALR 585.

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which contravened that provision were not rendered void and unenforceable by the Act.
Gibbs ACJ observed that it was directed not at the making or performance of particular
contracts, but at the carrying on of any banking business. …

In the present case, the prohibition in s 51AD is directed to securing compliance by franchisors
with the requirements of industry codes, and the consequence of contravention is the grant
of remedies provided for in Pt VI of the Act. In the absence of an express prohibition in
the Act, any such prohibition against the making of an agreement, unless there has been
compliance with an industry code, must be found by a process of implication.

26.9 Their Honours18 then concluded as follows:

The purposes of the scheme of Pt IVB and the Code in question are to regulate the conduct
of persons in the franchising industry in order to improve business practices, to provide
some protection to franchisees proposing to enter into franchise agreements and to decrease
litigation. Those purposes are sought to be achieved, in large part, by ensuring that a
prospective franchisee is in a position to make an informed decision about the operation of
the franchise and is encouraged to take independent advice before entering into a franchise
agreement. The scheme is largely directed to the franchisor, who is obliged to provide that
information and advice. Section 51AD may be seen to promote compliance with the Code,
by providing, in effect, that non-compliance will amount to a contravention, for which
there are remedies available under Pt VI. It is no part of the scheme, and unnecessary to the
purposes mentioned, to strike down a contract made by a non-complying franchisor. It is
sufficient for the purpose of the scheme that a franchisor is aware of the obligations imposed
by the Code and that action may be taken by a franchisee under the Act with respect to a
contravention of s 51AD.

26.10 What cases such as Nelson v Nelson19 and Master Educations Services Pty Ltd
v Ketchell20 point to was summarised in the High Court in Miller v Miller21 by French CJ, and
Gummow, Hayne, Crennan, Kiefel, and Bell JJ as being one which gives an emphasis to:
… the discernment, from the scope and purpose of the statute, of whether the legislative
purpose will be fulfilled without regarding the contract … as void and unenforceable.
But implicit in, indeed at the very heart of, that process lies the recognition that there are
cases where the breach of a norm of conduct stated expressly or implied in the statutory
text requires the conclusion that an obligation otherwise created or recognised is not to be
enforced by the courts.

26.11 Once a finding is made that a contract is unlawful, a court needs to enquire whether or
not the circumstances surrounding the contract are such that the person seeking the assistance of
the court should be denied a relevant remedy. In this respect, in Nelson v Nelson22 McHugh J said:
[C]ourts should not refuse to enforce legal or equitable rights simply because they arose out
of or were associated with an unlawful purpose unless: (a) the statute discloses an intention

18. Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at 111–2; 249 ALR 44 at 51.
19. (1995) 184 CLR 538; 132 ALR 133. For a recent discussion of this case in the United Kingdom, see Quinn
v Irish Bank Resolution Corporation Ltd (in Special Liquidation) [2015] IESC 29 at [7.50]–[7.54].
20. (2008) 236 CLR 101; 249 ALR 44.
21. (2011) 242 CLR 446 at 459; 275 ALR 611 at 619.
22. (1995) 184 CLR 538 at 613; 132 ALR 133 at 193.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of
refusing to enforce those rights is not disproportionate to the seriousness of the unlawful
conduct; (ii) the imposition of the sanctions is necessary, having regard to the terms of the
statute, to protect its objects or policies, and (iii) the statute does not disclose an intention
that the sanctions and remedies contained in the statute are to be the only legal consequences
of a breach of the statute or the frustration of its policies.

26.12 It is open for parliament to indicate the effect or impact that particular legislation
has on the enforceability of a contract. This will be achieved by the specific wording utilised
in the particular statute or through the contents of extrinsic aids to statutory interpretation,
such as the second reading speech accompanying the relevant bill. According to Carter,23
the following possibilities could apply, depending upon the wording of the particular
statute:
(1) An Act may prohibit the making of contracts of a particular description or (more
broadly) ‘agreements’, ‘arrangements’ or ‘understandings’. Many Acts which, while
lacking language of express prohibition, penalise the making of contracts of a particular
description, fall within this first class.
(2) Parliament may, while stopping short of express or implied prohibition, declare
contracts of a particular description to be null and void.
(3) Parliament may merely declare void a particular class of contractual provision, such as
an exclusion clause.
(4) Parliament may render them void in whole or in part as against a third party only, while
not touching the validity of contracts as between the parties.

26.13 Statutes or regulations may make a contract void with or without prescribing for an
offence if such a contract is made or performed. Alternatively, the statute or regulation may
create an offence if the contract is made or performed, but be silent on its enforceability.24 In
such circumstances courts will have to determine the real object of any legislation that has
a bearing on a particular contract and on any related contract. To this end, any Explanatory
Memorandum may be of use.
26.14 Importantly, in order for a contract to be struck down by statute or regulation it
needs to be established that the statute or regulation was breached. It may also be necessary
to consider public policy issues.25 In Equuscorp Pty Ltd v Haxton26 French CJ, and Crennan
and Kiefel JJ, after noting that a statute might expressly or impliedly prohibit a contract,
referred to a further possible effect of the statute on the enforceability of a contract as
follows:
[T]he agreement is not expressly or impliedly prohibited by a statute but is treated by the
courts as unenforceable because it is a ‘contract associated with or in the furtherance of
illegal purposes.

23. J W Carter, Contract Law in Australia, 6th ed, LexisNexis Butterworths, Australia, 2013, p 551.
24. Australian Broadcasting Corporation Ltd v Redmore Pty Ltd (1989) 166 CLR 454; 84 ALR 199.
25. Public policy grounds are considered in Chapter 27.
26. (2012) 246 CLR 498 at 513; 286 ALR 12 at 22. This passage was cited with approval by the High Court in
Gnych v Polish Club Ltd (2015) 255 CLR at 424–5; 320 ALR 489 at 495.

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26.15 In Fitzgerald v F J Leonhardt Pty Ltd the court was concerned with the application of
27

a particular part of the Water Act 1992 (NT) to a contract made between an owner of property
and a driller. The driller had been engaged by the owner to drill a minimum of three bores on
his land so as to obtain water. The driller held a drilling licence and drilled several bores on
the owner’s land pursuant to the contract. A dispute then arose as to how much the driller was
owed for its work. The Water Act did not contain any express prohibition against the making
of the contract in question. However, the owner argued that in performing the work the driller
breached s 56 of the Water Act that required a construction permit to be obtained in relation
to drilling work. No construction permit had been obtained. Given all the circumstances,
the High Court held that it was possible for the particular contract to be performed without
contravening the Water Act. The penalty imposed by s 56 was directed at the owner and not
the driller, and on construction it was held that the contract was not forbidden by the Act. The
driller was entitled to be paid.
26.16 In the course of their joint judgment in this case McHugh and Gummow JJ28 said:
The question then becomes whether, as a matter of public policy, the court should decline
to enforce the contract because of its association with the illegal activity of the owner. …
The refusal of the courts in such a case to regard the contract as enforceable stems not
from express or implied legislative prohibition but from the policy of the law, commonly
called public policy. Regard is to be had primarily to the scope and purpose of the statute to
consider whether the legislative purpose will be fulfilled without regarding the contract as
void and unenforceable.

26.17 Their Honours29 then continued:

[T]he courts should not refuse to enforce contractual rights arising under a contract, merely
because the contract is associated with or in furtherance of an illegal purpose, where the
contract was not made in breach of a statutory prohibition upon its formation or upon the
doing of a particular act essential to the performance of the contract or otherwise making
unlawful the manner in which the contract is performed.

26.18 Finally, illegality, as a general rule, needs to be pleaded by a defendant. However,

there are exceptions, as was noted in Knowles v Fuller.30 In that case it was acknowledged that
illegality need not be pleaded where the contract that gives rise to the plaintiff ’s claim was, on
its face, illegal. This will be a question of fact in the circumstances.

CONTRACTS PROHIBITED BY STATUTE

26.19 As noted above,31 whether a contract is prohibited by legislative regulation will be a
matter of statutory construction and not the application of fixed rules32 and, in this regard,

27. (1997) 189 CLR 215; 143 ALR 569. For a recent discussion of this case in the United Kingdom, see Quinn
v Irish Bank Resolution Corporation Ltd (in Special Liquidation) [2015] IESC 29 at [7.46]–[7.49].
28. Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 227; 143 ALR 569 at 576.
29. Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 229; 143 ALR 569 at 579.
30. (1947) 48 SR (NSW) 243.
31. See 26.3.
32. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 423, 425–6; 21 ALR 585 at
596, 598; Miller v Miller (2011) 242 CLR 446 at 457; 275 ALR 611 at 617–18; Midstyle Nominees Pty Ltd v
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parliamentary intention behind the particular regulatory provision is paramount. That

intention can be expressly stated in the legislation or it may be implied. The topic of statutory
illegality will be explored below under the three categories of statutory illegality namely:
• contracts expressly prohibited by statute;
• contracts impliedly prohibited by statute; and
• public policy of a statute rendering a contract illegal.

Contracts expressly prohibited by statute

26.20 Many contracts are expressly prohibited by statute or regulation or they may be
expressly declared to be null and void. These are sometimes referred to as contracts that are
illegal as formed, or as illegal in formation. In determining whether a statute expressly prohibits
a contract, in J C Scott Constructions v Mermaid Waters Tavern Pty Ltd,33 McPherson J said:
Such a prohibition, which may be absolute or subject to some qualification such as non-
possession of a licence or absence of official consent, is directed to conduct such as ‘offering’
or ‘contracting’ or ‘buying’ or ‘selling’. Examples, which are legion, include the well known
case of Re Mahmoud & Ispahani34 (‘a person shall not buy or sell’): Chai Sau Yin v Lieu
Kwee Sam35 (‘no person shall purchase’); Davison v McCorquodale36 (‘a person shall not offer,
promise or agree’); Vella v Altadonna37 (‘no person ... shall sell or let or agree to sell or let’).

When a statute expressly prohibits the making of a particular contract, a contract made in
breach of the prohibition will be illegal, void, and unenforceable, unless the language of the
statute, either expressly or impliedly, provides otherwise.38
26.21 In Re Mahmoud and Ispahani39 an order made under the Defence of the Realm
Regulations prevented the sale of linseed oil without a licence. Briefly, the relevant part of the
legislation provided as follows:
Until further notice a person shall not buy or sell … any [linseed oil] except under and in
accordance with the terms of a licence issued by or under the authority of the Food Controller.

Moreover, it was a condition of the seller’s licence that linseed oil not be sold to anyone who
did not hold an authority from the food controller. The plaintiff seller sold oil to the defendant
who did not have the necessary authority from the food controller. The defendant refused to
accept the goods and argued, among other things, that the statute prohibited the contract and
that therefore the court could not enforce it.

Jordon [2013] WASC 85 at [19]; Dover Beach Pty Ltd v Geftine Pty Ltd (2008) VR 442 at 454–7; Maxcon
Constructions Pty Ltd v Vadasz (No 2) [2017] SASCFC 2 at [41]–[46].
33. [1984] 2 Qd R 413 at 422–3, cited with approval in Barker v Midstyle Nominees Pty Ltd [2014] WASCA 75
at [45].
34. [1921] 2 KB 716.
35. [1962] AC 304.
36. (1955) 55 SR (NSW) 181.
37. [1980] Qd R 606.
38. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 430; 21 ALR 585 at 601–2.
39. [1921] 2 KB 716.

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26.22 The English Court of Appeal decided that it was the intention of parliament, when
it passed the legislation, to absolutely prohibit unlicensed contracts. This meant that it was
unenforceable. Scrutton LJ40 said that ‘if an act is prohibited by statute for the public benefit,
the court must enforce the prohibition’.
26.23 Another illustration of the same approach occurred in Baird v Magripilis.41 In that case,
two Greek migrants contracted to sub-lease certain Crown land from Baird. The Leases to
Aliens Restriction Act 1912 (Qld), stipulated that:
[I]t shall not be lawful to … enter into any agreement … for any lease of any parcel of land
… with any alien who has not first obtained … a certificate that he is able to read and write
from dictation words in such language as the Secretary of Public Lands may direct. Any such
… agreement shall be null and void.

The two Greek migrants, although they had been naturalised as Australians, had not passed
the dictation test required by the legislation. The consequence was that their application to
specifically enforce the sub-lease was rejected, as the sub-lease was expressly illegal pursuant to
the said provisions of the Leases to Aliens Restriction Act 1912 (Qld).

In Pipe Networks Pty Ltd v 148 Brunswick Street Pty Ltd (Trustee),42 Derrington J stated:
The consequence of illegality ‘is a matter of statutory construction whatever category of
illegality is involved’. It ‘does not always follow from a prohibition directed to one party to
an agreement that the contract is void’. It ‘depends upon the mischief which the statute is
designed to prevent, its language, scope and purpose, the consequences for the innocent
party, and any other relevant considerations’.

The task of statutory construction must start with the text; and, with the text, so must the task
end.

Contracts impliedly prohibited by statute

26.24 It is sometimes the case that a statute does not expressly prohibit a contract. In such cases
the question will be whether the statute impliedly prohibits the contract. This implication will,
however, not be made lightly. In St John Shipping Corporation v Joseph Rank Ltd43 Devlin J said:
If a contract has as its whole object the doing of the very act which the statute prohibits,
it can be argued that you can hardly make sense of a statute which forbids and act and yet
permits to be made a contract to do it; that is a clear implication. But unless you get a clear
implication of that sort, I think that a court ought to be very slow to hold that a statute intends
to interfere with the rights and remedies given by the ordinary law of contract. Caution in
this respect is, I think, especially necessary in these times when so much commercial life is
governed by regulations of one sort or another, which may easily be broken without wicked
intent.

40. Re Mahmoud and Ispahani [1921] 2 KB 716 at 729.

41. (1925) 37 CLR 321.
42. (2019) 371 ALR 627 at 669.
43. [1957] 1 QB 267 at 288; [1956] 3 All ER 683 at 690. Reference was made to this decision in Patel v Mirza
[2017] AC 467 at 475–6; [2017] 1 All ER 191 at 196–7. See also Quinn v Irish Bank Resolution Corporation
Ltd (in Special Liquidation) [2015] IESC 29 at [7.30].

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26.25 Where a statute makes it an offence to make a particular contract or to make it in

defined circumstances, it will be construed as an implied prohibition of the making of the
contract, unless the statutory provision is merely in aid of the revenue.44 Thus, in Smith
v Mawhood45 a statute prohibited the sale of tobacco by sellers who did not have a licence. The
court considered that the object of the statute, as intended by parliament, was to raise revenue
from licence fees and from fines. The statute did not invalidate contracts. This meant that any
contract made by sellers without a licence was enforceable.
26.26 On the other hand, it is not necessary to show that a contract is illegal ab initio in order
to avoid it. It will be enough to show that a party did not perform it in the only way in which
the statute allows it to be performed.46
26.27 There is little doubt that if the object of the statute can only be achieved by prohibiting
a class of contract, then it is likely that such contracts will be impliedly prohibited in
circumstances where there is no express regulatory provision prohibiting them. However, if the
object of the statute can still be achieved without prohibiting the type of contract, it is unlikely
that the contract will be regarded as being impliedly prohibited.47
26.28 In Archbolds (Freightage) Ltd v S Spanglett Ltd48 the defendants had contracted with the
plaintiffs to transport goods belonging to a third party. The goods were stolen in transit and
it transpired that the defendants did not have the appropriate licence required by the English
Road and Rail Traffic Act 1933. The Act stated that ‘no person shall use a vehicle … unless
he holds … [a specific] licence’. The issue was whether the Act prohibited the contract. The
plaintiff claimed damages against the carrier for the loss of the goods. The carrier argued that
the contract was illegal and no cause of action could arise from an illegal contract.
26.29 The English Court of Appeal49 held that the contract was enforceable. It was found
that a policy objective of the legislation was to ensure an orderly, efficient and comprehensive
transport service. The transport of goods was not made illegal. In the course of coming to this
decision, Pearce LJ50 said:
If the court too readily implies that a contract is forbidden by statute, it takes it out of its own
power (so far as that contract is concerned) to discriminate between guilt and innocence.
But if the court makes no such implication, it still leaves itself with the general power, based
on public policy, to hold those contracts unenforceable which are ex facie unlawful, and also
to refuse its aid to guilty parties in respect of contracts which to the knowledge of both can
only be performed by a contravention of the statute … or which though apparently lawful are
intended to be performed illegally or for an illegal purpose.

44. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 431; 21 ALR 585 at 602.
45. (1845) 153 ER 552.
46. Anderson Ltd v Daniel [1924] 1 KB 138 at 144.
47. Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374 at 386–7; [1961] 1 All ER 417 at 423.
48. [1961] 1 QB 374; [1961] 1 All ER 417.
49. Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374; [1961] 1 All ER 417.
50. Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374 at 387; [1961] 1 All ER 417 at 423.

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26.30 In approaching the matter in much the same way, Devlin LJ51 said:
I think that the purpose of this statute is sufficiently served by the penalties prescribed for
the offender; the avoidance of the contract would cause grave inconvenience and injury to
innocent members of the public without furthering the object of the statute. Moreover, the
value of the relief given to the wrongdoer if he could escape what would otherwise have been
his legal obligation might, as it would in this case, greatly outweigh the punishment that
could be imposed upon him, and thus undo the penal effect of the statute.

26.31 In Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd52 Yango Pastoral Co
borrowed $132,600 from First Chicago Australia on the security of a mortgage over property.
Yango Pastoral Co later defaulted on the loan. Pursuant to s 8 of the Banking Act 1959 (Cth):
A body corporate shall not carry on any banking business in Australia unless the body
corporate is in possession of an authority under the next succeeding section to carry on
banking business.

Penalty: Ten thousand dollars for each day during which the Contravention continues.

The facts revealed that First Chicago Australia did not have the requisite authority to carry on
banking business in accordance with the Banking Act. In proceedings brought by First Chicago
Australia, Yango Pastoral Co argued that First Chicago Australia’s commercial activities were
tantamount to those of a bank — in other words, it was carrying on the business of banking
and it did not have the requisite proper authority. According to Yango Pastoral Co, this made
the loan illegal and unenforceable.
26.32 In the High Court Gibbs ACJ53 said:
There are four main ways in which the enforceability of a contract may be affected by a
statutory provision which renders particular conduct unlawful: (1) The contract may be
to do something which the statute forbids; (2) The contract may be one which the statute
expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made
in order to effect a purpose which the statute renders unlawful; or (4) The contract, although
lawful according to its own terms, may be performed in a manner which the statute prohibits.

26.33 On the facts of the case, the first ground stated by Gibbs ACJ did not apply. The question
therefore was whether s 8 of the Banking Act 1959 (Cth), on ‘its proper construction’, prohibited
the making or performance of the contract? The High Court said that even if First Chicago
Australia was in breach of the legislation, the purpose of the legislation was to protect the interest
of the public, including those members of the public who deposited moneys with banks and
other lenders. The court concluded that parliament could not have intended that loans made
by unauthorised bankers be irrecoverable, as this would put deposits at risk. Gibbs ACJ54 said:
In those circumstances ‘the avoidance of the contract would cause grave inconvenience and
injury to innocent members of the public without furthering the object of the statute’.

51. Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374 at 390; [1961] 1 All ER 417 at 425.
52. (1978) 139 CLR 410; 21 ALR 585.
53. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413; 21 ALR 585 at 587–8.
For a recent discussion of this case in the United Kingdom, see Quinn v Irish Bank Resolution Corporation
Ltd (in Special Liquidation) [2015] IESC 29 at [7.39]–[7.44].
54. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 415; 21 ALR 585 at 589.
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26.34 His Honour noted that the fact that the penalty for contravention and the fact that it
was imposed whether the party engaged in one or 100 transactions in breach, was an indication
that parliament did not intend to prohibit each contract made in the course of the business,
but only to penalise the carrying on of the business without authority. His Honour55 concluded
that ‘[t]he language of s 8 [of the Banking Act] indicates that it is directed, not at the making or
performance of particular contracts, but at the carrying on of any banking business’.
26.35 Ascertaining parliament’s intention was also a factor that influenced Mason J,56 stating:

The principle that a contract the making of which is expressly or impliedly prohibited by
statute is illegal and void is one of long standing but it has always been recognized that
the principle is necessarily subject to any contrary intention manifested by the statute. It is
perhaps more accurate to say that the question whether a contract prohibited by statute is
void is, like the associated question whether the statute prohibits the contract, a question of
statutory construction and that the principle to which I have referred does no more than
enunciate the ordinary rule which will be applied when the statute itself is silent upon the
question. Primarily, then, it is a matter of construing the statute and in construing the statute
the court will have regard not only to its language, which may or may not touch upon the
question, but also to the scope and purpose of the statute from which inferences may be
drawn as to the legislative intention regarding the extent and the effect of the prohibition
which the statute contains.

26.36 The above statement by Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia
Ltd57 was approved by the Victorian Court of Appeal in Dover Beach Pty Ltd v Geftine Pty
Ltd58 and by Gleeson CJ, and Gummow, Kirby, Hayne, Heydon, and Crennan JJ in Australian
Competition and Consumer Commission v Baxter Healthcare Pty Ltd.59 In the latter case their
Honours60 said:
That passage was cited by Kerr LJ in Phoenix General Insurance Co of Greece SA v Halvanon
Insurance Co Ltd,61 where his Lordship said that when a statute contains a unilateral
prohibition on entry into a contract, it does not follow that the contract is void.62 Whether
or not the statute has this effect depends upon the mischief which the statute is designed to
prevent, its language, scope and purpose, the consequences for the innocent party, and any
other relevant considerations. Ultimately, the question is one of statutory construction. As
was pointed out in SST Consulting Services Pty Ltd v Rieson,63 the Act is far from being silent
upon the question of the consequences of illegality, but, rather, contains elaborate provisions.

55. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 415; 21 ALR 585 at 589–90.
56. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 423; 21 ALR 585 at 596.
57. (1978) 139 CLR 410 at 423; 21 ALR 585 at 596.
58. (2008) 21 VR 442 at 455. See also Walker as trustees for the Walker Superannuation Fund v Clough Property
Claremont Pty Ltd [2009] WASC 367 at [124].
59. (2007) 232 CLR 1 at 29; 237 ALR 512 at 527.
60. Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2007) 232 CLR 1 at 29; 237
ALR 512 at 527–8.
61. [1988] QB 216 at 270; [1987] 2 All ER 152 at 173.
62. Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co Ltd [1988] QB 216 at 273; [1987] 2 All
ER 152 at 176.
63. (2006) 225 CLR 516 at 527; 228 ALR 417 at 425.

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That is not to say that the express provisions of the Act answer all questions that may arise,
but they answer many of them, and set the context in which others are to be resolved.

26.37 Later in his judgment in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd64
Mason J added the following:
In this context there is little to be said for the view that the statute intends to prohibit contracts
made by unauthorized banks in the course of carrying on banking business. To do so would
be to prejudice depositors, not to protect them. The implication of such a prohibition
would deny to innocent depositors the right to recover moneys deposited unlawfully with
persons carrying on banking business because ex hypothesi the prohibited contract would
be illegal and void. … It is not rational to suppose that Parliament intended to inflict such
dire consequences on innocent depositors. Nor is it rational to suppose that the Parliament
intended to advantage innocent borrowers while penalizing innocent depositors. Even less
is it to be supposed that the Parliament intended to invalidate the wide range of commercial
and other securities which are brought into existence in the course of carrying on a banking
business and thereby inflict loss on the many persons acquiring such securities.

26.38 Thus, in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd65 the legislation was
seen not to vitiate the contract made by First Chicago Australia with Yango Pastoral Co. It should
be noted that in that particular case no one factor was seen as paramount and certainly the
presence and nature of a contractual penalty was one factor taken into account in determining
whether the contract ought to be vitiated.
26.39 As is clear from the judgments in Yango Pastoral Co Pty Ltd v First Chicago Australia
Ltd,66 the court was influenced by the fact that if the contract was declared illegal, it would have
led to an unreasonable result in the circumstances. This factor was a major consideration in
the case of St John Shipping Corporation v Joseph Rank Ltd.67 In that case legislation imposed a
penalty on any ship owner who loaded his boat so heavily that it fell beneath a specified load
line. The plaintiff ’s ship was overloaded and the captain of the ship was fined. The defendants
refused to pay part of the agreed freight charges on the basis that legislation impliedly rendered
the contract illegal.
26.40 In deciding that the carriage contract was not illegal, Devlin J68 was of the view that it
would have been unreasonable to imply an intention on the part of parliament that a contract
that violated the legislation was prohibited. A consequence of declaring the contract illegal
would have been that the plaintiff would have been entitled to withhold payment of all the
freight charges. In a situation where the breach of the legislation was minor, a cargo carrier
would have no legal claim to any freight charges as well as being liable for the significant penalty
that the legislation imposed for breach of its provisions. The court held that the contract of
freight was enforceable. The overloading of the ship was only an incidental part of the contract
of freight. According to Devlin J, parliament did not intend to make this type of contract void.
The shipowners, even though they were the guilty party, could enforce the contract.

64. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 426–7; 21 ALR 585 at 599.
65. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; 21 ALR 585.
66. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; 21 ALR 585.
67. [1957] 1 QB 267; [1956] 3 All ER 683.
68. St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 at 281; [1956] 3 All ER 683 at 686.

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26.41 In QuestCrown Pty Ltd v Insignia Towers (Southport) Pty Ltd69 QuestCrown contracted
to sell commercial property at Southport to Insignia Towers for $14 million. The contract was
subject to Insignia Tower’s conducting due diligence with a due diligence period of 49 days. The
sale was also ‘as is, where is’ subject to all faults and defects whether or not apparent. Insignia
was obliged under the contract to carry out ‘extensive and comprehensive investigations in
relation to the Property’. Insignia Towers failed to fully perform the contract and when sued
by QuestCrown argued that the contract was illegal and void because of QuestCrown’s failure
to comply with s 73(1) of the Workplace Health and Safety Regulation 1997, which required
QuestCrown, as owner of a structure that was a workplace, to comply with the relevant
Asbestos Management Code (AMC). The issue before the court was whether a breach of s 73(1)
impliedly rendered the contract of sale to Insignia Towers illegal and void. The Queensland
Court of Appeal ruled that it did not. In this respect, McMurdo P70 said:
The Act was plainly aimed at the commendable objective of protection of the public in the
workplace. Consistent with this objective is the protection of the public in the workplace from
asbestos-related injury. But making commercial contracts for the sale of premises illegal and
therefore always void when the AMC is not met before the vendor offers the premises for sale
is not something which is necessary to provide protection to the public in the workplace. That
is because any obligation under s 73(1), if not met by the vendor prior to sale, shifts to the new
owner at settlement. The language of the applicable legislative provisions making it an offence
to offer for sale premises containing a structure which is a workplace without complying with
the AMC is directed, not at preventing owners from selling such premises, but at ensuring
owners comply with the AMC. … This has the result that the public in the workplace is
protected from asbestos-related injury, consistent with the objectives of the legislative scheme.
It seems improbable that, in the absence of the clearest of language, the legislature intended to
invalidate all contracts made as a result of offers to sell in breach of s 73.

26.42 However, where the aim of a particular statute is to protect the public, it is easier to
infer, in the absence of an express prohibition, that it impliedly prohibits certain contracts and
accordingly such contracts will be void if there is a breach of those particular provisions. In
Cope v Rowlands71 legislation required admitted stockbrokers to have a licence. A breach of this
requirement rendered the broker liable for a penalty of £25 for each offence. The plaintiff, a
broker, who did not hold a licence, made transactions for the defendant. The defendant refused
to pay the plaintiff ’s brokerage fee and argued that the contract was illegal.
26.43 The court held that the statute impliedly prohibited a brokerage contract entered into
by an unauthorised person and made it illegal and void. This meant that the plaintiff could not
recover the fee, as the intention of parliament was to protect the investing public by requiring
all stockbrokers to be licensed. Thus, any transaction by an unlicensed broker was prohibited,
illegal, and unenforceable. In the course of his judgment Parke B72 said:
The sole question is, whether the statute means to prohibit the contract? … [T]he question
for us now to determine is, whether the enactment of the statute … is meant merely to secure
a revenue to the city, and for that purpose to render the person acting as a broker liable to

69. [2007] QCA 378.

70. QuestCrown Pty Ltd v Insignia Towers (Southport) Pty Ltd [2007] QCA 378 at [10].
71. (1836) 150 ER 707.
72. Cope v Rowlands (1836) 150 ER 707 at 710.

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a penalty if he does not pay it or whether one of its objects be the protection of the public,
and the prevention of improper persons acting as brokers? On the former supposition, the
contract with a broker for his brokerage is not prohibited by the statute; on the latter it is:
for it cannot be permitted to a person to recover a compensation for an act which the law
interdicts him from doing.

26.44 In Pretorius Pty Ltd v Muir & Neil Pty Ltd73 a contract had been made to sell therapeutic
goods on a wholesale basis to a purchaser. Under the Therapeutic Goods and Cosmetics Act
1972 (NSW) sellers of such goods were required to hold a licence. If they did not they were
subject to large penalties. The New South Wales Supreme Court noted the presence of the severe
penalties for contravention and concluded that this meant that the object of the legislation was
to make any contract between an unlicensed seller and a purchaser, illegal.
26.45 In Anderson Ltd v Daniel74 a particular statute, the Fertilisers and Feeding Stuffs Act
1906 (UK), stipulated as follows:
Every person who sells for use as a fertiliser of the soil any article which has been subjected to
an artificial process in the United Kingdom, or which has been imported from abroad, shall
give to the purchaser an invoice stating the name of the article and what are the respective
percentages (if any) of nitrogen, soluble phosphates, insoluble phosphates, and potash
contained in the article, and the invoice shall have effect as a warranty by the seller that the
actual percentages do not differ from those stated in the invoice beyond the prescribed limits
of error.

26.46 The relevant invoice contemplated under the Fertilisers and Feeding Stuffs Act 1906
(UK) could be given as soon as possible after delivery. Failure to give an invoice attracted a
fine. In Anderson Ltd v Daniel75 there was a sale without the prescribed invoice and the seller
attempted to recover the price. After delivery, the purchaser refused to pay, arguing that the
contract was illegal and the debt was unenforceable.
26.47 The Court of Appeal held that the reason behind the imposition of a fine was for
the public’s protection and that, accordingly, the contract was unenforceable. In this regard,
Scrutton LJ76 said:
When the policy of the Act in question is to protect the general public or a class of person
by requiring that a contract shall be accompanied by certain formalities or conditions, and a
penalty is imposed on the person omitting those formalities or conditions, the contract and
its performance without those formalities or conditions is illegal, and cannot be sued upon
by the person liable to the penalties. … Now here the provision as to the invoice is clearly to
protect a particular class of the public — namely, the people who buy artificial manures. The
seller is required to give on or before or as soon as possible after delivery of the article an
invoice stating the percentages of its ingredients. The vendors did not do so. It follows … that
when they come to sue for the price they can be met with the defence that the way in which
they performed the contract was illegal.

73. (1976) 1 NSWLR 213.

74. [1924] 1 KB 138.
75. Anderson Ltd v Daniel [1924] 1 KB 138.
76. Anderson Ltd v Daniel [1924] 1 KB 138 at 147. Reference was made to this decision in Patel v Mirza [2017]
AC 467 at 475–6; [2017] 1 All ER 191 at 197.

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Public policy of a statute rendering a contract illegal

26.48 In Nelson v Nelson77 Deane and Gummow JJ referred to a third type of statutory illegality
that was in addition to express and implied statutory illegality. This third category related to
cases where the statute treated a contract as unenforceable because it was associated with some
illegal purpose. In this third category of statutory illegality, the court, in the absence of some
express or implied statutory prohibition relating to the contract, has to consider whether the
legislative purpose of the statute will be fulfilled without regarding the contract as void and
unenforceable. In these cases, illegality flows from the principles of the common law as to
illegality that are informed by the scope and purpose of the relevant statute. Thus, there is the
quest to determine whether there is some public policy associated with the statute that renders
the contract unenforceable because it is one that pursues some illegal purpose.
26.49 In Nelson v Nelson78 Deane and Gummow JJ said:

In this … class of case, the courts act not in response to a direct legislative prohibition but,
as it is said, from ‘the policy of the law’. The finding of such policy involves consideration of
the scope and purpose of the particular statute.

26.50 A similar approach can be found in Fitzgerald v F J Leonhardt Pty Ltd,79 where McHugh
and Gummow JJ said:
The question then becomes whether, as a matter of public policy, the court should decline
to enforce the contract because of its association with the illegal activity of the owner. …
The refusal of the courts in such a case to regard the contract as enforceable stems not
from express or implied legislative prohibition but from the policy of the law, commonly
called public policy. Regard is to be had primarily to the scope and purpose of the statute to
consider whether the legislative purpose will be fulfilled without regarding the contract as
void and unenforceable.

26.51 Their Honours80 then continued:

[T]he courts should not refuse to enforce contractual rights arising under a contract, merely
because the contract is associated with or in furtherance of an illegal purpose, where the
contract was not made in breach of a statutory prohibition upon its formation or upon the
doing of a particular act essential to the performance of the contract or otherwise making
unlawful the manner in which the contract is performed.

26.52 In Equuscorp Pty Ltd v Haxton81 the facts concerned a complex investment scheme,
which collapsed in due course, involving a number of companies and which was designed
to take advantage of tax laws that permitted investors to deduct farming expenses from non-
farming income. Rural Finance Pty Ltd was one of the companies in the scheme that loaned
money to enable investors to invest in the scheme. The scheme related to the growing,
harvesting, and sale of blueberries at Corindi in New South Wales. The investment scheme was

77. (1995) 184 CLR 538 at 551–2; 132 ALR 133 at 143–4.
78. (1995) 184 CLR 538 at 552; 132 ALR 133 at 144.
79. (1997) 189 CLR 215 at 227; 143 ALR 569 at 576–7.
80. Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 229; 143 ALR 569 at 579.
81. (2012) 246 CLR 498; 286 ALR 12. See also 38.62–38.66 for a discussion of this case in the context of
restitution.

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contrary to s 170 of the then Companies Code that prohibited such investments in the absence
of a prospectus that had to set out extensive information about the investment scheme. Section
174 of the Companies Code provided for various penalties for breaches of s 170.
26.53 The High Court upheld the decision of the lower courts to the effect that the loan
contracts that formed part of the investment scheme were rendered illegal by the statute. In this
respect, French CJ, and Crennan, and Kiefel JJ,82 after referring to Miller v Miller,83 explained
that an agreement may be unenforceable for statutory illegality in three categories of case,
namely, where:
(i) the making of the agreement or the doing of an act essential to its formation is expressly
prohibited absolutely or conditionally by the statute;
(ii) the making of the agreement is impliedly prohibited by statute. A particular case of an
implied prohibition arises where the agreement is to do an act the doing of which is
prohibited by the statute;
(iii) the agreement is not expressly or impliedly prohibited by a statute but is treated by the
courts as unenforceable because it is a ‘contract associated with or in the furtherance of
illegal purposes’.84

In the third category of case, the court acts to uphold the policy of the law, which may make the
agreement unenforceable. That policy does not impose the sanction of unenforceability on
every agreement associated with or made in furtherance of illegal purposes. The court must
discern from the scope and purpose of the relevant statute ‘whether the legislative purpose
will be fulfilled without regarding the contract or the trust as void and unenforceable’.85 As
in the case when a plaintiff sues another for damages sustained in the course of or as a result
of illegal conduct of the plaintiff, ‘the central policy consideration at stake is the coherence
of the law’.86

The making of the loan agreements was not expressly prohibited by the Code. The primary
judge did not discuss in his reasons whether their making was impliedly prohibited … It
appears that the primary judge held the loan agreements to be unenforceable … on the
common law ground that they were made in furtherance of an illegal purpose. The precise
basis of their unenforceability was not further explored in the Court of Appeal.

In Nelson v Nelson87 Deane and Gummow JJ observed, in relation to contracts associated

with or in furtherance of illegal purposes, that:

[t]he formulation of the appropriate public policy in this class of case may more
readily accommodate equitable doctrines and remedies and restitutionary money
claims than is possible where the making of the contract offends an express or
implied statutory prohibition.

82. Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 513–4; 286 ALR 12 at 21–2. See also 28.16.
83. (2011) 242 CLR 446 at 458; 275 ALR 611 at 618.
84. These categories were subsequently acknowledged and applied in Pipe Networks Pty Ltd v 148 Brunswick
Street Pty Ltd (Trustee) (2019) 371 ALR 627 at 669.
85. Miller v Miller (2011) 242 CLR 446 at 459; 275 ALR 611 at 619.
86. Miller v Miller (2011) 242 CLR 446 at 454; 275 ALR 611 at 615.
87. Nelson v Nelson (1995) 184 CLR 538 at 552; 132 ALR 133 at 144.

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26.54 In Nelson v Nelson88 Bettie Nelson provided the money for the purchase of a house at
5 Bent Street, Paddington, in Sydney. The property was registered in the names of her son,
Peter, and daughter, Elizabeth. Pursuant to equitable principles relating to resulting trusts, this
meant that the children held the house on trust for their mother and that, therefore, Bettie
had an equitable interest in the house. The reason for placing the property in her children’s
name was to enable Bettie to buy another house with the benefit of a subsidised loan under the
Defence Service Homes Act 1918 (Cth). The subsidy was only available to a person who did
not already own a house. Two years later she purchased another house in Paddington using the
subsidised loan. To receive the subsidy, she falsely declared that she did not have any interest in
another house. The Bent Street house was sold in 1990. The proceeds of sale reaped a net gain
of $232,509. Elizabeth claimed that she was entitled to half of these proceeds. Bettie and Peter
claimed that the money was held on resulting trust for Bettie. The issue before the High Court
was whether Bettie’s illegal conduct in claiming the subsidy disentitled her from claiming the
protection of a resulting trust in relation to the proceeds of sale from the Bent Street property.
The High Court unanimously held that the resulting trust in favour of Bettie was not destroyed
by her illegal behaviour.
26.55 Deane and Gummow JJ,89 after analysing the Defence Service Homes Act 1918 (Cth),
found that its policy was to help eligible persons purchase dwellings. It was not to prevent them
from owning more than one house. As such, the policy did not require the court, on the facts
of this case, to refuse to recognise the resulting trust of the sale proceeds in favour of Bettie.
26.56 McHugh J came to similar conclusions and found that, given that the Defence Service
Homes Act 1918 (Cth) contained its own penalties for making false declarations, the policy of
the legislation would not be defeated by the provision of equitable relief. McHugh J90 said:
[C]ourts should not refuse to enforce legal or equitable rights simply because they arose out
of or were associated with an unlawful purpose unless: (a) the statute discloses an intention
that those rights should be unenforceable in all circumstances; or (b) (i) the sanction of
refusing to enforce those rights is not disproportionate to the seriousness of the unlawful
conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the
statute, to protect its objects or policies; and (iii) the statute does not disclose an intention
that the sanctions and remedies contained in the statute are to be the only legal consequences
of a breach of the statute or the frustration of its policies.

26.57 Although Deane, Gummow, and McHugh JJ held that the resulting trust in favour of
Bettie was not destroyed by her illegal behaviour, they held that she was obliged to make good
the amounts that she had defrauded from the government before the resulting trust would
be enforced. Toohey and Dawson JJ also held that Bettie’s illegal conduct did not destroy the
resulting trust in her favour. However, in their Honours’ view she was not required to pay back
the subsidy, as this was a matter for the government to determine whether or not it would
pursue against Bettie.

88. (1995) 184 CLR 538; 132 ALR 133.

89. Nelson v Nelson (1995) 184 CLR 538 at 570; 132 ALR 133 at 158.
90. Nelson v Nelson (1995) 184 CLR 538 at 613; 132 ALR 133 at 193.

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26.58 In Gnych v Polish Club Ltd the facts concerned a sublease of part of licensed premises
91

in New South Wales. Section 92(1)(d) of the Liquor Act 2007 (NSW) mandated that a licensee
of such premises could not ‘lease or sublease any other part of the licensed premises except
with the approval of the [Independent Liquor and Gaming] Authority’. Pursuant to s 139(3)
(d) of the Act, breaches by a licensee of any provision of the Act could be brought before the
Authority. Pursuant to s 141(2) of the Act, the Authority is granted power to make various
orders in relation to any complaint being established. However, the Authority could also take
no action in relation to the complaint. In this case, the Polish Club granted a sublease of part of
its premises to Mr and Mrs Gnych without the approval of the Authority. The club claimed that
this rendered the sublease void and unenforceable.
26.59 The High Court, in reversing the decision of the Supreme Court of New South Wales,92
unanimously dismissed the club’s claim. The High Court held that to hold the sublease
agreement to be void and unenforceable would prejudice the Gnychs without furthering the
objects of the Liquor Act 2007 (NSW).
26.60 In coming to the conclusion that the breach by the club in this case did not serve to
undermine the purpose or policy behind the Liquor Act 2007 (NSW), French CJ, and Kiefel,
Keane, and Nettle JJ93 observed that the granting of a sublease was not contrary to the purposes
of the Act, as s 92(1)(d) in fact contemplated that subleases could be granted. Furthermore, their
Honours pointed to the complaint provisions under the Act and the powers of the Authority as
further reasons why the sublease was not void or unenforceable. In this respect, their Honours94
said:
The discharge by the authority of its responsibility might lead to a decision that there should
be no change in the status quo in relation to the licence. In that event, the [Gnychs] as lessees
might continue their occupation of the leased part of the premises. If the authority were to
cancel the club’s licence, then a question would arise as to whether the lease was terminated
by frustration or terminable by the [Gnychs] by reason of the club’s inability to make licensed
premises available under the lease. On the other hand, the authority might conclude that the
[Gnychs] were fit and proper persons to be in charge of the part of the premises dedicated to
the restaurant, which might lead it to decide not to cancel the club’s licence notwithstanding
its breach of s 92(1)(d), in which case the club’s breach of the Liquor Act would have no
consequences for the continuation of the lease. The conclusion that a breach of s 92(1)(d)
automatically avoids the lease would pre-empt the effect of the authority’s decision in this
regard. That outcome would not be consistent with the supervisory role entrusted to the
authority by the Liquor Act.

26.61 As a concluding word on the topic of implied statutory illegality, the following
observation by the Court of Appeal in Singapore in Ochroid Trading Ltd v Chua Siok Liu,95 can
be noted:
In so far as the category of ‘implied prohibition’ is concerned, the court will be slow to imply
the statutory prohibition of contracts. Thus, it will not be held that any contract or class of

91. (2015) 255 CLR 414; 320 ALR 489.

92. Polish Club Ltd v Gnych (2014) 86 NSWLR 650.
93. Gnych v Polish Club Ltd (2015) 255 CLR 414 at 428; 320 ALR 489 at 498.
94. Gnych v Polish Club Ltd (2015) 255 CLR 414 at 429; 320 ALR 489 at 498–9.
95. [2018] SGCA 5 at [28].

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contracts is impliedly prohibited by statute unless there is a ‘clear implication’ or ‘necessary

inference’ that this was what the statute intended. Judicial reticence in this particular regard
is warranted as statutory illegality generally takes no account of the parties’ subjective intentions
or relative culpability and could render contracts unenforceable even where the infraction
was committed unwittingly. The restricted approach to implied prohibition is also justified
given the proliferation of administrative and regulatory provisions in modern legislation.

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COMMON LAW ILLEGALITY

INTRODUCTION
27.1 Common law illegality arises where the formation, purpose or performance of
the contract involves conduct that is illegal or contrary to public policy and where to deny
enforcement to one or other party is an appropriate response to that conduct. It has been
said that the application of the doctrine of illegality to each of these different circumstances
has caused ‘a good deal of uncertainty, complexity and sometimes inconsistency’.1 By way of
contrast, statutory illegality is where a legislative provision either prohibits the making of a
contract so that it is unenforceable by either party or provides that it, or some particular term,
is unenforceable by one or other party.2
27.2 Illegality has been said to raise one of the most basic problems of a system of judge-
made customary law, such as the common law. According to Lord Sumption in Patel v Mirza:3
The common law is not an uninhabited island on which judges are at liberty to plant
whatever suits their personal tastes. It is a body of instincts and principles which, barring
some radical change in the values of our society, is developed organically, building
on what was there before. It has a greater inherent flexibility and capacity to develop
independently of legislation than codified systems do. But there is a price to be paid for
this advantage in terms of certainty and accessibility to those who are not professional
lawyers. The equities of a particular case are important. But there are pragmatic limits to
what the law can achieve without becoming arbitrary, incoherent and unpredictable even
to the best advised citizen, and without inviting unforeseen and undesirable collateral
consequences.

In the same case, Lord Toulson4 said:

The essential rationale of the illegality doctrine is that it would be contrary to the public
interest to enforce a claim if to do so would be harmful to the integrity of the legal system
(or, possibly, certain aspects of public morality, the boundaries of which have never been
made entirely clear and which do not arise for consideration in this case). In assessing

1. Patel v Mirza [2017] AC 467 at 531; [2017] 1 All ER 191 at 251. Okedina v Chikale [2019] EWCA Civ 1393
at [12].
2. Okedina v Chikale [2019] EWCA Civ 1393 at [12]. Statutory illegality is analysed in Chapter 26.
3. [2017] 1 All ER 191 at 251.
4. Patel v Mirza [2017] AC 467; [2017] 1 All ER 191 at [120].

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whether the public interest would be harmed in that way, it is necessary (a) to consider
the underlying purpose of the prohibition which has been transgressed and whether
that purpose will be enhanced by denial of the claim, (b) to consider any other relevant
public policy on which the denial of the claim may have an impact and (c) to consider
whether denial of the claim would be a proportionate response to the illegality, bearing
in mind that punishment is a matter for the criminal courts. Within that framework,
various factors may be relevant, but it would be a mistake to suggest that the court is free
to decide a case in an undisciplined way. The public interest is best served by a principled
and transparent assessment of the considerations identified, rather than by the application
of a formal approach capable of producing results which may appear arbitrary, unjust or
disproportionate.

27.3 English law has a long-standing repugnance for claims that are founded on a claimant’s
own illegal or immoral acts.5 In an often cited passage in Wetherell v Jones,6 Lord Tenterden CJ
set out the then relevant principles as follows:
Where a contract which a plaintiff seeks to enforce is expressly, or by implication,
forbidden by the statute or common law, no Court will lend its assistance to give it effect:
and there are numerous cases in the books where an action on the contract has failed,
because either the consideration for the promise or the act to be done was illegal, as
being against the express provisions of the law, or contrary to justice, morality, and sound
policy. But where the consideration and the matter to be performed are both legal, we are
not aware that a plaintiff has ever been precluded from recovering by an infringement of
the law, not contemplated by the contract, in the performance of something to be done
on his part.

27.4 The rationale that underpins the law on illegality is based on general principles of
policy expressed in the Latin maxim ex turpi causa non oritur actio, which means ‘an action
arises not from a base cause’.7 The operation of this statement of principle8 was explained by
Lord Mansfield in Holman v Johnson9 as follows:
No Court will lend its aid to a man who found is his cause of action on and immoral or an
illegal act. If, from the plaintiff ’s own stating or otherwise, the cause of action appears to
arise ex turpi causa, or the transgression of a positive law of this country, there the court says
that he has no right to be assisted. It is on that ground the court goes; not for the sake of the

5. (1775) 98 ER 1120 at 1121. See also Les Laboratoires Servier v Apotex Inc [2015] AC 430 at 439; [2015] 1 All
ER 671 at 678.
6. (1832) 110 ER 82 at 84.
7. Smith v Jenkins (1970) 119 CLR 397 at 410.
8. See, for example, Hounga v Allen [2014] 4 All ER 595 at 614; Les Laboratoires Servier v Apotex Inc [2015]
AC 430 at 439; [2015] 1 All ER 671 at 678; Quinn v Irish Bank Resolution Corporation Ltd (in Special
Liquidation) [2015] IESC 29 at [7.15]; Patel v Mirza [2017] AC 467 at 474, 531; [2017] 1 All ER 191 at 195–6,
251. In Bilta (UK) Ltd (in liq) v Nazir (No 2) [2016] AC 1 at 12, 16, 62; [2015] 2 All ER 1083 at 1090, 1095,
1139–40, the Supreme Court did not undertake any re-examination of the decisions in Les Laboratoires
Servier v Apotex Inc [2015] AC 430; [2015] 1 All ER 671 or Hounga v Allen [2014] 4 All ER 595. These
decisions are discussed in J C Fisher, ‘The Ex Turpi Causa Principle in Hounga and Servier’ (2015) 78
The Modern Law Review 854; R Toulson, ‘Illegality: Where are we Now?’, in A Dyson, J Goudkamp, and
F Wilmot-Smith (eds), Defences in Contract, Hart Publishing, Oxford, 2017, p 275. See also Singularis
Holdings Ltd (in liq) v Daiwa Capital Markets Europe Ltd [2019] 3 WLR 997 at 1003.
9. (1775) 98 ER 1120 at 1122.

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defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and
the defendant were to change sides, and the defendant was to bring his action against the
plaintiff, the latter would then have the advantage of it; for where both are equally in default,
potior est condition defendentis.

27.5 In Les Laboratoires Servier v Apotex Inc10 Lord Sumption described the ex turpi causa
rule as a ‘rule of judicial abstention’. The rationale is not based on the aim of achieving a just
result between the parties, and the doctrine can operate harshly in some situations. This
position was made clear in Holman v Johnson,11 where Lord Mansfield said:
The objection, that a contract is immoral or illegal as between plaintiff and defendant,
sounds at all times very ill in the mouth of the defendant. It is not for his sake, however,
that the objection is ever allowed; but it is founded in general principles of policy, which
the defendant has the advantage of, contrary to the real justice, as between him and the
plaintiff.

27.6 The word ‘illegal’ in the context used by Lord Mansfield refers to ‘conduct that is
prohibited by the law, that is, conduct that is in violation of the general law (whether civil or
criminal) or a relevant express statutory prohibition, or which is otherwise illegal as contrary to
public policy’.12 The question of whether or not a contract is affected by illegality is the domain
of ‘notoriously knotty territory’13 that has evolved significantly in the 20th century.
27.7 In Les Laboratoires Servier v Apotex Inc14 Lord Sumption stated the position as follows:
[I]n his famous statement of principle in Holman v Johnson15 Lord Mansfield spoke not
only of criminal acts but of ‘immoral or illegal’ ones. What did he mean by this? I think that
what he meant is clear from the characteristics of the rule as he described it, and as judges
have always applied it. He meant acts which engage the interests of the state or, as we would
put it to day, the public interest. The illegality defence, where it arises, arises in the public
interest, irrespective of the interests or rights of the parties. It is because the public has its
own interest in conduct giving rise to the illegality defence that the judge may be bound to
take the point of his own motion, contrary to the ordinary principle in adversarial litigation.
In some contexts, notably the invalidity of contracts prohibited by law, the ex turpi causa

10. [2015] AC 430 at 445; [2015] 1 All ER 671 at 683.

11. (1775) 98 ER 1120 at 1121. In Hounga v Allen [2014] 4 All ER 595 at 614, Lord Hughes, after noting
that, although Lord Mansfield’s statement of the law cannot be treated as a comprehensive test for the
application of the law of illegality, emphasised that it is important to remember one central feature of it
which remains true, and then said: ‘When a court is considering whether illegality bars a civil claim, it is
essentially focusing on the position of the claimant vis-à-vis the court from which she seeks relief. It is not
primarily focusing on the relative merits of the claimant and the defendant. It is in the nature of illegality
that, when it succeeds as a bar to a claim, the defendant is the unworthy beneficiary of an undeserved
windfall. But this is not because the defendant has the merits on his side; it is because the law cannot
support the claimant’s claim to relief.’ See also Les Laboratoires Servier v Apotex Inc [2015] AC 430 at 440;
[2015] 1 All ER 671 at 678; Patel v Mirza [2017] AC 467 at 474, 531; [2017] 1 All ER 191 at 195–6, 251;
Quinn v Irish Bank Resolution Corporation Ltd (in Special Liquidation) [2015] IESC 29 at [7.6].
12. Territory Sheet Metal Pty Ltd v Australia and New Zealand Banking Group Ltd (2010) 237 FLR 197 at 201.
13. ParkingEye Ltd v Somerfield Stores Ltd [2013] QB 840 at 848.
14. [2015] AC 430 at 445; [2015] 1 All ER 671 at 683–4. See also Patel v Mirza [2017] AC 467 at 531; [2017]
1 All ER 191 at 251.
15. (1775) 98 ER 1120.

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principle can be analysed as part of the substantive law governing the parties’ rights. The
contract is void, and any right derived from it is non-existent. But in general, although
described as a defence, it is in reality a rule of judicial abstention. It means that rather than
regulating the consequences of an illegal act (for example by restoring the parties to the
status quo ante, in the same way as upon the rescission of a contract) the courts withhold
judicial remedies, leaving the loss to lie where it falls. This is so even in a contractual
context, when the court is invited to determine the financial consequence of a contract’s
voidness for illegality. The ex turpi causa principle precludes the judge from performing his
ordinary adjudicative function in a case where that would lend the authority of the state to
the enforcement of an illegal transaction or to the determination of the legal consequences
of an illegal act.

27.8 A contract that has an illegal purpose — for example, a contract to commit robbery or
murder — is at common law, void ab initio. In addition, a contract that is not in itself illegal,
but which nevertheless is one in which the parties intend to use the subject matter for an illegal
purpose, is also void ab initio at common law.16 The courts will not enforce such contracts,
money paid under them cannot be recovered, and collateral transactions are void, subject,
however, to the operation of the doctrine of severance — that is, whether or not the void part
can be severed from the agreement. However, one issue that arises is whether Lord Mansfield’s
maxim precludes a party to a contract that is affected by illegality from recovering money paid
under the contract from the other party pursuant to restitution (or unjust enrichment)?17
27.9 This chapter is concerned with such contracts and with the principles on which they
are found to be void. In essence, the common law has taken the view that contracts that are
contrary to public policy are void. In Ochroid Trading Ltd v Chua Siok Liu,18 the Court of Appeal
in Singapore made the apt observation that ‘the law relating to illegality and public policy is
generally confused (and confusing)’ and that the ‘oftimes elusive nature of the concept of public
policy is … “an unruly horse and must therefore be applied wisely”’. As to what was included
with the ambit of public policy the court19 went on to say:
The heads of public policy at common law which would render a contract unenforceable
were developed over time. These include contracts prejudicial to the administration of
justice (including contracts to stifle a prosecution and contracts savouring of maintenance
or champerty); contracts to deceive public authorities; contracts to oust the jurisdiction of
the courts; contracts to commit a crime, tort or fraud; contracts prejudicial to public safety;
contracts prejudicial to the status of marriage (including marriage brokage contracts as well
as agreements by married persons to marry and agreements between spouses for future
separation); contracts promoting sexual immorality; contracts that are liable to corrupt
public life; and contracts restricting personal liberty. …

16. See the Law Reform Commission Consultation Paper, No 189, The Illegality Defence: A Consultative Report,
2009 (UK), at [3.12], which was referred to by Lord Sumption in Patel v Mirza [2017] AC 467 at 532–3;
[2017] 1 All ER 191 at 252–3 and Parkingeye Ltd v Somerfield Stores Pty Ltd [2013] QB 840 at 851–3. In
that Consultation Paper, at [2.5], the Law Commission identified six policy rationales for the illegality
rule, namely: (1) furthering the purpose of the rule which the claimant’s illegal behaviour has infringed;
(2) consistency; (3) the need to prevent the claimant profiting from his or her own wrong; (4) deterrence;
(5) maintaining the integrity of the legal system; and (6) punishment.
17. See Chapter 38.
18. [2018] SGCA 5 at [20].
19. Ochroid Trading Ltd v Chua Siok Liu [2018] SGCA 5 at [29]–[30].

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[W]e should [also] emphasise that although the categories of illegality at common law are
not closed, the courts will not readily add new categories. There is also always the issue as to
whether, as society changes, the existing categories themselves will need to be modified or
even (in extreme cases) done away with. The entire legal enterprise in this particular sphere
is exacerbated by the fact that, as already noted above, the very nature of public policy is both
fluid and problematic.

27.10 An example of public policy rendering a contract void is Parkinson v College of

Ambulance.20 In that case Parkinson donated money in return for a promise that he would
receive a knighthood. Subsequently he did not receive the promised knighthood and sued for
the return of the money that he donated. The court refused to order the return of the money.
Lush J held that the contract was against public policy and was illegal. As the parties were both
equal in fault, in pari delicto, no action for damages could be maintained by Parkinson.21
27.11 Similarly, in Wilkinson v Osborne22 a commission to be paid to a real estate agent, who
was also a member of parliament, concerning the purchase of land by the government, was held
to be unenforceable. The potential for a conflict of interest between the agent’s private interest
and public duty was so great as to make the contract to pay the commission contrary to public
policy and thus illegal at common law. Isaacs J23 said:
In my opinion the ‘public policy’ which a court is entitled to apply as a test of validity to a
contract is in relation to some definite and governing principle which the community as a
whole has already adopted either formally by law or tacitly by its general course of corporate
life, and which the courts of the country can therefore recognize and enforce. The court is
not a legislator; it cannot initiate the principle, it can only state or formulate it if it already
exists. The rule of law as to contracts against public policy is constant — namely, that every
bargain contrary to such a social governing principle is regarded as prejudicial to the State,
or in other works, contrary to ‘public policy’ or, as it is sometimes called, ‘policy of the law’,
and the State by its tribunals refuses to enforce it.

27.12 A further illustration is to be found in Hounga v Allen,24 which concerned an employer

who had arranged for an employee, a Nigerian national, to present a false identification to
the United Kingdom immigration authorities. The issue that arose was whether a defence of
illegality to an employment contract could be used to defeat a claim for unlawful discrimination
in relation to the employee’s dismissal. The Supreme Court25 noted that, as unlawful
discrimination was a statutory tort, the application of the defence of illegality to claims in
tort was highly problematic. However, in reaching its decision the court found that the public
policy in support of the application of the defence of illegality, to the extent that it existed at all,
should give way to the public policy to which its application was an affront.26

20. [1925] 2 KB 1. This decision was discussed in Patel v Mirza [2017] AC 467 at 532; [2017] 1 All ER 191
at 251–2.
21. See 28.20, 28.28.
22. (1915) 21 CLR 89.
23. Wilkinson v Osborne (1915) 21 CLR 89 at 97.
24. [2014] 4 All ER 595.
25. Hounga v Allen [2014] 4 All ER 595 at 604.
26. Hounga v Allen [2014] 4 All ER 595 at 613.
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27.13 There have been many examples of contracts that were found to be contrary to public
policy. Some of these involve contracts which:
• were made with the intention to act unlawfully, including contracts made to defraud the
state of revenue;
• were prejudicial to the administration of justice;
• purported to oust the jurisdiction of the courts;
• promoted conflicts between a person’s public duty and their private interests;
• involved sexually immoral activities;
• involved trading with an alien enemy; and
• were unreasonable restraints of trade.

CONTRACTS MADE WITH THE INTENTION OF ACTING

UNLAWFULLY
27.14 Contracts which have the objective of committing an illegal act are contrary to public
policy and void. There is public interest in the courts not rewarding wrongdoing or condoning
a breach of law.27 The principle applies to contracts to commit serious crimes and torts, to
defraud creditors, and to defraud the revenue.28 In Alexander v Rayson29 Romer LJ said:
It is settled law that an agreement to do an act that is illegal or immoral or contrary to public
policy, or to do any act for a consideration that is illegal, immoral, or contrary to public
policy, is unlawful and therefore void. But it often happens that an agreement which in itself
is not unlawful is made with the intention of one or both parties to make use of the subject
matter for an unlawful purpose, that is to say a purpose that is illegal, immoral, or contrary
to public policy. The most common instance of this is an agreement for the sale or letting of
an object, where the agreement is unobjectionable on the face of it, but where the intention
of both or one of the parties is that the object shall be used by the purchaser or hirer for an
unlawful purpose. In such a case any party to the agreement who had the unlawful intention
is precluded from suing upon it. Ex turpi causa non oritur actio. The action does not lie
because the Court will not lend its help to such a plaintiff.

27.15 Proof of an intention to act unlawfully is crucial. The parties must have knowledge that
what they are doing involves acting unlawfully. In the absence of proof of a party’s intentions,
the fact that a contract has the potential to be used in breach of public policy is not enough.
Thus, in Yaroomba Beach Development Co Pty Ltd v Coeur de Lion Investments Pty Ltd30 the
failure to prove that the vendors intended to defraud the revenue was the key reason why a land
purchase agreement was not struck down.

27. Safeway Stores Ltd v Twigger [2011] 2 All ER 841 at 851; Parkingeye Ltd v Somerfield Stores Pty Ltd [2013]
QB 840 at 851.
28. Hutchinson v Scott (1905) 3 CLR 359 (involving a contract to mine gold on private land in breach of the
Crown Land Act 1884 (NSW)); Alexander v Rayson [1936] 1 KB 169 (involving an arrangement designed
to defraud the council by obtaining a low valuation on land so that it would be assessed at lower rates).
29. [1936] 1 KB 169 at 182. See also Nayyar v Sapte [2009] EWHC 3218 (QB) at [75]–[82].
30. (1989) 18 NSWLR 398.

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CONTRACTS PREJUDICIAL TO THE ADMINISTRATION

OF JUSTICE
27.16 In A v Hayden (No 2)31 Mason J said:
[S]ome contracts are void whereas others are valid, though the court will decline to enforce
the particular provision in a valid contract in particular circumstances when enforcement of
that provision would have an adverse effect on the administration of justice.

27.17 Thus, in Callaghan v O’Sullivan32 the plaintiff sought to recover money which he had
paid to four police officers in return for their undertaking not to prosecute him or his daughter
for various offences. The officers did not prosecute him. However, it was announced that an
inquiry was to be held into various activities of the plaintiff based upon information supplied
by a third party. The plaintiff then decided to claim back what he had paid to the police officers.
It was held that the contract was illegal and void against public policy.
27.18 More difficult questions arise where a person alleges they do not have to pay money
pursuant to agreements where those agreements were prejudicial to the administration of
justice.33 Sometimes a party’s actions will amount to a breach of contract or other civil wrong,
as well as being a criminal offence. If the civil proceedings are settled on the agreed basis that
the innocent party is to take no further action, a question arises as to the enforceability of the
terms of settlement. It may be that the settlement terms are in breach of public policy and
therefore void. It will depend on how the terms are drawn.
27.19 Historically maintenance and champerty were against public policy. ‘Maintenance’
involves the giving of assistance to a litigant by a person who has no actual involvement or
interest in the litigation. Nowadays the practice is tolerated and it is common — for example,
in insurance-funded litigation for insurers to stand behind litigants.34
27.20 ‘Champerty’ is a form of maintenance and involves assistance to a litigant on the basis
that the person rendering the assistance becomes entitled to a share in the litigation proceeds.
Such agreements are against public policy and void.35 However, in some jurisdictions the
criminal offences and torts associated with maintenance and champerty have been abolished.36
27.21 However, merely because there is some illegal act that is committed by a party to the
contract does not necessarily mean that the contract will be unenforceable. Thus, in Parkingeye
Ltd v Somerfield Stores Pty Ltd37 Toulson LJ said:
There is a public interest in the court not appearing to reward wrong doing or condone a breach
of the law. But where … both parties were complicit in the illegality, denial of one party’s claim
on that ground will be to give an unjustified benefit to the other. The rule that where both

31. (1984) 156 CLR 532 at 557; 56 ALR 82 at 97.

32. [1925] VLR 664.
33. A v Hayden (1984) 156 CLR 532; 56 ALR 82.
34. Schultz v Ocean Accident & Guarantee Corp Ltd (1923) 23 SR (NSW) 153.
35. Clyne v New South Wales Bar Association (1960) 104 CLR 186.
36. See Civil Law (Wrongs) Act 2002 (ACT) s 151A; Maintenance, Champerty and Barratry Abolition Act 1993
(NSW) ss 3–4; Criminal Law Consolidation Act 1935 (SA) Sch 11 ss 1 and 3; Crimes Act 1958 (Vic) s 322A;
Wrongs Act 1958 (Vic) s 32.
37. [2013] QB 840 at 851.
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parties are equally at fault the defendant should prevail may be right in more serious cases
(on the ground that the court should, in effect, wash its hands of the dispute), but may be a
disproportionately severe response in less serious cases, especially where the parties did not
appreciate that they were acting contrary to the law. There is a public interest in doing justice
between the parties and … in nullifying a bargain only on serious and sufficient grounds.

27.22 In Parkingeye Ltd v Somerfield Stores Pty Ltd38 Toulson LJ listed the following factors
that are relevant in assessing whether the illegality will result in the unenforceability of the
contract:
• the object and intent of the party committing the illegality;
• the gravity of the illegality in the context of the contract, and
• the nature of the illegality.

27.23 In relation to the first point, proof of an intention to act unlawfully is crucial. The
party must have knowledge that what he or she does involves acting unlawfully. The fact that a
contract has the potential to be used in breach of public policy is not enough in the absence of
proof of a party’s intentions. Thus, in Yaroomba Beach Development Co Pty Ltd v Coeur de Lion
Investments Pty Ltd39 the failure to prove that the vendors intended to defraud the revenue was
the key reason why a land purchase agreement was not struck down.
27.24 In relation to the second point, if the illegality is minor or incidental to the performance
of the contract, the enforceability of the contract will not be affected.40
27.25 In relation to the third factor — the nature of the illegality — it is clear that the courts
will be more likely to find that a contract is unenforceable if the illegality is of a serious nature.
In effect, the law has a hierarchy of offences — the more serious the offence, the more likely
that the contract will be unenforceable. Thus, in Parkingeye Ltd v Somerfield Stores Pty Ltd41
the illegality that was committed was the tort of deceit and, in the circumstances of the case,
this did not affect the enforceability of the contract. However, Toulson LJ42 clearly implied that,
had the facts of the case established that the illegal conduct also included violations of relevant
statutory provisions relating to obtaining money by deception and/or unlawful harassment of
a debtor (both of which were pleaded but not established on the facts of the case), the illegality
would more likely have resulted in the contract being unenforceable.

CONTRACTS TO OUST THE JURISDICTION OF THE COURTS

27.26 An agreement to oust the jurisdiction of the court is void at common law on grounds
of public policy. However, a clause that refers a dispute to arbitration or determination by
reference to an expert prior to legal proceedings is not void per se.43 Ousting the jurisdiction of
the court can arise in a number of ways.

38. [2013] QB 840 at 855–8.

39. (1989) 18 NSWLR 398.
40. Parkingeye Ltd v Somerfield Stores Pty Ltd [2013] QB 840 at 857.
41. [2013] QB 840.
42. Parkingeye Ltd v Somerfield Stores Pty Ltd [2013] QB 840 at 858.
43. Scott v Avery (1856) 5 HL Cas 811; Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 at 652;
Straits Exploration (Australia) Pty Ltd v Murchison United NL (2005) 31 WAR 187 at 192–3.

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27.27 First, in Lee v Showmen’s Guild of Great Britain Lord Denning said:
44

If parties should seek, by agreement, to take the law out of the hands of the courts and put it
into the hands of a private tribunal, without any recourse at all to the courts in cases of error
of law, then the agreement is to that extent contrary to public policy and void.

27.28 In Hyman v Hyman45 the issue before the court was whether a wife was precluded from
petitioning the court for permanent maintenance by reason of her having covenanted in a deed
of separation not to take proceedings against her husband for alimony or maintenance beyond
the provision made for by the deed. Lord Hailsham LC46 said:
[I]t is sufficient for the decision of the present case to hold, as I do, that the power of
the court to make provision for a wife on the dissolution of her marriage is a necessary
incident of the power to decree such a dissolution, conferred not merely in the interests
of the wife, but of the public, and the wife cannot by her own covenant preclude herself
from invoking the jurisdiction of the court or preclude the court from the exercise of that
jurisdiction.

Lord Atkin47 said:

[I]n my view no agreement between the spouses can prevent the court from considering
the question whether in the circumstances of the particular case it shall think fit to order
the husband to make some reasonable payment to the wife, ‘having regard to her fortune, if
any, to the ability of her husband and to the conduct of the parties’. The wife’s right to future
maintenance is a matter of public concern, which she cannot barter away.

27.29 These remarks were applied in Soulsbury v Soulsbury,48 where the issue before the
court was whether a husband’s deceased estate was liable to pay the former wife the sum of
£100,000, which the deceased husband had promised he would ensure she would receive on his
death if she did not enforce an order for periodical payments in her favour, or seek any other
order for ancillary relief against him. The Court of Appeal upheld the validity of the agreement.
Ward LJ49 said:
Properly construed, this was an agreement to pay £100,000 subject to conditions
subsequent, namely, (1) the death of the deceased and (2) the claimants not having
enforced any arrears nor applied for further matrimonial relief. Those events have been
fulfilled. Thus the obligation crystallised on the death of the deceased. Nothing in the
agreement, express or implied, prevented her from applying to the court for relief. She
could have gone back to court at any time without being in breach of any promise that
she would not do so. There was no promise not to apply to the court. She could not,
therefore, be in breach of the agreement had she done so and the effect of her going back
to court would simply be to render the fulfilment of the condition subsequent impossible.
She would have forfeited her right to the payment of £100,000 by seeking to enforce the
arrears or seeking some alternative form of relief. I am thus satisfied that the claimant

44. [1952] 2 QB 329 at 342; [1952] 1 All ER 1175 at 1181.

45. [1929] AC 601.
46. Hyman v Hyman [1929] AC 601 at 614.
47. Hyman v Hyman [1929] AC 601 at 629.
48. [2008] 2 WLR 834.
49. Soulsbury v Soulsbury [2008] 2 WLR 834 at 841.

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had not bartered away her right to future maintenance nor prevented any consideration
by the court of her claims. In those circumstances the jurisdiction of the court has not
been ousted and the agreement does not fall foul of the principles established in Hyman
v Hyman.

27.30 Second, provisions attempting to contract out of jurisdiction conferred upon the courts
by statute will generally be held to be void. For example, in New South Wales and Victoria
legislation exists50 which confers upon the court jurisdiction to order a vendor to refund a
deposit to a defaulting purchaser in a contract for the sale of land, if the court thinks it is ‘unjust
and inequitable’ for the vendor to forfeit the deposit.51 However, in Aribisala v St James Homes
(Grosvenor Dock) Ltd52 it was held that a contractual provision that excludes this statutory
jurisdiction is void on public policy grounds on the basis that it amounts to an attempt to oust
the jurisdiction of the courts.

CONTRACTS PROMOTING OR CAUSING CONFLICT BETWEEN

ONE’S PUBLIC DUTY AND PRIVATE INTEREST
27.31 Contracts that promote conflicts between a person’s public duty and their personal
interests are void, as they are against public policy, as is illustrated by the decision in Wilkinson
v Osborne.53

CONTRACTS THAT PROMOTE SEXUAL IMMORALITY AND/OR

PREJUDICE THE STATUS OF MARRIAGE
27.32 Contracts that promote sexual immorality and/or are prejudicial to the status
of marriage are void. Whether a contract does so is measured against relevant community
standards at the time the contract was entered into. In Pearce v Brooks54 a contract for the
hiring of a horse-drawn carriage to a prostitute was held to be void because it promoted sexual
immorality and the hirers were unable to recover payment for hire. However, a contract made
between a spouse, after a decree nisi for the dissolution of the marriage had been pronounced,
to marry a third person after the decree became absolute, was held not to be void against public
policy in Fender v St John-Midmay.55
27.33 A contract made between parties already in a de facto relationship that formalises what
is to happen with respect to financial aspects of the relationship at the end of the relationship
is not void. Thus, in Seidler v Schallhofer56 a contract between a de facto couple stipulated that,
after a period of living together, the parties would either marry or separate, and in the case of

50. Conveyancing Act 1919 (NSW) s 55(2A); Property Law Act 1958 (Vic) s 49(2).
51. Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 at 272–3.
52. [2007] EWHC 1694 (Ch) at [33].
53. (1915) 21 CLR 89, discussed at 27.11.
54. (1866) LR 1 Exch 213.
55. [1938] AC 1 at 48–9.
56. [1982] 2 NSWLR 80.

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the latter it provided for the division of property between the parties. The New South Wales
Court of Appeal held that this was not a sexually immoral contract, Hope JA57 stating:
It is trite to say that there have been immense social changes in the last forty to fifty years.
Those social changes go beyond sexual morality, but undoubtedly the standards of sexual
morality accepted by the community have undergone some change. … [T]he ideas prevailing
in this community as to the conditions necessary for its welfare have changed, at least to
some extent, in so far as they relate to extra-marital cohabitation. It may be that they have
changed to the extent that the living together of a man and woman, without marriage, will
not generally be regarded as infringing the acceptable standards required by the community.
It is however not necessary to decide this question; it is only necessary to consider whether
an agreement for, or tending to promote, the continuation of a cohabitation, already
commenced, for a limited period in order to end it by marriage or separation is not contrary
to those ideas. In my opinion the public policy has changed at least to the extent to allow such
an agreement to be enforced. I do not think that such a conclusion in any way denigrates
the important concept of marriage which is still generally considered as basic to our society.
Such an agreement does not initiate the unmarried cohabitation; it is designed to try to
ensure that if an existing cohabitation results in marriage, the marriage will have a good
chance of success. In a sense, it is designed to encourage successful marriage, albeit in a way
which previously the community may not have countenanced. The agreement is not against
public policy, and should not be struck down on that account.

27.34 However, as was pointed out in Seidler v Schallhofer58 by Hope JA, ‘there is no doubt
that a contract to provide meretricious sexual services is and has long been regarded as contrary
to public policy and illegal’.
27.35 In Ashton v Pratt (No 2)59 Brereton J noted that the current position on contracts
involving persons engaged in a sexual relationship outside of marriage could be divided into
two categories. First, there were contracts with purely meretricious purposes, which were void,
and second, contracts intended to regulate stable extra-marital relationships, which were not
void. His Honour60 referred to an unreported decision of the New South Wales Supreme Court
from 1993 in Markulin v Drew,61 where Young J came to the conclusion that legal authority
suggested that a contract with a prostitute is not void, but a contract, for example, with a
housekeeper to provide occasional sexual services to her employer, would be void. This had led
Young J to conclude that ‘meretricious’ probably means not a contract with a prostitute, but a
contract treating a woman as if she was a prostitute.
27.36 On the basis of these principles, in Ashton v Pratt (No 2)62 Brereton J came to the
conclusion that a contract to establish the relationship of a ‘mistress’ was a contract to provide
meretricious sexual services and was, accordingly, void against public policy.

57. Seidler v Schallhofer [1982] 2 NSWLR 80 at 90–1.

58. [1982] 2 NSWLR 80 at 88.
59. [2012] NSWSC 3 at [49]–[50].
60. Ashton v Pratt (No 2) [2012] NSWSC 3 at [50].
61. Unreported, New South Wales Supreme Court, Young J, 12 August 1993.
62. [2012] NSWSC 3 at [52].

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CONTRACTS WITH ENEMY ALIENS

27.37 The outbreak of war can lead to the frustration of a contract.63 Contracts involving
enemy aliens are against public policy and void.64
27.38 In some cases the outbreak of war does not dissolve or suspend the operation of a
contract. This will be so where payment for goods fell due prior to the outbreak of war.65

CONTRACTS IN RESTRAINT OF TRADE

The concept of a restraint of trade
27.39 Many situations arise whereby parties utilise contracts that contain restraint of
trade provisions.66 Such provisions are designed to prevent or restrict the ability of an
agreeing party from practising their trade or profession for a period of time and/or within
a particular geographical area. They are commonly used in contracts for sale of businesses
and in employment contracts. In regards to contracts for the sale of businesses, it is
common to see clauses within those contracts restricting sellers from competing with the
business that they have just sold. The purpose of such restraints is to protect the goodwill
of the business that has been purchased. In employment contracts, it is common to see such
clauses being used to prevent employees utilising confidential information and trade
secrets when they leave their employment or indeed accessing the employer’s customers.67
Despite the use of such clauses, questions arise as to the proper scope of operation and to
the validity of such clauses.
27.40 At common law, a restraint of trade is contrary to public policy and is void unless it
is reasonable from the perspective of the public interest as well as between the parties to the
restraint.68 Thus, in Jaddcal Pty Ltd v Minson (No 3)69 Le Miere J said:
For a restraint to be reasonable the restraining party must establish an identifiable interest
calling for protection. A bare covenant restrictive of competition even if it is limited in point
of time and place cannot be sustained. The interest must be that of the party seeking to
enforce the restraint.

63. See 25.30, 25.43, 25.46.

64. Ertel Bieber & Co v Rio Tinto Co [1918] AC 260.
65. Hirsch v Zinc Corp Ltd (1917) 24 CLR 34; 23 ALR 388.
66. See generally J D Heydon, The Restraint of Trade Doctrine, 4th ed, 2018 LexisNexis Butterworths;
M Trebilcock, The Common Law of Restraint of Trade: A legal and Economic Analysis, Carswell, Toronto,
1986.
67. On the development of the post-employment restraint of trade doctrine see F Carrigan and P Radan, ‘The
Post-Employment Restraint of Trade Doctrine: A Critical History’ (2020) 31 King’s Law Journal 121; Egon
Zehnder Ltd v Tillman [2020] AC 154 at 164–67; [2020] 1 All ER 477 at 484–7.
68. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565; Peters (WA) Ltd
v Petersville Ltd (2001) 205 CLR 126 at 139; 181 ALR 337 at 345; Ross v IceTV [2010] NSWCA 272 at [86];
Metcash Ltd v Jardim (2010) 273 ALR 407 at 418. This position is the same in New Zealand: Blackler
v New Zealand Rugby Football League Inc [1968] NZLR 547 at 555–6; Brown v Brown [1980] 1 NZLR 484;
Skids Programme Management Ltd v McNeill [2013] 1 NZLR 1 at 11.
69. [2011] WASC 362 at [63].

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27.41 In Nordenfelt v Maxim-Nordenfelt Guns and Ammunition Co Ltd70 the House of Lords
upheld the validity of a clause restraining Thorsten Nordenfelt, the seller of a munitions business,
from setting up a similar business in Europe or North America for a period of 25 years. In this
industry, the clause was regarded as reasonable at that point in history. The background and
context of this case is illuminating.
27.42 Prior to March 1886, Thorsten Nordenfelt had obtained patents for improvements
in quick firing guns and carried on the business of the manufacture of such guns and of
ammunition. In March 1886 an agreement was made between Thorsten Nordenfelt and the
Nordenfelt Guns and Ammunition Company pursuant to which the company was to purchase
the goodwill of Thorsten Nordenfelt’s business with him agreeing to act as managing director
for a period of five years. The agreement provided that the price payable to Thorsten Nordenfelt
was £237,000 in cash and £57,000 in paid-up shares of the company. In July 1888 negotiations
were entered into for the amalgamation or merger of Nordenfelt Guns and Ammunition
Company and the Maxim Gun Company and to the transfer of their business and assets to a
new company, to be called the Maxim-Nordenflet Guns and Ammunition Company. These
negotiations subsequently led to an agreement which contained the following restraint of trade:
The said Thorsten Nordenfelt shall not, during the term of 25 years from the date of the
incorporation of the company if the company shall so long continue to carry on business,
engage except on behalf of the company either directly or indirectly in the trade or business of
a manufacture of guns done mountings or carriages, gunpowder explosives or ammunition
or in any business competing or liable to compete in any way with that for the time being
carried on by the company; provided that such restriction shall not apply to explosives other
than gunpowder or to subaqueous or submarine boats or torpedoes or castings or forgings of
steel or iron ore alloys of iron or of copper. Provided also that the said Thorsten Nordenfelt
shall not be released from this restriction by the company ceasing to carry on business
merely for the purpose of reconstitution or with a view to the transfer of the business thereof
to another company so long as such other company taking a transfer thereof shall continue
to carry on the same.

27.43 The issue before the House of Lords was whether the restraint of trade clause that he
had signed at the time of the company merger in 1888 could be enforced against him. In the
classic statement of legal principle on restraints of trade, Lord MacNaghten71 said:
All interference with individual liberty of action in trading, and all restraints of trade of
themselves, if there is nothing more, are contrary to public policy, and therefore void.
That is the general rule. But there are exceptions: restraints of trade and interference with
individual liberty of action may be justified by the special circumstances of a particular
case. It is a sufficient justification, and indeed it is the only justification, if the restriction is
reasonable — reasonable, that is, in reference to the interests of the parties concerned and
reasonable in reference to the interests of the public, so framed and so guarded as to afford
adequate protection to the party in whose favour it is imposed, while at the same time it is
in no way injurious to the public.

70. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.
71. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 at 565. This statement has
been cited with approval in many cases, including: Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd
(1968) AC 269 at 299, 307, 318; Buckley v Tutty (1972) 125 CLR 353 at 396.

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27.44 The underlying rationale for the restraint of trade doctrine is that restraints of
trade are likely to reduce competition and the freedom to trade and therefore should not
be enforced. Restraints of trade, however, raise a conflict between the principles of, on the
one hand, freedom of trade, and on the other hand, freedom of contract. In consequence,
contracts or provisions within contracts that purport to operate as a restraint of trade are
presumed to be void at common law, unless the party affirming the contract can show
that the contract or provision is reasonable in its extent, both in time and place, and is in
protection of a legitimate interest.72 This position highlights what Dixon J referred to in
Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd73 as two principles
of policy that work in opposition — the policy of securing ample freedom of contract and
enforcing contractual obligations, and that of preserving freedom of trade from unreasonable
contractual restriction. In relation to this dichotomy, Dixon J74 went on to say the following:
The opposition has been resolved by the adoption of a clear rule making it necessary to
justify all contracts in restraint of trade as reasonable in the interests of both the parties
and by applying the test of reasonableness according to the situation the parties occupy
and so recognizing the different considerations which affect employer and employee and
independent traders or business men, particularly vendor and purchaser of the goodwill of
a business.

27.45 In relation to the tension between the competing principles of freedom of contract and
restraint of trade, in Proactive Sports Management Limited v Rooney75 Gross LJ said:
[T]he doctrine of restraint of trade and the protection of freedom of trade do not stand alone;
there is also the public interest in freedom of contract to be considered — parties are, in
general, free to enter into any lawful contract they wish and it is not for the Court to rewrite
their bargains. … Self evidently, the doctrine of restraint of trade itself serves to limit the
individual’s freedom of contract. There is, accordingly, obvious scope for tension between
these two public interests, involving the need for compromise. The Court should be slow to
substitute its (objective) view as to the interests of the parties for the (subjective) views of
the parties themselves in deciding to enter into the contract. But in some circumstances the
doctrine of restraint of trade will prevail — where it is held that a contract is in restraint of
trade and that to be enforceable it must pass a test of reasonableness.

27.46 Therefore, the mere presence of a restraint of trade clause does not automatically trigger
the application of the restraint of trade doctrine as set out in Nordenfelt v Maxim-Nordenfelt
Guns and Ammunition Co Ltd.76 In Proactive Sports Management Ltd v Rooney77 Arden LJ said:
The boundary between contracts that are contrary to public policy as being in restraint of
trade and that will not be enforced, and contracts that contain acceptable restrictions is an
uncertain and porous one. … Some contracts are treated as moulded by normal commercial

72. Cream v Bushcolt Pty Ltd [2004] WASCA 82 at [18].

73. (1947) 77 CLR 574 at 590.
74. Peters American Delicacy Co Ltd v Patricia’s Chocolates and Candies Pty Ltd (1947) 77 CLR 574 at 590.
These comments were cited with approval by Gibbs J in Amoco Australia Pty Ltd v Rocca Bros Motor
Engineering Co Pty Ltd (1973) 133 CLR 288 at 317; 1 ALR 385 at 408.
75. [2011] EWCA Civ 1444 at [145].
76. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.
77. [2011] EWCA Civ 1444 at [55].

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experience and thus outside the doctrine even though they contain restrictions on trade.
These include restrictive covenants in commercial leases against user save for particular
trading purposes.

27.47 In relation to contracts for the sale of business, usually such restraints or restrictions
are expressed to be operative for a nominated period of time and/or in relation to a particular
geographical area.78 With respect to restraints contained in employment contracts, it is common
for employers to insist on non-competition restraints that are often expressed as restricting
directly or indirectly a person from competing with their employer. In addition, employers
often use non-solicitation restraints that are commonly expressed as restricting soliciting or
dealing with any of the former employer’s clients.79 A variation on this situation is the use of a
restraint of trade in a deed of release that seeks to resolve a dispute concerning the terms of an
employment contract.80
27.48 A restraint of trade must be construed for the purposes of ascertaining its true meaning
independently of the rules prescribing tests of reasonableness for the purpose of ascertaining
its validity.81 It is to be interpreted like any commercial agreement, giving the words and
their operation a reasonable and common sense interpretation. Each restraint clause must be
interpreted in regard to its particular terms.82 The clause should be construed in a business
fashion.83 It has been held that, in a business contract, one should look at the business meaning
of those words.84
27.49 The task of construing a restraint of trade clause is one of ascertaining the intention of
the parties and of applying that intention.85 The restraint should be read ‘in a sensible fashion’.86
In this way unreasonable constructions and unreasonable applications of such clauses are
avoided. Similarly, if the language of a provision is open to two constructions, courts should
prefer the construction that will avoid consequences that appear to be capricious, unreasonable,
inconvenient, or unjust.87 The clause should not be uncertain.88 In Positive Endeavour Pty Ltd
v Madigan89 the South Australian Full Court, in allowing an appeal, held a particular restraint
clause was not uncertain, but was invalid as it went beyond what was reasonable for protection.
27.50 These general principles apply in all cases of restraint of trade. However it appears to
be the case that a more rigorous approach is applied to restraints in employment contracts than

78. WPS Enterprises Pty Ltd v Radford (2009) 22 VR 1 at 3; 253 ALR 596 at 598.
79. Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at [1].
80. Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; 181 ALR 337 at [19]; Metcash Ltd v Jardim (2010) 273
ALR 407 at 416.
81. Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [18].
82. Butt v Long (1953) 88 CLR 476 at 487; Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341 at 350.
83. Birdanco Nominees Pty Ltd v Money (2012) 36 VR 341 at 350; Southland Frozen Meat & Produce Export Co
Ltd v Nelson Brothers Ltd [1898] AC 442 at 444.
84. WPS Enterprises Pty Ltd v Radford (2009) 22 VR 1 at 18–19; 253 ALR 596 at 613–14.
85. Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437.
86. Rentokil v Lee (1995) 66 SASR 301 at 305.
87. Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
at 109.
88. Northern Tablelands Insurance Brokers v Howell [2009] NSWSC 426 at [47]–[49].
89. (2009) 105 SASR 109.
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in contracts for the sale of goodwill.90 In BDO Group Investments (NSW-Vic) Pty Ltd v Ngo91
Croft J said:
The approach of the courts to restraints in agreements for the sale of goodwill … [is] very
different from the approach sometimes adopted with respect to employee restraints … which
is evident in the reluctance of the courts to save employee restraints by reading down any
unreasonably wide terms, by severance or otherwise, to give those restraints some operation.
The reason for this is clear from the speech of Lord Moulton in Mason v Provident Clothing
& Supply Co Ltd:92
It would in my opinion be pessimi exempli if, when an employer had exacted a
covenant deliberately framed in unreasonably wide terms, the Courts were to come
to his assistance and, by applying their ingenuity and knowledge of the law, carve out
of this void covenant the maximum of what he might validly have required. It must
be remembered that the real sanction at the back of these covenants is the terror and
expense of litigation, in which the servant is usually at a great disadvantage, in view
of the longer purse of his master.

Where parties have equal bargaining power and enter into a contract for the sale of goodwill,
these considerations do not apply.

27.51 In Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd93 Lord Watson said:
I think it is now generally conceded that it is to the advantage of the public to allow a trader
who has established a lucrative business to dispose of it to a successor by whom it may be
efficiently carried on. That object could not be accomplished if, upon the score of public
policy, the law reserved to the seller an absolute and indefeasible right to start a rival concern
the day after he sold. Accordingly it has been determined judicially, that in cases where the
purchaser, for his own protection, obtains an obligation restraining the seller from competing
with him, within bounds which having regard to the nature of the business are reasonable
and are limited in respect of space, the obligation is not obnoxious to public policy, and is
therefore capable of being enforced. Whether – when the circumstances of the case are such
that a restraint unlimited in space becomes reasonably necessary in order to protect the
purchaser against any attempt by the seller to resume the business which he sold – a covenant
imposing that restraint must be invalidated by the principle of public policy is the substance
of the question which your Lordships have to consider in this appeal.

27.52 Furthermore, the courts are more likely to uphold the validity of a clause restricting
the employment of a retiring partner than an employee.94 Where there is ambiguity, a covenant
in restraint of trade in an employment contract will be construed in favour of an employee,
and, accordingly, a narrower construction of the scope of the restraint will be preferred to a

90. Cream v Bushcolt Pty Ltd [2004] WASCA 82 at [24]; Koops Martin Financial Services v Reeves [2006]
NSWSC 449 at [28]; BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105 at 119–20; Coppage v Safety
Net Security Ltd [2013] EWCA Civ 1176 at [9]; Then There Were Three Pty Ltd v Douglas [2014] NSWSC
1011 at [110]; Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [262]. See also Heydon, The Restraint of
Trade Doctrine, note 66 above, pp 93–7.
91. [2010] VSC 206 at [41].
92. [1913] AC 724 at 745.
93. [1894] AC 535 at 552–3.
94. Bridge v Deacons [1984] AC 705; [1984] 2 All ER 19.

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broader construction when both are reasonably available.95 However, this does not authorise
a restrictive interpretation of general words simply to save a covenant from invalidity for
contravention of public policy.96

Assessing the ‘reasonableness’ of a restraint of trade

27.53 How then is reasonableness to be assessed? How important is the actual bargain
struck between the parties? In Heron v Port Huon Fruitgrowers’ Co-operative Association Ltd97
Knox CJ, and Gavan Duffy and Starke JJ said:
‘The real test’ whether a contract is reasonable between the parties ‘is’, in the language of
Lord Birkenhead,98 ‘does the restriction exceed what is reasonably necessary for the
protection of the covenantee?’ Do the articles ‘impose upon the appellant a greater degree of
restraint than the reasonable protection of the respondents requires’?

27.54 In McHugh v Australian Jockey Club Ltd99 the relevant principles were summarised as
follows:
(a) at common law all interferences with individual liberty of action in trading and all
restraints of trade themselves, if there is nothing more, are contrary to public policy and
therefore void;100
(b) such a restraint will nevertheless be valid if:
(i) it affords no more protection than is reasonably necessary to protect the interests
of the party in whose favour it is imposed;101 and
(ii) it is reasonable having regard to the interests of the public;102
(c) reasonableness in those contexts is to be judged at the date the restraint was first
imposed;103
(d) the onus of showing that the restraint is no more than reasonably necessary to protect
the interests of the party having the benefit of the restraint is on that party.104 There are
judgments of individual Justices of the High Court to similar effect;105
(e) the onus of showing that a contract in restraint of trade is injurious to the public lies on
the party making that allegation;106

95. Mills v Dunham [1891] 1 Ch 576 at 589–90; Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472
at 1486.
96. Butt v Long (1952) 88 CLR 476 at 487.
97. (1922) 30 CLR 315 at 324.
98. McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society Limited [1919] AC 548 at 563.
99. (2014) 314 ALR 20 at 22–3.
100. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company Ltd [1894] AC 535 at 565.
101. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company Ltd [1894] AC 535 at 565; Amoco Australia
Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315–16.
102. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company Ltd [1894] AC 535 at 565; Amoco Australia
Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315.
103. Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 at 285–6, 245.
104. Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 at 319; Herbert Morris Ltd v Saxelby
[1916] 1 AC 688, 700, 707–8.
105. See Lindner v Murdock’s Garage (1950) 83 CLR 628 at 646, 653; Amoco Australia Pty Ltd v Rocca Bros Motor
Engineering Co Pty Ltd (1973) 133 CLR 288 at 317.
106. Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 700, 707–8; Esso Petroleum Co Ltd v Harper’s Garage
(Stourport) Ltd [1968] AC 269 at 319.
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(f) what is to be proved in both cases are facts, but the question of whether those facts make
good the proposition that the restraint is reasonable is a question of law;107
(g) in assessing what is reasonable the court may take into account future probabilities that
could have been foreseen;108 and
(h) in assessing what is reasonable, facts occurring after the restraint’s inception may, but
need not, throw light on circumstances existing at the relevant date.109

27.55 In assessing reasonableness, courts focus upon the practical effect of the restraint
and, as part of that focus, upon whether there exists a legitimate interest to protect. In Amoco
Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd110 Gibbs J said:
The requirement that the restriction be reasonable in the interests of the parties has been
explained as meaning that the restraint ‘must afford no more than adequate protection to the
party in whose favour it is imposed’,111 or in other words, ‘does the restriction exceed what is
reasonably necessary for the protection of the covenantee?’112
The test thus stated suggests that it is not material to consider the effect of the contract on the
covenantor. It is established that the court is not entitled to inquire into the adequacy of the
consideration for a restraint, that is, the court may not weigh whether the consideration is
equal in value to that which the covenantor gives up or loses by the restraint.113 Nevertheless
the fundamental rule remains that the restraint must be reasonable in the interests of the
contracting parties, and it would not be in the interest of a covenantor to subject himself to
any restraint unless he received some advantage by so doing. In my opinion it is permissible,
in asking whether a restraint is reasonable in the interests of the parties, to consider, as part of
the circumstances of the case against which the question of reasonableness is to be decided,
the quantum of consideration received by the covenantor and the effect of the agreement on
the position of the covenantor.114

27.56 In Howard F Hudson Pty Ltd v Ronayne115 Ronayne sued Hudson, for an instalment of
a retiring allowance which Hudson had, on certain terms and conditions, promised to pay him
on his retirement from its service. At the time of his retirement Ronayne was 60 years of age and
had been in the service of Hudson for 30 years. Hudson’s business was that of a distributor of

107. Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 at 319; Amoco Australia Pty Ltd
v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 317.
108. Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 at 285–6.
109. Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 318.
110. (1973) 133 CLR 288 at 315–16; 1 ALR 385 at 407–8. See also Quantum Advisory Ltd v Quantum Actuarial
LLP [2020] EWHC 1072 (Comm) at [78]–[81].
111. Herbert Morris Ltd v Saxelby [1916] AC 688 at 707.
112. McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society Ltd [1919] AC 548 at 563.
In McEllistrim v Ballymacelligott Co-operative Agricultural and Dairy Society Ltd [1919] AC 548 at 562,
Lord Birkenhead LC said that ‘a contract which is in restraint of trade cannot be enforced unless (a) it is
reasonable as between the parties; (b) it is consistent with the interests of the public’ and described the two
requirements as ‘the two standards’.
113. Hitchcock v Coker (1837) 112 ER 167 at 175; Herbert Morris Ltd v Saxelby [1916] 1 AC at 707.
114. Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC at 300, 323. See also Attwood v Lamont
[1920] 3 KB 571 at 589; Fitch v Dewes [1921] 2 AC 158 at 163; Heron v Port Huon Fruitgrowers’ Co-operative
Association Ltd (1922) 30 CLR 315 at 337; Peters American Delicacy Co Ltd v Patricia’s Chocolates and
Candies Pty Ltd (1947) 77 CLR at 591.
115. (1972) 126 CLR 449.

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hardware and tools throughout Australia. Ronayne, who was described as the company’s Sydney
manager, had, for some years prior to his retirement, been in charge of the company’s sales and
had travelled throughout Australia and overseas on its behalf. The agreement for a retiring
allowance was embodied in a document dated 26 November 1964, which was treated as a
deed. The allowance was £6000 payable by installments of £375 quarterly. However, the deed
provided that the retiring allowance would not be paid if an employee acted to the detriment
of the company or its business. The High Court held that the deed was unenforceable and that
Ronayne was not entitled to recover the installment for which he had sued. In the High Court
Gibbs J116 said:
Whether the provisions of the deed operated as a restraint of trade depended on their
practical working rather than on their legal form (see the passage from the judgment of
Lord Wilberforce117). The relevant provisions of the deed, assuming them to be valid, obliged
[Hudson] to pay [Ronayne] any particular installment of the retiring allowance only if before
the time for payment of that installment had arrived [Ronayne] had not engaged or been
concerned in the business described in [the deed].

27.57 The reasonableness of a restraint also requires a consideration of how the restraint will
operate, both by geography and time.118 In Fitch v Dewes119 Lord Birkenhead LC said:
But it is to be noticed here, as has been said in more than one of the earlier cases, that
guidance may be derived in dealing with a restriction relating to time from an examination
of the restriction which is made in respect of space. And the converse remark is of course
equally true. For instance, if the restriction in respect of space is extremely limited, it is
evident that a very considerable restriction in respect of time may be more acceptable than
would otherwise have been the case.

27.58 As to the length of time a restraint is expressed to continue and whether or not such
time is reasonable in the particular circumstances, in Peters (WA) Ltd v Petersville Ltd120 French,
Kiefel, and Nicholson JJ said:
The reasonableness of a restraint inter partes is not adjudged and concluded from the
viewpoint of the value a party derives from it. Menzies J in Amoco121 expressed the view
that the important question was what the person who accepts the tie expects to gain from it,
but his Honour was in the minority. Nevertheless, the cases show that the Courts will look
at aspects of the bargain in order to determine whether it is reasonable, but that the parties’
views of it could not decide the question. An example … [is] the consideration paid for the
restraint, as relevant to the length of its term. … The issue of reasonableness as between the
parties is concerned with the protection of the interests of the party receiving the benefit of
the restraint.

116. Howard F Hudson Pty Ltd v Ronayne (1972) 126 CLR 449 at 467–8.
117. Dickson v Pharmaceutical Society of Great Britain [1970] AC 403 at 440, cited in Buckley v Tutty (1971) 125
CLR at 375.
118. Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201 at [67].
119. [1921] 2 AC 158 at 163.
120. [1999] FCA 1245 at [26]–[27].
121. Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 294–5; 1 ALR
385 at 407–8.

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27.59 Where a party seeks to enforce a covenant in restraint of trade, the onus is on the
covenantee to establish that the restraint imposed was not more than reasonably necessary to
protect the covenatee’s interests.122 The question of reasonableness is a question of law for the
decision of the judge.123 According to Heydon, J,124 writing extrajudicially, ‘[s]trictly speaking
the onus is not to prove reasonableness, but to prove special circumstances from which
reasonableness can, as a matter of law, be inferred by the judge’. This reflects the principle that
a restraint of trade is unreasonable if it provides greater protection than which is reasonably
required to give adequate protection to the person for whose benefit the restraint is imposed.125
The onus of establishing that it is nevertheless contrary to the public interest lies on the person
who asserts that.126
27.60 It should be noted, however, that it has often been observed that if the restraint is
reasonable in the interests of the parties, it is likely to be reasonable from the perspective of the
public interest. This has led some judges to say that in fact there is really only one test. Thus, in
Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd127 Lord Pearce said:
There is not, as some cases seem to suggest, a separation between what is reasonable on
grounds of public policy and what is reasonable as between the parties. There is one broad
question: is it in the interests of the community that the restraint should, as between the
parties, be held to be reasonable and enforceable?

27.61 It is suggested that this approach is incorrect. Cases are increasingly suggesting
that a restraint may be unenforceable on public policy grounds, even if it is reasonable
as between the parties. Thus, in Baker v Lintott128 the Supreme Court of Alberta declared
a restraint, which had the effect of preventing a medical practitioner from practising in
a particular town, to be unenforceable, even though as between the parties it was reasonable.
Forsyth J129 observed that it was unreasonable on the public interest ground because the
restraint affected the ‘entitlement of the public to the widest possible choice and selection
of their medical practitioners’. On appeal to the Alberta Court of Appeal130 the decision was
reversed because the choice of medical practitioners was not unreasonably restricted. The
appellate court’s decision was one based on the facts of the case, the court holding that the
number of doctors in the town was enough to meet the demands of the public to have a choice.

122. Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707; Amoco Australia Pty Ltd v Rocca Bros Motor
Engineering Co Pty Ltd (1973) 133 CLR 288 at 317–18; 1 ALR 385 at 407–8.
123. Mason v Provident Clothing and Supply Co Ltd [1913] AC 724 at 732; Attorney-General (Cth) v Adelaide
Steamship Co Ltd [1913] AC 781 at 797; North Western Salt Co Ltd v Electrolytic Alkali Company Ltd [1914]
AC 741; Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707; Lindner v Murdock’s Garage (1950) 83 CLR
628 at 653; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 317;
1 ALR 385 at 409.
124. Heydon, Restraint of Trade Doctrine, note 66 above, p 36.
125. Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 346–8; ATF Services Pty Ltd v Chapman
[2011] NSWSC 1024 at [16].
126. Buckley v Tutty (1971) 125 CLR 353 at 377.
127. [1968] AC 269 at 324; [1967] 1 All ER 699 at 724.
128. (1980) 54 CPR (2d) 200.
129. Baker v Lintott (1980) 54 CPR (2d) 200 at 210.
130. Baker v Lintott (1981) 70 CPR (2d) 107.

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Had there been fewer doctors in the town, the decision at first instance would not have
been reversed.
27.62 In Man Financial (S) Pte Ltd v Wong Bark Chuan David,131 the Singaporean Court of
Appeal held a restraint of trade clause would be unreasonable in the interests of the public if its
effect would be to give a covenantee’s business a virtual monopoly in Singapore.
27.63 The time at which reasonableness must be judged is the time of entry into the
contract.132 However, events after the date of the agreement may be relevant.133 Thus, in Wallis
Nominees (Computing) Pty Ltd v Pickett 134 Sifris J said:
While the validity of restraints of trade must be decided as at the time they are entered
into, this is not to say contractual terms are thereby frozen in time and are unable to reflect
agreement between parties as to the future context of their on-going relationship.

27.64 The fact that a restraint clause has been freely bargained for and entered into by the
parties does not mean that the restraint is enforceable.135
27.65 Apart from the issue of reasonableness, the party seeking to rely on the restraint (the
covenantee) must provide consideration to be able to enforce the restraint. However, a restraint
of trade contained in a deed in which the covenantee has not provided consideration is not
enforceable by the covenantee.136 In this respect the courts have suggested that, as all restraints
are prima facie void, a reasonable restraint of trade will only be treated as an exception to the
general proposition if the reasonable restraint is also supported by consideration moving from
the covenantee.
27.66 The cases requiring consideration for the enforcement of a covenant in restraint of
trade even where a deed is used, are all quite old. However, no modern cases have considered
this issue. It is suggested that the older cases should not be followed and that, given that a deed
does not require consideration,137 there is no reason why that principle should not extend to
restraints of trade.
27.67 In looking at reasonableness,138 emphasis is on the scope and duration of the restraint
of trade and on the time and geographical area in which the restraint is to operate. The

131. [2007] SGCA 53 at [75].

132. Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653; Amoco Australia Pty Ltd v Rocca Bros Motor
Engineering Co Pty Ltd (1973) 133 CLR 288 at 318; 1 ALR 385 at 409; Curro v Beyond Productions Pty
Ltd (1993) 30 NSWLR 337 at 344; Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267 at [33];
Ross v IceTV [2010] NSWCA 272 at [88]; Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343
at 356.
133. Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653; Amoco Australia v Rocca Bros Motor Engineering
(1973) 133 CLR 288 at 318; 1 ALR 385 at 409; Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343
at 356.
134. [2012] VSC 82 at [38]. See also Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657 at 662.
135. Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 203; 185 ALR 152 at 165–6.
136. Davis v Mason (1793) 101 ER 69 at 70.
137. See 6.75–6.78.
138. See 27.53–27.66.

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determination of these issues will depend on the circumstances. However, a number of general
principles have been developed by the courts,139 including:
• Restraints of trade provisions in a contract are presumed to be void or invalid.140 This
presumption may be rebutted if the restraint affords no more than reasonable protection to
the party in whose favour it is imposed and is not injurious to the public.141
• The restraint must give no more than adequate protection to the party who seeks to enforce
it. It will be unreasonable if it is greater than needed to give adequate protection to the
legitimate interests of the person for whose benefit the restraint is imposed.142 In Butt
v Long143 Dixon CJ said:
A distinction is drawn between the position of the purchaser of the goodwill of a
business taking a covenant in restraint of trade from his vendor and the case of the owner
of a business taking such a covenant from his servant or apprentice. The goodwill of a
business is immune from the danger of the owner exercising his personal knowledge
and skill to its detriment and if the purchaser is to take over such goodwill with all its
advantages it must in his hands remain similarly immune. Without, therefore, a covenant
on the part of the vendor against competition, a purchaser would not get what he is
contracting to buy, nor could the vendor give what he is intending to sell. The covenant
against competition is therefore reasonable if confined to the area within which it would
in all probability enure to the injury of the purchaser.

• The party who seeks to enforce the restraint has the onus of proving that the restraint is
reasonable as between the parties. The restraint must operate to protect a legitimate interest
of the covenantee. The test is whether the restrictive covenant exceeds what is reasonable
and necessary for the protection of the legitimate interest.144
• The meaning of a restraint clause may be construed by reference to the surrounding
circumstances.145
• The reasonableness of the restraint is determined at the date of entry into the agreement.146
The issue is whether the agreement was a reasonable one to make at the relevant time, bearing

139. For a summary of the relevant principles, see Stacks/Taree v Marshall (No 2) [2010] NSWSC 77 at
[44]–[46]; Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [258]–[268]; Verint Systems (Australia) Pty
Ltd v Sutherland [2019] NSWSC 882 at [38].
140. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535 at 565; Buckley v Tutty (1971) 125
CLR 353 at 376; Wallis Nominees (Computing) Pty Ltd v Pickett [2012] VSC 82 at [50]; on appeal (2013) 45
VR 657 at 662; Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [258].
141. Esso Petroleum v Harpers Garage (Stourport) Ltd [1968] AC 269 at 300; Buckley v Tutty (1971) 125 CLR 353
at 376; Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [29], [75]; Vision Eye Institute Ltd
v Kitchen [2014] QSC 260 at [258].
142. Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288; 1 ALR 385;
Herbert Morris Ltd v Saxelby [1916] AC 688 at 707; Specialist Diagnostic Services Pty Ltd v Healthscope Ltd
[2010] VSC 443 at [90]–[94].
143. (1953) 88 CLR 476 at 486.
144. Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 317–18; 1 ALR
385 at 409; Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [259].
145. I F Asia Pacific Pty Ltd v Galbally [2003] VSC 92 at 103.
146. Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653; Amoco Australia Pty Ltd v Rocca Bros Motor
Engineering Co Pty Ltd (1973) 133 CLR 288 at 318; 1 ALR 385 at 409; Curro v Beyond Productions Pty Ltd
(1993) 30 NSWLR 337 at 344; Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267 at [33]; Ross
v IceTV [2010] NSWCA 272 at [88]; Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343 at 356.
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in mind the best estimate the parties could make for the future.147 Reasonably foreseeable
expansions are taken into account in determining the scope of a protectable interest.148 The
covenant can be that which is reasonable to protect the contemplated expansion.149 The test
is whether, at the date of the agreement, reasonable people in the position of the parties
would have expected that performance of the agreement, and would be likely to generate
significant new goodwill which the covenantee could reasonably protect.150
• Industry practice will be relevant to determine reasonableness.151
• Whether a particular restraint operates unnecessarily is to be determined not by the form in
which the restraint is framed, but by its effect and operation in practice.152
• Any inequality of bargaining power between the parties will be relevant in considering
reasonableness. A court is more willing to show latitude if the parties are of equal bargaining
power.153 In A Schroeder Music Publishing Co Ltd v Macaulay154 a 21-year-old songwriter
agreed to provide his exclusive services to a musical publishing house. The agreement was
for five years, with an option to extend. The agreement assigned world copyright to the
publisher of all songs, and minimal royalties were payable to the songwriter. The publisher
could terminate the agreement on one month’s notice, but there was no similar right for the
writer to do so. The publisher could assign its interests under the agreement; the songwriter
could not. The publisher did not, under the agreement, have to publish the songwriter’s
compositions. In holding that the contract was void because it was an unreasonable restraint
of trade, Lord Diplock155 said:
The test of fairness, is no doubt, whether the restrictions are both reasonably necessary
for the protection of the legitimate interests of the promisee and commensurate with the
benefits secured to the promisor under the contract. For the purpose of this test all the
provisions of the contract must be taken into consideration.

It was also an unconscionable use by the publisher of its superior bargaining power.
Lord Diplock,156 in assessing the bargaining power of the songwriter and the publisher at the
time of the contract and concluding that the bargain was not fair, said:

The fact that the [publisher’s] bargaining power vis-a-vis the [songwriter] was strong
enough to enable them to adopt this take-it-or-leave-it attitude raises no presumption

147. Putsman v Taylor [1927] 1 KB 637 at 643; Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [260].
148. Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653; Amoco Australia v Rocca Bros Motor Engineering
(1973) 133 CLR 288 at 318; 1 ALR 385 at 409; Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR
343 at 356. See also Heydon, Restraint of Trade Doctrine, note 66 above, pp 52, 162–3, 169–7, 223–4.
The possibility must be ‘something more than a hope, based on contingencies, which may or may not
occur’: Heydon, Restraint of Trade Doctrine, note 66 above, p 167.
149. Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418 at [71]; Vision Eye Institute Ltd v Kitchen
[2014] QSC 260 at [260].
150. BB Australia Pty Ltd v Karioi Pty Ltd (2010) 278 ALR 105 at 121; Sidameneo (No 456) Pty Ltd v Alexander
[2011] NSWCA 418 at [72]; Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [260].
151. Esso Petroleum v Harper’s Garage [1968] AC 269 at 300.
152. Cream v Bushcolt Pty Ltd [2004] WASCA 82 at [26].
153. Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 316; 1 ALR 385
at 408; Quantum Advisory Ltd v Quantum Actuarial LLP [2020] EWHC 1072 (Comm) at [75]–[77].
154. [1974] 3 All ER 616.
155. A Schroeder Music Publishing Co Ltd v Macaulay [1974] 3 All ER 616 at 623.
156. A Schroeder Music Publishing Co Ltd v Macaulay [1974] 3 All ER 616 at 624.

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that they used it to drive an unconscionable bargain with him, but in the field of
restraint of trade it calls for vigilance on the part of the court to see that they did not.

• If a restraint is unreasonable, it is unenforceable even if the covenantor has acted in a way that
would have been within the boundaries of a reasonable restraint. In other words, the common
law assesses the validity of a restraint by looking to see whether the clause is reasonable in
terms of its widest possible application as set out in the actual clause, rather than to the actual
conduct of the covenantor in the actual case before it. For example, in a sale of a business, the
restraint is for an area within a 20 km radius of the business sold. Such a restraint is, on the
facts, too broad, but a 5 km radius would have been reasonable. If the covenantor opens up a
competing business 500 km away from the location of the business sold, the covenantee has
no rights pursuant to the restraint of trade clause.157 However, in this scenario, if the clause had
stipulated a 5 km radius, it would have been enforceable by the covenantee.
• If the parties to the restraint acknowledge that the restraint is reasonable, that is a factor to
be considered, but is not conclusive. In this respect, in Vision Eye Institute Ltd v Kitchen158
Applegarth J said:
The fact that the parties agreed to the restraint and that the contract acknowledges that the
restrictions are reasonable is some evidence of their reasonableness, particularly where
the parties bargain from a position of equality. An acknowledgement of reasonableness
should be given appropriate weight. This is because the parties are taken to have a good
knowledge of the relevant industry and are in a better position than the Court to assess
what amounts to reasonable protection. However, a declaration by a party that a restraint
is reasonable does not bind the Court.

27.68 In Stacks/Taree v Marshall (No2),159 McDougall J summarised the relevant principles

that arise both at general law and under the Restraints of Trade Act 1976 (NSW) as follows: 160
(a) At common law, a restraint of trade is contrary to public policy and void, unless it can
be shown that the restraint is, in the circumstances of the particular case, reasonable.161
(b) In New South Wales, it is not strictly correct that a restraint is prima facie void; a
restraint is valid to the extent to which it is not against public policy, even if not in
severable terms.162
(c) The onus at common law of showing that the restraint goes no further than is reasonably
necessary to protect the interests of the person in whose favour the restraint operates,
lies on the party seeking to support the restraint as reasonable.163

157. This is the essence of what occurred in Papastravou v Gavan [1968] 2 NSWR 286.
158. [2014] QSC 260 at [266].
159. [2010] NSWSC 77 at [44]–[46].
160. These principles were repeated and applied in Verint Systems (Australia) Pty Ltd v Sutherland [2019]
NSWSC 882 at [38]; Dundoen Pty Ltd v Richard Wills (Real Estate) Pty Limited [2020] NSWSC 15 at
[73]–[74]. See also Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343 at 355–7; Findex Group Limited
v McKay [2019] FCA 2129 at [89]–[96].
161. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] 1 AC 535 at 565; Amoco Australia Pty
Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315.
162. Restraints of Trade Act 1976 (NSW) s 4(1). See Koops Martin v Reeves [2006] NSWSC 449 at [27].
163. Adamson v New South Wales Rugby League Ltd (1981) 27 FCR 535 at 554; North Western Salt Co Ltd
v Electrolytic Alkali Co Ltd [1914] AC 461 at 470.

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(d) The onus of establishing that a contract in restraint of trade is injurious to the public
interest lies on the party alleging that this is so.164
(e) The Court gives considerable weight to what parties have negotiated and embodied
in their contracts, but a contractual consensus cannot be regarded as conclusive, even
where there is a contractual admission as to reasonableness.165
(f) The validity of the restraint is to be tested at the time of entering into the contract and
by reference to what the restraint entitled or required the parties to do rather than what
they intend to do or have actually done.166
(g) The test of reasonableness is measured by reference to the interests of the parties
concerned and the interests of the public.167 The requirement that the restraint be
reasonable in the interests of the parties means that the restraint must afford no more
than adequate protection to the party in whose favour it is imposed.168
(h) An employer is not entitled to require protection against mere competition.169 Covenants
that restrain competition are invalid unless they are reasonably necessary to protect
legitimate business interests.170
(i) An employer is entitled to protection against the use by the employee of knowledge
obtained by him of his employer’s affairs in the ordinary course of trade.171 A restraint
clause will be invalid unless it is necessary to prevent disclosure of trade secrets or use
of a connexion built up by the employee with customers.172
(j) The relevant knowledge must be more than simply the skill and knowledge necessary
to equip the employee as a possible competitor in the trade, but the obtaining of
personal knowledge of and influence over the customers of his employer, or such an
acquaintance with his employer’s trade secrets as would enable him to take advantage of
his employer’s trade connection or utilise information confidentially obtained.173
(k) An employer’s customer connection is an interest which can support a reasonable
restraint of trade, but only if the employee has become, vis-a-vis the client, the
human face of the business, namely the person who represents the business to the
customer.174
(l) The effect of the Restraints of Trade Act 1976 (NSW) is to allow the restraint to be
read down so as to be valid to the extent necessary only to capture the conduct of the
defendant, if that extent would have been valid. However, the Act does not allow the

164. See, for example, Attorney General of Australia v Adelaide Steamship Co Ltd [1913] AC 781 at 797.
165. See Woolworths Ltd v Olson [2004] NSWCA 372 at [39].
166. See Woolworths Ltd v Olson [2004] NSWCA 372 at [40].
167. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.
168. Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707; Buckley v Tutty (1971) 125 CLR 353 at 376; Linwar
Securities Pty Ltd v Christopher Savage [2006] NSWSC 786 at [25]–[26]; Koops v Martin v Reeves [2006]
NSWSC 449 at [28].
169. Dewes v Fitch [1920] 2 Ch 159 at 181; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329.
170. See for example Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at [24]–[25].
171. Dewes v Fitch [1920] 2 Ch 159 at 181.
172. Aussie Home Loans v X Inc Services [2005] NSWSC 285 at [14].
173. Dewes v Fitch [1920] 2 Ch 159 at 181.
174. See, for example, Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at 17–18; Kearney v Crepaldi [2006]
NSWSC 23 at [51]–[53].

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Court to remake the contract or a covenant in the contract.175 Whilst the Court is
permitted to read down the clause if the clause is so capable, it cannot be re-drafted.176

27.69 A number of the above principles were tested and applied in Buckley v Tutty.177 In this
case Tutty (a minor) signed a contract to play rugby league with the Balmain District Rugby
Football League Club (the Balmain Club) for a number of football seasons. The Balmain Club
was an unincorporated voluntary association and a ‘district club’ within the New South Wales
Rugby Football League (the league). The league was also an unincorporated voluntary
association, whose objects were to foster and control rugby league football throughout the State
of New South Wales and to cooperate with other states in the formation of a board of control
for rugby league football in Australia. It was the governing body for rugby league football
in New South Wales and was constituted under an instrument published under the heading
‘Constitution and By-laws, Standing Orders and Competition Rules of the New South Wales
Rugby Football League’ (the rules). The principal object of each district club was to promote
and maintain rugby league football within its district.
Under the rules of the league, a district club could nominate a player to be on a ‘retain list’ or
on a ‘transfer list’. The retain list comprised the names of players that the district clubs wished
to retain to play football for them. The transfer list comprised the names of players whom the
district club were prepared to transfer to other district clubs. Players who were on the retain
list were unable to play for other clubs unless their existing club agreed, and other district clubs
who were also members of the league could not allow such a player to play for them or else
they would suffer sanctions from the league, such as deduction of competition points. Tutty’s
contract contained an express term that he would abide by the rules of the league.
After playing rugby league for the Balmain Club for a number of years, Tutty decided that he
wanted to transfer to another district club forming part of the league. However, the Balmain
Club kept him on their retain list. The effect of the rules of the league, from a practical point of
view, was that while Tutty remained on the retain list of the Balmain Club, he could not transfer
to any other district club and no other district club could include him as a player in any of its
teams without incurring the sanctions that the league could apply. Unless the Balmain Club
agreed either to strike him off its list of registered players, or to his transfer, he would remain
registered with that club indefinitely, whether he played with it or not.
Tutty objected to those parts of the rules that prevented him moving to another district club and
argued that they were unreasonable restraints of trade. The High Court held that the relevant
restraint of trade was unreasonable and was in breach of public policy. The High Court178 said:
The restraint of trade imposed by the rules will be contrary to public policy and invalid
unless it is justified by the special circumstances of the case, within the principle laid down
by Lord MacNaghten in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd.179

175. Orton v Melman (1981) 1 NSWLR 583; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329; Kone
Elevators Pty Ltd v McNay (1997) ATPR 41-564 (NSW Court of Appeal) at 43,833.
176. Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 (NSW Court of Appeal) at 43,833; Woolworths
v Olson [2004] NSWCA 372.
177. (1971) 125 CLR 353 at 376.
178. Buckley v Tutty (1971) 125 CLR 353 at 376.
179. [1894] AC 535 at 565.

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27.70 The High Court 180

went on to say:
The law treats unreasonable restraints as unenforceable because it is contrary to the public
welfare that a man should unreasonably be prevented from earning his living in whatever
lawful way he chooses and that the public should unreasonably be deprived of the services
of a man prepared to engage in employment. It would indeed be a strange weakness in the
law if it afforded no protection to a person who was against his will subjected in fact to an
unreasonable restraint of trade. However, it seems to us now to be established that in an
appropriate case a member of an association may obtain a declaration that a rule of the
association which affects him is unreasonably in restraint of trade and an injunction to
prevent the rule being applied against him.

27.71 At common law the consequences of an excessive restraint can be severe and the courts
will not rewrite an unreasonable clause to bring about a reasonable result. This means that if
the restraint is unreasonable, the whole of the clause fails and the party seeking to rely on it
has no protection at all. Cases involving restraints of trade have involved different situations.
However, similar principles generally apply when interpreting the validity of those contractual
restraints. Some of the more common restraint circumstances include restraints between
vendor and purchaser, between employer and employee, and in franchise agreements. Often,
in each of these cases the legitimate interest sought to be protected by the restraint of trade
clause is the covenantee’s goodwill.181

Vendor-purchaser restraints
27.72 The vendor of the goodwill of a business will usually agree that after the sale of the
business is finalised, he or she will not carry on a similar business in competition with the
purchaser within a specified area for a specified time. As to the meaning of goodwill, in
Commissioner of Taxation of the Commonwealth of Australia v Murry182 Gaudron, McHugh,
Gummow, and Hayne JJ said:
Goodwill is inseparable from the conduct of a business. It may derive from identifiable assets
of a business, but it is an indivisible item of property, and it is an asset that is legally distinct
from the sources — including other assets of the business – that have created the goodwill.

27.73 In Hitchcock v Coker183 Tindal CJ explained in the meaning of goodwill as follows:

[T]he good-will of a trade is a subject of value and price. It may be sold, bequeathed, or
become assets in the hands of the personal representative of a trader. And, if the restriction
as to time is to be held to be illegal, if extended beyond the period of the party himself
carrying on the trade, the value of such good-will, considered in those various points of
view, is altogether destroyed. If, therefore, it is not unreasonable, as undoubtedly it is not, to
prevent a servant from entering into the same trade in the same town in which his master
lives, so long as the master carries on the trade there, we cannot think it unreasonable that
the restraint should be carried further, and should be allowed to continue, if the master sells

180. Buckley v Tutty (1971) 125 CLR 353 at 380.

181. Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2013] SASC 91 at [53].
182. (1998) 193 CLR 605 at 608–9; 155 ALR 67 at 68. See also Warner Capital Pty Ltd v Shazbot Pty Ltd [2020]
NSWCA 121 at [164]–[165].
183. (1837) 112 ER 167 at 174.

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the trade, or bequeaths it, or it becomes the property of his personal representative; that is,
if it is reasonable that the master should by an agreement secure himself from a diminution
of the annual profits of his trade, it does not appear to us unreasonable that the restriction
should go so far as to secure to the master enjoyment of the price or value for which the trade
would sell, or secure the enjoyment of the same trade to his purchaser or legatee, or executor.

27.74 Later, in Commissioners of Inland Revenue v Muller & Co Margarine184 Lord Lindley
defined goodwill as follows:
Goodwill regarded as property has no meaning except in connection with some trade,
business, or calling. In that connection, I understand the word to include whatever adds value
to the business by reason of the situation, name and reputation, connection, introduction to
old customers, and agreed absence from competition, or any of these things, and there may
be others which do not occur to me. In this wide sense, goodwill is inseparable from the
business to which it adds value, and, in my opinion, exists where the business is carried on.

In the same case, in relation to the meaning of goodwill, Lord MacNaghten185 said:
It is the benefit and advantage of the good name, reputation, and connection of a business.
It is the attractive force which brings in custom. It is the one thing that distinguishes an
old-established business from a new business at its first start. The goodwill of a business
must emanate from a particular centre or source. However widely extended or diffused its
influence may be, goodwill is worth nothing unless it has power of attraction sufficient to
bring customers home to the source from which it emanates.

27.75 As noted above,186 it has been acknowledged that such a restraint may be imposed
more readily on the vendor of a business than on a former employee. This is because a buyer of
a business has a legitimate interest in protecting its investment against competition by the seller
and without a covenant against competition the buyer, would not necessarily get what it was
contracting to buy.187 Covenants or restraints against competition will be regarded as reasonable
if they protect the goodwill of the business that is purchased. They will also be reasonable
if they protect ‘the potential expansion of the business based on its goodwill at the time of
sale’.188 Significantly, however, the question of whether the protection given to the covenantee is
excessive can give rise to issues about the width of the activities that are sought to be restrained,
the area or scope of the restraint, and whether the duration of the restraint is excessively long.189
27.76 However, for such a restraint on a vendor to be upheld, there must be a genuine sale
of a business and not a transfer of an illusory business interest. In Vancouver Malt and Sake
Brewing Co Ltd v Vancouver Breweries Ltd190 the owner of a brewer’s licence sold the licence to

184. [1901] AC 217 at 235.

185. Commissioners of Inland Revenue v Muller & Co Margarine [1901] AC 217 at 223–4, cited with approval
in GBAR (Australia) Pty Ltd v Brown [2017] 2 Qd R 256 at 269. See also Belflora Pty Ltd v Vinflora Pty Ltd
[2020] NSWSC 1229 at [55]–[58].
186. See 27.72.
187. Butt v Long (1953) 88 CLR 476 at 486.
188. GBAR (Australia) Pty Ltd v Brown [2017] 2 Qd R 256 at 269, 271–4.
189. Fadu Pty Ltd v ACN 008 112 196 Pty Ltd as Trustee of the International Linen Service Unit Trust [2007] FCA
1965 at [81]–[82]; Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [261]; Heydon, Restraint of Trade
Doctrine, see note 66, pp 219–30.
190. [1934] AC 181.

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another brewer and agreed not to brew beer for 15 years. The court found as fact that the seller
did not use the brewer’s licence and the buyer had no genuine interest to protect. As a result the
restraint of trade clause was void.
27.77 As is the position with other types of restraint of trade, the court, in considering
whether a restraint on a vendor of a business is reasonable, will have regard to the duration and
the area of the restraint in order to determine whether the protection afforded by the restraint is
only what is necessary to protect the particular interest being acquired. It will also consider the
type of business and the specific wording used in the restraint of trade. In addition, the amount
of purchase price paid when the business was sold, particularly the amount paid for goodwill, is
a relevant, but not decisive, factor.191 In relation to these vendor-purchaser restraints, in Vision
Eye Institute Ltd v Kitchen192 Applegarth J said:
The buyer of a business has a legitimate interest in protecting its investment against
competition by the seller, since without a covenant against competition the buyer would
not get what it was contracting to buy. A covenant against competition is reasonable if it
protects the goodwill that is purchased. The question of whether the protection given to
the covenantee is excessive can give rise to issues about the width of the activities that are
restrained, the area or scope of the restraint and whether the duration of the restraint is
unduly long. The principal protection afforded by such restraints is of goodwill in the form
of connection with existing or potential customers. An employer also has a legitimate interest
in maintaining a stable workforce.

27.78 In Cream v Bushcolt193 a question arose as to whether a state-wide covenant in restraint

of trade for 10 years was unreasonable. The Western Australian Court of Appeal held that
the restraint was void and unenforceable in the circumstances. The decision was followed in
Hankinson v Brookview Holdings Pty Ltd,194 which involved a contract for the sale of a video
store. The particular contract contained a restraint clause, which specified that the vendors
of the business were not to engage either directly or indirectly in any capacity whatsoever as
principal or employee in any business or activity of a similar nature for a period of two years
and within a radius of 10 km from the business that was being sold. This restraint, when taken
in a practical context, was found not to be unreasonable. In relation to the period of the restraint
in such cases, in Southern Cross Computer Systems Pty Ltd v Palmer (No 2),195 McDonald J said:
[W]hilst the consideration of the reasonableness of a restraint turns upon the facts of a
particular case, there is nothing exceptional in a four year restraint in the context of a goodwill
case where the vendor receives a substantial amount of consideration. In Lloyd’s Ships Holdings
Pty Ltd v Davros Pty Ltd,196 a ten year restraint was upheld. In C & S Constructions Pty Ltd
v Dawson,197 a five year restraint was upheld. In Pioneer Concrete Services Ltd v Galli,198 a five
year restraint was upheld. In Bridge v Deacons,199 a five year restraint was upheld.

191. Cream v Bushcolt Pty Ltd [2004] WASCA 82 at [23].

192. [2014] QSC 260 at [261].
193. [2004] WASCA 82.
194. [2004] WASCA 279.
195. [2017] VSC 460 at [30].
196. (1987) 17 FCR 505 at 524.
197. (1991) ATPR 41-148 at 53,107–8.
198. [1985] VR 675 at 694.
199. [1984] AC 705 at 717.

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Employer-employee restraints
27.79 Different considerations arise with respect to employer-employee restraints when
compared to restraints that arise in the sale of a business. The general view is that, subject to
reasonable restraints to protect an employer’s legitimate interests, an employee should be free to
pursue a living in his or her chosen field.200 In consequence, the courts in general take a stricter
and less favourable view of covenants in restraint of trade entered into between employer and
employee than of similar covenants between vendor and purchaser.201 This is explained by the
fact that in the employment context an employer is in a better bargaining position that the
employee.202 In relation to these employee-employer restraints, in Vision Eye Institute Ltd
v Kitchen203 Applegarth J said:
In what may be described as ‘employee cases’, different interests are at stake to those that
arise in the sale of a business. Subject to reasonable restraints to protect an employer’s
legitimate interests, an employee should be free to pursue a living in his or her chosen field.
The principal interest which can be protected by a restraint against a former employee is the
benefit of the former employer of the relationships with its customers. In general, restrictive
covenants restraining an employee will be scrutinised more strictly than covenants in
relation to the sale of a business. A restraint upon a former employee may be reasonable if it
allows a replacement employee to establish a connection with customers and thereby protect
the employer’s goodwill. One test is to ask how long it will take the connection between the
ex-employee and the customer to die away.

27.80 In the absence of any restrictive provision contained in an employment contract, and
subject to any duty imposed by legislation requiring employees not to misuse their position or
information acquired during their employment or not to use confidential information, when
employees leave their employment, they are free to set up a directly competing business in the
immediate locality. They are also entitled to approach the former employer’s customers and
seek orders from them and to use for their own purposes any information that they acquired
regarding the identity of the former employer’s customers or contacts as well as the nature of
any product requirements. In addition, they are entitled to use information concerning pricing
policies, provided that the information was acquired honestly in the ordinary course of their
employment and that they did not, for example, deliberately seek to memorise lists of names
for the purpose of their own business.

200. Vision Eye Institute Ltd v Kitchen [2014] QSC 260 at [262].
201. Geraghty v Minter (1979) 142 CLR 177 at 185; Woolworths Ltd v Olson [2004] NSWCA 372 at [38]; Isaac
v Dargan Financial Pty Ltd (2018) 98 NSWLR 343 at 357.
202. A similar point is made in Heydon Restraint of Trade Doctrine, note 66 above, pp 96–7, where four main
reasons are given for the Court’s approach in employment cases. First, the inequality of bargaining power
between the parties. Second, the employee may be giving up that employee’s only asset, which depends on
specialised training and which may not be at all negotiable. Third, when labour is hired it remains valuable
whether or not the employee later competes. Fourth, once the employee accepts the post-employment
restraints, the employer’s power during the contract is much increased by reason of the inhibition on the
employee’s ability to threaten to leave and seek work elsewhere. See also Verint Systems (Australia) Pty Ltd
v Sutherland [2019] NSWSC 882 at [40].
203. [2014] QSC 260 at [262], cited with approval in GBAR (Australia) Pty Ltd v Brown [2017] 2 Qd R 256 at 265.
See also Woolworths v Olson [2004] NSWCA 372 at [38]; Verint Systems (Australia) Pty Ltd v Sutherland
[2019] NSWSC 882 at [40].

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27.81 However, former employees are not entitled to take documents belonging to the
employer, or to use, for their own purposes, information which is in fact confidential and
which was ascertained in the course of the employment. Further, they are not entitled to copy
any information onto scraps of paper and take them away for their own business. They are not
entitled to breach positive duties imposed on them under, for example, ss 182 and 183 of the
Corporations Act 2001 (Cth), relating to misuse of position and information.
27.82 Consistent with this position, it has been held that an employer is not entitled to be
protected through a restraint of trade against mere competition, that it must be demonstrated
that the particular restraint of trade protects the legitimate interests of the employer, and that
such interests are in the nature of a proprietary subject matter.204 Further, the restraint can be no
more than is reasonable to protect an employer’s legitimate protectable interest.205 Employer’s
interests that are capable of protection through a reasonable restraint of trade are goodwill,
customer connections, and confidential information. It is also possible for an employer to
protect itself from employee disruption.206
27.83 It is important to note that the doctrine regarding restraint of trade is not limited to
any category of skilled occupations, but applies to employment generally. According to Lord
Atkin in Hepworth Manufacturing Co Ltd v Ryott:207
It is a misapprehension to suggest that this doctrine is confined merely to restraint of trade
in any ordinary meaning of the word ‘trade’; it extends further than trade, it undoubtedly
extends to the exercise of a man’s profession or calling.

27.84 These general principles are to be contrasted with the situation where there is an express
term of the contract of employment that binds the parties after the employment has ceased and
which precludes the employee from carrying out certain activities. The general rule is that the
parties are bound by the terms of the contract that they have made and the terms should be
enforced against them. This point was made in Doherty v Allman,208 where Lord Cairns said:
If parties, for valuable consideration, with their eyes open, contracted a particular thing shall
not be done, all that a Court of Equity has to do is to say, by way of injunction, that which
the parties have already said by way of covenant, that the thing shall not be done; and in such
case the injunction does nothing more than give the sanction of the process of the Court to
that which already is a contract between the parties. It is not then a question of the balance
of convenience or inconvenience, or of the amount of damage or of injury — it is the specific
performance, by the Court, of that negative bargain which the parties have made, with their
eyes open, between themselves.

27.85 It is well recognised that an employer is entitled to impose a restrictive covenant to

reasonably protect his or her business against ex-employees taking customers with them to

204. Koops Martin Financial Services v Reeves [2006] NSWSC 449 at [28].
205. Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 344; Metcash Ltd v Jardim (2010) 273 ALR
407 at 418.
206. John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [32]; Cactus Imaging Pty Ltd v Peters (2006) 71
NSWLR 9 at 22–8; McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53 at 66;
Quantum Service Logistics Pty Ltd v Schenker Australia Pty Ltd [2019] NSWSC 2 at [53]–[56]; K R Peters
Real Estate Pty Ltd v Hickey [2020] VSC 531 at [80].
207. [1920] 1 Ch 1 at 26.
208. (1878) 3 App Cas 709 at 720.
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a competing business.209 Further, the following remarks of Latham CJ (despite him being in
dissent) in Lindner v Murdock’s Garage210 have been accepted as relevant in this regard:
[A]n employee who is brought into personal contact with the customers of his employer may
by agreement effectively bind himself to abstain after his term of service has been completed
from soliciting the customers of his former employer. In these cases the covenant in restraint
of trade is not a covenant against mere competition but is a covenant directed to securing a
reasonable protection of the business interest of the employer, and in the circumstances is not
unjust to the employee. The interest which can validly be protected is the trade connection,
the goodwill of the business of the employer.

27.86 Furthermore, with employer-employee restraints it may be reasonable to ‘restrain

a former employee from being employed in a rival business where such involvement would
present a danger to the employer’s customer connection’.211
27.87 A final point to note relates to the principle, established in the House of Lords’ decision
in General Billposting Company Ltd v Atkinson212 and affirmed by the High Court Kaufman
v McGillicuddy,213 to the effect that an employee is not bound by a post-employment restraint
of trade clause where the employer has repudiated the contract and that repudiation has been
accepted by the employee. The major rationale for the principle in General Billposting Company
Ltd v Atkinson214 rests on two public policy considerations. The first is the public policy behind
the rule that restraints of trade are void unless reasonable, as set out in Nordenfelt v Maxim
Nordenfelt Guns and Ammunition Co Ltd.215 A statement of that public policy rationale in the
context of post-employment restraints of trade is found in Mason v Provident Clothing and
Supply Company, Limited,216 where Lord Shaw said:
But, to use Lord Macnaghten’s language in the Nordenfelt Case,217 ‘There is obviously more
freedom of contract between buyer and seller than between master and servant or between
an employer and a person seeking employment.’ And in my opinion there is much greater
room for allowing, as between buyer and seller, a larger scope for freedom of contract and a
correspondingly large restraint in freedom of trade, than there is for allowing a restraint of
the opportunity for labour in a contract between master and servant or an employer and an
applicant for work.

209. Hartleys Ltd v Martin [2002] VSC 301 at 88; Koops Martin Financial Services Pty Ltd v Reeves [2006]
NSWSC 449 at [44]; Stacks/Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 at [41]; Metcash Ltd v Jardim
(2010) 273 ALR 407 at 418.
210. (1950) 83 CLR 628 at 633–4.
211. Andrews Advertising Pty Ltd v Andrews [2014] NSWSC 318 at [163].
212. [1909] AC 118 at 121, 122. In this case the House of Lords upheld the decision of the Court of Appeal on
this point: General Billposting Company, Limited v Atkinson [1909] 1 Ch 537 at 542, 545.
213. (1914) 19 CLR 1 at 11–12, 13–14. The principle was affirmed in Measures v Measures Brothers Ltd [1910]
2 Ch 248 at 261–2; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 450; Rock Refrigeration
Ltd v Jones [1997] 1 All ER 1 at 8, 10–11; Tullett Prebon (Australia) Pty Ltd v Simon Purcell [2008] NSWSC
852 at [54]; BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115 at [142]; Globex Foreign Exchange Corp
v Kelcher (2011) 337 DLR (4th) 207 at 227–30.
214. [1909] AC 118.
215. [1894] AC 535.
216. [1913] AC 724 at 738.
217. Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535.

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My Lords, in both cases which have been cited there are appeals to public interest. Yet the
public interest in the one case may be on the side of freedom of contract, while on the other
it is on the side of freedom of trade. The right to dispose for adequate consideration of a
business which a person has built up and which has become solid, attractive, and valuable,
by the exercise of his energy or ability, might become worthless unless accompanied by a
substantial restraint of opposition on the part of the seller: and for the law to decline to
support the restraint would be to impose a great obstacle to the enjoyment of the fruits of
labour, and to destroy an incentive to industrial or commercial energy. The public interest
might thus be grievously injured by such a restraint on freedom of contract.

But, upon the other side, the public interest may strongly coincide with freedom of trade.
That might be gravely endangered or contravened by a restriction or impairment of the
liberty of the subject to enter the ranks of business or of labour and work for and earn his
living. My Lords, the law can achieve a reconciliation and adjustment of these two elementary
liberties — the right to bargain and the right to work. And it has in fact achieved this in such
a manner that the public interest has been in both cases conserved.

27.88 An alternative public policy consideration is based upon the principle that a party
(in this case the repudiating employer) cannot benefit from his or her own wrongdoing.218
27.89 However, some judges219 and academic commentators220 have doubted the veracity of
the principle in General Billposting Company Ltd v Atkinson.221 On the basis of these doubts, in
Pet Tech Pty Ltd v Batson Young JA222 noted that the principle ‘was … considered to be on shaky
grounds’. Indeed, in obiter dicta comments in Richmond v Moore Stephens Adelaide Pty Ltd,223
the Full Court in South Australia rejected the proposition that an employer could never enforce
a post-employment restraint of trade in circumstances where the employer had wrongfully
terminated the contract of employment. After referring to General Billposting Company Ltd
v Atkinson,224 Measures v Measures Brothers Ltd,225 Kaufman v McGillicuddy,226 and Geraghty
v Minter,227 the Full Court228 said:
[It has be contended] that General Billposting Company Ltd v Atkinson229 is authority for
the proposition that it is a rule of law that a party who has repudiated a contract leading
to its termination by the innocent party can never enforce a restraint clause expressed to

218. Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 at 189. See also
Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 at [47].
219. For example: Phillips LJ in Rock Refrigeration Ltd v Jones [1997] 1 All ER 1 at 18–20; Slatter JA in Globex
Foreign Exchange Corp v Kelcher (2011) 337 DLR (4th) 207 at 263–72.
220. M Jefferson, ‘Restraint of Trade: Dismissal and Drafting’ (1997) 26 Industrial Law Journal 62; S Honeyball
and D Pearce, ‘Contract, Employment and the Contract of Employment’ (2006) 35 Industrial Law Journal
30 at 44–53; F Dawson, ‘Survival of Restraint of Trade Clauses’ (2013) 129 Law Quarterly Review 508.
221. [1909] AC 118.
222. [2013] NSWSC 1954 at [15]. In this case the application of the principle did not arise because the court held
that the employer had not repudiated the contract of employment.
223. [2015] SASCFC 147.
224. [1909] AC 118.
225. [1910] 2 Ch 248.
226. (1914) 19 CLR 1 at 11–12, 13–14.
227. (1979) 142 CLR 177.
228. Richmond v Moore Stephens Adelaide Pty Ltd [2015] SASCFC 147 at [210].
229. [1909] AC 118.

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operate after termination and [that] this was endorsed by the High Court in Kaufman
v McGillicuddy.230 [This] contention should be rejected because the question whether the
restraint clause survives must depend on the proper construction of the contract. This
was the approach adopted by the Court of Appeal in Measures v Measures Brothers Ltd231
which was cited with approval by the High Court in Kaufman v McGillicuddy232 and by
Gibbs J, with whom Aickin J agreed, and Stephen J in Geraghty v Minter.233 To the extent
that Lord Collins’ judgment in General Billposting Company Ltd v Atkinson234 might be read
as suggesting that there is a rule of law regardless of the parties’ intention as manifested in
the contract that restraint clauses cannot survive termination for repudiation by the party
in whose favour they operate, this might be explained by the fact that in 1909 the common
law had not yet been clarified that termination for repudiation does not operate by way of
rescission ab initio.

27.90 On the other hand, the Court of Appeal in Victoria in Crowe Horwath (Aust) Pty Ltd
v Loone,235 after a detailed analysis of cases concluded that they ‘show … a consistent trend …
denying to an employer who repudiated a contract of employment, such repudiation having
been accepted by the employee, reliance upon a restraint clause against the employee’.
27.91 Restraints on employment have arisen in a number of contexts, with two of the main
ones being centred on their use for the protection of the employer’s trade secrets or customer
connections.

Protection of trade secrets

27.92 An employer has an interest in its confidential information, which it may legitimately
protect by a restraint of trade. In Lindner v Murdock’s Garage236 Latham CJ said:
Where an employee has access to trade secrets or other confidential information he may be
restrained by agreement from communicating those secrets or such information to other
persons, and particularly to competitors in trade with his employer.

27.93 However, the question that often arises in this context is whether the information
which is sought to be protected is ‘confidential’. In this respect, in Wright v Gasweld Pty Ltd237
Kirby P said:
It is important that courts, with limited experience in the operation of particular businesses,
should refrain from too readily substituting their views of what is confidential for that which
the parties have defined and agreed to be such. Necessarily, courts get a limited perception of
the operation of a business enterprise. Their view of its activities in a competitive marketplace
must depend upon the evidence typically called in a trial. Merely because a person says that
something is regarded as confidential or a ‘trade secret’ does not make it so. Courts should,

230. (1914) 19 CLR 1

231. [1910] 2 Ch 248.
232. (1914) 19 CLR 1.
233. (1979) 142 CLR 177.
234. [1909] AC 118.
235. (2017) 54 VR 517 at 585.
236. (1950) 83 CLR 628 at 633.
237. (1991) 22 NSWLR 317 at 333–4.

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nevertheless, exercise a modest disinclination to hold that information is not confidential

when parties have taken the trouble to say that it is. I would certainly agree that none of
the information which the employer here sought to protect could properly be classified as
a ‘trade secret’, accepting that expression as being at the far end of the spectrum which runs
between information which is:

(i) Publicly available or trivial;

(ii) Common to a particular trade or calling even if not publicly known:
(iii) Confidential information properly so called;
(iv) Secrets that attract equitable protection whether or not there is a contractual agreement.
…

Determining what is confidential involves a decision on a question of fact in each case where
that quality is asserted. Considerations which courts have found to be relevant, in particular
cases, in determining this question include:

a) The fact that skill and effort was expended to acquire the information;
b) The fact that the information is jealously guarded by the employer, is not readily made
available to employees and could not, without considerable effort and/or risk, be
acquired by others;
c) The fact that it was plainly made known to the employee that the material was regarded
by the employer as confidential;
d) The fact that the usages and practices of the industry support the assertion of
confidentiality; and
e) The fact that the employee in question has been permitted to share the information
only by reason of his or her seniority or high responsibility within the employer’s
organisation.

27.94 It should also be noted that confidential information may be protected in equity. This
equitable doctrine operates independently of any contractual restraint provision. It is also clear
that a contractual restraint may operate where the equitable doctrine does not. In this respect,
in Zomojo Pty Ltd v Hurd (No 2)238 Gordon J provided the following summary of relevant
principles that applied in relation to determining the validity of the contractual term:
1. an obligation can be imposed by contract to keep information confidential and that
obligation can extend to cover subject matter which is not protected by an equitable duty
of confidence;
2. employers are entitled to protect by contractual covenant the use of information that is
the result of work, experimentation and expense;
3. the know-how, or knowledge of how to solve particular problems or the knowledge of
methods not necessarily shared by others, acquired by an employee during his or her
employment, while ordinarily not protected by equity, is capable of being protected by a
contractual covenant;
4. a contractual restraint upon the use of confidential information or know-how may be
enforceable provided it is reasonable, in the sense of being necessary for the adequate
protection of the interests of a party;
5. whether a restraint is reasonable is a question of law and not of fact;

238. (2012) 299 ALR 621 at 673–4.

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6. in determining whether a restraint is reasonable the court should consider what is

necessary to protect the legitimate interests of the person asserting the restraint in the
circumstances of the case, assessed from the date of making the contract and making the
best possible estimate of probabilities and contingencies then foreseeable; and
7. where, as here, the restraint concerns confidential information, the circumstances to be
considered by the Court include:
7.1 the extent to which the information is known outside the business;
7.2 the skill and effort expired to collect the information;
7.3 the extent to which the information is treated as confidential by the employer;
7.4 the value of the information to competitors;
7.5 the ease or difficulty with which the information can be duplicated by others;
7.6 whether it was made known to the employee that the information was confidential;
and
7.7 whether the usages and practices in the industry support the claim of confidentiality.

27.95 A practical application of this principle occurred in Forster & Sons Ltd v Suggett,239
where an employee entered into a contract of employment containing a clause restraining him
from working in glass manufacturing for five years after termination. During his employment
he acquired knowledge of a particular glass manufacturing method. The court upheld the
validity of the clause as a reasonable protection of the employer’s trade secret.
27.96 This case can be contrasted with Herbert Morris v Saxelby,240 where a covenant for
restraint precluded a particular employee being engaged either as principal, agent, or servant
or otherwise in the same kind of business as that in which he had been employed. Such a clause
was held to be void because the employee had no real knowledge of any trade secrets. It was in
that context that Lord Atkinson,241 speaking of a case of employer and employee, said:
In all such cases as this, one has to ask oneself what are the interests of the employer that are
to be protected, and against what is he entitled to have them protected. He is undoubtedly
entitled to have his interest in his trade secrets protected, such as secret processes of
manufacture which may be of vast value. And that protection may be secured by restraining
the employee from divulging these secrets or putting them to his own use. He is also entitled
not to have his old customers by solicitation or other such means enticed away from him. But
freedom from all competition per se apart from both these things, however lucrative it might
be to him, he is not entitled to be protected against. He must be prepared to encounter that
even at the hands of a former employee.

27.97 Similarly, Lord Parker242 said:

[T]he reason, and the only reason, for upholding such a restraint on the part of an employee
is that the employer has some proprietary right, whether in the nature of trade connection or
in the nature of trade secrets, for the protection of which such a restraint is … having regard
to the duties of the employee — reasonably necessary. Such a restraint has, so far as I know,
never been upheld, if directed only to the prevention of competition or against the use of the
personal skill and knowledge acquired by the employee in his employer’s business.

239. (1918) 35 TLR 87.

240. [1916] AC 688.
241. Herbert Morris Ltd v Saxelby [1916] AC 688 at 701–2.
242. Herbert Morris Ltd v Saxelby [1916] AC 688 at 710.

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Protection of consumer connections and goodwill

27.98 An employer has an interest in its goodwill and customer connection, which can
support a reasonable restraint of trade.243 The concept of goodwill was discussed earlier in this
chapter.244
27.99 In Koops Martin Financial Services Pty Ltd v Reeves245 Brereton J acknowledged
that while an employer is not entitled to be protected against mere competition by a former
employee, the employer is entitled to be protected against unfair competition based on the
use by the employee after termination of employment of the customer connection which the
employee has built up during the employment — which, because the employee has in effect
represented the employer from the customer’s perspective during the employment, might
at least temporarily appear attached to the employee, but in truth belongs to the employer. The
employer is entitled to be safeguarded against use after termination by the employer of special
knowledge of or influence over customers gained as a result of customer contact during the
employment. In elaborating on this issue, Brereton J246 said:
Thus, in Herbert Morris v Saxelby247 Lord Parker said that a covenant was upheld to protect
an employer from, amongst other things, a former employee’s influence over customers. In
Dewes v Fitch248 Warrington LJ said that an employer was entitled to protection against
the influence acquired by the employee over the customers or clients. In Coote v Sproule249
Harvey CJ in Eq said that what was entitled to protection was customer connection through a
special relationship between employee and customer as a consequence of the employment. …
And in Lindner v Murdock’s Garage250 Latham CJ … identified the protectable interest as
trade connection and goodwill through the employee’s personal contact with customers. …
In the same case, Fullagar J251 referred to close relations with customers as giving rise to a
protectable interest.

Brereton J,252 in expanding on the nature and characteristics of the relationship between
employee and client that would require protection, said:
It is often said that a restraint to protect such an interest will be appropriate if and only if
the employee has become, vis-a-vis the client, the ‘human face’ of the business — that is,
the person who for the customers, represents the business; or, as it was put by Hoover J in
Arthur Murray Dance Studios of Cleveland Inc v Witter:253 ‘The personal relation between
the employee and the customer [is] such as to enable the employee to control the customer’s
business’.

243. Sear v Invocare Australia Pty Ltd [2007] WASC 30 at [49]; Informax International Pty Ltd v Clarius Group
Ltd (2011) 192 FCR 210 at 219; 272 ALR 495 at 503.
244. See 27.39, 27.67, 27.72–27.77.
245. [2006] NSWSC 449 at [30].
246. Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [30]–[32].
247. [1916] AC 688.
248. [1920] 2 Ch 159 at 181.
249. (1929) 29 SR (NSW) 578 at 580.
250. (1950) 83 CLR 628 at 633–4.
251. Lindner v Murdock’s Garage (1950) 83 CLR 628 at 650.
252. Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [34].
253. 105 NE (2d) 685, 706 (1951).

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Further, where the employee’s role includes extending the customer base, Brereton J254 found:
A more robust view is taken where the employee’s role includes obtaining and extending
custom for the employer’s business. When an employee’s duty includes to build up the
employer’s clientele as well as to deal with existing clients, a wide restraint is more likely
to be upheld, because in such circumstances the employer is entitled to protection against
the employee taking advantage of the period of service to prepare for later competition.255
In such a case, the establishment of a customer connection is not merely incidental to the
employment, but its purpose. In that context, a covenant is considered reasonable, first,
to remove the temptation that by cultivation of the target market during employment, the
employee may prepare the ground for its exploitation by himself after the employment ends,
rather than for his employer during the employment; and, secondly, to prevent exploitation
after termination of the employment by the employee of a connection with the customer
which the employer has paid the employee to establish for the employer’s benefit.

27.100 In Informax International Pty Ltd v Clarius Group Ltd256 Perram J, in holding that the
customer connections of a labour hire firm could be protected by such restraints, said:
The mechanical application of such tests should not, however, be permitted to obscure
the mischief which the principle is designed to address which is the fact that there are
employees whose position is such that they have the practical ability to control the business
of their employer’s customers as if those customers were their own. It is against that
particular risk that this doctrine is pitched and the various tests articulated in this area are
all necessarily hewn to the end of identifying that risk in the case of particular employees.
Where the risk is found to exist, however, an employer is entitled to be protected against
it. The Restraint of Trade Doctrine257 quotes Hoover J’s statement in Arthur Murray Dance
Studios of Cleveland Inc v Witter258 that ‘the important thing is that the personal relation
between the employee and the customer be such as to enable the employee to control
the customer’s business as a personal asset’ which I take to be to much the same effect.
That statement has been referred to with approval in a number of decisions of Brereton
J in the Supreme Court of New South Wales.259 In RKR Dance Studios Inc v Makowski260
Elgo J of the Superior Court of Connecticut described the decision in Arthur Murray
as ‘a tour de force exposition on the law of employment non-compete agreements.’261
The same question can be posed a different way by asking, as Brereton J did in Koops
Martin,262 whether the employee (in the extended sense) has become the ‘human face’ of
the employer with the client.

254. Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [44].
255. G W Plowman & Sons Ltd v Ash [1964] 1 WLR 568; [1964] 2 All ER 10; Normalec Ltd v Britton [1983]
9 FSR 318 at 324.
256. (2011) 192 FCR 210 at 219–20; 272 ALR 495 at 503–4.
257. Heydon, Restraint of Trade Doctrine, note 66 above, p 132.
258. 105 NE (2d) 685, 706 (1951).
259. Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [34]; Cactus Imaging Pty Ltd v Peters
(2006) 71 NSWLR 9 at 17–18; John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [30].
260. Superior Court, Judicial District of Hartford, Docket No CV 084035468 (46 Conn L Rptr 389) (September
12, 2008) at 9.
261. Citing M Garrison and J Wendt, ‘The Evolving Law of Employee Noncompete Agreements: Recent Trends
and an Alternative Policy Approach’ (2008) 45 American Bus Law Journal 107 at 124.
262. Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [34].

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27.101 In Gilford Motor Co Ltd v Horne Horne had been employed as Gilford Motor Co’s
263

managing director pursuant to a service contract. A term in his service contract prevented him
from directly or indirectly trying to take away Gilford Motor Co’s customers in the event that
he ceased work for Gilford Motor Co. Subsequently, Horne left Gilford Motor Co and formed
a new company to operate a competitive business — a company in which he was one of three
shareholders. The new company solicited Gilford Motor Co’s customers and Gilford Motor
Co sought an injunction restraining this conduct. Horne argued that he was not soliciting
customers of Gilford Motor Co and that, if there was any solicitation, it was from a separate
legal entity, namely the new company, which had no contract with Gilford Motor Co. The court
rejected this argument. Lord Hanworth MR264 held that the new company was a ‘mere cloak or
sham’ for Horne and its purpose was to enable Horne to engage in a business in breach of the
covenant contained in his contract with Gilford Motor Co. The restraint was held to be valid
and reasonable for the protection of Gilford Motor Co’s customer base.
27.102 The decision in Gilford Motors Co Ltd v Horne,265 although generally accepted as
correct, proceeds on arguably wrong reasoning. This is illustrated by the fact that there was no
transaction that was not intended to operate according to its tenor.266 In ICT Pty Ltd ICT Pty
Ltd v Sea Containers Ltd 267 the Court of Appeal explained Gilford Motor Co Ltd v Horne268 as
follows:
In our view the decision can best be understood and supported on the ground that the
company was acting as agent for the first defendant ... An injunction against the defendant
in the normal form to enforce his negative promise would restrain him from breaching that
promise ‘by himself, his servants or agents’. If the company as an agent of the defendant
knowingly caused a breach of the injunction it could be dealt with for contempt of court.
Since there was clearly a threat that the company would act in this way a preventative or quia
timet injunction could be granted to restrain it from committing such a contempt.

27.103 Further, it has been held that preparatory acts by former employees in establishing
other businesses may be construed as a breach of a contractual restraint.269

Trader agreements
27.104 At common law an agreement that restricts the right of a trader to trade freely is void
unless it is reasonable and in the public interest. The courts are conscious of the difference
between an agreement where the parties have equal bargaining powers and agreements where
one party is at a considerable disadvantage. They are more likely to uphold the validity of a
restraint in the former, rather than the latter.

263. [1933] Ch 935.

264. Gilford Motor Co Ltd v Horne [1933] Ch 935 at 956.
265. [1933] Ch 935.
266. ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 655–6; Metcash Ltd v Jardim (2010) 273 ALR 407
at 423–4.
267. ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 655–6.
268. [1933] Ch 935.
269. Batts Combe Quarry Ltd v Ford [1943] Ch 51; Pioneer Concrete Services Ltd v Galli [1985] VR 675; McMahon
v National Foods Milk Ltd (2009) 25 VR 251 at 276.

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27.105 In Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd270 Rocca
agreed with Amoco that he would build a service station and lease it to Amoco for 15 years.
Amoco would then sublease the service station to Rocca. The sublease contained covenants by
Rocca that it would buy a minimum amount of petrol each month from Amoco and not buy
petrol from anyone else. Following a dispute between the parties, Amoco sought an injunction
to restrain Rocca from buying petrol elsewhere. The High Court held that the sublease was an
unreasonable restraint of trade and was void. The principal reason was that Amoco could not
establish that the restrictions that were imposed were reasonably necessary to protect their
interests. Gibbs J271 said:
[I]t has not been shown that a tie for 15 years on the terms of the [sublease] was reasonably
necessary to protect the interests of Amoco. … [T]he great changes that might occur in the
space of 15 years could render the covenants intolerably burdensome on Rocca. … On the
other hand, there is nothing to show that a tie up for 15 years was necessary to ensure for
Amoco the stable outlet and economical distribution at which it was entitled to aim.

Franchisor-franchisee agreements
27.106 Franchise agreements are another common place where restraints covenants are to
be found. In Testel Australia Pty Ltd v KRG Electrics Pty Ltd272 Blue J said that typical factors
that are relevant in assessing the reasonableness of a restraint of trade clause contained in a
franchise contract include the following:
1. It is generally necessary that the franchisor possesses goodwill of a substantial value in
respect of its business and that such goodwill would be likely to be adversely affected by
the franchisee being unrestrained by the restraint of trade provision.
2. A relevant factor will typically be whether the franchisor possesses confidential
information and/or intellectual property of a substantial value which would be adversely
affected by the franchisee being unrestrained by the restraint of trade provisions.
3. Reasonableness will be assessed by reference to the nature of the restraint, the depth and
scope of the activities restrained, the period of the restraint and the geographical area the
subject of the restraint.
4. A relevant factor will often be the nature and depth of the relationship between the
franchisee and the franchisor’s clients, such that the stronger the relationship, typically
the more likely the covenant will be found to be reasonable.
5. A relevant factor will be the frequency with which contracts between the franchisor and
its clients are negotiated.
6. If the contract, and in particular the restraint of trade provision, was freely negotiated
between parties at arm’s length, that is a factor to be taken into account in assessing the
reasonableness of the restraint as between the parties.
7. Generally, the more akin the relationship between franchisor and franchisee is to a
relationship between employer and employee, the less likely it is that the covenant will be
assessed as reasonable.

270. (1973) 133 CLR 288; 1 ALR 385.

271. Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 321; 1 ALR 385
at 412.
272. [2013] SASC 91 at [54].

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8. To the extent that the franchisor relies upon protection of intellectual property or
confidential information (or intangible property more generally) as justification for
the restraint, it is relevant to consider the extent to which the franchisor is adequately
protected by other contractual provisions or duties owed to the franchisor by the
franchisee.

Blue J273 then described several examples of cases involving restraint of trade clauses in franchise
agreements as follows:
In NE Perry Pty Ltd v Judge,274 the plaintiff company (Perry) was owned by a chiropractor
(Dr Perry) and carried on a chiropractic business in Whyalla. Perry engaged the second
defendant (Judge), a company of which the first defendant (Dr Judge) was a shareholder and
director, to procure Dr Judge to provide chiropractic services at Perry’s Whyalla practice.
The contract included a covenant in restraint of trade, precluding Judge from practicing in
Whyalla for two years following termination of the agreement. The trial Judge concluded that
a restraint of trade clause in those terms for one year following termination of the agreement
would have afforded reasonable protection to Perry, but that Perry had not demonstrated
that two years was necessary for the reasonable protection of Perry’s legitimate interests. This
conclusion was upheld on appeal by the Full Court of this court. The Full Court held that
the principal factor to be considered was the time required to break the connection between
Dr Judge and the patients whom he treated.

In EzyDVD Pty Ltd v Lahrs Investments Qld Pty Ltd,275 the plaintiff franchisor granted to a
franchisee company the right to operate an EzyDVD store at a Brisbane suburb. The franchise
agreement included a covenant restraining the franchisee company and its two directors
from engaging in or having a financial interest in a competitive business within 5 kilometres
of the store or within one kilometre of any other EzyDVD store in Australia for six months
following the expiration of the franchise. The trial Judge concluded that the restraint was
unreasonable. This was upheld by the Court of Appeal of the Queensland Supreme Court.
The principal reason for that conclusion was that there was limited personal goodwill and
the plaintiff was largely protected in respect of its confidential information by its intellectual
property rights and confidential information contractual rights.

In BB Australia Pty Ltd v Karioi Pty Ltd,276 the plaintiff franchisor granted to a
franchisee company the right to conduct a Blockbuster video store at two Sunshine Coast
towns. The franchise agreement included a provision restraining the franchisee from
engaging in or having a financial interest in a competitive business within cascading radii
ranging from 30 kilometres down to 1 kilometre of the site or any other Blockbuster video
outlet in Australia for cascading periods ranging from 3 years down to 6 months following
termination of the franchise. The trial Judge held that the restraint of trade clause was
unreasonable. This conclusion was upheld by the Court of Appeal of the New South Wales
Supreme Court. The principal reason for the Court of Appeal’s conclusion was that a
franchisee did not itself enjoy substantial personal goodwill in its relationship with customers
of the Blockbuster stores.

273. Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2013] SASC 91 at [60]–[64].
274. (2002) 84 SASR 86.
275. [2010] 2 Qd R 517.
276. (2010) 278 ALR 105.

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In Pearson v HRX Holdings Pty Ltd,277 the plaintiff carried on a human resources business.
The plaintiff employed the defendant as chief operating officer. One of the defendant’s
principal roles was to be the primary presenter on behalf of the plaintiff to prospective clients
in an endeavour to secure their business. He was intended to have a close relationship with
clients and prospective clients of the plaintiff ’s business. The service agreement included a
clause restraining him from being concerned in a business similar to or competitive with
the plaintiff ’s recruitment business for two years following termination of the employment
relationship. The trial Judge held that the restraint was reasonable. This conclusion was
upheld by a Full Court of the Federal Court. The principal reason for the conclusion was the
extent and importance of the defendant’s connections with the plaintiff ’s customers.

In AGA Assistance Australia Pty Ltd v Tokody,278 the plaintiff carried on business as a travel
insurer. The plaintiff employed the defendant in a position under various titles, the last of
which was chief sales officer. The defendant was responsible for procuring insurance business
and as a result had extensive and intensive relationships with clients and prospective clients of
the plaintiff ’s travel insurance business. The employment contract included a clause restraining
him from being interested or concerned in a business substantially similar to or in competition
with the plaintiff ’s business within cascading areas ranging from Australia to Brisbane for
cascading periods ranging from one year down to three months. McMurdo J held that the
restraint of trade clause was reasonable. An important factor was the extent of the personal
relationship between the defendant and the plaintiff ’s clients and prospective clients.

Other situations
27.107 Apart from sales of businesses, employment contracts, and trader agreements, there
are other situations in which restraint of trade clauses are used. These include:
• partnership agreements in relation to the activities of partners who leave the firm;279 and
• exclusive service contracts, where a person agrees to provide a service exclusively to another
person — for example, a songwriter to write exclusively for a particular music publisher,
as was the case in A Schroeder Music Publishing Co Ltd v Macaulay.280 A number of other
cases of this type are discussed in Chapter 29 in the context of enforcement of contractual
obligations by means of an injunction.

Severance
27.108 Where a restraint of trade is regarded as unreasonable, it will be unenforceable and
void. The effect of such an invalid restraint on the balance of the contract will depend on
whether the restraint can be severed from the balance of the agreement.281

277. (2010) 205 FCR 187.

278. [2012] QSC 176.
279. Bridge v Deacons [1984] AC 705; [1984] 2 All ER 19; Geraghty v Minter (1979) 142 CLR 177; Hunter
v Koulouris [2011] NSWSC 887.
280. [1974] 3 All ER 616.
281. Severance is analysed in 28.29–28.41. See generally Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR
432 at 422; Rentokil Pty v Lee (1995) 66 SASR 301 at 306; Positive Endeavour Pty Ltd v Madigan (2009) 105
SASR 109 at 144–6; Integrated Group Ltd v Dillon [2009] VSC 361 at [34].

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Competition and Consumer Act 2010 (Cth)

27.109 Part IV of the Competition and Consumer Act 2010 (Cth) has, to some extent,
replaced the common law on the issue of restraints of trade. That Part contains a number of
provisions that prohibit restrictive trade practice undertaken by corporations engaged in trade
and commerce. However, s 51(2) of the Competition and Consumer Act excludes from the
operation of these provisions, restraints on employees, restraints on partners, and restraints in
contracts for sale of a business protecting a purchaser’s goodwill in that business.
27.110 Relevantly, s 51(2)(a) of the Competition and Consumer Act 2010 (Cth) applies
to a contract, arrangement, or understanding to the extent they relate to remuneration,
conditions of work, hours of work, or working conditions of employees. Arrangements
outside these areas are not covered by the section.282 Further, the section does not apply to
contracts of service.
27.111 Section 51(2)(b) of the Competition and Consumer Act 2010 (Cth) applies to
restrictive covenants in employment contracts. According to Miller,283 these covenants will only
be enforceable if the following tests are met:
• the restraint is directed at serving the legitimate interest of the employer;
• those interests are in restraining competition by an employee after termination of the
employment contract; and
• the restraint is to protect the employer against the employee using the connection with
customers and clients that the employee might acquire by reason of the employment.284

Restraints of Trade Act 1976 (NSW)

27.112 In New South Wales, the Restraints of Trade Act 1976 (NSW) allows the court to
declare valid a restraint of trade clause that is not against public policy whether it is in severable
terms or not. The key provision in the Act is s 4(1), which states:
A restraint of trade is valid to the extent to which it is not against public policy, whether it is
in severable terms or not.

According to Ball J in Metcash Ltd v Jardim,285 a restraint of trade is not contrary to public
policy if it is reasonable between the parties and not unreasonable in the public interest.286
27.113 Importantly, s 4(3) of the Restraints of Trade Act 1976 (NSW) states:
Where, on application by a person subject to the restraint, it appears to the Supreme
Court that a restraint of trade is, as regards its application to the applicant, against
public policy to any extent by reason of, or partly by reason of, a manifest failure by a
person who created or joined in creating the restraint to attempt to make the restraint a
reasonable restraint, the Court, having regard to the circumstances in which the restraint

282. Adamson v New South Wales Rugby League Ltd (1991) 27 FCR 535; 100 ALR 479.
283. R M Miller, Millers Australian Competition and Consumer Law, Annotated 38th edition, 2016, Thomson
Reuters, p 666.
284. Lindner v Murdock’s Garage (1950) 83 CLR 628 at 653–4; Synavant Aust Pty Ltd v Harris [2001] FCA 1517.
285. (2010) 273 ALR 407 at 418.
286. See also Purcell v Tullett Prebon (Aust) Pty Ltd [2010] NSWCA 150.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

was created, may, on such terms as the Court thinks fit, order that the restraint be, as
regards its application to the applicant, altogether invalid or valid to such extent only
(not exceeding the extent to which the restraint is not against public policy) as the Court
thinks fit and any such order shall, notwithstanding subsection (1), have effect on and
from such date (not being a date earlier than the date on which the order was made) as is
specified in the order.

27.114 The purpose and effect of s 4(1) was described by McLelland J in Orton v Melman.287
After referring to the report of the Law Reform Commission that led to the enactment of the
legislation, his Honour288 said:
Reference to that report clearly demonstrates that the perceived mischief or defect in the law
was not confined to the rule that one could not by severing the words, change the substance
of a restraint. The mischief or defect was that in determining the validity of a restraint, the
courts were bound to consider all possible breaches within its terms (after any permissible
severance) and determine whether public policy was infringed by the restraint of all such
breaches, rather than by the actual or threatened breaches proved in the particular case. …

In my opinion where the court is to determine, in relation to a restraint to which s 4(1)

applies whether (having regard to public policy) the restraint is enforceable in respect of
an alleged breach (or threatened breach), it is proper first to determine whether the alleged
breach (independently of public policy considerations) does or will infringe the terms of the
restraint properly construed, and if so, then to determine whether the restraint, so far as it
applies to that breach, is contrary to public policy. If the restraint, so far as it applies to that
breach, is not contrary to public policy then by force of s 4(1) the restraint is to that extent
valid, subject always of course to any order which may be made under s 4(3).

Whether, and if so the extent to which, the court will have to define the outer limits of validity
of a restraint in a particular case, will depend upon the nature, and degree of generality, of
the relief which in that case it is necessary or proper for the Court to grant. For example,
where injunctive relief is granted, the duration of a valid restraint of any breach enjoined
will have to be determined. In applying s 4(1) the court should consider the circumstances
of the particular case before it and determine the validity of the restraint to the extent that it
purports to operate in those circumstances, and it is unnecessary to consider its purported
operation in other conceivable sets of circumstances.

27.115 Furthermore, in Industrial Rollformers Pty Ltd v Ingersoll-Rand (Australia) Ltd289

Giles JA said:

287. [1981] 1 NSWLR 583. See also Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 at [47], [55];
Ross v IceTV [2010] NSWCA 272 at [89]–[91]; Reed Business Information v Seymour [2010] NSWSC 790
at [38]–[39]; Cadgroup Australia Pty Ltd v Snowball [2016] NSWSC 22 at [21]–[22]. It should be noted
that a declaration by a court that a restraint of trade is invalid may be made on the basis that the restraint
is void as at general law in circumstances where it is not saved by s 4(1) of the Restraints of Trade Act 1976
(NSW). The declaration in those circumstances does not have to be made under s 4(3) of the Act: see Miles
v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at [49].
288. Orton v Melman [1981] 1 NSWLR 583 at 587–8.
289. [2001] NSWCA 111 at [165]. See also Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 328; Woolworths
Ltd v Olson [2004] NSWCA 372 at [42]–[44]; Stacks/Taree v Marshall (No 2) [2010] NSWSC 77 at [44(l)];
Jardin and Jardin Investments Pty Ltd v Metcash Ltd (2011) 285 ALR 677 at 694; Property Investors Alliance
Pty Ltd v Qi [2018] NSWSC 977 at [31]–[33]; Quantum Service and Logistics Pty Ltd v Schenker Australia
Pty Ltd [2019] NSWSC 2 at [60]-[61].
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The operation of s 4(1) of the [Restraints of Trade] Act is now relatively well settled. It does
not permit the Court to remake the contract or a covenant in it, and although sometimes it
is said that it allows the covenant to be read down or redrafted that is really an inaccurate
description. The provision looks to the postulated breach, and permits the Court to enforce
a covenant otherwise invalid as against public policy if the restraint in the covenant so far
as it applies to the postulated breach is not contrary to public policy. The Court is given
the capacity to enforce a reasonable restraint of trade falling within the expressed restraint
although the expressed restraint is too widely stated.

However, s 4(1) does appear to reverse the common law presumption of invalidity290 and the
validity of a restraint of trade clause will not be saved by s 4(1) if it is found to be uncertain.291
27.116 The relationship between the common law of restraint of trade and the statutory law
under the Restraints of Trade Act 1976 (NSW) was discussed by Brereton J in John Fairfax
Publications Pty Ltd v Birt292 as follows:
Although at common law a restraint of trade is contrary to public policy and void unless
it is justified by the special circumstances of the particular case (for which purpose it
is sufficient justification that the restriction is reasonable having regard to the interests
of the parties concerned and in reference to the interests of the public, so that while
affording adequate protection to the party in whose favour it is imposed, it is not
injurious to the public), in New South Wales a restraint is valid to the extent to which it
is not against public policy, even if not in severable terms. The effect of the Restraints of
Trade Act is that, in New South Wales, one approaches this type of case by determining,
first, whether the alleged breach (independently of public policy considerations) does
or will infringe the terms of the restraint properly construed; secondly, whether the
restraint in its application to that breach is against public policy; and thirdly, if it is not,
then in its application to the alleged infringing conduct, the restraint is valid unless the
court makes an order under Restraints of Trade Act, s 4(3). That is because the effect of
the Restraints of Trade Act, s 4(1), is to require that, for the purpose of determining the
validity of a restraint, attention be focussed on the actual or apprehended breach, rather
than on imaginary or potential breaches.

27.117 Although it is clear that s 4(1) of the Restraints of Trade Act 1976 (NSW) has
enlarged the court’s capacity to enforce just and reasonable covenants which may have been too
widely expressed, the subsection does not confer on the court unlimited power to reformulate
covenants in restraint of trade.293 In this regard, in Orton v Melman294 McLelland J said:
It is a condition precedent of the power of the court to grant relief … that there be found to
be ‘a manifest failure by a person who created … the restraint to attempt to make the restraint
a reasonable restraint’. The onus of establishing this rests upon the applicant.

290. Stacks/Taree Pty Ltd v Marshall (No 2) [2010] NSWSC 77 at [42]; Hunter v Koulouris [2011] NSWSC 887
at [45].
291. CGI Glass Lewis Pty Ltd v Vasey [2019] NSWSC 794 at [31]–[32].
292. [2006] NSWSC 995 at [6].
293. ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640; Russ Australia v Benny [2006] NSWSC 1118
at [21]; Infinity Gym Sports & Health Pty Ltd v Ageev [2019] NSWSC 1505.
294. [1981] 1 NSWLR 583 at 589.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

27.118 In Douglass Automated Laboratories & Allied Services Pty Ltd Sonic Technology
Australia Ltd295 Giles CJ echoed this view when he said:
It seems that the order is to have an effect additional to that flowing from section 4(1), an
effect somehow marking the manifest failure to attempt to make the restraints reasonable.

27.119 The application of the Restraints of Trade Act 1976 (NSW) was also considered by
Needham J in A Buckle & Sons Ltd v McAllister,296 where his Honour said that whatever may be
the operation of the statute, it does not empower ‘the court to create a valid restraint out of an
invalid one unless it can be done by a reading down process’.
27.120 In IRAF Pty Ltd v Graham,297 which involved a restraint of trade placed on the vendor
of a hairdressing business, Rath J followed the approach in Orton v Melman298 and held that the
Restraints of Trade Act 1976 (NSW) only operated to validate a restraint of trade to the extent
that it imposes a reasonable restraint, and that ‘this validation does not extend to other cases of
invalidity: for example, voidness for uncertainty’.
27.121 It is the case that not only can the statute be used to read down the area and time of
the restriction if it exceeds what is reasonable, but the court can also read down the extent of
the restriction imposed.299 In reading down a restriction as far as time and area are concerned,
it was held in Fleming Bros (Monaro Agencies) Pty Ltd v Smith300 that such an exercise must be
done on impression with common sense.
27.122 The scope of s 4(3) of the Restraints of Trade Act 1976 (NSW) is still to be fully
determined. Section 4(3) allows the court to order that a restraint of trade clause be altogether
valid or invalid to such extent as the court thinks fit. This allows the court to modify the clause
that might otherwise be unreasonable. In terms of establishing a ‘manifest failure’, in KA & C
Smith Pty Ltd v Ward301 Austin J said that a covenantor would need to show that:
… the covenantee has imposed a restraint which it knew was unreasonable, or which a
reasonable person in its position would know to be unreasonable, so that the covenantee’s
conduct in imposing and enforcing the restraint is oppressive.

27.123 If the covenantee has a reasonable basis to believe that the extent of the restraint
is reasonable, there is no ‘manifest failure’ and the court cannot invoke its powers under
s 4(3). In Broomhead v Graham302 an application was made for an order that a particular
non-solicitation clause be declared invalid in circumstances where the affected employee-
solicitor had negotiated the terms of the particular restraint against him and where there
was no evidence that the employer took advantage of any inferior bargaining power of the
employee. In those circumstances it was held that the prerequisites for an order under s 4(3)
had not been made out.303

295. (1994) 16 ATPR (Digest) 46-129 at 53,625.

296. (1986) 4 NSWLR 426 at 434.
297. [1982] 1 NSWLR 419.
298. [1981] 1 NSWLR 583 at 589.
299. Knogo Corp v Halligan (1984) 6 ATPR 40-060.
300. (1983) 5 ATPR 40-389.
301. (1998) 45 NSWLR 702 at 728. See also Australian Regional Wholesalers v Stafford [2007] NSWSC 572 at [67].
302. [2007] NSWSC 609.
303. See also Stacks/Taree v Marshall (No 2) [2010] NSWSC 77 at [43].
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EFFECT OF ILLEGALITY

INTRODUCTION
28.1 Contracts may be void or prohibited by statute or by public policy under the common
law.1 In each case the statute or ground of public policy needs to be examined. In the former
case, while there was historically a tendency by courts to approach the question of deciding
whether a contract was rendered void as a result of a particular statutory provision by applying
fixed rules by reference to the text and effect of the provision, that approach by the courts
changed over time. The current position is that courts apply ordinary principles of statutory
interpretation to that question, rather than the application of fixed rules.2
28.2 Courts generally withhold remedies in respect of these contracts on the basis of the
principle that a ‘court will not assist a claimant to recover a benefit from his own wrongdoing’.3
This general principle is based upon policy considerations derived from an application of the
Latin maxim ex turpi causa non oritur actio.4 In Archbolds (Freightage) Ltd v S Spanglett Ltd5
Devlin LJ described the effect of illegality as follows:
The effect of illegality on a contract may be threefold. If at the time of making the contract
there is an intent to perform it in an unlawful way, the contract, although it remains alive, is
unenforceable at the suit of the party having that intent; if the intent is held in common, it
is not enforceable at all. Another effect of illegality is to prevent a plaintiff from recovering
under a contract if in order to prove his rights under it he has to rely on his own illegal act;

1. See Chapters 26 and 27.

2. See Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374 at 390; [1961] 1 All ER 417; Yango Pastoral
Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413–15; 21 ALR 585 at 588–9; Nelson
v Nelson (1995) 184 CLR 538 at 612–13; 132 ALR 133 at 192–3; Fitzgerald v F J Leonhardt Pty Ltd (1997)
189 CLR 215; 143 ALR 569; Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd
(2007) 232 CLR 1; 237 ALR 512 at 527; QuestCrown Pty Ltd v Insignia Towers (Southport) Pty Ltd [2007]
QCA 378; Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101; 249 ALR 44; Miller v Miller
(2011) 242 CLR 446 at 459; 275 ALR 611 at 619; Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 513;
286 ALR 12 at 22; Gnych v Polish Club Ltd (2015) 255 CLR 414; 320 ALR 489; Maxcon Constructions Pty
Ltd v Vadasz (No 2) [2017] SASCFC 2.
3. Stone & Rolls Ltd (in liq) v Moore Stephens (a firm) [2009] 1 AC 1391 at 1454; [2009] 4 All ER 431 at 444.
4. This maxim is analysed at 27.4–27.7. It should be noted, however, that it is not always the case that courts
will not render assistance: see, for example, Hounga v Allen [2014] 4 All ER 595 at 613. See also cases
dealing with the maxim in pari delicto potior est conditio defendenitis, discussed at 28.23–28.25.
5. [1961] 1 QB 374 at 388; [1961] 1 All ER 417 at 424. See a discussion of this case at 26.4, 26.28–26.29.

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he may not do that even though he can show that at the time of making the contract he had
no intent to break the law and that at the time of performance he did not know that what
he was doing was illegal. The third effect of illegality is to avoid the contract ab initio, and
that arises if the making of the contract is expressly or impliedly prohibited by statute or is
otherwise contrary to public policy.

28.3 In North v Marra Developments Ltd6 North was a member of a stockbroking firm and a
member of the Sydney Stock Exchange Ltd. North sued Marra for the balance of remuneration
due to them in connection with services rendered as advisers in relation to a reorganisation
of the capital of Marra and its takeover of another company together with interest. The issue
before the High Court was whether a breach of the provisions of s 70 of the Securities Industry
Act 1970 (NSW) (since repealed) rendered the contract for remuneration between the parties
illegal. The High Court held that it did.
28.4 According to Mason J, the object of the section was to protect the market for securities
against activities that would result in artificial or managed manipulation. The section sought to
ensure that the market reflects the forces of genuine supply and demand. In those circumstances
the question was whether the contravention of the section resulted in an illegality so as to
prevent the appellants from recovering their remuneration. Mason J7 said:
[T]he original agreement between the parties was one which from its inception contemplated
the possibility of a breach of section 70 as a means of executing the scheme which the parties
agreed should be carried into execution. As events fell out what was a contemplated possibility
became an actuality — [North] carried out their part of the contract by contravening section 70.
It makes no difference that Marra acquiesced in what was done. [North’s] performance of the
agreement involved an illegality and the agreement itself envisaged this as a possibility. [North]
fail, not because the agreement on which they sue is avoided by section 70, but because the
performance on which they rely involved illegal conduct. The consequence is that the claims
based upon the account stated and the second agreement must also fail.

28.5 Where a statute expressly or by implication prohibits the formation of a contract and
accordingly makes it illegal to enter into such a contract, then any contract in breach thereof
is void ab initio and no rights are conferred on either party. In such cases the courts will
not recognise such contracts even in favour of the innocent party. Thus, in the context of
Re Mahmoud and Ispahani8 Scrutton LJ said:
The contract was absolutely prohibited; and in my view, if an act is prohibited by statute for
the public benefit, the Court must enforce the prohibition, even though the person breaking
the law relies upon his own illegality.

28.6 However, a statute may only prohibit the actual carrying out of the contract — that is,
make the actual performance of the contract illegal, rather than its formation. In such cases
legal or equitable remedies may be available. In Nelson v Nelson9 McHugh said:

6. (1981) 148 CLR 42; 37 ALR 341.

7. North v Marra Developments Ltd (1981) 148 CLR 42 at 60; 37 ALR 341 at 352.
8. [1921] 2 KB 716. See also discussion at 26.21–26.22.
9. (1995) 184 CLR 538 at 604; 132 ALR 133 at 185. See also the discussion at 26.54–26.57.
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 CHAPTER 28: EFFECT OF ILLEGALITY­

[If a court] finds that an agreement is unlawful or has an unlawful purpose [this] has
merely set the stage for a further inquiry: are the circumstances surrounding the agreement
such that the court should deny a relevant remedy to the party seeking the assistance of the
court?

28.7 His Honour10 then went on to say:

[C]ourts should not refuse to enforce legal or equitable rights simply because they arose out
of or were associated with an unlawful purpose unless: (a) the statute discloses an intention
that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of
refusing to enforce those rights is not disproportionate to the seriousness of the unlawful
conduct; (ii) the imposition of the sanctions is necessary, having regard to the terms of the
statute, to protect its objects or policies, and (iii) the statute does not disclose an intention
that the sanctions and remedies contained in the statute are to be the only legal consequences
of a breach of the statute or the frustration of its policies.

28.8 Similarly, in Fitzgerald v F J Leonhardt Pty Ltd11 McHugh and Gummow JJ said:
The question then becomes whether, as a matter of public policy, the court should decline
to enforce the contract because of its association with the illegal activity of the owner. …
The refusal of the courts in such a case to regard the contract as enforceable stems not
from express or implied legislative prohibition but from the policy of the law, commonly
called public policy. Regard is to be had primarily to the scope and purpose of the statute to
consider whether the legislative purpose will be fulfilled without regarding the contract as
void and unenforceable.

28.9 Their Honours12 cited with approval McHugh J’s statements in Nelson v Nelson13
and said:
[T]he courts should not refuse to enforce contractual rights arising under a contract, merely
because the contract is associated with or in furtherance of an illegal purpose, where the
contract was not made in breach of a statutory prohibition upon its formation or upon
the doing of a particular act essential to the performance of the contract or otherwise making
unlawful the manner in which the contract is performed.

28.10 In Karl Suleman Enterprises Pty Ltd (in liquidation) v Babanour14 Karl Suleman
Enterprises conducted a managed investment scheme, which was unregistered in breach of
the Corporations Act 2001 (Cth). Karl Suleman Enterprises brought a claim against Babanour,
alleging that the latter did not fulfil his duty as an agent to, among other things, promote
the managed investment scheme, to act with good faith, loyalty, and fidelity, and not to use
moneys received from investors for his own purposes. It was also alleged that Babanour was
at all times, in the course of being an agent for the managed investment scheme, on notice of
its fraudulent nature. At trial Babanour successfully applied to have the claim brought against

10. Nelson v Nelson (1995) 184 CLR 538 at 613; 132 ALR 133 at 193.
11. (1997) 189 CLR 215 at 227; 143 ALR 569 at 576. See also the discussion at 26.15–26.17.
12. Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 229; 143 ALR 569 at 579. See also the discussion
at 26.15–26.17.
13. (1995) 184 CLR 538 at 604; 132 ALR 133 at 185. See also the discussion at 26.54–26.57.
14. [2004] NSWCA 214.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

him by Karl Suleman Enterprises struck out on the basis that Karl Suleman Enterprises was
required to rely upon its own illegal and fraudulent conduct in order to establish its claim and,
to the extent that there was a claim in equity, it was tainted in accordance with the doctrine
of unclean hands. The alleged illegality arose out of Karl Suleman Enterprises’ failure to
register the scheme as required by ss 601EB and 601ED of the Corporations Act. Karl Suleman
Enterprises’ appeal against the trial judge’s decision to strike out the claim brought against
Babanour was successful.
28.11 The New South Wales Court of Appeal15 found that the relevant sections of the
Corporations Act 2001 (Cth) did not expressly make an unregistered scheme unlawful. Rather,
it was seen to impugn the conduct of the entity responsible for registration by imposing a penal
sanction for a contravention of the registration provisions.16 The statute was also found by the
court to be designed to protect the members of an unregistered scheme due to its provisions
allowing for it to be wound up. In those circumstances, to preclude Karl Suleman Enterprises
from bringing its claim would potentially lead to the unsatisfactory position whereby a
party, regardless of its previous conduct, but now acting in good faith, would be prevented
from bringing proceedings for the purposes of recovering moneys in order to pay wronged
investors. Thus, the Court of Appeal followed and applied Nelson v Nelson17 and Fitzgerald
v F J Leonhardt18 and held that:
• Courts should not refuse to enforce legal or equitable rights simply because they arose out
of an unlawful purpose, unless the statute discloses an intention that those rights should be
unenforceable in all circumstances, or the sanction of refusing to enforce those rights is not
disproportionate to the seriousness of the unlawful conduct.
• The imposition of the sanctions is necessary to protect the objects or policies of the statute
and the statute does not disclose an intention that the sanctions and remedies contained in
the statute are to be the only legal consequences of a breach of the statute or the frustration
of its policies.

28.12 If a statute renders a contract void but not illegal, it confers no rights on either party.
It is void ab initio. Neither party can obtain enforceable rights or incur enforceable obligations
in breach of the statute. There are no rights to equitable relief and the principles of estoppel
will not apply. An example of this type of contract is contemplated by s 16 of the Gaming and
Betting Act 1912 (NSW), which renders void any gaming or wagering contract not made with
a licensed bookmaker.
28.13 However, there are principles that permit a person to bring claims, even though the
contract is illegal or void. First, the plaintiff may have an independent cause of action, distinct
from the illegal contract. Second, if the parties are not equally at fault, the plaintiff may be
able to seek relief. Third, the illegality may be able to be severed from the contract, thereby
enabling what remains of it to be enforced. Each of these possibilities needs to be considered
in turn.

15. [2004] NSWCA 214.

16. See Corporations Act 2001 (Cth) s 1311(1)(c).
17. (1995) 184 CLR 538; 132 ALR 133.
18. (1997) 189 CLR 215; 143 ALR 569.

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INDEPENDENT CAUSE OF ACTION

28.14 There may be circumstances where the innocent party still has rights, even though the
contemplated manner of performance renders the contract illegal. This will be so where the
innocent party has an independent cause of action.

Restitutionary claims
28.15 Restitutionary claims19 are based on the underlying principle of preventing a defendant
being unjustly enriched at the expense of a plaintiff. Restitutionary claims do not depend on
the existence of a contract. Following the decision of the High Court in Equuscorp Pty Ltd
v Haxton,20 it is clear that such restitutionary claims can be pursued in the appropriate case.
28.16 In Equuscorp Pty Ltd v Haxton21 certain loans were made to investors. However, at the
time to the loans were made, the lending company did not issue any prospectus as required
by relevant company legislation. The ultimate question in this case was whether a claim in
restitution could be pursued against the investors for recovery of the loans. The High Court
ruled against such a claim on the facts of this case. The essence of the majority decision in the
High Court was that restitutionary claims may be pursued in cases of illegal contracts, provided
that such a claim would not have the effect of undermining or defeating the policy reasons that
rendered the contract illegal. On the facts of the case before it, to have permitted restitution
would have stultified the statutory policy of protecting investors through the prospectus
provisions in the legislation.

Tortious claims
28.17 In cases of money paid or property transferred under an illegal contract, a plaintiff
may have recourse to an action in tort law in accordance with the ruling in Bowmakers Ltd
v Barnet Instruments Ltd.22 In this case Smith sold certain machine tools to Bowmakers. In
1944 Bowmakers hired the machine tools to Barnet Instruments under three separate hire-
purchase agreements. All three agreements breached certain wartime regulations issued by
the British Ministry of Supply. Barnet Instruments made payments and then sold all but one
machine to another person. Barnet Instruments refused to make any further payments under
the hire-purchase agreements and refused to return the one machine to Bowmakers. In relation
to the machines, the Court of Appeal held that Bowmakers was entitled to damages in the tort
of conversion, even though the infringement of the wartime regulations rendered the hire-
purchase agreements illegal.
28.18 In delivering the decision of the Court of Appeal, du Parcq LJ23 said:
In our opinion, a man’s right to possess his own chattels will as a general rule be enforced
against one who, without any claim of right, is detaining them, or has converted them to his
own use, even though it may appear either from the pleadings, or in the course of the trial,

19. The principles relating to restitution are discussed more fully in Chapter 38.
20. (2012) 246 CLR 498; 286 ALR 12.
21. (2012) 246 CLR 498; 286 ALR 12. This case is discussed at 26.52–26.53.
22. [1945] KB 65.
23. Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 at 71–2.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

that the chattels in question came into the defendant’s possession by reason of an illegal
contract between himself and the plaintiff, provided that the plaintiff does not seek, and is
not forced, either to found his claim on the illegal contract or to plead its illegality in order
to support his claim. … It must not be supposed that the general rule which we have stated
is subject to no exception. Indeed, there is one obvious exception, namely, that class of cases
in which the goods claimed are of such a kind that it is unlawful to deal in them at all, as for
example, obscene books. No doubt, there are others. … We are satisfied that no rule of law,
and no considerations of public policy, compel the court to dismiss [Bowmakers’] claim in
the case before us, and to do so would be, in our opinion, a manifest injustice.

28.19 In Singh v Ali24 Ali was an unlicensed truck driver. He arranged for Singh, who was
able to obtain a licence, to buy a truck. Singh would register the truck in his name and be the
ostensible owner, but the truck would, in reality, be owned by Ali, who would use it to carry
goods for reward. The parties then executed a document of sale of the truck from Singh to Ali.
This arrangement was in breach of government regulations. There was a dispute and Singh
repossessed the truck from Ali. Ali sued in the tort of detinue for the return of the truck. There
was no doubt as to the illegality of the arrangement. The Privy Council held, however, that
Ali’s claim to the truck rested, not on the illegal arrangement, but on the document of transfer
of ownership, which was genuine and existed independently of the illegal arrangement. The
contract of sale had been fully executed and Ali had the right of possession in relation to the
truck, despite the illegality of the arrangement between the parties. Lord Denning25 said:
Although the transaction between [Ali] and [Singh] was illegal, nevertheless it was fully
executed and carried out; and on that account it was effective to pass the property in the
lorry to [Ali]. … The reason is because the transferor, having fully achieved his unworthy
end, cannot be allowed to then turn round and repudiate the means by which he did it — he
cannot throw over the transfer.

28.20 In cases where a defendant has stated that he or she has a licence or permit that is
required by legislation, but in fact no such licence has been granted, if the violation also renders
any contract entered into between the plaintiff and defendant illegal, the plaintiff will be able to
pursue a claim against the defendant in the tort of deceit, if the defendant’s statement amounts
to a fraudulent misrepresentation.26 However, if the plaintiff is implicated in the illegality, the
court will not permit recovery in the tort of deceit. Thus, in Parkinson v College of Ambulance
Ltd & Harrison27 the secretary of a charity fraudulently misrepresented to Parkinson that
he would receive a knighthood if he made a large donation to the charity. Parkinson made
the donation, but did not receive a knighthood. His claim for damages in the tort of deceit
was refused because of his involvement in a scheme of such turpitude. The court held that a
defrauded party such as Parkinson would not always be prevented from recovering damages.
He or she will only be denied such relief if the parties to the contract are in pari delicto, as was
the situation in this case.

24. [1960] AC 167; [1960] 1 All ER 269.

25. Singh v Ali [1960] AC 167 at 176; [1960] 1 All ER 269 at 272.
26. Hatcher v White (1953) 53 SR (NSW) 285. See also 37.5–37.16.
27. [1925] 2 KB 1.

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Collateral contract claims

28.21 In the situation posited in 28.20 above, the defendant’s statement may also give rise to a
collateral contract,28 as occurred in Strongman (1945) Ltd v Sincock.29 However, there is an issue
that raises the validity of such a claim. The consideration for the defendant’s assurance that
he or she was appropriately licensed is the plaintiff ’s entry into an illegal contract. Although
this case was cited with approval by the New South Wales Court of Appeal in Quin v Mutual
Acceptance Co Ltd,30 its authority must be doubted, because it is extremely problematic as to
whether entry into such a tainted contract can be valid consideration. In a slightly different
context, in a passage approved by the High Court in SST Consulting Services Pty Ltd v Rieson31
Jordan CJ in McFarlane v Daniell32 said:
It is difficult to see how, in principle, a legal promise associated with an illegal promise can
ever be enforceable unless it is supported solely by a separate consideration so exclusively
attributable to it that there are in substance two independent contracts and not one composite
contract.

Other claims
28.22 A defendant’s statement may also give rise to a claim by the plaintiff based upon the
principles of equitable estoppel33 or give rise to relief based upon the statutory prohibition
against misleading or deceptive conduct.34

PARTIES NOT EQUALLY AT FAULT

28.23 As a counterpoint to the maxim ex turpi causa non oritur actio, one can point to the
maxim in pari delicto potior est conditio defendenitis, which means that if the parties are equally
at fault, it is better that things be left as they are and the court will not intervene. Implicit in this
maxim is that, if the parties are not equally at fault, the court can intervene. On the basis of an
exception to the in pari delicto maxim, a court can intervene by providing relief to a party not
at fault in relation to the illegal contract.
28.24 Common bases of providing relief here include cases where the innocent party has
entered into an illegal contract as the result of mistake, misrepresentation, duress, or fraud.
Thus, in Marles v Trant (Phillip) & Sons Ltd35 a seller of wheat sold winter wheat to a buyer
as spring wheat. The seller honestly believed that the wheat sold was spring wheat. The Seeds
Act 1920 (UK) required any sale of wheat to be accompanied by an invoice correctly detailing,
amongst other things, the type of wheat sold. The seller did not comply with this requirement.
The buyer sued after his crop had failed. The English Court of Appeal held that the buyer was an

28. See 10.66–10.69.

29. [1955] 2 QB 525; [1955] 3 All ER 90.
30. (1968) 1 NSWR 122 at 126, 128.
31. (2006) 225 CLR 516 at 532; 228 ALR 417, at 429.
32. (1938) 38 SR (NSW) 337 at 346.
33. See Chapter 36.
34. See Chapter 15.
35. [1954] 1 QB 29; [1953] 1 All ER 651.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

innocent party and he could recover despite the illegality of the seller’s action in failing to supply
the invoice. This rendered the contract unenforceable by the seller, but not illegal in itself.
28.25 A more controversial instance exception to the in pari delicto maxim in this context
relates to circumstances where the plaintiff repents of the contract’s illegal purpose before it
has been performed (locus poenitentiae). The rationale for the principle of repentance is to
encourage parties to a contract to back out of illegal contracts.36 If there is a genuine repentance,
the illegal contract can be rescinded and property restored to the plaintiff.
28.26 In Clegg v Wilson37 Wilson promised to ensure that criminal proceedings against Clegg’s
son were discontinued. Clegg’s purpose in entering into this contract was to ensure that her son
was not imprisoned. In return, Clegg promised to transfer certain land to Wilson. This contract
was illegal on the common law ground that it was prejudicial to the administration of justice.
Clegg delivered an executed transfer of the title to the land to Wilson. Before it was registered
she withdrew from the illegal purpose and sought an injunction to prevent registration of the
transfer. Long Innes J found in Clegg’s favour on the ground that the contract’s illegal purpose
had not been carried out.
28.27 In relation to the principle of repentance, it is clear that it does not apply if the illegal
purpose has been carried out wholly or in substance.38 Nor can it apply if the making of the
contract is prohibited by statute.39 However, the repentance, it would appear, does not need to
be sincere.40 In Clegg v Wilson41 Clegg’s repentance was prompted by the fact that her son would
almost certainly be imprisoned on other charges that had been laid against him. Nevertheless,
she was held to be entitled to the injunctive relief that she sought.
28.28 In Patel v Mirza,42 several members of the United Kingdom Supreme Court suggested
that the repentance principle should apply even if the illegal purpose had been wholly carried
out. Such an approach is incompatible with the rationale for the repentance principle, namely
that of encouraging contracting parties to withdraw from the illegal enterprise. A consequence
of such an approach would be that cases such as Parkinson v College of Ambulance Ltd43 were
wrongly decided and should, according to Lord Neuberger,44 be overruled. It can be noted
that the Singapore Court of Appeal45 has stated that the approach of the several judges in Patel
v Mirza46 should not be adopted. However, that criticism aside, in Australia, Patel’s case has
been cited without judicial criticism by both the Victorian Court of Appeal47 and the Supreme
Court of Victoria.48

36. Ochroid Trading Ltd v Chua Siok Liu [2018] SGCA 5 at [44].
37. (1932) 32 SR (NSW) 109.
38. Wilson v Strugnell (1881) 7 QBD 548 at 551; Tribe v Tribe [1996] Ch 107 at 124; [1995] 4 All ER 236 at 250.
39. Marks v Jolly (1938) 38 SR (NSW) 351 at 358.
40. Tribe v Tribe [1996] Ch 107 at 135; [1995] 4 All ER 236 at 259–60.
41. (1932) 32 SR (NSW) 109.
42. [2017] AC 467 at 512, 516, 530; [2017] 1 All ER 191 at 232; 236, 250.
43. [1925] 2 KB 1. See 27.10.
44. Patel v Mirza [2017] AC 467 at 511–2; [2017] 1 All ER 191 at 232.
45. Ochroid Trading Ltd v Chua Siok Liu [2018] SGCA 5 at [175].
46. [2017] AC 467; [2017] 1 All ER 191.
47. CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd (2017) 55 VR 62.
48. Li v So [2019] VSC 515 at [100].
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SEVERANCE
28.29 A contract that contains provisions that are void at common law or void by statute
(depending upon the wording of the statute), but not illegal, may be enforced if the offending
parts can be severed. In such cases the remainder of the contract is enforceable after severance,
but the courts will not rewrite an offending clause to save it.49
28.30 There are two main forms of severance. First, an objectionable provision may be
removed from the contract, leaving the rest of the contract valid and enforceable. Second, a
contractual provision may be read down, rather than severed. The latter may apply where it
is unreasonably wide. In Attwood v Lamont50 a restraint was sought to be used to restrain an
employee from being in any way concerned in any of the trades or businesses conducted by the
employer, being ‘the trade or business of a tailor, dressmaker, general draper, milliner, hatter,
haberdasher, gentlemen’s, ladies’ or children’s outfitter’ within ten miles of Kidderminister.
This was a description of all of the plaintiff employer’s businesses. However, the defendant
employee only worked in the employer’s tailoring department. Subsequently, the employee left
the employer’s employment and set up a business as a tailor. Although that business was more
than 10 miles away, the employee came back to Kidderminster to obtain and execute tailoring
orders including some from the employer’s former customers. The employer sought to have
the court sever from the restraint clause all references to trades or businesses other than that
of a tailor. At trial, the Divisional Court51 held that the particular restraint clause was too wide
but, nevertheless, it should be severed so as to remove the references to all trades other than
that of a tailor. This severance meant that the restraint was valid so as to preclude the employee
from carrying on business of trading as a tailor within ten miles of Kidderminster. However,
the Court of Appeal unanimously allowed the appeal, albeit with differing reasons, and held
that, as a matter of construction of the restraint clause, there was ‘in truth but one covenant for
the protection of the respondent’s entire business, and not several covenants for the protection
of his several businesses’.52 The Court of Appeal held that the particular restraint could not be
severed. In reaching this conclusion, and insisting upon a narrow approach to severance in the
context of restraint of trade clauses, Younger LJ53 referred to Mason v Provident Clothing and
Supply Co Ltd54 where, in relation to severance, Lord Moulton said:
[It] ought only to be done in cases where the part so enforceable is clearly severable, and
even so only in cases where the excess is of trivial importance, or merely technical, and not
a part of the main purport and substance of the clause. It would, in my opinion, be pessimi

49. Attwood v Lamont [1929] 3 KB 571.

50. [1929] 3 KB 571.
51. Attwood v Lamont [1920] 2 KB 146 at 156, 158–9.
52. Attwood v Lamont [1920] 3 KB 571 at 593.
53. Attwood v Lamont [1920] 3 KB 571 at 594. See also Integrated Group Limited v Dillon [2009] VSC 361
at [36].
54. [1913] AC 724 at 745. In Egon Zehnder Ltd v Tillman [2020] AC 154 at 174; [2020] 1 All ER 477 at 494, Lord
Wilson observed that Lord Moulton’s observations had ‘an electric effect on the law’, so much so, that within
six months some courts attempted to explain part of them away. See S Nevanas & Co v Walker & Foreman
[1914] 1 Ch 413 at 422. That said, some support for Lord Moulton’s observations was to be immediately
found in Goldsoll v Goldman [1914] 2 Ch 603 at 613. The decisions in Mason Provident Clothing and Supply
Co Ltd [1913] AC 724, S Nevanas & Co v Walker & Foreman [1914] 1 Ch 413 and Goldsoll v Goldman
[1914] 2 Ch 603 formed the background to Attwood v Lamont [1920] 2 KB 146 and [1920] 3 KB 571.

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exempli if, when an employer had extracted a covenant deliberately framed in unreasonably
wide terms, the Courts were to come to his assistance and, by applying their ingenuity and
knowledge of the law, carve out of this void covenant the maximum of what he might validly
have required. It must be remembered that the real sanction at the back of these covenants is
the terror and expense of litigation, in which the servant is usually at a great disadvantage, in
view of the longer purse of his master.

28.31 In 2019, in Egon Zehnder Ltd v Tillman,55 the United Kingdom Supreme Court
overruled the decision in Attwood v Lamont.56 In this case, in April 2017 Tillman, who had
by then been employed by Egon Zehnder Ltd for 13 years, informed her employer that, from
May 2017, she intended to take up employment with an employer’s competitor. Egon Zehnder
immediately sought injunctive relief to enforce a restrictive covenant in Tillman’s employment
contract which prohibited her from engaging or being concerned or ‘interested in’ any
business carried on in competition with any business of her employer. Tillman argued that the
covenant was an unreasonable restraint of trade since it prevented her from even becoming a
shareholder in a competitor to the employer. The Supreme Court held that the restraint was not
an unreasonable restraint of trade and upheld the trial judge’s decision to grant the injunction.
One of the issues that the Supreme Court dealt with was whether, assuming that the covenant
was an unreasonable restraint of trade, it was severable from the remainder of the covenant,
thereby enabling the rest of the restraint to be enforced. The court57 held that the words ‘or
interested’ in the restraint could be severed on the basis that the applicable test was whether
it could be done ‘without the need to add to or modify the wording of the remainder’ and
whether the ‘removal of the prohibition ... would not generate any major change in the overall
effect of the restraints’. The removal was said to be analogous to running a ‘blue pencil’ through
the offending words.
28.32 The impact of the Supreme Court’s decision in Australia is yet to be seen where the
courts have continued to regard the decision in Attwood v Lamont58 as authoritative.59 Most
recently, and a few months prior to the Supreme Court decision, in the High Court decision in
Clubb v Edwards,60 Edelman J cited it when he said:
[The] approach to severance in contract law, in the context of covenants in unreasonable
restraint of trade, has been described as involving the application of a blue pencil to allow
severance ‘where the covenant is not really a single covenant but is in effect a combination

55. Egon Zehnder Ltd v Tillman [2020] AC 154 at 184; [2020] 1 All ER 477 at 504. For an analysis of this case
see W Day, ‘Freedom of Contract and Restraint of Trade’ (2020) 79 Cambridge Law Journal 11.
56. [1920] 3 KB 571.
57. Egon Zehnder Ltd v Tillman [2020] AC 154 at 183; [2020] 1 All ER 477 at 503.
58. [1920] 3 KB 571.
59. Recent examples include Emeco International Pty Ltd v O’Shea (No 2) [2012] WASC 348 at [216]; Bis
Industries Ltd v Toll Holdings Limited [2012] NSWSC 1427 at [101]; Wallis Nominees (Computing) Pty Ltd
v Pickett (2013) 45 VR 657 at 676; Sportsbet Pty Ltd v Carpanini [2014] VSC 166 at [31]; Workplace Access
and Safety Pty Ltd v Mackie [2014] WASC 62 at [51]; Bend-Tech Group (A Firm) v Beek [2015] WASC 491
at [58]; Just Group Ltd v Peck [2016] 344 ALR 162 at 184–5; Habitat 1 Pty Ltd v Formby (No 2) [2017] WASC
331 at [171].
60. (2019) 366 ALR 1 at 109–10.
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of several distinct covenants’. … [T]he severance must not alter the nature of the contract.62
61

It is a different and much more controversial issue, at least in the absence of a contractual
term permitting it, to disapply a contractual clause that would otherwise be void to an extent
that would ensure its validity.

28.33 The test of severance appears to be twofold: first, whether the severance is available
as a matter of construction of the particular contract; and second, whether the nature of the
illegality prevents severance in the circumstances. In relation to the latter, in Mackinlay v Derry
Dew Pty Ltd,63 Pullin JA said:
[T]he weight of authority supports the proposition that where proceedings are brought to
enforce a contract that is illegal and void because a statute expressly or impliedly prohibits
a transaction embodied in the contract, the doctrine of severance may be invoked if the
transaction involves distinct promises or engagements, some of which are legal and some of
which are illegal. Statutory illegality renders a contract void and unenforceable only to the
extent that the contract cannot be severed.

28.34 With respect to whether severance is available as a matter of construction, in McFarlane

v Daniell64 Jordan CJ said:
When valid promises supported by legal consideration are associated with, but separate
in form from, invalid promises, the test of whether they are severable is whether they are
in substance so connected with the others as to form an indivisible whole which cannot
be taken to pieces without altering its nature. … If the elimination of the invalid promises
changes the extent only but not the kind of the contract, the valid promises are severable.

28.35 This test was approved by the High Court in Thomas Brown & Sons Ltd v Fazal Deen.65
In this case Fazal Deen alleged that he entered into a contract of bailment with Thomas Brown
by which the latter undertook to take due care of a safe and a quantity of gold and gems, and
to redeliver all these goods to Fazal Deen on demand. Subsequently, Fazal Deen demanded
the return of the goods and Thomas Brown refused or failed to comply with that demand. The
gold and gems subsequently disappeared. The question was whether the bailment breached
the National Security (Exchange Control) Regulations, which relevantly provided that anyone
who had gold in their possession or control was required to deliver it to the Commonwealth
Bank within one month of it coming into their possession. The High Court held that severance
was permissible in this case because, in removing the reference to gold from the contract, the
severance resulted in a change to the extent only, and not the substance, of the contract. In
applying Jordan CJ’s test in McFarlane v Daniell,66 the High Court67 concluded as follows:
Applying that test, it is clear that [Fazal Deen’s] right of action in respect of the gems and the
safe would not be answered by a defence of illegality based upon a breach of the [regulations]

61. Attwood v Lamont [1920] 3 KB 571 at 593.

62. Attwood v Lamont [1920] 3 KB 571 at 580.
63. (2014) 46 WAR 247 at 271. See also Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 13) [2016] WASC 403
at [133]; Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 16) [2017] WASC 340 at [443].
64. (1938) 38 SR (NSW) 337 at 345.
65. (1962) 108 CLR 391 at 407.
66. (1938) 38 SR (NSW) 337 at 345.
67. Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391 at 411.

669
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

since the contractual obligation upon the company as to the return of [Fazal Deen’s] property
on demand applied to every part of the property deposited whether demanded together with
the rest of it or separately. In the case of the gold, however, [Fazal Deen] could not succeed if
he was obliged to rely upon the illegal transaction to establish his case.

28.36 In relation to severance in the context of contracts that are void on grounds of public
policy, in SST Consulting Services Pty Ltd v Rieson68 Gleeson CJ, and Gummow, Hayne, Heydon,
and Crennan JJ said:
[D]ifferent circumstances may arise in cases of illegality from those that fall for consideration
when the enforcement of certain provisions is contrary to public policy. That is why it is
necessary to distinguish between cases in which a promise made by a party to a contract
is void or unenforceable, but not illegal, and cases in which the contract or the performance
of a promise would be illegal.

28.37 In relation to severance in the context of covenants in restraint of trade, in SST Consulting
Services Pty Ltd v Rieson69 Gleeson CJ, and Gummow, Hayne, Heydon, and Crennan JJ said:
The modern law respecting severance in relation to covenants in unreasonable restraint of
trade may be seen as turning on three questions. The first question is whether the covenantee
can enforce the restraining covenant to the extent to which it would have been valid had it
been narrowly drafted. The answer is that the covenantee can do so if the parts which are
too wide can be removed without altering the nature of the contract and without having to
add to, or modify, the wording in any way other than by excision. The second question is
whether the covenantor can enforce the promise in consideration of which the restraining
covenant was given. The answer is that the covenantor can enforce the promise if the main
consideration provided for it is not illegal. The third question is whether, if a contract is
unenforceable because it contains a covenant in restraint of trade, transactions connected
or associated with it are also unenforceable. The answer is that the unenforceability of the
contract may affect the enforceability of other transactions with which it is closely connected.

28.38 On a practical note, it is sometimes the case that employment agreements contain
restraint of trade clauses that are a mixture of reasonable and unreasonable restraints of trade.
Employers sometimes attempt to draft restraints in a series of several distinct covenants that
are of varying degrees of reasonableness, and then they attempt to rely upon principles of
severance to disclaim any unreasonable restraints of trade if the matter comes before court.
In the meantime, the employee is faced with a combined number of covenants which are
reasonable and unreasonable and, when the employment is terminated, often threatened with
legal action if any of those covenants are breached.70 If, however, there is an identifiably separate
and independent obligation that is unreasonable, it can severed.71
28.39 In Nordenfelt v Maxim-Nordenfelt Guns Co Ltd72 there was both a valid and a void
restraint of trade. The court excised the offending clause from the contract and enforced the

68. (2006) 225 CLR 516 at 531–2; 228 ALR 417 at 429.
69. (2006) 225 CLR 516 at 531; 228 ALR 417 at 428–9. See also Corporation of the City of Adelaide v India Pty
Ltd [2018] SASC 154 at [149].
70. See, for example, I F Asia Pacific Pty Ltd v Galbally [2003] VSC 192; Just Group Ltd v Peck [2016] VSC 614 at [65].
71. Positive Endeavour Pty Ltd v Madigan (2009) 105 SASR 109 at 120.
72. [1894] AC 535.

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remainder. However, in Napier v National Business Agency Ltd73 the court refused to sever the
offending part of a contract. In that case the plaintiff had been employed by the defendant as
secretary and accountant and was remunerated by a salary of £13 per week together with £6 per
week for expenses. It was known to both parties that the plaintiff ’s expenses could never be as
much as £6 per week and were usually in the vicinity of £1 per week. In his taxation returns the
defendant company showed the payment of £6 per week as being a reimbursement of expenses
to the plaintiff. The plaintiff was dismissed by the defendant without notice and claimed £13
per week for the notice period. The trial judge held that the contract was against public policy,
as being intended to defraud the revenue, and therefore the plaintiff was unable to enforce any
part of it. The Court of Appeal agreed and held that the agreement relating to the salary of £13
per week was not severable from the £6 per week expenses agreement and was unenforceable.
28.40 In Rentokil Pty Ltd v Lee,74 when dealing with a restraint of trade clause in an
employment contract, Doyle CJ75 discussed the question of severance and construction in the
following way:
The court in considering severance is concerned with the question of whether, properly
construed, the relevant agreement should be permitted to operate as between the parties
with some part of its apparent or intended operation not being given effect. But while the
courts have said on many occasions that they will not rewrite the contract for the parties,
in order to create a valid restraint from an invalid restraint, the question is again ultimately
one of intention. The question is whether, construing the contract as a whole, it may be
concluded on an objective basis that the parties intended the relevant provision to have the
reduced operation if it could not have its full operation.

Accordingly, the exercise is not one in which the court endeavours to create a valid restraint.
It is one in which the court should be mindful of the interests of employers and of employees,
and it is clear that the courts have shown some restraint in applying the principle of
severance to save the validity of a restraint imposed on an employee which restraint would
be unenforceable if it were given its apparent effect. But in dealing with these considerations
the court must give appropriate attention to the intentions of the parties.

28.41 In addition, in the context of restraint of trade agreements or provisions the Restraints
of Trade Act 1976 (NSW) allows the court to sever unreasonable aspects of a restraint of trade
clause.76

73. [1951] 2 All ER 264.

74. (1995) 66 SASR 301 at 306.
75. Rentokil Pty Ltd v Lee (1995) 66 SASR 301 at 306. See also Positive Endeavour Pty Ltd v Madigan (2009) 105
SASR 109 at 145.
76. This legislation is discussed in 27.112–27.123.
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 Part VII:
Remedies Based On
Contract
 29
DAMAGES FOR BREACH OF CONTRACT

INTRODUCTION
29.1 When a contract is breached by one of the parties (the defendant), there are various
remedies available to the party not in breach (the plaintiff). Entry into a contract creates
obligations or promises to be carried out by the parties that are referred to as primary
obligations. The contract also creates a secondary obligation on each party, the nature of which
was explained in Photo Production Ltd v Securicor Transport Ltd,1 where Lord Diplock said:
[B]reaches of primary obligations give rise to substituted or secondary obligations on the
part of the [defendant], and, in some cases, may entitle the [plaintiff] to be relieved from
further performance of his own primary obligations. … Every failure to perform a primary
obligation is a breach of contract. The secondary obligation on the part of the [defendant] to
which it gives rise by implication of the common law is to pay monetary compensation to the
[plaintiff] for the loss sustained by him in consequence of the breach.

Thus, an award of damages for breach of contract reflects a plaintiff ’s right to monetary
compensation for the defendant’s failure to carry out his or her contractual obligations.2 In
that sense damages for breach of contract are ‘a substitute for performance’.3 In Morris-Garner
v One Step (Support) Ltd,4 Lord Reed said that ‘[c]ommon law damages for breach of contract
are not a matter of discretion. They are claimed as of right, and they are awarded or refused on
the basis of legal principle’. In proving a claim for damages the relevant standard of proof is on
the balance of probabilities.5
29.2 In determining the quantum of such a court-awarded sum, the mere difficulty in doing
so does not relieve a court from estimating damages as best it can.6 In claiming damages the
plaintiff must, by evidence, establish the loss suffered as well the amount to be awarded for

1. [1980] AC 827 at 849; [1980] 1 All ER 556 at 566. See also Inghams Enterprises Pty Ltd v Hannigan (2020)
379 ALR 196 at 218–20.
2. Keynes v Rural Directions Pty Ltd (2010) 186 FCR 281 at 293.
3. Morris-Garner v One Step (Support) Ltd [2019] AC 649 at 673; [2018] 3 All ER 659 at 672.
4. [2019] AC 649 at 690; [2018] 3 All ER 659 at 689.
5. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80; 104 ALR 1 at 9–10;
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 at 266; Zorom Enterprises
Pty Ltd v Zabow (2007) 71 NSWLR 354 at 375–6.
6. Fink v Fink (1946) 74 CLR 127 at 143; Chaplin v Hicks [1911] 2 KB 786 at 792; The Commonwealth of
Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83; 104 ALR 1 at 11–12; Tabet v Gett (2010) 240
CLR 537 at 560; 265 ALR 227 at 239–40; Morris-Garner v One Step (Support) Ltd [2019] AC 649 at 673–4,
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

that loss.7 This is because, ‘where damages are uncertain for lack of evidence, difficulties of
assessment are in general resolved against the party who could or should have provided the
evidence’.8
29.3 In relation to which losses attract an award of damages, the general principle at common
law is that the plaintiff can only recover damages for losses that he or she has suffered.9 The
circumstances in which, as an exception to this general principle, a plaintiff can recover
damages for losses suffered by a third party to the contract is discussed in Chapter 39, which
deals with the topic of privity of contract.10
29.4 In making a claim for damages, a plaintiff must first establish that the defendant has
breached the contract. In Agricultural & Rural Finance Pty Ltd v Gardiner11 Gummow, Hayne,
and Kiefel JJ observed that ‘[a] breach of contract by one party always gives the other party a
right to recover damages for the breach’. However, the breach does not have to be a terminating
breach.12 Second, a plaintiff must also show that he or she is ready, willing, and able to perform
his or her contractual obligations before the right to damages arises.13 In the context of an
anticipatory breach, whether a plaintiff is ready, willing, and able ‘depends on proof that the
plaintiff was sufficiently on track to perform that there was a reasonable prospect of its being
able to complete in the future’.14 That a plaintiff is ready, willing and able is implied and is
only an issue in court proceedings if made so by the defendant.15 Furthermore, apart from
two exceptions, there is no requirement that the plaintiff also terminate the contract. The two
exceptions are, first, in relation to damages for anticipatory breach,16 and second, where the
claim is for expectation damages.17 Of course, the right to damages may be excluded or limited
by an appropriately drafted exclusion clause incorporated into the contract.18
29.5 In examining damages, this chapter will focus on the common law principles that are
applicable to the recovery of damages for breach of contract. In Chapter 33 the statutory power
to award so-called equitable damages is discussed. In Chapter 30 the principles relating to the
recovery of sums fixed by a contract are explored.

683; [2018] 3 All ER 659 at 672–3, 682; Supabarn Supermarkets Pty Ltd v Cotrell Pty Ltd (No 3) [2020]
ACTSC 53 at [728]–[735].
7. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80; 104 ALR 1 at 9; JLW
(Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 241; NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty
Ltd [2020] WASCA 107 at [72; Leeda Projects Pty Ltd v Zeng [2020] VSCA 192 at [13].
8. LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74 at [12].
9. The Albazero [1977] AC 774 at 845; [1976] 3 All ER 129 at 136; Gould v Vaggelas (1984) 157 CLR 15 at 219–20;
56 ALR 31 at 34; Darlington Borough Council v Wiltshier Northern Ltd [1995] 3 All ER 895 at 900; Swynson
Ltd v Lowick Rose LLP (in liq) [2018] AC 313 at 323, 335, 349–50; [2017] 3 All ER 785 at 793, 805, 818–9.
10. See 39.12–39.18.
11. (2008) 238 CLR 570 at 589; 251 ALR 322 at 336.
12. Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 300.
13. Hensley v Reschke (1914) 18 CLR 452 at 467–8; Foran v Wight (1989) 168 CLR 385 at 402–3, 430–1, 454–5; 88 ALR
413 at 424, 445, 462–3; Killarney Investments Pty Ltd v Macedonian Community of WA (Inc) [2007] WASCA 180
at [116]–[119]; AU Future Health Pty Ltd v Ecmoho (Hong Kong Ltd) [2017] VSCA 380 at [75]–[77].
14. Upside Property Group Pty Ltd v Tekin [2017] NSWCA 336 at [21]; See also AU Future Health Pty Ltd
v Ecmoho (Hong Kong Ltd) [2017] VSCA 380 at [81]–[83].
15. Foran v Wight (1989) 168 CLR 385 at 397, 451; 88 ALR 413 at 420, 460.
16. See 29.154.
17. See 29.39.
18. See 10.17–10.53.
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NOMINAL AND SUBSTANTIAL DAMAGES

29.6 As noted by Lord Diplock in Photo Production Ltd v Securicor Transport Ltd,19 a plaintiff ’s
right to pursue a claim for damages arises for losses suffered as a result of the defendant’s
breach of contract. However, a failure to prove any loss does not mean that the plaintiff ’s action
fails. Rather, it means that he or she will only be entitled to recover nominal damages. This
contrasts with substantial damages that are awarded where a plaintiff establishes that he or she
has suffered real and quantifiable losses. The word ‘substantial’ does not mean that a significant
sum of money will be awarded. The concept of nominal damages was explained in Owners of
SS ‘Mediana’ v Owners of SS ‘Comet’,20 where Lord Halsbury said:
‘Nominal damages’ is a technical phrase which means that you have negatived anything like
real damage, but that you are affirming by your nominal damages that there is an infraction
of a legal right which, though it gives you no right to any real damages at all, yet gives you a
right to the verdict of judgment because your legal right has been infringed.

29.7 In Nicholson v Hilldove Pty Ltd (No 4),21 an award of nominal damages was described as
‘vindicatory and not compensatory’. The sum awarded as nominal damages is a token amount.
Recent cases have awarded nominal damages in the amount of $5,22 $10,23 and $100.24 Even though
an award of nominal damages is a technical victory in the case for the plaintiff, he or she is not
usually regarded as the successful party in the action for the purpose of the order for costs and will
usually be ordered to pay the defendant’s costs.25 In some cases the court will make a costs order
in favour of such a plaintiff if, for example, ‘some other right is vindicated by the judgment, [such
as], the establishment of a legal right irrespective of whether any substantial remedy is obtained’.26

THE COMPENSATORY NATURE OF DAMAGES

29.8 In Wertheim v Chicoutimi Pulp Co27 it was said that the ‘ruling’ principle in the
assessment of damages was the compensation principle set out in Robinson v Harman28 where
Baron Parke said:
[W]here a party sustains loss by breach of a contract, he is, so far as money can do it, to be
placed in the same position, with respect to damages, as if the contract had been performed.

19. [1980] AC 827 at 849; [1980] 1 All ER 556 at 566. See 29.1.
20. [1900] AC 113 at 116, cited with approval in Baume v The Commonwealth (1906) 4 CLR 97 at 116–17; Lewis
v Australian Capital Territory (2020) 381 ALR 375 at 387, 402, 415.
21. [2013] VSC 578 at [10]. See also State of New South Wales v Stevens (2012) 82 NSWLR 106 at 111.
22. G & A Lanteri Nominees Pty Ltd v Fishers Stores Consolidated Pty Ltd [2005] VSC 336 at [65].
23. Timpar Nominees Pty Ltd v Archer [2001] WASCA 430 at [111].
24. Nicholson v Hilldove Pty Ltd (No 4) [2013] VSC 578 at [12]; State of New South Wales v Stevens (2012) 82
NSWLR 106 at 114; Re ACT Land Pty Ltd (in liq) [2019] NSWSC 1860 at [62].
25. Hyde Park Residence Ltd v Yelland [1999] RPC 655 at 670; Rockcote Enterprises Pty Ltd v F S Architects
Pty Ltd [2008] NSWCA 39 at [100]; Motium Pty Ltd v Arrow Electronics Australia Pty Ltd [2011] WASCA
65 at [10]; NCON Australia Ltd v Spotlight Pty Ltd (No 7) [2014] VSC 25 at [15]–[21]; Brunton v Hennessy
[2020] NSWSC 972 at [98].
26. Ng v Chong [2005] NSWSC 385 at [8]. See also Copper Resources Pty Ltd v Newcrest Operations Ltd [2013]
NSWSC 345 at [25]–[31].
27. [1911] AC 301 at 307.
28. (1848) 154 ER 363 at 365.
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This principle had been repeatedly reaffirmed by the High Court.29 In Moore v Scenic Tours Pty
Ltd,30 Edelman J noted that this principle meant that a damages award provided a plaintiff ‘with
the difference between the value of what was promised and the value of what was received’.
29.9 The underlying purpose of the compensation principle in Robinson v Harman31 is to
ensure ‘that the parties to the contract are kept to the benefits and the burdens of the contract
they have made: the plaintiff recovers no more than the net benefit he would have received
under the contract; the defendant acquires no right to profit by his breach’.32 A corollary of the
compensation principle is that a plaintiff is not entitled to recover more than he or she has lost.33
29.10 Although the purpose of damages is to compensate the plaintiff for losses suffered as a
result of the defendant’s breach of contract, an award of damages will not necessarily compensate
a plaintiff for all of his or her losses. The principle in Robinson v Harman34 is qualified by
other principles that are analysed later in this chapter, such as those relating to remoteness and
mitigation.35 These principles place a boundary between losses that are recoverable and those that
are not. In relation to the application of all of these principles it must always be kept in mind that
they are not rigidly applied.36 As Viscount Haldane LC explained in British Westinghouse Electric
and Manufacturing Co Ltd v Underground Electric Railway Co of London Ltd,37 ‘[t]he quantum of
damages is a question of fact and the only guidance that the law can give is to lay down general
principles which afford at times but scanty assistance in dealing with particular cases’. Thus, in
Wenham v Ella38 Walsh J said that the principle of remoteness39 should not be viewed ‘as rigid rules
of universal application’, but ‘as prima facie rules which may be displaced or modified whenever it
is necessary to do so in order to achieve a result which provides reasonable compensation’.
29.11 Although the compensation principle is well entrenched throughout the common
law world, there are indications in some jurisdictions that a breach of contract can lead to
damages being awarded on bases that are inconsistent with the compensation principle. These
developments relate to gains-based damages, exemplary damages, and negotiation damages.

Gains-based damages
29.12 Gains-based damages are damages that operate to deny a defendant profits that he
or she has made as a result of a breach of contract. As such, they do not seek to compensate

29. Wenham v Ella (1972) 127 CLR 454 at 471; The Commonwealth of Australia v Amann Aviation Pty Ltd (1991)
174 CLR 64 at 98; 104 ALR 1 at 23. Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272
at 286; 253 ALR 1 at 6; Clark v Macourt (2013) 253 CLR 1 at 6, 11, 19, 30; 304 ALR 220 at 223, 226, 233, 241;
Lewis v Australian Capital Territory (2020) 381 ALR 375 at 407.
30. (2020) 377 ALR 209 at 223.
31. (1848) 154 ER 363.
32. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 99; 104 ALR 1 at 23.
33. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82, 136, 163; 104 ALR 1
at 11, 51, 71; Haines v Bendall (1991) 172 CLR 60 at 63; 99 ALR 385 at 386; Clark v Macourt (2013) 253 CLR
1 at 11, 19; 304 ALR 220 at 227, 233.
34. (1848) 154 ER 363.
35. Tiuta International Ltd (in liq) v De Villiers Surveyors Ltd [2018] 2 All ER 203 at 207.
36. Monarch Steamship Co Ltd v Karlshamns Oljefabriker [1949] AC 196 at 220, 223.
37. [1912] AC 673 at 688.
38. (1972) 127 CLR 454 at 466.
39. See 29.105–29.127.

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the plaintiff for his or her loss. Rather, they deprive the defendant of any profits gained as a
consequence of his or her breach of contract.
29.13 The House of Lords decision in Attorney General v Blake40 is the ground-breaking
case on gains-based damages for breach of contract in England. In that case, Blake breached
a contractual secrecy provision relating to his employment as an agent for the British Secret
Intelligence Services. His breach was the publication of his memoirs whilst living in exile in
Russia. Because the British Crown could not establish any loss, as the information disclosed
was no longer confidential, the issue before the House of Lords was whether it could recover
the profits, in the form of royalties, which Blake was to earn from his publishers. The House
of Lords ruled in the Crown’s favour. Lord Nicholls41 said that normally a plaintiff would be
confined to recovering damages for losses suffered, but ‘in exceptional cases’, where such a
remedy was inadequate, gains-based damages would be awarded. As to when such exceptional
circumstances would arise, Lord Nicholls42 said:
No fixed rules can be prescribed. The court will have regard to all the circumstances,
including the subject matter of the contract, the purpose of the contractual provision
which has been breached, the circumstances in which the breach occurred, the
consequences of the breach and the circumstances in which relief is being sought. A
useful general guide, although not exhaustive, is whether the plaintiff had a legitimate
interest in preventing the defendant’s profit-making activity and, hence, in depriving
him of his profit.

29.14 In Hospitality Group Pty Ltd v Australian Rugby Union,43 the majority of the Full Court
of the Federal Court declined to follow Attorney General v Blake44 on the basis that it conflicted
with existing Australian authority on the compensatory nature of damages and that any change
in the law in this respect would require approval by the High Court.

Exemplary damages
29.15 The compensatory nature of damages means that when a court assesses damages,
there can be no element of punishing a defendant by ordering him or her to pay a fine in the
form of exemplary damages.45 Thus, unlike with claims for damages in some areas of tort law,46
exemplary damages are not recoverable as part of a damages award for breach of contract.47

40. [2001] 1 AC 268; [2000] 4 All ER 385. The approach in this case has been adopted in Canada: Atlantic
Lottery Corp Inc v Babstock [2020] SCC 19 at [51]–[58], [61], [110]–[123].
41. Attorney General v Blake [2001] 1 AC 268 at 285; [2000] 4 All ER 385 at 398.
42. Attorney General v Blake [2001] 1 AC 268 at 285; [2000] 4 All ER 385 at 398.
43. Hospitality Group Pty Ltd v Australian Rugby Union (2001) 110 FCR 157 at 196, followed in Rickard v Testel
Pty Ltd (2019) 133 SASR 1 at 16–17.
44. [2001] 1 AC 268; [2000] 4 All ER 385.
45. On the origins of exemplary damages see J Taliadoros, ‘The Roots of Punitive Damages at Common Law:
A Longer History’ (2015–16) 64 Cleveland State Law Review 251.
46. A recent example is State of South Australia v Holder [2019] SASCFC 135, where the defendant was held to
be liable in the torts of assault, battery and false imprisonment and the damages order included a sum of
$35,000 by way of exemplary damages.
47. Butler v Fairclough (1917) 23 CLR 28 at 89; Gray v Motor Accident Commission (1998) 196 CLR 1 at 6–7; 158
ALR 485 at 488; Hospitality Group v Australian Rugby Union (2001) 110 FCR 157 at 191; Harris v Digital
Pulse Pty Ltd (2003) 56 NSWLR 298 at 307, 361–2.

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29.16 Wilson identifies three major arguments justifying the principle against awarding
exemplary damages for a breach of contract.48 First, because tortious obligations are ultimately
imposed by standards of conduct imposed by society and violations of these standards involve
elements of fault and wrongdoing, exemplary damages in tort are justified as a means of
deterring others from committing such violations. However, as contractual obligations are
merely obligations voluntarily undertaken, there can be no justification of exemplary damages
in contract. Second, the so-called efficient breach theory49 holds that in some cases it is more
efficient to breach the contract than perform it. In such cases there is nothing blameworthy
in the conduct of the contract breaker and therefore no justification for exemplary damages.
Third, it is argued that exemplary damages result in a windfall to the plaintiff, for which there
is no justification. If the contract breaker should be punished, that should be done by the state
through the establishment of appropriate regulatory bodies. However, Wilson rejects these
arguments and submits that exemplary damages in contract are justified on three grounds.
First, punishment is appropriate in some cases of breaches of contract. Second, opportunistic
breaches of contract would be discouraged. Third, such awards would properly denounce
breaches of contract that are not morally neutral, as antisocial and deserving of punishment.
29.17 In some common law jurisdictions the issue of exemplary damages for breach of contract
has been considered in recent times. Thus, in Canada, since the decisions of the Supreme Court
in Vorvis v Insurance Corporation of British Columbia50 and Whiten v Pilot Insurance Co,51
exemplary damages in relation to breaches of contract can be ordered if the defendant’s breach
also constitutes an independent actionable wrong, and the defendant’s conduct was sufficiently
malicious, oppressive, and high-handed so that it offends the court’s sense of decency. In relation
to the requirement of an independent actionable wrong, although it will often be an independent
tort, it may be some other cause of action. In Whiten v Pilot Insurance Co,52 the independent
actionable wrong was a breach of a contractual duty of good faith.
29.18 On the other hand, following a number of first-instance decisions suggesting that
exemplary damages could be awarded in New Zealand, the New Zealand Court of Appeal
in Paper Reclaim Ltd v Aotearoa International Ltd53 rejected this approach. In Singapore,
in P H Hydraulics & Engineering Pte Ltd v Airtrust (Hong Kong) Ltd,54 after an exhaustive
examination of the cases and arguments on the issue, the Court of Appeal also ruled that,
generally, it was not appropriate for punitive damages to be awarded for a breach of contract.
However, the court55 did concede it was possible that, in the future, in ‘a truly exceptional case’
the Court of Appeal could be persuaded to award such damages.
29.19 In Australia, in Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd,56 Wilcox J stated
that it was possible to conceive of circumstances in relation to a breach of contract where a

48. J Wilson, ‘Punishing Contract Breakers: Whiten v Pilot Insurance and the Sea Change in Canadian Law’
(2004) 10 Auckland University Law Review 61 at 73–7.
49. See 3.28–3.32.
50. [1989] 1 SCR 1085.
51. [2002] 1 SCR 595.
52. [2002] 1 SCR 595. See also Atlantic Lottery Corp Inc v Babstock [2020] SCC 19 at [63]–[65].
53. [2006] 3 NZLR 188 at 222–3.
54. [2017] SGCA 26 at [63]–[135].
55. P H Hydraulics & Engineering Pte Ltd v Airtrust (Hong Kong) Ltd [2017] SGCA 26 at [136].
56. (1986) 65 ALR 500 at 526.

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court would award exemplary damages. However, as was pointed out in Hospitality Group
Pty Ltd v Australian Rugby Union,57 Wilcox J’s statement ‘does not reflect the law in Australia,
at least until such time as the High Court reverses the current rule’.

Negotiation damages
29.20 Negotiating damages (sometimes referred to as Wrotham Park damages) can be briefly
described as damages based on the price that the plaintiff could have reasonably accepted to
release the defendant from his or her duty, had the defendant approached the plaintiff prior
to breach of the duty. Such damages are derived from the decision in Wrotham Park Estate
Company Ltd v Parkside Homes Ltd.58 In that case, Parkside purchased land that was subject to
a restrictive covenant preventing it from building on the land without the consent of Wrotham
Park, the owner of the adjoining land. Parkside built on the land without gaining Wrotham
Park’s consent. Wrotham Park sought a mandatory injunction to have the houses demolished.
Brightman J ruled that it would be inappropriate to grant the injunction and proceeded to
award so-called equitable damages in lieu of the injunction pursuant to the statutory power to
award such damages.59
29.21 In relation to these damages, Brightman J60 said:
T]he general rule would be to measure damages by reference to that sum which would place
[Wrotham Park] in the same position as if the covenant had not been broken. … Parkside
and the individual purchasers could have avoided breaking the covenant in two ways. One
course would have been not to develop the allotment site. The other course would have
been for Parkside to have sought from [Wrotham Park] a relaxation of the covenant. On the
facts of this particular case [Wrotham Park], rightly conscious of their obligations towards
existing residents, would clearly not have granted any relaxation, but for present purposes I
must assume that they would have been induced to do so. In my judgment a just substitute
for a mandatory injunction would be such a sum of money as might reasonably have been
demanded by [Wrotham Park] from Parkside as a quid pro quo for relaxing the covenant.

29.22 In essence, what was decided in this case was that the measure of damages was not
assessed on the basis of compensating Wrotham Park for any losses sustained. Wrotham Park
did not sustain any economic or non-economic loss for which compensatory damages could be
awarded.61 Rather, the measure of damages was to be determined on the basis of a hypothetical
negotiation between a willing Wrotham Park and a willing Parkside to determine what price
Wrotham Park would have asked for it to relax the restrictive covenant.
29.23 It was originally argued that negotiation damages were confined to claims for equitable
damages.62 However, subsequent cases in the United Kingdom have held that the availability
of such damages is not so confined and they are available as a form of damages in breach of

57. (2001) 110 FCR 157 at 191.

58. [1974] 2 All ER 321.
59. See Chapter 33.
60. Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 2 All ER 321 at 441.
61. Marathon Asset Management LLP v Seddon [2017] EWHC 300 (Comm) at [194].
62. Jaggard v Sawyer [1995] 2 All ER 189 at 201, 212.

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contract cases.63 Thus, in WWF — World Wide Fund for Nature v World Wrestling Federation
Entertainment Inc64 Chadwick LJ made it clear that ‘[t]he power to award damages on a
Wrotham Park basis does not depend on [the statutory power to award equitable damages]: it
exists at common law’.
29.24 In Morris-Garner v One Step (Support) Ltd,65 Lord Reed said the following in relation
to awarding negotiation damages for a breach of contract:
Negotiating damages can be awarded … where the loss suffered by the claimant is
appropriately measured by reference to the economic value of the right which has been
breached, considered as an asset. That may be the position where the breach of contract
results in the loss of a valuable asset created or protected by the right which was infringed.
The rationale is that the claimant has in substance been deprived of a valuable asset, and his
loss can therefore be measured by determining the economic value of the right in question,
considered as an asset. The defendant has taken something for nothing, for which the
claimant was entitled to require payment.

THE ONCE AND FOR ALL LUMP SUM PRINCIPLE

29.25 An award of damages for a breach of contract is made on a once and for all lump sum
basis.66 This means that a lump sum is awarded to the plaintiff to cover past and future losses
and that damages cannot be awarded in the form of periodical payments.67 The justifications
for this principle are:
• that an award finalises litigation; and
• that it would be unfair to have a defendant subjected to a series of claims arising out of the
same breach of contract.

29.26 The principle has been criticised, especially in the context of cases involving losses of
an ongoing kind that continue after the hearing of the case, such as long-term personal injuries
and losses of income. Often awards will, in the light of subsequent events, be found to have not
adequately taken into consideration the impact of inflation, so that in real terms the sum of
money awarded under-compensates the plaintiff for the loss he or she has suffered.

Taxation of damages awards

29.27 In determining the sum of damages to be awarded to a plaintiff, a court must consider
the effect of taxation on the award. Given that most awards for damages for breach of contract

63. Experience Hendrix Llc v PPX Enterprises Inc [2003] EWCA Civ 323 at [34]–[35]; Abbar v Saudi Economic
& Development Company (Sedco) Real Estate Ltd [2013] EWHC 1414 (Ch) at [225].
64. [2008] 1 WLR 445 at 473.
65. [2019] AC 649 at 690; [2018] 3 All ER 659 at 688. For an analysis of this case, see E Peel, ‘Negotiating Damages
after One Step’ (2019) 35 Journal of Contract Law 216. See also Pell Frischmann Engineering Ltd v Bow
Valley Iran Ltd [2011] 1 WLR 2370, where negotiation damages were awarded in the context of a breach
of a confidentiality agreement. In Priyanka Shipping Ltd v Glory Bulk Carriers Pte Ltd [2019] 1 WLR 6677
at 6707–19, a claim for negotiating damages for breach of contract was rejected on the facts of that case.
66. (1988) 166 CLR 351 at 355; 82 ALR 587 at 588.
67. Lim Poh Choo v Camden and Islington Area Health Authority [1980] AC 174 at 183; [1979] 2 All ER 910 at 914.
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are taxable because they usually represent compensation for lost profits and income, the court
in such awards will not consider the effects of taxation when determining the amount of
compensation to be paid.68 In the rare cases where contractual damages are not taxable, the
amount of damages is reduced by an amount that reflects the tax that would be paid on such
profits or income. In either case, the court is considering what would have been the plaintiff ’s
tax liability if the contract had been performed. By so doing, the court is giving effect to the
compensation principle by putting the plaintiff in the position he or she would have been had
the contract been performed.

DATE FOR ASSESSMENT OF DAMAGES

29.28 Claims for damages for breach of a simple contract must be commenced within six
years of the date of the breach in all Australian jurisdictions except the Northern Territory,
where the period is three years.69 If the contract is set out in a deed, the limitation period in
Victoria and South Australia is 15 years. In all other Australian jurisdictions, it is 12 years.70
29.29 When a claim for damages is brought before a court, the date of the breach of contract
is the date by which the measure of damages is generally assessed.71 For example, if X and Y
contract on 1 March on terms that Y will pay $500 to X in return for X delivering a desk to
Y on 1 April and X breaches the contract by refusing to deliver the desk, Y’s damages will be
assessed by reference to the value of the desk as at the date of X’s breach — in this case, 1 April.
If, on 1 April, it would have cost $520 to purchase such a desk, Y’s damages will total $20. This
amount will properly compensate Y because he or she can purchase the desk for $520, but in
fact, it will have cost him or her $500 because $20 of the purchase price will, in effect, have been
paid by X. In other words, Y obtains the desk at a cost he or she would have incurred had X not
breached the contract.
29.30 In Clark v Macourt,72 Keane J observed that the date of breach principle ‘serves the
important end of bringing finality and certainty to commercial dealings’. In Golden Strait
Corporation v Nippon Yusen Kubishika Kaisha,73 Lord Scott said that the ‘assessment at the
date of breach rule is particularly apt to cater for cases where a contract for the sale of goods
in respect of which there is a market has been repudiated’. However, in many situations the
principle does not work well, in that it does not give proper effect to the compensation principle
that underpins the measure of damages to be awarded for a breach of contract. For example,
the time it takes a case to be litigated, combined with inflation, can lead to the plaintiff being
under-compensated in real terms. In the above example, if the case against X, through no fault

68. Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 at 115.

69. See Limitation Act 1985 (ACT) s 11(1); Limitation Act 1969 (NSW) s 14(1); Limitation Act 1981 (NT) s 12(1)
(a); Limitation of Actions Act 1974 (Qld) s 10(1)(a); Limitation of Actions Act 1936 (SA) s 35(a); Limitation
Act 1974 (Tas) s 4(1)(a); Limitation of Actions Act 1958 (Vic) s 5(1)(a); Limitation Act 2005 (WA) s 13.
70. See Limitation Act 1985 (ACT) s 13; Limitation Act 1969 (NSW) s 16; Limitation Act 1981 (NT) s 14;
Limitation of Actions Act 1974 (Qld) s 10(3); Limitation of Actions Act 1936 (SA) s 34; Limitation
Act 1974 (Tas) s 4(3); Limitation of Actions Act 1958 (Vic) s 5(3); Limitation Act 2005 (WA) s 18.
71. Jamal v Moolla Dawood, Sons & Co [1916] AC 175 at 179; Clark v Macourt (2013) 253 CLR 1 at 32; 304 ALR
220 at 243.
72. (2013) 253 CLR 1 at 32; 304 ALR 220 at 243.
73. [2007] 2 AC 353 at 381–2; [2007] 3 All ER 1 at 18.

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of either party, were to take 12 months to litigate and in the meantime, inflation meant that the
cost of the desk had increased to $550, an award of $20 in damages would mean that Y could
not acquire the desk at the cost he or she would have incurred had X not breached the contract.
Y would have to pay an extra $30 for the desk.
29.31 It is now recognised that, as stated by Campbell JA in Gagner Pty Ltd v Canturi
Corporation Pty Ltd,74 ‘[t]he certainty of [the] principle concerning the time as at which
damages are assessed has now been eroded’. Where the date of breach principle does not work
well the law permits exceptions to it. In Johnson v Perez,75 Brennan J said that ‘[t]he time fixed
at which damages are assessed must be so fixed as to give effect to the governing principle
[of compensation]’. The onus of proof of establishing that departure from the assessment
of damages as at the date of the breach rests with the plaintiff.76 In The Commonwealth of
Australia v Amann Aviation Pty Ltd,77 McHugh J suggested that departure from the date of
breach principle would require ‘very special circumstances’. However, subsequent cases have
not so qualified the general principle, preferring to state the exception as one that arises when
required in the interests of justice to ‘adequately compensate the plaintiff ’.78
29.32 If departure from the date of breach is justified, the court will select a date that is best
suited to adequately compensate the plaintiff. Possible alternative dates include the date the
contract is repudiated,79 the date the contract is terminated,80 the date that the plaintiff, acting
reasonably, ventures into the marketplace, and the date of hearing.81 For example, in relation to
the recovery of expectation damages82 by a landlord following a tenant’s breach of an essential
term or repudiation of a lease, damages are usually assessed by reference to the date of the
termination of the lease, rather than the date of the breach.83
29.33 In Hocking Stuart (Hawthorn) Pty Ltd v Vernea,84 Mr and Mrs Vernea engaged Hocking
Stuart as their agent to sell their home in the Melbourne suburb of Kew. The Verneas made it
clear to their agent that they would not sell the home for less than $850,000 and that they
intended to purchase a similar home with the proceeds. On 20 November 2001, the agent, in
breach of authority, signed a contract on behalf of the Verneas selling the property for $750,000
to Maule. The Verneas resisted Maule’s application for specific performance, but ultimately
conceded that Maule had a valid contract and the dispute between the parties was settled on

74. (2009) 236 FLR 401 at 413; 262 ALR 691 at 703. See also Radford v De Froberville [1978] 1 All ER 33 at 56–7;
Hooper v Oates [2014] Ch 287 at 298–9; [2013] 3 All ER 211 at 221–3; Ng v Filmlock Pty Ltd (2014) 88 NSWLR
146 at 157–8; Baguley v Lifestyle Homes Mackay Pty Ltd [2015] QCA 75 at [52]–[53]; Broughton v B & B Group
Investments Pty Ltd [2017] VSCA 227 at [148]–[156]; El Ali v Tritton [2019] NSWCA 111 at [46].
75. (1988) 166 CLR 351 at 371; 82 ALR 587 at 600.
76. Broughton v B & B Group Investments Pty Ltd [2017] VSCA 227 at [157].
77. (1991) 174 CLR 64 at 161–2; 104 ALR 1 at 70.
78. Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 265; [1996] 4 ll ER 769 at 777; McCrohon
v Harith [2010] NSWCA 67 at [55]–[56].
79. Strack v Grey [2019] NZCA 432 at [43].
80. Gerrard v Wang [2015] WASC 173 at [28].
81. Johnson v Agnew [1980] AC 367 at 401; [1979] 1 All ER 883 at 896; South Sky Investments Pty Ltd v Luppi
[2012] QSC 27 at [19].
82. See 29.38.
83. Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254 at 265.
84. [2005] VSCA 129.

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8 May 2003. In suing the agent for breach of contract, the Victorian Court of Appeal85 ruled that
assessment of damages as at the date of the agent’s breach was not appropriate because it ‘would
not do justice to the claim of the [Verneas]’. The court ruled that, in the circumstances, it was
entirely reasonable for the Verneas to resist Maule’s specific performance application. The date
of settlement of this dispute was the date that the Verneas lost their property. It was also the
date upon which damages were assessed. On the basis that purchasing an equivalent property
would, as at 8 May 2003, cost $1,000,000, damages were assessed on the basis of the difference
between that sum and the net proceeds the Verneas received from their sale to Maule.
29.34 In cases of damages for anticipatory breach, the date for assessment of damages is
generally the date that performance of the contract was scheduled to take place, rather than the
date of termination.86 If, however, the case comes to a hearing before a court before the due date
for performance, the court determines damages ‘as best it can’.87

INTERESTS REFLECTED IN A DAMAGES AWARD

29.35 Jacobs88 states that the following four interests may be reflected in an award of damages
for breach of contract:
• the expectation interest;
• the reliance interest;
• the restitution interest; and
• the indemnity interest.

29.36 These labels ‘are simply manifestations of the central principle enunciated in Robinson
v Harman89 rather than discrete and truly alternative measures which a party not in breach may
elect to claim’.90
29.37 Subject to the principle that a plaintiff cannot be better off by an award of damages
than he or she would have been if the contract had been performed,91 a damages award can
include a combination of losses that reflect different interests. Thus, in McRae v Commonwealth
Disposals Commission,92 the High Court awarded damages that included amounts reflecting
reliance interest loss and restitution interest loss.

The expectation interest

29.38 The expectation interest, which is also known as the performance interest, is the interest
most commonly reflected in an order for damages. It most clearly fits within the compensation

85. Hocking Stuart (Hawthorn) Pty Ltd v Vernea [2005] VSCA 129 at [18]. See also Singh v Lugondela [2020]
VSC 544 at [75]–[87].
86. Hoffman v Cali [1985] 1 Qd R 253 at 261.
87. Melachrino v Nickoll [1920] 1 KB 693 at 699.
88. S Jacobs, Damages in a Commercial Context, LBC Information Services, Sydney, 2000, p 53.
89. (1848) 154 ER 363.
90. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 82; 104 ALR 1 at 10–1. See also
Grange v Quinn [2013] EWCA Civ 24 at [27]; Leeda Projects Pty Ltd v Zeng [2020] VSCA 192 at [189].
91. See 29.9.
92. (1951) 84 CLR 377. See 29.60, 29.73.

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principle and sometimes is referred to as loss of profit damages. It reflects compensation for
the loss of the expectation, or profit, that the plaintiff was entitled to under the contract, but
which he or she has been denied by the defendant’s breach of contract.93 A simple example of
an expectation loss claim is where a purchaser of a property fails to complete the transaction
and the vendor then re-sells the property at a lower price.94

Expectation damages and termination of contracts

29.39 As expectation damages essentially compensate the plaintiff for the loss of the contract,
in order to gain compensation for such a loss the contract must first be terminated by the
plaintiff.95 However, a contract may contain a right to terminate it for specified breaches of
the contract. In Shevill v Builders Licensing Board,96 the High Court held that if the specified
breaches are not ones that would give rise to a right to terminate the contract at common
law, the plaintiff has no right to claim expectation damages. Carter97 criticises this decision
principally on the basis that the plaintiff ‘is forced to do the very thing that the clause was
intended to avoid, namely, prove a common law right to terminate’.

Damages for loss of a chance

29.40 A particular instance of an expectation interest for which assessment of damages
presents difficulties is the loss of a chance or opportunity. In Silverbrook Research Pty Ltd
v Lindley,98 Allsop P noted that, as a matter of general principle, such cases may arise where:
• the contract’s principal purpose is to provide a party with the chance of obtaining a benefit;
• a term, express or implied, of the contract promises such a benefit; or
• an opportunity to make a profit or avoid a loss is lost as a consequence of the breach by the
other party.99

29.41 In Chaplin v Hicks,100 Chaplin, an aspiring actress, entered a competition organised by

Hicks, a well-known actor and theatrical agent, who was in search of ‘young ladies desirous of
obtaining engagements as actresses’. Chaplin was one of 50 finalists who were to be interviewed
by Hicks before he made his choice of 12 winners. The prize for each of the winners was a
three-year acting contract worth £260 per annum for the first four, £208 per annum for the
next four, and £156 per annum for the final four. Hicks breached the contract by failing to give

93. Clark v Macourt (2013) 253 CLR 1 at 19; 304 ALR 220 at 233; Ellis’s Town House Pty Ltd v Botan Pty Ltd
[2017] NSWCA 20 at [27].
94. Ng v Filmlock Pty Ltd (2014) 88 NSWLR 146 at 150.
95. Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 31; 57 ALR 609 at 619; Sunbird
Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 260; 77 ALR 205 at 212; Harold R Finger & Co Pty Ltd
v Karellas Investments Pty Ltd [2016] NSWCA 123 at [152].
96. (1982) 149 CLR 620.
97. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Sydney, 2018, p 841. See also
K Yin, ‘When is Termination of a Breached Contract a Prerequisite for the Recovery of Damages’ (2016) 41
Australian Bar Review 179.
98. [2010] NSWCA 357 at [2]. See also The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174
CLR 64 at 118; 104 ALR 1 at 38; Strack v Grey [2019] NZCA 432 at [48]–[50].
99. Outback Energy Hunter Pty Ltd v New Standard Energy Pel 570 Pty Ltd [2018] SASC 8 at [516].
100. [1911] 2 KB 786.

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Chaplin adequate notice of the interview. Because she missed the interview, she lost all chance
of being one of the 12 winners. The English Court of Appeal awarded Chaplin damages of £100
as compensation for the loss of the chance.
29.42 In loss of chance cases, an important prerequisite to recovery of damages is that the plaintiff
must establish ‘on the balance of probabilities that he or she has sustained some loss or damage
... by demonstrating that the contravening conduct caused the loss of a commercial opportunity
which had some value (not being a negligible value)’.101 As the Court of Appeal stated in M A & J
Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd,102 ‘the law does not provide for damages for loss of
opportunity to consummate a loss-making business venture’. However, in many cases, the chance
that is lost is the plaintiff ’s chance of making a profit by entering into some transaction had there
been no breach of contract by the defendant. For example, the chance may be in the nature of a
lost property development project. In such a case it also needs to be established, on the balance
of probabilities, that the plaintiff would have entered into the relevant transaction. In Badenach
v Calvert, 103 French CJ, Kiefel and Keane JJ observed that this required the plaintiff to produce
‘evidence of what would have been done if the opportunity had been afforded’. Furthermore, it
must be established that the opportunity to profit from the development had a value.104
29.43 Once it is established that a chance or opportunity has been lost, its value is to be
ascertained by reference to the ‘degree of probabilities or possibilities’, and ‘it is no answer to
that way of viewing [a plaintiff ’s] case to say that the commercial opportunity was valueless
on the balance of probabilities because to say that is to value the commercial opportunity by
reference to a standard of proof which is inapplicable’.105 Rather as, was pointed out by Tobias JA
in Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltd,106 whether or not a lost chance has
some value ‘involves an evaluative judgment based on all the circumstances and, in particular,
the evidence elicited to support the proposition that the prospects of the chance coming to
fruition was sufficient to enable a positive rational assessment of it to be made’.
29.44 The fact that the assessment of the quantum of damages may be difficult to calculate or
impossible to do with certainty does not relieve a court of its obligation to make an assessment.107
This is so ‘even if some guesswork is involved’.108 Although it is recognised that damages here

101. Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355; 120 ALR 16 at 30. See also Doolan v Renkon
Pty Ltd (2011) 21 Tas R 156 at 175; Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659 at 687.
102. [2019] VSCA 46 at [95].
103. Badenach v Calvert (2016) 257 CLR 440 at 454; 331 ALR 48 at 56; Sanpoint Pty Ltd v V8 Supercars Holding
Pty Ltd [2019] NSWCA 5 at [113].
104. Principal Properties Pty Ltd v Brisbane Broncos Leagues Club Ltd [2018] 2 Qd R 584 at 590–1.
105. Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355; 120 ALR 16 at 30. See also Hart Security
Australia Pty Ltd v Boucousis (2016) 339 ALR 659 at 687.
106. [2012] NSWCA 192 at [88].
107. Chaplin v Hicks [1911] 2 KB 786 at 792; Howe v Teefy (1927) 27 SR (NSW) 301 at 306; Fink v Fink (1946)
74 CLR 127 at 143; The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83; 104
ALR 1 at 12; Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344 at 360–1; [1995] 3 All ER 268
at 277–8; Tabet v Gett (2010) 240 CLR 537 at 560; 265 ALR 227 at 239–40; McCrohon v Harith [2010] NSWCA
67 at [118]; Morris-Garner v One Step (Support) Ltd [2019] AC 649 at 672–3, 682; [2018] 3 All ER 659 at 672–3,
682; Melnikov v Vainer [2019] VSCA 283 at [44]; Nationwide News Pty Ltd v Rush [2020] FCAFC 115 at [578].
108. Jones v Schiffmann (1971) 124 CLR 303 at 308; La Trobe Capital & Mortgage Corporation Ltd v Hay Property
Consultants Pty Ltd (2011) 190 FCR 299 at 319; 273 ALR 774 at 792; Port Macquarie-Hastings Council
v Diveva Pty Ltd [2017] NSWCA 97 at [51]–[52].

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are ‘estimated in a rough and ready way’,109 a figure ‘plucked from the air’ is not an acceptable
basis for determining quantum, as there must be a ‘sound basis’ upon which the value of the
chance is assessed.110
29.45 The fact that it was more likely than not that the chance would not have occurred
does not preclude recovery of damages. The degree of probability does not have to be more
than 50 per cent.111 However, the chance cannot be a speculative chance. It has to be a real
or substantial chance.112 Furthermore, any ‘uncertainty as to the profits to be derived from a
business by reason of contingencies is not a reason for a court refusing to assess damages’.113

Damages for non-economic loss

29.46 In contract law the recovery of damages is generally limited to economic losses —
non-economic losses are generally not recoverable. Exceptions to this principle include
the recovery of damages for physical inconvenience or discomfort caused by the breach of
contract,114 and loss of reputation.115
29.47 However, in Hamlin v Great Northern Railway Co116 it was held that, as a general
principle, damages cannot be recovered for ‘disappointment of mind occasioned by the breach
of contract’. Thus, in Addis v Gramophone Co Ltd,117 the House of Lords refused to award
damages in relation to injured feelings flowing from the humiliating way in which an employee
was dismissed from his employment. In Baltic Shipping Co v Dillon118 Brennan J provided a
justification for the principle in Hamlin v Great Northern Railway Co,119 when he said:
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. If a promisor
were exposed to such an indefinite liability in the event of breach, the making of commercial
contracts would be inhibited …, the assignment of a contractual right would carry new risks

109. Morris-Garner v One Step (Support) Ltd [2019] AC 649 at 683; [2018] 3 All ER 659 at 682.
110. Zorom Enterprises v Zabow (2007) 71 NSWLR 354 at 376; Sensis Pty Ltd v McMaster-Fay [2005] NSWCA
163 at [57]; Camellia Properties Pty Ltd v Wesfarmers General Insurance Ltd [2013] NSWSC 1975 at [390].
111. Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 349; 120 ALR 16 at 26; McCrohon v Harith [2010]
NSWCA 67 at [98].
112. Allied Maples Group Ltd v Simmons & Simmons (a firm) [1995] 4 All ER 907 at 919; Wellesley Partners LLP
v Withers LLP [2016] Ch 529 at 558; Badenach v Calvert (2016) (2016) 257 CLR 440 at 454; 331 ALR 48
at 56; McGill v Sports and Entertainment Media Group [2017] 1 WLR 989 at 1010–3.
113. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83; 104 ALR 1 at 12.
114. Boncristiano v Lohmann [1998] 4 VR 82 at 94; Da Silva v Rosa Construtores [2018] IEHC 732 at [29]–[32];
Young & Conway v Chief Executive Officer, Housing [2020] NTSC 59 at [90].
115. Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500 at 524–5.
116. (1856) ER 1261 at 1262.
117. [1909] AC 488 at 491. See also Gomes v Higher Level Care Ltd [2018] 2 All ER 740 at 747.
118. (1993) 176 CLR 344 at 369; 111 ALR 289 at 307–8.
119. (1856) ER 1261.
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for the party subject to the reciprocal obligation, and trade and commerce would be seriously
impeded.

29.48 However, the principle in Hamlin v Great Northern Railway Co120 is subject to the
so-called ‘peace of mind’ exception. In Baltic Shipping Co v Dillon,121 Deane and Dawson JJ set
out the exception as follows:
That category of case encompasses cases where the disappointment and distress have been
caused by breach of a contract under which the party allegedly in breach is shown expressly
or impliedly to have agreed to provide pleasure, entertainment or relaxation or to prevent
molestation or vexation.

In Farley v Skinner122 it was made clear that the promised peace of mind did not need to be the
principal object of the contract. It was sufficient if it was ‘a major or important object of the
contract’.
29.49 A significant example of where the peace of mind exception arises is with ‘holiday
cases’ in which a failure, in breach of an express or implied term of the contract, to provide
a holiday in accordance to a promised standard entitles the disappointed holidaymaker to be
compensated for the loss of enjoyment. Thus, in Baltic Shipping Co v Dillon,123 Mrs Dillon was
compensated for loss of enjoyment of a pleasure cruise in circumstances where the ship sank
on the tenth day of a 14-day cruise. In Milner v Carnival plc,124 it was said that in such holiday
cases the recovery of damages may, in addition to compensation for disappointment, distress,
and anxiety, include:
• ‘compensation for pecuniary loss — the diminution in value: the loss here is the monetary
difference between what was bought and what was supplied’;
• ‘compensation for consequential pecuniary loss’, such as cost of alternative accommodation
and travel; and
• ‘compensation for physical inconvenience’.
29.50 Other situations of damages being recovered for disappointment, anxiety, and distress
include:
• a photographer’s failure to take wedding photographs125 and a disc jockey’s failure to attend
a wedding reception;126
• a solicitor’s failure, by neglecting to notify passport authorities that a passport should not be
issued to his client’s son, to prevent the removal of the son from the United Kingdom;127

120. (1856) ER 1261.

121. (1993) 176 CLR 344 at 381–2; 111 ALR 289 at 318. See also Watts v Morrow [1991] 4 All ER 937 at 955, 960;
Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344 at 374; [1995] 3 All ER 268 at 289;
Archibald v Powlett (2017) 53 VR 645 at 660; Moore v Scenic Tours Pty Ltd (2020) 377 ALR 209 at 218–19.
122. [2002] 2 AC 732 at 750; [2001] 4 All ER 801 at 812.
123. (1993) 176 CLR 344 at 381–2; 111 ALR 289 at 318.
124. [2010] 3 All ER 701 at 711.
125. Diesen v Samson [1971] SLT 49.
126. Dunn v Disc Jockey Unlimited (1978) 20 OR (2d) 122.
127. Hamilton Jones v David & Snape [2004] 1 All ER 657.

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• a surveyor’s failure to accurately report whether or not a property that was being purchased
by his client was under a flight path at Gatwick Airport;128
• a builder’s failure to complete building work in accordance with the terms of the building
contract;129 and
• a film company’s damage to an immaculately restored ‘retro’ style house that it had hired
from its owner for the purposes of filming a movie entitled ‘Flashbacks of a Fool’.130

29.51 In making awards for non-economic losses of this kind, courts in England have often
stated that the amounts awarded should be modest.131 However, this approach appears to be
superseded by the Supreme Court decision in Morris-Garner v One Step (Support) Ltd,132 where
Lord Reed said that, in assessing the measure of damages in these cases, it was ‘necessary …
to identify the difference in the claimant’s situation resulting from the non-performance of the
obligation in question, and then to place a reasonable monetary value on that difference’. This
accords with the Australian approach in such cases.133
29.52 However, in a number of Australian jurisdictions, the quantum of damages for non-
economic loss in relation to claims for damages for personal injury is subject to limitations
imposed by civil liability legislation.134 The question that arises is whether compensation for
non-economic losses encapsulated in the ‘peace of mind’ principle set out in Baltic Shipping Co
v Dillon,135 is subject to the limitations imposed by this legislation. This matter was addressed
by the High Court in Moore v Scenic Tours Pty Ltd136 in the context of the limitations imposed
by s 16 of the Civil Liability Act 2002 (NSW) (CLA). In that case Moore and his wife booked a
European river cruise holiday with Scenic Tours. As was noted in the High Court, the ‘holiday
tour fell far short of the “once in a lifetime cruise” in “all inclusive luxury” that Mr Moore was
promised’.137 Moore sued Scenic for the disappointment and distress occasioned by not getting
what he was promised. His claim was based upon a breach of the Australian Consumer Law
which, by virtue of s 275, incorporated the limitations on compensation imposed by s 16 of
the CLA. (However, as was noted by Edelman J138 the outcome in this case would be the same
if Moore had sued for damages for breach of contract.) The High Court unanimously held
that the s 16 limitations did not apply to Moore’s claim for damages for disappointment and
distress that he suffered in this case. This was so because the New South Wales legislation only
imposed the s 16 limitation in relation to non-economic loss that flowed from physical injury
or recognised psychiatric illness. In this case, Moore did not suffer any such injury or illness.

128. Farley v Skinner [2002] 2 AC 732; [2001] 4 All ER 801.

129. Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344 at 360–1, 374–5; [1995] 3 All ER 268
at 277–8, 289–90; Boncristiano v Lohmann [1998] 4 VR 82 at 94; Willshee v Westcourt Ltd [2009] WASCA
87 at [79];.
130. Haysman v Mrs Rogers Films [2008] EWHC 2494 (QB) at [20]–[30].
131. Farley v Skinner [2002] 2 AC 732 at 751; [2001] 4 All ER 801 at 813.
132. [2019] AC 649 at 674–5; [2018] 3 All ER 659 at 674.
133. Boncristiano v Lohmann [1998] 4 VR 82 at 95.
134. Civil Liability Act 2002 (NSW) s 16; Personal Injuries (Liabilities and Damages) Act 2003 (NT) s 27; Civil
Liability Act 1936 (SA) s 52; Civil Liability Act 2002 (Tas) s 27; Wrongs Act 1958 (Vic) s 28G; Civil Liability
Act 2002 (WA) s 9.
135. (1993) 176 CLR 344 at 381–2; 111 ALR 289 at 318. See 29.48.
136. (2020) 377 ALR 209.
137. Moore v Scenic Tours Pty Ltd (2020) 377 ALR 209 at 211.
138. Moore v Scenic Tours Pty Ltd (2020) 377 ALR 209 at 223, 227.

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29.53 In their joint judgment, Kiefel CJ, and Bell, Gageler, Keane, Nettle and Gordon JJ139
said:
Mr Moore’s right to recover damages for such loss was securely established by this Court’s
decision in Baltic Shipping [Co v Dillon].140 Nothing in the text of the CLA suggests that
[it] was enacted with a view to limiting the liability of a defendant for claims that do not
involve personal injury as defined in the CLA. It is a strong thing to hold that the entitlement
recognised by this Court in Baltic Shipping as standing independently of personal injury was
abrogated by … the CLA, given the absence of any reference to that entitlement, in either the
text or the extrinsic materials, and given further that the mischief at which … the CLA was
directed was what was perceived as the excessive strain on insurance schemes established
to indemnify defendants against their liability under the common law for loss relating to
personal injury. The loss suffered by Mr Moore, and Scenic’s liability to compensate him for
that loss, have nothing to do with the mischief at which … the CLA was directed.

29.54 The principle in Hamlin v Great Northern Railway Co has been criticised. In Baltic
Shipping Co v Dillon,141 Mason CJ said:
The conceptual and policy foundations of the general rule are by no means clear. …
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. … But one might ask why the injured party should be deemed
to take the risk of damage of a particular kind when the fundamental principle on which
damages are awarded at common law is that the injured party is to be restored to the
position (not merely the financial position) in which the party would have been had the
actionable wrong not taken place. Add to that the fact that anxiety and injured feelings
are recognized as heads of compensable damage, at least outside the realm of the law of
contract. Add as well the circumstance that the general rule has been undermined by the
exceptions which have been engrafted upon it. We are then left with a rule which rests
on flimsy policy foundations and conceptually is at odds with the fundamental principle
governing the recovery of damages.

The reliance interest

29.55 The reliance interest reflects compensation granted to a plaintiff in relation to
expenditure reasonably incurred in reliance on the defendant’s promise and which is wasted
because of the latter’s breach. The term ‘wasted expenditure damages’ is also used to describe
this type of loss. Two cases serve as useful illustrations.
29.56 In McRae v Commonwealth Disposals Commission,142 McRae was the successful
tenderer for the purchase of a sunken oil tanker lying on the Jourmaund Reef near New Guinea.
McRae spent considerable money in fitting out a salvage mission, but could not find the tanker
because it had never been on the reef. The High Court held that it was an implied term of the

139. Moore v Scenic Tours Pty Ltd (2020) 377 ALR 209 at 219.
140. (1993) 176 CLR 344; 111 ALR 289.
141. (1993) 176 CLR 344 at 361–2; 111 ALR 289 at 302, cited with approval by the Supreme Court in Canada in
Fidler v Sun Life Assurance Company of Canada [2006] 2 SCR 3 at 18–19.
142. (1951) 84 CLR 377.

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contract that a tanker existed on the reef. Because the Commonwealth Disposals Commission
(CDC) breached that term, McRae was entitled to damages, in this case being the reasonable
costs of the failed salvage mission plus £285, being the price McRae had paid for the tanker.
29.57 In The Commonwealth of Australia v Amann Aviation Pty Ltd,143 the Australian
government contracted with Amann Aviation for the latter to provide aerial surveillance
services of Australia’s northern coastline for a period of three years from 12 September 1987.
Amann Aviation had approximately six months to prepare itself to assume its obligations on
the set date. Considerable money was spent in acquiring and specially fitting out aircraft for
the operation. However, Amann Aviation was not completely ready on the appointed date.
The Australian government gave notice of termination of the contract on 12 September 1987.
This termination was wrongful because it did not comply with the procedures for termination
set out in the contract. Amann Aviation treated the government’s wrongful termination as a
repudiation of the contract and sued for damages for breach of contract. Its claim was for the
expenditure it had incurred in setting up the surveillance operation, but which was now wasted
because of the government’s breach of contract. The four majority judges in the High Court
found in favour of Amann Aviation and ordered the government to pay damages totaling
$6,600,207, this sum reflecting the value of all of Amann Aviation’s wasted expenditure.
29.58 These two cases raise the following important issues concerning the recovery of
damages for reliance loss:
• whether a plaintiff can recover damages for all his or her reliance loss;
• the recovery of damages for reliance loss where the plaintiff ’s expectation damages cannot
be determined;
• the recovery of damages for reliance loss where the plaintiff ’s expenditure was incurred
before the contract was entered into; and
• the recovery of damages for both reliance loss and expectation loss.

Extent of reliance loss that is recoverable

29.59 In relation to whether a plaintiff can recover all his or her wasted expenditure, a plaintiff
cannot do so if performance of the contract would have resulted in the plaintiff recovering an
amount that is less than the expenditure incurred in the course of performing the contract.144
Thus, if a plaintiff incurred expenditure of $500, but, in performing the contract, would have
recovered only $300, he or she will only recover $300 as wasted expenditure damages.

Reliance loss and impossibility of assessing expectation loss

29.60 In cases where the determination of expectation damages is impossible or too
difficult to ascertain with any certainty, the plaintiff is entitled to recover all of his or her
wasted expenditure. This was the situation in relation to the non-existent oil tanker in McRae
v Commonwealth Disposals Commission.145 Dixon and Fullagar JJ146 observed that it was
impossible to assess damages on an expectation basis, ‘not because what was promised was

143. (1991) 174 CLR 64; 104 ALR 1.

144. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 81, 99, 127, 135, 157, 163;
104 ALR 1 at 10, 24, 44, 50, 66, 71.
145. (1951) 81 CLR 377.
146. McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 414.

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valueless but because it is impossible to value a non-existent thing’. Therefore, McRae was
entitled to the reasonable costs of the salvage mission that had been wasted as a result of CDC’s
breach. This decision raises a difficult question as to the onus of proof in relation to the recovery
of reliance loss in such circumstances — does onus of proof rest with the defendant to prove
that the plaintiff would not have made a profit, or does it rest with the plaintiff to prove that he
or she would have made a profit? In the former situation, if the defendant does not discharge
that onus of proof, the plaintiff is entitled to recover his or her reliance loss. However, in the
latter situation, if the plaintiff does not discharge the onus of proof, he or she cannot recover
reliance loss.
29.61 Differing explanations of the decision in McRae v Commonwealth Disposals
Commission147 were suggested in The Commonwealth of Australia v Amann Aviation Pty Ltd.148
According to Mason CJ, Dawson J,149 and Deane J150 there is a presumption or assumption that
parties, in entering into a contract, will at least recover expenditures incurred in performance
of it and that, therefore, the onus is on the defendant to prove:
• that profits would not have been made, in which case the plaintiff cannot recover any of his
or her wasted expenditure; or
• that the plaintiff should only recover an amount that would partially cover his or her wasted
expenditure, in which case the plaintiff would only recover that amount as damages for
wasted expenditure.
Thus, in McRae v Commonwealth Disposals Commission,151 McRae was able to recover all his
wasted expenditure because CDC was unable to rebut that presumption.
29.62 According to Brennan J in The Commonwealth of Australia v Amann Aviation Pty Ltd,152
the justification for the same onus of proof being put on CDC was the fact that it was CDC’s
breach of the contract itself that made it impossible to assess damages on an expectation basis.
CDC was unable to discharge this onus of proof, as would be the situation in any case where
expectation damages are impossible to assess or too difficult to assess with any certainty.
29.63 Thus, in The Commonwealth of Australia v Amann Aviation Pty Ltd,153 Mason CJ,
Dawson, Deane and Brennan JJ all held that:
• the Australian government, as defendant, had the onus of proof to show that Amann
Aviation would not have made a profit; and
• the Australian government failed to discharge this onus of proof.
This meant that Amann Aviation recovered all its reliance loss.
29.64 On the other hand, the other three judges in The Commonwealth of Australia v Amann
Aviation Pty Ltd,154 held that the onus of proof did not rest with the Australian government as

147. (1951) 84 CLR 377.

148. (1991) 174 CLR 64; 104 ALR 1.
149. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 86; 104 ALR 1 at 12–13.
150. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 126; 104 ALR 1 at 44.
151. (1951) 81 CLR 377.
152. (1991) 174 CLR 64 at 105–7; 104 ALR 1 at 28–30.
153. (1991) 174 CLR 64; 104 ALR 1.
154. (1991) 174 CLR 64; 104 ALR 1.
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the defendant. Toohey J155 and Gaudron J156 held that an assumption may arise to the effect
that a plaintiff such as McRae or Amann Aviation would recover their costs, and that this
would give rise to an evidentiary onus on the defendant to show otherwise. Their Honours
were at pains to note that this did not formally involve imposing the burden of proof on the
defendant, save in this limited and practical sense. If the defendant led no evidence to rebut the
assumption, the plaintiff will recover all his or her reliance loss.
29.65 McHugh J157 took the view that, once a plaintiff establishes that expectation damages
cannot be assessed at all or with any certainty, he or she is entitled to recover his or her wasted
expenditure. This was justified on a ‘broad principle of justice’ that in such circumstances ‘it is
only fair that the defendant should reimburse the plaintiff for expenditure which is wasted as a
result of the breach’. Thus, although these three judges took the view that the onus of proof did
not shift to the defendant in these cases, all of them held that Amann Aviation was nevertheless
able to recover its reliance losses.
29.66 In Lien v Clontarf Residential Pty Ltd,158 Jackson J said the following in relation to the
High Court’s decision:
Amann Aviation159 operates as a partial exception to [the] conventional application of principle.
Where a plaintiff cannot show what the loss of profit on a contract would have been, but the
defendant does not show on the balance of probabilities that the contract would have been
loss making, the plaintiff may be compensated for loss of the bargain by an award of damages
similar in amount to the amount that would restore the plaintiff to the position as if it had
not entered into the contract, on the ground that its expenditures would have been recouped.

29.67 In The Commonwealth of Australia v Amann Aviation Pty Ltd,160 a further issue that had
to be taken into account was the fact that Amann Aviation did not expect to make a profit on
its investment in the three years that the contract were to run. Rather, it expected that its profit
would materialise if the contract was renewed for a further three-year term. Although there
was no obligation on the government to renew the contract, according to Brennan J161 Amann
Aviation had, as the existing operator, a ‘commercial advantage’ that was ‘substantial’. According
to Mason CJ and Dawson J162this meant that Amann Aviation had a ‘strong prospect of renewal’.
Thus, for these three judges, the government’s breach of contract meant that Amann Aviation
lost the chance of making a profit by getting a second contract. Because the government could
not establish that the value of the chance of renewal, when combined with receipts during
the first contract, would have been less than Amann Aviation’s wasted expenditure, Amann
Aviation was, according to these three judges entitled to recover all its wasted expenditure.163

155. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 142–3; 104 ALR 1 at 55–6.
156. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 155–7; 104 ALR 1 at 65–6.
157. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 166; 104 ALR 1 at 73–4.
158. [2019] 1 Qd R 107 at 141. See also PKT Technologies Pty Ltd v Peter Vogel Instruments Pty Ltd (2019) 376
ALR 55 at 83–4.
159. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64; 104 ALR 1.
160. (1991) 174 CLR 64; 104 ALR 1.
161. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 112; 104 ALR 1 at 33.
162. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 94; 104 ALR 1 at 19.
163. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 94, 115; 104 ALR 1
at 19–20, 35–6.

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On the other hand, Gaudron J held that, because the government was unable to establish that
164

the combined total of Amann Aviation’s receipts during the original contract plus the value
of its aircraft at the end of that contract was less than Amann Aviation’s wasted expenditure,
Amann Aviation was entitled to recover all its wasted expenditure. It should be noted that, on
this issue, Deane J and Toohey J proceeded along similar lines to the first three of the majority
judges, but reduced the damages by 20 per cent and 50 per cent respectively to reflect the
percentage chance that the government would not have renewed Amann Aviation’s contract.165
29.68 It should be noted that, had Amann Aviation sought to recover damages for
expectation losses rather than reliance losses, all members of the High Court agreed that such
damages would be reduced to reflect the percentage chance that the government would not
have renewed the contract. A context where this principle may apply is in relation to losses of
income to an employee who is employed on a fixed term contract where there is an expectation
that, upon expiration of the contract, a further fixed term contract will be entered into, but no
further contract is entered into as a result of the employer’s wrongful termination of original
contract of employment.166

Pre-contractual reliance loss

29.69 In appropriate circumstances a plaintiff is able to recover expenditure incurred before
the contract was entered into, but which is wasted as a result of the breach of contract.167
In Anglia Television Ltd v Reed,168 Robert Reed, an American actor, contracted with Anglia
Television to play the lead role in a television play entitled ‘The Man in the Wood’. Prior to
engaging Reed’s services, Anglia Television had incurred pre-production expenses for the play
in the form of costs relating to the services of a director, designer, and stage manager. Further
production costs were incurred after Reed contracted to play the lead role. Shortly before the
play was to be produced Reed repudiated his contract as his agent had booked him to perform
in another play. Anglia Television was unable to get a replacement actor at such short notice
and the play’s production was abandoned. The English Court of Appeal held Reed liable for
both the pre- and post-contractual expenditure that it had incurred, but which was now wasted
because of Reed’s breach. As to the pre-contractual wasted expenditure, Lord Denning MR169
observed that it was recoverable because Reed must have known that such expenditure had
been incurred and that it was reasonably contemplated by the parties at the time of contract
that, if Reed repudiated his contract, it would be wasted. It should be noted that the wasted
expenditure was recovered because, as in McRae v Commonwealth Disposals Commission,170
it was impossible to assess damages on an expectation basis.171

164. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 157; 104 ALR 1 at 67.
165. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 131–2, 147; 104 ALR 1
at 47–8, 59.
166. Ramsey v Annesley College [2013] SASC 72 at [390]–[403].
167. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 156, 163; 104 ALR 1
at 66, 71.
168. [1972] 1 QB 60; [1971] 3 All ER 690.
169. Anglia Television Ltd v Reed [1972] 1 QB 60 at 63–4; [1971] 3 All ER 690 at 692.
170. (1951) 81 CLR 377.
171. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 86; 104 ALR 1 at 13–14.

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Recovery of reliance loss and other types of loss

29.70 With respect to the recovery of damages for both expectation loss and reliance loss, in
Anglia Television Ltd v Reed,172 Lord Denning MR suggested that a plaintiff could not recover
both types of loss and had to elect which loss he or she would pursue. Lord Denning MR’s
underlying concern was to prevent a double recovery, which would breach the principle that a
plaintiff cannot be put into a better position as a result of a damages award than he or she would
have been had the contract been performed rather than breached. The notion of the plaintiff
having to make an election between expectation damages and reliance damages was rejected by
the High Court in The Commonwealth of Australia v Amann Aviation Pty Ltd,173 where it was
pointed out that the two types of loss were simply different manifestations of the compensation
principle enunciated in Robinson v Harman.174
29.71 Much of the confusion on this point stems from the meaning of ‘profit’ in the context
of expectation damages. If the plaintiff ’s profit is viewed in terms of ‘net profit’ — that is, gross
receipts pursuant to the contract less expenditure incurred — then a plaintiff is entitled to
recover both expectation loss and reliance loss damages.175 Willmott, Christensen, Butler, and
Dixon176 provide the following simple example:
[I]n the case of a building contract where a building contractor has finished half a building
for which the contract price is $200,000, expenditure is $60,000 and the cost of completion
is $90,000, provided the builder terminates for the breach of the other party, the builder may
claim two types of damage:

• expenditure actually made in performing or preparing to perform ($60,000); and

• the profit that he would have made on the whole contract ($50,000). (This is the net
profit after deduction of the expenditure necessary to complete the contract from the
purchase price: $200,000 minus $150,000).

29.72 In this example the formulation for the calculation of damages is a combination
of reliance damages and expectation damages. On the other hand, according to the view
of McHugh J in The Commonwealth of Australia v Amann Aviation Pty Ltd,177 the builder’s
damages are ‘the difference between the [contract price of $200,000] and the expenditure
[of $90,000] which the [builder] would have incurred in performing its future obligations’.
According to McHugh J’s formulation, ‘[t]he [$60,000] already expended or incurred is
irrelevant’. Irrespective of the formulation used for calculating the builder’s damages, the result
is the same. Damages will be assessed at $110,000. More importantly, this assessment accords
with the compensation principle set out in Robinson v Harman,178 in that the builder is put in
the position it would have been had the contract been performed by the other party.

172. [1972] 1 QB 60 at 63–4; [1971] 3 All ER 690 at 692.

173. (1991) 174 CLR 64 at 84–5, 136–7, 155, 162–3; 104 ALR 1 at 12–13, 51–2, 65, 70–1.
174. (1848) 154 ER 363.
175. T C Industrial Plant Pty Ltd v Robert’s Queensland (1963) 180 CLR 130 at 141.
176. L Willmott, S Christensen, D Butler, and B Dixon, Contract Law, 5th ed, Oxford University Press,
Melbourne, 2018, p 848.
177. (1991) 174 CLR 64 at 162; 104 ALR 1 at 70.
178. (1848) 154 ER 363.

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The restitution interest

29.73 The restitution interest refers to the value of any benefits that the plaintiff has conferred
on the defendant as a result of performance, in whole or in part, of the contract. The most
common example of such a benefit is the price, or part of the price, paid by the plaintiff. Thus,
in McRae v Commonwealth Disposals Commission,179 McRae recovered, as part of his damages
claim, the sum of £285 that he had paid to CDC as the purchase price for the sunken tanker.
29.74 In more recent times claims for recovery of the value of benefits conferred upon
a defendant pursuant to a contract have been based upon the law of restitution and not in
damages for breach of contract. Thus, in Foran v Wight,180 purchasers of land, who had validly
terminated a contract for a breach committed by the vendors, recovered the deposit paid by
way of restitution for unjust enrichment. Indeed, following Baltic Shipping Co v Dillon,181 it
appears that recovery of restitution loss must proceed under the law of restitution, rather than
a claim for damages for breach of contract.
29.75 The High Court decision in Baltic Shipping Co v Dillon182 is important in that it clarifies
the availability of remedies in the context of a claim that includes both restitution loss and
expectation loss. In that case, in addition to damages for non-economic loss,183 Mrs Dillon also
sought recovery of the fare she had paid for the holiday cruise. The High Court, in rejecting
this part of her claim, observed that recovery of the fare was possible on one of two bases.
Mason CJ184 described the first basis — a claim based in the law of restitution — as follows:
When … an innocent party seeks to recover money paid in advance under a contract in
expectation of the entire performance by the contract-breaker of its obligations under
the contract and the contract-breaker 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.

Mason CJ185 then described the second basis as follows:

An alternative basis for the recovery of money paid in advance pursuant to a contract in
expectation of the receipt of the consideration to be provided by the defendant may arise
when the defendant’s right to retain the payment is conditional upon performance of his
or her obligations under the contract. … In this class of case the plaintiff may be entitled to
recover so long as the payment remains conditional.

179. (1951) 81 CLR 377.

180. (1989) 168 CLR 385; 88 ALR 413.
181. (1993) 176 CLR 344 at 350, 375, 389; 111 ALR 289 at 293, 312, 324.
182. (1993) 176 CLR 344; 111 ALR 289.
183. See Chapter 38.
184. Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 350; 111 ALR 289 at 293. In Fibrosa Spolka Akcyjna
v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 48; [1942] 2 All ER 122 at 129, Viscount Simon LC
said ‘when one is considering the law of failure of consideration it is, generally speaking, not the promise
which is referred to as the consideration, but the performance of the promise’.
185. Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 351; 111 ALR 289 at 294.

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29.76 As a matter of construction of the contract, the High Court held that Mrs Dillon’s
claim did not fall into the second basis for recovery and that her claim in restitution failed on
the ground that there had not been a total failure of consideration. By this the court meant that
Mrs Dillon had received, albeit only in part, benefits that she had been promised. Deane and
Dawson JJ186 said:
If all that Mrs Dillon had relevantly received had been Baltic’s bare promise, unperformed
and unenforced, the consideration for the whole of the fare would have wholly failed. In fact,
however, Baltic provided and Mrs Dillon accepted the accommodation, the sustenance, the
entertainment and the transport involved in the first eight clear days of the fourteen-day
cruise.

McHugh J,187 in rejecting Mrs Dillon’s claim to recovery of the fare, said that ‘once Baltic
[Shipping] began to provide the promised benefits to Mrs Dillon, the right of that company
to retain the fare became unconditional’. It followed that Mrs Dillon’s claim thereafter was
confined to damages for breach of contract in relation to her expectation loss.
29.77 The result in this case on this point is somewhat harsh in that, even though all of the
enjoyment expected had not been received by Mrs Dillon, none of the fare that she had paid
was recoverable. Can such a result be justified where the price or fare paid by a customer is very
expensive, such as for a long holiday on a luxury cruise ship or, in the future, trips into space?
Can the large sums paid for such travel deserve to be retained by the travel operator upon mere
commencement of enjoyment of the travel by the customer?
29.78 On the basis of the principles set out in Baltic Shipping Co v Dillon188 there is nothing
to prevent a plaintiff recovering restitution loss as well as expectation loss or reliance loss in
the appropriate case. Such cumulative claims are, however, subject to the principle that double
recovery cannot be allowed. For example, if X pays a deposit of $10,000 to Y in relation to
a contract for the sale of land and Y subsequently repudiates the contract, X can recover
expectation damages in relation to any loss of profit on the contract as well as the deposit in the
form of restitution loss.189 The recovery of the deposit is permitted because Y’s ‘title to retain
the money has been considered not to be absolute but conditional upon subsequent completion
of the contract’.190

The indemnity interest

29.79 The indemnity interest refers to losses, usually, but not always, in the form of
expenditure of money, incurred by a plaintiff as a result of the defendant’s breach. Indemnity
losses can be recovered in addition to other types of loss. Thus, in SS Ardennes (Cargo Owners)
v SS Ardennes (Owners)191 exporters of mandarins shipped them for sale to London. The cargo
ship deviated in its voyage and was late in docking in London. During the period of delay,
import duties on mandarins had increased and prices had fallen due to the arrival of other

186. Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 377; 111 ALR 289 at 314.
187. Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 393; 111 ALR 289 at 326.
188. (1993) 176 CLR 344; 111 ALR 289.
189. Re Daniel [1917] 2 Ch 405.
190. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477.
191. [1951] 1 KB 55.

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cargoes of mandarins. The exporters were able to recover the increased duty that had to be
paid as indemnity loss, as well as the loss of profits due to the fall in prices as expectation loss.
29.80 Indemnity losses arise in a variety of circumstances. If a plaintiff, as a result of the
defendant’s breach, incurs a liability to a third party, the plaintiff can, subject to satisfying the
principle of remoteness, recover as damages the amount by which the plaintiff is liable to the
third party.192 Another situation relates to damages for personal injuries incurred by the plaintiff
as the result of the defendant’s breach of contract. In Grant v Australian Knitting Mills Ltd,193 Grant
purchased woollen underwear that contained a chemical substance that led to him contracting
dermatitis. He successfully sued the retailer and manufacturer for damages for breach of contract.
29.81 In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd,194 the High Court held that
in cases involving the supply of defective goods, the prima facie measure of damages is the
difference in value between the goods as contracted for and the goods actually supplied, and
then said:
[S]uch a measure of damages seeks only to reflect the financial consequences of a notional
transaction whereby the buyer sells the defective goods on the market and purchases the
contract goods. The buyer is thus placed in the ‘same situation … as if the contract had
been performed’, with the loss being the difference in market value. However, in cases
where the contract is not for the sale of marketable commodities, selling the defective item
and purchasing an item corresponding with the contract is not possible. In such cases,
diminution in value damages will not restore the innocent party to the ‘same situation … as
if the contract had been performed’.

29.82 In cases concerning contracts to build or to do repair work, breaches by the person
contracted to do the building or repair work will usually result in the plaintiff recovering
the costs incurred in remedying the defective work, provided that that it is both reasonable
and necessary to have the remedial work done.195 Such damages are often referred to as
‘reinstatement costs’ or ‘costs of restoration’. In Stone v Chappel196 Kourakis CJ explained the
justification for this principle as follows:
The rule that rectification costs will generally be awarded (the primary rule) reflects the
importance attached by the common law to contract as an instrument of economic exchange.
The premise of the law of contract is that everyone is free to contract as they see fit in their
self-interest. The law of contract authorises, subject to limited exceptions, the parties to
voluntarily bind themselves to a special charter of rights and obligations to govern their
economic relationship in addition to, or in derogation of, the general law. The common
law of contract is a manifestation of the community consensus in free market economies
that freedom of contract benefits the particular parties to the contract and the public by
advancing economic growth generally. The measure of damages which places the injured

192. Hammond & Co v Bussey (1887) 20 QBD 79.

193. [1936] AC 85.
194. (2009) 236 CLR 272 at 286; 253 ALR 1 at 6.
195. Bellgrove v Eldridge (1954) 90 CLR 613 at 618; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236
CLR 272 at 288–9; 253 ALR 1 at 7–8; Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd
(2017) 94 NSWLR 108 at 149.
196. (2017) 128 SASR 165 at 171.

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party back in the same position, as if the consideration for which he or she had stipulated was
performed, is necessary to fulfil the underlying objective of the law of contract.

29.83 However, where it is unreasonable or unnecessary for the plaintiff to recover such
damages, an alternative method of assessment is employed and the plaintiff recovers an
amount based upon the difference between the value of the property as a result of the breach
and the value of the property had the work been done as stipulated in the contract. On the issue
of unreasonableness, in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd,197 the High Court
observed that ‘the test of “unreasonableness” is only to be satisfied by fairly exceptional
circumstances’. This strict test reinforces ‘the primacy that the law of contract affords to the
interest that a plaintiff has in the performance of their contract’.198 In Scott Carver Pty Ltd v SAS
Trustee Corporation,199 Ipp JA put it that it would be unreasonable to recover reinstatement
costs where ‘the cost of remedying the defect is out of all proportion to the achievement of the
contractual objective’.
29.84 On the issue of whether the recovery of reinstatement costs is reasonable, in Stone
v Chappel200 Kourakis CJ said the following:
Rectification damages are awarded for a breach of a building contract unless there is good
reason to adopt another measure because the award of rectification damages would be
manifestly disproportionate to the attaining of the contractual benefit. ... In determining
whether good reason exists, the authorities suggest that the following are relevant
considerations:

(1) the degree of departure from the contractual stipulation;

(2) the adverse effect of the departure on the functional utility, amenity and aesthetic
appearance of the building;
(3) the reasons, objectively ascertained and commonly known, for which the innocent
party made the stipulation which was breached;
(4) the practical feasibility of rectifying the work, including the effects on third parties of
attempting to do so;
(5) whether or not the innocent party intends to carry out the rectification work;
(6) the absolute cost of the rectification work and the disproportion between that cost
and
• the value of the building and contract price;
• the diminution in commercial value of the building;
• the effect of the departure on the functional utility, amenity and aesthetic
appearance of the building;
(7) the nature of the wrongdoer’s fault for the defect; and
(8) the public interest in reducing economic waste.

197. (2009) 236 CLR 272 at 288; 253 ALR 1 at 8.

198. Sunlight Nominees Pty Ltd v Zotti & Zotti [2017] SASC 176 at [97].
199. [2005] NSWCA 42 at [20]. See also South Parklands Hockey and Tennis Centre Inc v Brown Faulkiner Group
Pty Ltd [2004] SASC 81 at [90]; Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361
at [89]; Wheeler v Ecroplot [2010] NSWCA 61 at [81]; Ellis’s Town House Pty Ltd v Botan Pty Ltd [2017]
NSWCA 20 at [42].
200. (2017) 128 SASR 165 at 182.

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29.85 In Bellgrove v Eldridge, Bellgrove built a two-storey villa for Eldridge. However, the
201

building work was defective in relation to the concrete foundations and the mortar used to cement
the brick walls. The High Court held that Bellgrove was liable to Eldridge for the cost of demolishing
the building and re-building the villa in accordance with the specifications in the contract. The
High Court said202 that recovery of this cost met the requirements of being both ‘necessary’ and
‘a reasonable course to adopt’. In assessing whether reinstatement costs are reasonable, personal
preferences of a subjective nature are not irrelevant. In this respect the High Court203 observed
that, where a builder painted a building in the wrong colour, it would be reasonable to hold the
builder liable for the costs of repainting. In Willshee v Westcourt Ltd,204 a builder contracted to build
a house for Willshee with external walls to be built using high quality limestone. The builder used
poor quality materials for the external walls. Murray CJ205 noted that it was not unreasonable for
Willshee to recover as damages a sum that reflected the cost of ‘demolishing the existing external
wall and replacing it with limestone which was all of high quality’.
29.86 In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd,206 a landlord was entitled to
recover the costs of restoring the foyer in leased commercial premises that had been altered
by the tenant in breach of a term of the lease that required the landlord’s consent to any such
alteration. In coming to its decision, the High Court207 said:
[T]he landlord was contractually entitled to the preservation of the premises without
alterations not consented to; its measure of damages is the loss sustained by the failure of the
tenant to perform that obligation; and that loss is the cost of restoring the premises to the
condition in which they would have been if the obligation had not been breached.

29.87 Damages of the kind recovered in Bellgrove v Eldridge208 and Tabcorp Holdings Ltd
v Bowen Investments Pty Ltd209 can usually be recovered even where the building has been sold
without the rectification having been performed, provided that it would be reasonable for the
remedial work to be done.210 This approach is justified on the basis that the sale price of the
building is reduced because of the unrectified defective work. However, as was pointed out by
Hodgson JA in Scott Carver Pty Ltd v SAS Trustee Corporation,211 reinstatement costs may not
be recovered if it is established ‘that the price received on a sale was unaffected by the defects,
or that it was reduced by an amount less than the cost of rectification’.
29.88 By way of contrast, in Ruxley Electronics and Constructions Ltd v Forsyth,212 the award
of damages did not include reinstatement costs. In that case Forsyth contracted with Ruxley

201. (1954) 90 CLR 613.

202. Bellgrove v Eldridge (1954) 90 CLR 613 at 618.
203. Bellgrove v Eldridge (1954) 90 CLR 613 at 617.
204. [2009] WASCA 87.
205. Willshee v Westcourt Ltd [2009] WASCA 87 at [63].
206. (2009) 236 CLR 272; 253 ALR 1.
207. Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at 287; 253 ALR 1 at 7.
208. (1954) 90 CLR 613.
209. (2009) 236 CLR 272; 253 ALR 1.
210. De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28.
211. [2005] NSWCA 42 at [47]. See also Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd
(2017) 94 NSWLR 108 at 149.
212. [1996] AC 344; [1995] 3 All ER 268.

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for the construction of a swimming pool. Ruxley built a pool that was nine inches shallower
than it should have been. The shallower pool had no effect on the value of Forsyth’s property
and did not mean that it could not be used as originally intended. Forsyth claimed that he was
entitled to recover, as damages, the sum of £21,560, being the cost of rebuilding the pool to its
contractual specifications. The House of Lords refused the claim, but did award him £2500 as
damages for loss of amenity. In relation to the reinstatement costs claim, the House of Lords
said that it was unreasonable. Lord Mustill213 said:
[T]he test of reasonableness plays a central part in determining the basis of recovery, and
will indeed be decisive in a case such as the present when the cost of reinstatement would be
wholly disproportionate to the non-monetary loss suffered by [Forysth].

29.89 In relation to recovery of reinstatement costs, a question that arises is whether damages
on that basis can be recovered if the plaintiff does not intend to apply the money recovered to
having the relevant repair work done. In Bellgrove v Eldridge,214 the High Court stated that
the plaintiff ’s intention on this matter was ‘quite immaterial’ in relation to the assessment
of the quantum of damages. Once it is determined that the recovery of reinstatement costs
is reasonable, what a plaintiff intends to do with the money recovered is not relevant — a
plaintiff has no obligation to spend the money on remedying the particular loss for which it
was awarded. However, a plaintiff ’s intention in this respect may be relevant on the issue of
whether it is reasonable to allow the recovery of reinstatement costs. For example, in Cordon
Investments Pty Ltd v Lesdor Properties Pty Ltd,215 the evidence established that the plaintiff did
not intend to carry out the rectification work and that the defective work did not affect the use
or occupation of the building. On this basis the court held that it would be unreasonable to
award damages in an amount that reflected the costs of rectification.

Betterment
29.90 We have already noted that the objective of damages is to compensate the plaintiff for
losses suffered as a result of the breach of contract. Betterment is a tool used to achieve that
objective where the breach of contract forces the plaintiff to replace property with something
of greater value.216 For example, reinstatement costs may result in a damaged building being
replaced by a better building. In relation to such cases of betterment, in Roberts v Rodier,217
Campbell J said:
If the only practical way in which the plaintiff can be compensated for damage to an item is
by providing the plaintiff with the price of acquiring an item which is better than the item
which was damaged, it can sometimes be appropriate to allow the plaintiff the full value of
that better item: Whether that course is adopted in a particular case depends upon the facts

213. Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344 at 361; [1995] 3 All ER 268 at 277.
214. (1954) 90 CLR 613 at 620.
215. [2012] NSWCA 184 at [229]–[230]. But see Bruce v IAG New Zealand Ltd [2019] NZCA 590 at [17]
where the Court of Appeal held that a plaintiff ‘must genuinely intend to spend the award to protect [the]
performance interest’, or else the award of reinstatement costs would be unreasonable.
216. Invercargill City Council v Sutherland Indoor Leisure Centre Charitable Trust [2017] 2 NZLR 650 at 687;
Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd (2017) 94 NSWLR 108 at 150–1.
217. [2006] NSWSC 282 at [143]. See also Tzaneros Investments Pty Ltd v Walker Group Constructions Pty Ltd
[2016] NSWSC 50 at [133]–[137].

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of that case, and how best to apply, in light of those particular facts, the fundamental principle
that the objective of damages is to put the plaintiff in the same position as he or she would
have been if the [contract had been performed]. Once the plaintiff has discharged the onus
of proving an amount which will remedy his or her damage, the onus of adducing evidence is
on the defendant to prove both the presence of any betterment, and also its quantum.

29.91 In essence, in assessing the measure of damages a court should consider betterment if
the following three elements are satisfied:
• The property that has been reinstated or repaired has been improved.
• The improvement results in a real benefit to the plaintiff.
• The plaintiff ’s financial position is improved as a result.

29.92 In Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd218 a factory was destroyed
by fire and replaced by a new and more efficient one. In rejecting a reduction in the measure of
damages on account of betterment, Lord Denning MR219 said:
The destruction of a building is different from the destruction of a chattel. If a second-hand car
is destroyed, the owner only gets its value; because he can go into the market and get another
second-hand car to replace it. He cannot charge the other party with the cost of replacing it
with a new car. But when this mill was destroyed, the plasticine company had no choice. They
were bound to replace it as soon as they could, not only to keep their business going, but also
to mitigate the loss of profit (for which they would be able to charge the defendants). They
replaced it in the only possible way, without adding any extras. I think they should be allowed
the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer
can diminish the claim on that account. If they had added extra accommodation or made
extra improvements, they would have to give credit. But this is not this case.

CAUSATION
29.93 The recovery of damages for breach of contract requires a causal connection between
the breach and the loss suffered. The principles of causation are the same for contract law
and tort law. For philosophers and scientists, causation is seen as the sum of conditions that
together produce an event. This is not the approach of the common law.220 Rather than looking
at all the factors that lead to a breach of contract, the focus is on whether the breach contributes
to the loss suffered. The breach need not be the sole contributing factor.221 The onus of proof
in establishing causation is generally on the plaintiff. Thus, in Hunt & Hunt v Mitchell Morgan
Nominees Pty Ltd222 French CJ, Hayne, and Kiefel JJ said:

218. [1970] 1 QB 447; [1970] 1 All ER 225.

219. Harbutt’s Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 at 468; [1970] 1 All ER 225 at 236.
220. Timbu Kolian v The Queen (1968) 119 CLR 47 at 68–9; March v E & M H Stramare Pty Ltd (1991) 171 CLR
506 at 509; 99 ALR 423 at 425.
221. Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 350; Trampoline Enterprises Pty Ltd
v Fresh Retailing Pty Ltd [2019] VSCA 74 at [86].
222. (2012) 247 CLR 613 at 634–5; 296 ALR 3 at 15. See also Tabet v Gett (2010) 240 CLR 537 at 578; 265 ALR
227 at 254–5.

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Causation is largely a question of fact, to be approached by applying common sense to the

facts of the particular case. This is not to deny that value judgments and policy have a part to
play in causation analysis at common law. … [C]ourts are no longer as constrained as they
once were to find a single cause for a consequence and to adopt an ‘effective cause’ formula.
Courts today usually recognise that there may be wrongdoers whose acts or omissions occur
successively, rather than simultaneously, and who may be liable for the same damage, even
though one may be liable for only part of the damage for which the other is liable. The law’s
recognition that concurrent and successive tortious acts may each be a cause of a plaintiff ’s
loss or damage is reflected in the proposition that a plaintiff must establish that his or her
loss or damage is ‘caused or materially contributed to’ by a defendant’s wrongful conduct.
It is enough for liability that a wrongdoer’s conduct be one cause. The relevant inquiry is
whether the particular contravention was a cause, in the sense that it materially contributed
to the loss. Material contribution has been said to require only that the act or omission of a
wrongdoer play some part in contributing to the loss.

The ‘but for’ test

29.94 In establishing causation the traditional test is the ‘but for’ test. This test requires
a court to be satisfied that the loss would not have occurred but for the breach of contract.
It follows that the issue of causation is thus a question of fact, not law.223 However, the ‘but
for’ test has its problems. For example, it is inadequate in situations where two independent
events occur, each of which is sufficient on its own to cause the loss. Accordingly, courts have
recognised that the ‘but for’ test is only a guide and that the ultimate question is whether the
breach of contract should be regarded as the cause of the loss ‘as a matter of ordinary common
sense and experience’.224
29.95 Few cases exist in which the plaintiff failed to establish the traditional test for
causation. One such case is Alexander v Cambridge Credit Corporation Ltd.225 In that case the
liquidator of Cambridge Credit sued the company’s auditor in relation to the auditor’s failure
to qualify the company’s balance sheet for the financial year 1970–71. The auditor’s breach was
failing to note certain failed investments by the company. Had this breach not occurred the
company would have gone into immediate receivership. Three years later the company went
into receivership. The auditor’s reports during these three years repeated the breach made for
the 1970–71 financial year. The company’s liquidator, relying only on the initial breach by the
auditor, sought damages for the losses suffered by the company in those three years, which
totalled $145 million. A majority of the New South Wales Court of Appeal, in overturning the
decision at first instance, held that the auditor’s breach did not cause the loss. Although a literal
application of the ‘but for’ test was satisfied, in that but for the auditor’s breach the company
would not have continued to trade for the next three years and thus would not have suffered
losses during that period, this was not the approach adopted by the court’s majority judges.

223. March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 515; 99 ALR 423 at 429.
224. March v E & M H Stramare Pty Ltd (1991) 171 CLR 506 at 522; 99 ALR 423 at 435. See also Hunt & Hunt
v Mitchell Morgan Nominees Pty Ltd (2012) 247 CLR 613 at 637; 296 ALR 3 at 17. For a critical evaluation
of this approach to causation see J Edelman, ‘Unnecessary Causation’ (2015) 89 Australian Law Journal 20.
225. (1987) 9 NSWLR 310.

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29.96 McHugh JA, although adopting it, applied the ‘but for’ test only as a guide. His Honour226
said:
In the proved circumstances of this case, I do not think that the issue of the certificates by the
auditors constituted a cause of Cambridge’s loss. … The existence of a company … cannot
be a cause of its trading losses or profits. Yet that is what the case for Cambridge comes to.
Except in the sense that the issue of the certificates induced the trustee not to take action
against Cambridge and thereby permitted Cambridge to exist as a trader, the issuing of the
certificates was not one of the conditions which were jointly necessary to produce the loss.
… To assert in these circumstances that the issue of the certificates was a cause of the loss
in my opinion is to depart from the common sense notion of causation which the common
law champions.

Intervening events
29.97 Even if there is a causal connection between the breach of contract and loss suffered by
the plaintiff, a subsequent intervening event that contributes to the loss may break the causal
connection. Such an intervening event, often referred to as a novus actus interveniens, could be
an act of the plaintiff, an extraneous event, or an act of a third party. If the intervening event
breaks the causal connection, the plaintiff will be confined to recovering only nominal damages
against the defendant. Whether the intervening event does break the causal connection is
determined as a matter of common sense.227
29.98 In relation to situations where it is alleged that a plaintiff ’s conduct is alleged to
constitute an intervening event, in Stacey v Autosleeper Group Ltd228 the Court of Appeal said:
To break the chain of causation, the intervening conduct of the claimant must be of such
impact that it obliterates the wrongdoing of the claimant in the sense that the claimant’s
conduct must be the true cause of the loss rather than the conduct of the defendant.
That is because, where the defendant’s conduct remains an effective cause of the loss,
at least ordinarily the chain of causation will not be broken. … The claimant’s state of
knowledge at the time of and following the defendant’s breach is likely to be a factor of
great significance. … The question of whether there has been a break in the chain is fact
sensitive. In a given case the determination of whether the chain of causation is broken may
involve the cumulative effect of a number of factors which have the effect of removing the
wrongdoing sued on as a cause.

29.99 In relation to the extent to which a plaintiff ’s knowledge of the breach of contract
impacts on whether his or her conduct constitutes an intervening event, in County Ltd
v Girozentrale Securities229 Hobhouse LJ said:
Where a plaintiff does not know of a defendant’s breach of contract and where he is entitled to
rely upon the defendant having performed his contract, it will only be in the most exceptional
circumstances that conduct of the plaintiff suffices to break the causal relationship between

226. Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 359.
227. Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6–7; 127 ALR 180 at 183.
228. [2014] EWCA Civ 1551 at [14].
229. [1996] 3 All ER 834 at 857.

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the defendant’s breach and the plaintiff ’s loss. … Conduct which is undertaken without an
appreciation of the existence of the earlier causal factor will normally only suffice to break
the causal relationship if the conduct was reckless. It is the character of reckless conduct that
it makes the actual state of knowledge of that party immaterial.

29.100 A case in which a plaintiff ’s conduct constituted an intervening event is Lexmead

(Basingstoke) Ltd v Lewis.230 In that case Lewis purchased a towing hitch from Lexmead. It was
to be used to join his Land Rover to a trailer. The towing hitch was faulty. As a result, the trailer
became detached from the vehicle, causing personal injuries to members of the Lambert family.
Lewis, who was liable for damages to the Lamberts, sought to be indemnified for the damages
by Lexmead on the basis that Lexmead had breached its contract of sale with Lewis in selling
a faulty towing hitch and that this breach was the cause of the losses suffered by Lewis in the
form of his liability to the Lamberts. The House of Lords, however, ruled against Lewis on the
ground that, after the purchase of the towing hitch, he became aware that the towing hitch
was faulty, but continued to use it. His continued use of the faulty towing hitch constituted
an intervening event that broke the causal connection between Lexmead’s breach and the loss
suffered by Lewis. By way of contrast, in Rolfe v Katunga Lucerne Mill Pty Ltd,231 the purchaser
of contaminated horse feed was aware of rumours that the feed was defective and continued
to use the feed. The supplier’s argument that such conduct amounted to an intervening act
was rejected by the New South Wales Court of Appeal. Santow JA232 said that, in Lexmead
(Basingstoke) v Lewis,233 Lewis possessed ‘a degree of knowledge of the defect not found in any
analogous sense in the present circumstances. Knowledge of mere rumour falling short of clear
knowledge could not suffice to break the chain of causation.’
29.101 In Alexander v Cambridge Credit Corporation Ltd,234 McHugh JA said that even if
he was wrong on the question of whether there was a causal connection between the auditor’s
breach and the losses suffered by Cambridge Credit, the auditor’s breach was so ‘superseded
in potency by supervening events as not to rank as a cause either in common sense or law’.
The supervening events were significant changes in government monetary policy, inflationary
pressures, and a boom in housing prices.

THE PLAINTIFF’S NEGLIGENCE

29.102 In some cases a plaintiff ’s careless act or omission (negligence) may impact on the
measure of damages for breach of contract that he or she can recover from the defendant. Such
negligence may impact on a plaintiff ’s damages claim in one of two ways. The first possibility is
that a plaintiff ’s negligence can, as is illustrated by Lexmead (Basingstoke) v Lewis,235 constitute
an intervening act that breaks the causal connection between a defendant’s breach and a
plaintiff ’s loss.

230. [1982] AC 225.

231. [2005] NSWCA 252.
232. Rolfe v Katunga Lucerne Mill Pty Ltd [2005] NSWCA 252 at [105].
233. [1982] AC 225.
234. (1987) 9 NSWLR 310 at 363.
235. [1982] AC 225.

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29.103 The second way in which a plaintiff ’s negligence can impact on his or her claim for
damages is pursuant to the principle of contributory negligence. The expression ‘contributory
negligence’ refers to some carelessness on the part of a plaintiff that contributes to the loss for
which he or she seeks compensation in the form of damages. In the tort of negligence at common
law, contributory negligence is a complete defence to liability in the tort of negligence. However,
this common law position has been modified by apportionment legislation that permits the
court to reduce the damages recoverable by a plaintiff by an amount that reflects the level of the
plaintiff ’s responsibility for his or her loss or damage.236
29.104 On the other hand, as was determined in Astley v Austrust Ltd,237 at common law
the principle of contributory negligence has no relevance in a claim for damages for breach
of contract, unless there is a term of the contract that stipulates the impact of contributory
negligence on the measure of damages that can be recovered by the plaintiff. However, the
principle enunciated in Astley v Austrust Ltd238 has been partially overturned by statute.239 The
effect of this legislation is to permit such reductions in the damages awarded to a plaintiff where
he or she has concurrent claims for breach of contract and the tort of negligence irrespective
of which cause of action is the plaintiff pursues. However, in relation to the relevant legislation
in South Australia, in Westpac Banking Corporation v Haynes240 Nicholson J was of the view
that it was ‘clear that the potential for contributory negligence to apply where there has been a
breach of a contractual duty of care arises even if that contractual duty is not concurrent with
a tortious duty of care’.

REMOTENESS
29.105 Even if loss is caused by the breach of contract, the principle on remoteness ‘marks out
the limits of the heads of damage for which the plaintiff is entitled to receive compensation’.241 It
is recognised that the rationale for this principle is not based upon ‘pure logic’, but rather upon
‘practical reasons’.242 The consequence of the principle is that improbable or unpredictable
losses are seen as too remote and will not be compensated for by an order for damages. In
Archibald v Powlett,243 McLeish JA set out the essence of the principle of remoteness as follows:
This test of remoteness has been expounded as presenting the question whether, on the
information available to the defendant when the contract was made, the defendant should,

236. Civil Law (Wrongs) Act 2002 (ACT); Law Reform (Miscellaneous Provisions) Act 1965 (NSW); Law
Reform (Miscellaneous Provisions) Act 1956 (NT); Law Reform Act 1995 (Qld); Law Reform (Contributory
Negligence and Apportionment of Liability) Act 2001 (SA); Wrongs Act 1954 (Tas); Wrongs Act 1958 (Vic);
Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA).
237. (1999) 197 CLR 1; 161 ALR 155.
238. (1999) 197 CLR 1; 161 ALR 155.
239. Civil Law (Wrongs) Act 2002 (ACT) ss 101–102; Law Reform (Miscellaneous Provisions) Act 1965 (NSW)
ss 8–9; Law Reform (Miscellaneous Provisions) Act 1956 (NT) ss 15–16; Law Reform Act 1995 (Qld)
ss 5, 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) ss 4, 7;
Wrongs Act 1954 (Tas) ss 2, 4; Wrongs Act 1958 (Vic) ss 25–26; Law Reform (Contributory Negligence and
Tortfeasors’ Contribution) Act 1947 (WA) ss 3A–4.
240. [2017] SASC 23 at [265].
241. European Bank Ltd v Evans (2010) 240 CLR 432 at 438; 264 ALR 1 at 4.
242. Liebosch Dredger v SS Edison [1933] AC 449 at 460.
243. (2017) 53 VR 645 at 663.
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or a reasonable person in the defendant’s position would, have realised that such loss was
sufficiently likely to result from the breach of the 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 the
defendant’s contemplation.

29.106 The fons et origo (source) of the principles on remoteness for breach of contract
is the Hadley v Baxendale.244 In that case the Hadleys owned a flour mill in Gloucester. The
mill’s crankshaft broke and the Hadleys contracted with Baxendale and his partner, trading as
common carriers under the name of Pickford & Co, for the broken crankshaft to be transported
to Greenwich, where it would be used as a model for a new crankshaft to be produced by Joyce.
In breach of contract Pickford & Co was late in delivering the broken crankshaft to Joyce.
Delivery of the new crankshaft was thus delayed for five days, with the Hadleys suffering losses
of profits from not being able to operate their flour mill for those five days. The Hadleys sued
Baxendale and his partner for the lost profits, but failed on the grounds that the loss of profits
was too remote from the breach of contract. Alderson B245 set out the principle of remoteness
as follows:
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, ie, 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.

29.107 What Alderson B said in Hadley v Baxendale246 is a single principle whose application
will depend upon the degree of relevant knowledge possessed by a defendant.247 Under the
first limb of the principle, a plaintiff can recover damages for losses that arise from the breach
of contract itself. Under the second limb of the principle, damages are recoverable for losses
that do not fall within the first limb, but that arise from special circumstances known to the
defendant at the time the contract was entered into.
29.108 In Hadley v Baxendale,248 the loss of profits did not come within either of the two
limbs. In relation to the first limb, the court held that it was commonly understood that
when millers broke crankshafts they would have spare shafts so that their mills would not
stop operating. This meant that the Hadleys could not recover their lost profits under the first
limb because such losses did not arise ‘according to the usual course of things’. In relation to
the second limb, the court held that, because the Hadleys did not advise the carrier that their
mill could not operate until the replacement crankshaft arrived, the loss of profits was not
reasonably within the contemplation of the parties at the time the contract was entered into.

244. (1854) 156 ER 145.

245. Hadley v Baxendale (1854) 156 ER 145 at 151.
246. (1854) 156 ER 145.
247. The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 92; 104 ALR 1 at 18;
Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61 at 82; [2008] 4 All ER 159 at 181.
248. (1854) 156 ER 145.

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29.109 There are a number of matters in relation to the principle in Hadley v Baxendale249
that need further analysis. First, there is the degree of knowledge of the parties that is required.
Second, there is the degree of likelihood of loss resulting from the breach. Third, there is the
question of the extent of the loss suffered. Following recent developments in England, it appears
that there is a fourth matter that needs to be considered, namely, an analysis of the contractual
assumptions in relation to the scope of liability.

Degree of knowledge
The first limb of Hadley v Baxendale
29.110 The first limb of Hadley v Baxendale250 proceeds upon the basis of the presumed
knowledge of a defendant as to the losses that will arise ‘naturally’ or ‘according to the usual
course of things’ as a result of the breach of contract. An objective test is applied to determine
just how far this presumed knowledge extends.251 This often involves a value judgment being
made by the court as to the extent to which a defendant should be held liable for losses suffered.
For example, it could be persuasively argued that the decision in Koufos v C Czarnikow Ltd252
could well have gone the other way.
29.111 In Jackson v Royal Bank of Scotland,253 Lord Walker made the following point about
the first limb:
The first limb … tends to beg the question, since it makes the damages recoverable under
[it] depend on how the breach of contract is characterised. If for instance (by reference
to the facts of Hadley v Baxendale254 itself) the breach is described simply as a carrier’s
failure to convey goods from Gloucester and deliver them to Greenwich within two days
as promised, it is a matter of speculation what damages would arise naturally and in the
ordinary course. If on the other hand the breach is described as a delay in delivering
to the manufacturer at Greenwich a broken crankshaft to serve as a model for a new
crankshaft urgently required for the only steam engine at a busy flour mill at Gloucester
(which was standing idle until the new crankshaft arrived) then loss of business profits
is seen to be an entirely natural consequence. The appropriate characterisation of the
breach depends on the terms of the contract, its business context, and the reasonable
contemplation of the parties.

29.112 In this case, Jackson’s firm imported dog chews from Thailand for subsequent sale
to English customers, one of whom was Economy Bag. The Royal Bank was the banker for
both firms. Jackson would purchase the dog chews from its Thai supplier and arrange for
delivery of Economy Bag’s orders to their premises in Preston. Economy Bag was happy with
this arrangement, given its lack of commercial experience. Jackson charged Economy Bag a
sum that included the cost to it of the dog chews, a profit margin, plus a fee for arranging
transport to Preston. Economy Bag did not know the breakdown of this sum. Payment was

249. (1854) 156 ER 145.

250. (1854) 156 ER 145.
251. Koufos v C Czarnikow Ltd [1969] 1 AC 350 at 385; [1967] 3 All ER 686 at 691; Attorney General of the Virgin
Islands v Global Water Associates Ltd [2020] UKPC 18 at [34].
252. [1969] 1 AC 350; [1967] 3 All ER 686. See 29.114.
253. [2005] 1 WLR 377 at 390; [2005] 2 All ER 71 at 83–4.
254. (1854) 156 ER 145.
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by means of a transferable letter of credit issued by the Royal Bank. Upon receipt of the funds,
Jackson forwarded the cost of the dog chews to the Thai supplier and retained the balance. This
arrangement operated successfully for a number of years until the Royal Bank inadvertently
forwarded documentation to Economy Bag that should have been sent to Jackson. This
documentation revealed the profits that Jackson was making in its transactions with Economy
Bag. The owners of Economy Bag were outraged by the level of profit made by Jackson,
terminated their arrangement with Jackson, and began to deal directly with the Thai supplier.
The disclosure of the information by the bank was a breach of its contractual obligation of
confidence owed to Jackson. Jackson sued the Royal Bank for losses of the opportunity to
earn future profits from the relationship with Economy Bag. The House of Lords ordered
that compensation be paid to Jackson under the first limb of Hadley v Baxendale.255 The
compensation was assessed on the basis that there was a real chance that Jackson would
have contracted with Economy Bag for a period of four years, but that after that date it was
speculative as to whether Economy Bag would have continued the arrangement in that it
would have eventually gained the business experience to deal directly with the Thai and
other suppliers and thereby eliminate the middleman costs it was paying to Jackson. Jackson’s
loss was one ‘arising naturally’ or ‘according to the usual course of things’ from the Royal
Bank’s breach of contract.
29.113 In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd,256 Newman
Industries contracted with Victoria Laundry to supply the latter with a boiler for its dyeing
and dry-cleaning business. Delivery of the boiler was delayed by five months. Victoria
Laundry sought recovery of the profits lost as a result of not having the boiler delivered
on time. These losses included profits from its existing business as well as profits from a
highly lucrative contract with the Ministry of Supply. Newman Industries knew nothing
of this contract at the time it contracted with Victoria Laundry. The lost profits in relation
to its existing business were recovered as being losses within the first limb of Hadley
v Baxendale.257 The lost profits from the Ministry of Supply contract were not within the
first limb. Nor were they recoverable under the second limb because Newman Industries
was unaware of the contract between Victoria Laundry and the Ministry of Supply at the
time it contracted to supply the boiler.
29.114 In Koufos v C Czarnikow Ltd,258 Czarnikow contracted with Koufos for the latter to
ship sugar from Constanza to Basrah. Koufos deviated in the voyage and arrived into Basrah
nine days late. In the meantime, sugar prices had fallen. Czarnikow sued for loss of profits on
the sale of the sugar. The House of Lords held that the loss was recoverable under the first limb
of Hadley v Baxendale.259 Although Koufos did not know that it was intended that the sugar was
to be sold at Basrah, he did know that Czarnikow was a sugar merchant and that there was a
market for sugar in Basrah. This was enough knowledge for Koufos to have contemplated that
Czarnikow would suffer the loss in question.

255. (1854) 156 ER 145.

256. [1949] 2 KB 528; [1949] 1 All ER 997.
257. (1854) 156 ER 145.
258. [1969] 1 AC 350; [1967] 3 All ER 686.
259. (1854) 156 ER 145.

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The second limb of Hadley v Baxendale

29.115 The second limb of Hadley v Baxendale260 proceeds upon the basis of actual knowledge
of special circumstances possessed by a defendant at the time of contracting.261 In the context of
Hadley v Baxendale,262 the rationale for the second limb is explained by Alderson B263 as follows:
For, had the special circumstances been known, the parties might have specially provided for
the breach of contract by special terms as to the damages in that case; and of this advantage
it would be very unjust to deprive them.

Thus, unless a defendant disclaims the potential liability for losses relating to special
circumstances, he or she implicitly undertakes to bear the burden of liability in damages for
any losses flowing from them.264
29.116 In McRae v Commonwealth Disposals Commission,265 the High Court held that the
wasted expenditure incurred by McRae was recoverable under the second limb of Hadley
v Baxendale.266 There was no explanation of the court’s reasoning on this point. However, it
must be presumed that the court was of the view that CDC had actual knowledge of the need
for a salvage mission. As previously noted, part of the claim for lost profits in Victoria Laundry
(Windsor) Ltd v Newman Industries Ltd267 failed because Newman Industries did not have
actual knowledge of the relevant special circumstances.
29.117 In Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd,268 Stuart had a contract
with SANIP to insulate houses under the flight path into Sydney Airport. Some of the insulation
work was sub-contracted to Condor under a separate contract for each house. Condor’s
insulation work on a house at Marrickville was done poorly and resulted in a fire that burned
the house down. This led SANIP to terminate its contract with Stuart. Stuart sued Condor for
damages in relation to the Marrickville house and claimed damages for the loss of profits that
it would have earned under its contract with SANIP had it not been terminated. The Court of
Appeal in New South Wales held that this loss did not fall within the second limb of Hadley
v Baxendale269 because the expected profits under Stuart’s contract with SANIP were not within
the contemplation of the parties when they entered into the contract for the Marrickville house.
The key factors leading the court to this conclusion were:
• although Condor was aware that Stuart had a contract with SANIP, it was unaware of its
terms;
• under its contract with SANIP, Stuart was responsible for the work carried out by Condor,
so that Condor could not have reasonably contemplated that its poor workmanship would
lead to the termination of Stuart’s contract with SANIP; and

260. (1854) 156 ER 145.

261. Hungerfords v Walker (1989) 171 CLR 125 at 142; 84 ALR 119 at 127.
262. (1854) 156 ER 145.
263. Hadley v Baxendale (1854) 156 ER 145 at 151.
264. Robophone Facilities Ltd v Blank [1966] 3 All ER 128 at 143.
265. (1951) 84 CLR 377 at 414.
266. (1854) 156 ER 145.
267. [1949] 2 KB 528; [1949] 1 All ER 997.
268. [2006] NSWCA 334.
269. (1854) 156 ER 145.

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• the disproportion between the price paid to Condor under the contract for the Marrickville
house and Stuart’s profits under its contract with SANIP meant that the loss of those
profits was not within the contemplation of the parties when entering into the Marrickville
contract.
Ipp JA noted that, although the loss of Stuart’s profits was a reasonably foreseeable consequence
of Condor’s breach, it was not within the parties’ contemplation at the time of contracting.
His Honour270 ‘emphasised that being within the contemplation of the parties is not the same as
being reasonably foreseeable. It is a far more restrictive test.’
29.118 On the other hand, in Palasty v Parlby.271 a claim for damages for losses was recovered
under the second limb of Hadley v Baxendale.272 In this case Parlby contracted to sell his family
home in the Sydney suburb of Hunters Hill to Palasty. Soon thereafter, Parlby contracted to
purchase another home several kilometres away in Killara on the basis that the net proceeds
from the sale at Hunters Hill would enable him to complete the purchase at Killara. Palasty failed
to complete the purchase of the Hunters Hill house. Parlby terminated the contract. The loss of
the sale meant that Parlby was unable to complete the Killara purchase, with the consequence
that he lost the deposit he had paid to the vendor of that property. The principal issue before
the Court of Appeal was whether Parlby was able to recover damages for the deposit he had lost
on the failed Killara purchase. The evidence established that, prior to contracting with Parlby,
Palasty knew that:
• the Hunters Hill property was Parlby’s family home;
• Parlby was ‘looking to buy another house’;
• Parlby’s house at Hunters Hill was subject to a number of mortgages;
• Parlby was experiencing financial difficulties; and
• Parlby had, without success, requested Palasty to release to him part of the deposit she
would pay when entering into the contract so that Parlby could use it to pay the deposit on
the purchase of another house.
Speaking for the Court of Appeal, Mason P273 held that, on the basis of these special circumstances,
Parlby’s loss of his deposit was, in the words of Alderson B in Hadley v Baxendale,274 loss that
could ‘reasonably be supposed to have been in the contemplation of both parties’.

Likelihood of loss occurring

29.119 Before loss can be recovered under either limb of Hadley v Baxendale,275 it must be
established that the loss would, in Alderson B’s words in Hadley v Baxendale,276 ‘ordinarily’ or
‘generally’ follow from the breach of contract. This raises the question of the likelihood of the
loss arising. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd,277 Asquith LJ used

270. Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd [2006] NSWCA 334 at [118].
271. [2007] NSWCA 345.
272. (1854) 156 ER 145.
273. Palasty v Parlby [2007] NSWCA 345 at [21]–[22].
274. (1854) 156 ER 145 at 151.
275. (1854) 156 ER 145.
276. (1854) 156 ER 145 at 151.
277. [1949] 2 KB 528 at 539–40; [1949] 1 All ER 997 at 1002–3. In Attorney General of the Virgin Islands v Global
Water Associates Ltd [2020] UKPC 18 at [32], the Privy Council said that ‘the type of loss must have been
reasonably contemplated as a serious possibility’.
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expressions such as ‘reasonably foreseeable as liable to result’, ‘serious possibility’, ‘real danger’,
as well as the colloquialism ‘on the cards’. In Koufos v Czarnikow Ltd,278 these expressions
received a mixed reception from the various members of the House of Lords. The speech of
Lord Reid is of particular relevance as his views have been generally accepted in Australia.279
29.120 Lord Reid rejected all the expressions used by Asquith LJ. Lord Reid stated the test as
being whether the loss was ‘likely’ or ‘not unlikely’ to result from the breach. To illustrate the
different shades of meaning between the views of Asquith LJ and his own, Lord Reid280 said:
Suppose one takes a well-shuffled pack of cards, it is quite likely or not unlikely that the top
card will prove to be a diamond: the odds are only 3 to 1 against. But most people would not
say that it is quite likely to be the nine of diamonds for the odds are then 51 to 1 against. On
the other hand I think that most people would say that there is a serious possibility or a real
danger of its being turned up first and of course it is on the cards.

The extent of the loss to be contemplated

29.121 For damages to be recovered the defendant does not have to have contemplated the
precise extent of the loss. It is enough if he or she contemplated the general type of loss that
would likely result from the breach.281 Thus, in H Parsons (Livestock) Ltd v Uttley Ingham &
Co Ltd,282 an improperly installed pig-feeding machine resulted in the food to be fed to the pigs
becoming mouldy. A number of pigs died. The English Court of Appeal held that although the
death of the pigs might not have been contemplated, it was enough that it was contemplated
that the pigs might become ill as a result of the breach of contract. Damages for loss resulting
from the death of the pigs were recoverable on the basis that the death of the pigs came within
the scope of illness to the pigs.

The contractual assumption as to scope of liability

29.122 In Transfield Shipping Inc v Mercator Shipping Inc,283 the House of Lords held that,
even if a loss fell within the first limb of Hadley v Baxendale,284 it is not recoverable if, as a
matter of construction of the contract, the loss was not one for which the defendant agreed
to accept responsibility. In effect, this principle constitutes a preliminary screening of losses
before the court has to consider whether they are affected by the principle of remoteness.
29.123 In this case, Transfield were charterers of ‘The Achilleas’, a commercial cargo vessel,
and had agreed to redeliver it to its owners, Mercator, by 2 May 2004. On 21 April, Mercator
agreed to charter the vessel to new charterers on terms that the new charterers could cancel

278. [1969] 1 AC 350; [1967] 3 All ER 686.

279. Wenham v Ella (1972) 127 CLR 454 at 471–2; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653
at 667; 69 ALR 11 at 21; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 363–4; The
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 99; 104 ALR 1 at 26; Baltic
Shipping Co v Dillon (1993) 176 CLR 344 at 368; 111 ALR 289 at 307.
280. Koufos v Czarnikow Ltd [1969] 1 AC 350 at 390; [1967] 3 All ER 686 at 694–5.
281. Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 365–6.
282. [1978] QB 791; [1978] 1 All ER 525.
283. [2009] AC 61; [2008] 4 All ER 159.
284. (1854) 156 ER 145.

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the charterparty if the vessel was not available by 8 May. By 5 May it had become obvious that
the Achilleas would not be redelivered by 8 May, so Mercator negotiated an extension of the
new charterparty’s cancelling date to 11 May, but by then hire rates had fallen dramatically and
they were forced to reduce the daily hire rate by $8000 in exchange for the extension. Mercator
claimed damages from Transfield for loss of the original terms of the new charterparty on the
basis of the difference between the original rate and the reduced rate — almost $1,365,000.
Transfield contended that they only had to pay damages at the market rate for the six days
Mercator were deprived of the use of the vessel — only $158,301. The majority of the House of
Lords held in favour of Transfield on the basis of the assumption of liability principle.
29.124 Lord Hoffmann285 stated the principle as follows:
It seems to me logical to found liability for damages upon the intention of the parties
(objectively ascertained) because all contractual liability is voluntarily undertaken. It must
be in principle wrong to hold someone liable for risks for which the people entering into
such a contract in their particular market, would not reasonably be considered to have
undertaken. …

A rule of law which imposes liability upon a party for a risk which he reasonably thought was
excluded gives the other party something for nothing. …

[O]ne must first decide whether the loss for which compensation is sought is of a ‘kind’ or
‘type’ for which the contract-breaker ought fairly to be taken to have accepted responsibility.

His Lordship286 then went on to apply this principle to the facts of the case, stating:
If, therefore, one considers what these parties, contracting against the background of market
expectations found by the arbitrators, would reasonably have considered the extent of the
liability they were undertaking, I think it is clear that they would have considered losses
arising from the loss of the following fixture a type or kind of loss for which [Transfield]
was not assuming responsibility. Such a risk would be completely unquantifiable, because
although the parties would regard it as likely that [Mercator] would at some time during
the currency of the charter enter into a forward fixture, they would have no idea when that
would be done or what its length or other terms would be.

29.125 The decision in Transfield Shipping Inc v Mercator Shipping Inc287 points to the
need, when drafting contracts, to negotiate and explicitly allocate risks between the parties.
In this case the risk of the losses suffered by Mercator could have been covered by explicit
provision in the charterparty. This would have meant that, on the ordinary principles of Hadley
v Baxendale,288 Mercator would have recovered the losses flowing from the renegotiation of its
contract with the new charterers, and not merely the market rate of hire for the six days that
Transfield delayed in delivering the vessel.

285. Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61 at 68; [2008] 4 All ER 159 at 166–7.
286. Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61 at 70–1; [2008] 4 All ER 159 at 169.
287. [2009] AC 61; [2008] 4 All ER 159.
288. (1854) 156 ER 145.

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29.126 Subsequent English cases have commented upon and clarified the impact of the
principle enunciated by Lord Hoffmann. In Supershield Ltd v Siemens Building Technologies
FE Ltd,289 Toulson LJ, speaking for a unanimous Court of Appeal, said:
Hadley v Baxendale290 remains a standard rule but it has been rationalised on the basis that
it reflects the expectation to be imputed to the parties in the ordinary case, ie that a contract
breaker should ordinarily be liable to the other party for damage resulting from his breach
if, but only if, at the time of making the contract a reasonable person in his shoes would
have had damage of that kind in mind as not unlikely to result from a breach. However, …
Transfield Shipping291 … [is] authority that there may be cases where the court, on examining
the contract and the commercial background, decides that the standard approach would not
reflect the expectation or intention reasonably to be imputed to the parties. In … [Transfield
Shipping292] the effect was exclusionary; the contract breaker was held not to be liable for loss
which resulted from its breach although some loss of the kind was not unlikely.

29.127 As to the authority of decision in Transfield Shipping Inc v Mercator Shipping Inc293
in Australia, it can be noted that in Dome Resources NL v Silver294 and Robb Evans & Associates
v European Bank,295 various members of the Court of Appeal cited the decision with apparent
approval, thereby indicating that it may also be good law in Australia. On the other hand, in
a detailed analysis of the decision, Singapore’s Court of Appeal in MFM Restaurants Pte Ltd
v Fish & Co Restaurants Pte Ltd296 concluded as follows:
We … take this opportunity to state that the approach advocated by Lord Hoffmann in The
Achilleas297 is not the law in Singapore, except to the extent that the learned law lord’s reliance
on the concept of assumption of responsibility by the defendant is already incorporated or
embodied in both limbs in Hadley298 itself.

Remoteness and concurrent liability

29.128 A breach of contract may give rise to a concurrent claim in the tort of negligence.
A plaintiff in such a case could choose to sue for damages for breach of contract or in negligence.
In tort law the principle on remoteness differs from that in contract law. Damages for losses
that would not be recoverable in contract law, may be recovered in tort law. In other words,
a plaintiff ’s claim in negligence could result in a higher damages award than if the claim was
one based on breach of contract. Issues raised by cases of concurrent liability are dealt with in
Chapter 37.299

289. [2010] 1 Lloyd’s Rep 349 at 355–6. See also John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37
at [23]–[24].
290. (1854) 156 ER 145.
291. Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61; [2008] 4 All ER 159.
292. Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61; [2008] 4 All ER 159.
293. [2009] AC 61; [2008] 4 All ER 159.
294. (2008) 72 NSWLR 693 at 711.
295. (2009) 255 ALR 171 at 186.
296. [2010] SGCA 36 at [140].
297. Transfield Shipping Inc v Mercator Shipping Inc [2009] AC 61; [2008] 4 All ER 159.
298. Hadley v Baxendale (1854) 156 ER 145.
299. See 37.27–37.35.
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MITIGATION
29.129 The principle of mitigation qualifies the compensation principle in Robinson
v Harman, by imposing an obligation upon a plaintiff to, within reasonable limits, undertake
steps that will have the effect of avoiding or limiting the losses that are caused by a defendant’s
breach of contract.
29.130 The classic formulation of principle relating to mitigation is located in British
Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railway Co of
London Ltd,300 where Viscount Haldane LC said:
The fundamental basis [for the assessment of damages] is … compensation for pecuniary loss
naturally flowing from the breach; but … this principle is qualified by [another principle],
which imposes on a claimant the duty of taking all reasonable steps to mitigate the loss
consequent on the breach, and debars him from claiming any part of the damage which is
due to his neglect to take such steps.

29.131 The principle of mitigation is set out in three principles:

• A plaintiff cannot recover damages for loss that was avoidable.
• A plaintiff cannot recover damages for loss that was avoided.
• A plaintiff can recover expenses incurred in avoiding or attempting to avoid loss.301
The defendant has the onus of proof to show that the plaintiff did not mitigate.302
29.132 The first two principles are extracted from Viscount Haldane’s speech in British
Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railway Co of
London Ltd.303 The third has been confirmed in cases such as Simonius Vischer & Co v Holt &
Thompson304 and Tuncel v Renown Plate Co Pty Ltd.305
29.133 Although Viscount Haldane spoke in terms of mitigation being a duty, this should not
be understood as meaning that the innocent party owes an obligation to the contract breaker to
do so.306 Rather, ‘it is an aspect of the principle of causation that the contract breaker will not be
held to have caused loss which the claimant could reasonably have avoided’.307
29.134 It is important to keep in mind that the principles relating to mitigation are an
expression of one underlying principle. In Thai Airways International Public Company Ltd v KI
Holdings Co Ltd308 Leggatt J said:

300. [1912] AC 673 at 689.

301. On the origins and theoretical justifications for the principle of mitigation, see The ‘Asia Star’ [2010] 2
Lloyd’s Rep 121 at 128–9.
302. T C Industrial Plant Pty Ltd v Robert’s Queensland Pty Ltd (1963) 180 CLR 130 at 138; Munce v Vinidex
Tubemakers Pty Ltd [1974] 2 NSWLR 235 at 239.
303. [1912] AC 673 at 688; Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507 at 509; Tasman Capital
Pty Ltd v Sinclair (2008) 75 NSWLR 1 at 7.
304. [1979] 2 NSWLR 322 at 356.
305. [1976] VR 501 at 504.
306. Chand v Commonwealth Bank of Australia [2015] NSWCA 181 at [180]–[181].
307. Bunge SA v Nidera BV [2015] 3 All ER 1082 at 1107.
308. [2015] EWHC 1250 (Comm) at [33].

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Whilst distinguishing these rules may sometimes be useful, it is important not to lose sight of
their underlying unity. … [T]he essential purpose of the mitigation rules is to identify, in the
light of what the claimant has done or not done to avoid loss resulting from the defendant’s
breach of contract or other legal wrong, which costs and benefits accruing to the claimant are
to be treated as consequences of the defendant’s wrong and which are to be treated as caused
by the claimant’s own action or inaction. The basic test which the doctrine of mitigation
involves is whether the claimant has acted reasonably in response to the defendant’s wrong.
Insofar as the claimant has acted reasonably, costs and benefits accruing to the claimant are
included in the calculation of damages. Insofar as the claimant has not acted reasonably, the
claimant’s damages are assessed as if it had.

Avoidable loss
29.135 A failure to take reasonable steps to avoid loss will result in damages not being awarded
for loss that could have been avoided.309 The critical element here is that of reasonableness. In
relation to reasonableness, in Karacominakis v Big Country Developments Pty Ltd310 Giles JA
said
Since the defendant is a wrongdoer, in determining whether the plaintiff has acted
unreasonably a high standard of conduct will not be required, and the plaintiff will not be
held to have acted unreasonably simply because the defendant can suggest other and more
beneficial conduct if it was reasonable for the plaintiff to do what he did.

29.136 What is reasonable is a question of fact and degree and depends on all the circumstances
of the case.311 In determining whether a plaintiff ’s conduct in mitigation is reasonable, the conduct
is assessed at the time it took place, but not with the benefit of hindsight.312 As with the approach
to causation, the courts will look at the issue ‘as a matter of common sense’.313 In Dunkirk Colliery
Company v Lever314 James LJ said that a plaintiff is not ‘under any obligation to do anything other
than in the ordinary course of business’. However, as was pointed out in The ‘Asia Star’:315
[W]hile the principle of mitigation does not require an aggrieved party to nurse the defaulting
party’s interests at the expense of its own interests … the aggrieved party must act with both
the defaulting party’s interests as well as its own interests in mind.

29.137 If a plaintiff cannot afford to undertake steps that would otherwise be reasonable and
therefore avoid loss, he or she will not be held to have failed to mitigate, especially where the

309. Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at 506; Unity Insurance Brokers Pty Ltd v Rocco
Pezzano Pty Ltd (1998) 192 CLR 603 at 654; 154 ALR 361 at 401; Clark v Macourt (2013) 253 CLR 1 at 9;
304 ALR 220 at 225.
310. Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187]. See also Sacher Investments
Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 at 9.
311. Dunkirk Colliery Co v Lever (1878) 9 Ch D 20 at 25; Payzu Ltd v Saunders [1919] 2 KB 581 at 588; Morrison
v Town of Victoria Park [2007] WASCA 164 at [38]; Kop-Coat New Zealand Ltd v Incodo Ltd [2018] NZCA 430
at [68].
312. Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567 at 582.
313. Shindler v Northern Raincoat Co Ltd [1960] 2 All ER 239 at 250.
314. [1878] 9 Ch D 20 at 25.
315. [2010] 2 Lloyd’s Rep 121 at 128.

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financial difficulty is a consequence of the defendant’s breach of contract.316 On the other hand,
if reasonable steps to mitigate undertaken by a plaintiff have the effect of increasing, rather than
avoiding, loss, damages for that additional loss are, nevertheless, recoverable from the defendant.317
29.138 The principle in relation to avoidable loss does not require a plaintiff to undertake
steps that involve matters such as: (i) injury to his or her commercial reputation;318 or
(ii) expensive or complex litigation;319 or (iii) actions that are unduly risky and uncertain.320
29.139 In cases of avoidable loss the question of whether a plaintiff should have entered into
a new contract with the defendant often arises. In cases involving commercial transactions
the courts are more willing to state that entry into such a contract is reasonable than in cases
of personal services contracts. Thus, in Payzu v Saunders,321 a seller of silk, in breach of his
contract, refused to deliver silk to a buyer under an instalment contract which stipulated
payment by the buyer within one month of delivery of each instalment. However, the seller
offered to deliver the goods on a ‘cash on delivery’ basis. The buyer refused to accept the offer.
The buyer was unable to buy silk on the market for the contract price and sued the seller for
damages for breach of contract. The buyer’s refusal to enter into a new contract with the seller
was held to be unreasonable and therefore amounted to a failure to mitigate his loss.
29.140 The decision in Payzu v Saunders322 was the basis upon which the Court of Appeal
in Castle Constructions Pty Ltd v Fekala Pty Ltd323 held that a purchaser who, after validly
terminating a contract for the sale of land on account of a vendor’s failure to complete the
contract, rejects an offer by the vendor to complete the contract at a later date, may, in
appropriate circumstances, be guilty of a failure to mitigate, with the consequence that the
purchaser will be unable to recover damages for losses suffered as a result of the vendor’s initial
failure to complete the contract. In this case the vendors were the mortgagees of a hospital site
that the purchaser had purchased with the expectation of making a profit upon redevelopment
of the site. One of the reasons that the purchaser rejected the vendors’ offer to complete at a
later date related to threats that the owner of the site had earlier made against the mortgagees/
vendors. Mason P324 held that the purchaser’s rejection of the vendors’ offer to complete at a
later date was unreasonable because the threats that had been previously made by the owner
of the property had fallen silent and, in any event, the risk to the purchaser of such threats
amounted to no more than the possibility that the purchase would have been thwarted, in
which case the purchaser could have recovered damages for its losses.

316. Clippens Oil Company Ltd v Edinburgh and District Water Trustees [1907] AC 291 at 303–4; Burns v MAN
Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 659, 677; 69 ALR 11 at 14, 28.
317. Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322.
318. James Finlay & Co Ltd v NV Kwik Hoo Tong Handel Maatschappij [1929] 1 KB 400 at 415.
319. Pilkington v Wood [1953] Ch 770 at 777; Moda International Brands Ltd v Gateley LLP [2019] EWHC 1326
(QB) at [113].
320. Lesters Leather and Skin Co Ltd v Home and Overseas Brokers Ltd (1948) 64 TLR 569.
321. [1919] 2 KB 581. For a critique of this decision see M Bridge, ‘Mitigation of Damages in Contract and the
Meaning of Avoidable Loss’ (1989) 105 Law Quarterly Review 398.
322. [1919] 2 KB 581.
323. (2006) 65 NSWLR 648.
324. Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 at 663.
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29.141 On the other hand, in Yetton v Eastwoods Froy Ltd,325 in the context of an employment
contract, the plaintiff ’s rejection of the defendant’s offer of a new employment contract was
held to be reasonable. In this case, Yetton was employed by Eastwoods Froy for a five-year
term as one of its joint managing directors. After two years of the contract his employment
was terminated and he was offered re-employment for the remaining three years at the same
salary, but as an assistant to a new managing director. Yetton refused the offer and undertook
steps to find comparable employment, but without success. Blain J held that the refusal of
the offer of re-employment was reasonable, especially considering the loss of status that the
new position entailed. Furthermore, Yetton’s efforts to obtain alternative employment were
reasonable. Therefore, there was no reduction in damages on the ground of a failure to mitigate.
Thus, matters such as the nature of the position offered as compared with the former position
as well as the degree to which the personal relationship between the employer and employee
had deteriorated, were relevant factors in assessing the reasonableness of Yetton’s actions.
If such matters do not arise, it is more likely that a court will rule that rejecting an offer of
re-employment, especially one at the same salary, will be unreasonable, as was the case in Brace
v Calder.326 In Heugh v Central Petroleum Ltd (No 5)327 Le Miere J cited Yetton v Eastwoods
Froy Ltd328 as authority for the proposition that, in an employment contract, ‘[t]he duty to act
reasonably to mitigate damage does not generally require the employee to take employment
with a level of remuneration or status less than previously enjoyed by the dismissed employee’.
29.142 In relation to factors affecting whether the rejection of an offer of re-employment
constitutes a failure to mitigate, in Evans v Teamsters Local Union No 31,329 Bastarache J, in
delivering the majority judgment of the Supreme Court of Canada, said:
Where the employer offers the employee a chance to mitigate damages by returning to
work for him or her, the central issue is whether a reasonable person would accept such
an opportunity. … [A] reasonable person should be expected to do so ‘[w]here the salary
offered is the same, where the working conditions are not substantially different or the
work demeaning, and where the personal relationships involved are not acrimonious’.330 …
[O]ther relevant factors include the history and nature of the employment, whether or not
the employee has commenced litigation, and whether the offer of re-employment was made
while the employee was still working for the employer or only after he or she had already
left. In my view, the foregoing elements all underline the importance of a multi-factored and
contextual analysis. The critical element is that an employee ‘not [be] obliged to mitigate by
working in an atmosphere of hostility, embarrassment or humiliation’,331 and it is that factor
which must be at the forefront of the inquiry into what is reasonable. Thus, although an
objective standard must be used to evaluate whether a reasonable person in the employee’s
position would have accepted the employer’s offer, it is extremely important that the non-
tangible elements of the situation — including work atmosphere, stigma and loss of dignity,
as well as nature and conditions of employment, the tangible elements — be included in the
evaluation.

325. [1966] 3 All ER 353.

326. [1895] 2 QB 253.
327. [2014] WASC 311 at [131].
328. [1966] 3 All ER 353.
329. [2008] 1 SCR 661 at 678.
330. Mifsud v MacMillan Bathurst Inc (1989) 70 OR (2d) 701.
331. Farquhar v Butler Bros Supplies Ltd (1988) 23 BCLR (2d) 89 at 94.

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29.143 The onus of proof in relation to the principle on avoidable loss rests upon the
defendant, who must show that reasonable steps towards mitigation have not been undertaken
by the plaintiff, rather than the plaintiff having to prove that such steps have been taken.332 In
relation to discharging that onus of proof, in Banco de Portugal v Waterlow,333 Lord Macmillan
said:
The law is satisfied if the party placed in a difficult situation by reason of the breach of duty
owed to him has acted reasonably in the adoption of remedial measures, and he will not
be held disentitled to recover the cost of such measures merely because the party in breach
can suggest that other measures less burdensome to him might have been taken. In other
words, it is not enough for the wrongdoer to show that it would have been reasonable to
take the steps he has proposed: he must show that it was unreasonable of the innocent party
not to take them. This is a real distinction. It reflects the fact there if there is more than one
reasonable response open to the wronged party, the wrongdoer has no right to determine
his choice. It is where, and only where, the wrongdoer can show affirmatively that the other
party has acted unreasonably in relation to his duty to mitigate that the defence will succeed.

29.144 The issue of mitigation should be raised by a defendant at the time of filing a defence
to the claim filed by the plaintiff. If this is not done, the court proceeds upon the assumption
that the plaintiff has undertaken reasonable steps to avoid loss and the issue of mitigation
cannot be raised at the hearing of the case.

Avoided loss
29.145 The essential principle here is that ‘a plaintiff cannot recover damages for a loss which
he or she … did avoid’. 334 The burden of proof to establish that loss has been avoided or reduced
is upon the defendant.335
29.146 Furthermore, if a plaintiff acts reasonably and loss is avoided, it is not open to the
defendant to argue that other steps could have been taken, which may have had reduced the loss
even further than was actually avoided by the plaintiff ’s actions.336 The ultimate question for
the court to determine is ‘not whether there was a better way of doing things but whether what
the plaintiff did was reasonable’.337 Finally, loss that has been avoided cannot be compensated
for ‘even though there was no duty on [a plaintiff] to act’, provided that the steps he or she
undertook were ones ‘arising out of the transaction’.338

332. Wenkart v Pitman (1998) 46 NSWLR 502 at 523; Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR
254 at 267.
333. [1932] AC 452 at 506.
334. Clark v Macourt (2013) 253 CLR 1 at 9; 304 ALR 220 at 225.
335. Roper v Johnson (1863) LR 8 CP 167 at 184; Ruthol Pty Ltd v Tricon (Australia) Ltd [2005] NSWCA 443
at [40]; Lex Group Holding Pty Ltd v De Ren Xu [2019] VSC 238 at [127]–[131].
336. Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at 506; Ruthol Pty Ltd v Tricon (Australia) Ltd
[2005] NSWCA 443 at [40].
337. Orica Investments v McCartney [2010] NSWSC 488 at [56].
338. British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railway Co of London Ltd
[1912] AC 673 at 689; Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1 at 11–12;
104 ALR 397 at 407; Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2016] NSWCA 123
at [222]–[226].

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29.147 However, if the benefit obtained by a plaintiff is one not arising ‘out of the transaction’,
the benefit is not taken into account by way of reducing the damages he or she recovers. It is
suggested that the role of the court is to determine whether a plaintiff ’s actions were ones
arising out of his or her attempts to mitigate, or whether they were independent of his or her
mitigating steps. In the former case benefits obtained are taken into account, whereas in the
latter case benefits obtained do not reduce the damages payable by the defendant. In Hussain
v New Taplow Paper Mills Ltd,339 Lord Bridge indicated that it was difficult to articulate a
single guiding principle to distinguish between those benefits that are taken into account
and those that are not, and suggested that it was ultimately a matter ‘depending upon justice,
reasonableness and public policy’. In Ruthol Pty Ltd v Tricon (Australia) Pty Ltd, 340 Giles JA
came to a similar conclusion.
29.148 On the other hand, in La Trobe Capital & Mortgage Corporation Ltd v Hay Property
Consultants Pty Ltd,341 speaking for the Full Court, Jacobson J said:
[T]here seems to be no basis for taking into account a benefit [obtained by a plaintiff] on
a segregated basis; that is, setting off a benefit against losses of a similar character, but not
against losses of a different character. If the broad aim is to restore the plaintiff to his/her
position but for the defendant’s breach, then it is artificial to ignore a benefit simply because
it is of a different character to the loss pleaded by the plaintiff.

29.149 Lavarack v Woods of Colchester Ltd342 is a useful case to examine in this context.
Lavarack was employed under a five-year contract with Woods of Colchester, but was
wrongfully dismissed after two years. He obtained alternative employment with Martindale
Electrique SA. His salary was less than that with Woods of Colchester, but he also acquired
a 25 per cent stake in Martindale. Lavarack also invested funds in a company that was a rival
to Woods of Colchester. The English Court of Appeal held that the salary paid by Martindale
as well as the increase in value of his stake in Martindale, were benefits that arose out of the
steps he took to mitigate his loss. On the other hand, the profit on Lavarack’s investment in
the rival company was the result of steps that were independent of those taken in mitigation.
This ‘entirely collateral benefit’ was not taken into account in the assessment of damages even
though Lavarack would not have been able make that investment had he not been dismissed
from his employment with Woods of Colchester.
29.150 In Hussey v Eels,343 the Husseys purchased a bungalow from Eels in reliance on
answers to pre-contractual inquiries that included a negligent misstatement that the building
had not been the subject of subsidence. The Husseys could not afford the necessary repairs to
the foundations, and ultimately obtained planning permission to redevelop the land, which was
then sold to developers for a substantial sum. The issue that arose was whether the profit on the
re-sale could be brought into account in assessing the damages. The Court of Appeal held that
it could not. Mustill LJ344 said:

339. [1988] AC 514 at 528; [1988] 1 All ER 541 at 545.

340. [2005] NSWCA 443 at [48].
341. La Trobe Capital & Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd (2011) 190 FCR 299
at 305; 273 ALR 774 at 779.
342. [1967] 1 QB 278; [1966] 3 All ER 683.
343. [1990] 2 QB 227; [1990] 1 All ER 449.
344. Hussey v Eels [1990] 2 QB 227 at 241; [1990] 1 All ER 449 at 459.
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Did the negligence which caused the damage also cause the profit, if profit there was? I do
not think so. It is true that in one sense there was a causal link between the inducement of the
purchase by misrepresentation and the sale two and a half years later, for the sale represented
a choice of one of the options with which the plaintiffs had been presented by the defendants’
wrongful act. But only in that sense. To my mind the reality of the situation is that [the
Husseys] bought the house to live in, and did live in it for a substantial period. It was only
after two years that the possibility of selling the land and moving elsewhere was explored,
and six months later still that this possibility came to fruition. It seems to me that when [the
Husseys] unlocked the development value of their land they did so for their own benefit, and
not as part of a continuous transaction of which the purchase of land and bungalow was the
inception.

29.151 The correctness of the decision in Hussey v Eels was doubted by the Queensland
Court of Appeal in Manwelland Pty Ltd v Dames & Moore Pty Ltd.345 In that case Manwelland
purchased land for a particular redevelopment after obtaining advice from Dames & Moore in
relation to decontaminating the land. The advice proved to be mistaken. This meant that the
proposed development could not take place. A less lucrative redevelopment of the property
was subsequently undertaken. The faulty advice given by Dames and Moore was held to render
it liable for breaches of s 52 of the Trade Practices Act 1974 (Cth) (now s 18 of the Australian
Consumer Law), negligent misstatement, and breach of contract. Manwelland claimed that,
in the light of Hussey v Eels,346 it was entitled to damages of $510,000, being the difference
between the contract price and the market value of the land at the time it was acquired. Dames
and Moore argued that damages totaled just over $10,000, being the loss ultimately sustained
by Manwelland in its redevelopment of the land. The court accepted this argument on the
basis that Manwelland was a property developer and that in purchasing and redeveloping the
land, it achieved what was always its purpose in purchasing the land. In this way the case was
distinguishable from Hussey v Eels,347 where the land was not purchased for redevelopment.
However, McPherson JA 348 expressed the view that Hussey v Eels349 was, nevertheless, wrongly
decided and suggested that the decision was the result of the fact that English ‘courts continue
to rigidly adhere to the rule that … damages are to be measured by the difference between the
purchase price and the “true” value of the thing acquired’. His Honour350 went on to say:
In Australia, the weight of authority now favours the view that the damages are to be
determined by ascertaining the net loss sustained as a result of acting on the inducement.
One would expect that, in arriving at the ‘true’ or market value, account would in a case
like Hussey v Eels be taken of the potential of the property to be dealt with in exactly the
way it was in that instance; that is, by demolishing the bungalow and obtaining planning
permission to erect two new buildings on it. The potential for redevelopment, at least if
foreseeable, is similar to fluctuations in market value.

345. [2001] QCA 436.

346. [1990] 2 QB 227; [1990] 1 All ER 449.
347. [1990] 2 QB 227; [1990] 1 All ER 449.
348. Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436 at [19].
349. [1990] 2 QB 227; [1990] 1 All ER 449.
350. Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436 at [19].

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29.152 The Manwelland Pty Ltd v Dames & Moore Pty Ltd351 approach received a mixed
reception in Brown v Dream Homes SA Pty Ltd.352 In that case the purchaser of a house relied
upon a pre-purchase building inspection report that said that the house was structurally sound,
whereas there were problems with one of the walls of the house. The building inspector’s
negligence in preparing the report was held to constitute a breach of his contract with the
purchaser. The purchaser later sold the house. The major issue before the Full Court in
South Australia was the measure of damages that the purchaser could recover from the building
inspector. Layton J353 applied the approach in Manwelland Pty Ltd v Dames & Moore Pty Ltd354
and held that no damages were payable because the increase in the price offset all transaction
costs associated with the purchase and resale of the property. Kourakis J355 observed that
‘[t]he continuous transaction test posed in Hussey356 … has the potential to yield different
results depending upon fine factual distinctions’. However, because his Honour preferred to
apply what he referred to as the ‘crystallised loss approach’, it was unnecessary for him to resolve
the differences between Manwelland Pty Ltd v Dames & Moore Pty Ltd357 and Hussey v Eels.358
According to his Honour,359 the ‘crystallised loss approach’ method of assessment meant ‘that
generally the damages awarded to a prospective purchaser who would have cooled off but for
the [defendant’s] breach will include the difference between the price paid for the property
and its value and the transaction costs thrown away’. This approach would, of course, also
need to take into account any changes in market values. This approach, as was conceded by
his Honour,360 would have led him to exactly the same result that the Court of Appeal reached
on the facts of Hussey v Eels.361 Doyle CJ did not discuss the issue in any detail. However, his
Honour362 noted that he did not find the concept of continuous dealing ‘to be of any assistance
in this case’. Because of the way in which the purchaser had pleaded her claim and the fact
that both Doyle CJ and Kourakis J agreed that she be allowed to present further evidence in
support of her claim, their Honours remitted the matter for further hearing and made no
determinations as to the measure of damages to be paid by the building inspector.

Recovery of expenses
29.153 In cases of avoided loss the amount to be deducted from a plaintiff ’s damages is
the net gain after the deduction of reasonable expenses incurred.363 In other cases, reasonable
expenses incurred will be recoverable from the defendant. Furthermore, ‘in an appropriate
case, a party may recover loss constituted by reasonable attempts to mitigate his damage, even

351. [2001] QCA 436.

352. (2008) 102 SASR 93.
353. Brown v Dream Homes SA Pty Ltd (2008) 102 SASR 93 at 122.
354. [2001] QCA 436.
355. Brown v Dream Homes SA Pty Ltd (2008) 102 SASR 93 at 146.
356. Hussey v Eels [1990] 2 QB 227; [1990] 1 All ER 449.
357. [2001] QCA 436.
358. [1990] 2 QB 227; [1990] 1 All ER 449.
359. Brown v Dream Homes SA Pty Ltd (2008) 102 SASR 93 at 141.
360. Brown v Dream Homes SA Pty Ltd (2008) 102 SASR 93 at 145.
361. [1990] 2 QB 227; [1990] 1 All ER 449.
362. Brown v Dream Homes SA Pty Ltd (2008) 102 SASR 93 at 98.
363. Westwood v Secretary of State for Employment [1985] AC 20 at 44; [1984] 1 All ER 874 at 879–80.

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though the loss thus incurred exceeded what might otherwise have flowed from the breach of
contract’.364

Mitigation and damages for anticipatory breach

29.154 An anticipatory breach of contract does not of itself give rise to a right on the part of
the innocent party to damages for breach of contract. The right to sue for damages only arises if
the innocent party accepts the breach and terminates the contract.365 Accordingly, no question
of mitigation can arise until termination of the contract has taken place. If the innocent party
elects to keep the contract on foot, the right to damages only arises when actual breach occurs.
No question of mitigation arises whilst the contract is on foot.366

LOSS OF USE OF MONEY AND INTEREST ON DAMAGES

29.155 A court has the power to award interest in relation to a plaintiff ’s damages claim.
Interest on damages may be awarded by a court pursuant to relevant statutory provisions.367
The quantum of damages recovered will be either the interest that could have been earned by
investing the money or the interest paid to a lender if the plaintiff has had to borrow money as
a result of the breach. In MBP (SA) Pty Ltd v Gogic,368 the High Court said:
The function of an award of interest is to compensate a plaintiff for the loss or detriment
which he or she has suffered by being kept out of his or her money during the relevant
period.

It may also be that awarding interest serves the further purpose of encouraging early resolution
of litigation.369
29.156 Where interest of this kind is to be paid by the defendant, it ‘is not one of interest on
damages but of interest as damages’.370 In Haines v Bendall,371 Mason CJ, Dawson, Toohey, and
Gaudron JJ said:
An award of interest up to the date of judgment is an award of interest in the nature of
damages. This statement acknowledges that the award of interest is an integral element in the
attainment of the object of damages, namely, to compensate a plaintiff for injury sustained.

364. Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2008) 72 NSWLR 559 at 570.
365. Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 450; 9 ALR 309 at 312–13.
366. Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414 at 431.
367. The jurisdiction of superior courts to award interest on damages is found in Federal Court Act 1976
(Cth) ss 51A–52; Court Procedures Rules 2006 (ACT) r 1616; Civil Procedure Act 2005 (NSW) s 100;
Supreme Court Act (NT) ss 84–85; Supreme Court Act 1995 (Qld) ss 47–48; Supreme Court Act 1935 (SA)
ss 30C, 114; Supreme Court Civil Procedure Act 1932 (Tas) ss 34, 165; Supreme Court Act 1986 (Vic) ss 60,
101; Supreme Court Act 1935 (WA) ss 32, 142.
368. (1991) 171 CLR 657 at 663; 98 ALR 193 at 196, cited with approval in Grincelis v House (2000) 201 CLR 321
at 328; 173 ALR 564 at 569.
369. Grincelis v House (2000) 201 CLR 321 at 328–9; 173 ALR 564 at 569.
370. N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract, 11th Aust ed, LexisNexis Butterworths,
Australia, 2017, p 1212.
371. (1991) 172 CLR 60 at 66; 91 ALR 385 at 388, cited with approval in Screenco Pty Ltd v R L Dew Pty Ltd
(2003) 58 NSWLR 720 at 739.
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Hence the award of interest is compensatory in character … The award of interest for the
period of delay in payment between the date of accrual of the cause of action and judgment
affords the fair legal measure of compensation. Thus, it is the award of damages and, where
appropriate, interest awarded on damages for the period up until the judgment takes effect
which allows the plaintiff to be placed in or restored to the situation, as far as money can do,
in which he or she would have been but for the defendant’s negligence.

29.157 However, in some cases, such as where a plaintiff has been guilty of unreasonable
delay in commencing proceedings, a court can decline to order the defendant to pay interest for
the whole period of time between when the cause of action arose and the date of judgment.372
29.158 In Hungerfords v Walker,373 the High Court ruled that if a breach of contract deprived
a plaintiff of a specific sum of money that he or she would otherwise have had at his or her
disposal, damages can be awarded for the loss of the use of the money. In this case Hungerfords
were Walker’s accountants and made errors in calculating his deductions for depreciation. This
resulted in the overpayment of income tax for a number of years. Because of the passage of
time, Walker was unable to get a refund of some of the overpaid tax. He successfully sued
Hungerfords for damages to compensate him for the overpaid tax that could not be refunded
as well as for the loss of the use of the money. Mason CJ and Wilson J374 said:
Judged from a commercial viewpoint, the plaintiff sustains an economic loss if his damages
are not paid promptly, just as he sustains such a loss when his debt is not paid on the due
date. The loss may arise in the form of the investment cost of being deprived of money which
could have been invested at interest or used to reduce an existing indebtedness. Or the loss
may arise in the form of the borrowing cost, ie, interest payable on borrowed money or
interest foregone because an existing investment is realized or reduced.

ALTERNATIVE METHODS OF ASSESSMENT

29.159 If a defendant could perform a contract in a number of different ways, damages for
breach of the contract will be assessed on the basis that the defendant was in breach of the least
burdensome means of performing the contract.375 Thus, if a contract stipulates that a seller is
to deliver ‘100 tonnes of widgets, plus or minus 2%’ and the seller fails to deliver any widgets,
the seller’s liability for damages will be assessed on the basis of a failure to deliver 98 tonnes of
widgets.376
29.160 An analogous principle relates to contracts where there is an express right to cancel
a contract. If a defendant breaches a contract, but also has a contractual right to terminate
it, are damages assessed on the basis of the position the plaintiff would have been in had the
contract been performed as anticipated or only performed to the earliest date that the contract

372. Interchase Corporation Ltd (in liq) v Grosvener Hill (Qld) Pty Ltd (No 3) [2003] 1 Qd R 26 at 53.
373. (1989) 171 CLR 125; 84 ALR 119.
374. Hungerfords v Walker (1989) 171 CLR 125 at 143; 84 ALR 119 at 128.
375. Cockburn v Alexander (1848) 136 ER 459 at 1468–9; Gumland Property Holdings Pty Ltd v Duffy Bros Fruit
Market (Campbelltown) Pty Ltd (2008) 234 CLR 237 at 267–8; 244 ALR 1 at 26; Berry v CCL Secure Pty Ltd
(2020) 381 ALR 427 at 444.
376. Withers v General Theatre Corporation [1933] 2 KB 536 at 548–9.
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could have been terminated pursuant to the defendant’s contractual right to terminate? In
Maradelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos),377 the facts
concerned a breach of a charterparty. However, the charterer also had a contractual right to
terminate the charter by giving appropriate notice in writing to the ship’s owner. The court
assessed damages on the basis of the losses incurred from the date of breach to the earliest
date that the charterparty could have been terminated pursuant to the contractual right to
terminate.
29.161 However, just because a contract can be terminated early does not mean that principle
in this case will necessarily apply. In this respect, in Bartlett v Australia and New Zealand
Banking Group Ltd,378 Meagher JA said:
[T]he relevant inquiry is whether, had the breach or repudiatory conduct not occurred, the
party in breach nonetheless would have exercised a right to terminate which depended on
its ‘unrestricted volition’. This inquiry directs attention to the circumstances as they existed
at the time the breach or repudiatory conduct occurred, but on the hypothesis that such
conduct had not occurred.

29.162 The principle in The Mihalis Angelos379 was unsuccessfully argued in TCN Channel 9
Pty Ltd v Hayden Enterprises Pty Ltd,380 a case in which a contract between the parties was
repudiated by Channel 9 and subsequently terminated by Hayden. The contract gave Channel
9 a right to terminate upon giving three months’ notice. Such a termination would have meant
the end of transmission of ‘The Midday Show’, a highly successful program produced by
Hayden for Channel 9. Channel 9 sought to invoke the principle in The Mihalis Angelos,381 but
failed on the grounds that the evidence showed that at all times Channel 9 exhibited a desire to
broadcast the ‘The Midday Show’ and that it was very unlikely that it would exercise its right
to terminate the contract by giving three months’ notice simply to limit the amount of damages
to be paid to Hayden. In reaching that conclusion, Hope JA382 said that a court was not obliged to
assess damages by reference to ‘an improbable factual hypothesis’ and that it had to have regard
to the facts of the case to determine whether the repudiating party, if it had not repudiated, would
have exercised its lawful right of termination. His Honour383 then went on to say the following:
In some cases, the evidence may be silent as to whether the defendant would have exercised
the option apparently favourable to himself; in other cases, although not silent, the evidence
may not justify a finding that the defendant would not have exercised it. In these cases it can
be said that it is a natural inference from the terms of the contract that the defendant would

377. [1971] 1 QB 164; [1970] 1 All ER 673.

378. (2016) 92 NSWLR 639 at 662. See also The Commonwealth of Australia v Amann Aviation Pty Ltd
Commonwealth v Amann Aviation (1991) 174 CLR 64 at 149–50; 104 ALR 1 at 61; Port Macquarie-Hastings
Council v Diveva Pty Ltd [2017] NSWCA 97 at [82]; Berry v CCL Secure Pty Ltd (2020) 381 ALR 427 at 444.
379. Maradelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164;
[1970] 1 All ER 673.
380. (1989) 16 NSWLR 130.
381. Maradelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164;
[1970] 1 All ER 673.
382. TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 154.
383. TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 156, cited with approval in
Walker v Citigroup Global Markets Australia Pty Ltd (2006) 233 ALR 687 at 708.

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have exercised that option which in terms benefits him. It is not a natural inference when the
facts point to the opposite conclusion. In my opinion, consistently with the many authorities
which establish that regard can be had to evidence of facts between the time when a cause of
action arises and the time of trial in order to produce certainty where there would otherwise
be uncertainty, the general preference of the law for fact rather than hypothesis is applicable
to the principle under consideration. That principle does not require the assessment of
damages to be based on a fiction in disregard of the actual facts.

29.163 Until recently it was assumed that, in applying the principle in The Mihalis Angelos,384
a court was confined to making its assessment on the basis of facts as at the date of termination
of the contract by the plaintiff. However, following the decision in Golden Strait Corporation
v Nippon Yusen Kubishika Kaisha,385 a court may have regard to matters that happen after the
date of the breach which are relevant to the assessment of damages. In that case, in December
2001, charterers of a ship called ‘The Golden Victory’ repudiated their charterparty that was
due to run until mid-2005. Clause 33 of the charterparty gave both parties the right to cancel
the charter if war broke out between certain countries, including the United States, the United
Kingdom, and Iraq. On 20 March 2003 the Second Gulf War began between, on the one hand,
the United States and the United Kingdom, and, on the other, Iraq.
29.164 The issue before the House of Lords was whether the damages recoverable by the
ship’s owners included the value of their contractual rights for the full balance of the term
of the charterparty or whether the effect of Clause 33 was to limit the claim to the period to
20 March 2003. In light of the finding of fact that the charterers would have invoked Clause 33
when the war broke out, a bare majority of the House of Lords held that to have allowed recovery
of damages for the whole of the term of the charter after the charterer’s repudiation, would have
been, in the words of Lord Scott,386 ‘inconsistent with the overriding compensatory principle on
which awards of contractual damages ought to be based’. The approach of the House of Lords
was endorsed by the Court of Appeal in New South Wales in Janos v Chama Motors Pty Ltd,387
where Handley AJA said that ‘[i]n awarding damages for prospective loss the court takes into
account later events that increase or diminish that loss’.

Loss of discretionary benefits

29.165 A contract may stipulate that certain benefits may be conferred upon a promisee at the
discretion of the promisor. A common example is in the context of employment contracts, where
the employee is to be paid a base salary plus any bonuses to be determined at the discretion
of the employer. The question that arises in such a contract is whether an employer, who has
breached the employment contract, will be liable in damages to the employee in relation to the
discretionary bonus clause of the contract.

384. Maradelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164;
[1970] 1 All ER 673.
385. [2007] 2 AC 353; [2007] 3 All ER 1.
386. Golden Strait Corporation v Nippon Yusen Kubishika Kaisha Kubishika Kaisha [2007] 2 AC 353 at 382;
[2007] 3 All ER 1 at 19.
387. [2011] NSWCA 238 at [36].

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29.166 The critical issue in such cases is whether there is a contractual obligation to pay
bonuses. If, as occurred in Lavarack v Woods of Colchester Ltd,388 there is no such obligation,
there can be no recovery of damages for any lost bonuses because the defendant cannot be
liable in damages for something he or she was not obliged to do.389
29.167 However, the situation in Lavarack v Woods of Colchester Ltd390 must be contrasted
with that where there is a contractual obligation to pay bonuses, but the contract leaves it to the
discretion of the employer as to the amount to be paid. As was pointed out by Lord Sumption
in British Telecommunications plc v Telefónica 02 UK Ltd,391 ‘it is well established that in the
absence of very clear language to the contrary, a contractual discretion must be exercised in
good faith and not arbitrarily or capriciously’. For example, in Cantor Fitzgerald International
v Horkulak,392 Clause 3(b)(ii) of Horkulak’s contract of employment with Cantor Fitzgerald
International (CFI) stipulated that, in addition to his fixed salary, CFI ‘may in its discretion, pay
you an annual discretionary bonus … the amount of which shall be mutually agreed by yourself,
the Chief Executive of [CFI] and the President of Cantor Fitzgerald Limited Partnership,
however the final decision shall be in the sole discretion of the President of Cantor Fitzgerald
LP’. In his claim for damages for wrongful dismissal, Horkulak was successful in recovering, as
part of his damages claim, compensation for lost bonuses, as well as lost salary. In a unanimous
joint judgment, the English Court of Appeal393 ruled that clause 3(b)(ii) was ‘to be read as a
contractual benefit to the employee, as opposed to being a mere declaration of the employer’s
right to pay a bonus if he wishes, a right which he enjoys regardless of contract’. The Court of
Appeal394 concluded as follows:
The broad principle that a defendant in an action for breach of contract is not liable for doing
that which he is not bound to do will not be applicable willy-nilly in a case where the employer
is contractually obliged to exercise his discretion rationally and in good faith in awarding or
withholding a benefit provided for under the contract of employment. Where the employer
fails to do so, the employee is entitled to be compensated in respect of such failure.

29.168 In terms of exercising a discretion of the kind found in Cantor Fitzgerald International
v Horkulak,395 in Silverbrook Research Pty Ltd v Lindley396 Allsop P said:
[T]he decision as to whether the [employee] should receive the bonus … should not be
construed so as to permit the [employer] to withhold the bonus capriciously or arbitrarily
or unreasonably; it should not be construed so as to give the [employer] a free choice as
to whether to perform or not a contractual obligation. … The discretion is to be exercised

388. [1967] 1 QB 278; [1966] 3 All ER 683.

389. Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 at 294; [1966] 3 All ER 683 at 690; Durham Tees Valley
Airport Ltd v Bmibaby Ltd [2011] 1 Lloyd’s Rep 68 at 83–4.
390. [1967] 1 QB 278; [1966] 3 All ER 683.
391. [2014] 4 All ER 907 at 923.
392. [2004] EWCA Civ 1287.
393. Cantor Fitzgerald International v Horkulak [2004] EWCA Civ 1287 at [46].
394. Cantor Fitzgerald International v Horkulak [2004] EWCA Civ 1287 at [48].
395. [2004] EWCA Civ 1287.
396. [2010] NSWCA 357 at [5]–[6]. See also Walker v Andrew [2002] NSWCA 214 at [42]; Socimer International
Bank Ltd (in liq) v Standard Bank London Ltd [2008] EWCA Civ 116 at [66]; Braganza v BP Shipping Ltd
[2015] 4 All ER 639 at 647–8, 655–6, 664–5.

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honestly and conformably with the purposes of the contract. There may be many
circumstances in which it would be legitimate, and conformable with the purposes of the
contract, not to pay the bonus. There may be financial stringency or misbehaviour by the
[employee] or some other consideration. … What, however, would not be permitted is an
unreasoned, unreasonable, arbitrary refusal to pay anything, come what may.

29.169 In assessing damages for a breach of such a term, a judge is not permitted simply
to substitute his own view of what would have been a reasonable payment for the decision
maker’s. Rather the judge is ‘required to put himself in the shoes of those making the decision,
and consider what decision, acting rationally, and not arbitrarily or perversely, they would have
reached as to the amount to be paid’.397 On so doing the judge ‘cannot … assume … that the
discretion would have been exercised so as to give the least possible benefit to a claimant, if
such an assumption would be unrealistic on the facts’.398

397. Cantor Fitzgerald International v Horkulak [2004] EWCA Civ 1287 at [51].
398. Rutherford v Seymour Pierce Ltd [2010] EWHC 375 (QB) at [33].

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ACTIONS FOR A FIXED SUM AND DEBT

INTRODUCTION
30.1 This chapter deals with the recovery by a plaintiff of sums of money fixed by a contract.
Such sums can fall into two categories, each of which is governed by its own rules. The first
category relates to sums known as liquidated damages and concerns a fixed sum that the parties
have agreed upon as being the amount due to the plaintiff upon breach of the contract by the
defendant. However, a clause setting out such a sum will not always be enforceable on the
ground that the sum stipulated constitutes a penalty. The second category relates to actions for
a debt. Such an action will arise where a contract imposes an obligation to pay a sum of money
and the right to payment of that sum has accrued to the plaintiff. Each of these categories will
be considered in turn.

LIQUIDATED DAMAGES
30.2 In many contracts the parties will include a clause that sets out what their obligations
to each other will be in the event that one of them breaches the contract. In the paradigm case,
a clause will stipulate the sum of money to be paid by the contract breaker to the other party
as compensation for the breach of contract. Less frequently, the clause will stipulate the sum
to be paid if the contract is terminated pursuant to a contractual right to terminate, even if the
contractual right can be exercised in the absence of a breach of contract.1 In either case, such
a clause is generally referred to as a ‘liquidated damages clause’ or an ‘agreed damages clause’.
30.3 The advantage of such a clause is that, subject to the power of the court in appropriate
cases to grant relief against forfeiture,2 the plaintiff does not have to prove any loss or damage
in relation to the breach of contract, as the obligation cast upon the defendant is enforceable
against the defendant upon the plaintiff ’s termination of the contract for the defendant’s
breach.3 Thus, the plaintiff recovers the sum stipulated as a debt. In relation to the advantages
of such clauses, in AMEV-UDC Finance Ltd v Austin,4 Mason and Wilson JJ said:

1. O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; 45 ALR 632.
2. See 24.118–24.133.
3. Boucaut Pay Co Ltd v The Commonwealth (1927) 40 CLR 98 at 106–7.
4. (1986) 162 CLR 170 at 193; 68 ALR 185 at 201. See also Paciocco v Australia and New Zealand Banking
Group Ltd (2016) 258 CLR 525 at 616; 333 ALR 569 at 631.

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In the case of provisions for agreed compensation and, perhaps, provisions limiting liability,
that latitude is mutually beneficial to the parties. It makes for greater certainty by allowing
the parties to determine more precisely their rights and liabilities consequent upon breach or
termination, and thus enables them to provide for compensation in situations where loss may
be difficult or impossible to quantify or, if quantifiable, may not be recoverable at common
law. And they may do so in a way that avoids costly and time-consuming litigation.

Building contracts commonly include liquidated damages clauses setting the sum to be paid by
builders who do not complete the building works on time.5
30.4 However, such a clause will not always be enforceable if it constitutes a ‘penalty’. In
Andrews v Australia and New Zealand Banking Group Ltd,6 the High Court said the following
about what constitutes a penalty:
In general terms, a stipulation prima facie imposes a penalty on a party (the first party) if,
as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of
a second party and this collateral stipulation, upon the failure of the primary stipulation,
imposes upon the first party an additional detriment, the penalty, to the benefit of the second
party. In that sense, the collateral or accessory stipulation is described as being in the nature
of a security for and in terrorem of the satisfaction of the primary stipulation.

30.5 The jurisdiction to relieve against penalties is historically rooted in the practice of equity,
although by the end of the 17th century, the common law courts also had established a similar
jurisdiction that was later regulated by statute. By the time the modern law relating to penalties
was settled in the seminal decision of Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co
Ltd,7 the issue of whether the law on penalties had its origin in equity or the common law was
viewed as being immaterial.8 Relief against penalties is based upon ‘the underlying principle
of equity that effect will not be given to a contractual provision that produces unconscientious
results’.9
30.6 In ascertaining whether any contractual term is a penalty, this chapter will focus upon
the paradigm case of a liquidated damages clause as defined above.10 However, the penalty rule
applies to other clauses that stipulate what is to occur upon breach of a contract. Examples of
such clauses include:
• clauses requiring the contract breaker to transfer property, such as shares, in the event of a
breach of contract, rather than pay a sum of money;11

5. J-Corp Pty Ltd v Mladenis [2009] WASCA 157 at [7].

6. (2012) 247 CLR 205 at 216; 290 ALR 595 at 597–8.
7. [1915] AC 79.
8. Austin v United Dominions Corporation Ltd [1984] 2 NSWLR 612 at 625–6. On the historical development
of the jurisdiction with respect to penalties, see N A Tiverios, Contractual Penalties in Australia and the
United Kingdom, History, Theory and Practice, The Federation Press, Alexandria, 2019, pp 9–44; Andrews
v Australian and New Zealand Banking Group Ltd (2011) 288 ALR 611 at 616–38; Wilaci Pty Ltd v Torchlight
Fund No 1 LP (in rec) [2017] 3 NZLR 293 at 307–9.
9. Killarney Investments Pty Ltd v Macedonian Community of WA (Inc) [2007] WASCA 180 at [90]. See also
AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193; 68 ALR 185 at 201.
10. See 30.2.
11. Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551 at 555.

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• clauses authorising the innocent party, following a breach of contract, to retain, withhold,
or extinguish payments due to the contract breaker, but not yet paid. Thus, in Gilbert-Ash
(Northern) Ltd v Modern Engineering (Bristol) Ltd,12 the provision enabled contractors to
suspend or withhold payment of large sums of money payable by them to subcontractors in
the event of the subcontractors committing a breach of contract;
• clauses ‘entitling the innocent party to the retransfer of property which had previously been
transferred to the contract breaker’;13 and
• clauses ‘requir[ing] a contract breaker to forfeit a deposit or sum of money due or to become
due to the other party in the event of breach’.14

30.7 On the other hand, ‘if a sum of money is payable by instalments and it is provided that,
in the event of one instalment not being punctually paid, the whole sum shall immediately
become payable, the acceleration of payment is not a penalty’.15 However, this principle is
contingent upon the original sum of money to be paid being a presently existing debt. The
principle does not apply if the sum is merely one that the plaintiff claims is owed. Thus, if A
claims that he or she is owed $X by B and the claim is settled out of court on the basis that B
will pay, by agreed instalments, the lesser sum of $Y, if the settlement agreement also stipulates
that a breach by B in paying any of the instalments will mean that B must pay the full amount
claimed ($X), such a stipulation will be viewed as a penalty. This is so because the settlement
out of court means that A’s claim for $X was never established as a presently existing debt; it
was merely an amount claimed.16

The basis of intervention against penalties

30.8 In Ringrow Pty Ltd v BP Australia Pty Ltd,17 the High Court observed that the ‘law of
contract normally upholds the freedom of parties, with no relevant disability, to agree upon
the terms of their future relationships’, and that the law on penalties is an exception to that
principle that ‘require[d] good reason to attract judicial intervention to set aside the bargains
upon which parties of full capacity have agreed’.
30.9 Critics of the law against penalties have argued that the enforceability of agreed damages
clauses should not be determined by the principles relating to penalties. Rather, these clauses
should be upheld subject to relief being granted pursuant to principles related to vitiating factors
under the general law, especially duress and unconscionability, as well as related legislative
provisions. Indeed, this approach has to some extent been adopted in Canada, where an agreed
damages clause will not be a penalty in the absence of oppression.18

12. [1974] AC 689; [1973] 3 All ER 195.

13. General Trading Company (Holdings) Ltd v Richmond Corporation Ltd [2008] 2 Lloyd’s Rep 475 at 496.
14. General Trading Company (Holdings) Ltd v Richmond Corporation Ltd [2008] 2 Lloyd’s Rep 475 at 496.
15. O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at CLR 366; 45 ALR 632 at 635.
16. Zenith Engineering Pty Ltd v Qld Crane and Machinery Pty Ltd [2000] QCA 221 at [4], [9], [13].
17. (2005) 224 CLR 656 at 669; 222 ALR 306 at 314. See also Elsley v J G Collins Insurance Agencies Ltd [1978]
2 SCR 916 at 937; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193–4; 68 ALR 185 at 201–2;
Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109 at [11]; Paciocco v Australia and New Zealand
Banking Group Limited (2016) 258 CLR 525 at 594–5; 333 ALR 569 at 615; 127 Hobson Street Ltd v Honey
Bees Preschool Ltd [2020] NZSC 53 at [57].
18. Elsey v J G Collins Insurance Agencies Ltd [1978] 2 SCR 916 at 937. See also P Hachem, Agreed Sums Payable
Upon Breach of an Obligation, Eleven International Publishing, The Hague, 2011, pp 84–5.
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30.10 Notwithstanding criticism of the penalties doctrine, in Cavendish Square Holding

BV v El Makdessi,19 the United Kingdom Supreme Court unanimously rejected a submission
that the penalties doctrine should be abolished or limited to apply only in non-commercial
contracts. In rejecting the argument for abolishing the law on penalties Lord Hodge20 gave the
following reasons:
First, there remain significant imbalances in negotiating power in the commercial world. Small
businesses often contract with large commercial entities and have little say as to the terms of
their contracts. … Secondly, abolition of the rule against penalties would go against the flow
of legal developments both nationally and internationally. … Thirdly, I am not persuaded
that the rule against penalties prevents parties from reaching sensible arrangements to fix
the consequences of a breach of contract and thus avoid expensive disputes. The criterion
of exorbitance or unconscionableness should prevent the enforcement of only egregious
contractual provisions.

Establishing the existence of a penalty

30.11 The critical feature that distinguishes an enforceable liquidated damages clause from a
penalty was described in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd,21 where
Lord Dunedin said:
The essence of a penalty is a payment of money stipulated as in terrorem of the offending
party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.

30.12 In Paciocco v Australia and New Zealand Banking Group Ltd,22 Kiefel J described the
policy that underpinned the law on penalties as being that ‘a sum may not be stipulated for
payment on default if it is stipulated as a threat over the person obliged to perform; it may not
be stipulated where the purpose and effect of requiring payment is to punish the defaulting
party’. In the same case, Keane J23 said that ‘[t]he real objection, as a matter of public policy, to a
penalty clause which operates upon breach of contract is that it is no part of the law of contract
to allow one party to punish the other for non-performance’.
30.13 Thus, the critical question in determining whether a clause is a penalty or not,
is whether the sum stipulated in the clause is a genuine pre-estimate of the loss likely to be
suffered by the plaintiff.24 The expression ‘genuine’ does not ‘turn upon the genuineness or
honesty of the party or parties who made the pre-estimate. The test is primarily an objective
one, even though the court has some regard to the thought processes of the parties at the time
of contracting.’25 A clause will not be a genuine pre-estimate of the likely loss to be suffered if

19. [2016] AC 1172; [2016] 2 All ER 519.

20. Cavendish Square Holding BV v El Makdessi [2016] AC 1172 at 1278–9; [2016] 2 All ER 519 at 609–10.
21. [1915] AC 79 at 86.
22. (2016) 258 CLR 525 at 548; 333 ALR 569 at 580.
23. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 605–6; 333 ALR 569
at 623.
24. Zachariadis v Allforks Australia Pty Ltd (2009) 26 VR 47 at 67; Arab Bank Australia Ltd v Sayde Developments
Pty Ltd (2016) 93 NSWLR 231 at 250.
25. Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] EWHC 281 (TCC) at [48].

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the sum stipulated amounts to a threat designed to induce the debtor to perform the contract.
Hachem26 notes that ‘[t]he reasoning behind this approach is that parties are not allowed to
compel each other to perform the contract by threatening what is perceived as punishment, ie
the payment of the agreed sum’.
30.14 In Bridge v Campbell Discount Co Ltd,27 Lord Radcliffe indicated that the words ‘in
terrorem’ did not add anything to the idea conveyed by the word ‘penalty’. It is clear that the
words do not refer to an obligation to make a payment extracted as the result of duress or
unconscionability. Thus, the critical issue that a court has to determine is whether words
used in a contract are intended to deter one party from committing a breach of contract, or to
compensate the innocent party for a breach committed by that party.
30.15 Because the power to strike down a penalty constitutes an interference with the parties’
freedom to contract, the burden of proof in establishing that the clause is a penalty lies with
the party seeking to escape liability under it — that is, the party claiming that the clause is a
penalty.28 As to the frequency with which courts will find that a liquidated damages clause is
a penalty, courts will be reticent in finding that there is a penalty in arms-length commercial
contracts29 and/or have received legal advice as to the nature and effect of the contract.30

Penalties and breach of contract

30.16 It has traditionally been accepted that the law on penalties is confined to clauses
stipulating the payment of money in relation to a breach of contract, and that it does not
apply to clauses in a contract relating to the payment of money on the occurrence of an
event other than a breach of contract.31 This rule has been widely criticised.32 For example,
if a contract between X and Y states that it can be terminated in the case of Y’s breach or
bankruptcy, the loss to X is the same in both cases. There seems to be no reason why a
liquidated damages clause in the contract is capable of being classified as a penalty in the first
case, but not in the second.
30.17 However, in Andrews v Australia and New Zealand Banking Group Ltd,33 after an
analysis of the history of penalties, the High Court held that the penalties doctrine is not confined
to stipulated sums to be paid upon breach of contract. In this the High Court was concerned
with whether certain fees payable by a bank’s customers were capable of being classified as
penalties even though those fees did not require a breach of contract to occur before being
payable. An example of such fees included over the limit and late payment fees charged by

26. Hachem, Agreed Sums Payable Upon Breach of an Obligation, note 18 above, p 36.
27. [1962] AC 600 at 622; [1962] 1 All ER 385 at 395.
28. Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 at 527; Arab Bank Australia Ltd
v Sayde Developments Pty Ltd (2016) 93 NSWLR 231 at 244.
29. Lansat Shipping Co Ltd v Glencore Grain BV (The ‘Paragon’) [2009] 2 Lloyd’s Rep 688 at 694; Makdessi
v Cavendish Square Holdings BV [2013] EWCA Civ 1539 at [75].
30. 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53 at [89].
31. Export Credits Guarantee Department v Universal Oil Products Co [1983] 2 All ER 205 at 223.
32. C J Rossiter, Penalties and Forfeiture, Law Book Co Ltd, Sydney, 1992, pp 66–70.
33. (2012) 247 CLR 205; 290 ALR 595. The approach of the High Court on this issue was rejected by the Supreme
Court in the United Kingdom in Cavendish Square Holding BV v El Makdessi [2016] AC 1172 at 1207–8;
[2016] 2 All ER 519 at 541.

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the bank in relation to credit card accounts. In its later decision in Paciocco v Australia and
New Zealand Banking Group Ltd,34 the High Court held that these fees were not penalties.
On the other hand, in Kay v Payup Australia Pty Ltd,35 the Court of Appeal held that the
deprivation of contractual rights can constitute a penalty.
30.18 It should also be noted that, in the context of a loan contract, a clause that stipulates
that interest on the loan is, for example, to be 50 per cent per annum, but that only 10 per cent
per annum is payable if regular loan repayments are made on particular dates, is not construed
as a penalty in relation to the amount of interest payable if loan repayments are not paid on
those dates.36 This is so because the higher interest payment is not payable because of a breach
of contract — it is payment in accordance with the contractual obligation, and the payment of
the reduced rate of interest is merely a concession and not penal in nature. However, if the loan
document is differently drafted and stipulates that interest at the rate of 10 per cent per annum
was payable, but that interest at a higher percentage rate would apply to loan repayments
that were not paid on the stipulated dates, the clause will be classified as a penalty unless the
payment of at a higher percentage rate is a genuine pre-estimate of the lender’s loss in such
circumstances.37 This approach has been criticised on the basis that ‘the distinction [between
them] depends upon form and has nothing whatever to do with substance’.38
30.19 On the other hand, even though a clause in a mortgage ‘that imposes higher and lower
rates of interest is able to avoid the application of the law concerning penalties, by making the
lower rate a bonus for compliance rather than a penalty for breach, a mortgage so drafted can
still be looked at for its substantial commercial effect when one is considering whether it is
unjust within the meaning of the Contracts Review Act [1980 (NSW)]’.39 Furthermore, such
clauses may be found to operate in violation of the statutory unconscionability provisions set
out in the Australian Consumer Law or the Australian Securities and Investments Commission
Act 2001 (Cth).40

The principles in the Dunlop case

30.20 In Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd,41 Lord Dunedin, in a
speech that has been said to have ‘achieved the status of a quasi-statutory code’,42 summarised
the basic principles governing the distinction between enforceable liquidated damages

34. (2016) 258 CLR 525; 333 ALR 569. See 30.24.
35. [2020] NSWCA 33 at [93].
36. Wallingford v Mutual Society (1880) 5 App Cas 685 at 702; O’Dea v Allstates Leasing System (WA) Pty Ltd
(1983) 152 CLR 359 at 366; 45 ALR 632 at 635; King Investment Solutions Pty Ltd v Hussain [2005] NSWSC
1076 at [138]; Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233 at 240–1, 246–50; Re Application of Mango
Credit Pty Ltd [2016] NSWSC 199 at [58].
37. Lordsvale Finance plc v Bank of Zambia [1996] QB 752 at 763–7; [1996] 3 All ER 156 at 166–70; Beil
v Mansell (No 2) [2006] 2 Qd R 499 at 508; Yarra Capital Group Pty Ltd v Sklash Pty Ltd [2006] VSCA 109
at [19]–[21]; Cavendish Square Holding BV v El Makdessi [2016] AC 1172 at 1245–6; [2016] 2 All ER 519
at 577–8 [146]–[148]; Lombard North Central Plc v European Skyjets Ltd [2020] EWHC 679 (QB) at [53].
38. Rossiter, Penalties and Forfeiture, note 32 above, p 120.
39. Kowalczuk v Accom Finance (2008) 77 NSWLR 205 at 244.
40. PSAL Ltd v Kellas-Sharpe [2012] QSC 31 at [84]–[120].
41. [1915] AC 79 at 86–8.
42. Cavendish Square Holding BV v El Makdessi [2016] AC 1172 at 1199; [2016] 2 All ER 519 at 533.

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clauses and penalties. In Ringrow Pty Ltd v BP Australia Pty Ltd,43 the High Court, although
reaffirming Lord Dunedin’s statement of principles hinted that perhaps they may need to be
reformulated in the light of either some specific features of Australian conditions or elements
of the contemporary marketplace, but left consideration of that question and reformulation
of principles, if any, to a future case where such matters were issues before the court.44 In the
meantime, these principles reflect the legal position in Australia.45
30.21 The principles set out by Lord Dunedin can be summarised as follows:
• The operation of the clause as either a liquidated damages clause or penalty is determined
by construing the clause with reference to the circumstances as they existed at the time
the contract was entered into.46 The nature and purpose of the contract, together with the
relative positions of the parties, are often weighty factors to be taken into account in the
process of construction. Thus, where the contracting parties are well equipped to protect
their respective commercial interests, it is less likely that a liquidated damages clause will
be classified as a penalty.47
• The use of the words ‘penalty’ or ‘liquidated damages’ in the clause is not conclusive as to
the effect of the clause. Thus, in Clydebank Engineering and Shipbuilding Co Ltd v Don Jose
Ramos Yzquierdo y Castaneda,48 a clause used the word ‘penalty’, but was construed as a
liquidated damages clause.
• A clause will be a penalty if the sum stipulated ‘is extravagant and unconscionable in amount
in comparison with the greatest loss that could conceivably be proved to have followed from
the breach’.49 In AMEV-UDC Finance Ltd v Austin,50 it was said that a clause would be a
penalty if the sum stipulated is ‘out of all proportion to damage likely to be suffered as a
result of the breach’. In Ringrow Pty Ltd v BP Australia Pty Ltd,51 the High Court said that
what was required was ‘a “degree of disproportion” sufficient to point to oppressiveness’.
In Cavendish Square Holding BV v El Makdessi,52 the Supreme Court posed the question in
terms of ‘whether [the sum agreed] is … out of all proportion to any legitimate interest of
the innocent party in the enforcement of the primary obligation’. As was noted by Keane J
in Paciocco v Australia and New Zealand Banking Group Ltd,53 these expressions ‘function
as pointers towards the punitive purpose which imbues the challenged provision with the
character of a punishment’. What is also clear from this terminology is that ‘not every sum
in excess of what might be strictly compensatory will amount to a penalty’.54 Thus, when

43. (2005) 224 CLR 656 at 663; 222 ALR 306 at 309.
44. In Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 566–7; 333 ALR 569
at 583, Gageler J observed that the decision in ‘Dunlop is to be treated as continuing authority in Australia’.
45. Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231 at 243.
46. Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231 at 244; Australia Capital
Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99 at [329].
47. Tullett Prebon Group Ltd v El-Hajjali [2008] EWHC 1924 (QB) at [32].
48. [1905] AC 6.
49. Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 87.
50. (1986) 162 CLR 170 at 190; 68 ALR 185 at 199.
51. (2005) 224 CLR 656 at 669; 222 ALR 306 at 312.
52. [2016] AC 1172 at 1204; [2016] 2 All ER 519 at 538, cited with approval in Wilaci Pty Ltd v Torchlight Fund
No 1 LP (in rec) [2017] 3 NZLR 293 at 311.
53. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 611; 333 ALR 569 at 628.
54. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 553; 333 ALR 569 at 584.

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making the comparison between the amount stipulated in the clause and the likely loss
to be suffered by the plaintiff, a court should not compare the actual loss occasioned by
breach and the amount provided for in the contract.55 The court can take into account
the business or financial interests of the non-defaulting party.56 What emerges from the
decision in Paciocco v Australia and New Zealand Banking Group Ltd57 is that the protection
afforded by a liquidated damages clause may extend to interests that the innocent party
has in the contractual performance that are intangible and unquantifiable.58 Furthermore,
relevant considerations in assessing whether a clause is a penalty include whether there is
an inequality of bargaining power between the parties to the contract.59 In such cases ‘the
strong initial presumption must be that the parties themselves are the best judges of what is
legitimate in a provision dealing with the consequences of breach’.60
• If the defendant’s breach is of an obligation to pay a sum of money, a clause that stipulates
a sum that is merely greater than the sum which ought to have been paid is, as was pointed
out by Gageler J in Paciocco v Australia and New Zealand Banking Group Ltd,61 an indicator,
but no more than that, that the clause is a penalty.
• There is a rebuttable, but weak,62 presumption that a clause is a penalty if it stipulates that
the same sum is to be paid ‘on the occurrence of one or more or all of several events, some
of which may occasion serious and others but trifling damage’.63 This point was further
clarified in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd 64 by Lord Parker of
Waddington, who observed that the presumption applied in cases where the losses suffered
as a result of the breaches is not of the same kind. Where the losses from the breaches are of
the same kind, the fact that the extent of the losses vary from breach to breach does not raise
the inference that the clause is a penalty. Furthermore, the presumption will be ‘rebutted
by the fact that the damage by default may be of such an uncertain nature that it cannot
accurately be ascertained’.65
• ‘[I]t is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that
the consequences of the breach are such as to make precise pre-estimation almost an
impossibility. On the contrary, that is just the situation when it is probable that pre-estimated
damage was the true bargain between the parties.’66

55. Wilaci Pty Ltd v Torchlight Fund No 1 LP (in rec) [2017] 3 NZLR 293 at 310.
56. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 547; 333 ALR 569 at 579–80;
Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161 at [171].
57. (2016) 258 CLR 525; 333 ALR 569.
58. Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161 at [6].
59. Wilaci Pty Ltd v Torchlight Fund No 1 LP (in rec) [2017] 3 NZLR 293 at 311; 127 Hobson Street Ltd v Honey
Bees Preschool Ltd [2020] NZSC 53 at [89]–[90].
60. Cavendish Square Holding BV v El Makdessi [2016] AC 1172 at 1205; [2016] 2 All ER 519 at 539.
61. (2016) 258 CLR 525 at 575; 333 ALR 569 at 601.
62. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 581–2, 610; 333 ALR 569
at 606, 627; Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231 at 244.
63. Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 87.
64. [1915] AC 79 at 98.
65. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 550; 333 ALR 569 at 581.
66. Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 87–8.

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Illustrative cases
30.22 In Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd,67 Dunlop sold tyres,
covers, and tubes to New Garage, which then sold these items to the public. New Garage agreed
not to alter, remove, or tamper with the markings on the tyres and tubes, not to resell the
goods below prices stipulated in the contract, not to supply goods to certain customers, and
not to export the goods. Clause 5 of the contract stipulated that New Garage would pay £5 for
each tyre, cover, or tube that was sold below the stipulated price. New Garage breached the
terms of Clause 5 by selling tyres and tubes below the stipulated prices. Dunlop sought to
enforce Clause 5. The question to be determined was whether Clause 5 was a penalty. The
House of Lords held that it was not a penalty. In coming to that conclusion, the House of Lords
focused on the point that difficulty in assessing damages that Dunlop would suffer as a result
of New Garage’s breach did not mean that Clause 5 was a penalty. Rather, as Lord Dunedin had
pointed ‘that is just the situation when it is probable that pre-estimated damage was the true
bargain between the parties’.68
30.23 In ParkingEye Ltd v Beavis,69 a contract for parking a car in a parking station operated
by ParkingEye stipulated that, for the first two hours of parking one’s car, no charge was
payable. However, if a customer (in this case, Beavis) overstayed, the customer was liable to pay
a charge of £85, although the charge would be reduced to £50 if that sum was promptly paid.
The issue before the court was whether the payment charge was a penalty. It was recognised
that ParkingEye would not suffer any damage as a result of any overstay by Beavis. It was also
recognised that the imposition of the charge was penal in nature and had a deterrent purpose
of encouraging customers not to park their cars at the parking station for more than two hours.
However, the Supreme Court, by a 6-1 majority, held that the clause imposing the charge was
not a penalty. In this respect, Lords Neuberger and Sumption70 said:
[T]he £85 charge had two main objects. One was to manage the efficient use of parking
space in the interests of the retail outlets, and of the users of those outlets who wish to find
spaces in which to park their cars. This was to be achieved by deterring commuters or other
long-stay motorists from occupying parking spaces for long periods or engaging in other
inconsiderate parking practices, thereby reducing the space available to other members of
the public, in particular the customers of the retail outlets. The other purpose was to provide
an income stream to enable ParkingEye to meet the costs of operating the scheme and make
a profit from its services, without which those services would not be available. These two
objectives appear to us to be perfectly reasonable in themselves. Subject to the penalty rule,
… the imposition of a charge to deter overstayers is a reasonable mode of achieving them.
Indeed, once it is resolved to allow up to two hours free parking, it is difficult to see how else
those objectives could be achieved. In our opinion, while the penalty rule is plainly engaged,
the £85 charge is not a penalty. The reason is that although ParkingEye was not liable to
suffer loss as a result of overstaying motorists, it had a legitimate interest in charging them
which extended beyond the recovery of any loss.

67. [1915] AC 79.

68. Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 87–8.
69. [2016] AC 1172; [2016] 2 All ER 519.
70. ParkingEye Ltd v Beavis [2016] AC 1172 at 1226; [2016] 2 All ER 519 at 558. For an analysis of this case
see S Rowan, ‘The “Legitimate Interest in Performance” in the Law on Penalties’ (2019) 78 Cambridge Law
Journal 148.

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30.24 In Paciocco v Australia and New Zealand Banking Group Ltd,71 the facts related to
whether late payment fees for credit card and business accounts that Paciocco had with
the Australia and New Zealand Banking Group Ltd (the Bank). Paciocco argued that they
constituted a penalty. By a majority of 4-1 the High Court ruled against Paciocco. The
majority held that the late payment fees were not a penalty because the amounts to be paid
were not out of all proportion in relation to protecting the Bank’s legitimate interests in the
event that payments on the accounts were not paid on time. In coming to this conclusion,
Keane J72 said:
[T]he bank’s legitimate interests are not confined to the reimbursement of the expenses
directly occasioned by the customer’s default. The maintenance or even enhancement of [its]
revenue stream, for the purpose of making a profit, is one explanation of the late payment
fee. Indeed, it is the most obvious explanation because, generally speaking, it is the purpose
which informs all the terms on which a bank makes its facilities available to its customers.
And although interest payments are the primary source of reward to a bank for financial
risks involved in the provision of financial accommodation to its customers, there is no legal
reason why a bank’s fees and charges may not serve the same purpose. In short, the late
payment fee is readily characterised by the purpose of ensuring that [the Bank’s] revenues
are maintained at the level of profitability required by its shareholders.

Kiefel J,73 in describing the Bank’s legitimate interests, said:

The [Bank] had an interest in receiving timeous repayment of the credit that it extended to
its customers, including the appellants. … [L]ate payment impacted the [Bank’s] interests
in three relevant respects: through operational costs, loss provisioning and increases in
regulatory capital costs.

30.25 In adopting the approach of the above two cases, the Supreme Court in New Zealand
in 127 Hobson Street Ltd v Honey Bees Preschool Ltd74 said that they stood for the proposition
that ‘[a] clause stipulating a consequence for breach of a term of the contract will be an
unenforceable penalty if the consequence is out of all proportion to the legitimate interests of
the innocent party in performance of the primary obligation’, that a legitimate interest ‘includes
an interest in enforcing performance or some appropriate alternative to performance’, and that
‘[a] consequence will be out of all proportion if the consequence can fairly be described as
exorbitant when compared with those legitimate interests’. In detailing what constituted a
legitimate interest, the Supreme Court75 said:
A legitimate interest is an interest in performance of the primary obligation. A party to
a contract may therefore impose consequences for breach which protect its interest in
performance of the contract. …

71. (2016) 258 CLR 525; 333 ALR 569.

72. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 593; 333 ALR 569
at 614–15.
73. Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at 555; 333 ALR 569 at 585.
74. [2020] NZSC 53 at [56]. See also Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161
at [171].
75. 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53 at [59]–[61].
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

It is clear that the legitimate interests so described may extend beyond the harm caused by
the breach as measured by a conventional assessment of contractual damages. Those interests
cannot be measured simply by reference to the loss caused by the particular breach — the
parties may agree to consequences for breach which recognise the broader impact of non-
performance on the commercial interests the parties seek to achieve through the contract.

While legitimate interests will not include objectives unrelated to the performance interest,
such as punishment, what is also plain is that deterring breach can be a legitimate objective
of a clause. Deterring breach is simply the flip side of securing performance.

30.26 In assessing whether a clause is a penalty the Supreme Court76 ‘recognised the
continuing relevance of the Dunlop77 tests where the impugned clause purports to be a pre-
estimate of damages’ and went on to say:
In such cases, the assessment of the actual damages will be relevant (if not determinative)
of the issue as to whether the consequence imposed for breach by the impugned clause is
out of all proportion to these interests. But where the impugned clause protects interests
beyond the interest in compensation for direct loss flowing from breach, or where loss
would have been difficult or impossible to forecast at the point of contract formation,
a notional calculation of damages is unlikely to be of value in the application of the
;’legitimate interest’ test.

30.27 In AMEV-UDC Finance Ltd v Austin,78 a lessee of printing equipment defaulted on the
lease and the lessor exercised a contractual power to terminate the lease. Pursuant to Clause 12
of the lease, the lessee was required, upon such termination, to pay the remaining instalments
due under the unexpired term of the lease. The High Court held this to be a penalty on the
grounds that:
• Clause 12 required payment of the lease payments in full, with no rebate given for the
acceleration in payments; and
• the lessor did not have to account to the lessee for the proceeds of sale of the printing
equipment.

30.28 On the other hand, in Esanda Finance Corporation Ltd v Plessnig,79 on facts somewhat
similar to AMEV-UDC Finance Ltd v Austin,80 the relevant clause was found not to be a penalty
because it did take into account the benefits that flowed to the lessor by the acceleration of
payments that was triggered by the lessee’s default.
30.29 The case of Esanda Finance Corporation Ltd v Plessnig81 gives rise to a problematical
situation that flows from the High Court’s decision to permit, pursuant to the agreed damages
clause, the recovery by the lessor of what was, in effect, the recovery of expectation damages

76. 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] NZSC 53 at [78].
77. Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79.
78. (1986) 162 CLR 170; 68 ALR 185.
79. (1989) 166 CLR 131; 84 ALR 99.
80. (1986) 162 CLR 170; 68 ALR 185.
81. (1989) 166 CLR 131; 84 ALR 99.

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by the lessor. However, pursuant to Shevill v Builders Licensing Board,82 such damages are not
available to a plaintiff who terminates a contract pursuant to a contractual right to terminate for
a breach that would not be a terminating breach at common law. In Esanda Finance Corporation
Ltd v Plessnig,83 Brennan J noted that this was a matter that would need to be resolved by the
High Court in the future.

Effect of an enforceable liquidated damages clause

30.30 An enforceable liquidated damages clause entitles the plaintiff to recover the sum
stipulated without the need to prove any loss.84 If damages for actual loss sustained by the
plaintiff would have exceeded the sum stipulated, the plaintiff is nevertheless confined to
recovering the sum stipulated.85 Similarly, if the sum stipulated merely exceeds the damages that
the plaintiff could have recovered had there been no liquidated damages clause, the plaintiff is
entitled to recover the sum stipulated.86
30.31 However, an interesting question that arises is what the effect is of a clause where the
sum stipulated is grossly insufficient when compared to the real loss suffered by the plaintiff.
It is suggested that such a clause can be held unenforceable, thereby permitting the plaintiff
to recover unliquidated damages.87 This issue has arisen in the context of building contracts
where ‘$nil’ has been inserted into a standard form liquidated damages clause in a building
contract in relation to a principal’s rights if the building contractor is late in completing the
contract work. In such cases, it appears that the enforcement of such a liquidated damages
clause depends upon whether, on a proper construction of the contract, the operation of its
provisions is mandatory or discretionary. In this context, in J-Corp Pty Ltd v Mladenis,88 Buss
JA observed that ‘an intention to exclude the common law right to damages for breach of
contract must be expressed in clear and unambiguous terms’.89

Effect of a penalty
30.32 A liquidated damages clause that is classified as a penalty is unenforceable. However,
this does not mean that the plaintiff is unable to be compensated for his or her loss. The plaintiff
is able to recover damages according to the principles governing the assessment of damages
at common law for breach of contract.90

82. (1982) 149 CLR 620; 42 ALR 305.

83. (1989) 166 CLR 131 at 147; 84 ALR 99 at 109.
84. Pigram v Attorney General for the State of New South Wales (1975) 132 CLR 216; 6 ALR 15.
85. Diestal v Stevenson [1906] 2 KB 345; Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20;
J-Corp Pty Ltd v Mladenis [2009] WASCA 157 at [35]–[37]. See also Rossiter, Penalties and Forfeiture,
note 32 above, pp 75–7.
86. Bartercard Ltd v Myallhurst Pty Ltd [2000] QCA 445 at [24]; Alfred McAlpine Capital Projects Ltd v Tilebox
Ltd [2005] EWHC 281 (TCC) at [45].
87. Silent Vector Pty Ltd v Squarcini [2008] WASC 246 at [63].
88. [2009] WASCA 157 at [3].
89. For a discussion of this issue see T Thomas, ‘$Nil Liquidated Damages: An Exhaustive Remedy for Delay
Under a Construction Contract?’ (2008) 24 Building & Construction Law Journal 82.
90. W & J Investments Ltd v Bunting [1984] 1 NSWLR 331 at 335–6.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

30.33 In assessing the plaintiff ’s damages, it is an unresolved question as to whether the sum
stipulated in such a clause operates to put a cap on the sum of damages that a court can award
to the plaintiff.91 In support of the proposition that the sum stipulated in such a clause does set
a ceiling on the level of damages recoverable by the plaintiff, Rossiter92 has written as follows:
[A]n agreed damages clause … in fact contains two promises. One is a promise by the
promisor made to the promisee that he or she will pay to the promisee the agreed sum upon
the specified breach. The other is a promise by the promisee made to the promisor that he or
she undertakes not to seek recovery of an amount exceeding the agreed sum for the specified
breach. If the agreed sum is penal in that it did not amount to a genuine pre-estimate of
the loss flowing from the breach, only the former promise is affected by the penalty. The
promisee’s failure to pre-estimate the loss does not negate the consideration received from
the promisor regarding the upper limit on liability.

ACTIONS FOR DEBT

30.34 Although a failure by a defendant to pay a sum fixed by a contract gives a plaintiff a
right to sue for damages for breach of contract, it may also entitle the plaintiff to recover the
sum as a debt. The plaintiff can bring the debt claim in conjunction with, or as an alternative to,
a claim for damages, but cannot recover the sum twice. A common example of an action for a
debt is to recover the price that the defendant should have paid for goods or services provided
by the plaintiff. Actions for debt are very common, given that the obligation to a sum of money,
such as the price for goods, is a very common contractual promise. Arguably the action for debt
is the most common remedy sought in cases of breach of contract.93
30.35 An action to recover a debt is quite distinct from and strictly speaking not an action
for damages for breach of contract.94 In Young v Queensland Trustees Ltd,95 Dixon CJ, and
McTiernan and Taylor JJ said:
[T]he common law does not and never did conceive of indebtedness in a sum certain for an
executed consideration as a mere breach of contract; it is rather the detention of a sum of
money and that was so whether the creditor enforced his demand by an action of debt or by
indebitatus assumpsit.

The significance of the distinction between damages and recovery of a debt is that the principles
governing the assessment of damages do not apply to the recovery of a debt and a plaintiff does
not need to prove that any loss has been suffered in any action to recover a debt.96
30.36 Debt proceedings have procedural advantages. When suing for a debt, judgment can
be obtained on the basis of a minimum of evidence and by default if the defendant does not

91. AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 192–3; 68 ALR 185 at 200–1.
92. Rossiter, Penalties and Forfeiture, note 32 above, p 71.
93. S Rowan, Remedies for Breach of Contract, A Comparative Analysis of the Protection of Performance, Oxford
University Press, Oxford, 2012, p 21.
94. United Pacific Finance Pty Ltd (recs and mgrs apptd) v Govindasamy [2020] NSWSC 128 at [172].
95. (1954) 99 CLR 560 at 567.
96. Benson v Rational Entertainment Enterprises Ltd (2018) 97 NSWLR 798 at 811; 355 ALR 671 at 683.

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 CHAPTER 30: ACTIONS FOR A FIXED SUM AND DEBT­

file a defence. Furthermore, unlike a claim for damages, where the onus of proof is upon the
plaintiff, in an action to recover a debt, the onus of proof is upon the defendant to prove that
the debt has been paid.97

Requirements for an action for a debt

30.37 For an action for a debt to arise, the contract must contain an obligation to pay a
certain or ascertainable sum of money and the performance to which the payment relates must
have occurred.98

Certain or ascertainable sum

30.38 A debt can arise in circumstances where the obligation to pay is contingent upon
the happening of an event that is external to the contract. Thus, in Westralian Farmers Ltd
v Commonwealth Agricultural Service Engineers Ltd (in liq),99 a purchaser of 73 tractors agreed
to pay a commission to the Australian distributor of tractors manufactured in the United States.
The commission was determined as a percentage of the price of the tractors and was to be paid
upon arrival of the tractors in Fremantle. At the time the contract was validly terminated 32
tractors had not arrived in Fremantle. The purchaser claimed that it was not liable to pay the
commission on these tractors on the ground that the contract had been terminated before the
liability to pay the commission arose. The High Court ruled that the contractual obligation to
pay commissions gave rise to a debt, payment of which arose upon fulfilment of the condition
of arrival of the tractors in Fremantle. Dixon and Evatt JJ100 said:
[P]ayment [of the commissions], however, was by the terms of the contract deferred until
the arrival of the goods at Fremantle. This contingency depended upon external events
constituting no part of the performance of the contract. The right to payment, no doubt,
was at the time of the termination of the agreement contingent but it was a debt otherwise
completely vested in the [distributor] as creditor. The termination of the agreement did not
prevent it becoming absolute on the occurrence of the contingency.

Requirement of performance
30.39 Before the sum stipulated in the contract is recoverable as a debt, the plaintiff must have
performed the obligation to which the payment of the money relates. This is what differentiates
an action for damages for breach of contract and an action for a debt. In an action for damages,
the mere failure of the defendant to pay is sufficient to give rise to the claim for damages. However,
mere failure to pay does not give rise to a debt. The action for a debt requires the plaintiff to have
‘earned’ the right to recover the debt by performance. It is for this reason that a vendor of land
cannot usually sue for a debt when a purchaser has failed to pay the purchase price, because
at that time the vendor will have rarely performed his or her part of the contract — that is, the
transfer of title to the purchaser. It is only if title has been so transferred that an action for a debt

97. Young v Queensland Trustees Ltd (1954) 99 CLR 560 at 569–70.

98. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 475; Automatic Fire Sprinklers Pty Ltd v Watson
(1946) 72 CLR 435 at 463–4; Chinatex (Australia) Pty Ltd v Bindaree Pty Ltd [2018] NSWCA 126 at [58].
99. (1936) 54 CLR 361.
100. Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361
at 380.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

arises.101 Similarly, in a contract for the sale of goods, ‘if the seller tenders goods in accordance
with his contract but the buyer rejects them in breach of his contract, the seller cannot sue for the
price; his remedy is for unliquidated damages for non-acceptance’.102
30.40 On the other hand, in a contract for the sale of land that is terminated by the vendor
following a breach by the purchaser, the vendor is entitled to retain any deposit that has been paid
pursuant to the contract.103 The vendor’s right to retain the deposit is an anomalous exception to the
law on penalties.104 It is justified on the basis that the payment of the deposit is seen as a guarantee
of the purchaser’s intention to perform the contract and is paid by the purchaser in consideration
for the vendor entering into the contract.105 A purchaser’s subsequent breach of the contract entitles
the vendor to retain the deposit upon termination of the contract.106 If the deposit has not been
paid at the time of termination, the court in in Lowe v Hope107 held that the vendor is not entitled to
sue to recover the unpaid deposit. However, in Hardy v Griffiths,108 it was held that Lowe v Hope109
was wrongly decided on this point. Furthermore, in Australia a number of cases support the view
that the termination of the contract does not discharge the obligation to pay the deposit and that
therefore the vendor is entitled to recover the unpaid deposit.110 However, if part of the deposit
is expressed to be only payable on termination of the contract, such a provision is construed as a
penalty because it is not a payment in earnest for the performance of the contract.111
30.41 In relation to the amount of the deposit, it is common practice that it be 10 per cent of
the purchase price.112 If the deposit exceeds 10 per cent, equitable relief against forfeiture of the
deposit may well be successfully invoked by the purchaser.113 Furthermore, in New South Wales
and Victoria, there are legislative provisions granting the court power to order a return of the
deposit in particular circumstances.114

101. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 475–6.

102. Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 464.
103. Brien v Dwyer (1978) 141 CLR 378 at 386, 393, 398, 406–7; 22 ALR 485 at 491, 496–7, 500, 507; Havyn Pty
Ltd v Webster [2005] NSWCA 182 at [131]; Du Buisson Perrine v Chan (2016) 49 WAR 432 at 439.
104. Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 at 578–9; [1993] 2 All ER 370
at 373.
105. Howe v Smith (1884) 27 Ch D 89 at 101; Brien v Dwyer (1978) 141 CLR 378 at 386–7, 392, 401, 406; 22 ALR
485 at 491, 495, 503, 507; Farrant v Leburn [1970] WAR 179 at 184; Freedom v AHR Constructions Pty Ltd
[1987] 1 Qd R 59 at 65; Du Buisson Perrine v Chan (2016) 49 WAR 432 at 439, 454–5; Dasreef Developments
Pty Ltd v Velkovski (2017) 96 NSWLR 318 at 325–6.
106. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476.
107. [1970] Ch 94 at 100.
108. [2015] Ch 417 at 446.
109. [1970] Ch 94 at 100.
110. Farrant v Leburn [1970] WAR 179; Bot v Ristevski [1981] VR 120; Kirk v Ashdown [1999] 2 Qd R 1 at 8; Du
Buisson Perrine v Chan (2016) 49 WAR 432 at 439.
111. Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40 at [31]; Iannello v Sharpe (2007) 69 NSWLR 452
at 461; Simcevski v Dixon (No 2) (2017) 53 VR 357 at 363–8.
112. Mehmet v Benson (1963) 81 WN (Pt 1) (NSW) 188 at 191; Lexane Pty Ltd v Highfern Pty Ltd [1985] 1 Qd
R 446 at 455; Kirk v Ashdown [1999] 2 Qd R 1 at 8; Golding v Vella [2001] NSWSC 567 at [31]; Havyn Pty
Ltd v Webster [2005] NSWCA 182 at [132], [136]; Commissioner of Taxation v Reliance Carpet Co Pty Ltd
(2008) 236 CLR 342 at 351; 246 ALR 448 at 455; S T Investments Pty Ltd v Geng [2020] NSWSC 329 at [20].
113. Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 at 579–80; 2 All ER 370
at 373–4; Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40 at [24].
114. Conveyancing Act 1919 (NSW) s 55(2A); Property Law Act 1958 (Vic) s 49(2).
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30.42 However, if the contract explicitly provides for payment on a set date, then a debt
accrues on that date, irrespective of when performance is required of the plaintiff. Therefore,
the obligation to pay instalments under an instalment contract for the purchase of land creates
a recoverable debt when each instalment falls due for payment.115 Subject to any provision in the
contract to the contrary, the retention of instalments is, however, conditional upon completion
of the contract. If a vendor terminates an instalment contract because of the purchaser’s breach,
the instalment payments already received by the vendor must be returned to the purchaser.
This is because the vendor’s right to retain the instalments is conditional upon completion
of the contract. However, if the contract stipulates that instalment payments must be made
irrespective of performance by the vendor, then the vendor is entitled to recover any unpaid
instalments. On the other hand, in such circumstances, a purchaser may be able to prevent
such recovery if he or she can invoke equitable relief against forfeiture and establish that it
would be unconscientious for the vendor to retain the instalments.116 If a purchaser establishes
an entitlement to the repayment of the instalments, the vendor can, however, counterclaim for
damages for breach of contract by the purchaser.117
30.43 The performance requirement on the part of the plaintiff does not always require
complete performance of the contract in order to be able to recover the contract price as a debt.
If the contract is an entire contract, then subject to the qualification of substantial performance,
the plaintiff must completely perform his or her obligation. If the contract is a divisible contract,
then performance of each discrete part of the contract will give rise to a right to recover a debt
relating to the part of the price attributable to performance of that discrete part of the contract.
The concepts of entire and divisible contracts and substantial performance are discussed in
Chapter 22.

Termination of contract and debt

30.44 At common law the termination of a contract for breach or the frustration of a contract
does not affect the right to recover a debt that was accrued before termination or frustration.
In the case of frustration, the common law position is subject to legislation in relevant
jurisdictions.118 In the case of termination for breach, in McDonald v Dennys Lascelles Ltd,119
Dixon J said:
[W]hen a contract, which is not void or voidable at law, or liable to be set aside in equity,
is dissolved at the election of one party because the other has not observed an essential
condition or has committed a breach going to its root, the contract is determined so far as it
is executory only and the party in default is liable for damages for its breach.

30.45 Although Dixon J’s comments were made in the context of damages for a breach of
contract, they are equally applicable to an action for a debt that accrued prior to termination.
Thus, if an employee who is paid on a fortnightly basis is wrongfully dismissed, he or she is
entitled to recover as a debt any unpaid salary for any fortnightly period that he or she has
worked but for which he or she has not been paid. However, if the dismissal occurred during

115. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476.

116. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477–8.
117. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 479.
118. See 25.72–25.98.
119. (1933) 48 CLR 457 at 477.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

a fortnightly period, the employee would not be entitled to recover any salary for that period
in an action for a debt. This is because the fortnightly salary had not accrued as at the date of
termination by the employer.120 The wrongfully dismissed employee has, however, a right to sue
for damages for the employer’s breach of contract, namely, the wrongful dismissal.121 This stems
from the general principle that, in cases of a wrongfully dismissed employee, ‘[t]he measure of
damages in such an action is not the wages agreed upon, but the actual loss sustained, including,
of course, compensation for any wages of which the servant was deprived by reason of his
dismissal’.122 (It can be noted that in the context of employment contracts, statutory awards
often negate the operation of this common law rule by stipulating that the payment of wages
accrue from day to day, irrespective of the period for which wages are regularly paid.)

Mitigation and the action for a debt

30.46 If one party repudiates a contract or commits a terminating breach of it, the other party
has a right to terminate the contract. However, there is no obligation to do so. The innocent
party may elect to affirm the contract, to complete performance of his or her obligations, and
to recover in an action for debt the fixed sum that the contract breaker had contracted to
pay. When that party sues the contract breaker for the debt, the principles of mitigation do
not apply.123 On the other hand, if the innocent party accepts the breach and terminates the
contract, he or she can sue for damages and is subject to the duty to mitigate.124
30.47 In White and Carter (Councils) Ltd v McGregor,125 White and Carter was an advertising
contractor who agreed to advertise McGregor’s garage business for three years by means of
posters on bins in Clydebank. McGregor’s obligation was to pay regular payments during
that period to meet White and Carter’s costs and expenses. However, if there was a default
by McGregor, the full contract sum became immediately payable. On the day it was signed,
McGregor repudiated the contract. White and Carter did not accept the repudiation. White
and Carter performed the contract and sued McGregor for the full contract price. As this was
an action for a debt under the contract, the majority of the House of Lords held that White
and Carter had no obligation to mitigate and were thus entitled to recover the amount of the
contract price. Whether White and Carter acted reasonably was deemed to be of no relevance.
30.48 The generality of the principle in White and Carter (Councils) Ltd v McGregor126 is,
however, subject to two qualifications set out in Lord Reid’s speech. The first qualification
relates to contracts that cannot be completed without the cooperation of the party in breach.
The second qualification relates to public policy grounds that would preclude the recovery
of the contract price if the plaintiff did not have a legitimate interest in so doing. If either of
these two qualifications applies, the innocent party, although unable to recover the contract
debt, is entitled to sue for damages for breach of contract, in which case the principles of

120. Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 465.
121. Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 465; Mimmo v Fernando [2016] VSC 510
at [310]–[311].
122. Lucy v The Commonwealth (1923) 33 CLR 229 at 253.
123. White and Carter (Councils) Ltd v McGregor [1962] AC 413; [1961] 3 All ER 1178.
124. Reichman v Beveridge [2006] EWCA Civ 1659 at [12].
125. [1962] AC 413; [1961] 3 All ER 1178.
126. [1962] AC 413; [1961] 3 All ER 1178.

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mitigation apply. In relation to the cooperation qualification, in White and Carter (Councils)
127

Ltd v McGregor,128 Lord Reid said:

[I]n most cases the innocent party cannot complete the contract himself without the other
party doing, allowing or accepting something, and that it is purely fortuitous that [White
and Carter] can do so in this case. In most cases by refusing co-operation the party in
breach can compel the innocent party to restrict his claim to damages. Then it was said that,
even where the innocent party can complete the contract without such co-operation, it is
against the public interest that he should be allowed to do so. An example was developed in
argument. A company might engage an expert to go abroad and prepare an elaborate report
and then repudiate the contract before anything was done. To allow such an expert then to
waste thousands of pounds in preparing the report cannot be right if a much smaller sum of
damages would give him full compensation for his loss. It would merely enable the expert to
extort a settlement giving him far more than reasonable compensation.

30.49 In elaborating on the legitimate qualification, Lord Reid129 said:

It may well be that, if it can be shown that a person has no legitimate interest, financial or
otherwise, in performing the contract rather than claiming damages, he ought not to be
allowed to saddle the other party with an additional burden with no benefit to himself. If a
party has no interest to enforce a stipulation, he cannot in general enforce it; so it might be
said that, if a party has no interest to insist on a particular remedy, he ought not be allowed
to insist on it.

The cooperation qualification

30.50 In Meriton Apartments Pty Limited v The Owners of Strata Plan No 72381,130 Slattery J
described the cooperation qualification as follows:
[T]he co-operation limitation means that if repudiating party has agreed to pay a contractual
sum as the agreed return for the innocent party’s performance of the contract but the provision
of which performance still requires the repudiating party’s co-operation, a refusal by the
repudiating party to co-operate will nevertheless prevent the innocent party from earning
the contract price unless the innocent party obtains an order for specific performance.

30.51 In White and Carter (Councils) Ltd v McGregor,131 this qualification did not arise
because White and Carter were able to perform the contract without any need to be in contact
with, or have the cooperation of, McGregor. In Isabella Shipowner SA v Shagang Shipping Co
Ltd,132 Cooke J noted that the question of whether the contract could not be performed without
the defendant’s cooperation required the court to ‘focus upon dependent obligations and

127. For an analysis of the decision in White and Carter v McGregor see Q Liu, ‘The White & Carter Principle:
A Restatement’ (2011) 74 Modern Law Review 171.
128. [1962] AC 413 at 428–9; [1961] 3 All ER 1178 at 1181–2.
129. White and Carter (Councils) Ltd v McGregor [1962] AC 413 at 431; [1961] 3 All ER 1178 at 1183.
130. [2015] NSWSC 202 at [334].
131. [1962] AC 413; [1961] 3 All ER 1178.
132. [2012] EWHC 1077 (Comm) at [39].

747
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

whether the contract breaker has to do something before the innocent party can do what is
required of him to earn the contract sum’.
30.52 In Ministry of Sound (Ireland) Ltd v World Online Ltd,133 it was suggested that if White
and Carter had not been able to perform some of their advertising obligations because McGregor
refused to cooperate, but were able to perform the remaining part of their obligations without
McGregor’s cooperation, White and Carter would have been entitled to recover damages in
relation to the former obligations and the contract price in relation to the latter obligations. In
the course of his judgment in this case Nicholas Strauss QC134 said:
[I]n my view the question is whether the innocent party can, without the other party’s assent
or co-operation, do whatever the contract requires him to do in order to be entitled to the
sum which he is claiming. Whether this involves the performance of all or any outstanding
obligations depends on the terms of the contract and the operation of the principle of
dependent provisions. … [S]uppose in [White and Carter (Councils) Ltd v McGregor,135
McGregor] had been able to prevent performance on some sites, for example because they
were on his land, to which he could refuse admittance, but not on other sites: there seems to
be no reason why the contractor should not have displayed the advertisements where he was
able to, and claimed the contractual price of 2 shillings per week for those advertisements,
and damages in respect of the others if he could prove loss.

30.53 An obvious example of where the cooperation qualification would arise is with an
employment contract. A wrongfully dismissed employee cannot recover future salary payments
that would have been paid because he or she would be unable to perform the contract without
the cooperation of the employer.136 In such cases, the innocent party, although not able to sue
for the contract price, is entitled to sue for damages for breach of contract. In suing for damages,
the innocent party is subject to the duty to mitigate.

The legitimate interest qualification

30.54 Lord Reid’s second qualification is to the effect that unless the plaintiff has a legitimate
interest in recovering the contractual debt, he or she will be unable to do so and will be left
with terminating the contract and suing for damages. The question of legitimate interest did
not arise in White and Carter (Councils) Ltd v McGregor.137 However, subsequent English cases
have given some clarification to the meaning of the qualification. Thus, a legitimate interest
will be established if it is not abundantly clear that the defendant is repudiating the contract.138
Furthermore, if assessing damages for the defendant’s breach would be extremely difficult, a
plaintiff has a legitimate interest.139

133. [2003] EWHC 2178 (Ch).

134. Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] EWHC 2178 (Ch) at [41]–[43].
135. [1962] AC 413; [1961] 3 All ER 1178.
136. Gunton v Richmond-upon-Thames London BC [1981] Ch 448 at 474–5; [1980] 3 All ER 577 at 593–4.
137. [1962] AC 413; [1961] 3 All ER 1178.
138. Stocznia Gdanska SA v Latvian Shipping Co [1996] 2 Lloyd’s Rep 132 at 139.
139. Gator Shipping Corporation v Trans-Asiatic Oil Ltd SA and Occidental Shipping Establishment (The
Odenfield) [1978] 2 Lloyd’s Rep 357.
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 CHAPTER 30: ACTIONS FOR A FIXED SUM AND DEBT­

30.55 The legitimate interest qualification is of uncertain scope and ‘the principles of
law which underpin it have yet to be fully identified’.140 In White and Carter (Councils) Ltd
v McGregor,141 the majority in the House of Lords held that questions of reasonableness
were not relevant in relation to the plaintiff ’s decision to continue with performance of the
contract. However, the legitimate interest qualification has been determined on the basis of
reasonableness.142 Thus, in Reichman v Beveridge,143 Lloyd LJ said:
There is … a very limited category of cases in which, although the innocent party to a
contract has not accepted a repudiation by the other party, and although the innocent party
is able to continue to perform all his obligations under the contract despite the absence of
co-operation from the other party, nevertheless the court will not allow the innocent party
to enforce his full contractual right to maintain the contract in force and sue for the contract
price. The characteristics of such cases are that an election to keep the contract alive would
be wholly unreasonable and that damages would be an adequate remedy.

30.56 In Clea Shipping Corporation v Bulk Oil International Ltd (The Alaskan Trader),144
Lloyd J said:
[T]here comes a point at which the court will cease, on general equitable principles, to allow
the innocent party to enforce his contract to its strict legal terms. How one defines that point
is obviously a matter of some difficulty, for it involves drawing a line between conduct which
is merely unreasonable … and conduct which is wholly unreasonable.

30.57 Finally, in Isabella Shipowner SA v Shagang Shipping Co Ltd,145 Cooke J, after an

examination of relevant authorities, concluded that they established that ‘that an innocent party
will have no legitimate interest in maintaining the contract if damages are an adequate remedy
and his insistence on maintaining the contract can be described as “wholly unreasonable”,
“extremely unreasonable” or, perhaps, in my words, “perverse”’.
30.58 Notwithstanding the doctrinal confusion on this point, Carter146 concludes as follows:
[S]ome qualification on the right of a party to continue to perform seems desirable. Whether
it is best expressed in terms of ‘legitimate interest’ of the promisee, the ‘reasonableness’ of the
promisee’s conduct or some other criterion may of course be debated.

140. MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789 at [40].
141. [1962] AC 413; [1961] 3 All ER 1178.
142. MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789 at [43].
143. [2006] EWCA Civ 1659 at [17].
144. [1984] 1 All ER 129 at 136–7.
145. [2012] EWHC 1077 (Comm) at [44].
146. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, Sydney, 2018, p 875.

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SPECIFIC PERFORMANCE

INTRODUCTION
31.1 The remedy of specific performance is the principal means by which contractual
obligations are enforced in equity. To a lesser extent, the equitable remedy of an injunction
can also be used to enforce a contract. Whereas the common law remedy of damages is
designed to provide monetary compensation to a plaintiff for losses resulting from a breach
of contract by the defendant, these equitable remedies, which can be ordered even though a
breach of contract has not yet occurred,1 are designed to force a defendant to perform his or
her contractual obligation. What is required is the mere existence of ‘circumstances which will
justify the intervention by a court of equity’2 to grant the decree. However, the mere existence
of a contract, in the absence of a reasonable apprehension of it being breached, is not a basis for
the court to order specific performance. In Wolseley Investments Pty Ltd v Gillespie,3 Santow JA
said that ‘the trigger for the commencement of a specific performance suit will be some threat
of refusal, express or at least implied, or some actual refusal, on the part of a contracting party
to perform the contract in whole or part’. His Honour4 also noted that, in cases of a threatened
breach of a contract, the threat does not need to be explicit, but there must be more than merely
a theoretical or remote possibility of a breach. However, in such cases his Honour5 further
observed that a court has ‘to consider the likelihood or degree of risk of non-performance
before granting specific performance. Also to be considered is the discretionary factor of
hardship and balance of convenience.’6
31.2 Where the contractual obligation is positive in substance, in that the defendant is
required to perform some positive act, specific performance is the appropriate remedy. Where
the obligation is negative in substance, in that the defendant is obliged not to do a certain act, an
injunction is the appropriate remedy. A common example of injunctive relief is the enforcement
of valid restraints of trade. In practice the need for specific performance is much greater than

1. Re Richardson; Ex parte Governors of St Thomas’s Hospital [1911] 2 KB 705 at 709; Turner v Bladin (1951)
82 CLR 463 at 472; Brown v Heffer (1967) 116 CLR 344 at 350.
2. Hasham v Zenab [1960] AC 316 at 329.
3. [2007] NSWCA 358 at [33].
4. Wolseley Investments Pty Ltd v Gillespie [2007] NSWCA 358 at [19].
5. Wolseley Investments Pty Ltd v Gillespie [2007] NSWCA 358 at [47].
6. For a critique of this decision see K Dharmananda and N M Tan, ‘Breach or Threatened Breach of Contract
Before Specific Performance’ (2008) 2 Journal of Equity 164.

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for an injunction. It should also be noted that specific performance is exclusively a remedy for
the enforcement of contractual obligations. The injunction has applications beyond the field
of contract law and is an important enforcement order in various fields of law, such as torts,
trusts, and other equitable obligations. Furthermore, many statutory rights and obligations are
enforced by the injunction. The remedy of an injunction is examined in Chapter 32.

NATURE OF SPECIFIC PERFORMANCE

31.3 Like most equitable remedies, specific performance is in personam in nature. This
means that the remedy attaches to the person of the defendant, rather than to his or her
property (in rem). Thus, provided the defendant is within the jurisdiction of the court, specific
performance can be ordered even though the property that is the subject of the contract is
outside the court’s jurisdiction. In Richard West & Partners (Inverness) Ltd v Dick7 an English
court ordered specific performance of a contract for the sale of land where the property was
located in Scotland, beyond the court’s jurisdiction.
31.4 Because of the in personam nature of specific performance, the sanction for non-
compliance with an order for specific performance focuses on the person. Thus, a defendant
who fails to comply with the order will be guilty of contempt and subject to coercive measures
or constraints. In Deputy Commissioner of Taxation v Gashi (No 3),8 Dixon J described the
court’s powers to punish for contempt as follows:
The court may punish a natural person for contempt by committal to prison or fine or
both. The Court may make an order for punishment on terms, including a suspension of
punishment. … Where the respondent is a corporation, the court may punish for contempt
by sequestration or fine or both.

31.5 Given the serious consequences that may flow from being in contempt of court, the
standard of proof in a charge of contempt is that of beyond reasonable doubt.9 For the same
reason a defendant will not be punished for contempt if the order alleged to have been breached
is unclear and ambiguous.10
31.6 In Deputy Commissioner of Taxation v Gashi (No 3)11 Dixon noted that the relevant
considerations to be considered when determining the appropriate penalty for contempt
included:
(a) the contemnor’s personal circumstances; (b) the nature and circumstances of the
contempt; (c) the actual consequences of the contempt; (d) the effect of the contempt on the
administration of justice; (e) the contemnor’s culpability; (f) the need to deter the contemnor
and others from repeating the contempt; (g) the contemnor’s reasons for his or her conduct;
(h) the absence or presence of a prior conviction for contempt; (i) the contemnor’s financial

7. [1969] 2 Ch 424; [1969] 1 All ER 943.

8. [2011] VSC 448 at [7].
9. Lade & Co Pty Ltd v Black [2006] 2 Qd R 531 at [65], [101]; Fitness First Australia Pty Ltd v McNicol [2013]
QSC 212 at [30].
10. Baker v Paul [2013] NSWCA 426 at [21].
11. [2011] VSC 448 at [5].

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

means; and (j) whether the contemnor has exhibited general contrition and made a full and
ample apology.

31.7 It is said that the remedy of specific performance is applied in two distinct senses. First,
there is specific performance in the proper sense. Second, there is relief analogous to specific
performance. Specific performance in the proper sense presupposes an executory as opposed
to an executed contract.12 In J C Williamson Ltd v Lukey & Mulholland13 Dixon J said:
Specific performance, in the proper sense, is a remedy to compel the execution in specie of
a contract which requires some definite thing to be done before the transaction is complete
and the parties’ rights are settled and defined in the manner intended.

In Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard,14 Clarke JA explained

that the order for specific performance in the proper sense is an order that the whole of the
contract, and not individual obligations under it, be carried into effect.
31.8 Relief analogous to specific performance presupposes an executed contract, in the sense
that nothing further needs to be done to settle or define the rights of the parties as intended by
the contract. In fact, the contract itself fully establishes the parties’ rights. The order for specific
performance in such a case is ‘to compel the [defendant] to perform its obligations according
to the terms of the contract’.15
31.9 In Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd,16 the
Court of Appeal noted that the distinction between specific performance in the proper sense
and relief analogous to specific performance ‘lay in the underlying basis that attracted the
intervention of equity’. Beazley JA17 said that the equity that justifies the making of an order for
specific performance in the proper sense is ‘the need to place the parties in the relative legal
positions contemplated by the contract’. In relation to relief analogous to specific performance,
her Honour referred to the joint judgment of Isaacs and Rich JJ in Pakenham Upper Fruit
Company Ltd v Crosby,18 where their Honours observed that in such cases ‘the equity must
be sought in some other consideration appropriate to the actual legal relative situation of the
parties’. In most such cases, relief is given by way of mandatory injunction, as was noted in Fell
v NSW Oil & Shale Co,19 where Owen CJ in Eq said:
There arises not unfrequently some confusion between two classes of suits — both popularly
described as suits for specific performance, though governed by very different principles
— one, in which the contract is executory, and something remains to be done in order
to complete the contract, where the contract is not intended to be the final instrument
regulating the relations of the parties under the contract; the other in which the contract is
executed, and the Court is asked to compel one of the parties to carry out the contract. To the

12. Wolverhampton and Walsall Railway Co Ltd v London and North West Railway Ltd (1873) LR 16 Eq Cas 433
at 439; Lighting By Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd (2008) 35 WAR 520 at 545.
13. (1931) 45 CLR 287 at 297.
14. (1992) 27 NSWLR 415 at 423.
15. Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard (1992) 27 NSWLR 415 at 423.
16. [2007] NSWCA 276.
17. Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 at [62].
18. (1924) 35 CLR 386 at 395.
19. (1889) 10 LR (NSW) Eq 255 at 259–60.

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former class only does the expression specific performance strictly apply. In the latter class
the remedy is more frequently sought by way of injunction to prevent some breach of the
contract, and so indirectly compelling the performance of the contract.

However, the significance of the distinction between the two senses of specific performance
should not be overstated. In Australian Hardwoods Pty Ltd v Commissioner for Railways,20 the
Privy Council held that the principles applicable to both were the same.
31.10 A fundamental distinction between damages at common law and the equitable order
of specific performance is that, whereas a plaintiff will always get an award of damages if he or
she establishes a breach of contract by the defendant the same plaintiff will not automatically
be entitled to equitable relief. It is often said that common law damages for a breach of
contract are available to a plaintiff ‘as of right’, but that equitable relief for the same breach is
‘discretionary’.21 However, such a statement is, strictly speaking, not correct. It is correct that
a damages award will always be made in favour of a plaintiff who is ready, willing, and able to
perform the contract, upon proof of a breach by the defendant. With specific performance,
it is only partially correct to say that it is discretionary. While the court can refuse such relief
in the exercise of its discretion, the exercise of that discretion is subject to the court having
the jurisdiction to entertain the application for specific performance. If the court does not
have such jurisdiction, the question of exercising its discretion does not arise. It is thus more
accurate to say that specific performance will be denied on jurisdictional grounds and may be
refused on discretionary grounds.
31.11 If a plaintiff ’s application for equitable relief is refused, he or she is confined to
obtaining damages for breach of contract. However, the distinction between jurisdictional and
discretionary factors is of practical significance in relation to the damages that the plaintiff
will be able to recover. In the case of a breach of contract, if specific performance is refused on
discretionary grounds, so-called equitable damages22 can be awarded. If specific performance is
denied on jurisdictional grounds, there is no power to award equitable damages and a plaintiff
is confined to recovering damages at common law for the breach of contract. Although the
measure of damages recovered in either case is determined largely on the basis of the same
principles,23 there are some circumstances that preclude the recovery of equitable damages
that do not apply to common law damages.24 On the other hand, there are situations where
equitable damages can be awarded, but common law damages are not available.25
31.12 Irrespective of whether jurisdictional or discretionary factors are involved in
determining whether or not specific performance will be ordered, the basis of the court’s
decision is the principle of unconscientiousness. Therefore, when a court refuses to make
an order for specific performance it is effectively saying that it is not unconscientious for a
plaintiff to be confined to recovering damages for breach of contract. On the other hand, when
an order for specific performance is granted, the court is effectively saying that it would be
unconscientious to confine the plaintiff to pursuing common law damages.

20. [1961] 1 All ER 737 at 743.

21. Lamare v Dixon (1873) LR 6 HL 414 at 423.
22. See Chapter 33.
23. See 33.7.
24. See 33.12.
25. See 33.21–33.22.

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JURISDICTIONAL FACTORS PRECLUDING AN ORDER FOR

SPECIFIC PERFORMANCE
Binding contract for valuable consideration
31.13 As a rule, a court has no jurisdiction to grant specific performance of a promise
not supported by valuable consideration.26 However, the maxim does not require that the
consideration be paid or executed.27 The underlying basis of this rule is the equitable maxim
‘equity will not assist a volunteer’.
31.14 The rationale for this rule is that it would not be unconscientious for equity to decline
equitable assistance to a plaintiff who is a volunteer, whereas it would be so if he or she had
provided valuable consideration.28 Thus, it is the presence of valuable consideration that ‘will
attract the intervention of equity’.29 Accordingly, specific performance will not be ordered in
relation to a promise unsupported by any consideration at all, but contained in a deed.30 Nor
will specific performance be granted in relation to a contract to purchase land or an interest in
land for nominal consideration.31 However, in Conlan v Registrar of Titles,32 Owen J suggested
that this rationale was ‘a little strange given that the common law would (and will) often accept
something that is entirely inadequate or lacking in actual value as being “good” consideration’.
31.15 The critical issue here is whether a plaintiff has provided valuable consideration. The
meaning of ‘valuable consideration’ has been primarily discussed by the courts in the context of
legislative provisions such as bankruptcy legislation. Thus, in Re Abbott; Ex parte Trustee of the
Property of the Bankruptcy v Abbott,33 Megarry V-C stated that valuable consideration means
‘a consideration … that has a real and substantial value, and not one which is merely nominal
or trivial or colourable’. The Australian High Court subsequently approved this statement
in Barton v Official Receiver34 and Cook v Benson.35 This notion of valuable consideration is
reflected in s 4 of the Civil Law (Property) Act 2006 (ACT) in the Australian Capital Territory,
where it is stated that valuable consideration ‘does not include a nominal consideration in
money’.
31.16 On the other hand, valuable consideration does not mean that the consideration needs
to be adequate in the sense of it being equivalent to the value of what was promised or given
by the defendant. As Darke J noted in Lithgow State Mine Railway Ltd v City of Greater Lithgow
Mining Museum Inc (No 2),36 ‘mere inadequacy of consideration, on its own, is not a reason to

26. Colman v Sarrel (1789) 30 ER 225 at 227; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR
516 at 556; 185 ALR 335 at 364–5.
27. Reef & Rainforest Travel Pty Ltd v Commissioner of Stamp Duties [2002] 1 Qd R 683 at 687.
28. Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 at 96.
29. Director of Public Prosecutions for Victoria v Le (2007) 232 CLR 562 at 575; 240 ALR 204 at 215.
30. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 556; 185 ALR 335 at 364–5.
31. Nurdin & Peacock plc v DB Ramsden & Co Ltd [1999] 1 EGLR 119.
32. (2001) 24 WAR 299 at 338.
33. [1983] 1 Ch 45 at 57. See also Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1
at 741.
34. (1986) 161 CLR 75 at 86; 66 ALR 355 at 361–2.
35. (2003) 214 CLR 370 at 381–2; 198 ALR 218 at 225.
36. [2019] NSWSC 1468 at [56].

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decline specific performance’. What amounts to valuable consideration in any given case will
depend on its facts and circumstances. If the parties are at arm’s length and the transaction can
be fairly described as commercial in nature, valuable consideration will generally be present.37
31.17 However, the inadequacy of consideration does not preclude a court entertaining an
application for specific performance, although this may be a factor going towards refusing an
application on discretionary grounds.38 Furthermore, although the court has no jurisdiction to
order specific performance in the case of a promise not supported by valuable consideration,
damages at common law will be ordered for breach of such a promise.39

Inadequacy of damages at common law

31.18 If a plaintiff can be adequately compensated by an award of damages at common law,
the court has no jurisdiction to order specific performance.40 The adequacy or inadequacy
of common law damages is determined by reference to the date of the order for specific
performance and not the date of the contract.41 In England there has been a move towards
regarding the issue of the adequacy of damages as a discretionary, rather than a jurisdictional,
matter. However, this approach has not received support in Australia.42
31.19 The question to be answered on the issue of the adequacy of damages has been framed
in various ways. In Adderley v Dixon,43 the Vice-Chancellor said that ‘Courts of Equity decree
the specific performance of contracts, not upon any distinction between realty and personalty,
but because damages at law may not, in the particular case, afford a complete remedy’. In
Dougan v Ley,44 Dixon J said that damages would be inadequate if damages ‘would not give the
party the compensation to which he was entitled; that is, would not put him in a situation as
beneficial to him as if the agreement were specifically performed’. In Araci v Fallon45 Jackson LJ
said the real question to be answered was ‘whether it is just in all the circumstances that the
claimant should be confined to his remedy in damages’. In Beswick v Beswick,46 Lord Upjohn
said that equitable relief will be available ‘when damages are inadequate to meet the justice of
the case’.
31.20 Whatever the appropriate phrasing of the question, it is clear that where there is
significant difficulty in assessing the quantum of damages or in enforcing an award of damages,
damages are inadequate.47 However, whether damages at common law are inadequate where

37. Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1 at 742.
38. See 31.60–31.61.
39. Cannon v Hartley [1949] Ch 213 at 217; 1 All ER 50 at 53.
40. Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 at [5].
41. ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615 at 632. See also I C F Spry, The Principles
of Equitable Remedies, Specific Performance, Injunctions, Rectification and Equitable Damages, 9th ed,
Lawbook Co, Sydney, 2013, p 77.
42. Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 at [95].
43. (1824) 57 ER 239 at 240.
44. (1946) 71 CLR 142 at 150.
45. [2011] EWCA Civ 668 at [42].
46. [1968] AC 58 at 102; [1967] 2 All ER 1197 at 1221. See also Wilson v Northampton and Banbury Junction
Railway Company (1874) LR 9 Ch App 279 at 284.
47. Laemthong International Lines Co Ltd v Artis (The Laemthong Glory) (No 2) [2005] 1 Lloyd’s Rep 632 at 638.

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the defendant is threatened with insolvency, or there is doubt about his or her capacity to pay
damages, is a matter that has attracted a diversity of views. Some cases suggest damages may be
inadequate in such circumstances,48 while others come to the opposite conclusion.49
31.21 In theory, the principle of inadequacy of damages at common law means that damages
at common law is the primary remedy and specific performance is a secondary remedy.
However, this is not how Australian courts see the matter in practice. In Coulls v Bagot’s
Executor & Trustee Co Ltd,50 Windeyer J observed that ‘[t]he primary obligation of a party to
a contract is to perform it, to keep his promise’ and that the ‘liability to pay damages … is the
ancillary remedy for [the contract breaker’s] violation of the other party’s primary right to have
him carry out his promise’. This has led to specific performance being ordered routinely rather
than in special circumstances.
31.22 The question of the inadequacy of damages at common law is one of fact in each case.
Each case ultimately depends on its own facts. If damages at common law are inadequate,
then the court has jurisdiction to grant an order for specific performance regardless of the
type of contract that is involved.51 Nevertheless, when looking at particular types of contract,
general indications can be detected as to whether or not damages at common law are likely to
be inadequate.

Contracts for the sale of personalty

31.23 In most cases common law damages will be an adequate remedy for contracts for
the sale of personalty. Thus, contracts for the sale of shares or chattels will not be specifically
enforced if substitute shares or chattels are readily available in an open market.52 Damages
at common law will be adequate because, if the plaintiff is required to pay more for the substitute
shares or goods, that will be reflected in the amount of damages awarded at common law. The
net result to the plaintiff will be that the shares or chattels will be ultimately acquired for the
price at which they were contracted for with the defendant.
31.24 Although contracts involving personalty are generally ones in which damages
at common law are an adequate remedy, this is not an absolute rule. In Aristoc Industries
Pty Ltd v RA Wenham (Builders) Pty Ltd,53 Jacobs J noted that there was a tendency to state
that contracts involving chattels will not be specifically enforced unless the chattel is rare or
unique. His Honour rejected this formulation and observed that the correct principle is that
contracts involving chattels that are rare or unique will be enforced in equity because the rarity
or uniqueness of the chattel is one aspect of the general question of the inadequacy of damages
at common law. His Honour further observed that if damages at common law are an inadequate
remedy, there is no principle that will prevent enforcement in equity simply because the subject
matter of the contract is a chattel.

48. Evans Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992 at 1006.
49. Gilgandra Marketing Co-Operative Ltd v Australian Commodities & Merchandise Pty Ltd [2011] NSWSC 16
at [111].
50. (1967) 119 CLR 460 at 504. See also Zhu v Treasurer if the State of New South Wales (2004) 218 CLR 530
at 574–5; 211 ALR 159 at 192–3.
51. Aristoc Industries Pty Ltd v R A Wenham (Builders) Pty Ltd [1965] NSWR 581 at 588.
52. Duncuft v Albrecht (1841) 59 ER 1104 at 1108.
53. [1965] NSWR 581.

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31.25 If the personalty is not readily available in an open market, damages at common law
will be inadequate and the court will have jurisdiction to specifically enforce the contract in
question.54 Thus, a purchaser of all of a company’s shares has a particular interest in the due
performance of the contract. Common law damages for breach of such a contract are inadequate
and the court has jurisdiction to order specific performance of it.55 Similarly, contracts for the
sale of chattels of unusual beauty, rarity, or of special or sentimental significance to the purchaser
are ones where damages at common law will usually be inadequate.56 Furthermore, damages
at common law will usually be inadequate in cases where the item of personal property is the
subject of great price fluctuations or if it would be difficult to establish the measure of damages
at common law with any degree of accuracy, even though substitute items are available in an
open market.57
31.26 In Dougan v Ley,58 Dougan contracted to sell a taxi-cab, together with his registration
and operator’s licence issued by the Commissioner of Road Transport and Tramways. Later,
Dougan refused to go through with the sale and the purchasers sought an order for specific
performance. Dougan’s argument that common law damages were an adequate remedy was
rejected and the High Court granted the order. On the adequacy of damages argument raised
by Dougan, Dixon J59 said:
Where chattels are sold or otherwise disposed of by contract as part of the particular
equipment of a business, there is ground for equity granting specific relief. … In the present
case I think we should have no difficulty in concluding that, because of the limited number
of vehicles registered and licensed as taxi-cabs, because of the extent to which the price
represents the value of the licence, and because of the essentiality to the purchasers’ calling
the chattel and the licence attached thereto, we should treat the contract as within the scope
of the remedy of specific performance.

Land contracts
31.27 Damages at common law have almost invariably been seen as inadequate in contracts
involving land. Thus, if a vendor in a contract for the sale of land refuses to convey title to a
purchaser, the court has jurisdiction to order specific performance of the contract in favour
of the purchaser because the purchaser cannot be adequately compensated by an award of
damages at common law. A common justification for this practice is based upon the unique
nature of each parcel of land.60
31.28 Contracts involving land include contracts for the sale of land and for lesser interests
in land, such as leases. Although a licence to occupy land does not create an interest in land
in the same way that a contract for the sale or lease of land does, such a licence has been held

54. Dougan v Ley (1946) 71 CLR 142 at 150; Wong v Van Vlymen [2016] NSWSC 161 at [33].
55. Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371 at [64]–[65];
Nurisvan Investment Ltd v Anyoption Holdings [2017] VSCA 141 at [127]–[129].
56. Falcke v Gray (1859) 62 ER 250. See 31.60.
57. Adderley v Dixon (1824) 57 ER 239.
58. (1946) 71 CLR 142.
59. Dougan v Ley (1946) 71 CLR 142 at 151.
60. Loan Investment Corp of Australasia v Bonner [1970] NZLR 724 at 745; Mungalsingh v Juman [2015] UKPC
38 at [33].
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

to come within the scope of contracts involving land for the purposes of the inadequacy of
damages at common law principle.61
31.29 The almost absolute nature of the principle that common law damages are inadequate
in contracts involving the purchase of land is demonstrated by the decision in Pianta v National
Finance & Trustees Ltd.62 In that case, the High Court ordered specific performance of a
contract to a purchaser of land in circumstances where the purchaser was buying the land
solely for the purpose of developing it for resale at a profit. The High Court held that, even in
these circumstances, damages at common law were inadequate in so far as the purchaser was
concerned.
31.30 In the case of a vendor seeking equitable relief against a defaulting purchaser, damages
at common law has always been regarded as an inadequate remedy. This is so even where the
vendor is entitled to receive a sum of money pursuant to the contract.63 Why this should be
so is also not altogether clear. It has suggested that the justification for this principle is that
if common law damages are inadequate for a plaintiff/purchaser, the same should apply to a
plaintiff/vendor.64 However, a better explanation is that a vendor wants more than receipt of
money on completion of a sale of land — he or she also wants to be legally divested of his or
her interest in the land and, consequentially, damages at common law would not be adequate
compensation to the vendor.65
31.31 The traditional approach of viewing common law damages as inadequate in cases of
land contracts has been questioned.66 In Union Eagle Ltd v Golden Achievement Ltd67 the Privy
Council observed that in some circumstances no distinction could be drawn between land sale
contracts and other commercial contracts because ‘land can also be an article of commerce and
a flat in Hong Hong is probably as good an example as one could find’. This observation clearly
implies that damages could be an adequate remedy in contracts involving land.
31.32 In Canada, the Supreme Court rejected the traditional approach in Semelhago
v Paramadevan,68 where Sopinka J said:
While at one time the common law regarded every piece of real estate to be unique, with
the progress of modern real estate development this is no longer the case. Both residential,
business and industrial properties are mass produced much in the same way as other
consumer products. If a deal falls through for one property, another is frequently, though
not always, readily available. It is no longer appropriate, therefore, to maintain a distinction
in the approach to specific performance as between realty and personalty. It cannot be
assumed that damages for breach of contract for the purchase and sale of real estate will be an

61. Verrall v Great Yarmouth Borough Council [1981] QB 202; [1980] 1 All ER 839.
62. (1964) 180 CLR 146.
63. Boyarsky v Taylor [2008] NSWSC 1415 at [26].
64. Turner v Bladin (1951) 82 CLR 463 at 473.
65. Dougan v Ley (1946) 71 CLR 142 at 150.
66. K Yin, ‘Specific Performance in Favour of a Purchaser Under a Contract for the Transfer of Land — An
Analysis of the Present Australian Position’ (2015) 41 Australian Bar Review 79.
67. [1997] AC 514 at 519; [1997] 2 All ER 215 at 219.
68. [1996] 2 SCR 425 at 428–9. For a discussion and critique of this decision see R Chambers, ‘The Importance
of Specific Performance’, in S Degeling and J Edelman, Equity in Commercial Law, Lawbook Co, Sydney,
2005, pp 434–48. See also United Gulf Developments Ltd v Iskandar (2004) 235 DLR (4th) 609 at 615–17.

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inadequate remedy in all cases. … Specific performance should, therefore, not be granted as
a matter of course absent evidence that the property is unique to the extent that its substitute
would not be readily available.

Contracts to pay or lend money

31.33 Generally, contracts to pay or lend money are ones where a plaintiff will be adequately
compensated by an award of damages at common law.69 However, in some circumstances
common law damages will not do justice to the plaintiff and the court will have jurisdiction to
award equitable relief. In Wight v Haberdan Pty Ltd70 Kearney J ordered specific performance of
such a contract. Damages at common law were not an adequate remedy because of the complex
questions that would have arisen, the delay and expense involved, and the fact that damages
would be extremely difficult, if not impossible, to assess with reasonable accuracy. On the
other hand, even if specific performance is not available because of the adequacy of damages
principle, in many cases a plaintiff can achieve the same practical result by pursuing his or her
claim in debt.71
31.34 On the other hand, agreements to give a security may be ones in which damages are
inadequate. In Jawhite Pty Ltd v Trabme Pty Ltd,72 Sofronoff P said that such cases are ones:
... in which a lender has already made a loan and the borrower has promised to give a security
over identified property. In such cases, the agreement itself constitutes an equitable charge
or mortgage over particular property and the enforcement of the promise to give security
involves no more than a perfection into a legal security of an existing equitable security.

Contracts conferring a benefit on a third party

31.35 Contracts in which the defendant’s obligation is the conferral of a benefit upon a third
party to the contract, raise particular issues as to whether damages at common law are an
adequate remedy. An example of such a contract is where the obligation is to pay a sum of
money to a third party. While at first glance it could be surmised that damages would generally
be an adequate remedy, this is not the case. The plaintiff ’s measure of damages in such a case
will usually be nominal.73 However, it is precisely because such damages are nominal that they
are an inadequate remedy. A court will have jurisdiction to order specific performance of
such a contract because common law damages do not satisfy the demands of justice. In Coulls
v Bagot’s Executor & Trustee Co Ltd,74 Windeyer J said that ‘[c]omplete and perfect justice to
a promisee may well require that a promisor perform his promise to pay money or transfer
property to a third party’.

69. Western Wagon and Property Co v West [1892] 1 Ch 271 at 275; Loan Investment Corporation of Australasia
v Bonner [1970] NZLR 724 at 735; Dixon v Barton [2011] NSWSC 1525 at [186]; Hu v Blue Whale
Entertainment Pty Ltd [2020] NSWSC 562 at [16].
70. [1984] 2 NSWLR 280 at 290.
71. See 30.39–30.48.
72. [2019] QCA 7 at [40].
73. Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 501–2.
74. (1967) 119 CLR 460 at 503.

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31.36 In Beswick v Beswick,75 Peter Beswick contracted with his nephew, John Beswick. By
the terms of the contract, Peter was to transfer his business to John and, in return, John agreed
to employ Peter as a consultant for the rest of his life and, after Peter’s death, to pay Ruth
Beswick (Peter’s wife) an annuity for the rest of her life. After Peter’s death John refused to make
the payments to Ruth. Ruth, in her capacity as the administratrix of Peter’s estate, brought an
action seeking specific performance of the obligation to pay the annuity. The House of Lords
ruled in Ruth’s favour, holding that common law damages were an inadequate remedy. Lord
Upjohn76 observed that, in such a case, especially where the plaintiff has performed his or
her contractual obligations and all that remained to be done was for the defendant to honour
his or her obligation and pay money to the third party, equity would enforce the obligation,
as common law damages would be inadequate to meet the justice of the case. His Lordship
observed that to deny equitable relief would ‘fulfil no other object than that of aiding the
wrongdoer’. In Attorney General v Blake,77 Lord Nicholls interpreted Beswick v Beswick78 as
a case in which ‘[t]he law recognised that the innocent party to the breach of contract had a
legitimate interest in having the contract performed even though he himself would suffer no
financial loss from its breach’.
31.37 The inadequacy of damages in cases such as Beswick v Beswick79 stems from the fact
that the plaintiff does not recover damages that reflect the losses suffered by the third party.
This is because of the general rule that a plaintiff cannot recover damages for losses sustained
by a third party to the contract.80 However, if the plaintiff can recover damages for the third
party’s losses, then damages are an adequate remedy and a court has no jurisdiction to order
specific performance.
31.38 The question of whether a plaintiff can recover damages in relation to losses suffered
by a third party to a contract has been referred to as a ‘legal black hole’ and has troubled lawyers
for some time. English cases have, through a series of decisions, come to the position that, as an
exception to the general rule that a plaintiff can only recover damages for losses suffered by the
plaintiff, the plaintiff can recover damages in relation to the loss suffered by a third party, but
only if the third party has no claim of its own that can be pursued against the defendant who
has breached his or her contract with the plaintiff.81

DISCRETIONARY FACTORS FOR REFUSING AN ORDER FOR

SPECIFIC PERFORMANCE

31.39 A variety of discretionary factors exist which enable a court to refuse granting an order
for specific performance. Historically, some of them, such as the lack of mutuality, were treated

75. [1968] AC 58; [1967] 2 All ER 1197.

76. Beswick v Beswick [1968] AC 58 at 102; 2 All ER 1197 at 1221.
77. [2001] 1 AC 268 at 282; [2000] 4 All ER 385 at 395.
78. [1968] AC 58; [1967] 2 All ER 1197.
79. [1968] AC 58; [1967] 2 All ER 1197.
80. Albacruz (Cargo Owners) v Albarzera (Owners) (The Albazero) [1977] AC 774 at 845; [1976] 3 All ER 129
at 136.
81. See 39.14–39.17.

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as jurisdictional factors, but have since been transformed into discretionary factors. Some,
but not all, of the discretionary factors are considered in the following pages. Before detailing
these discretionary factors, it should be noted that a court can order specific performance
on a conditional basis. In Sydney West Area Health Service v Staracek,82 an order for specific
performance of an option in a lease was made conditional upon the lessee first discharging its
outstanding repair obligations or paying the lessor money on account of damages.

Personal services contracts

31.40 Equity will not enforce a contract if to do so would result in compelling the defendant
to maintain a personal relationship with the plaintiff. The underlying rationale for this principle
lies in human nature and the undesirability of maintaining a personal relationship against the
will of one of the parties to the contract.83 As was observed by Fry LJ in De Francesco v Barnum,84
courts ‘are bound to be jealous, lest they should turn contracts of service into contracts of
slavery’. Typical examples include employment contracts and partnership agreements. In
relation to employment contracts, in Geys v Société Générale, London Branch,85 Sumption JSC
explained the reasoning behind this approach as follows:
Historically, there have been three main reasons for this. The first is that the relationship
of employer and employee was traditionally regarded as a highly personal one. In an age of
large corporate enterprises many of whose employees perform routine jobs, the personal
character which was once typical of employment relationships has lost much of its former
importance. But employment is none the less a relationship based on mutual trust and
confidence, a factor which has assumed growing importance in the way that the law has
developed over the past 30 years. Second, the difficult and litigious history of industrial
relations in the United Kingdom in the late 19th and early 20th centuries reinforced the
sensitivity which the common law had always had about any intervention by a court which
might force the parties to continue in a relationship which has been described as ‘at once
inter-dependent and oppositional’.86 … This makes it more difficult to justify intervening
in a way that forces an employer to employ someone if the law is to maintain the ordinary
principle that remedies should operate mutually or not at all. Third, legal thinking in this
area has always been influenced by a concern for the productive use of resources, including
labour. This … is reflected in the abiding concern of the common law to ensure the
terminability of contracts of employment, without prejudice to the subsequent regulation
of the financial consequences by an award of damages. The harsher consequences of this
approach for individuals have been mitigated in the last half century by a parallel scheme
of statutory protection of employment, operating within defined limits and administered
by specialised statutory tribunals with limited jurisdiction over purely contractual disputes.
But the statutory protection of employment overlays the common law without necessarily
altering it. Indeed, it makes the development of a more stringent standard of employment
protection at common law unnecessary and perhaps inappropriate.

82. (2008) 73 NSWLR 68 at 79.

83. Geys v Société Générale, London Branch [2013] 1 AC 523 at 553; [2013] 1 All ER 1061 at 1089; Ashworth
v The Royal National Theatre [2014] 4 All ER 238 at 245.
84. (1890) 45 Ch D 430 at 438.
85. [2013] 1 AC 523 at 567–8; [2013] 1 All ER 1061 at 1103–4.
86. The Oxford History of the Laws of England, vol xiii, (2010), p 623.

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31.41 However, this does not mean that the court will not enforce a contract that contains
an obligation to enter into a contract for personal services. Specific performance of such an
obligation would be an example of specific performance in the proper sense. In C H Giles &
Co Ltd v Morris,87 Megarry J observed that, even though a contract that has been entered into
pursuant to a specific performance order may not be enforceable because it is a contract for
personal services, this is no bar to ordering its execution. Although such a contract for personal
services would usually not be specifically enforced, the plaintiff would nevertheless recover
common law damages if it were breached. Megarry J88 further noted that simply because a
contract contains an element of personal services does not automatically mean that it will not
be enforced in equity.
31.42 In Turner v Australasian Coal & Shale Employees Federation,89 the Full Court
observed that in employment contracts specific performance had been traditionally denied
on the ground that repudiation by one party destroyed the mutual confidence that must exist
between an employer and employee, thereby making it undesirable to compel performance
of an employment contract between them. However, the Full Court observed that this need
not always be so, as not all employment relationships are ones where the relationship of
mutual confidence must exist. Thus, in the situation of persons employed by large corporate
enterprises, the Full Court90 said:
It is difficult to say that a relationship of mutual confidence must exist in the case of
every person employed by a large corporate enterprise. There are many occupations in
such enterprises where the precise identity of the employee performing a particular job is
immaterial to the collective management of the corporation.

31.43 In the light of cases such as C H Giles & Co Ltd v Morris91 and Turner v Australasian
Coal & Shale Employees Federation,92 in Quinn v Overland,93 Bromberg J said:
The circumstances of each particular case need to be examined. There ought not to be and
there is no longer a fixed rule against specific performance of an employment contract.
Furthermore, the appropriateness of specific performance as a remedy is strengthened by
a growing acceptance at common law of the right of an employee to perform work. That
recognition has arisen out of changed social attitudes. There is now a greater recognition
than ever that employment is important to an employee not simply because it provides
economic sustenance. Workplaces are a hub of important human exchanges which are vital to
the wellbeing of individual workers. Work provides employees with purpose, dignity, pride,
enjoyment, social acceptance and many social connections. As well, the performance of
work allows for skill enhancement and advances career opportunities. These non pecuniary

87. [1972] 1 All ER 960 at 968. See Newtown Management Pty Ltd v Owners of Strata Plan 67219 [2009]
NSWSC 150 at [201]; Huang v Chen [2017] NSWSC 1699 at [77].
88. C H Giles & Co Ltd v Morris [1972] 1 All ER 960 at 969; See also Byrne v Australian Airlines Ltd (1995) 185
CLR 410 at 428; 131 ALR 422 at 432.
89. (1984) 55 ALR 635.
90. (1984) 55 ALR 635 at 648.
91. [1972] 1 All ER 960.
92. (1984) 55 ALR 635.
93. [2010] FCA 799 at [100]–[101].

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attributes of work are important and their denial can be devastating to the legitimate interests
of any worker, either skilled or unskilled.

31.44 In Downe v Sydney West Area Health Service (No 2),94 a contract of employment was
enforced in circumstances where an employee had been suspended and there had not been
any loss of trust or willingness to work between the employer and the employee. However, in
Tradition Australia Pty Ltd v Gunson,95 Barrett J, after consideration of the relevant authorities,
indicated that specific performance of employment contracts would be an extremely rare
occurrence. In that case an employer sought specific performance of its contracts with three
employees employed in a very specialised field within Australia’s capital markets broking
industry. The employees were engaged under fixed term contracts, but had, allegedly in
breach of their contracts, commenced work with another employer at the time the employer
sought relief. In denying equitable relief, Barrett J96 suggested that earlier cases pointing to the
theoretical possibility of specific performance of employment contracts were overwhelmingly
ones in which the employer would have been compelled to maintain a relationship with an
employee. However, in the case at hand, it would have been the employee being compelled to
maintain a personal relationship with the employer. According to his Honour,97 to grant specific
performance in this case ‘would be tantamount to making contracts of service into contracts of
slavery’. Thus, it appears that in cases where specific performance of an employment contract
is appropriate, it is more likely to be in favour of an employee against an employer, rather than
in favour of an employer against an employee.

Constant court supervision

31.45 Contracts in which the parties’ obligations are imprecisely defined will generally
not be specifically enforced. The rationale for this principle stems from the fact that non-
compliance with an order for specific performance is punishable as a contempt of court. Given
the quasi-criminal consequence of contempt, it is entirely appropriate that the obligation to be
specifically enforced must be sufficiently certain and precise so as to make the defendant’s duty
in complying with the order clear.98
31.46 This defence to an application for specific performance is usually phrased in terms
of the principle that contracts requiring the constant supervision of the courts will not attract
equitable relief. In J C Williamson Ltd v Lukey & Mulholland,99 Dixon J said:
Specific performance is inapplicable when the continued supervision of the court is necessary
to ensure the fulfilment of the contract. It is not a form of relief which can be granted if the
contract involves the performance by one party of services to the other or requires their
continual co-operation.

94. (2008) 218 FLR 268 at 356–60.

95. [2006] NSWSC 298.
96. Tradition Australia Pty Ltd v Gunson [2006] NSWSC 298 at [26].
97. Tradition Australia Pty Ltd v Gunson [2006] NSWSC 298 at [30].
98. Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 12–13; [1997] 3 All ER 297
at 302–3.
99. (1931) 45 CLR 287 at 297–8.

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31.47 In Ryan v Mutual Tontine Westminster Chambers Association,100 the facts involved an
application for specific performance of a contract between a landlord and a tenant, pursuant to
which the landlord was obliged to employ a porter to perform certain services for the benefit
of the tenant. The Court of Appeal considered that the services to be performed by the porter
would, for the long term of the contract, be required to be performed on a day-to-day basis and
would require many and varied tasks to be performed, with the tasks changing from day to day.
The court took the view that execution of the contract would require the constant supervision
of the court and declined to order specific performance.
31.48 However, if the terms of the contract are sufficiently clearly defined, equitable relief
will be granted. In Tito v Waddell (No 2)101 Megarry V-C said:
The real question is whether there is a sufficient definition of what has to be done to comply
with the order of the court. That definition may be provided by the contract itself, or supplied
by the terms of the order, in which case there is the further question whether the court
considers that the terms of the contract sufficiently support, by implication or otherwise, the
terms of the proposed order.

Thus, provided that there is a sufficient degree of certainty, a landlord’s obligation to repair
leased premises may attract an order for specific performance.102
31.49 An important area in which the constant court supervision principle can be illustrated
is in relation to leases in modern shopping malls. Such malls invariably have one or more large
retail shops, such as supermarkets and department stores, commonly referred to as ‘anchor
tenants’, and a larger number of smaller specialty shops. Anchor tenants are vital to the success
of shopping malls in that they tend to attract shoppers to the mall. Without the drawing power
of anchor tenants, the smaller shops would not be able to survive. A common feature in leases
for all tenants in the mall is that they will operate their businesses during normal business
hours. The question that has arisen in a number of cases is whether an anchor tenant who, in
breach of its lease, shuts down its business, can be forced to continue to operate its business by
an order for specific performance.
31.50 In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd,103 Co-operative
Insurance Society (CIS) was the owner of a shopping centre and Argyll Stores was the tenant
of the centre’s supermarket. With 19 years of the lease remaining, Argyll gave notice to CIS of
its intention to close the supermarket. CIS, concerned that the closure would adversely affect
other tenants, requested Argyll to keep operating the supermarket until a new supermarket
operator could be found to take over the premises. Argyll refused to accede to this request and
proceeded to close the supermarket. CIS sought specific performance of the lease obligation to
operate the supermarket during normal business hours. A unanimous House of Lords refused
the application. The principal basis for the decision was that enforcement of the obligation to
carry on the supermarket business would require the constant supervision of the court.

100. [1893] 1 Ch 116.

101. [1977] Ch 106 at 321; [1977] 3 All ER 129 at 308.
102. Jeune v Queens Cross Properties Ltd [1974] Ch 97 at 99–101; [1973] 3 All ER 97 at 98–100; Blue Manchester
Ltd v North West Ground Rents Ltd [2019] EWHC 142 (TCC) at [108]–[109].
103. [1998] AC 1; [1997] 3 All ER 297.
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31.51 Speaking for the House of Lords, Lord Hoffmann drew a distinction between cases
104

where the obligation that was the subject of an application for specific performance concerned
the carrying on of activities, and those where the obligation related to achieving a result. In the
latter case, his Lordship said that, if the result was defined with sufficient precision, specific
performance would be ordered because the possibility of subsequent wasteful litigation would
be minimised. The degree of precision in defining the obligation was of a higher order than
that required to escape the consequences of a contract being void for uncertainty. However,
with obligations of an ongoing nature, specific performance would not generally be ordered
because of the threat of repeated litigation arising from disputes as to whether at any particular
time the defendant was complying with the order. This was particularly important in this case
because Argyll’s obligation to keep the supermarket open was of an ongoing nature.
31.52 For Lord Hoffmann, a further reason against ordering specific performance in
Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd105 was the fact that, if Argyll
had to continue trading until the expiration of the lease, the effect of the order could very well
be oppressive, in that Argyll would have to carry on what was an unprofitable business for
the remaining 19 years of the lease. Lord Hoffmann106 rejected the argument put by CIS that
an order for specific performance, once made, could subsequently be varied or set aside on
the grounds of any actual oppression that resulted from complying with the order. However,
decisions of the House of Lords107 and High Court of Australia108 clearly support the argument
put forth by CIS. Although these cases deal with applications to set aside an order of specific
performance on the grounds that compliance with the order is no longer possible,109 there is
no reason in principle why such an application could not succeed in circumstances where the
effect of the order is oppressive upon the defendant.
31.53 Although Lord Hoffmann’s approach was generally endorsed by the High Court in
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia,110 it should not
be assumed that obligations of an ongoing nature will never be specifically enforced. Lord
Hoffmann111 conceded this when he observed that the ordering of specific performance was
ultimately a discretionary matter in which ‘[t]here are no binding rules’ and that ‘in exceptional
circumstances’ specific performance of an obligation to carry on a business could be specifically
enforced. Indeed, in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia,112
the High Court said the following:

104. Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 13; [1997] 3 All ER
297 at 303. See also Netline Pty Ltd v QAV Pty Ltd (No 2) [2015] WASC 113 at [69]–[72], [78]; Sentinel
Countrywide Retail Ltd v P C Emerald (Qld) Pty Ltd [2015] QSC 348.
105. [1998] AC 1; [1997] 3 All ER 297.
106. Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 18; [1997] 3 All ER 297
at 307.
107. Johnson v Agnew [1980] AC 367; [1979] 1 All ER 883.
108. Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; 77 ALR 205.
109. See 31.82.
110. (1998) 195 CLR 1 at 46–7; 153 ALR 643 at 670.
111. Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 at 16; [1997] 3 All ER 297
at 305.
112. (1998) 195 CLR 1 at 46; 153 ALR 643 at 670.

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What is significant is the acceptance by the House of Lords that the concept of ‘constant
supervision by the court’ by itself is no longer an effective or useful criterion for refusing a
decree of specific performance. … Reference to constant court applications should not be
misunderstood. The courts are well accustomed to the exercise of supervisory jurisdiction
upon applications by trustees, receivers, provisional liquidators and others with the
responsibility for the conduct of administrations. The reservation of liberty to apply to the
Federal Court in respect of certain of the orders to be made is in no way out of the ordinary
in the exercise of equitable jurisdiction.

31.54 The decision in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of
Australia113 signals a more flexible approach than that of Lord Hoffmann and has been
embraced by subsequent Australian cases. In Diagnostic X-Ray Services Pty Ltd v Jewel Food
Stores Pty Ltd,114 on facts similar to those in Co-operative Insurance Society Ltd v Argyll Stores
(Holdings) Ltd,115 the tenant was ordered to carry on the business until such time as it found
another tenant to take over the business. Similarly, as discussed by Berryman,116 a number of
Canadian cases have shown a greater willingness to specifically enforce such obligations.

Hardship
31.55 An order for specific performance will be refused if the order itself, rather than the
terms of the contract, would result in unconscientious hardship upon the defendant.117 It is not
just any hardship to the defendant that will suffice. In Mould v Canale,118 Macauly J said that the
hardship must amount to ‘oppression far outweighing the inconvenience’ to a purchaser if left
to their remedy in damages. Simply because the terms of the contract are improvident, risky,
or unwise, is not enough to establish hardship.119 Furthermore, as was made clear in Dowsett
v Reid,120 the court must balance the potential hardship to the defendant that would result
if specific performance were granted, with the potential hardship to the plaintiff if specific
performance were refused. If the two cancel each other out, specific performance will be
ordered despite the hardship to the defendant.
31.56 The hardship principle extends to hardship to third parties to the contract, provided
that the third party has a close connection to the defendant. An example is where the defendant
has a moral or legal duty to the third party and the effect of ordering specific performance
would be to actively prevent the defendant from discharging his or her duty to that third party.121
31.57 In relation to assessing hardship, in Evans v Robocorp Pty Ltd,122 Peter Lyons J said:

113. (1998) 195 CLR 1; 153 ALR 643.

114. [2001] 4 VR 632.
115. [1998] AC 1; [1997] 3 All ER 297. In Unwired Planet International Ltd v Huawei Technologies (UK) Co Ltd
[2020] UKSC 37 at [160] the Supreme Court in the United Kingdom stated that the decision in Argyll Stores
held that ‘damages were more appropriate than [equitable relief] requiring the carrying on of a business’.
116. J Berryman, ‘Recent Developments in the Law of Equitable Remedies: What Canada Can do for You’ (2002)
Victoria University of Wellington Law Review 51 at 85–7.
117. David Jones Ltd v Perpetual Ltd [2006] QSC 337 at [158]; Zhu v Snell [2014] NSWSC 468 at [206].
118. [2017] VSC 793 at [140].
119. Axelsen v O’Brien (1949) 80 CLR 219 at 226.
120. (1912) 15 CLR 695.
121. Gall v Mitchell (1925) 35 CLR 222 at 230–1.
122. [2015] 2 Qd R 111 at 114.
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[The court] must take account of all the circumstances known to exist at the time when
an order is made, as well as of circumstances likely to occur subsequently, when called
on to decide whether the effect of the order for specific performance will be to cause
disproportionate hardship so as to give rise to injustice. … [T]here is no reason in principle
why a source of hardship should be ignored merely because it did not exist at the time when
the contract was entered into.

For example, in the context of a vendor’s application to specifically enforce a contract for the
sale of land, such disproportionate hardship will not arise merely because the purchaser has
difficulty in finding the money to complete the purchase. Such difficulty is but a factor to
be considered when assessing whether the facts and circumstances of the case establish the
defence of hardship.123
31.58 In Patel v Ali,124 it was held that the fact that the defendant was under no hardship at the time
of the contract and that the hardship arose in the time between the date of the contract and the date
of the hearing of the application for specific performance, did not mean that hardship could not be
successfully raised by the defendant. However, as was also made clear in that case, circumstances
giving rise to hardship after the date of contract, especially in cases of contracts for the sale of
land, would only arise in the most extraordinary and persuasive circumstances. Furthermore, if
the circumstances arising after the contract were ones that were, or should reasonably have been,
contemplated as matters that would occur after the contract was entered into, then it is less likely
that these subsequent matters will be taken into account in establishing hardship.125
31.59 In Kurth v McGavin,126 a purchaser of land was refused specific performance on the
ground of hardship in circumstances where the vendor had entered into the contract in a state
of intoxication and without the benefit of independent legal advice. Notwithstanding that the
purchaser has given adequate consideration, in refusing specific performance Priestley J127 said:
The defendant’s lack of independent legal advice and his state of mind during the formation
of the contract, combined with the inherent uniqueness of his land and its significance to
him, point to an order for specific performance being severe compared to the hardship faced
by the plaintiff should damages be awarded instead.

31.60 The terms of a contract may, in special circumstances, establish hardship. In Falcke
v Gray,128 specific performance of an option to purchase rare China jars at a price 80 per cent
below market value was declined on grounds of hardship to the defendant. Because the contract
was for a rare and special chattel, the court had jurisdiction to award specific performance, as
common law damages to the plaintiff would have been an inadequate remedy. However, the
hardship to the defendant led the court to refuse the grant of relief in the exercise of its discretion.
31.61 Cases such as Falcke v Gray,129 where the inadequacy of consideration alone was
sufficient to establish hardship, are rare. The mere inadequacy of consideration was not

123. Boyarsky v Taylor [2008] NSWSC 1415 at [34]–[35]; Hera Project Pty Ltd v Bisognin [2016] VSC 591 at [23].
124. [1984] Ch 283; [1984] 1 All ER 978.
125. ANZ Executors & Trustees v Humes Ltd [1990] VR 615 at 637.
126. [2007] 3 NZLR 614.
127. Kurth v McGavin [2007] 3 NZLR 614 at 635.
128. (1859) 62 ER 250.
129. (1859) 62 ER 250.
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

enough to establish hardship in Phung v Phung.130 Usually the inadequacy of consideration

will be combined with one or more additional factors, such as fraud, undue influence, mistake,
intoxication, lack of independent legal or expert advice, and the like.

Unclean hands
31.62 The maxim that ‘one who comes to equity must come with clean hands’, means that
a plaintiff who is guilty of some improper conduct will be denied equitable relief. This is so
because ‘[n]o Court of Equity will aid a man to derive advantage from his own wrong’.131
However, this ‘does not mean that a plaintiff must be entirely blameless’.132 In considering this
defence, the court is, in effect, determining whether the equitable right that the plaintiff is
seeking to protect or assert is ‘itself to some extent brought into existence or induced by some
illegal or unconscionable conduct of the plaintiff, so that protection for what [the plaintiff]
claims involves protection for his [or her] own wrong’.133
31.63 For the conduct of the plaintiff to fall within the maxim, there must be an ‘immediate
and necessary relation to the equity sued for’ as well as ‘a depravity in a legal as well as in a moral
sense’.134 In relation to the first test, in Carantinos v Magafas135 and Kation Pty Ltd v Lamru Pty
Ltd,136 the Court of Appeal suggested a more flexible test of ‘whether the disentitling conduct
had a sufficiently close relationship to the equity sued for’. In relation to the second test, general
depravity by the plaintiff will not bar equitable relief. The depravity must be related to the
plaintiff ’s cause of action in equity.137

Laches
31.64 In seeking equitable relief, a plaintiff must act promptly and diligently.138 Equity will
not allow defendants to remain for too long in a position of not knowing whether equitable
relief will be ordered against them. It would be unconscientious to do so.139 Laches, or undue
delay, by the plaintiff in commencing or prosecuting an application for an equitable remedy,
will lead a court to deny the application.140

130. [2019] NSWSC 117 at [78]–[79].

131. Meyers v Casey (1913) 17 CLR 90 at 124.
132. Global Advanced Metals Pty Ltd v Metallurg Inc [2017] WASCA 188 at [107].
133. Meyers v Casey (1913) 17 CLR 90 at 124.
134. Dering v Earl of Winchelsea (1787) 29 ER 1184 at 1184–5. See also Moody v Cox and Hatt [1917] 2 Ch 71
at 87–8; Dewhirst v Edwards [1983] 1 NSWLR 34 at 51; Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR
336 at 348; Financial Ombudsman Services Ltd v Utopia Financial Services Pty Ltd [2016] WASC 55 at [69];
Bullhead Pty Ltd v Brickmakers Place Pty Ltd (in liq) (2018) 58 VR 91 at 123–4.
135. [2008] NSWCA 304 at [58].
136. (2009) 257 ALR 336 at 339, 375.
137. Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 at 650; Edenham Pty Ltd v Meares
[2016] WASC 301 at [79].
138. Smith v Clay (1767) 27 ER 419 at 420.
139. Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559; 128 ALR 201 at 210; Williams v Auckland
Council [2015] NZCA 479 at [108]; CSR Ltd v Amaca Pty Ltd [2016] VSCA 320 at [241].
140. Eads v Williams (1854) 43 ER 671 at 678.

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31.65 In the ‘classic statement of the law as to laches’, 141

in Lindsay Petroleum Co v Hurd142
Lord Selborne said:
[T]he doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where
it would be practically unjust to give a remedy, either because a party has, by his conduct,
done that which might fairly be regarded as equivalent to a waiver of it, or where by his
conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party
in a situation in which it would not be reasonable to place him if the remedy were afterwards
to be asserted, in either of these cases lapse of time and delay are most material. But in every
case, if an argument against relief, which otherwise would be just, is founded upon mere
delay, that delay of course not amounting to a bar by any statute of limitations, the validity
of that defence must be tried upon principles substantially equitable. Two circumstances,
always important in such cases, are the length of the delay and the nature of the acts done
during the interval, which might affect either party and cause a balance of justice or injustice
in taking the one course or the other, so far as relates to the remedy.

31.66 To establish the laches defence, the defendant must establish both unreasonable delay
and prejudice.143 In Crawley v Short,144 Young JA said:
The elements of the defence of laches are: (i) knowledge of the wrong; (ii) delay; and
(iii) unconscionable prejudice caused to the opponent by the delay. … The result of a
successful plea of laches is that the plaintiff ’s equitable claim is dismissed.

31.67 In relation to the element of knowledge, the cases give very little guidance. In most
cases there is no real doubt that knowledge of the wrong exists. In Crawley v Short,145 Young JA
stated that ‘the degree of knowledge required … [is] a question of fact and degree in each case
to be taken together with all the other facts of the particular case’. In relation to the second and
third elements of laches set out in Crawley v Short,146 it is clear that, for the laches principle to
apply, the delay must be unreasonable and, in all the circumstances, it must render the grant of
equitable relief against the defendant unconscientious.147
31.68 It is often said that mere delay — that is, delay that has had no adverse consequences
for the defendant or any third party — is not enough to establish laches.148 This is so, even in
cases of long periods of delay. Thus, in Fitzgerald v Masters,149 the High Court granted specific
performance 26 years after the cause of action arose. However, in P & O Nedlloyd BV v Arab

141. BM Auto Sales Pty Ltd v Budget Rent A Car System Pty Ltd (1976) 12 ALR 363 at 372.
142. (1874) LR 5 PC 221 at 239–40. See also Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas
2118 at 1279–80.
143. Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435 at 456–7; 310 ALR 85 at 104; Crossman v Sheahan
[2016] NSWCA 200 at [386].
144. (2009) 262 ALR 654 at 678.
145. (2009) 262 ALR 654 at 678.
146. (2009) 262 ALR 654.
147. Re Loftus (dec’d) [2006] 4 All ER 1110 at 1124; Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435
at 456–7; 310 ALR 85 at 104; Crossman v Sheahan [2016] NSWCA 200 at [386].
148. Lamshed v Lamshed (1963) 109 CLR 440 at 453; Proprietors of Wakatu v Attorney-General [2015] 2 NZLR
298 at 346.
149. (1956) 95 CLR 420.

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Metals Co (No 2),150 the Court of Appeal stated that it ‘would not wish to rule out the possibility
that the court would regard it as inequitable to allow a claim to be pursued after a very long
period of delay, even in the absence of evidence that the defendant or any third party had
altered his position in the meantime’. The court went on to say that, in all cases ‘[t]he question
for the court … is simply whether, having regard to the delay, its extent, the reasons for it and
its consequences, it would be inequitable to grant the claimant the [equitable] relief he seeks’.
31.69 The time from which delay is measured is the time at which the plaintiff has knowledge
of the facts upon which his or her equitable remedy is based.151 Where a plaintiff has knowledge
of the relevant facts, he or she is presumed to have the requisite knowledge of his or her rights
to a cause of action. Furthermore, the availability of the means of getting the knowledge is as
good as having the knowledge.152
31.70 In assessing whether there is prejudice to the defendant, the following passage from
the joint judgment of Dixon CJ, and Webb and Kitto JJ in Fysh v Page153 is instructive:
If the delay means that to grant relief would place the party whose title might otherwise
be voidable on equitable grounds in an unreasonable situation, or if, because of change of
circumstances, it would give the party claiming relief an unjust advantage or would impose
an unfair prejudice on the opposite party, these are matters which may suffice to answer the
prima-facie grounds for relief.

In Fisher v Brooker,154 Lord Neuberger said, ‘[a]lthough I would not suggest that it is an
immutable requirement, some sort of detrimental reliance is usually an essential ingredient of
laches’.
31.71 In determining whether laches arises in any given case, the court will not rely on
earlier cases to any great extent. The question of whether the plaintiff has acted with sufficient
promptness is almost exclusively dependent upon the individual facts and circumstances of any
given case.155 In Eastern Services Ltd v No 68 Ltd156 Anderson J said:
[T]he doctrine of laches requires a balancing of equities in relation to the broad spectrum
of human conduct. In the abstract, facts and the weight to be given to them are infinitely
variable. But in a particular case they have to be identified and weighted for what they are,
as a singular exercise.

31.72 However, it must also be noted that courts take the view that there are cases, such as
claims for the rescission of contacts, that require special promptitude.157 On the other hand,
where ‘injunctive relief is informed by, or founded upon, the protection of the public by
enforcement of the Trade Practices Act or Australian Consumer Law, delay, even serious delay

150. [2007] 1 WLR 2288 at 2312.

151. Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 241; Borough of Milton Keynes v Viridor (Community
Recycling MK) Ltd (No 2) [2017] EWHC 239 (TCC) at [104].
152. Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1 at 763.
153. (1956) 96 CLR 233 at 243–4. See also Halford v Halford (No 3) [2020] WASC 207 at [213]–[215].
154. [2009] 4 All ER 789 at 805.
155. Lamshed v Lamshed (1963) 109 CLR 440 at 453.
156. [2006] 3 NZLR 335 at 347.
157. Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291 at 407.

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otherwise sufficient in equity to disentitle the applicant to relief, may not have that effect, in
that the court will be slower to give effect to delay or like considerations, given the wider public
interest, beyond mere private rights’.158
31.73 In Lamshed v Lamshed,159 there was a delay of several years in prosecuting a claim for
specific performance of a contract for the sale of land, and laches was established. The prejudice
to the defendant vendor was in the fact that the vendor should not have been left indefinitely in
a position of not knowing whether or not the contract would be enforced and thus not knowing
whether he could safely deal with the property on the basis that the contract would not be enforced
against him. On the other hand, in Eastern Services Ltd v No 68,160 a purchaser’s application for
specific performance of a contract for the purchase of a right-of-way was granted, notwithstanding
a delay in completion of the contract of 26 years. The vendor was unable to establish any prejudice to
itself arising from the delay. In reaffirming the necessity of establishing prejudice to the defendant,
the Supreme Court recognised that the length of delay and the nature of acts done during the
period of delay could lead to an inference being drawn that the delay had prejudiced a defendant.

Vitiating factors
31.74 Equitable relief will be refused if the contract is affected by vitiating factors due to the
plaintiff ’s conduct or actions. Thus, contracts induced by a plaintiff ’s misrepresentation, mistake,
duress, or undue influence, or that are unconscionable transactions, will not be enforced in
equity. Indeed, ‘[a] mistake or a misrepresentation which would not be a ground for rescission
will sometimes be a good defence to an action for specific performance’.161 Contracts that are
unjust or unconscionable within the terms of any statutory principles, such as unjust contracts
pursuant to the Contracts Review Act 1980 (NSW), will also not be specifically enforced.

Futility or Impossibility
31.75 If performance of the contract would be futile, it will not be specifically enforced.
Thus, the court ‘will not readily grant a decree which would involve a pointless waste of time
and money by compelling the doing of acts which could readily be reversed or which would
apparently benefit no-one’.162 Nor will a court enforce a contractual obligation that is impossible
to perform.163

Lack of mutuality
31.76 Specific performance is not available to a plaintiff unless the defendant could also have
obtained relief against the plaintiff. A defendant cannot raise this principle of mutuality if the
reason that he or she could not get equitable relief against the plaintiff is to be found in his or

158. Knott Investments Pty Ltd v Winnebago Industries Inc (2013) 299 ALR 74 at 88.
159. (1963) 109 CLR 440.
160. [2006] 3 NZLR 335.
161. Blackley Investments Pty Ltd v Burnie City Council (No 2) (2011) 21 Tas R 98 at 114.
162. Neal v Murnain [2017] NSWSC 1039 at [36].
163. New Brunswick and Canada Rly and Land Co Ltd v Muggeridge (1859) 62 ER 263 at 268; Udall v Capri
Lighting (in liq) [1988] QB 907 at 915; [1987] 3 All ER 262 at 267.

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her conduct or default. Thus, if the defendant cannot get specific performance because of some
misrepresentation, unconscionable conduct, undue influence, laches, or the like on his or her
part, the plaintiff will not be denied relief on lack of mutuality grounds. The classic example
of a lack of mutuality is a contract with a minor. A minor will be unable to obtain an order for
specific performance against the other party, as that person will be unable to insist upon his or
her rights against the minor.164
31.77 The critical aspect of the mutuality principle is the question of when mutuality must be
present. In Price v Strange,165 it was held that the critical time for mutuality to be present is the
date on which the court is to make the order for specific performance. The fact that mutuality
may not have existed at an earlier time is irrelevant. In this case, mutuality was not present
at the time of the breach of contract because the plaintiff ’s obligation to repair and renovate
an apartment would have required the constant supervision of the court, thus precluding the
defendant from obtaining specific performance. However, by the time of the hearing, the repairs
and renovations had been completed, and thus there was no reason why the defendant would
not have been able to obtain specific performance against the plaintiff. Thus, mutuality was
present at the date of the hearing and the plaintiff obtained his order for specific performance.
31.78 An important exception to the requirement of mutuality concerns contracts for the
sale of land or interests in land that are required by legislation to be evidenced in writing to
be enforceable.166 If, for example, a vendor has the necessary written documentation signed
by the purchaser, but the purchaser does not have written documentation signed by the
vendor, mutuality clearly does not exist. The purchaser would be unable, due to the lack of
documentation signed by the vendor, to seek specific performance against the vendor. This
lack of mutuality would, on the application of the mutuality principle, mean that the vendor
would be denied specific performance against the purchaser. However, it is clear that in this
situation the vendor will be granted equitable relief, notwithstanding that the purchaser would
be unable to obtain an order for specific performance.167

Plaintiff in substantial breach and/or not ready, willing, and able to

perform
31.79 A plaintiff will be denied specific performance relief if he or she is in substantial
breach of the contract. A substantial breach means a breach that would enable the other party
to terminate the contract for that breach. Other breaches do not disqualify a plaintiff from
obtaining specific performance.168 Even if the plaintiff has committed a substantial breach, the
plaintiff will be entitled to specific performance if the other party has affirmed the contract and
elected not to terminate it.169 The court will make ancillary orders to compensate a defendant
for any losses that result from the plaintiff ’s breach of contract.

164. Lumley v Ravenscroft [1895] 1 QB 683 at 684–5; Kell v Haris (1915) 15 SR (NSW) 473 at 481; Boyd v Ryan
(1947) 48 SR (NSW) 163 at 165.
165. [1978] Ch 337; [1977] 3 All ER 371.
166. See 8.8.
167. J D Heydon and M J Leeming, Cases and Materials on Equity and Trusts, 9th ed, LexisNexis Butterworths,
Sydney, 2019, p 1161.
168. Green v Somerville (1979) 141 CLR 594 at 610; 27 ALR 351 at 363.
169. Mehmet v Benson (1965) 113 CLR 295.

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31.80 A plaintiff must also be ready, willing, and able to perform his or her own obligations
before a court will grant an order of specific performance.170 This requirement can be
established either by an admission on the pleadings, or by evidence.171 However, this does not
mean that the plaintiff must have been ready, willing, and able at all times during the period of
the contract. The requirement is that he or she be ready, willing, and able at the time the specific
performance is sought.172
31.81 In Mehmet v Benson,173 the facts concerned a plaintiff who was a purchaser of land
under an instalment contract, and who, during the currency of the contract, was declared
bankrupt. While a bankrupt, the plaintiff, because of the limitations imposed upon a bankrupt
to perform a contract, was not ready, willing, and able to perform, and would thus not have
been able to obtain an order for specific performance of the contract. However, the plaintiff
obtained a discharge from bankruptcy and, when seeking an order for specific performance,
was successful before the High Court. Barwick CJ174 said:
The question as to whether or not the plaintiff has been and is ready and willing to perform
the contract is one of substance not to be resolved in any technical or narrow sense. It is
important to bear in mind what is the substantial thing for which the parties contract and
what on the part of the plaintiff in a suit for specific performance are his essential obligations.
Here the substantial thing for which the defendant bargained was the payment of the price:
and, unless time be and remain of the essence, he obtains what he bargained for if by the
decree he obtains his price with such ancillary orders as recompense him for the delay in its
receipt. To order specific performance in this case would not involve the court in dispensing
with anything for which the vendor essentially contracted.

Of course, the plaintiff must not by his unreadiness or unwillingness to perform have
disowned his obligation to do so, or abandoned his rights to the benefit of the contract. But it
is the essential terms of the contract which he must be ready and willing to perform. He seeks
a transfer of the interest in land, the subject of the contract: the counterpart obligation is the
payment of the price. In considering the question of the plaintiff ’s readiness and willingness
in this respect in this case there are many factors. His default in paying the instalments of the
price, whilst not conclusive, is amongst these factors. …

In my opinion, notwithstanding the defaults of the plaintiff in the payment of the instalments
of price, he was not unready or unwilling to perform the contract in its essential terms:
specific performance ought to have been granted.

170. Telstra Corporation Ltd v First Netcom Pty Ltd (1997) 78 FCR 132 at 136; 148 ALR 202 at 206; Love
v Simmons [2016] WASCA 176 at [42]–[43].
171. Consolidated Credit Network v Illawarra Retirement Trust (No 2) [2005] NSWSC 1007 at [76].
172. J C Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 at 298; Blackley Investments Pty Ltd v Burnie
City Council (No 2) (2011) 21 Tas R 98 at 113.
173. (1965) 113 CLR 295.
174. Mehmet v Benson (1965) 113 CLR 295 at 307–9.

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THE EFFECT OF AN ORDER FOR SPECIFIC PERFORMANCE

31.82 An order for specific performance subjects the future exercise of the parties’ contractual
rights and obligations to the control of the court.175 Thus, if specific performance is ordered,
but compliance with it becomes impossible and a party seeks alternative relief, that party must
first have the order for specific performance vacated by the court. In Sunbird Plaza Pty Ltd
v Maloney,176 the High Court explained that a plaintiff for specific performance could not
proceed to termination of a contract while an order for specific performance was still in force,
simply because the defendant is, until the order is vacated, required to comply with the order
and perform the relevant contractual obligation.
31.83 A dissenting voice on this issue is that of Meagher JA who, in Aarons v Advance
Commercial Finance Ltd,177 opined that the views of the High Court in Sunbird Plaza Pty Ltd
v Maloney178 constituted a ‘farouche proposition’ for which there was no justification. This was
on the basis that an order for specific performance does not cause the contract to merge in the
order and that, therefore, the parties’ contractual rights, including the right to terminate, remain
unaffected. In Dunworth v Mirvac Queensland Pty Ltd,179 the Court of Appeal unanimously
followed the decision in Sunbird Plaza Pty Ltd v Maloney,180 although McMurdo J181 observed
that there was ‘particular force’ in Meagher JA’s criticism.

175. Singh (Sugadar) v Nazeer [1979] Ch 474 at 480; [1978] 3 All ER 817 at 821–2.
176. (1988) 166 CLR 245 at 258–60; 77 ALR 205 at 210–2. See also Despot v Registrar General of New South Wales
[2016] NSWCA 5 at [113]–[115].
177. (1995) NSWConvR 55-746 at 55,759.
178. (1988) 166 CLR 245; 77 ALR 205.
179. [2012] 1 Qd R 207.
180. (1988) 166 CLR 245; 77 ALR 205.
181. Dunworth v Mirvac Queensland Pty Ltd [2012] 1 Qd R 207 at 224. See also See also MSD Securities Pty Ltd
v MFB Properties (NQ) Pty Ltd (No 2) [2018] 2 Qd R 51 at 75–6.

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INJUNCTIONS

INTRODUCTION
32.1 As a remedy to enforce a contract, the injunction is the usual remedy in the context
of a negative contractual obligation.1 A negative contractual obligation is one in which the
defendant/promisor has promised not to do something. An example is a reasonable restraint
of trade clause. The injunction in this context is referred to as a prohibitory injunction, as
opposed to a mandatory injunction, which requires a defendant to perform some positive act.
Thus, as with specific performance, an injunction when granted has the effect of requiring the
defendant to carry out his or her contractual obligation.
32.2 As with the remedy of specific performance, if damages at common law are an adequate
remedy, the court has no jurisdiction to order an injunction.2 In Evans Marshall & Co Ltd
v Bertola SA,3 Sachs LJ stated that ascertaining whether damages are inadequate involves asking
the question as to whether it is ‘just, in all the circumstances, that a plaintiff should be confined
to his remedy in damages’. As with the remedy of specific performance, damages will usually be
inadequate in relation to an injunction application if ‘damages are difficult to assess, or if they
involve a speculative ascertainment of the value of a loss of a chance’.4
32.3 As to whether damages at common law are adequate in the context of negative
contractual stipulations and, therefore, a bar to granting equitable relief, Brereton J suggested in
Tullett Prebon (Australia) Pty Ltd v Purcell5 ‘that will be so only in an exceptional case’. However,
as was pointed out by Campbell JA in Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd,6 this
‘is an empirical generalisation, not a legal principle’. In relation to why damages will usually be
an inadequate remedy when an employer seeks to enforce a restraint of trade against a former
employee, Amalgamated Pest Control Pty Ltd v SM & SE Gillece Pty Ltd7 Jackson J said that the
reasons include: ‘(i) the difficulty of detection of breaches of the obligations; (ii) the difficulty

1. Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 at [6].
2. Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 at [10].
3. [1973] 1 All ER 992 at 1005, cited with approval in Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR
506 at 536.
4. Covanta Energy Ltd v Merseyside Waste Disposal Authority [2013] EWHC 2922 (TCC) at [40].
5. [2008] NSWSC 852 at [97].
6. [2010] NSWCA 283 at [8].
7. [2016] QCA 260 at [41].

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of establishing causation between any loss of business with customers and any actions of the
ex-employee; and (iii) the difficulty of the calculation of the quantum of any damage arising
from loss of business’.

NEGATIVE CONTRACTUAL OBLIGATIONS

32.4 The negative contractual obligation to be enforced by injunctive relief must be negative
in substance in the sense that inactivity by the promisor will be complete performance of
the obligation. It is irrelevant as to whether the obligation is expressed in positive language.8
Furthermore, the negative contractual obligation can be express or implied. As to implied
negative contractual obligations, in O’Keefe v Williams9 Isaacs J observed that ‘[e]very exclusive
licence imports a negative, and the person who confers it impliedly enters into a negative
understanding to do nothing to contravene it’. Furthermore, every promise that is positive in
substance, logically contains an implied negative promise.10
32.5 In Doherty v Allman11 it was said that a court had no discretion in these cases and had to
grant the injunction. However, in Dalgetty Wine Estates Pty Ltd v Rizzon,12 in rejecting this view,
Mason J said that matters going to the court’s discretion included the nature of the stipulation,
the nature of the contract in which it was located, the effect which enforcement would have
on the relationship of the parties under the contract and the character of the order required to
enforce the obligation. Furthermore, traditional equitable defences, such as unclean hands,13
can be raised in opposition to the injunction.

RESTRAINTS OF TRADE IN PERSONAL SERVICES CONTRACTS

32.6 An important illustration of injunctive relief being sought to enforce negative
contractual obligations is with restraints in the context of employment contracts to prevent the
employee from working for another employer during the currency of the employment contract.
This is in contrast to a restraint of trade clause aimed at preventing an employee working for
another employer after the employment contract has come to an end. It can be noted that such
a restraint of trade clause is generally more difficult to enforce than is the case with a clause that
prevents an employee working for another employer during the currency of the employment
contract. In the latter case, such clauses are generally held to be reasonable and thus prima
facie enforceable, although in appropriate cases the court will exercise its discretion to refuse
enforcement by means of an injunction against the employee.
32.7 A situation in which an employee is prevented from working for another employer
during the currency of the employment contract occurs when X, a person with particular

8. Wolverhampton & Walsall Railway Co v London & North West Railway Co (1873) LR 16 Eq 433 at 440.
9. (1910) 11 CLR 171 at 211.
10. Whitwood Chemical Co v Hardman [1891] 2 Ch 416 at 426.
11. (1878) 3 App Cas 719 at 720.
12. (1979) 141 CLR 552 at 573–4; 26 ALR 355 at 373. See also Priyanka Shipping Ltd v Glory Bulk Carriers Pte
Ltd [2019] 1 WLR 6677 at 6690.
13. See 31.62–31.63; Harrigan v Brown [1967] 1 NSWR 342.

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skills and talents, promises to provide those skills and talents for the benefit of Y (the positive
contractual obligation), but also promises not to provide those skills and talents for the benefit
of anybody else (the negative contractual obligation). If X attempts to breach the express
negative contractual obligation, Y will seek to enforce it by obtaining injunctive relief to
prevent X performing those services for some other person. The usual reason that X wants
to breach the negative contractual obligation is that he or she no longer wants to perform
the positive contractual obligation and wants to offer his or her skills and talents to Z. Y’s
motivation for seeking the injunction is that, if X is prevented from offering his or her skills
and talents to Z, X will decide to perform his or her positive contractual obligation. Y will rarely
seek to obtain an order against X for specific performance of the positive contractual obligation
because it will, in most cases, be refused on the basis that contracts for personal services are
rarely specifically enforced.14 Furthermore, in deciding cases involving the enforcement of the
negative contractual obligation, the courts will not grant injunctive relief if its effect would be
tantamount to ordering specific performance of the positive contractual obligation.15
32.8 Historically, courts initially refused to grant injunctions forbidding an individual from
working for a competitor.16 The seminal decision in this area was Lumley v Wagner.17 The
background to this case was a cut-throat battle between the managers of two London opera
houses for the services of Johanna Wagner, a famous opera singer. Lumley, the manager of
the established Her Majesty’s theatre, contracted with Wagner for a three-month season in
1852. Significantly, Wagner was held to have also promised that during that period she was
‘not to use her talents at any other theatre, nor in any concert or reunion, public or private,
without the consent of Mr Lumley’. Before her contract with Lumley started, Gye, the manager
of the recently established Covent Garden opera theatre, negotiated a contract with Wagner
for the opera singer to perform at Covent Garden. Performance of this contract would have
meant breaching the negative contractual obligation in Wagner’s contract with Lumley. Lumley
sought, and obtained, an injunction to prevent her from doing so.
32.9 Lord St Leonards18 observed that the effect of the injunction was only to prevent Wagner
from appearing at Covent Garden and that it did not require her to fulfil her obligation to
Lumley at Her Majesty’s theatre, something which his Lordship said he could not directly
enforce, although he conceded that the injunction could well tempt Wagner to perform her
contract at Her Majesty’s theatre.
32.10 Lumley v Wagner19 was followed in Warner Bros Pictures Inc v Nelson,20 where Warner
Bros obtained an injunction against Bette Davis, precluding the legendary movie star from
starring in movies produced by other movie studios for a period of three years. Branson J21
held that an injunction would be awarded ‘unless to do so would in the circumstances be

14. See 31.40–31.44.

15. Kurt Keller Pty Ltd v BMW Australia Ltd [1984] 1 NSWLR 353 at 371–2; Tullett Prebon (Australia) Pty Ltd
v Purcell [2008] NSWSC 852 at [74]; Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373 at [28]; Inion
Pty Ltd v Celli SpA [2017] NSWSC 569 at [156].
16. Kimberley v Jennings (1836) 58 ER 621 at 621.
17. (1852) 42 ER 687.
18. Lumley v Wagner (1852) 42 ER 687 at 693.
19. (1852) 42 ER 687.
20. [1937] 1 KB 209.
21. Warner Bros Pictures Inc v Nelson [1937] 1 KB 209 at 219.

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tantamount to ordering [Davis] to perform her contract or remain idle or unless damages
would be the more appropriate remedy’. His Honour22 conceded that Davis could well be
tempted to continue to make movies with Warner Bros, but ruled that this was no ground
for refusing the injunction. A crucial factor in his Honour’s decision was the fact that Davis
was an intelligent and capable woman who could readily obtain alternative employment if she
resolved not to work for Warner Bros. The fact that this alternative employment would be less
financially rewarding than acting was not relevant. This approach was followed in Hawthorn
Football Club Ltd v Harding,23 where Harding, a qualified dental technician, was contracted
to play football for the Hawthorn football club for three years and precluded by his contract
from playing for any other football club during that time. In granting an injunction to restrain
Harding from playing for any other club, Tadgell J24 said:
I am not satisfied that the granting of the injunction on the terms sought would have of
itself the substantial and practical effect of enforcing the positive covenant that [Harding]
play football for [Hawthorn]. To enjoin [Harding] … could not, in my opinion, produce the
effect, either actually or metaphorically, that [Harding] would be left ‘idle’ or that he would
‘starve’, in the relevant sense unless he played football for [Hawthorn].

32.11 In the same year as this case, one of Harding’s team-mates was also subjected to an
injunction order. However, in Buckenara v Hawthorn Football Club Ltd25 the injunction was
confined to precluding Buckenara playing for other teams in the Victorian Football League
competition, leaving him free to play for teams in other competitions in Australia. The critical
distinction between these two cases was that Buckenara, unlike his team-mate, had no other
special skills for an alternative career.
32.12 In Curro v Beyond Productions Pty Ltd,26 television personality Tracey Curro was
prevented from taking up a position with the 60 Minutes program on the Nine Network, while
she was still contracted to work for the Beyond 2000 program on the Seven Network. The Court
of Appeal27 viewed Curro’s conduct in signing a contract to work on the 60 Minutes program
as a ‘flagrant and opportunistic’ breach of her contract with Beyond Productions, and held that
the injunction would not force her to choose between performing her contract with Beyond
Productions or remaining idle.
32.13 Decisions in the Lumley v Wagner28 line of cases seem to ignore — or at best be rather
naïve about — the fact that enforcement of the negative covenant may very well result in
performance of the positive obligations as a matter of practical, if not legal, compulsion. This,
in Warren v Mendy29 Nourse LJ, in referring to Warner Bros Pictures Inc v Nelson,30 said:

22. Warner Bros Pictures Inc v Nelson [1937] 1 KB 209 at 219–20.

23. [1988] VR 49.
24. Hawthorn Football Club Ltd v Harding [1988] VR 49 at 59.
25. [1988] VR 39.
26. (1993) 30 NSWLR 337.
27. Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 at 348.
28. (1852) 42 ER 687.
29. [1989] 3 All ER 103 at 112.
30. [1937] 1 KB 209.

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[The] judge’s view that Miss Bette Davis might employ herself both usefully and remuneratively
in other spheres of activity for a period of up to three years appears to have been extraordinarily
unrealistic. It could hardly have been thought to be a real possibility that an actress of her
youth and soaring talent would be able to forgo screen and stage for such a period.

32.14 It can be noted that, in most of the cases where an injunction is granted, defendants do
succumb to the temptation referred to by Branson J in Warner Bros Pictures Inc v Nelson31 and
perform their positive contractual obligations. Johanna Wagner was one of the exceptions, for,
as Waddams32 records, ‘in the end Wagner did not sing at either theatre, and the 1852 season
was a disaster for Lumley, and for Her Majesty’s theatre, which closed from 1853 to 1855,
Lumley attributing the closure largely to Johanna Wagner’s defection’.
32.15 By way of contrast to these cases, others have refused to grant injunctions. Thus, in
Whitwood Chemical Co v Hardman,33 Hardman had been appointed as manager of Whitwood
Chemical Co for a period of 10 years. By his contract he promised to work exclusively for the
company. When he breached that obligation an injunction was sought, but the Court of Appeal
rejected the application on the basis that the injunction, if awarded, would be tantamount to
specifically enforcing Hardman’s obligation to work for Whitwood. Granting the injunction
would have left Hardman with the choice of being idle or working for Whitwood. Lindley LJ34
viewed Lumley v Wagner35 as an anomalous case to be followed only in cases similar on the facts.
Kay LJ36 suggested that Lumley v Wagner37 was a case in which the power to order injunctive
relief was taken ‘to the extreme limit to which it could go’.
32.16 In Page One Records Ltd v Britton,38 members of the pop group ‘The Troggs’ entered
into a management and agency agreement with Page One Records for a term of five years
and promised not to engage anyone else to be their manager and agent. The Troggs sought
to engage another manager and agent and Page One Records sought an injunction to prevent
them from doing so.
32.17 In refusing the application, Stamp J,39 after referring to Warner Bros Pictures Inc
v Nelson,40 said:
[W]here a contract for personal service contains negative covenants, the enforcement of
which will amount either to a decree of specific performance of the positive covenants of the
contract or to the giving of a decree under which the defendant must either remain idle or
perform those positive covenants, the court will not enforce those negative covenants.

31. [1937] 1 KB 209.

32. S M Waddams, ‘Johanna Wagner and the Rival Opera Houses’ (2001) 117 Law Quarterly Review 431 at 440.
33. [1891] 2 Ch 416.
34. Whitwood Chemical Co v Hardman [1891] 2 Ch 416 at 428.
35. (1852) 42 ER 687.
36. Whitwood Chemical Co v Hardman [1891] 2 Ch 416 at 431.
37. (1852) 42 ER 687.
38. [1967] 3 All ER 822.
39. Page One Records Ltd v Britton [1967] 3 All ER 822 at 827.
40. [1937] 1 KB 209.
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Stamp J doubted that The Troggs could continue to function without the services of a manager
and agent or seek other employment, and considered that they would need a manager and
agent to function successfully as a pop group. According to Stamp J41 this was so because:
The Troggs are simple persons, of no business experience, and could not survive without the
services of a manager. … I entertain no doubt that they would be compelled, if the injunction
were granted, … to continue to employ [Page One Records] as their manager and agent. …
[I]t would be a bad thing to put pressure on the Troggs to continue to employ as a manager
and agent one, who, unlike the plaintiff in those cases [such as Lumley v Wagner42 and
Warner Bros Pictures Inc v Nelson43] who had merely to pay the defendant money, has duties
of a personal and fiduciary nature to perform and in whom the Troggs, for reasons good,
bad or indifferent, have lost confidence and who may, for all I know, fail in its duty to them.

32.18 In Warren v Mendy44 Benn, a talented boxer with a bright future in front of him, entered
into a three-year management agreement with Warren that contained the usual positive and
negative contractual obligations. Within a few months Benn had become disenchanted with
Warren and had sought out Mendy to be his new manager. Mendy indicated that he was willing
to be Benn’s manager. Warren sought an injunction, not against Benn, but against Mendy to
restrain an alleged tort of interference with contractual relations. For the Court of Appeal,
the central issue in assessing Warren’s claim was whether the effect of the injunction would
be to force Benn to continue to retain Warren as his manager. The court refused to grant the
injunction.
32.19 Nourse LJ45 set out the following principles to be applied in cases of enforcement of
negative contractual obligations in the context of personal service contracts:
This consideration of the authorities has led us to believe that the following general principles
are applicable to the grant or refusal of an injunction to enforce performance of the servant’s
negative obligations in a contract for personal services inseparable from the exercise of some
special skill or talent. … In such a case the court ought not to enforce the performance of
the negative obligations if their enforcement will effectively compel the servant to perform
his positive obligations under the contract. Compulsion is a question to be decided on the
facts of each case, with a realistic regard for the probable reaction of an injunction on the
psychological and material, and sometimes the physical, need of the servant to maintain
the skill or talent. The longer the term for which an injunction is sought, the more readily
will compulsion be inferred. Compulsion may be inferred where the injunction is sought
not against the servant but against a third party, if either the third party is the only other
available master or if it is likely that the master will seek relief against anyone who attempts
to replace him. An injunction will less readily be granted where there are obligations of
mutual trust and confidence, more especially where the servant’s trust in the master may
have been betrayed or his confidence in him has genuinely gone. In stating the principles
as we have, we are not to be taken as intending to pay anything less than a full and proper
regard to the sanctity of contract. No judge would wish to detract from his duty to enforce

41. Page One Records Ltd v Britton [1967] 3 All ER 822 at 827.
42. (1852) 42 ER 687.
43. [1937] 1 KB 209.
44. [1989] 3 All ER 103.
45. Warren v Mendy [1989] 3 All ER 103 at 114.

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the performance of contracts to the very limit which established principles allow him to go. …
To that end the judge will scrutinise most carefully, even sceptically, any claim by the servant
that he is under the human necessity of maintaining the skill or talent and thus will be
compelled to perform the contract, or that his trust in the master has been betrayed or that
his confidence in him has genuinely gone. But if, having done that, the judge is satisfied that
the grant of an injunction will effectively compel performance of the contract, he ought to
refuse it.

32.20 In Sunrise Brokers LLP v Rodgers,46 after referring to principles set out in Warren
v Mendy,47 Underhill LJ said:
In Warren v Mendy48 Nourse LJ makes the point that in considering the compulsive effect of
an injunction question the length of the restraint is a crucial consideration: broadly speaking
the Court is likely to enforce short-term but not long-term obligations. Understandably,
however, he declined to define precisely where the line between short-term and long-term
should be drawn, beyond noting that the longest period for which such a restraint seems to
have been imposed in the cases preceding Warner Brothers Pictures Inc v Nelson,49 which
the Court in practice disapproved, was twenty weeks; and that the two-year restraint sought
in Warren v Mendy50 itself was too long. (It is worth noting in this context that in the early
cases where the ‘indirect specific performance’ principle was developed the periods in respect
of which the employer was seeking relief were often very long. In Whitwood [Chemical Co]
v Hardman51 the unexpired term of the contract was over four years, and the relief sought
would have prevented the employee from working for anyone else at all. In Ehrman
v Bartholomew52 the unexpired term was nine years. In William Robinson & Co Ltd v Heuer,53
the Court granted an injunction preventing the employee for working for a competitor for
the two-year balance of the initial five-year term of the contract, but it made it clear that it
would not have granted it in respect of a five-year extension period in respect of which the
employer had originally sought relief.)

46. [2014] EWCA Civ 1373 at [34]. See also Insurance Co v Lloyd’s Syndicate [1995] 1 Lloyd’s Rep 272 at 277;
Priyanka Shipping Ltd v Glory Bulk Carriers Pte Ltd [2019] 1 WLR 6677 at 6696.
47. [1989] 3 All ER 103.
48. [1989] 3 All ER 103.
49. [1937] 1 KB 209.
50. [1989] 3 All ER 103.
51. [1891] 2 Ch 416.
52. [1898] 1 Ch 671.
53. [1898] 2 Ch 451.

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EQUITABLE DAMAGES

INTRODUCTION
33.1 When dealing with the enforcement of common law rights, the Court of Chancery,
in its auxiliary jurisdiction, had an inherent jurisdiction to award damages, but ‘as a matter
of practice and principle [it] ordinarily did not do so’.1 Historically, the general approach of
equity was to leave claims for damages to the common law courts. A plaintiff whose claim
for equitable relief of a common law wrong failed, had to commence fresh proceedings in the
common law courts in order to pursue a claim for damages.2 This was of considerable practical
inconvenience for litigants and significantly increased the complexity, length, and cost of legal
proceedings.
33.2 The resolution of these problems was the purpose behind the Chancery Amendment
Act 1858 (UK), more popularly known as Lord Cairns’ Act, after the Solicitor-General who
oversaw its introduction. The Act enabled the Court of Chancery to make awards of damages to
parties who were seeking equitable relief before it in the form of orders for specific performance
or injunctions. In this way, a party who was denied such relief on discretionary grounds could
recover damages without having to re-commence proceedings before the common law courts.
33.3 The provisions of Lord Cairns’ Act may properly be seen as a precursor to the far-
reaching reforms of the Supreme Court of Judicature Act 1873 (UK) in England, which fused
the administration of equity and common law generally. The fusion of the courts of common
law and equity has reduced the practical significance of Lord Cairns’ Act. However, as is shown
below,3 in situations where there are limitations upon the use of common law damages, the
Act does retain its potency as a means by which a plaintiff can obtain equitable damages as a
remedy.
33.4 Lord Cairns’ Act exists in modern statutory form in all Australian states.4 In the Northern
Territory, s 62 of the Supreme Court Act 1979 (NT) re-enacts by reference Lord Cairns’ Act

1. Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd (2007) 20 VR 311 at 319.
2. Morris-Garner v One-Step (Support) Ltd [2019] AC 649 at 675; [2018] 3 All ER 659 at 674.
3. See 33.20–33.22.
4. Supreme Court Act 1970 (NSW) s 68; Civil Proceedings Act 2011 (Qld) s 8; Supreme Court Act 1935 (SA)
s 30; Supreme Court Civil Procedure Act 1932 (Tas) s 11(13); Supreme Court Act 1986 (Vic) s 38; Supreme
Court Act 1935 (WA) s 25(10).

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 CHAPTER 33: EQUITABLE DAMAGES­

in the Northern Territory. The same effect is achieved s 26 of the Supreme Court Act 1933
5

(ACT) for the Australian Capital Territory. The Federal Court of Australia Act 1976 (Cth)
has no explicit provision giving the Federal Court jurisdiction to award equitable damages.
However, in Matthews v ACP Publishing Pty Ltd,6 a case where the principal relief sought was
an injunction, Beaumont J held that ss 5(2), 22, and 23 of the Act, ‘when read together, mean
that [the Federal] Court, as a statutory court, has at least the same powers as a modern court of
equity to award damages in addition to, or in lieu of, an injunction (or its equivalent)’.
33.5 An example of an Australian statutory provision is s 68 of the Supreme Court Act 1970
(NSW), which states:
Where the Court has power:

(a) to grant an injunction against the breach of any covenant, contract or agreement, or
against the commission or continuance of any wrongful act, or
(b) to order the specific performance of any covenant, contract or agreement,
the Court may award damages to the party injured either in addition to or in
substitution for the injunction or specific performance.

The only significant variation from the provisions of s 68 is in Victoria, where there is no
equivalent to the phrase ‘any wrongful act’ found in s 68(a).
33.6 In Wentworth v Woollahra Municipal Council7 Gibbs CJ, and Mason, Murphy, and
Brennan JJ referred to the purpose of Lord Cairns’ Act in the following terms:
The main object of the Act was to enable the Court of Chancery to do ‘complete justice’
between the parties by awarding damages in those cases in which it formerly refused equitable
relief in respect of a legal right and left the plaintiff to sue for damages at common law.

33.7 Given the rationale behind the legislation, in accordance with the maxim that equity
follows the law, the court generally applies common law principles in assessing the measure
of damages under Lord Cairns’ Act.8 Thus, in relation to the assessment of equitable damages,
common law rules generally apply as to matters such as remoteness,9 mitigation,10 certainty,11
the date for the assessment of damages,12 and the once and for all lump sum rule.13
33.8 However, in some cases the court will depart from applying these common law
principles. Thus, in relation to the principle of mitigation, in Primewest (Mandurah) Pty Ltd
v Ryom Pty Ltd14 Edelman J said:
Although there have been statements in some Australian courts that principles concerning
mitigation of loss can apply to these claims for damages, much may depend upon the nature

5. Brooks v Wyatt (1994) 99 NTR 12 at 27–30.

6. (1998) 157 ALR 564 at 571.
7. (1982) 149 CLR 672 at 676; 42 ALR 69 at 72.
8. Johnson v Agnew [1980] AC 367 at 400; [1979] 1 All ER 883 at 895–6.
9. Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231.
10. Dillon v Nash Properties Pty Ltd [1950] VLR 293 at 301–2.
11. Edward Street Properties Pty Ltd v Collins [1977] Qd R 399.
12. Johnson v Agnew [1980] AC 367 at 400–1; [1979] 1 All ER 883 at 896.
13. Neylon v Dickens [1987] 1 NZLR 402 at 407, 410.
14. [2012] WASC 443 at [245].
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

of the claim for damages in lieu of specific performance. A decree of specific performance is
an order which is made to ‘ensure or encourage the performance of contracts rather than the
payment of damages for breach’. Where the award of damages in lieu of specific performance
is sought to provide a money substitute for the performance, rather than compensation
for consequential loss, it may be that restrictions upon availability of the money award
will require exceptional circumstances which are more limited than those concerned with
mitigation.

33.9 Similarly, in Wroth v Tyler,15 the court departed from the date of breach as the basis for
the assessment of damages. In that case a vendor refused to complete a sale of a house and the
purchaser was awarded damages in lieu of an order for specific performance. At the date of the
vendor’s breach the house was valued at £7,500. At the date of hearing its value was £11,500.
The court awarded damages by reference to the value of the house at the date of hearing, rather
than at the date of the breach. In coming to this decision, Megarry J16 said:
[I]n exercising the jurisdiction conferred by [Lord Cairns’] Act a court … will in general
apply the common law rules for the assessment of damages; but this is subject to the
overriding statutory requirement that damages shall be ‘in substitution for’ the injunction or
specific performance. … In my judgment, therefore, if … under Lord Cairns’ Act damages
are awarded in substitution for specific performance, the court has jurisdiction to award
such damages as will put the plaintiffs into as good a position as if the contract had been
performed, even if to do so means awarding damages assessed by reference to a period
subsequent to the date of the breach. This seems to me to be consonant with the nature of
specific performance, which is a continuing remedy, designed to secure, inter alia, that the
purchaser receives in fact what is his in equity as soon as the contract is made, subject to the
vendor’s right to the money, and so on. … On the facts of this case, the damages that may
be awarded are not limited to the £1,500 that is appropriate to the date of the breach, but
extend to the £5,500 that is appropriate at the present day, when they are being awarded in
substitution for specific performance.

JURISDICTION TO AWARD EQUITABLE DAMAGES

33.10 Before equitable damages can be awarded, the court must have the jurisdiction to
order a decree of specific performance or an injunction.17 Thus, if such equitable relief is
refused on the basis that damages at common law are adequate, the court has no jurisdiction
to award equitable damages.18 Furthermore, if equitable relief is impossible to grant at the time
proceedings are commenced, and remains so to the date of judgment, there is no jurisdiction
to award equitable damages. Thus, in McMahon v Ambrose19 specific performance of a contract
to assign a lease was sought but, because the lease had already expired before proceedings were

15. [1973] 1 All ER 897.

16. Wroth v Tyler [1973] 1 All ER 897 at 921–2. See also Madden v Keverski [1983] 1 NSWLR 305 at 307;
Blackley Investments Pty Ltd v Burnie City Council (No 3) [2013] TASSC 14 at [14]; Blackley Investments
Pty Ltd v Burnie City Council (No 3) [2013] TASFC 12 at [74]; PNC Lifestyle Investments Pty Ltd v REW08
Projects Pty Ltd (No 2) [2017] NSWSC 993 at [40]–[41].
17. Morris-Garner v One-Step (Support) Ltd [2019] AC 649 at 676; [2018] 3 All ER 659 at 675.
18. Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 at [94].
19. [1987] VR 817.

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commenced, it was impossible to make the order, and therefore there was no jurisdiction to
award equitable damages. However, if at the time of hearing it has become possible to order
equitable relief, then there is jurisdiction to award equitable damages.20
33.11 Where the court has no jurisdiction to award equitable relief, the court will leave the
plaintiff to his or her common law remedy of damages.21 However, if equitable relief is denied
on discretionary grounds, the court has jurisdiction to award equitable damages.22

THE DISCRETIONARY NATURE OF EQUITABLE DAMAGES

33.12 Even if a court has jurisdiction to order equitable damages, it can refuse to do so on
discretionary grounds.23 For example, in McMahon v Ambrose,24 equitable damages were refused
on the ground of laches. Furthermore, discretionary factors may affect the quantum of damages
to be awarded. Thus, in Malhotra v Choudhury,25 the plaintiff ’s delay in seeking damages in
substitution for specific performance led the court to assess damages by moving back the date
for valuing a property by one year from the date of judgment, the latter being the date that
would otherwise have been applicable for the assessment of damages. In Sayers v Collyer,26 in a
case concerning an application for an injunction to enforce a restrictive covenant, the plaintiff ’s
acquiescence in the defendant’s breach was the reason for denying both the application for the
injunction as well as equitable damages in lieu of the injunction.

EQUITABLE DAMAGES IN ADDITION TO SPECIFIC RELIEF

33.13 The provisions of Lord Cairns’ Act clearly envisage the making of an order for
damages in addition to specific performance or injunctive relief. This is especially useful
in enabling the court to address the issue of any losses caused to the plaintiff by the
defendant’s breach that are not properly addressed by an order for specific equitable relief.
Thus, in Sandpiper Kooragang Pty Ltd v Fortis Products Pty Ltd,27 equitable damages were
awarded in addition to a decree for specific performance to a purchaser of an investment
property to compensate him for the loss of rental income occasioned by the vendor’s delay
in completing the contract.

EQUITABLE DAMAGES IN LIEU OF SPECIFIC RELIEF

33.14 The ability to substitute equitable damages for an order of specific performance or
injunction remains the more significant aspect of the provisions of Lord Cairns’ Act. This issue

20. Oakacre Ltd v Claire Cleaners (Holdings) Ltd [1982] Ch 197.

21. International Advisor Systems Pty Limited v XYYX Pty Ltd [2008] NSWSC 2 at [54], [70].
22. Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 at 678–9; 42 ALR 69 at 73–4; Waterways
Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 at [166].
23. Weily v Williams (1895) 16 LR (NSW) Eq 190 at 195–6.
24. [1987] VR 817 at 852–3.
25. [1980] Ch 52; [1979] 1 All ER 186.
26. (1884) 28 Ch D 103.
27. [2020] NSWSC 1256 at [116]–[117]. See also Ford-Hunt v Raghbir Singh [1973] 2 All ER 700.
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

needs to be considered in three contexts. The first is where specific relief is denied to a plaintiff
on discretionary grounds, such as laches or acquiescence. The second is where specific relief
has been ordered, but for one reason or another, cannot be carried out. The third is where there
is no discretionary bar to specific relief, but the defendant claims that equitable damages should
nevertheless be granted to the plaintiff.
33.15 In the first situation, as already noted, the fact that specific relief is denied on
discretionary grounds does not preclude the court from ordering equitable damages. Thus, in
Norton v Angus,28 a purchaser contracted to buy two parcels of land with a combined area of
1280 acres. However, relevant legislation prevented one person from owning more than 1280
acres of land in that particular region of Queensland. If specific performance was to be granted,
that would have required the purchaser to find a buyer for one of the parcels who was willing to
live on the land and pay rent to the Crown. The sale price would probably have been less than
the true value of the land. On the other hand, if the purchaser chose to transfer the land to a
trustee, it was liable to be forfeited. In the circumstances, the High Court ruled that it would
be unfair to grant specific performance in favour of the vendor, and instead ordered equitable
damages. According to Knox CJ29 ‘the best justice of which the case is capable will be done by
giving damages … in lieu of specific performance’.
33.16 When damages are awarded as a substitute for an order for specific performance, they
are assessed on the basis that they should put the plaintiff in the position he or she would
have been had the order for specific performance been carried out. Generally, that means that
damages are assessed as at the date of judgment, although broader considerations of justice
may lead the court to select some other date.30
33.17 In relation to the second situation, where specific relief once ordered becomes impossible
to carry out due to intervening circumstances, a court will readily make an order for equitable
damages in lieu of specific relief. Thus, in Johnson v Agnew,31 a vendor’s successful application
for specific performance of a contract for the sale of land was made impossible because of the
purchaser’s failure to comply with the order, coupled with the exercise of a power of sale of the land
by the vendor’s mortgagee. In these circumstances, the House of Lords vacated the order for specific
performance and awarded equitable damages in favour of the vendor pursuant to Lord Cairns’ Act.
33.18 In relation to the third situation, where there is no discretionary bar to specific relief, but
the defendant claims that equitable damages should nevertheless be granted to the plaintiff, the
most common example that arises relates to cases where a plaintiff seeks an injunction to restrain
a trespass or nuisance by the defendant and the defendant claims that equitable damages is the
appropriate remedy. In such cases, the courts have insisted that such damages will be ordered
only in exceptional circumstances. In Shelfer v City of London Electric Lighting Co,32 A L Smith LJ
said that it was a ‘good working rule’ to award equitable damages in lieu of the injunction:
(1) If the injury to the plaintiff ’s legal rights is small, (2) And is one which is capable of being
estimated in money, (3) And is one which can be adequately compensated by a small money

28. (1926) 38 CLR 523.

29. Norton v Angus (1926) 38 CLR 523 at 530.
30. Shree Shirdi Sai Sansthan Sydney Ltd v Nirmal Taluja [2014] NSWSC 1825 at [45].
31. [1980] AC 367; [1979] 1 All ER 883. See also E Johnson & Co (Barbados) Ltd v NSR Ltd [1997] AC 400 at 411–2.
32. [1895] 1 Ch 287 at 322–3.

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payment, (4) And the case is one in which it would be oppressive to the defendant to grant
an injunction.

33.19 In practice, obtaining an order for damages in lieu of the injunction was confined to
relatively few cases. However this approach was criticised by the United Kingdom Supreme
Court in Lawrence v Fen Tigers Ltd.33 In this case all the judges in the Supreme Court signalled
that the principles in Shelfer v City of London Electrical Lighting Co34 were no longer an
adequate statement of the approach to be taken by the court in determining when to exercise
its discretion to award damages in lieu of an injunction, and foreshadowed the need for the law
to take a more liberal approach towards granting equitable damages in lieu of the injunction.35

THE CONTINUING SIGNIFICANCE OF LORD CAIRNS’ ACT

DAMAGES
33.20 The point was made above that much of the impact of Lord Cairns’ Act was diminished
by the reforms of the Supreme Court of Judicature Act 1873 (UK).36 But it would be erroneous
to regard the usefulness of Lord Cairns’ Act as spent. As is discussed below, its continued
existence ensures the ability of a litigant to obtain financial relief in equity in cases where
common law damages would be unavailable.

Damages before injury

33.21 In equity, specific performance of a contract can be granted in relation to a threatened
breach of it,37 and an injunction can be granted in relation to a threatened breach of a negative
contractual obligation such as an enforceable restraint of trade clause. In both of these cases
damages at common law is not available for the threatened breach. Damages at common law
can only be awarded upon a breach of contract having occurred. However, in permitting
equitable damages to be granted in lieu of specific relief, Lord Cairns’ Act enables a plaintiff to
recover a monetary remedy for such threatened breaches of his or her rights.38

Contracts not evidenced in writing

33.22 Contracts for the sale of land or an interest in land that do not satisfy the statutory
requirement of writing cannot be enforced by an award of damages at common law.39 However,
if the doctrine of part performance is satisfied,40 specific performance of the contract is
available, with the consequence that equitable damages may also be ordered in such a case.41

33. [2014] AC 822; [2014] 2 All ER 62.

34. [1895] 1 Ch 287.
35. For a fuller account of the operation of these principles see P Radan and C Stewart, Principles of Australian
Equity and Trusts, 4th ed, LexisNexis Butterworths, Sydney, 2019, pp 866–70.
36. See 33.3.
37. See 31.1.
38. Ailakis v Olivero (No 2) [2014] WASCA 127 at [168].
39. See 8.24.
40. See 8.29–8.43.
41. Lavery v Pursell (1888) 39 Ch D 508 at 519.
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RECTIFICATION

INTRODUCTION
34.1 If a written contract does not correctly record the agreement of the parties a court
can order the equitable remedy of rectification. In CA & CA Ballan Pty Ltd v Oliver Hume
(Australia) Pty Ltd,1 the Full Court in Victoria described the essence of rectification as follows:
A contract which has been reduced to writing is presumed to record the parties’ agreement
and they are bound by it unless one of the equitable doctrines, such as mistake, applies.
Where the written words of the document do not reflect the true agreement of the parties due
to their common (or, in some limited instances, unilateral) mistake, the equitable remedy of
rectification may be available.

34.2 The remedy of rectification is a manifestation of the maxim that ‘equity looks to the
intent rather than the form’. Its purpose is the prevention of unconscientious conduct.2 As such,
it operates to rebut the presumption that a written contract that has been executed is the true
record of the parties’ agreement.3 The onus of proof in establishing the need for rectification
rests with the party alleging that the written contract needs to be rectified.4

1. (2017) 55 VR 62 at 74, cited with approval in SAMM Property Holdings Pty Ltd v Shaye Properties Pty
Ltd (2017) 345 ALR 633 at 653. See also Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR
336 at 350; New South Wales Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986)
6 NSWLR 740 at 747; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
at 336; RCR Tomlinson Ltd v Russell [2015] WASCA 154 at [49]; Simic v New South Wales Land and Housing
Corporation (2016) 260 CLR 85 at 99, 117; 339 ALR 200 at 209, 223; Perpetual Ltd v Myer Pty Ltd [2019]
VSCA 98 at [85]; FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd [2020] 1 All ER 505 at 544.
2. Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 711; 264 ALR 15 at 118; Newey v Westpac
Banking Corporation [2014] NSWCA 319 at [171]; Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2)
[2015] NSWCA 119 at [57]; SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd (2017) 345 ALR
633 at 653 and 654; Seymour Whyte Construction Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR
317 at 324.
3. Mayo v W & K Holdings (NSW) Pty Ltd (in liq) (No 2) [2015] NSWCA 119 at [56]; Simic v New South Wales
Land and Housing Corporation (2016) 260 CLR 85 at 117; 339 ALR 200 at 223; Seymour Whyte Construction
Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317 at 324.
4. Australian Gypsum Ltd v Hume Steel Ltd (1930) 45 CLR 54 at 64.

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34.3 It is important to keep in mind that rectification refers to rectification of the contract
document. It is not a means of reformulating the terms of the contract.5 Thus, once made, a
rectification order relates back to the time of the execution of the contract, so that the rights of
the parties are treated as if it had been executed in its rectified form.6
34.4 Before a contract is to be rectified, it has to be established by clear and convincing proof
that the written document does not accurately reflect the parties’ intention.7 In Franklins Pty
Ltd v Metcash Trading Ltd,8 Campbell JA explained that the rationale for the requirement of
clear and convincing proof lay in the fact that, absent such proof, there is a danger of imposing
a contract on party that he or she did not make. Accordingly, courts will be very careful before
ordering rectification. This burden of proof is particularly onerous in circumstances where
there have been prolonged negotiations between the parties that resulted in a formal contract,
in the preparation of which, the parties were advised by skilled lawyers.9
34.5 However, the requirement for convincing proof does not alter the civil standard of
proof on the balance of probabilities.10 In satisfying this standard of proof, a party seeking
rectification will not be defeated by a clause in the agreement that states that the agreement
is a complete agreement and supersedes and cancels all prior arrangements, understandings,
and negotiations.11 Furthermore, although the parol evidence rule applies in relation to entirely
written contracts, it does not apply to exclude extrinsic evidence that goes towards establishing
that the contract does not reflect the intention of the parties and should therefore be rectified.12
34.6 Being an equitable remedy, rectification can be denied on discretionary grounds13 such as
unclean hands, laches, acquiescence, and affirmation of the unrectified contract.14 In relation to
the exercise of the court’s discretion, in Metlife Insurance Ltd v Visy Board Pty Ltd,15 Brereton J said:

5. Mackenzie v Coulson (1869) LR 8 Eq 368 at 375; Franknelly Nominees Pty Ltd v Abrugiato [2013] WASCA
285 at [176]; Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47 WAR 547 at 578; Canada
(Attorney General) v Fairmont Hotels Inc [2016] 2 SCR 720 at 733.
6. Issa v Berisha [1981] 1 NSWLR 261 at 265; Vantage Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47
WAR 547 at 579; CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd (2017) 55 VR 62 at 74.
7. Fowler v Fowler (1859) 45 ER 97 at 103; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995)
41 NSWLR 329 at 345; Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526
at 540; RCR Tomlinson Ltd v Russell [2015] WASCA 154 at [52]; Simic v New South Wales Land and Housing
Corporation (2016) 260 CLR 85 at 102; 339 ALR 200 at 212; SAMM Property Holdings Pty Ltd v Shaye
Properties Pty Ltd (2017) 345 ALR 633 at 656–8; Seymour Whyte Construction Pty Ltd v Ostwald Bros Pty
Ltd (in liq) (2019) 99 NSWLR 317 at 323.
8. (2009) 76 NSWLR 603 at 713; 264 ALR 15 at 120.
9. Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 713–4; 264 ALR 15 at 120–1; Waldorf
Australia Pty Ltd v Elias Construction Group Pty Ltd [2010] NSWSC 164 at [14]; Carlow Castle Pty Ltd
v Aztec Resources Ltd [2013] NSWSC 188 at [61]; KBL Mining Ltd v Kidman Resources Ltd [2015] NSWSC
515 at [165]; Re Jimmy’s Recipe Pty Ltd (No 2) [2020] NSWSC 632 at [153].
10. Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 All ER 1077 at 1090; Tartsinis v Navona
Management Co [2015] EWHC 57 (Comm) at [85].
11. MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152 at 154–6; Harrop Engineering Australia Pty
Ltd v Beauville Pty Ltd [2016] VSC 17 at [46]; LSREF III Wright Ltd v Millvalley Ltd [2016] EWHC 466
(Comm) at [122].
12. Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 657–8.
13. Davey v Baker [2016] 3 NZLR 776 at 778.
14. Ahmad v Secret Garden (Cheshire) Ltd [2013] EWCA Civ 1005 at [32].
15. [2007] NSWSC 1481 at [39]–[40].

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

[T]he discretion … to decline rectification as an equitable remedy involves different

considerations from those that arise in cases of specific performance (and for that matter
injunctions), where ordinarily the plaintiffs are entitled to alternative relief in damages. That
is because, if rectification is refused, the document remains in existence in an uncorrected
form, and generally there is no available alternative relief. It is clear that mere delay is
insufficient, although laches and acquiescence may justify declining relief. It is not enough
to justify declining relief that rectification will cause hardship or prejudice to the defendant
merely because performance on his part under the rectified document is more difficult than
under its original form.

Furthermore, if a third party has acquired rights bona fide and for valuable consideration
in property transferred under a contract that would otherwise be amenable to an order for
rectification, the order will be refused.16
34.7 On the other hand, simply because there is an error in the written contract, that does not
usually mean that rectification is the appropriate remedy. If there is a clear mistake on the face
of the instrument and it is clear what correction must be made to correct the mistake, then the
court can do this by applying the rules of construction rather than rectification.17 For example,
in case of ambiguity, applying the rules of construction, rather than ordering rectification, is
the appropriate way to resolve the ambiguity.18
34.8 Similarly, obvious typographical or grammatical errors can usually be corrected
pursuant to the rules of construction, rather than by ordering rectification.19 This can be done
if ‘(a) … the literal meaning of the contractual words is an absurdity and (b) that it is self-
evident what the objective intention is to be taken to have been’.20 However, in some cases such
errors will be the subject of an order for rectification, as occurred in Sekisui Rib Loc Australia
Pty Ltd (ACN 008 040 800) v Rocla Pty Ltd (ACN 000 032 191),21 where a missing comma in a
document was the subject of an order.
34.9 On the other hand, in some cases, ‘even if the court concludes that properly construed
the agreement does accord with the parties’ common intention, rectification can be ordered for
abundant caution to clarify the words used’.22
34.10 In relation to the orders that a court makes when ordering rectification, in Franklins
Pty Ltd v Metcash Trading Ltd,23 Campbell JA said:

16. Harris v Smith [2008] NSWSC 545 at [49]; Ahmad v Secret Garden (Cheshire) Ltd [2013] EWCA Civ 1005
at [32]; Sancterra Pty Ltd v Selby St Pty Ltd [2020] WASC 321 at [27]–[29].
17. Murray Holdings Ltd v Oscatello Investments Ltd [2018] EWHC 162 (Ch) at [59]; Al-Dowaisan v Al-Salam
[2019] EWHC 301 (Ch) at [207]–[210]; Harker-Mortlock v Commonwealth Bank of Australia [2019]
NSWCA 56 at [43].
18. Metlife Insurance Ltd v Visy Board [2007] NSWSC 1481 at [22].
19. Wilson v Wilson (1854) 5 HL Cas 40 at 66–7; Fitzgerald v Masters (1956) 95 CLR 420 at 426–7; National
Australia Bank Ltd v Clowes [2013] NSWCA 179 at [34]–[38]; MAAG Developments Pty Ltd v Oxanda
Childcare Pty Ltd [2018] VSCA 289 at [53]–[55]; Seymour Whyte Construction Pty Ltd v Ostwald Bros Pty
Ltd (in liq) (2019) 99 NSWLR 317 at 322–3.
20. National Australia Bank Ltd v Clewes [2013] NSWCA 179 at [34]; Seymour Whyte Construction Pty Ltd
v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317 at 322.
21. (2012) 291 ALR 140 at 168.
22. KBL Mining Ltd v Kidman Resources Ltd [2015] NSWSC 515 at [164].
23. Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 711; 264 ALR 15 at 118.

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The remedy that is granted is, as with all equity’s remedies, one that will seek to undo,
so far as is in practice possible, the departure, that the litigation has shown to exist, from
equity’s standards of conscientious behaviour. The way this is achieved, when a remedy of
rectification is granted, is by rewriting the contract so that it no longer departs from the
common intention of the parties. The rewriting is done in a quite literal sense — the proper
form of order identifies the precise words of the contract that are to be struck out, the precise
words that are to be inserted, and where those words are to be inserted. As well the order
usually … involves calling in the original document and actually endorsing the order on the
instrument that is to be rectified. In that way the executed contractual document is no longer
able to be a potential source of error and confusion, by appearing to state legal relations that
in truth are not as the document says.

34.11 Rectification of a written contract generally requires there to be a common mistake by

all the parties to it, to the effect that the written contract fails to give expression to their true
intention. However, in special circumstances, rectification is available in cases of unilateral
mistake. In either of these cases, the mistake can be one of fact or law.24

RECTIFICATION FOR COMMON MISTAKE

34.12 Rectification for common mistake relates to a situation where an earlier or prior
agreement between the parties has been put into writing, but there has been a mistake in
recording the earlier agreement in the written contractual document. For rectification to be
available, there must be a mistake as to the meaning and effect of the words used in recording
the agreement between the parties.25 The effect of a rectification order is to have the ‘written
instrument … conform to the [parties’] agreement’.26
34.13 In relation to an application for rectification of such a common mistake, in International
Advisor Systems Pty Ltd v XYYX Pty Ltd,27 Brereton J said:
[T]he essential principle [are] (1) … there must be an intention common to both parties
at the time of the contract to include in their bargain a term which by mutual mistake is
omitted from it; (2) that a plaintiff must advance convincing proof that the written contract
does not embody the final intention of the parties; and (3) that the omitted ingredient must
be compatible of such proof in clear and precise terms, so that the Court must not assume
for itself the task of making the contract for the parties.

34.14 In relation to the third of the points made by Brereton J, in KBL Mining Ltd v Kidman
Resources Ltd28 White J said:
It is both necessary and sufficient in order for the Court to order rectification of the
instrument that the Court can conclude with appropriate clarity both the substance and the

24. Allnutt v Wilding [2007] EWCA Civ 412 at [6].

25. Caringbah Investments Pty Ltd v Caringbah Business and Sports Club Ltd (in liq) [2016] NSWCA 165
at [39]–[48].
26. Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 at 117; 339 ALR 200 at 223.
27. [2008] NSWSC 2 at [21].
28. [2015] NSWSC 515 at [173]. See also Bush v National Bank Ltd (1992) 35 NSWLR 390 at 407; Muriti
v Prendergast [2005] NSWSC 281 at [134].
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

detail of the precise variation that needs to be made to the wording of the instrument to give
effect to the parties’ common. That is to say, it is sufficient that the Court can ascertain the
parties’ common intention with sufficient clarity that it can be satisfied that the substance
and detail of the precise variation to be made to the wording of the instrument will give effect
to, and not go beyond, the intention which both parties.

34.15 This does not, however, require that the parties have a common intention ‘as to the
precise words in which the term should be expressed’.29 The exact form of words in which the
common intention is to be expressed is immaterial, if in substance and in detail the common
intention can be ascertained.30
34.16 It is not enough to merely establish that the written agreement does not represent the
common intention of the parties. One has to also establish what the true intention of both
parties was.31 Thus, if one of the parties is mistaken, but the other’s intention is in accordance
with the written document, rectification will not be ordered.32
34.17 For rectification for common mistake to be granted, there is no need for there to be
a concluded antecedent agreement or contract.33 Thus, as was stated by Gleeson JA in Newey
v Westpac Banking Corporation,34 ‘the absence of an intention of the parties … to enter into
binding legal relations until the [written document is] executed is no obstacle to the rectification
claim’. However, as his Honour35 also pointed out, ‘there must be an intention (common to both
parties at the time of contract) to include in their bargain a term, which by mutual mistake is
omitted therefrom’.
34.18 In Maralinga Pty Ltd v Major Enterprises Pty Ltd,36 land owned by Major Enterprises
was put up for auction. The auctioneer announced that Major Enterprises would allow a
mortgage back to the vendor for a portion of the price. Maralinga was the successful bidder.
The draft contract did not contain the mortgage back provision. When signing the contract
both parties were aware of the omission, although Maralinga believed that it could still have the
benefit of the auctioneer’s promise as to the mortgage back. Maralinga later sought rectification
of the contract on the basis that, at the end of the auction, there was an agreement that included
the mortgage back provision that was not included in the written contract. The High Court
refused to order rectification on the ground that there was no mistake as to what the written
contract contained and that the written contract differed from any agreement that arose with
the completion of the auction. Maralinga was unable to establish that the common intention

29. Muriti v Prendergast [2005] NSWSC 281 at [137].

30. Hicklane Properties Ltd v Bradbury Investments Ltd [2008] EWCA Civ 691 at [10].
31. Slee v Warke (1949) 86 CLR 271 at 281; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 655;
Attorney General of Canada v Fairmont Hotels Inc [2016] 2 SCR 720 at 742; RCR Tomlinson Ltd v Russell
[2017] WASCA 129 at [69]; Perpetual Ltd v Myer Pty Ltd [2019] VSCA 98 at [117].
32. Slee v Warke (1949) 86 CLR 271 at 281.
33. Slee v Warke (1949) 86 CLR 271 at 280–1; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
at 350; Ryledar Pty Ltd v Euphoric Pty (2007) 69 NSWLR 603 at 655; Patrick Stevedores Operations (No 2)
Pty Ltd v Port of Melbourne Corporation [2016] VSC 528 at [39]; Simic v New South Wales Land and Housing
Corporation (2016) 339 ALR 200 at 223 at 211–12, 226.
34. [2014] NSWCA 319 at [171].
35. Newey v Westpac Banking Corporation [2014] NSWCA 319 at [171].
36. (1973) 128 CLR 336.

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of the parties was that the written contract would record the agreement that arose at the
completion of the auction.
34.19 In establishing common intention, the traditional view was that the written document
had to contain some outward expression of common intention that the contract failed to
express. Joscelyne v Nissen37 suggests that ‘some outward expression of accord’ is necessary. This
requirement has been said to be an evidential factor, rather than a strict legal requirement.38
Other cases, however, suggest that an outward expression of common intention is not needed.39
In Ryledar Pty Ltd v Euphoric Pty Ltd,40 after an analysis of relevant authorities, Campbell JA
concluded that an outward expression of common intention is required, but that it can be
satisfied in various ways, including direct or indirect statements by the parties, a process of
conscious and deliberate inference, or in particular contexts, the existence of specific practices
and conventions.
34.20 In Ryledar Pty Ltd v Euphoric Pty Ltd,41 Tobias JA summarised the law on ascertaining
the common intention of the parties as follows:
[F]irst, the common intention which must be established by clear and convincing proof to
justify rectification must be the actual or true common intention of the parties. Second,
evidence of that intention may be ascertained not only from the external or outward
expressions of the parties manifested by their objective words or conduct but also from
evidence of their subjective states of mind. Third, where, for instance, the correspondence
between and/or conduct of the parties establishes a positive lack of an ‘objective’ common
intention, then that evidence must be taken in conjunction with the evidence (if any) of their
subjective states of mind to determine whether the necessary common intention has been
established. … Fourth, … a party subsequently acting as if the instrument stood in the form
into which it is sought to be rectified was strong evidence of that party’s intention at the time
to execute the instrument in its rectified form. Such conduct is obviously of significance but,
depending on other evidence, if any, is not necessarily conclusive although in the absence of
any such evidence it may be. Fifth, it follows that where the correspondence and/or conduct
positively establishes the necessary common intention, then assertions by the party opposing
rectification of his or her subjective state of mind which is inconsistent with that party’s
outward manifestation of his or her intention, being unexpressed and uncommunicated, is
unlikely to trump his or her expressed intention. But this is because that party is unlikely
to be believed. Sixth, where … the outward expression of the parties’ common intention is
at best inconclusive, then establishing that the subjective states of mind of the parties evinces
the relevant common intention becomes critical if the necessary standard of proof to support
an order for rectification is to be achieved.

37. [1979] 2 QB 86 at 98; [1970] 1 All ER 1213 at 1222. See also FSHC Group Holdings Ltd v GLAS Trust
Corporation Ltd [2020] 1 All ER 505 at 552.
38. Beasley v Munt [2006] EWCA Civ 370 at [36].
39. Bishopgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429
at 431; Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 253–4.
40. (2007) 69 NSWLR 603 at 658–68. See also FSHC Group Ltd v GLAS Trust Corporation Ltd [2020] 1 All ER
505 at 528–9.
41. (2007) 69 NSWLR 603 at 642.

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34.21 The comments by Tobias JA clearly leave scope, in some instances, for the subjective
intentions of the parties being relevant in ascertaining whether a common intention exists.
Whether this is so as a matter of law is not entirely clear. In the United Kingdom, in Chartbrook
Ltd v Persimmon Homes Ltd,42 Lord Hoffmann supported the view that the intention has to be
objectively determined. However, the extent to which this represents the law in Australia is
not altogether clear, as is evidenced by various statements in the High Court decision in Simic
v New South Wales Land and Housing Corporation.43
34.22 In Simic v New South Wales Land and Housing Corporation,44 the High Court did
not need to address the issue of whether the subjective intent of the parties was relevant in
establishing their common intention. Thus, their comments on the issue are strictly obiter
dicta. Although not mentioning the issue of subjective intent, Gageler, Nettle, and Gordon JJ45
adopted an objective intention approach when they said:
The issue may be approached by asking — what was the actual or true common intention
of the parties? There is no requirement for communication of that common intention by
express statement, but it must at least be the parties’ actual intentions, viewed objectively
from their words or actions, and must be correspondingly held by each party.

34.23 On the other hand, French CJ and Kiefel J did refer to the views expressed by
Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd.46 After doing so Kiefel J47 said:
It is not necessary to express a concluded opinion on these and other matters to which
Lord Hoffmann’s view gives rise. Although that aspect of Lord Hoffmann’s reasons
commanded the assent of other members of the House of Lords, it was not necessary to
the decision in [that case]. Moreover, … his Lordship’s view in this regard has not been the
subject of any consideration.

34.24 In his judgment French CJ48 disagreed with the approach taken by Lord Hoffmann,
when he said:
There has been debate in the United Kingdom about reliance upon the ‘real’ as distinct from
objectively attributed intentions of the parties in relation to the rectification of contracts.
One line of reasoning in the debate is that reliance upon an objectively ascertained common
intention for the purpose of rectification serves to bring about coherence with the common
law of contract. In Chartbrook Ltd v Persimmon Homes Ltd,49 Lord Hoffmann’s obiter remarks
supporting a requirement for an objectively attributed common intention for the purposes
of rectification commanded the assent of his colleagues. However, that objective test was not
argued in this case and does not represent the common law of Australia as it presently stands.

42. [2009] 1 AC 1101 at 1126–7; [2009] 4 All ER 677 at 700–1.

43. (2016) 260 CLR 85; 339 ALR 200.
44. (2016) 260 CLR 85; 339 ALR 200.
45. Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 at 117; 339 ALR 200 at 223.
46. [2009] 1 AC 1101 at 1126–7; [2009] 4 All ER 677 at 700–1.
47. Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 at 104; 339 ALR 200 at 213–14.
48. Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 at 95; 339 ALR 200 at 206–7.
49. [2009] 1 AC 1101; [2009] 4 All ER 677.

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34.25 What can be concluded from the decision in Simic v New South Wales Land and
Housing Corporation50 is that the resolution of the issue will require, as French CJ51 said,
‘full argument in a case in which the question was relevant to the outcome’. Subsequently, a
unanimous Court of Appeal in England, in a lengthy analysis of the case law in FSHC Group
Ltd v GLAS Trust Corporation Ltd,52 cited with approval the observations of Gageler, Nettle, and
Gordon JJ in Simic v New South Wales Land and Housing Corporation,53 and concluded that it
was ‘unable to accept that the objective test of rectification for common mistake articulated in
Lord Hoffmann’s obiter remarks in the Chartbrook54 case correctly states the law’.
34.26 Whether rectification can apply to a situation where both parties intend to use certain
language, but are mistaken as to the consequences flowing from the contract, is somewhat
in doubt. In Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd,55 the parties
intended to use the word ‘horsebeans’, but mistakenly believed that ‘horsebeans’ were the same
as feveroles. The English Court of Appeal declined to order rectification.
34.27 This case was applied by the Court of Appeal in Victoria in Club Cape Schanck Resort
Co Ltd v Cape Country Club Pty Ltd.56 In that case parties to an agreement settling a dispute
in relation to the supply of sewerage services to certain land agreed that further charges for
these services would be determined by future agreement, but failing such agreement would be
determined by the Victorian Civil and Administrative Tribunal. However, when asked to make
a determination, the tribunal declined on the ground that it lacked the jurisdiction to do so.
The supplier argued that, to give effect to the common intention of the parties, the settlement
agreement should be rectified by the use of words that gave the tribunal jurisdiction. The Court
of Appeal rejected this argument. Chernov JA57 said:
The mistake which the parties made was to assume that the tribunal had jurisdiction or
power to do what the terms of settlement contemplated. They proceeded to make the
agreement on that wrong assumption, but there was no mistake as to the embodying of their
common intention in the terms of settlement. They agreed that, failing agreement between
them, either could request the tribunal to determine the level of the ongoing charges and
that, subject to the appeal process, such a determination would be binding. What they so
agreed upon was faithfully reproduced in the written agreement signed by them. … [T]he
document here, on its true construction, did not wrongly state the parties’ intention. Thus,
there is no basis on which the court could properly rectify the terms of settlement.

In Trani v Trani,58 Daly AsJ described the result in this case as one where ‘rectification was
refused because the relevant documents correctly expressed the parties’ intentions at the time:
rather, those intentions were infected by a mistake of fact or law, such that the parties were

50. (2016) 260 CLR 85; 339 ALR 200.

51. Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 at 95; 339 ALR 200 at 206–7.
52. [2020] 1 All ER 505 at 552.
53. Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85 at 117; 339 ALR 200 at 223.
54. Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] 4 All ER 677.
55. [1953] 2 QB 450; 2 All ER 739.
56. (2001) 3 VR 526.
57. Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 at 541.
58. [2018] VSC 274 at [152].

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in effect seeking rectification of the relevant transaction, not the document embodying the
transaction’.
34.28 However, recent authority suggests that rectification can be ordered where the mistake
was as to the consequences of the words used.59 In Allnutt v Wilding60 Mummery LJ said:
[Rectification can be ordered] when, owing to a mistake in the drafting of the document, it
fails to record the [parties’] true intentions. The mistake may, for example, consist of leaving
out words that were intended to be put into the document, or putting in words that were not
intended to be in the document or, through a misunderstanding by those involved about the
meaning of the words or expressions that were used in the document. Mistakes of this kind
have the effect that the document, as executed, is not a true record of the [parties’] intentions.

34.29 This approach was endorsed by the courts of appeal in New South Wales61 and
Western Australia,62 but not in Victoria.63 However, in CA & CA Ballan Pty Ltd v Oliver Hume
(Australia) Pty Ltd,64 after examining many of the relevant cases, the Court of Appeal came to
the following conclusion:
[W]hat is clear from the cases concerning rectification is that the precise scope of the
intention of the parties is critical to whether the remedy is available in the form sought. If the
rectified document would not reflect the common intention of the parties, then the remedy
will not be granted. Looked at in this way, the results in the different cases can generally be
reconciled with one another.

34.30 Rectification is, however, not available where the parties’ mistake is as to the legal
effect of the document. Thus, in Franknelly Nominees Pty Ltd v Abrugiato,65 Buss JA said:
[R]ectification will not be available where the parties are merely mistaken as to the
consequences of, or the advantages to be gained by, a contract or transaction recorded in an
instrument. That is, equity will not grant rectification where a mistake by the parties relates
only to the expected consequences or advantages of a contract or transaction, and not to the
expression in the instrument of what the parties actually agreed or intended.

34.31 However, a mistake as to the legal effect of an instrument is not the same as a
misapprehension as to the legal effect of a document that does not fully reflect the intention
of the parties. Thus, in Giles v Royal National Institute for the Blind,66 the intention was that a
deed of variation would redirect the entirety of a beneficiary’s entitlement under a will to four
charities. The purpose of the deed was to avoid British inheritance taxes. However, the deed of

59. RCR Tomlinson Ltd v Russell [2015] WASCA 154 at [51].

60. [2007] EWCA Civ 412 at [11].
61. Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 631–3.
62. Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR 488 at 548; 258 ALR 124 at 184.
63. Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 at 531; Fitzgerald v CBL
Insurance Ltd [2014] VSC 493 at [136]–[137].
64. (2017) 55 VR 62 at 92.
65. [2013] WASCA 285 at [179].
66. [2014] EWHC 1373 (Ch). See also Vivian v Koningsveld [2010] EWHC 3961 (Ch) at [25]; Ashcroft
v Barnsdale [2010] EWHC 1948 (Ch) at [17].

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variation redirected only the beneficiary’s entitlements under the residuary clause of the will
and not entitlements under another clause of the will. Barling J67 ordered rectification of the
deed because it ‘did not reflect the clear intention of the Claimant’, and observed that ‘it is no
bar to rectification that in executing the Deed of Variation it was undoubtedly an objective of
the Claimant to relieve the Four Charities of the indirect burden of inheritance tax’.

RECTIFICATION FOR UNILATERAL MISTAKES

34.32 Rectification of a contract when unilateral mistake is involved will only be ordered in
exceptional circumstances because it ‘has the result of imposing on the defendant a contract
which he did not, and did not intend to, make and relieving the claimant from a contract which
he did, albeit did not intend to, make’.68 What is usually required is ‘an element of sharp practice
on the part of the non-mistaken party, in circumstances where it would be unconscionable
for that party to take the benefit of the other party’s mistake’.69 It has been held that if there is
conduct that is unconscionable that is sufficient to ground a remedy of rescission for unilateral
mistake, such conduct is also sufficient to ground the remedy of rectification for unilateral
mistake.70
34.33 In Thomas Bates & Son Ltd v Wyndhams (Lingerie) Ltd,71 it was held that, for a written
contract between A and B to be rectified for unilateral mistake, the following elements had to
be established:
• A must be mistaken as to whether a particular term of the contract is or is not included;
• B must know of A’s mistake;
• B must fail to draw A’s attention to the mistake in circumstances where equity would require
B to take some step or steps, depending on the circumstances, to bring the mistake to A’s
attention; and
• the mistake must be one calculated to benefit B.

34.34 The critical element here is that of knowledge. English cases72 adopt the position that
knowledge extends to:
• actual knowledge;
• wilfully shutting one’s eyes to the obvious; and
• wilfully and recklessly failing to make such inquiries as an honest and reasonable person
would make.

67. Giles v Royal National Institute for the Blind [2014] EWHC 1373 (Ch) at [34].
68. George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77 at [75].
69. Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280 at [199].
70. Tutt v Doyle (1997) 42 NSWLR 10 at 12–13; Fox Entertainment Precinct Pty Ltd v Centennial Park and
Moore Park Trust [2004] NSWSC 214 at [24]–[25]; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76
NSWLR 603 at 710; 264 ALR 15 at 117.
71. [1981] 1 WLR 505 at 1086. See also Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 at 14; Vantage
Systems Pty Ltd v Priolo Corporation Pty Ltd (2015) 47 WAR 547 at 580.
72. George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77 at [42]–[45]; Daventry District Council
v Daventry & District Housing Ltd [2012] 1 WLR 1333 at 1357–8.

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In Australia, in Misiaris v Saydels Pty Ltd73 Young J took the view that it is sufficient if
B ‘must have known’ or ‘strongly suspects’ that A made a mistake.
34.35 The principles in Thomas Bates & Son v Wyndhams (Lingerie) Ltd74 do not need to be
established if B’s conduct amounts to fraud or other unconscientious conduct, or where there
is a fiduciary relationship between A and B.75 Thus, in Commission for the New Towns v Cooper
(Great Britain) Ltd,76 Stuart-Smith LJ offered the following illustration:
I would hold that where [B] intends [A] to be mistaken as to the construction of the agreement,
so conducts himself that he diverts [A]’s attention from discovering the mistake by making
false and misleading statements, and [A] in fact makes the very mistake that [B] intends, then
notwithstanding that [B] does not actually know, but merely suspects, that [A] is mistaken,
and it cannot be shown that the mistake was induced by any misrepresentation, rectification
may be granted. [B]’s conduct is unconscionable and he cannot insist on performance in
accordance to the strict letter of the contract; that is sufficient for rescission. But it may
also not be unjust or inequitable to insist that the contract be performed according to [A]’s
understanding, where that was the meaning that [B] intended that [A] should put upon it.

73. (1989) NSW Conv R 55-474. See also International Advisor Systems Pty Ltd v XYYX Pty Ltd [2008] NSWSC 2
at [23].
74. [1981] 1 WLR 505 at 1086.
75. George Wimpey UK Ltd v V I Construction Ltd [2005] EWCA Civ 77 at [74].
76. [1995] Ch 259 at 280; 2 All ER 929 at 946.

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RESCISSION

INTRODUCTION
35.1 Rescission is the right, recognised both at common law and in equity, to set aside a
contract or other transaction. The right to rescind may arise in favour of an innocent party
to a contract that is a victim of a vitiating factor, such as misrepresentation, mistake, duress,
unconscionability, or undue influence. The purpose of rescission is to put the parties back
into the position they were in before the transaction was entered into.1 This purpose is usually
referred to by the Latin phrase restitutio in integrum, but is also, at times, referred to as ‘counter-
restitution’.2
35.2 Once rescinded, a transaction ‘is treated both at law and in equity as non-existing’.3
However, a transaction remains ‘effective in law and equity unless and until’ it is rescinded.4
Thus, a contract until rescinded remains valid, creates rights and duties in the parties, and can
result in property being transferred from one party to another. It is not void ab initio (as from
the beginning); it is voidable — that is, capable of being set aside by the innocent party if he or
she so elects provided there is no limitation on the right to rescind. It must be noted that the
innocent party is not required to rescind the contract.
35.3 In order to rescind, an innocent party must, as a general rule, clearly and unequivocally
communicate his or her election to rescind to the other party.5 In exceptional circumstances,
such as where the other party has absconded and cannot be found, the requirement of
communicating an election to rescind is not necessary and it will be sufficient if the innocent
party has taken reasonable steps to make known that he or she wants to rescind the contract.6

1. McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477; Spence v Crawford [1939] 3 All ER 271 at 288.
2. Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012] EWCA Civ 195 at [54]; Nadinic v Drinkwater
(2017) 94 NSWLR 518 at 525.
3. Newbigging v Adam (1886) 34 Ch D 582. See also Addenbrooke Pty Ltd v Duncan (No 2) (2017) 348 ALR 1
at 130.
4. Alati v Kruger (1955) 94 CLR 216 at 242.
5. Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 38–9; 112
ALR 609 at 617–18; O’Toole v Kent [2015] VSC 470 at [39].
6. Car & Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 at 550–1, 555; [1964] 1 All ER 290 at 293–4,
296–7.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

35.4 The following analysis of rescission will examine the remedy under three broad headings:
• the meaning of restitutio in integrum;
• the nature of the remedy of rescission; and
• limitations on the right to rescind.

THE MEANING OF RESTITUTIO IN INTEGRUM

35.5 As noted, the purpose of rescission is to bring about restitutio in integrum. If this cannot
be achieved, a transaction cannot be rescinded.7 Therefore, the practical meaning of restitutio
in integrum must be properly understood. This, in turn, requires an understanding of the
differences between the common law and equitable understandings of rescission.
35.6 At common law, rescission is available in relatively limited circumstances. The most
important instances are contracts induced by fraudulent misrepresentations or duress8 and,
in the case of insurance contracts, the non-disclosure of material facts. In equity rescission is
not so limited and extends to transactions resulting from non-fraudulent misrepresentations,9
certain unilateral mistakes, unconscionable transactions, and undue influence.
35.7 Furthermore, the common law takes a stricter approach to the requirement of restitutio
in integrum. Thus, in Alati v Kruger10 Dixon CJ, Webb, Kitto, and Taylor JJ said:
If the case had to be decided according to the principles of the common law, it might have
been argued that at the date when [Kruger] issued his writ he was not entitled to rescind the
purchase, because he was not then in a position to return to [Alati] in specie that which he
had received under the contract, in the same plight as that in which he had received it. But
it is necessary here to apply the doctrines of equity, and equity has always regarded as valid
the disaffirmance of a contract induced by fraud even though precise restitutio in integrum
is not possible, if the situation is such that, by the exercise of its powers, including the power
to take accounts of profits and to direct inquiries as to allowances proper to be made for
deterioration, it can do what is practically just between the parties, and by so doing restore
them substantially to the status quo.

35.8 Because of its insistence upon exact restitutio in integrum, common law rescission is
essentially confined to contracts where:
• the defendant’s obligations are purely executory;
• the defendant has only paid money; or
• the property transferred by the defendant consists of chattels that have not been used and
remain in the same condition.

7. A H McDonald & Co Pty Ltd v Wells (1931) 45 CLR 506 at 512; Gutnick v Indian Farmers Fertiliser
Cooperative Ltd (2016) 49 VR 732 at 742; 306 FLR 386 at 395.
8. Sheahan v Thompson (No 2) [2015] NSWSC 871 at [151].
9. Derry v Peek (1889) 14 App Cas 337 at 359.
10. (1955) 94 CLR 216 at 223–4. See also Erlanger v New Sombrero Phosphate Company (1878) 3 App Cas
1218 at 1278–9; Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 111–2; 130 ALR 570 at 576;
Nadinic v Drinkwater (2017) 94 NSWLR 518 at 525–6.

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35.9 On the other hand, equity only requires restitutio in integrum in substance and allows
rescission if the parties can, in substance, be put back into the positions they were in before
the contract was entered into.11 Thus, if property that has to be handed back to the other party
has deteriorated or depreciated in value, compensation payments can be ordered in favour of
the affected party. In other cases, an account of profits can be ordered to achieve substantive
restitutio in integrum.12
35.10 A practical consequence of the different approaches to the meaning of restitutio in
integrum is that if a contract cannot be rescinded at common law because the common law
understanding of restitutio in integrum cannot be satisfied, equity, pursuant to its concurrent
jurisdiction, may rescind it, provided restitutio in integrum, as understood in equity, can be
achieved.
35.11 Finally, a court will be more willing to uphold a rescission by using its powers to bring
about restitutio in integrum in cases where the conduct of the defendant has been fraudulent,
willful, or deliberate.13
35.12 In Brown v Smitt14 a purchaser had entered into a contract to purchase a farm, entered
into possession, made improvements to the property, and incurred losses carrying on a business
on the land. In relation to rescission of the contract on the ground of the vendor’s fraudulent
misrepresentations, the purchaser sought compensation for improvements made to the farm
and for losses incurred in carrying on the business. The High Court awarded compensation
for the improvements to the farm, but not in relation to the business losses. In relation to the
improvements Knox CJ, and Gavan Duffy and Starke JJ15 said:
Where the property the subject matter of a contract remains unchanged, no difficulty arises.
Where it has been wholly or substantially destroyed by the default of the party seeking
rescission, there can be no rescission because there can be no restitution. But where the
property has been improved or deteriorated by the act of the purchaser, and yet remains in
substance what it was before the contract, equity adjusts the rights of the parties by awarding
money compensation to one or the other, and so substantially putting each party in the
position which he occupied before the contract was made.

In relation to business losses Knox CJ, and Gavan Duffy and Starke JJ16 said:
[P]utting the parties in the position they were in before the contract, replacing them in statu
quo, does not involve replacing them in the same position in all respects, but only in respect
of the rights and obligations created by the contract which is rescinded. A party, in case of
rescission, cannot ask the Court to award him compensation for all collateral losses which
he may have sustained by reason of the fact that he entered into the contract, such as losses

11. Erlanger v New Sombrero Phosphate Company (1878) 3 App Cas 1218 at 1278. See also Taheri v Vitek (2014)
87 NSWLR 404 at 425; 320 ALR 555 at 575; Perpetual Trustees Victoria Ltd v Burns [2015] WASC 234
at [264]–[269].
12. Gutnick v Indian Farmers Fertiliser Cooperative Ltd (2016) 49 VR 732 at 741; 306 FLR 386 at 395.
13. Spence v Crawford [1939] 3 All ER 271 at 288; Nadinic v Drinkwater (2017) 94 NSWLR 518 at 527.
14. (1924) 34 CLR 160.
15. Brown v Smitt (1924) 34 CLR 160 at 164.
16. Brown v Smitt (1924) 34 CLR 160 at 165–6.

801
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

incurred in carrying on a business, but only such compensation as will restore the status quo
ante in relation to the subject matter of the contract.17

35.13 In Balfour & Clark v Hollandia Ravensthorpe NL18 rescission of a contract for the
purchase of a house was permitted, notwithstanding that the house had deteriorated since
being occupied by the purchasers. The deterioration that was attributable to the acts of the
purchasers was dealt with by the purchasers being ordered to pay compensation to the vendors.

Controversial developments
35.14 The principle that substantial restitutio in integrum must be capable of being achieved
before rescission in equity is possible, has been challenged in recent times. In JAD International
Pty Ltd v International Trucks Australia Ltd19 the Full Court of the Federal Court said that a
court is justified in ordering rescission, even if substantial restitutio in integrum is not achieved.
However, this approach was rejected in Kirwan v Cresvale Far East Ltd (in liq),20 as being
contrary to authority.
35.15 A more controversial issue is whether the court can order a partial rescission, thereby
only partially bringing about restitutio in integrum. In Vadasz v Pioneer Concrete (SA) Pty Ltd21
Vadasz agreed to guarantee the payment to Pioneer Concrete for the supply of concrete to
Vadipile Drilling Pty Ltd. Vadasz was told by Pioneer Concrete that the guarantee related only
to future supplies of concrete. However, the guarantee that Pioneer Concrete got Vadasz to
sign also covered earlier supplies of concrete that had not been paid for by Vadipile. When
called upon to honour the guarantee, Vadasz claimed it was unenforceable on the basis that
he had been told it related only to future supplies of concrete. There was no issue before the
High Court as to whether Pioneer Concrete had acted fraudulently in this case. In relation to
the guarantee, the High Court effectively partially rescinded it by ruling that it was valid only
as to supplies of concrete made after the guarantee was entered into. In effect, the High Court
ruled that Vadasz had given a valid consent to a limited obligation, namely, the guarantee for
the payment of future supplies of concrete, and that this lesser obligation was not vitiated by
Pioneer Concrete’s misrepresentation. In ordering a partial rescission, the High Court rejected
traditional authority to the effect that rescission was an all-or-nothing remedy in the sense that
a contract was either rescinded in its entirety or not at all.22

17. The High Court majority noted that the purchaser may have had an action in the tort of deceit if the
representation related to the business, as opposed merely to the land.
18. (1978) 18 SASR 240.
19. (1994) 50 FCR 378 at 387. See also Halpern v Halpern (Nos 1 & 2) [2008] QB 195 at 222; [2007] 3 All ER
478 at 484.
20. [2002] NSWCA 395 at [140]. See also D O’Sullivan, S Elliott, and R Zakrzewski, The Law of Rescission, 2nd
ed, Oxford University Press, Oxford, 2014, p 277.
21. (1995) 184 CLR 102; 130 ALR 570.
22. On the mixed reception to this decision see N C Seddon and R A Bigwood, Cheshire and Fifoot Law of
Contract, 11th Aust ed, LexisNexis Butterworths, Chatswood, 2017, p 578; J D Heydon, M J Leeming,
and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th ed, LexisNexis
Butterworths, Chatswood, 2015, p 906; See also P Watts, ‘Partial Rescission: Disentangling the Seedlings,
but not Transplanting them’, in E Bant and M Harding (eds), Exploring Private Law, Cambridge University
Press, Cambridge, 2010, p 427.
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35.16 Although Vadasz v Pioneer Concrete (SA) Pty Ltd was a case concerning a fraudulent
23

misrepresentation, there does not appear to be any reason why partial rescission could not
be available in cases involving non-fraudulent misrepresentations, unilateral mistakes, duress,
unconscionable bargains, and undue influence. However, it has been held by the High Court
that partial rescission is not appropriate in cases of rescission of contracts where there has been
a breach of fiduciary obligations by one of the parties.24

THE NATURE OF THE REMEDY OF RESCISSION

35.17 In Gutnick v Indian Farmers Fertiliser Cooperative Ltd25 the Full Court described the
nature of rescission as follows:
Rescission is the act of the parties. A court order is not a condition precedent to the
effectiveness of rescission. As much as a court does is to ‘confirm’ the act of the rescinding
party: to declare that the anterior act of rescission was justified and is valid. A court order
may also make ancillary or consequential orders that may be needed to restore the parties to
the status quo ante. … Where full or precise restoration at law or approximate restoration in
equity cannot be achieved, rescission is not possible.

35.18 Thus, the role of the court is to determine whether the act of the party rescinding a
contract was justified and valid. The justification of rescission is dependent upon whether there
was a ground upon which the rescinding party was prima facie entitled to rescind. For example,
in Brown v Smitt26 rescission was justified on the ground of fraudulent misrepresentation.
35.19 The validity of rescission is dependent upon whether restitutio in integrum has been, or
can be, achieved. As noted previously, at common law precise or exact restitutio in integrum is
required for the rescission to be valid. However, in equity, because the court may make ancillary
orders to bring about restitutio in integrum in substance, precise or exact restitutio in integrum
is not required for the rescission to be valid.
35.20 In Alati v Kruger27 Dixon CJ, and Webb, Kitto, and Taylor JJ set out the approach of
equity to rescission as follows:
It is not that equity asserts a power by its decree to avoid a contract which the defrauded party
himself has no right to disaffirm, and to revest property the title to which the party cannot
affect. Rescission for misrepresentation is always the act of the party himself. The function
of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a
purported disaffirmance as an act avoiding the transaction ab initio, and, if it is valid, to give
effect to it and make appropriate consequential orders. The difference between the legal and
the equitable rules on the subject simply was that equity, having means which the common
law lacked to ascertain and provide for the adjustments necessary to be made between the
parties in cases where a simple handing back of property or repayment of money would

23. (1995) 184 CLR 102; 130 ALR 570.

24. Maguire v Makaronis (1996) 188 CLR 449 at 472; 144 ALR 727 at 744.
25. (2016) 49 VR 732 at 741; 306 FLR 386 at 395.
26. (1924) 34 CLR 160.
27. (1955) 94 CLR 216 at 224.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

not put them in as good a position as before they entered into their transaction, was able to
see the possibility of restitutio in integrum, and therefore to concede the right of a defrauded
party to rescind, in a much wider variety of cases than those which the common law could
recognize as admitting of rescission.

35.21 In Alati v Kruger28 the facts concerned the sale of a fruit shop by Alati to Kruger,
where the contract of sale was induced by a fraudulent misrepresentation. Although rescission
at common law is available in such cases, it was not available in this case because exact restitutio
in integrum was not possible. However, pursuant to equity’s concurrent jurisdiction in relation
to cases of fraudulent misrepresentation, rescission in equity was available in this case.
35.22 In Kramer v McMahon29 Helsham J noted that the validity of rescission, from
the perspective of achieving restitutio in integrum, can be viewed in three different sets of
circumstances. First, in a purely executory contract where neither party has done anything
towards the performance of their respective contractual obligations, a notice of rescission
will bring about a valid rescission because the giving of the notice itself brings about restitutio
in integrum. Second, if the contract has, to some extent, been performed and the parties
subsequently bring about restitutio in integrum, the rescission is also valid. Third, if the
contract has to some extent been performed by the parties and the only way in which restitutio
in integrum can be achieved is for the innocent party to approach the court for orders to bring
it about, the rescission will be valid only if the court can, through the various orders that it can
make, bring about restitutio in integrum. If it cannot do so, the rescission will be invalid.
35.23 In making its orders, a court can require that the rescission be on terms to be complied
with by the innocent party. Thus, in Maguire v Makaronis,30 where a loan transaction was set
aside, the High Court required the innocent party that had borrowed the money to repay all
moneys advanced to them together with interest to the lender.

LIMITATIONS ON THE RIGHT TO RESCIND

35.24 The right to rescind is not an absolute right. In some circumstances the right is lost,
leaving the innocent party to seek alternative remedies. For example, in cases of fraudulent
misrepresentation, common law damages in the tort of deceit will be available. In relation to
rescission in equity, rescission ‘may be declined if an equitable defence is established’.31 The
relevant limitations or bars to rescission are analysed in the following paragraphs.

Affirmation
35.25 Given that an innocent party has a right to rescind, he or she can elect not to do so,
thereby affirming the transaction. Election involves unequivocal ‘words or conduct … that
is consistent only with the exercise of one of the two sets of rights and inconsistent with the

28. (1955) 94 CLR 216.

29. [1970] 1 NSWLR 195 at 206.
30. (1996) 188 CLR 449; 144 ALR 727. See also Jams 2 Pty Ltd v Stubbings (No 4) (2019) 59 VR 1 at 9.
31. Nadinic v Drinkwater (2017) 94 NSWLR 518 at 526–7.

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exercise of the other’. Affirmation can be by words or conduct. Once the election to affirm
32

has been made, the right to rescind is lost — the innocent party cannot later change his or her
mind and choose to rescind.33 Examples of conduct that may amount to an election to affirm
a transaction include:
• invoking or asserting contractual rights or in some way continuing to perform the contract;34
• remaining in possession of leased or purchased premises unless, in all the circumstances,
the innocent party has no real choice but to retain possession;35 and
• reselling or attempting to resell property that has been acquired.36

35.26 Before any words or conduct can amount to affirmation, the innocent party must be
shown to have been aware of the circumstances that gave rise to the right to rescind. Whether
he or she must also have been aware of the right to rescind because of these circumstances is
a matter of some dispute. According to the Victorian Full Court decision in Coastal Estates
Pty Ltd v Melevende,37 in general, knowledge by the innocent party both of the circumstances
giving rise to the right to rescind and of the right to rescind must be established before any
question of affirmation can arise.
35.27 In Coastal Estates Pty Ltd v Melevende,38 Melevende was induced by a fraudulent
misrepresentation to enter into an instalment contract to purchase property. The contract was
entered into in September 1960. Melevende became aware of the misrepresentation in early
1961. He continued to make instalment payments and even tried to sell the land. In September
1962, after seeking legal advice, he became aware of his right to rescind. The issue before the
Full Court was whether Melevende’s conduct in trying to sell the land amounted to affirmation
of the contract on the basis that such conduct was inconsistent with maintaining a right to
rescind the contract for the misrepresentation.
35.28 The Full Court upheld the validity of the rescission. Adam J39 observed that generally
there cannot be any question of affirmation in the absence of knowledge by the innocent party
of the fact that he or she has a right to rescind. His Honour pointed out that affirmation could,
strictly speaking, only be said to occur when there was a choice between known alternative
courses of conduct. In other words, actions undertaken in circumstances where the innocent
party merely knows that there was a misrepresentation are not enough to establish affirmation.
There must exist a knowledge that alternative courses of action are available — that is, a choice
between rescission and affirmation. However, this general proposition is qualified by the
principle that, if the innocent party exercises rights under the contract that would adversely
affect the other party in circumstances where the innocent party only knows of the fact of
misrepresentation, there is affirmation, even though the innocent party does not know of his
or her right to rescind. The qualification to the general rule could not really be seen as a true

32. Sargent v ASL Developments Ltd (1975) 131 CLR 634 at 646; 4 ALR 257 at 266.
33. Coastal Estates Pty Ltd v Melevende [1965] VR 433 at 451.
34. Strive Shipping Corporation v Hellenic Mutual War Risks Association (The Grecia Express) [2002] 2 Lloyd’s
Rep 88 at 163.
35. Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 at 350–1; 172 ALR 679 at 705–6.
36. Re Cape Breton Company (1885) 29 Ch D 795 at 803, 811.
37. [1965] VR 433.
38. [1965] VR 433.
39. Coastal Estates v Melevende Pty Ltd [1965] VR 433 at 452–3.

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species of affirmation, given that the innocent party can hardly be said to have affirmed a
contract when he or she was unaware of the right to rescind it. Adam J offered a number of
possible theoretical explanations of the qualification, including that it was an application of
estoppel principles, or simply based upon general considerations of justice. Sholl J40 opined that
an example of the qualification could arise where, in a contract for the purchase of land, the
innocent party as purchaser entered into possession of the land or accepted some benefit from
the vendor who had been guilty of a misrepresentation. However, payments of instalments of
the price and rates on the property, or trying to sell the land, were not prejudicial to the vendor
on the facts of this case. Accordingly, none of Melevende’s conduct amounted to affirmation in
the proper sense, nor did it come within the qualification noted by Adam J, as the conduct was
not prejudicial to the vendor.
35.29 The correctness of the Coastal Estates Pty Ltd v Melevende41 decision is not beyond
dispute. Its correctness was left open by the High Court in Sargent v ASL Developments Ltd.42
There is considerable opinion and authority to suggest that knowledge of the right to rescind is
not necessary before it can be said that one has affirmed the contract.43 On the other hand, the
Coastal Estates Pty Ltd v Melevende44 approach of requiring knowledge of the right to rescind
before there can be any question of affirmation has been adopted in a number of English
cases.45 A slightly qualified approach to the issue of requiring knowledge of the right to rescind
is found in Crown Aluminium Ltd v Northern & Western Insurance Company Ltd,46 where
Edwards-Stuart J concluded that, for election to occur, ‘what is required is an unequivocal
communication, whether by express statement or by the assertion of an inconsistent right, by
a person who has knowledge of the relevant facts and, probably, of his legal rights — at least,
in general terms’.
35.30 O’Sullivan, Elliott, and Zakrzewski47 argue as follows that the Coastal Estates Pty Ltd
v Melevende48 approach is wrong:
Ignorance of the law is usually irrelevant to the incidence of civil obligations, and there
is no good reason for an exception here. More importantly, there are significant practical
difficulties in applying the [Coastal Estates v Melevende] rule. It casts on the party alleging
affirmation a burden of proof that is very difficult to discharge given the constraints of legal
professional privilege.

40. Coastal Estates v Melevende Pty Ltd [1965] VR 433 at 443.

41. [1965] VR 433.
42. (1975) 131 CLR 634 at 645, 648; 4 ALR 257 at 265, 276. See also Baburin v Baburin (No 2) [1991] 2 Qd R
240 at 244; Moore v National Mutual Life Association of Australasia Ltd [2011] NSWSC 416 at [79].
43. Re Hoffman; Ex parte Worrell v Schilling (1989) 85 ALR 145; Southern Cross Mine Management Pty Ltd
v Ensham Resources Pty Ltd [2005] QSC 233 at [632]; Land Enviro Corp Pty Ltd v HTT Huntley Heritage
Pty Ltd [2012] NSWSC 382 at [200]–[210]; Strait Colonies Pte Ltd v SMRT Alpha Pte Ltd [2018] SGCA 36
at [64].
44. [1965] VR 433.
45. Peyman v Lanjani [1985] Ch 457; [1984] 3 All ER 703; Garside v Black Horse Ltd [2010] EWHC 190 at [28];
Marme Inversiones 2007 SL v Natwest Markets Plc [2019] EWHC 366 (Comm) at [325].
46. [2011] EWHC 1352 at [97].
47. O’Sullivan, Elliott, and Zakrzewski, The Law of Rescission, note 20 above, p 462.
48. [1965] VR 433.

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35.31 It should be noted that Coastal Estates Pty Ltd v Melevende was a case concerned
49

with rescission for fraudulent misrepresentation. In Hunter BNZ Finance Ltd v C G Maloney
Pty Ltd,50 Giles J left open the question of whether the principle in Coastal Estates Pty Ltd
v Melevende51 applied in the case of rescission for an innocent misrepresentation. Furthermore,
in cases of rescission on the basis that a transaction was entered into as the result of undue
influence or unconscionability, it has been held that affirmation can occur even if the affected
party did not know that he or she had a right to rescind the transaction.52

Rights of third parties

35.32 If property has passed between the parties pursuant to a voidable contract and a
third person subsequently, in good faith and for valuable consideration, obtains an interest
in such property, then the contract cannot be rescinded.53 The rights of such a third person
are paramount to the rights of the contracting parties. The rationale for this approach was
explained in Waters Motors Pty Ltd v Cratchley,54 where Else-Mitchell J said that ‘its true basis
in equity is not simply that third parties have acquired an interest in the subject matter but that
rescission would cause injustice to such third parties who would be punished for no fault of
their own’.
35.33 The paramount nature of a third person’s rights can be explained on the basis of the
fact that if A passes property to B pursuant to that contract, there is a transfer of title to that
property from A to B, even though a contract between A and B may be voidable. If the contract
is validly rescinded by A, title reverts back to A. However, if B passes the property to a third
person, C, after the contract has been rescinded, C only obtains possession of the property.
C does not get title to the property because, the contract having been rescinded, B had no title
to pass to C. C must therefore return the property to A. On the other hand, if B had passed
the property in question to C before the contract was rescinded, title would also have passed
to C. This is because B, at the time of transferring the property to C, had acquired title to the
property from A pursuant to the, as yet, unrescinded contract, which he or she then passed on
to C. In this situation, C’s title prevails over A’s contractual right to rescind his or her contract
with B. In effect, A has no right to rescind the contract. However, A may have an action against
B. For example, if the contract was induced by a fraudulent misrepresentation, A can sue B for
damages in the tort of deceit.55

Laches
35.34 Laches or unreasonable delay56 by the plaintiff in rescinding a contract operates as a
bar to rescission in equity. The mere lapse of time of itself will not deprive the innocent party
of his or her right to rescind. It may, however, be a relevant factor in relation to whether he or

49. [1965] VR 433.

50. (1988) 18 NSWLR 420 at 436.
51. [1965] VR 433.
52. Baburin v Baburin [1991] 2 Qd R 240 at 257.
53. Hunter BNZ Finance Ltd v C G Maloney Pty Ltd (1988) 18 NSWLR 420 at 433–4.
54. (1963) 80 WN (NSW) 1165 at 1177.
55. See 37.5–37.16.
56. See 31.64–31.73.

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she has affirmed the contract and has thereby lost the right to rescind. Thus, a failure to rescind
within a reasonable time will amount to an election to affirm the contract.57
35.35 For laches to arise in the context of rescission, it appears that the court needs to be
satisfied that the period of time that has elapsed from the making of the contract is sufficient
for the innocent party to have discovered the circumstances giving rise to a right to rescind. In
Leaf v International Galleries,58 an attempt to rescind a contract formed five years earlier was
rejected, even though the innocent party sought to act as soon as they became aware of the
circumstances giving rise to the right to rescind. In cases of fraudulent misrepresentations, time
begins to run from the time the fraud is discovered, not the date of contracting.

The rule in Seddon’s case

35.36 Derived from the decision in Seddon v North Eastern Salt Co,59 this rule, in its modern
variation, stipulates that if a contract for the sale of land has been executed — that is, if it has
proceeded to settlement or completion — the right to rescind for an innocent misrepresentation
is lost. Rescission is available prior to settlement or completion. The rule does not apply in the
context of other vitiating factors that give rise to a right to rescind.
35.37 Whether the rule in Seddon v North Eastern Salt Co60 applies beyond the scope of
contracts for the sale of land is somewhat controversial. In Seddon v North Eastern Salt Co61 it
was suggested that it applied to shares and in Vimig Pty Ltd v Contract Tooling Pty Ltd62 it was
applied to a contract for the sale of a business. However, other cases indicate that the rule does
not extend to cover contracts involving personal property.63 In any event, the rule has now been
abolished by statute in New South Wales in relation to sale of goods contracts,64 and in Victoria
in relation to consumer contracts for the supply of goods.65 In the Australian Capital Territory
and South Australia the rule has been abolished with respect to all contracts.66 Nor would the
rule preclude rescission orders being made pursuant to s 243 of the Australian Consumer Law.

Sale of goods
35.38 Whether rescission is available where a contract for the sale of goods has been induced
by an innocent misrepresentation, is the subject of some doubt. The doubt stems from a
common provision in sale of goods legislation in all Australian jurisdictions, which states that
‘the rules of the common law … shall continue to apply to contracts for the sale of goods’.67

57. Clough v London and North Western Railway Co (1871) LR 7 Exch 26 at 35.
58. [1950] 2 KB 86; [1950] 1 All ER 693.
59. [1905] 1 Ch 326.
60. [1905] 1 Ch 326.
61. [1905] 1 Ch 326.
62. (1986) 9 NSWLR 731.
63. Grogan v ‘The Astor’ Ltd (1925) 25 SR (NSW) 409; Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2 NSWLR 381.
64. Sale of Goods Act 1923 (NSW) s 4(2A)(b).
65. Australian Consumer Law and Fair Trading Act 2012 (Vic) s 24.
66. Civil Law (Wrongs) Act 2002 (ACT) s 173(b)(ii)–(iii); Misrepresentation Act 1971 (SA) s 6(1)(b).
67. Sale of Goods Act 1954 (ACT) s 62(1); Sale of Goods Act 1923 (NSW) s 4(2); Sale of Goods Act 1972 (NT)
s 4(2); Sale of Goods Act 1896 (Qld) s 61(2); Sale of Goods Act 1895 (SA) s 59(2); Goods Act 1958 (Vic)
s 4(2); Sale of Goods Act 1896 (Tas) s 5(2); Sale of Goods Act 1895 (WA) s 59(2).

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On a narrow interpretation of the words ‘common law’, it has been argued that because rescission
for an innocent misrepresentation is not available at common law, the provision’s reference
to ‘common law’ mean that rescission of contracts for the sale of goods is only available for
fraudulent misrepresentation.68
35.39 On the other hand, there is authority that has rejected such a narrow interpretation of
the legislation, holding that rescission is available in relation to a contract for the sale of goods
that is induced by an innocent misrepresentation.69 Furthermore, legislation to that effect
has been adopted by the Australian Capital Territory and New South Wales,70 and in Victoria
legislation permits rescission for innocent misrepresentation in cases of consumer contracts for
the supply of goods.71

Exclusion clauses
35.40 A contract may contain a term to the effect that pre-contractual statements cannot be
relied upon by the parties to the contract. Such terms can have the effect of excluding a right
of rescission for non-fraudulent misrepresentation.72 The preclusion of the right to exclude
the right to rescind for a fraudulent misrepresentation is probably based upon the view that
such a right would be contrary to public policy and therefore void.73 In the Australian Capital
Territory and South Australia, legislation demands that clauses that exclude the right to rescind
must, in the context of the contract, be reasonable.74 However, in Byers v Dorotea Pty Ltd75 it
was held that such clauses do not exclude the statutory right of rescission that may otherwise
be available where a contract has resulted from a violation of the statutory prohibition against
misleading or deceptive conduct set out in s 18 of the Australian Consumer Law.

Statute in the Australian Capital Territory and South Australia

35.41 In the Australian Capital Territory and South Australia76 legislation provides that a
court may, after consideration of all the circumstances of a case before it in which a person
is entitled to rescind or has rescinded, if it is just and equitable to do so, declare a contract to
be subsisting and award to the innocent party damages that the court deems to be fair and
reasonable. These provisions effectively preclude rescission where it has not yet occurred, or
reinstatement of a contract where it has occurred. Although the right to rescind is thus lost, the
court has the discretionary power to award damages in favour of the innocent party.
35.42 The Australian Capital Territory provision is confined to non-fraudulent
misrepresentations, whereas the South Australian provision applies to all misrepresentations.

68. Watt v Westhoven [1933] VLR 458.

69. Graham v Freer (1980) 35 SASR 424.
70. Sale of Goods Act 1954 (ACT) s 62(2); Sale of Goods Act 1923 (NSW) s 4(2A)(a).
71. Fair Trading Act 1999 (Vic) s 320A(1).
72. Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 82, 87.
73. J W Carter, Contract Law in Australia, 7th ed, LexisNexis Butterworths, 2018, p 431.
74. Civil Law (Wrongs) Act 2002 (ACT) s 176; Misrepresentation Act 1971 (SA) s 8.
75. (1986) 69 ALR 715 at 725.
76. Civil Law (Wrongs) Act 2002 (ACT) s 175; Misrepresentation Act 1971 (SA) s 7.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

However, as Seddon and Bigwood77 observe, ‘it is difficult to conceive of a situation where a
court would exercise its discretion to deny the remedy of rescission to a victim of fraud’.
35.43 Seddon and Bigwood78 also observe that the purpose of these provisions is ‘to provide
a way of avoiding possibly precipitate consequences of rescission’ as well as being ‘clearly …
useful in a case where the representee wished to rescind for a relatively trivial (but nevertheless
actionable) misrepresentation’.

77. Seddon and Bigwood, Cheshire and Fifoot Law of Contract, note 22 above, p 590.
78. Seddon and Bigwood, Cheshire and Fifoot Law of Contract, note 22 above, p 589–90.

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Other Bases of Relief
 36
EQUITABLE ESTOPPEL

INTRODUCTION
36.1 The doctrine of consideration has often been seen as leading to injustices. The equitable
doctrine of promissory estoppel evolved to overcome many of these injustices. The essence of
promissory estoppel is that a promisor is precluded from going back on his or her promise, even
though the promise is not supported by consideration moving from the promisee. However,
equity recognised other forms of estoppel, including proprietary estoppel. With proprietary
estoppel, if X, the owner of property, induced Y to believe that Y had an interest in that property,
equity would recognise and enforce Y’s interest in that property. It is now recognised that the
various forms of estoppel in equity all arose in situations where it would be unconscientious for
a plaintiff ’s action against a defendant to be denied, and that, accordingly, they all fell within
a broader principle of equitable estoppel. The fundamental purpose of equitable estoppel is to
protect the plaintiff from detriment that he or she would suffer if the assumption or expectation
that was generated by the defendant was retracted.1
36.2 While fairly simple to discuss in terms of broad principle, it must be understood that the
word ‘estoppel’ raises a multiplicity of more precise meanings dependent upon the circumstances
of the case and exists under both the common law and equity. Within both jurisdictions, the
concept has a number of specific forms so that one will come across references to estoppel by
deed, estoppel by judgment, estoppel in pais, estoppel by conduct, estoppel by representation,
High Trees estoppel, promissory estoppel, and proprietary estoppel, among others. There is a
considerable degree of overlap between some of these forms of estoppel and confusion can arise.2
36.3 The initial impact of promissory estoppel on the law of contract was to provide equitable
relief where a contractual remedy was not available due to the absence of consideration. The
modern doctrine of equitable estoppel can provide relief in various other areas, but only if there
is no contractually binding promise.3 These areas include:
• where, during negotiations to enter into a contract, an offeree, believing that the offer will
not be revoked, proceeds to act to his or her detriment upon that belief;

1. The Commonwealth v Verwayen (1999) 196 CLR 394 at 409; 95 ALR 321 at 330; Sidhu v Van Dyke (2014)
251 CLR 505 at 511; 308 ALR 232 at 234.
2. DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728 at 739; 285 ALR 311 at 322. Manassen
Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171 at [194].
3. Riches v Hogben [1985] 2 Qd R 292 at 301; Giumelli v Giumelli (1999) 196 CLR 101 at 121; 161 ALR 473 at 482.
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• where the rule in Pinnel’s Case4 would otherwise apply;5

• where there has been non-compliance with the statutory requirement of writing with
respect to a contract involving land;6
• where the rule in Hoyt’s Pty Ltd v Spencer7 precludes the finding of a collateral contract;8
• where the doctrine of privity prevents a third party to the contract from enforcing it;9
• where a contract is rendered illegal and thus unenforceable because a party to it is not
licensed as required by legislation, but had stated to the other party that he or she was so
licensed.10
36.4 However, before delving into a deeper analysis of the equitable estoppel, it is appropriate
to briefly outline the essentials of estoppel at common law, if only so that one can appreciate the
complexity of the law associated with the broad field of estoppel.

COMMON LAW ESTOPPEL

36.5 Common law estoppel includes:
• estoppel by deed;
• estoppel by judgment; and
• estoppel by conduct.

Estoppel by deed
36.6 Estoppel by deed is an evidentiary rule relating to deeds which states that precise and
unambiguous statements in a deed, usually to be found in the recitals to a deed, are ‘taken
as binding between the parties and privies, and therefore as not admitting any contradictory
proof ’.11 In practical terms, this means that, in any dispute between the parties in relation to the
transaction that is the subject of the deed, the facts set out in the deed are accepted as being true
and beyond the need of any proof.12

Estoppel by judgment
36.7 There are three species of estoppel by judgment, each of which has the potential ‘to
preclude assertion of a right or obligation or the raising of an issue of fact or law between parties
to a proceeding or their privies’.13 They are all underpinned by the desirability of maintaining

4. Pinnel’s Case (1602) 77 ER 237 at 237.

5. See 6.69–6.71.
6. See Chapter 8.
7. (1919) 27 CLR 133.
8. See 10.73.
9. See 39.1.
10. See 26.19–26.47.
11. Greer v Kettle [1938] AC 156 at 171.
12. Dabbs v Seaman (1925) 36 CLR 538 at 568–9.
13. Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507 at 517; 323 ALR 1 at 7–8.

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the certainty and finality of a court judgment once it has been handed down.14 The three species
of estoppel by judgment are:
• issue estoppel;
• res judicata; and
• Anshun estoppel.

Issue estoppel
36.8 With issue estoppel a party is precluded from ‘raising in a subsequent proceeding of an
ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination
made in the judgment’ in an earlier proceeding.15 The elements of issue estoppel are:
• that the same issue has been decided;
• that the judgment in the case that creates the estoppel was a final one; and
• that the parties to the case are the same persons as the parties to the proceedings in which
the estoppel is raised.16
36.9 Where the basis for issue estoppel has been established, the court retains an overriding
discretion to permit the proceedings to continue. However, this discretion is likely to be
exercised only in exceptional circumstances.17 Issue estoppel does not apply to criminal
proceedings.18

Res judicata
36.10 The second species of estoppel by judgment is res judicata, which means that when
a final judgment on a matter has been handed down, one party to the litigation is prevented
from taking proceedings for the same cause of action or any other cause of action against the
other based upon the facts of the earlier case.19 The principles here apply equally to a consent
judgment.20 However, if fraud or collusion is established, the earlier judgment may be set aside.21
36.11 In Jackson v Goldsmith,22 Fullagar J said regarding res judicata that ‘where an action
has been brought and judgment has been entered in that action, no other proceedings can
thereafter be maintained on the same cause of action’. The rationale for res judicata is based
upon public policy considerations of putting an end to litigation and preventing hardship to

14. Johnson v Gore Wood & Co [2002] 2 AC 1 at 30–1; [2001] 1 All ER 481 at 498–9; Tomlinson v Ramsey Food
Processing Pty Ltd (2015) 256 CLR 507 at 523; 323 ALR 1 at 12.
15. Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507 at 517; 323 ALR 1 at 7. See also Blair
v Curran (1939) 62 CLR 464 at 531–2.
16. Kuligowski v Metrobus (2004) 220 CLR 363 at 373; 208 ALR 1 at 7; Tomlinson v Ramsey Food Processing
Pty Ltd (2015) 256 CLR 507 at 537; 323 ALR 1 at 22; JSC BTA Bank v Ablyazov (No 15) [2017] 1 WLR 603
at 627–8.
17. National Australia Bank Ltd v Sayed (No 4) [2015] NSWSC 420 at [113].
18. Rogers v The Queen (1991) 181 CLR 251 at 254; 123 ALR 417 at 419.
19. Thoday v Thoday [1964] P 181 at 197–8; State of Western Australia v Fazaldean (No 2) (2013) 211 FCR 150
at 155; 299 ALR 180 at 185; Kowalski v Bourne [2017] SASCFC 24 at [83]; Cervo v Kingsley’s Pty Ltd (2018)
13 ACTLR 60 at 70.
20. Mathews v Lotus Stones (SA) Pty Ltd [2017] SASC 27 at [15]–[19].
21. Arnold v National Westminster Bank plc [1991] 2 AC 93 at 104; [1991] 3 All ER 41 at 46; Royal Bank of
Scotland plc v Highland Financial Partners LP [2013] EWCA Civ 328 at [106].
22. (1950) 81 CLR 446 at 466.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

an individual by having to go to court twice for the same cause.23 In relation to the distinction
between res judicata and issue estoppel, in Blair v Curran,24 Dixon J said:
The distinction between res judicata and issue estoppel is that in the first the very right or
cause of action claimed or put in suit has in the former proceedings passed into judgment,
so that it is merged and has no longer an independent existence, while in the second, for the
purpose of some other claim or cause of action, a state of fact or law is alleged or denied the
existence of which is a matter necessarily decided by the prior judgment, decree or order.

Anshun estoppel
36.12 The third instance of estoppel by judgment is Anshun estoppel, which is an extended
form of res judicata that prevents a party raising a claim or defence if in some earlier
proceedings between the parties, it would have been relevant and reasonable to have raised the
claim (including a cross-claim25) or defence.26 In Tomlinson v Ramsey Food Processing Pty Ltd,27
French CJ, and Bell, Gageler, and Keane JJ said that Anshun estoppel operates ‘to preclude
the assertion of a claim or the raising of an issue of fact or law if that claim or issue was so
connected with the subject matter of the first proceeding as to have made it unreasonable
in the context of the first proceeding for the claim not to have been made or the issue not to
have been raised in that proceeding’. It is insufficient if the matter is one that ‘could have been
raised’.28 As was pointed out in Port of Melbourne Authority v Anshun Pty Ltd,29 there is no
estoppel ‘unless it appears that the matter relied upon as a defence in the second action was
so relevant to the subject matter of the first action that it would have been unreasonable not to
rely on it’ (emphasis added).

Estoppel by conduct
36.13 In Grundt v Great Boulder Proprietary Gold Mines Ltd, 30 Dixon J said that common law
estoppel by conduct — also referred to as estoppel in pais — is based on the premise that ‘the
law should not permit an unjust departure by a party from an assumption of fact which he has
caused another party to adopt or accept for the purpose of their legal relations’. His Honour31
went on to say:
[T]he basal purpose of the doctrine … is to avoid or prevent a detriment to the party asserting
the estoppel by compelling the opposite party to adhere to the assumption upon which the

23. Lockyer v Freeman (1877) 2 App Cas 519 at 530.

24. (1939) 62 CLR 464 at 532.
25. Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287 at 298; Devon v Madgwicks (A Firm) [2016]
FCA 875 at [66]; Conference & Exhibition Organisers Pty Ltd v Johnson [2016] NSWCA 118 at [3]–[5];
[21]–[24].
26. Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 602–3; 36 ALR 3 at 12.
27. 256 CLR 507 at 517–8; (2015) 323 ALR 1 at 7–8; Timbercorp Finance Pty Ltd (in liq) v Collins (2016) 259
CLR 212 at 229; (2016) 339 ALR 11 at 18.
28. Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245 at 247.
29. (1981) 147 CLR 589 at 602; 36 ALR 3 at 12.
30. (1937) 59 CLR 641 at 674.
31. Grundt v Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641 at 674.

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 CHAPTER 36: EQUITABLE ESTOPPEL­

former acted or abstained from acting. This means that the real detriment or harm from
which the law seeks to give protection is that which would flow from the change of position
if the assumption were deserted that led to it.

36.14 In relation to the issue of detriment, in Australian Financial Services and Leasing Pty
Ltd v Hills Industries Ltd,32 Gageler J said:
The ‘real detriment or harm’ which that party must prove to ground an estoppel can
be any ‘material disadvantage’ which would arise from permitting departure from the
assumption on the faith of which that party acted or refrained from acting. Material
disadvantage must be substantial, but need not be quantifiable in the same way as an
award of damages. Material disadvantage can lie in the loss of a legal remedy, or of a ‘fair
chance’ of obtaining a commercial or other benefit which ‘might have [been] obtained by
ordinary diligence’.

Whether the mere entry into of a contract is sufficient to constitute detriment for the purposes
of estoppel by conduct, is the subject of conflicting authority.33
36.15 Estoppel by conduct takes two forms, namely estoppel by representation and estoppel
by convention. The distinguishing feature between the two is that estoppel by convention is
grounded in ‘a common participation in an assumed state of affairs’,34 whereas estoppel by
representation is grounded in a representation made by one party to another.

Estoppel by representation
36.16 The essence of estoppel by representation is the making of a representation of fact by
one person that leads the other person to alter his or her position. In Newbon v City Mutual Life
Assurance Society Ltd,35 Starke J listed the following as elements of estoppel by representation:
The representation made must be clear and unambiguous; it must be intended to induce a
course of conduct on the part of the person to whom it is made, and must result in some act
or omission by the person to whom it is made.

If these elements are established, the estoppel has the effect of ‘denying the person estopped the
right to assert a contrary matter of fact’.36

Estoppel by convention
36.17 Estoppel by convention, which ‘is not dependent on the existence of a deed, or even
writing’,37 arises when ‘parties conduct their relations with each other on the basis of agreed or
assumed facts … [that preclude] either party … from denying an assumption which formed the

32. (2014) 253 CLR 560 at 622–3; 307 ALR 512 at 557.
33. Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd (2014) 47 WAR 522 at 545.
34. R Mulholland, ‘Estoppel by Convention’ [2002] New Zealand Law Journal 295 at 297.
35. (1935) 52 CLR 723 at 738.
36. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 458; 76 ALR 513 at 564.
37. Fischer v Nemeske Pty Ltd (2016) 257 CLR 615 at 675; 330 ALR 1 at 47.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

conventional basis of the relationship between them’.38 Thus, in Con-Stan Industries of Australia
Pty Ltd v Norwich Winerthur Insurance (Australia) Ltd,39 the High Court said:
Estoppel by convention is a form of estoppel founded not on a representation of fact made
by a representor and acted on by a representee to his detriment, but on the conduct of
relations between the parties on the basis of an agreed or assumed state of facts, which both
will be estopped from denying. … [T]here is no estoppel unless it can be shown that the
alleged assumption has in fact been adopted by the parties as the conventional basis of their
relationship.

36.18 Some cases have suggested that the assumption is not confined to facts and can extend
to assumptions at to the law40 and assumptions of a matter of mixed fact and law.41 However,
others suggest that the assumption is confined to matters of fact.42
36.19 In Moratic Pty Ltd v Gordon,43 Brereton J said that the elements of estoppel by
convention were:
(1) that [the plaintiff] has adopted an assumption as to the terms of its legal relationship with
the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties
have conducted their relationship on the basis of that mutual assumption; (4) that each party
knew or intended that the other act on that basis; and (5) that departure from the assumption
will occasion detriment to the plaintiff.

In Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Co Ltd,44 the Court of
Appeal held a sixth element existed, namely that that ‘[i]n all the circumstances it would be
unconscionable to allow the other party to resile or depart from the assumption’. However,
in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6),45 Edelman J stated that, rather than being a
separate element of estoppel by convention, unconscionability merely characterises the result
of establishing the estoppel.

38. Sze Tu v Lowe (2014) 89 NSWLR 317 at 393; Dixon v Blindley Health Investments Ltd [2016] 4 All ER 490
at 506.
39. (1986) 160 CLR 226 at 244; 64 ALR 481 at 491. See also Commissioner of Taxation of the Commonwealth of
Australia v Thomas (2018) 264 CLR 382 at 412; 357 ALR 445 at 460.
40. Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 188; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69
NSWLR 603 at 645; Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247 at 266;
333 ALR 151 at 168. See also J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s
Equity: Doctrines and Remedies, 5th ed, LexisNexis Butterworths, Sydney, 2015, pp 512–13.
41. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 415; 76 ALR 513 at 532; W & R Pty Ltd
v Birdseye (2008) 102 SASR 477 at 488‒9; George 218 Pty Ltd v Bank of Queensland Ltd (No 2) (2016) 313
FLR 287 at 312–3.
42. Hancock Family Memorial Foundation v Fieldhouse (No 5) [2013] WASC 121 at [128]–[130]; Shaw v Hilton
[2020] TASSC 2 at [40]–[49].
43. [2007] NSWSC 5 at [32], cited with approval in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR
603 at 645; Sze Tu v Lowe (2014) 89 NSWLR 317 at 393; TMA Australia Pty Ltd v Indect Electronics &
Distribution GmbH [2015] NSWCA 343 at [115]; Browning v ACN 149 351 413 Pty Ltd (in liq) [2016] QCA
169 at [42]; Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55 at [332]; F J & P N Curran Pty Ltd
v Almond Investors Land Pty Ltd [2019] VSCA 236 at [214].
44. [2008] WASCA 119 at [164].
45. (2015) 329 ALR 1 at 121. See also Shaw v Hilton [2020] TASSC 2 at [22]–[25].

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 CHAPTER 36: EQUITABLE ESTOPPEL­

THE DEVELOPMENT OF EQUITABLE ESTOPPEL

36.20 Equitable estoppel is the result of bringing together the two significant forms of
estoppel that existed in equity — promissory estoppel and proprietary estoppel. The essential
difference between the two forms of estoppel was described by Brennan J in Waltons Stores
(Interstate) Ltd v Maher46 as follows:
In cases of promissory estoppel, the equity binds the holder of a legal right who induces
another to expect that that right will not be exercised against him. … In cases of proprietary
estoppel, the equity binds the owner of property who induces another to expect that an
interest in the property will be conferred on him.

36.21 Before considering equitable estoppel in its modern form, it is worth noting the former
roles of both promissory and proprietary estoppel and their attendant differences.

Promissory estoppel
36.22 The equitable doctrine of promissory estoppel evolved to overcome injustices flowing
from the doctrine of consideration. The very essence of promissory estoppel is that a promisor
is precluded from going back on his or her promise, even though the promise is not supported
by consideration moving from the promisee. Unlike contract, promissory estoppel does not
look forward. Rather, it ‘looks backwards from the moment when the promise falls due to be
performed and asks whether, in the circumstances which have actually happened, it would
be [unconscientious] for the promise not to be kept’.47 In Equititrust Ltd (formerly Equitiloan
Ltd) v Franks,48 Handley AJA noted that promissory estoppel ‘is based on a non-contractual
promise or assurance which, in its orthodox form, becomes binding in equity, so as to restrain
the promisor from enforcing his strict legal rights’.
36.23 The principles which underlie promissory estoppel were present in 19th century case
law, but they were given a more contemporary formulation by Denning J in Central London
Property Trust Ltd v High Trees House Ltd.49 In that case, Central London Property Trust
(CLPT) leased a block of flats to High Trees House (HTH) for a period of 99 years. In 1940,
CLPT agreed to accept a reduced rent, which was paid for the next five years by HTH. CLPT
accepted the reduction because of the low occupancy rate for the flats during World War II.
In 1945, with the flats all fully let, CLPT asserted a claim for the full rent thereafter. Denning J
said that CLPT was entitled to the full rent as claimed, on the basis that the agreement for a
reduced rent was only for as long as the flats were not fully let. The critical aspect of the case
was the statement by Denning J that, if CLPT had claimed the full rent for the years 1940–45,
it would have failed. Even though the promise to accept a reduced rent was not supported
by consideration, the principle of promissory estoppel would have been raised against CLPT,
preventing recovery of the forgone rent.

46. (1988) 164 CLR 387 at 420; 76 ALR 513 at 535–6.

47. Waddell v Waddell (2012) 292 ALR 788 at 798.
48. (2009) 259 ALR 388 at 401. See also DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728
at 740; 285 ALR 311 at 323.
49. [1947] 1 KB 130. In Australia, the doctrine of promissory estoppel was first authoritatively accepted by the
High Court in Legione v Hateley (1983) 152 CLR 406; 46 ALR 1.

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36.24 For many years the operation of promissory estoppel principles was subject to two
important limitations:
• The promise had to be in the context of one intended to affect a pre-existing legal
relationship between the parties.50 In Central London Property Trust Ltd v High Trees House
Ltd,51 this was satisfied in that the parties were in a lease relationship and the promise was
in relation to terms agreed under that lease.
• Promissory estoppel could only be used as a defence to an action brought by the promisor
against the promisee. It was said that it could only be used as a ‘shield’ and not as a ‘sword’.52
In Central London Property Trust Ltd v High Trees House Ltd,53 this was satisfied as it was
HTH, the defendant/promisee, that would have used promissory estoppel as a defence to a
claim for the forgone rent by CLPT, the plaintiff/promisor.

Proprietary estoppel
36.25 Proprietary estoppel was always able to act as a sword as well as a shield, and it is
this feature that it has brought to equitable estoppel generally. Proprietary estoppel’s other
major difference from promissory estoppel is its operation in the realm of real property law.
In Waltons Stores (Interstate) Ltd v Maher,54 Mason CJ and Wilson J stated the principle of
proprietary estoppel as follows:
[A] person whose conduct creates or lends force to an assumption by another that he will
obtain an interest in the first person’s land and on the basis of that expectation the other
person alters his position or acts to his detriment, may bring into existence an equity in favour
of that other person, the nature and extent of the equity depending on the circumstances.

However, no proprietary estoppel claim is available if the plaintiff and defendant have a legally
enforceable contract relating to the property.55
36.26 Proprietary estoppel was recognised as comprising two streams, namely, estoppel by
encouragement56 and estoppel by acquiescence.57 In relation to these two streams, in Doueihi
v Construction Technologies Australia Pty Ltd,58 the Court of Appeal said that ‘[e]stoppel by
encouragement is generally recognised as an “active” form of estoppel, whereas estoppel by
acquiescence is generally considered a “passive” form of estoppel’.

50. Combe v Combe [1951] 2 KB 215 at 220.

51. [1947] 1 KB 130.
52. Combe v Combe [1951] 2 KB 215 at 220.
53. [1947] 1 KB 130.
54. (1988) 164 CLR 387 at 404; 76 ALR 513 at 523–4.
55. Giumelli v Giumelli (1999) 196 CLR 101 at 121; 161 ALR 473 at 482; Riches v Hogben [1985] 2 Qd R 292
at 301; Barnes v Alderton [2008] NSWSC 107 at [55].
56. Dillwyn v Llewelyn [1862] All ER 384; Delaforce v Simpson-Cook (2010) 78 NSWLR 483 at 488.
57. Ramsden v Dyson (1866) LR 1 HL 129 at 140–1.
58. (2016) 92 NSWLR 247 at 272–3; 333 ALR 151 at 175.

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The consolidation of promissory and proprietary estoppel

36.27 In Waltons Stores (Interstate) Ltd v Maher,59 the High Court handed down its most
significant decision on the topic of estoppel. The significance of this case was that it consolidated
promissory and proprietary estoppels into the single and broader principle of equitable
estoppel. In this case, the Mahers owned commercial premises in Nowra, which Waltons was
interested in leasing. Waltons wanted to relocate its business in Nowra to new premises and
the Mahers’ site was available. The agreement that was reached was that the Mahers would
demolish the existing premises and erect a new building to meet the specifications of Waltons.
A draft agreement for lease was sent to the solicitors for the Mahers and some amendments
were discussed. Waltons’ solicitors indicated that they expected their client’s agreement to the
alterations and said they would let the Mahers know if the amendments were not acceptable.
The Mahers’ solicitors sent the amended lease, duly executed by the Mahers, to Waltons’
solicitors ‘by way of exchange’. The letter was not acknowledged by Waltons’ solicitors until two
months later. The Mahers began to demolish the existing premises, as time was critical if they
were to complete the demolition and rebuilding in time for the start of the lease agreement.
Waltons was found to know what the Mahers were doing. However, after receiving the letter
and executed lease, Waltons reconsidered its position and a few months later wrote to the
Mahers’ solicitors, saying that the lease had not been executed by Waltons and that Waltons
was not proceeding with it. The Mahers sued Waltons for damages for breach of contract on the
basis that Waltons was estopped from denying the existence of the lease.
36.28 The majority of the High Court (Mason CJ, and Wilson and Brennan JJ) found for the
Mahers on the basis of equitable estoppel. (The minority of Deane and Gaudron JJ found for the
Mahers on the basis of common law estoppel.) In finding in favour of the Mahers on the basis
of equitable estoppel, the majority did so in circumstances where there was no pre-existing
contract between the parties, and on the basis that the Mahers used estoppel as the basis for a
cause of action and not merely as a defensive mechanism. In so doing, the High Court majority
removed the already noted60 limitations on the operation of promissory estoppel. In coming
to their decision, the majority made it clear that promissory estoppel was but a species of the
broader principle of equitable estoppel — the other major species being proprietary estoppel.61
36.29 The underlying rationale for equitable estoppel was firmly based in the notion of
unconscionability or unconscientiousness. Mason CJ and Wilson J62 said:
One may therefore discern in the cases a common thread which links them together, namely,
the principle that equity will come to the relief of a plaintiff who has acted to his detriment
on the basis of a basic assumption in relation to which the other party to the transaction has
‘played such a part in the adoption of the assumption that it would be unfair or unjust if he
were left free to ignore it’.63 … Equity comes to the relief of such a plaintiff on the footing that
it would be unconscionable conduct on the part of the other party to ignore the assumption.

59. (1988) 164 CLR 387; 76 ALR 513.

60. See 36.24.
61. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404; 164 CLR 387 at 420; 76 ALR 513
at 535–6.
62. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404; 76 ALR 513 at 524.
63. Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 675.

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36.30 However, despite the statements in Waltons Stores (Interstate) Ltd v Maher,64 to the
effect that the promissory estoppel variant of equitable estoppel was capable of sourcing
an enforceable obligation, in Ashton v Pratt65 a majority of the Court of Appeal cast some
doubt on that proposition. After an analysis of a number of Court of Appeal decisions in
New South Wales and a couple of decisions of the House of Lords, Bathurst CJ66 (McColl JA67
agreeing; Meagher JA68 not considering the issue) concluded that:
[T]here is a significant body of authority … which has maintained the distinction between the
scope of promissory and proprietary estoppel. These cases indicate that the former only acts
as a restraint on the enforcement of legal rights whilst the latter can be source of obligation’.69

With respect, this is contrary to what his Honour goes on to say ‘is significant dicta contrary to
this limitation on promissory estoppel’.

ELEMENTS OF EQUITABLE ESTOPPEL

36.31 In Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd,70 Keane J said that ‘the
categories of promissory and proprietary estoppel serve a common purpose of protecting a
party from a detriment which ‘would flow from a party’s change of position if the assumption
(or expectation) that led to it were deserted’.71 As the Court of Appeal in Wilson v Arwon
Finance Pty Ltd72 noted, ‘[i]t is grounded in the body of equitable doctrine that prevents
unconscientious assertion of claimed legal rights’.
36.32 However, the courts have cautioned against the ‘undisciplined recourse to the
principle [of equitable estoppel] as a ready panacea for real or imagined grievances arising
from negotiations between parties’.73 Thus, in Yeoman’s Row Management Ltd v Cobbe,74 in
the context of a property development agreement between sophisticated commercial parties,
Lord Walker of Gestingthorpe said:
[E]quitable estoppel is a flexible doctrine which the court can use, in appropriate
circumstances, to prevent injustice caused by the vagaries and inconstancy of human nature.

64. (1988) 164 CLR 387; 76 ALR 513.

65. (2015) 88 NSWLR 281; 318 ALR 260.
66. Ashton v Pratt (2015) 88 NSWLR 281 at 306; 318 ALR 260 at 287.
67. Ashton v Pratt (2015) 88 NSWLR 281 at 318; 318 ALR 260 at 298.
68. Ashton v Pratt (2015) 88 NSWLR 281 at 320–1; 318 ALR 260 at 300.
69. In Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Beck (2016) 334 ALR 692 at 728,
Bathurst CJ noted that, on the facts of that case, ‘it [was] not necessary to deal with the question which
remains controversial, namely, whether the doctrine [of promissory estoppel] can operate to impose
positive obligations rather than having a preclusionary effect’. See also Saleh v Romanous (2010) 79
NSWLR 453 at 462; Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) (2015) 329 ALR 1 at 122; Antov v Bokan
[2018] NSWSC 1474 at [488]; F J & P N Curran Pty Ltd v Almond Investors Land Pty Ltd [2019] VSCA
236 at [255]–[268]; A Silink, ‘Can Promissory Estoppel be an Independent Source of Rights?’ (2015) 40
University of Western Australia Law Review 39.
70. (2016) 260 CLR 1 at 43; 333 ALR 384 at 415. See also Priestley v Priestley [2017] NSWCA 155 at [134].
71. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 419; 76 ALR 513 at 534–5.
72. [2020] WASCA 137 at [84].
73. Capron v Government of Turks & Caicos Islands [2010] UKPC 2 at [34].
74. [2008] 4 All ER 713 at 737–8.
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But it is not a sort of joker or wild card to be used whenever the court disapproves of the
conduct of a litigant who seems to have the law on his side. Flexible though it is, the doctrine
must be formulated and applied in a disciplined and principled way. Certainty is important
in property transactions.

36.33 It is thus generally difficult to establish an equitable estoppel in a legal relationship

between commercial parties operating at arms length, and where their rights and obligations
are carefully and extensively set out in formal documents.75

Clear and unambiguous representation

36.34 To establish a case based upon principles of equitable estoppel, there needs to be a
promise or a sufficiently clear and unambiguous representation. This requirement does not
necessarily mean that the language must be such that it cannot possibly be open to different
constructions, but that it must be such as will be reasonably understood in a particular sense
by the person to whom it is addressed.76 In Barport Pty Ltd v Baum,77 the Court of Appeal said
that, where words are used to utter the promise or representation, they ‘must be able to be
understood in a particular sense by the person to whom the words are addressed’. The promise
or representation can also be express or implied.78
36.35 Furthermore, as was noted by Parke B in Freeman v Cooke,79 ‘if whatever a man’s real
intention may be, he so conducts himself that a reasonable man would take the representation
to be true, and believe that it was meant that he should act upon it, and did act upon it as true,
the party making the representation would be equally precluded from contesting its truth’.
36.36 However, there can be no promise or representation by mere silence during pre-
contractual negotiations.80 This is because ‘[t]he doctrine of estoppel does not provide a free
standing obligation to warn another person that his or her intended conduct is likely to result
in harm’.81 However, as was pointed out by the Court of Appeal in Barport Pty Ltd v Baum:82
[S]ilence may give rise to an estoppel if, having regard to the nature of the relationship, the
nature of the assumption, or the circumstances as a whole there is a duty to speak … [A]n
estoppel may be established where a person remains silent, knowing the other person labours
under a mistake in circumstances where there is a duty to correct the misunderstanding or
identify the true position.

The Court of Appeal83 went on to note that, in such cases ‘equity [intervened] because the
silence, in the circumstances, constituted a clear encouragement or inducement to the relying
party to continue to act on the basis of the assumption which it had made’.

75. Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 585–6; Settlement Group Pty Ltd
v Purcell Partners [2013] VSCA 370 at [47]–[48].
76. Low v Bouverie [1891] 3 Ch 82 at 106; Wilson v Arwon Finance Pty Ltd [2020] WASCA 137 at [161]–[162].
77. [2019] VSCA 167 at [117].
78. Legione v Hateley (1983) 152 CLR 438–9; 46 ALR 1 at 23–4.
79. (1848) 154 ER 652 at 656.
80. Blackley Investments Pty Ltd v Burnie City Council (No 2) (2011) 21 Tas R 98 at 111–12.
81. Barport Pty Ltd v Baum [2019] VSCA 167 at [120].
82. [2019] VSCA 167 at [110].
83. Barport Pty Ltd v Baum [2019] VSCA 167 at [117].

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36.37 The rationale for this requirement of clarity stems from the fact that equitable estoppel
is founded on the principle of unconscientiousness and unconscientiousness is difficult to
establish if the representation is ambiguous or unclear.84
36.38 The critical question with respect to the clarity of the representation is whether
different standards of clarity or certainty apply in relation to promissory estoppel, on the one
hand, and proprietary estoppel, on the other.
36.39 In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3)85 Drummond AJA
expressed the view that a higher standard of clarity was necessary in cases of promissory estoppel.
His Honour stated that ambiguity or lack of clarity will be fatal to any promissory estoppel case.
However, this was not necessarily so in proprietary estoppel cases, where ‘vague and imprecise
conduct is often enough to give rise to an equitable proprietary estoppel’. His Honour86 observed
that this was so because, unlike promissory estoppel cases, proprietary estoppel cases ‘do not
depend on proof of clear representations or promises but on conduct with respect to property
of the parties said to be estopped that is often diffuse and ambiguous, but which is sufficient, in
the circumstances of the particular case, to attract the intervention of equity’.
36.40 A similar view to that of Drummond AJA was taken by Keane J in Crown Melbourne
Ltd v Cosmopolitan Hotel (Vic) Pty Ltd.87 In that case his Honour88 expressed the view that the
test of clarity in promissory estoppel cases ‘should be no less … than would be required for an
effective contractual variation’. His Honour89 justified this view as follows:
Observance of this limit on the operation of estoppel in equity ensures that it is not allowed
to operate to underwrite unrealistic expectations or wishful thinking. Such an operation
would be especially pernicious in a commercial context; but even in a non-commercial
context estoppel should not be allowed to operate as an instrument of injustice.

36.41 On the other hand, in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd,90
Nettle J took a contrary view when he said that ‘[t]he notion that it takes a representation
of contractual certainty to found a promissory estoppel is misplaced’. His Honour91 justified
his view that the test of certainty is the same for both promissory estoppel and proprietary
estoppel, as follows:
The foundational principle on which equitable estoppel in all its forms is grounded is that
equity will not permit an unjust or unconscionable departure by a party from an assumption
or expectation of fact or law, present or future, which that party has caused another party to
adopt for the purpose of their legal relations. Consequently, the notion that there is or should
be some a priori distinction between the degree of objective certainty required to found a
promissory estoppel compared to a proprietary estoppel runs counter to principle. … [I]n as

84. Australian Crime Commission v Gray [2003] NSWCA 318 at [200].

85. (2012) 44 WAR 1 at 310; 270 FLR 1 at 308.
86. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1 at 311; 270 FLR 1 at 309.
87. (2016) 260 CLR 1; 333 ALR 384.
88. Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 45; 333 ALR 384 at 417.
See also Piazza Trevi v Cromwell BT Pty Ltd [2017] NSWSC 794 at [59]; McDonald v Dunscombe [2018]
VSC 283 at [17].
89. Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 47; 333 ALR 384 at 418.
90. Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 65; 333 ALR 384 at 432.
91. Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1 at 68–9; 333 ALR 384 at 434–5.
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much as the recognised categories of equitable estoppel are instances of the operation of the
more general foundational principle, the determination of whether it is unconscionable for
the charged party to depart from an assumption or expectation created in the mind of the
claimant must always depend on the particular facts and circumstances of the case.

36.42 For the sufficiently clear and unambiguous promise or representation to lead to a
claim based upon equitable estoppel, in Waltons Stores (Interstate) Ltd v Maher92 Brennan J set
out what he saw as the elements that had to be satisfied, as follows:
In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1)
the plaintiff assumed that a particular legal relationship then existed between the plaintiff and
the defendant or expected that a particular legal relationship would exist between them and,
in the latter case, that the defendant would not be free to withdraw from the expected legal
relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation;
(3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4)
the defendant knew or intended him to do so; (5) the plaintiff ’s action or inaction will occasion
detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to
act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

36.43 Although Brennan J’s statement of elements has not been approved by the High Court
as a whole, it has been described as the ‘seminal description’,93 and is the most commonly cited
formulation of principle on equitable estoppel by lower courts in Australia. In relation to their
application, in Zugic v Vesuvius Australia Pty Ltd,94 Ward CJ in Eq said:
[They] are not to be applied in every case in a ‘mechanical fashion.95 They are, however, said
to be a ‘useful check’. It has been said that ‘if the facts of the case did not measure up to those
tests, it would be necessary to think thoroughly about why not’.96

In Wilson v Arwon Finance Pty Ltd,97 the Court of Appeal observed that ‘[r]ead together
[Brennan J’s] six criteria describe, in a non-exhaustive way, conduct that is unconscionable for
the purposes of equitable estoppel’.
36.44 A closer examination of the six elements listed by Brennan J is therefore warranted.
In this discussion, for convenience, the party making the promise or representation will be
referred to as the ‘representor’, and the party to whom the promise or representation is made
will be referred to as the ‘relying party’.

Assumption or expectation
36.45 In relation to the first element, Brennan J said that the relying party must have ‘assumed
that a particular legal relationship then existed between the [relying party] and the [representor]
or expected that a particular legal relationship would exist between them and, in the latter case,
that the [representor] would not be free to withdraw from the expected legal relationship’.

92. (1988) 164 CLR 387 at 428–9; 76 ALR 513 at 542.

93. Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1 at 409. See also F J & P N
Curran Pty Ltd v Almond Investors Land Pty Ltd [2019] VSCA 236 at [253].
94. [2020] NSWSC 106 at [272].
95. Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247 at 279; 333 ALR 151 at 181.
96. Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 615–6.
97. [2020] WASCA 137 at [93].
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36.46 However, there is some doubt as to the need for the requirement that the representor
would not be free to withdraw from the expected legal relationship.98 In the later High Court
decision of The Commonwealth v Verwayen,99 no mention of this requirement was made in
any of the judgments of Mason CJ, or Deane, Dawson, or McHugh JJ, when dealing with the
general principles of estoppel. On the other hand, in Franklins Pty Ltd v Metcash Trading Ltd,100
Campbell JA said that the first requirement, insofar as it relates to an expected future legal
relationship, involved an expectation ‘that, at the time of the events alleged to give rise to the
estoppel, the plaintiff expected that a particular legal relationship would in future exist with the
defendant and, at that time, the plaintiff also expected that the defendant would not be free to
withdraw from the expected legal relationship’.
36.47 The nature of the relying party’s assumption is important in relation to the type of
estoppel that arises. If the assumption is one of an existing fact, a case of common law estoppel
arises. (In Waltons Stores (Interstate) Ltd v Maher101 the minority found for the Mahers on
this basis, viewing the evidence as establishing that the Mahers believed that Waltons had
completed the exchange of the lease.) Equitable estoppel will arise if the assumption is that the
representor will act in a particular way in the future. According to Brennan J, the relying party
needs to show that he or she assumed that a particular legal relationship existed or would exist
between the parties. According to the majority in Waltons Stores (Interstate) Ltd v Maher,102 this
was established on the facts of that case.
36.48 However, Brennan J’s requirement of a legal relationship would exclude equitable
estoppel from a promise or representation made, where the relying party assumes that the
representor will behave in a manner outside the context of a legal relationship. However,
in the context of promissory estoppel cases, it has been suggested that the relying party’s
assumption of a prospective or postulated legal relationship may render the representor
liable.103 For example, in Austotel Pty Ltd v Franklins Selfserve Pty Ltd,104 Priestley JA indicated
that it was enough if the relying party assumed that ‘a promise [would] be performed’.
An example where the representor’s behaviour is outside any existing or expected legal
relationship, and which might come within Priestley JA’s formulation, is where A promises
to pay B $200 within 10 days. However, for a failure to fulfill such a promise to give rise to
liability in equitable estoppel, in DHJPM Pty Ltd v Blackthorn Resources Ltd105 Meagher JA
stressed that there had to be some encouragement by the representor to the relying party that
the promise would be performed.

98. E K Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 at [259]; Alstom Ltd v Yokogawa Australia Pty
Ltd (No 7) [2012] SASC 49 at [1526].
99. (1990) 170 CLR 394; 95 ALR 321.
100. (2009) 76 NSWLR 603 at 735.
101. (1988) 164 CLR 387; 76 ALR 513.
102. (1988) 164 CLR 387; 76 ALR 513. See also Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 81
FCR 475 at 513; 153 ALR 198 at 235.
103. CPB Contractors Pty Ltd v Rizzani De Eccher Australia Pty Ltd [2017] NSWSC 1798 at [339]–[343];
Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171 at [204]–[225].
104. (1989) 16 NSWLR 582 at 610.
105. (2011) 83 NSWLR 728 at 741; 285 ALR 311 at 324. See also Arfaras v Vosnakis [2016] NSWCA 65 at [87]–[89].

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36.49 On the other hand, while it may well be the case that, in promissory estoppel cases, the
relying party needs to show that he or she assumed that a particular legal relationship existed or
would exist between the parties, this is not necessarily the case with proprietary estoppel cases.106
36.50 Finally, for an estoppel to arise, the relying party’s assumption must in all the
circumstances be reasonable in the sense that the representor’s promise or representation ‘must
be capable of conveying to a reasonable person the meaning that the [relying party] asserts by
way of assumption or expectation’.107 This requirement is illustrated by the decision in Salienta
Pty Ltd v Clancy.108 In that case, a proposed purchaser of land had been in possession of the
property and had had a contract to purchase it, which was subsequently terminated by the
vendor following the purchaser’s breach. The purchaser had spent money on improvements to
the property on the assumption that the expenditure would be credited to the purchase price
in a contract to be entered into at a price lower than that which had been set out in the earlier
contract. Bryson J held that the assumption was unreasonable given that, at all relevant times,
the terms upon which the vendor would sell the land had clearly been made out in writing.
Thus, it was not unconscientious for the vendor to assert its title to, and possession of, the land.

Inducement
36.51 Initially, it needs to be stressed that the basis for a claim based upon equitable estoppel
is the assumption that is induced by the promise or representation, rather than the promise or
representation itself.109 The assumption adopted by the relying party must have been induced
by the conduct of the representor. It is not necessary that conduct of the representor is the sole
factor inducing the mind of the relying party. It is sufficient if it was a reason.110 In most cases
the conduct will be the making of the promise or representation.
36.52 As already noted,111 the promise or representation can be express or implied. Silence
can give rise to an implication of a promise, as is illustrated by Waltons Stores (Interstate)
Ltd v Maher,112 where the silence and acquiescence on the part of Waltons gave rise to an
implication that it had promised to complete its transaction with the Mahers. In this context,
Brennan J113 said:
For the purposes of the second element, a defendant who has not actively induced the
plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if
the assumption or expectation can be fulfilled only by a transfer of the defendant’s property,
a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff ’s

106. Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247 at 276; 333 ALR 151 at 179;
Currie v Currie (No 2) [2019] WASCA 2 at [89].
107. Wilson v Arwon Finance Pty Ltd [2020] WASCA 137 at [163].
108. [1999] NSWSC 916.
109. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 413–4, 458–9; 76 ALR 513 at 531, 542, 564–5;
The Commonwealth v Verwayen (1990) 170 CLR 394 at 412–13, 444–5, 453–6, 500–2; 95 ALR 321 at ALR
332–3, 356–7, 363–4, 396–8.
110. Sidhu v Van Dyke (2014) 251 CLR 505 at 526; 308 ALR 232 at 246–7; Ryan v Ryan [2016] TASSC 4 at [22];
Priestley v Priestley [2017] NSWCA 155 at [136]–[137]; Wilh. Wilhelmsen Investments Pty Ltd v SSS
Holdings Pty Ltd [2019] NSWCA 32 at [127]–[128].
111. See 36.34.
112. (1988) 164 CLR 387; 76 ALR 513.
113. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 429; 76 ALR 513 at 542.
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reliance on the assumption or expectation may cause detriment to the plaintiff if it is not
fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on
which the plaintiff is conducting his affairs.

36.53 In relation to the types of conduct by the representor that could be said to induce the
assumption, in The Commonwealth v Verwayen,114 Deane J said the following:
The cases indicate four main, but not exhaustive, categories in which an affirmative answer
to that question may be justified, namely, where that party:

(a) has induced the assumption by express or implied representation;

(b) has entered into contractual or other material relations with the other party on the
conventional basis of the assumption;
(c) has exercised against the other party rights which would exist only if the assumption
were correct;
(d) knew that the other party laboured under the assumption and refrained from correcting
him when it was his duty in conscience to do so.

Reliance
36.54 The relying party must act, or refrain from acting, in reliance on the assumption.
In Priestley v Priestley,115 Emmett AJA said that ‘[i]t is conduct of a promisee or representee
that is induced by reliance on a promise or representation by a promisor or representor that
is the foundation for equitable intervention’. A causal link between the assumption and the
action or conduct by the relying party must be established. The action or conduct undertaken
must be reasonable in all the circumstances.116 In Commonwealth Bank of Australia v Carotino
(Australia) Pty Ltd,117 Kelly J said:
[R]eliance on the assumption must be reasonable in two ways. First, it must be reasonable for
the [relying party] to adopt the assumption in question on the strength of the representation
made. Secondly, the action taken by the [relying party] in reliance upon the representation
must be itself reasonable.

36.55 In Sidhu v Van Dyke,118 the High Court, in rejecting a claim that reliance is to be
presumed, held that the onus of proof was upon the representee to establish reliance. French CJ,
and Kiefel, Bell, and Keane JJ119 said:
In point of principle, to speak of deploying a presumption of reliance in the context of
equitable estoppel is to fail to recognise that it is the conduct of the representee induced by
the representor which is the very foundation for equitable intervention. Reliance is a fact to
be found; it is not to be imputed on the basis of evidence which falls short of proof of the fact.

114. (1990) 170 CLR 394 at 444; 95 ALR 321 at 356.

115. [2017] NSWCA 155 at [134].
116. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 406; 76 ALR 513 at 525.
117. [2011] SASC 42 at [145].
118. (2014) 251 CLR 505; 308 ALR 232.
119. Sidhu v Van Dyke (2014) 251 CLR 505 at 522; 308 ALR 232 at 243. See also Caringbah Investments Pty Ltd
v Caringbah Business and Sports Club Ltd (in liq) [2016] NSWCA 165 at [77]; Wilson v Arwon Finance Pty
Ltd [2020] WASCA 137 at [222]..

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36.56 In ADM v FDGK, Ward CJ in Eq, having noted that there is some controversy about
120

what is required to establish reliance, said:

[O]ne the one hand, it is said that a plaintiff must show that he or she ‘would have acted’
but for the assumption; on the other hand, it is said that one simply asks if the promise or
representation was ‘a contributing cause’ or ‘influenced’ the plaintiff ’s action …; in any event
I do not think that the competing formulations, in the great majority of cases … are likely to
affect the outcome.

After a detailed examination of the authorities on this question, her Honour121 concluded that
the less stringent ‘contributing cause’ or ‘influenced’ test was correct and that a plaintiff did not
also need to show that he or she would have acted differently.
36.57 In Wilh. Wilhelmsen Investments Pty Ltd v SSS Holdings Pty Ltd,122 Beazley ACJ said
that ‘[t]he question is whether, on the whole of the evidence, reliance has been proved, including
by the drawing of appropriate inferences’.
36.58 An important factor in assessing reasonableness here will be the characteristics of
the relying party, including whether he or she is advised by lawyers, is well resourced, and is
used to dealing in commercial transactions. In cases of substantial commercial enterprises that
are legally represented, the court will carefully scrutinise whether the relying party’s actions
are reasonable. If not, an estoppel claim will be denied.123 In Waltons Stores (Interstate) Ltd
v Maher,124 although the Mahers were legally represented, the facts were such that both the
Mahers and their solicitors were encouraged and induced to make the same mistake, thereby
not precluding the finding of an estoppel.

Knowledge or intention
36.59 According to Brennan J in Waltons Stores (Interstate) Ltd v Maher,125 the representor
must actually know or intend that the relying party will act or refrain from acting in reliance on
the assumption or expectation. In cases of assumptions based upon a promise or representation,
knowledge is ‘easily inferred’. In cases where the assumption arises outside the context of a
promise or representation, the requirement of knowledge or intention is more difficult to
establish.126 However, it can be established in cases where ‘the defendant encourages a plaintiff
to adhere to an assumption or expectation already formed, or acquiesces in an assumption or
expectation when, in conscience, objection ought to be stated’,127 as was the case in Waltons
Stores (Interstate) Ltd v Maher.128

120. [2018] NSWSC 442 at [901].

121. ADM v FDGK [2018] NSWSC 442 at [1035]–[1073].
122. [2019] NSWCA 32 at [127]–[128].
123. Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 585.
124. (1988) 164 CLR 387; 76 ALR 513.
125. (1988) 164 CLR 387; 76 ALR 513.
126. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 423; 76 ALR 513 at 538.
127. Pazta Company Pty Ltd v Idelake Pty Ltd [2008] NSWSC 941 at [26].
128. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 423; 76 ALR 513 at 538.

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36.60 Furthermore, according to Brennan J, it is not enough that the representor ought to have
known that the relying party would act or refrain from acting in reliance on the assumption or
expectation. A contrary view was suggested by Deane J in The Commonwealth v Verwayen.129
In relation to these two views, in New Zealand Pelt Export Company Ltd v Trade Indemnity
New Zealand Ltd,130 Nettle JA suggested that that of Deane J should be preferred.

Detriment
36.61 The relying party must suffer or stand to suffer real or substantial detriment if the
assumption made by it is not fulfilled. The statement of principle in relation to detriment
set out above in relation to estoppel by conduct,131 also applies to equitable estoppel.132 The
significance of detriment is that it is this factor that makes it unconscientious or unjust for the
representor to depart from the promise or representation.133
36.62 There must be a link between the detriment and the assumption or expectation. In
Thompson v Palmer,134 Dixon J said that the relying party must suffer detriment in the sense
that, ‘as a result of adopting [the assumption or expectation] as the basis of action or inaction,
[the relying party] will have placed himself in a position of material disadvantage if departure
from the assumption is permitted’.
36.63 The notion of detriment conjures up the idea that the relying party will be worse off in
some way. It is not enough that the relying party merely acted upon the representor’s promise.
In Je Maintiendrai Pty Ltd v Quaglia,135 the Full Court held that it was necessary that the going
back on the promise or representation would ‘result in some detriment and therefore some
injustice’ to the relying party.
36.64 Although the detriment need not be in the form of expenditure of money,136 it cannot be
minor. It has been variously described as needing to be material, or significant, or substantial.137
In Ashton v Pratt138 Bathurst CJ observed that the detriment must be ‘substantial, although
it need not be quantifiable in the same way as an order for damages’. However, detriment
flowing from the representor’s failure to fulfil his or her promise, but not from any act done or

129. (1990) 170 CLR 394 at 445; 95 ALR 321 at 356.

130. [2004] VSCA 163 at [99]. Nettle JA’s approach was endorsed by Macaulay J in Leading Synthetics Pty Ltd
v Adroit Insurance Group Pty Ltd [2011] VSC 467 at [69].
131. See 36.14.
132. Delaforce v Simpson-Cook (2010) 78 NSWLR 483 at 491; Harrison v Harrison [2013] VSCA 170 at
[103]–[104]; Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd (2014) 47 WAR 522 at 545.
133. Priestley v Priestley [2017] NSWCA 155 at [135].
134. (1933) 49 CLR 507 at 547.
135. (1980) 26 SASR 101 at 106.
136. Donis v Donis (2007) 19 VR 577 at 583; Walsh v Walsh [2012] NSWCA 57 at [14]; Davies v Davies [2016]
EWCA Civ 463 at [38].
137. Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 307–8; Sullivan v Sullivan
[2006] NSWCA 312 at [20]; Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014)
253 CLR 560 at 622–3; 307 ALR 512 at 557; Wilson v Arwon Finance Pty Ltd [2020] WASCA 137 at [98].
138. (2015) 88 NSWLR 281 at 307; 318 ALR 260 at 288.

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omission made by the relying party in reliance on the promise, is not relevant for the purposes
of equitable estoppel.137139 In Donis v Donis,140 Nettle JA said that the requirement of detriment
‘must be approached as part of a broad inquiry as to whether departure from a promise would
be unconscionable in all the circumstances’.
36.65 In assessing the existence of detriment, one must distinguish between expectation
and reliance loss. It is clear that it is the reliance loss, and not expectation loss, that goes to
establishing detriment.141 In the context of the facts of Waltons Stores (Interstate) Ltd v Maher,142
the expectation loss suffered by the Mahers was the loss of rent they expected Waltons to pay
during the term of the anticipated lease. The reliance loss was the wasted expenditure incurred
in demolishing and rebuilding the premises. It was the reliance loss, and not the expectation
loss, that established detriment in that case.

Failure to avoid detriment

36.66 The representor must have failed to act to avoid the relying party suffering detriment.
One way in which action could be taken to avoid the detriment is by simply fulfilling the
assumption or expectation.
36.67 However, it must be understood that the object of equitable estoppel is not to compel
the representor to fulfil the assumption or expectation, but rather to avoid detriment if
the assumption or expectation goes unfulfilled. This might be achieved by the representor
advising the relying party that the assumption is mistaken before irreversible detriment has
been incurred. In this respect, in Vella v Wah Lai Investment (Australia) Pty Ltd,143 Campbell J
said:
If one party, who has encouraged another to act on the basis that a particular state of
affairs exists, gives notice that that state of affairs should no longer be regarded as existing
then, unless the other party has already irretrievably prejudiced himself by acting on the
assumption that that state of affairs exists, the estoppel will cease to bind, either immediately
or after the other party has been given reasonable notice. This is the result of the principle
that the relief which is appropriate to give effect to an estoppel is the minimum relief which
would prevent the injustice arising by the person estopped departing from the assumption
or expectation which has been induced.

Entire agreement clause and equitable estoppel

36.68 A question that arises is whether a clause in a contract that denies any legal effect to
previous negotiations and representations, can prevent a relying party from pleading a case

139. Wilson v Arwon Finance Pty Ltd [2020] WASCA 137 at [99].
140. Donis v Donis (2007) 19 VR 577 at 583.
141. Delaforce v Simpson-Cook (2010) 78 NSWLR 483 at 491.
142. (1988) 164 CLR 387; 76 ALR 513.
143. [2004] NSWSC 748 at [169], cited with approval in ACN 074 971 109 (as trustee for the Argot Unit Trust)
v National Mutual Life Association of Australasia Ltd (2008) 21 VR 351 at 391. See also Fels v Rural Bank
[2020] WASCA 151 at [39].

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based upon equitable estoppel. In relation to such entire agreement clauses, in Franklins Pty Ltd
v Metcash Trading Ltd,144 Campbell JA said:
I would accept that an entire agreement clause … that … specifically denies efficacy to all
previous negotiations and representations, could not overcome an equitable estoppel, once
established. An ‘entire agreement clause’ might create a factual difficulty in the way of proof
of the elements of equitable estoppel, most obviously, proof of inducement or reliance, and
I would not want to rule out the possibility that it might be relevant to any precise remedy
granted (though I cannot at present think of an example of when that might occur). However,
it does not create an insuperable obstacle of principle. Consistently with the equitable
principle that it will not allow a contract to be an instrument of fraud, equity would not
permit an entire agreement clause to stultify the operation of its doctrines.

RELIEF BASED UPON EQUITABLE ESTOPPEL

36.69 Establishing the elements of equitable estoppel gives rise to an equity in favour of the
relying party. This means that the relying party is entitled to some equitable relief. The relief
is not based upon there being a promise or representation, but rather upon the expectation
generated by the promise or representation.145
36.70 It has often be said that there needs to be proportionality between the relief ordered
and the detriment suffered, or that the court will, in making its orders, determine the minimum
equity required to do justice to the relying party.146 This approach to relief may be termed
‘reliance-based relief ’, in that its focus is on a court making orders that prevent the relying party
suffering any detriment.
36.71 However, following the decision of the High Court in Giumelli v Giumelli,147 this is no
longer the case. In that case Gleeson CJ, and McHugh, Gummow, and Callinan JJ148 cited with
approval a statement by Deane J in The Commonwealth v Verwayen,149 where his Honour said:
[T]he question whether departure from the assumption would be unconscionable must
be resolved not by reference to some preconceived formula framed to serve as a universal
yardstick but by reference to all the circumstances of the case, including the reasonableness
of the conduct of the [relying] party in acting upon the assumption and the nature and extent
of the detriment which he would sustain by acting upon the assumption if departure from
the assumed state of affairs were permitted.

144. (2009) 76 NSWLR 603 at 734; 264 ALR 15 at 141, cited with approval in Yarrabee Chicken Company Pty Ltd
v Steggles Ltd [2010] FCA 394 at [131]; United Petroleum Pty Ltd v Pentaco Oil (Aust) Pty Ltd [2016] FCA
118 at [154].
145. Giumelli v Giumelli (1999) 196 CLR 101 at 121, 161 ALR 473 at 482.
146. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 419; 76 ALR 513 at 535; The Commonwealth
v Verwayen (1990) 170 CLR 394 at 417, 429–30, 441–2; 95 ALR 321 at 336, 345–6, 354.
147. (1999) 196 CLR 101; 161 ALR 473.
148. Giumelli v Giumelli (1999) 196 CLR 101 at 123, 161 ALR 473 at 484.
149. (1990) 170 CLR 394 at 445; 95 ALR 321 at 356.

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36.72 In effect, Giumelli v Giumelli gave its imprimatur to what may be referred to as
150

‘expectation-based relief ’, in which the court issues orders that fulfil the expectation generated
by the promise or representation. Thus, in Sidhu v Van Dyke,151 French CJ, and Kiefel, Bell, and
Keane JJ said:
[B]ecause the fundamental purpose of equitable estoppel is to protect the plaintiff from the
detriment which would flow from the defendant’s change of position if the defendant were
to be permitted to resile from his or her promise, the relief granted may require the taking of
active steps by the defendant including the performance of the promise and the performance
of the expectation generated by the promise.

However, the circumstances of the case may dictate that the court does not make orders that
reflect the full value of the expectation.152

Relief in promissory estoppel cases

36.73 In exercising its discretion to make an order in favour of the relying party, in promissory
estoppel cases the courts will generally make orders that reflect reliance-based relief.153 This is
because satisfying the relying party’s equity will not usually require going beyond preventing
that party from suffering detriment. Thus, in ACN 074 971 109 (as trustee for the Argot Unit
Trust) v National Mutual Life Association of Australasia,154 Dodds-Streeton JA said:
[The] doctrine [of equitable estoppel] … permits the court to do what is required in order
to avoid detriment to the party who has been induced to act upon an assumed state of
affairs. … [T]hus … according to the circumstances of any given case, the relief required may
be less than making good the assumption on the basis of which the plaintiff was encouraged
to deal. … [W]hat is required to satisfy the equity which arises against an estopped party
depends on the circumstances.

36.74 Similarly, in Commonwealth v Verwayen,155 McHugh J said that ‘the enforcement of

promises is not the object of the doctrine of equitable estoppel. The enforcement of promises is
the province of contract’. However, specific performance may be an appropriate remedy if that
is the only way by which the relying party’s equity can be fulfilled.156

150. (1999) 196 CLR 101; 161 ALR 473.

151. (2014) 251 CLR 505 at 529; 308 ALR 232 at 248.
152. Sidhu v Van Dyke (2014) 251 CLR 505 at 529–30; 308 ALR 232 at 248–9; Ryan v Ryan [2016] TASSC 4
at [47]–[48].
153. Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 427; 76 ALR 513 at 540; The Commonwealth
v Verwayen (1990) 170 CLR 394 at 411–12, 429, 501; 95 ALR 321 at 331–2, 345, 397–8; Mobil Oil Australia
Ltd v Lyndel Nominees (1998) 81 FCR 475 at 516; 153 ALR 198 at 238; Harrison v Harrison [2013] VSCA
170 at [138].
154. (2008) 21 VR 351 at 394.
155. Commonwealth v Verwayen (1990) 170 CLR 394 at 501; 95 ALR 321 at 397.
156. Cresswell v Creswell [2017] VSCA 272 at [55]–[56].

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Relief in proprietary estoppel cases

36.75 In proprietary estoppel cases a court will usually give expectation-based relief.157
However, in Sidhu v Van Dyke,158 French CJ, and Kiefel, Bell, and Keane JJ said that while this
generally requires the court to grant relief to fulfil the relying party’s expectation, this would
not always be the case, stating:
If the [relying party] had been induced to make a relatively small, readily quantifiable
monetary outlay on the faith of the [representor’s] assurances, then it might not be
unconscionable for the [representor] to resile from his promises to the [relying party] on
condition that [representor] reimburse [the relying party] for [the relying party’s] outlay.

36.76 The type of order a court may make in proprietary estoppel cases depends upon the
circumstances of the case.159 In Giumelli v Giumelli,160 parents promised their son that if he
continued to live on a property owned by them, they would subdivide it and give him the
portion containing the house in which he lived. On the basis of this, the son stayed and gave
up a career opportunity that would have taken him away from the property. The relationship
between him and his parents broke down when he married a woman of whom his parents did
not approve, and they refused to transfer the property to the son. The High Court granted
the son monetary relief to the value of the property that should have been transferred to him
by his parents. Although the High Court did not order a transfer of the property to the son,
the monetary compensation was nevertheless a remedy based upon the son’s lost expectation,
rather than reliance loss or any actual detriment suffered by the son.

157. Delaforce v Simpson-Cook (2010) 78 NSWLR 483 at 492–7; Sidhu v Van Dyke (2014) 251 CLR 505 at 527;
308 ALR 232 at 247; Risi Pty Ltd v Pin Oak Holdings Pty Ltd [2017] VSCA 317 at [65]–[66].
158. Sidhu v Van Dyke (2014) 251 CLR 505 at 528–30; 308 ALR 232 at 248–9.
159. Tadrous v Tadrous at [2012] NSWSCA 16 at [43]–[49]; Mainieri v Cirillo (2014) 47 VR 127 at 139.
160. (1999) 196 CLR 101; 161 ALR 473.

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LIABILITY IN THE LAW OF TORTS

INTRODUCTION
37.1 The law of torts provides relief in a number of instances directly relevant to one of
the parties to a contractual relationship — in particular the torts of deceit, negligence, and
interference with contractual relations. The principal remedy in each of these torts is that of
common law damages. It is not the purpose of this chapter to analyse the principles upon which
tortious damages are assessed. However, a few general observations in relation to tortious
damages can be briefly noted.
37.2 First, the guiding principle for the assessment of tortious damages is to put the plaintiff
into the position he or she would have been had the tort not been committed.1 Although
tortious damages are, like damages for breach of contract, compensatory in nature, in tortious
claims the court looks at what the plaintiff ’s position once was, whereas in contractual claims
the court looks to what would have been the plaintiff ’s position.
37.3 Second, there are principles that are the same in both tortious and contractual damages,
such as the principles relating to causation and mitigation. However, there are others that
are differently applied. A significant example here relates to remoteness. This has created
difficulties for the law in cases where the act of a defendant is simultaneously a breach of
contract and the commission of a tort, most commonly the tort of negligence. In such cases of
concurrent liability this can lead to different sums being awarded as compensation, depending
upon whether the plaintiff pursues his or her claim for breach of contract or negligence.2
37.4 Third, there are principles in the assessment of tortious damages that are not applicable
at all in breach of contract claims. Thus, unlike damages for breach of contract where a plaintiff
is entitled to recover nominal damages if he or she suffers no loss,3 a plaintiff for tortious
damages generally must suffer actual loss or damage before a damages award can be made
in his or her favour. Furthermore, although exemplary damages are not available in breach of
contract claims,4 such damages can be awarded in tortious claims such as deceit5 and inducing

1. Todorovic v Waller (1981) 150 CLR 402 at 412; 37 ALR 481 at 486.
2. See 37.27–37.35.
3. See 29.6–29.7.
4. See 29.15.
5. Musca v Astle Corporation Pty Ltd (1988) 80 ALR 251.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

a breach of contract.6 In cases of inducing a breach of contract, relief by way of an injunction7

or an account of profits8 are other remedies that may be available in appropriate circumstances.

DECEIT
37.5 In Chapter 14 the principles of misrepresentation were discussed. The primary remedy
for a misrepresentation is that of rescission, which was analysed in Chapter 35. However,
rescission will not always be available to the representee. In such cases various alternative
remedies may exist. The representee may be able to establish that the misrepresentation gives
rise to a collateral contract,9 thereby entitling the representee to an award of damages for breach
of contract. In the Australian Capital Territory and South Australia there exists a statutory
right to damages for misrepresentations.10 Alternatively, the representation may constitute
misleading or deceptive conduct and thereby attract the various remedies prescribed by the
relevant legislation proscribing such conduct.11 A further possibility is that the representee may
be able to seek common law damages in the tort of deceit. In Magill v Magill,12 Gleeson CJ
said that the purpose of the tort of deceit is to provide ‘a legal remedy for harms suffered in
consequence of dishonesty’.
37.6 To establish a case in deceit, in Magill v Magill,13 Gummow, Kirby, and Crennan JJ said:
The modern tort of deceit will be established where a plaintiff can show five elements:
first, that the defendant made a false representation; secondly, that the defendant made the
representation with the knowledge that it was false, or that the defendant was reckless or
careless as to whether the representation was false or not; thirdly, that the defendant made
the representation with the intention that it be relied upon by the plaintiff; fourthly, that the
plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered
damage which was caused by reliance on the false representation.

Thus, the tort cannot be said to have been committed until the representation has been acted
upon and results in damage to the representee.14
37.7 The leading authority on what amounts to fraud in the context of the tort of deceit is Derry
v Peek.15 In that case directors of a tramway company issued a prospectus stating that the company
had the legal right to use steam and other mechanical power to run its trams. This statement
was false because the company had not yet received the consent to its application to do so. The
company never received the consent. Peek, in reliance on that statement, subscribed for shares

6. Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; 211 ALR 159.
7. Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; 211 ALR 159.
8. Hospitality Group Pty Ltd v Australian Rugby Union (2001) 110 FCR 157 at 198.
9. See 10.66–10.86.
10. See 35.41–35.43.
11. See Chapter 15.
12. (2006) 226 CLR 551 at 561; 231 ALR 277 at 282.
13. Magill v Magill (2006) 226 CLR 551 at 587–8; 231 ALR 277 at 304. See also Bradford Third Equitable Benefit
Building Society v Borders [1941] 2 All ER 205 at 211.
14. Briess v Woolley [1954] AC 333 at 353; [1954] 1 All ER 909 at 918; Zurich Insurance Co plc v Hayward [2017]
AC 142 at 153; [2016] 4 All ER 628 at 639.
15. (1889) 14 App Cas 337.

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in the company. The company was subsequently wound up. Peek sued the directors for damages
alleging that the statement in the prospectus amounted to fraudulent misrepresentation. The
directors argued that they should not be liable because they had honestly believed that getting
the consent was a mere formality. The House of Lords held that the directors were not liable. In
relation to the element of fraud in the tort of deceit, Lord Herschell16 said:
[F]raud is proved when it is shewn that a false representation has been made (1) knowingly,
or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. … To
prevent a false statement being fraudulent, there must, I think, always be an honest belief in
its truth.

37.8 Although the motive of the representor is not relevant, ‘an intention to influence the
mind of the representee must be shown if the requisite dishonest intention is to be established.
In other words, the claimant has to demonstrate an intention to deceive’.17
37.9 An ambiguous statement can be fraudulent, provided that ‘the representor should
have intended the statement to be understood in the sense in which it is understood by the
[representee] (and of course a sense in which it is untrue) or should have deliberately used the
ambiguity for the purpose of deceiving him and succeeded in doing so’.18
37.10 The critical feature of the tort of deceit is that the representor lacked an honest belief in
the truth of his or her statement. Whether a person’s assertion that he or she believed that what
was said was true is sufficient to take the matter out of fraud was addressed in Derry v Peek,19
where Lord Herschell said:
A consideration of the grounds of belief is no doubt an important aid in ascertaining whether
the belief was really entertained. A man’s mere assertion that he believed the statement he
made to be true is not accepted as conclusive proof that he did so. There may be such an
absence of reasonable ground for his belief as, in spite of his assertion, to carry conviction to
the mind that he had not really the belief which he alleges.

His Lordship20 continued:

I desire to say distinctly that when a false statement has been made the questions whether
there were reasonable grounds for believing it, and what were the means of knowledge in the
possession of the person making it, are most weighty matters for consideration. The ground
upon which an alleged belief was founded is a most important test of its reality. I can conceive
many cases where the fact that an alleged belief was destitute of all reasonable foundation would
suffice of itself to convince the court that it was not really entertained, and that the representation
was a fraudulent one. So, too, although means of knowledge are … a very different thing from
knowledge, if I thought that a person making a false statement had shut his eyes to the facts, or
purposely abstained from inquiring into them, I should hold that honest belief was absent and
that he was just as fraudulent as if he had knowingly stated that which was false.

16. Derry v Peek (1889) 14 App Cas 337 at 374, cited with approval in Banditt v The Queen (2005) 224 CLR 262
at 265; 223 ALR 633 at 634; Magill v Magill (2006) 226 CLR 551 at 587–8; 231 ALR 277 at 304.
17. Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 220; Gabriel v Little
[2013] EWCA Civ 1513 at [33]; Eco 3 Capital Ltd v Ludsin Overseas Ltd [2013] EWCA Civ 413 at [77]–[78].
18. AIC Ltd v ITS Testing Services (UK) Ltd [2007] 1 Lloyd’s Rep 555 at 594.
19. (1889) 14 App Cas 337 at 369.
20. Derry v Peek (1889) 14 App Cas 337 at 375–6.

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37.11 Cases such as Derry v Peek21 make it clear that there is no need to establish an intention
on the part of the repesentor to defraud the representee. The motive of the representor is
immaterial.22 However, ‘lack of dishonest intent may be powerful evidence of a bona fide belief
in the truth of the facts asserted by the defendant’.23 Furthermore, these cases also establish
that carelessness on the part of the representor in making the statement is not sufficient to
constitute fraud. However, carelessness may give rise to liability in the tort of negligence.24
37.12 In Zurich Insurance Co plc v Hayward,25 Lord Clarke made the obiter comment that, in
the context of fraudulent misrepresentations, the cases suggest that if fraud is established, it is very
difficult to rebut the presumption that the representor was induced to enter into the contract. Lord
Clarke was of the view that the orthodox position on this issue was that a party who obtains a benefit
by fraud, cannot deny its materiality or that it actually played a causative part in the inducement.
37.13 In B V Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises, Inc,26 Longmore LJ,
after a detailed consideration of relevant authorities, said the following in relation to the
requirement of inducement:
[I]f a representor fraudulently intends his words to be taken in a certain sense and the
representee understands them in that sense and enters into a contract, it is likely to be inferred
that the representee was induced to enter into the contract on the faith of the representor’s
statement. It is fair to call this a presumption of inducement. But it is a presumption of fact
which can be rebutted, not a presumption of law which cannot be rebutted or can only be
rebutted in a particular way.

37.14 The standard of proof required in relation to an allegation of fraud is that of the
balance of probabilities. In Cheltenham Borough Council v Laird,27 Hamblen J observed that
‘[t]he fact that fraud is a very serious allegation may be relevant to the inherent probabilities
of its occurrence, but it does not affect the standard of proof ’.28 In discharging this burden of
proof, the plaintiff does not have to prove that he or she would have acted differently if he or
she had been told the truth.29 It is sufficient if the plaintiff proves that, had the false statement
not been made, he or she would not have acted as he or she did.
37.15 In relation to damages in the tort of deceit, ‘a plaintiff is entitled to recover as damages a
sum representing the prejudice or disadvantage he has suffered in consequence of his altering his
position under the inducement of the fraudulent misrepresentations made by the defendant’.30

21. (1889) 14 App Cas 337.

22. Smith v Chadwick (1884) 9 App Cas 187 at 201; Derry v Peek (1889) 14 App Cas 337 at 374; Bradford Third
Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 211.
23. Gabriel v Little [2013] EWCA Civ 1513 at [32].
24. See 37.17–37.26.
25. [2017] AC 142 at 157; [2016] 4 All ER 628 at 642–3.
26. [2019] 4 All ER 612 at 623, 626, 630. See also Ross River Ltd v Cambridge City Football Club Ltd [2008] 1 All
ER 1004 at 1057.
27. [2009] EWHC 1253 (QB) at [311]. See also Dadourian Group International Inc v Simms [2009] 1 Lloyd’s
Rep 601 at 608; JSC BM Bank v Kekhman [2018] EWHC 791 (Comm) at [46]–[66].
28. [2009] EWHC 1253 (QB) at [311].
29. Downs v Chappell [1997] 1 WLR 426 at 433.
30. Toteff v Antonas (1952) 87 CLR 647 at 650. See also Pitcher Partners Consulting Pty Ltd v Neville’s Bus
Service Pty Ltd (2019) 271 FCR 392 at 413–17; 371 ALR 480 at 500–3.

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Thus, the principles of remoteness and contributory negligence do not apply.31 All that the
plaintiff need prove is that the fraudulent misrepresentation caused the loss. Furthermore, a
defendant to a claim for damages in deceit ‘cannot avoid that liability by showing that the loss
would have been suffered even without the deceit’.32 However, ‘a defendant to a claim in deceit
may rely upon a novus actus interveniens, if that consists of a third party’s fraud which occurred
after the claimant’s entry into the transaction induced by the deceit’.33
37.16 In Kizbeau Pty Ltd v WG & B Pty Ltd34 the High Court said the following in relation to
the measure of damages in the tort of deceit for inducing a contract:
[T]he courts have consistently held that the proper measure of damages is the difference
between the real value of the thing acquired as at the date of acquisition and the price paid
for it. … [A]lthough the value is assessed as at the date of the acquisition, subsequent events
may be looked at in so far as they illuminate the value of the thing as at that date.

NEGLIGENCE
37.17 The tort of negligence ‘properly connotes the complex concept of duty, breach, and
damage thereby suffered by the person to whom the duty was owing’.35 Thus, in an action in
negligence the plaintiff needs to establish the following:
• the existence of a duty of care owed by the defendant to the plaintiff;
• a breach of the duty of care by the defendant; and
• loss or damages suffered by the plaintiff that was caused by the defendant’s breach of duty.
37.18 In establishing negligence, the principles of causation, remoteness, and contributory
negligence apply. The rules relating to causation in tort law are the same as in contract.36 Issues
relating to remoteness and contributory negligence are discussed later in this chapter.37
37.19 The most difficult issue in negligence is the question of whether there exists a duty of
care. What is clear is that, since the decision of the House of Lords in Donoghue v Stevenson,38
the scope of circumstances in which a duty of care arises has steadily expanded. A significant
case in this process was the House of Lords decision in Hedley Byrne & Co Ltd v Heller &

31. Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 265; [1996] 4 All ER 769 at 777; OVM
Petrom SA v Glencore International AG [2016] EWCA Civ 778 at [37].
32. Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018)
360 ALR 1 at 6.
33. Bank of Tokyo-Mitsubishi UFJ, Ltd v Baskan Gida Sanayi VE Pazarlama AS [2009] EWHC 1276 (Ch)
at [1007].
34. (1995) 184 CLR 281 at 291; 131 ALR 363 at 369. See also Smith New Court Securities Ltd v Citibank NA
[1997] AC 254 at 265; [1996] 4 All ER 769 at 777; OVM Petrom SA v Glencore International AG [2016]
EWCA Civ 778 at [38].
35. Lochgelly Iron & Coal Co v M’Mullan [1934] AC 1 at 25; Overseas Tankship (UK) Ltd v Morts Dock &
Engineering Co Ltd (The Wagon Mound) [1961] AC 388 at 425; [1961] 1 All ER 404 at 414–15.
36. See 29.93–29.101.
37. See 37.27–37.35.
38. [1932] AC 562.

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Partners Ltd,39 which recognised that negligence extended to statements that were carelessly
made, but not within the scope of fraud as set out in Derry v Peek.40 The principle expounded in
Hedley Byrne & Co Ltd v Heller & Partners Ltd41 extends to persons who profess to have special
care or skill. Even in cases in which a person does not so profess, that person’s understanding
that a representee will rely on statements to him or her is a factor that can lead to a finding of
the existence of a duty of care.
37.20 In Tepko Pty Ltd v Water Board,42 Gaudron J summarised the position as follows:
So far as concerns negligent misstatement, the circumstances which attract a duty of care
have been identified as ‘known reliance (or dependence) or the assumption of responsibility
or a combination of the two.’ In that context, the word ‘known’ includes circumstances in
which reliance or dependence ought to be known. Moreover, it is not essential that the
person making the statement know the precise use to which the information will be put, so
long as he or she knows or ought to know that it will be used for a serious purpose.

37.21 In ABN Amro Bank NV v Bathurst Regional Council,43 the Full Court indicated that, for
there to be a duty to exercise reasonable care in making a statement or giving advice:
(1) the speaker must realise, or the circumstances must be such that the speaker ought to have
realised, that the recipient of the information or advice intends to act on that information or
advice in connexion with some matter of business or serious consequence; and
(2) the circumstances must be such that it is reasonable in all the circumstances for the
recipient to seek, or to accept, and to rely upon the utterance of the speaker.

In relation to the first of these two points, in Playboy Club London Ltd v Banca Nazionale del
Lavoro SPA,44 the United Kingdom Supreme Court held that if X makes a negligent statement
to Y, which is relied upon by Z where Z is an undisclosed principal and unknown to X, X is not
liable in negligence to Z.
37.22 In San Sebastian Proprietary Ltd v Minister Administering the Environmental Planning
and Assessment Act 1979,45 the High Court set out the following propositions in relation to
negligent misstatement:
• Reliance plays an important role, particularly so when the maker of the statement directs a
statement to a class of persons with the intention of inducing members of the class to act or
refrain from acting in reliance on the statement, in circumstances where he or she should
realise that they may thereby suffer economic loss if the statement is not true.
• Where a statement is made for the purpose of inducing the plaintiff, or the members of a
limited class including the plaintiff, to commit themselves financially upon the basis that

39. [1964] AC 465; [1963] 3 All ER 575.

40. (1889) 14 App Cas 337.
41. [1964] AC 465; [1963] 3 All ER 575.
42. (2001) 206 CLR 1 at 22–3; 178 ALR 634 at 650–1. See also Property Alliance Group Ltd v Royal Bank of
Scotland plc [2018] 1 WLR 3529 at 3548.
43. (2014) 224 FCR 1 at 109; 309 ALR 445 at 566. See also Meredith v Commonwealth of Australia (No 2) (2013)
280 FLR 385 at 428–30.
44. [2019] 2 All ER 478.
45. (1986) 162 CLR 340 at 355–8; 68 ALR 161 at 169–71.

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the statement is true, and the plaintiff acts in reliance on the statement, the law will impose
a duty of care on the maker of the statement.
• In cases where the maker of the statement intends the statement to operate as a direct
inducement to action, the reasonableness of the reliance will not be a critical factor,
although in other cases the appreciation of the maker of the statement of the reasonableness
of reliance will be relevant.
37.23 In the context of contract cases, claims in the tort of negligence by one of the parties
against the other arise in two significant areas:
• where a defendant has been negligent in making a misrepresentation or misstatement; and
• where a defendant’s breach of contract is simultaneously the commission of an act
constituting the tort of negligence, giving rise to concurrent liability on the part of the
defendant.
37.24 In relation to the area of misrepresentations and misstatements, the application of
negligence to such statements made in the course of pre-contractual negotiations was confirmed
in Esso Petroleum Co Ltd v Mardon46 and, more recently, in Cramaso LLP v Ogilvie-Grant.47 In Esso
Petroleum Co Ltd v Mardon48 an oil company was held liable for tortious damages on the basis of
a negligently made estimate of the annual turnover of petrol at a particular service station. This
estimate induced the plaintiff to become a tenant of the service station. Although statements
such as the one made in this case will usually satisfy the requirements of misrepresentation, it is
clear that this is not necessary to succeed in a negligence case. As was observed in Parramatta
City Council v Lutz,49 negligence extends to statements of opinion or an undertaking, whereas
such statements do not satisfy the requirement for misrepresentation that the statement be one
of a fact.
37.25 In relation to cases of concurrent liability, most of the key decisions have involved the
liability of professionals, such as lawyers, medical practitioners, and accountants, to their clients.
Originally the liability of such professionals was in contract only. Although the existence of
concurrent liability is now beyond question, judges have expressed contrasting views as to whether
preference should be given in such cases to the tort of negligence claim or the breach of contract
claim. In Hawkins v Clayton,50 Deane J suggested that where a tortious duty of care exists, courts
should not imply terms to the same effect into contracts, and that a claim against a defendant
should be pursued in negligence rather than in contract. On the other hand, in Astley v Austrust
Ltd,51 Gleeson CJ, and McHugh, Gummow, and Hayne JJ rejected Deane J’s approach and said:
Rather than ask why the law should imply such a term in a contract for professional
services, it might be more appropriate to ask why should the law of negligence have any say
at all in regulating the relationship of the parties to the contract? The contract defines the
relationship of the parties. Statute, criminal law and public policy apart, there is no reason
why the contract should not declare completely and exclusively what are the legal rights and
obligations of the parties in relation to their contractual dealings.

46. [1976] QB 801; [1976] 2 All ER 5.

47. [2014] AC 1093 at 1110–1; [2014] 2 All ER 270 at 285.
48. [1976] QB 801; [1976] 2 All ER 5.
49. (1988) 12 NSWLR 293 at 317.
50. (1988) 164 CLR 539 at 585; 78 ALR 69 at 102.
51. (1999) 197 CLR 1 at 22; 161 ALR 155 at 170.

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37.26 In the wake of these two High Court decisions, in Townsend v Roussety & Co (WA)
Ltd,52 Buss JA said:
Since the decision of the High Court in Astley,53 a professional person does not have a
‘penumbral’ duty in tort which requires the giving of advice on matters which are beyond the
limits of his or her retainer. Where there is a contract of retainer with a professional person,
it is the contract that defines the relationship of the parties so that, ordinarily, the presumed
intention of the parties is that any duty in tort is limited or excluded. … Where, however, a
contract of retainer does not exist with a professional person, the absence of a retainer does
not necessarily mean that the professional person does not owe a duty of care.

The concurrent liability issue

37.27 The principal reason for the debate over situations where concurrent liability arises
is rooted in the fact that the measure of damages awarded to a plaintiff will not necessarily be
the same irrespective of whether the claim is pursued in the tort of negligence or for breach of
contract.54 Although some of the principles for the assessment of damages are the same in tort
and contract, there are differences. The two key differences relate to the rules of remoteness and
the reduction in damages to be awarded on the basis of a plaintiff ’s contributory negligence.
Although there have been attempts by some judges to assimilate the rules in relation to these
two principles, it is clear, as observed by Deane J in The Commonwealth of Australia v Amann
Aviation Pty Ltd,55 that ‘the stage has not been reached where [the differences between tort and
contract damages] can be ignored’.
37.28 In relation to the issue of remoteness, the tort rule is broader than in contract law, in
that certain losses suffered by a plaintiff will not be too remote in tort, but will be in contract
law. In other words, a plaintiff ’s claim in negligence could result in a higher damages award than
if the claim was one based on breach of contract. The rationale for the different approaches to
remoteness was explained by Lord Reid in Koufos v C Czarnikow Ltd56 as follows:
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. … But in tort there is no opportunity for the injured party to protect itself 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.

37.29 Suggestions by Scarman LJ in H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd,57
that the differences between the two tests of remoteness were ‘semantic, not substantial’, were
vigorously contested by McHugh JA in Alexander v Cambridge Credit Corporation Ltd.58

52. (2007) 33 WAR 321 at 355–6.

53. Astley v Austrust Ltd (1999) 197 CLR 1; 161 ALR 155.
54. McCrohon v Harith [2010] NSWCA 67 at [50].
55. (1991) 174 CLR 64 at 116; 104 ALR 1 at 36.
56. [1969] 1 AC 350 at 386; [1967] 3 All ER 686 at 692.
57. [1978] QB 791 at 807; [1978] 1 All ER 525 at 536. See also B v IVF Hammersmith Ltd (R, third party) [2020]
QB 93 at 168–71, 193.
58. (1987) 9 NSWLR 310 at 365.

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37.30 Insofar as the issue of contributory negligence is concerned, in Astley v Austrust Ltd,59
the High Court ruled that the then relevant statutory provisions allowing for a reduction in
damages in negligence cases on the basis of the plaintiff ’s contributory negligence had no
operation in claims for contractual damages, even if there was concurrent liability in the tort
of negligence. The rationale for this conclusion, given by Gleeson CJ, and McHugh, Gummow,
and Hayne JJ,60 was as follows:
In contract, the plaintiff gives consideration, often very substantial consideration, for the
defendant’s promise to take reasonable care. The terms of the contract allocate responsibility
for the risks of the parties’ enterprise including the risk that the damage suffered by one
party may arise partly from the failure of that party to take reasonable care for the safety of
that person’s property or person. Ordinarily, that risk is borne by the party whose breach of
contract is causally connected to the damage. Rarely do contracts apportion responsibility
for damage on the basis of the respective fault of the parties. Commercial people in particular
prefer the certainty of fixed rules to the vagueness of concepts such as ‘just and equitable’.
That is why it is commonplace for contracts to contain provisions regulating liability for
breach of a duty to take reasonable care, whether by excluding liability altogether or limiting
it in some other way.

37.31 However, the principle enunciated in Astley v Austrust Ltd61 has been partially
overturned by amendments to existing legislation in all Australian jurisdictions.62 These
amendments require a reduction in a damages award for breach of contract on the basis of
the plaintiff ’s contributory negligence, but only in cases where there is concurrent liability in
negligence on the part of the defendant. The effect of the amending legislation is to preclude,
from the perspective of the principle of contributory negligence, different damages awards
being awarded to a plaintiff depending upon whether he or she pursues a claim against the
defendant in negligence or for breach of contract.63
37.32 However, the same cannot be said from the perspective of the principles of remoteness.
If one agrees with the views of Scarman LJ in H Parsons (Livestock) Ltd v Uttley Ingham & Co
Ltd64 that the law cannot allow differences in the measure of damages to vary simply because
‘as a matter of legal classification, the plaintiff ’s cause of action is breach of contract or tort’,
then the law needs to be changed. In this respect there are a number of possible changes that
could be made.
37.33 First, the two tests for remoteness could be assimilated. Such a change would,
however, need to address the rationale for the different tests set out by Lord Reid in Koufos
v C Czarnikow Ltd.65 Second, the notion of concurrent liability could be abolished by a

59. (1999) 197 CLR 1; 161 ALR 155.

60. Astley v Austrust Ltd (1999) 197 CLR 1 at 36–7; 161 ALR 155 at 181.
61. (1999) 197 CLR 1; 161 ALR 155.
62. Civil Law (Wrongs) Act 2002 (ACT) ss 101–102; Law Reform (Miscellaneous Provisions) Act 1965 (NSW)
ss 8–9; Law Reform (Miscellaneous Provisions) Act 1956 (NT) ss 15–16; Law Reform Act 1995 (Qld)
ss 5, 10; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) ss 3, 7;
Wrongs Act 1954 (Tas) ss 2, 4; Wrongs Act 1958 (Vic) ss 25–26; Law Reform (Contributory Negligence and
Tortfeasors’ Contribution) Act 1947 (WA) ss 3A–4.
63. See 29.104.
64. [1978] QB 791 at 807; [1978] 1 All ER 525 at 536.
65. [1969] 1 AC 350; [1967] 3 All ER 686.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

rule that held that if there was a contract between the parties, there can be no liability in
negligence. This approach is the logical extension of the sentiments of the majority of the
High Court in Astley v Austrust Ltd.66 and has been adopted in the United Kingdom. In
Wellesley Partners LLP v Withers LLP,67 where Floyd LJ said this approach was justified
because ‘the parties have the opportunity to draw special circumstances to each other’s
attention at the time of formation of the contract’. Third, it could be that in cases where
concurrent liability arises, the plaintiff can only sue in negligence on the basis that liability
for negligence is imposed by law and is thus preferable to, and should thereby exclude,
liability based upon a breach of contract. Such an approach is consistent with the sentiments
of Deane J in Hawkins v Clayton.68
37.34 Of course, if one disagrees with the views of Scarman LJ and sees no problems
associated with being able to recover different sums of money as damages depending upon
whether the claim is in tort or contract, there is no reason for any change in the current rules
of remoteness in tort and contract. That appears to have been the approach in McCrohon
v Harith,69 where McColl J, said that a plaintiff in such a case ‘should be able to take advantage
of the most advantageous remedy’.
37.35 As a final comment, it can be noted that the issue of variable awards of monetary
compensation is not confined to concurrent liability in contract law and the tort of negligence.
As is illustrated in Honeychurch Management Pty Ltd v Deloitte Touche Tohmatsu,70 variable
awards can arise in cases where a plaintiff can successfully establish liability on the part of the
defendant on the grounds of breach of contract, the tort of negligence, and for breaches of the
statutory prohibition against misleading or deceptive conduct. Although there was no dispute
between the parties as to the quantum of the plaintiff ’s loss, Blow J71 awarded damages on the
basis of the misleading or deceptive conduct claim. This was significant because of a finding of
contributory negligence on the part of the plaintiff, which, as we have seen, is relevant in cases
of concurrent liability in tort and contract, but is not relevant to statutory damages awards in
relation to misleading or deceptive conduct.72 His Honour73 stated he would have reduced the
plaintiff ’s damages on the negligence and contract claims by 30 per cent, had the claim based
upon misleading or deceptive conduct not succeeded. However, his Honour did not explain
why preference was given to the misleading or deceptive conduct claim over the negligence or
contract claims.

66. (1999) 197 CLR 1; 161 ALR 155.

67. [2016] Ch 529 at 553–4. See A Taylor, ‘Whither Remoteness? Wellesley Partners LLP v Withers LLP’ (2016)
79 Modern Law Review 678.
68. (1988) 164 CLR 539 at 585; 78 ALR 69 at 102.
69. [2010] NSWCA 67 at [51].
70. [2005] TASSC 13.
71. Honeychurch Management Pty Ltd v Deloitte Touche Tohmatsu [2005] TASSC 13.
72. I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 121–2, 126, 132, 138; 192
ALR 1 at 9, 12–13, 17–18, 22.
73. Honeychurch Management Pty Ltd v Deloitte Touche Tohmatsu [2005] TASSC 13 at [74].

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INDUCING A BREACH OF CONTRACT

37.36 The tort of inducing a breach of contract arises when a third party to a contract,
without justification, intentionally induces one party to the contract to breach the contract.74 In
SAR Petroleum v Peace Hills Trust Company,75 Robertson JA, said:
One of the tort’s purposes is to protect contractual rights by placing limits on the ability of
persons to pursue their economic self-interests in a competitive marketplace without regard
to the contractual rights of others.

37.37 The tort has its modern origins in the two court decisions in the case of Lumley v Gye.76
In this case Lumley had engaged the services of the opera singer Johanna Wagner to perform for
a season at Her Majesty’s theatre in London. In breach of her contract, Wagner was persuaded by
Gye to enter into a contract with him to perform at the rival Covent Garden theatre. In the case
of Lumley v Wagner77 Lumley obtained an injunction to restrain Wagner from singing at Covent
Garden.78 Wagner complied with the injunction, but nevertheless breached her contract with
Lumley and did not sing at Her Majesty’s theatre. In the 1853 proceedings in Lumley v Gye,79
Lumley sought to recover damages from Gye as compensation for the losses he suffered as a result
of Wagner’s breach of contract on the basis that Gye had ‘wrongfully and maliciously enticed and
procured’ Wagner to break her contract with Lumley. The Court of Queen’s Bench ruled that if a
third party, by a wrongful and malicious act, caused a person to break a contract and it could be
established that the contract breaker would be unable to pay the damages for the losses sustained
as a result of that breach, then the third party would be liable to pay the said damages. On the facts
of the case it was clear that Lumley would be unable to recover damages from Wagner. In the 1854
proceedings the evidence established that Gye honestly, but mistakenly, believed that Wagner
was entitled to terminate her contract with Lumley. Because Gye had such an honest belief and
Lumley was unable to prove actual dishonesty on Gye’s part, Lumley’s claim failed.80
37.38 The requirement in the second decision in Lumley v Gye81 of actual dishonesty on the
part of the third party served to narrow the scope of the tort of interference with contractual
relations and was one of the reasons why it was over 30 years before the principle in Lumley
v Gye82 was again before the courts. Its principal use for most of the 20th century was in the
industrial arena, where it was used as a weapon against trade unions who called out their
members to strike and thereby breach their contracts of employment.
37.39 In the 20th century confusion arose as to the precise scope and operation of the tort of
inducing a breach of contract. This flowed from the attempt in a number of cases to merge the
tort of inducing a breach of contract with the tort of unlawful interference with trade, which

74. Short v City Bank of Sydney (1912) 15 CLR 148 at 160; OBG Ltd v Allan [2008] 1 AC 1 at 29; [2007] 4 All ER
545 at 567; Civic Video Pty Ltd v Paterson [2016] WASCA 69 at [51].
75. [2010] NBCA 22 at [5].
76. (1853) 118 ER 749 and (1854) ER 1083.
77. (1852) 42 ER 687.
78. See 32.8.
79. (1853) 118 ER 749.
80. S M Waddams, ‘Johanna Wagner and the Rival Opera Houses’ (2001) 117 Law Quarterly Review 431
at 447–8, 455–70.
81. (1854) ER 1083.
82. (1854) ER 1083.

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resulted in a hybrid tort of unlawful interference with contractual relations. However, in OBG
Ltd v Allan,83 the House of Lords separated the two torts and gave reasonably clear guidance
as to the elements of each of them. The decision of the House of Lords has been accepted by
several Australian courts.84
37.40 In OBG Ltd v Allan,85 the House of Lords observed that the tort of inducing a breach of
contract was a form of secondary or accessory liability. By this is meant that primary liability attaches
to the contracting party that breaches the contract, with secondary liability attaching to the third
party who procures the breach of contract. Thus, if X and Y have a contract and Z induces Y to breach
the contract, primary liability for the breach attaches to Y, with secondary liability attaching to Z.
37.41 On the other hand, with the tort of unlawful interference with trade,86 the House of
Lords held that it was a tort of primary liability, in that the defendant is primarily liable if he
or she causes the plaintiff loss by unlawfully interfering with the liberty of others. For example,
if Z, by unlawful means, threatens Y, who is a potential customer of X, with the result that Y
takes his or her business elsewhere, X has a cause of action against Z in the tort of unlawful
interference with trade. Although the tort has been recognised in the United Kingdom, in the
High Court decision in Sanders v Snell,87 Gleeson CJ, and Gaudron, Kirby, and Hayne JJ left
open the question of whether such a tort should be recognised in Australia.
37.42 Although the two torts are quite separate, it is possible that the same facts could give
rise to liability in both. Thus, ‘[i]f A, intending to cause loss to B, threatens C with assault unless
he breaks his contract with B, he is liable as accessory to C’s breach of contract under Lumley
v Gye and he commits the tort of causing loss to B by unlawful means’.88
37.43 In relation to the tort of inducing a breach of contract, in Daebo Shipping Company
Ltd v The Ship Go Star,89 the Full Court said that ‘[t]he gravamen of the tort is [C’s] intention
to induce or procure the breach in the knowledge that such a breach will interfere with [A’s]
contractual rights’. Earlier in its judgment the Full Court90 stated that for a third party (C) to

83. [2008] 1 AC 1; [2007] 4 All ER 545.

84. Orica Investments Pty Ltd v William McCartney [2007] NSWSC 645 at [329]–[330]; Whittaker v Child
Support Registrar [2009] FCA 188 at [52]–[57]; Maurice Tarabay v Fifty Property Investments Pty Ltd [2009]
NSWSC 617 at [164]; LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 at 215–6; 287
ALR 1 at 11–13; Network Ten Pty Ltd v Seven Network (Operations) Ltd [2014] NSWSC 692 at [113]; Traffic
Calming Australia Pty Ltd v CTS Creative Traffic Solutions Pty Ltd [2015] VSC 741 at [25]; Civic Video Pty
Ltd v Paterson [2016] WASCA 69 at [51].
85. [2008] 1 AC 1; [2007] 4 All ER 545.
86. On OBG Ltd v Allan [2008] 1 AC 1; [2007] 4 All ER 545 the members of the House of Lords differed on the
exact name of this tort, variously referring to it as ‘causing loss by unlawful means’, ‘interference with trade
or business by unlawful means’, and ‘causing economic loss by unlawful means’: OBG Ltd v Allan, [2008]
1 AC 1 at 19, 53, 85; [2007] 4 All ER 545 at 557, 589, 619.
87. (1998) 196 CLR 329 at 341; 157 ALR 491 at 500.
88. OBG Ltd v Allan [2008] 1 AC 1 at 24; [2007] 4 All ER 545 at 562.
89. (2012) 207 FCR 220 at 240; 294 ALR 635 at 654, cited with approval in De Belin v Australian Rugby League
Commission Ltd [2019] FCA 688 at [312]; Sealed Air Australia Pty Ltd v Aus-Lid Enterprises Pty Ltd (2020)
375 ALR 324 at 365–6; AECI Australia Pty Ltd v Convey [2020] QSC 207 at [77].
90. Daebo Shipping Company Ltd v The Ship Go Star (2012) 207 FCR 220 at 240; 294 ALR 635 at 654. See also
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at 586; 211 ALR 159 at 201–2; Australian
Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCA
157 at [116]; Ceccon Transport Pty Ltd v Tomazos Group Pty Ltd [2017] NTSC 25 at [422]–[423].

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be liable in the tort of inducing a breach of a contract between A and B, the following elements
need to be satisfied:
• There must be a ‘binding and enforceable’91 contract between A and B.
• C must know that such a contract exists.
• C must know that if the B does, or fails to do, a particular act, that conduct by B would be
a breach of the contract.
• C must intend to induce or procure B to breach the contract by doing or failing to do that
particular act.
• The breach must cause loss or damage to the plaintiff.
The only defence to liability in the tort of inducing a breach of contract is that of justification.
The tort’s key elements of knowledge, intention, and breach92 need to be set out in more
detail.

Knowledge
37.44 For a third party (C) to be guilty of inducing a breach of contract, C ‘must have induced
or procured the doing of what’ he or she ‘knew would be a breach of contract’.93 This point was
reinforced in OBG Ltd v Allan,94 where Lord Hoffmann said:
To be liable for inducing breach of contract, you must know that you are inducing a breach
of contract. It is not enough that you know that you are procuring an act, which, as a matter
of law or construction of the contract, is a breach. You must actually realise that it will have
this effect.

37.45 For this to be established, C ‘must know of the contract and sufficient of its terms to
know that what it induced or procured [B] to do would be in breach of the contract’.95 If C
has actual knowledge of the contract and its terms, that is sufficient. In the absence of actual
knowledge, if, in the words of Lord Hoffmann in OBG Ltd v Allan,96 C ‘made a conscious
decision not to inquire in case he discovered a disagreeable truth’, C would have knowledge for
the purpose of this tort. In Emerald Construction Co Ltd v Lowthian,97 Lord Denning MR said
that C would also be liable if her or she was ‘recklessly, indifferent whether it is a breach or not’.
In relation to what this meant, in LED Technologies Pty Ltd v Roadvision Pty Ltd,98 Besanko J,
speaking for the Full Court of the Federal Court, said:

91. Allen v Dodd & Co Ltd [2020] EWCA Civ 258 at [25].
92. Meretz Investments NV v ACP Ltd [2008] Ch 244 at 275.
93. Short v City Bank of Sydney (1912) 15 CLR 148 at 160.
94. [2008] 1 AC 1 at 29; [2007] 4 All ER 545 at 567.
95. Cleary v Kocatekin & Seven Network (Operations) Ltd [2012] NSWSC 692 at [17]. See also Hospitality Group
Pty Ltd v Australian Rugby Union (2001) 110 FCR 157 at 188.
96. [2008] 1 AC 1 at 37; [2007] 4 All ER 545 at 574.
97. [1966] 1 All ER 1013 at 1017. See also Allstate Life Insurance Co v Australian & New Zealand Banking Group
Ltd (1995) 58 FCR 26 at 43–4; 130 ALR 469 at 485–6; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR
473 at 512; TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No 2)
(2016) 340 ALR 230 at 244; Ceccon Transport Pty Ltd v Tomazos Group Pty Ltd [2017] NTSC 25 at [424].
98. (2012) 199 FCR 204 at 216; 287 ALR 1 at 13.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

The third possible category of knowledge, namely, reckless indifference, is more difficult to
describe in terms of content. I think that there is such a category, but bearing in mind that the
tort under consideration is an intentional tort and gross negligence is insufficient it seems to
me that reckless indifference is something quite close to wilful blindness. It will be negated
by an honest belief, even one exhibiting a high degree of credulity. It will be established only
if the facts show affirmatively that the alleged tortfeasor, faced with knowledge of at least a
substantial prospect of a breach, proceeded not caring whether or not a breach, would occur.

37.46 However, negligence or even gross negligence in making enquiries as to whether there
was a contract, is not sufficient.99 It thus follows that, if C has a reasonable belief that his or
her acts were not interfering with another’s contract, then the knowledge requirement is not
established.100
37.47 The question of knowledge in the context of an employer who is seeking employees
who might already be employed elsewhere was discussed in the following terms in Terry Cross
Financial Services v Michael Misiti,101 where Rein J said:
To place an advertisement seeking employees, to offer an applicant a position and to enter
into a contract of employment with the successful applicant who has accepted the offer to
commence on a nominated date cannot constitute an inducement to breach a contract,
unless the employee is currently under a contract with a fixed term which term has not
expired, and the prospective employer knows that that is so or has the means of knowledge
and deliberately avoids examining the information, recklessly indifferent to whether the act
is a breach or not.

Intention
37.48 In relation to the intention on the part of C to induce or procure a breach of contract,
in OBG Ltd v Allan102 Lord Hoffmann said:
It is necessary for this purpose to distinguish between ends, means and consequences. If
someone knowingly causes a breach of contract, it does not normally matter that it is the
means by which he intends to achieve some further end or even that he would rather have
been able to achieve that end without causing a breach. … [P]eople seldom knowingly
cause loss by unlawful means out of simple disinterested malice. It is usually to achieve the
further end of securing an economic advantage to themselves. … On the other hand, if the
breach of contract is neither an end in itself nor a means to an end, but merely a foreseeable
consequence, then in my opinion it cannot for this purpose be said to have been intended.
That, I think, is what judges and writers mean when they say that the claimant must have
been ‘targeted’ or ‘aimed at’.

99. Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 at 512; OBG Ltd v Allan [2008] 1 AC 1 at 30, 62;
[2007] 4 All ER 545 at 567, 598; LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 at 215;
287 ALR 1 at 12; Civic Video Pty Ltd v Paterson [2016] WASCA 69 at [52].
100. Short v City Bank of Sydney (1912) 15 CLR 148 at 160.
101. [2008] NSWSC 1365 at [21].
102. [2008] 1 AC 1 at 30; [2007] 4 All ER 545 at 567–8.

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37.49 In SAR Petroleum v Peace Hills Trust Company,103 Robertson JA said:

A defendant is not liable for the tort of inducing breach of contract with respect to a breach
which was neither a desired end nor a means to an end, but merely a foreseeable consequence
of the defendant’s acts.

Robertson JA104 continued:

[I]f the breach of contract were neither an end in itself nor a means to an end, one must
conclude that it was unintended. Hence, if the defendant did not act out of malice or obtain
an economic advantage as a result of the breach, it should follow that the requisite intention
is absent and the tort action must fail.

37.50 In Donaldson v Natural Springs Australia Ltd,105 Beach J made two pertinent
observations about the element of intention. First, his Honour106 noted that a distinction is
made between ‘procuring’ or ‘inducing’ a breach of contract, and ‘advising’ one — the former
being actionable, but the latter not. His Honour107 also noted a distinction between a direct and
indirect interference, describing these two forms of interference in the following terms:
Direct interference occurs where the defendant’s act or omission, whether as intervener
or persuader, acts on the mind or position of one of the parties to the contract. Indirect
interference occurs where the defendant’s act or omission acts on the mind or position of
a third party (for example an employee or officer of a contracting party) which causes that
third party to take or not take a step which then acts on the mind or position of one of the
contracting parties.

Finally, his Honour108 observed that direct interference is prima facie unlawful, whereas indirect
interference requires some additional unlawfulness.
37.51 Thus, for C to be liable, C’ s intention must be to cause B to breach his or her contract
with A.109 In Allen v Dodd & Co Ltd,110 Lewison LJ noted that, ‘[i]f the defendant honestly
believes that the act that he procures will not amount to a breach of contract, he is not liable
in tort even if his belief is mistaken in law. I cannot see that it matters whether a defendant’s
erroneous belief is caused by his own ignorance or by the incorrect advice he receives from his
lawyers’. Furthermore, an intention to cause A damage is not sufficient.111

103. [2010] NBCA 22 at [36].

104. SAR Petroleum v Peace Hills Trust Company [2010] NBCA 22 at [55].
105. [2015] FCA 498.
106. Donaldson v Natural Springs Australia Ltd [2015] FCA 498 at [208].
107. Donaldson v Natural Springs Australia Ltd [2015] FCA 498 at [211].
108. Donaldson v Natural Springs Australia Ltd [2015] FCA 498 at [211].
109. Lifestyle Equities CV v Sportsdirect.Com Retail Ltd [2018] EWHC 728 (Ch) at [100].
110. [2020] EWCA Civ 258 at [37]. See also Sealed Air Australia Pty Ltd v Aus-Lid Enterprises Pty Ltd (2020) 375
ALR 324 at 374.
111. OBG Ltd v Allan [2008] 1 AC 1 at 35; [2007] 4 All ER 545 at 572.

849
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

37.52 In relation to the meaning of the expressions ‘to induce’ and ‘to procure’, in Short v The
City Bank,112 Street J said:
The words ‘induce’ and ‘procure’ in their ordinary significance, I think, convey the idea of
persuasion or contrivance, and I think that a person complaining of a breach of contractual
relations brought about by these means must show that the person whose actions are
complained of did something in the nature of effectually persuading or prevailing upon the
other party to the contract to violate his obligations under it. The persuasion may take the
form of advice or friendly solicitation, or it may take the form of intimidation or molestation,
but in every case I think that it must be shown that the defendant deliberately intervened
between the contracting parties, either with the express design of depriving the plaintiff of
the benefit of his contract, or under such circumstances that he must have known that the
effect of his intervention would be to deprive the plaintiff of that benefit.

In Australian Building and Construction Commissioner v Construction, Forestry, Mining and

Energy Union113 Reeves J said that ‘a breach of contract may be induced or procured in one [of]
two ways: either by representations made to a person to induce him or her to break the contract
with the plaintiff, or by actions which inhibit performance of, and thereby breach, the terms of
the contract with the plaintiff ’.
37.53 However, if C merely facilitates a breach of contract by B, that does not give rise to
liability on the part of C.114 Thus, in Batts Combe Quarry Ltd v Ford,115 it was held that where B
(a father) breached his contract not to assist in carrying on a rival quarry business by providing
money to C (his sons) to enable them to purchase a rival quarry, the mere acceptance of the
money did not amount to C procuring a breach of contract by B.

Breach of contract
37.54 If there is no breach of contract by B, there can be no liability on C’s part in the tort
of inducing a breach of contract.116 It can be noted that there is no breach of contract and thus
no tort of inducing a breach of contract, where C induces B to lawfully terminate his or her
contract with A.117 In relation to establishing a breach, in Meretz Investments NV v ACP Ltd,118
Arden LJ said:
[I]t is not enough that the defendant obstructed a person in the performance of a contract.
The defendant’s conduct must actually have caused a breach of the contract.

37.55 However, there is no need to establish that A suffered any loss or damage as a result of
the breach or that C intend to cause A any injury or loss.119

112. (1912) SR (NSW) 186 at 202–3; cited with approval in Allstate Life Insurance Co v Australian & New Zealand
Banking Group Ltd (1995) 58 FCR 26 at 40; 130 ALR 469 at 482; Sealed Air Australia Pty Ltd v Aus-Lid
Enterprises Pty Ltd (2020) 375 ALR 324 at 375.
113. [2017] FCA 157 at [120]. See also D C Thomson & Co Ltd v Deakin [1952] Ch 646 at 702, 694–5.
114. Jaddcal Pty Ltd v Minson (No 3) [2011] WASC 362 at [191]–[199].
115. [1943] Ch 51.
116. OBG Ltd v Allan [2008] 1 AC 1 at 31; [2007] 4 All ER 545 at 568.
117. Film Financial Consultants Ltd v Becker Group Ltd [2006] NSWSC 319 at [63].
118. [2008] Ch 244 at 275.
119. OBG Ltd v Allan at [2008] 1 AC 1 at 35, 63; [2007] 4 All ER 545 at 572, 598.

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 CHAPTER 37: LIABILITY IN THE LAW OF TORTS­

Justification
37.56 The only defence to the tort of inducing a breach of contract is that C’s interference
was justified by an existing superior legal right.120 A superior legal right ‘must be a right in real
or personal property or a right or duty found in statute but such superiority is not established
by priority between merely contractual rights’.121 The onus of proving justification is upon C.122
37.57 The defence of justification is difficult to establish. In Zhu v The Treasurer of the State
of New South Wales,123 the High Court said:
[W]hat is striking is the absence in Anglo-Australian law of occasions where such a defence
… has succeeded. … The rarity of instances of success probably reflects the high store placed
on compliance with contractual obligation by English law and by the common law systems
derived from it. The assertion of justification by a stranger to interfere with such compliance
necessarily impinges on the general approach of the law.

37.58 Although the scope of the justification defence is almost impossible to define with
any degree of accuracy, it is clear that C cannot establish it on the basis of his or her unlawful
conduct:124 In determining whether justification does exist, in Glamorgan Coal Co Ltd v South
Wales Miners’ Federation,125 Romer LJ said:
[R]egard might be had to the nature of the contract broken; the position of the parties to the
contract; the grounds for the breach; the means employed to procure the breach; the relation
of the person procuring the breach to the person who breaks the contract; and … to the
object of the person in procuring the breach.

37.59 The defence of justification does arise in circumstances where C has the authority of
statute to interfere or some other superior legal right as compared to that of the person whose
contractual right has been interfered with — it not being enough if the competing rights are
equal.126 Thus, in Edwin Hill & Partners v First National Finance Corp plc,127 First National lent
money to a property developer on a property development. The developer engaged Edwin Hill
as his architects. When the property developer fell into financial difficulties, First National
agreed to lend further funds to it, but on condition that the developer’s architects had to be
sacked. The sacking of the architects was in breach of their contract with the developer. This
interference by First National was justified on the basis of its superior legal right, as it was
common ground that if it had relied on its legal rights against the developer, and called in the
original loan and exercised its rights over the security given for that loan, this would inevitably
have led to the termination of the architect’s contract, but without any tortious liability attaching
to First National.

120. Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 at 524; Zhu v Treasurer of
the State of New South Wales (2004) 218 CLR 530 at 587–8; 211 ALR 159 at 203; Thomas v Mowbray (2007)
233 CLR 307 at 332; 237 ALR 194 at 208–9.
121. De Belin v Australian Rugby League Commission Ltd [2019] FCA 688 at [315].
122. Building Workers’ Industrial Union of Australia v Odco Pty Ltd (1991) 99 ALR 735 at 770.
123. (2004) 218 CLR 530 at 587; 211 ALR 159 at 202–3.
124. Ansett Transport Industries (Operations) Ltd v Australian Federation of Pilots [1991] 1 VR 637 at 678.
125. [1903] 2 KB 545 at 574–5.
126. Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530 at 580–2; 211 ALR 159 at 196–8.
127. [1988] 3 All ER 801.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

37.60 Justification can also be established on public interest grounds. Thus, in Brimelow
v Casson,128 union representatives induced the manager of a theatre to break his contracts with
a touring theatrical company whose employees were poorly paid, so much so that some of the
chorus girls had to resort to prostitution in order to earn a sufficient income. This inducement
to breach the contract was justified on the ground of the public interest in keeping up the
standards of the theatrical profession.
37.61 In the light of the House of Lords decision in OBG Ltd v Allan,129 it may well be that
the defence of justification has been incorporated into the test of intention that is set out
in that case and further explained in SAR Petroleum v Peace Hills Trust Company,130 where
Robertson JA said:
It seems to me that the defence of justification … has been incorporated into the test of
intention as articulated in OBG Limited v Allan.131 … [I]f we take the test of intention to be
whether the desired breach was a means to an end or an end in itself, and we leave aside cases
of malice, we are left with deciding whether the defendant sought a commercial or economic
advantage that crossed the Rubicon from acceptable commercial behaviour to unacceptable
or opportunistic behaviour. If the defendant did not cross the Rubicon, it is because he or she
acted for what the law considers a proper purpose. The most persuasive way of demonstrating
a proper purpose is for the defendant to show that its actions were carried out with a view to
protecting its legitimate and existing contractual or proprietary rights with the third party. In
short, once the intention test is framed in terms of the defendant not acting for an improper
purpose (means to an end), it is only logical that the defendant would want to show that it
acted for a proper purpose: the pursuit and preservation of existing contractual rights with
the third party. This is why the test of intention overlaps with the defence of justification as
it was applied pre OBG Limited v Allan.132

37.62 In light of the above, a brief account of the litigation in OBG Ltd v Allan133 is illustrative
of the relevant principles. In OBG Ltd v Allan,134 OBG Ltd became insolvent. One of its creditors
appointed Allan as the company’s administrative receiver. However, the appointment was
invalid because OBG did not owe the creditor anything. Allan took control of OBG’s assets and
affairs, including making arrangements relating to contracts to which OBG was a party and
settling claims OBG had under some of the contracts. OBG, through its liquidators, brought a
number of claims against Allan, including that of inducing breaches of contracts in relation to
the arrangements made by Allan concerning OBG’s contracts. The House of Lords unanimously
found in favour of Allan, on the basis that ‘there was no breach or non-performance of any
contract and therefore no wrong to which accessory liability could attach’,135 nor did Allen
intend to induce any breaches of OBG’s contracts, as Allan honestly believed that he was
entitled to act as OBG’s administrative receiver.136

128. [1924] 1 Ch 302.

129. [2008] 1 AC 1; [2007] 4 All ER 545.
130. [2010] NBCA 22 at [73].
131. [2008] 1 AC 1; [2007] 4 All ER 545.
132. [2008] 1 AC 1; [2007] 4 All ER 545.
133. [2008] 1 AC 1; [2007] 4 All ER 545.
134. [2008] 1 AC 1; [2007] 4 All ER 545.
135. OBG Ltd v Allan [2008] 1 AC 1 at 40; [2007] 4 All ER 545 at 577.
136. OBG Ltd v Allan [2008] 1 AC 1 at 66; [2007] 4 All ER 545 at 602.

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37.63 In Mainstream Properties Ltd v Young, a case heard together with OBG v Allan,137
Young and Broad, employees of Mainstream Properties, a property development company,
diverted a development opportunity to a joint venture between themselves and De Winter.
De Winter financed the development. The action of Young and Broad constituted a breach of
their contractual obligations to act in the best interests of their employer and not to have any
conflicts of interest. Mainstream Properties sued De Winter on a claim for inducing a breach
of contract. The House of Lords unanimously held in favour of De Winter on the basis that
he had no intention to induce a breach of contract.138 The facts established that De Winter
had received assurances from Young and Broad that Mainstream Properties had declined the
development opportunity.

137. [2008] 1 AC 1; [2007] 4 All ER 545.

138. OBG Ltd v Allan [2008] 1 AC 1 at 37; [2007] 4 All ER 545 at 599.

853
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RESTITUTION

INTRODUCTION
38.1 Until relatively recently liability in relation to private law disputes was thought to be
governed by the law on tort and contract, although there was appended to the latter the notion
of quasi-contractual liability. However, this is no longer the case. There is recognition now of
the law of restitution, which includes within its scope what was previously known as quasi-
contractual liability.
38.2 An award of restitution is one that requires the defendant to pay a sum of money to
the plaintiff. It is in this context that the decision in Moses v Macferlan,1 a case that is widely
regarded as the source of the modern law of restitution, can be understood. According to
Gummow J,2 writing extra-judicially:
The root of the doctrinal problem presented to the King’s Bench in Moses v Macferlan3 was
the absence of an accepted basis for the action for money had and received. Lord Mansfield
gave a number of settled instances where the action lay, but the instant case did not fall within
any of them. Lord Mansfield also sought to find a principle within which past, present, and
future cases might be accommodated. Given what he saw as the rigidities of the common law,
Lord Mansfield looked to equity for an appropriate analogy upon which the common law
should draw. Hence his general statements, then and later, that the action for money had and
received was a liberal action in the nature of a bill in equity where on the general issue the
defendant was entitled to raise by way of answer matters showing that receipt or retention of
the payment was not unjust.

1. (1760) 97 ER 676 at 681.

2. W M C Gummow, ‘Moses and Macferlan: 250 Years On’ (2010) 84 Australian Law Journal 756 at 757.
The decision in Moses v Macferlen (1760) 97 ER 676 was discussed in the High Court in Roxborough
v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 545–9; 185 ALR 335 at 356–9; Australian
Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 569–1, 573–6, 606–7,
612–13; 307 ALR 512 at 517–22, 544–5, 549. It was also discussed in Nu Line Construction Pty Ltd
v Fowler [2012] NSWSC 587 at [256] Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3)
[2014] WASC 162 at [54]–[55]. See also K Mason, ‘Strong Coherence, Strong Fusion, Continuing
Categorical Confusion: The High Court’s Latest Contributions to the Law of Restitution’ (2015) 23
Australian Bar Review 284 at 287–90.
3. (1760) 97 ER 676.

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38.3 The impact of the decision in Moses v Macferlan, the historical development of the law of
4

restitution, and the general application of equitable considerations5 involved in restitutionary

actions was comprehensively dealt with by French CJ in Australian Financial Services and
Leasing Pty Ltd v Hills Industries Ltd6 in the following way:
In Moses v Macferlan,7 Lord Mansfield pointed to the simplicity of the common law action
for money had and received from the perspective of the plaintiff, who could declare generally
‘that the money was received to his use’.8 The defendant could defend himself ‘by every thing
which shews that the plaintiff, ex æquo & bono, is not intitled to the whole of his demand,
or to any part of it’.9 In the latter proposition lay the seeds of the general change of position
defence, although they were not to germinate for more than 230 years.

The class of cases in which an action for money had and received would lie was not closed
in Moses v Macferlan10 and the decisions in the decades that followed, albeit it did not extend
to recovery of money paid under mistake of law.11 The remedy was ‘available in any case
in which money had been paid in circumstances where it was unjust for the defendant to
retain it’.12 The grounds upon which a defendant might contend that retention of the benefit
would not be ‘unjust’ were left open. Money ‘payable in point of honor and honesty, although
it could not have been recovered … [by the plaintiff] by any course of law’ would not be
recoverable.13 Examples in that category included payment of a debt outside the Statute
of Limitations, a debt contracted in infancy, principal and legal interest due on a usurious
contract, and money fairly lost at gambling.14 Lord Mansfield declared in Sadler v Evans15
that a claim could be defended by ‘any equity that will rebut the action.’

Payment to an innocent recipient on forged bills of exchange was held irrecoverable in

Price v Neal.16 The rationale of the decision was not clear, although it was thought to be the
progenitor of a special change of position defence. Whether that was so is debatable. Nor
was the rationale much clearer in those decisions which held that a payment received by an
agent and paid over to the principal was not recoverable from the agent.17 Lord Mansfield

4. (1760) 97 ER 676 at 681.

5. For a discussion of the history and original purposes of equitable doctrines and remedies, see M Kirby,
‘Equity’s Australian Isolationism’ (2008) 8 Queensland University of Technology Law & Justice Journal 444;
Sir A Mason, ‘The Place of Equity and Equitable Remedies in the Contemporary Common Law World’
(1994) 110 Law Quarterly Review 238.
6. (2014) 253 CLR 560 at 569–1, 573–6; (2014) 307 ALR 512 at 517–2.
7. (1760) 97 ER 676.
8. (1760) 97 ER 676 at 679.
9. (1760) 97 ER 676 at 679.
10. (1760) 97 ER 676.
11. That limitation was enunciated by Buller J in Lowry v Bourdieu (1780) 99 ER 299 at 300, although it has
been taken as originating in Bilbie v Lumley (1802) 102 ER 448. The limitation was held not to form part
of the common law in Australia in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175
CLR 353; 109 ALR 57.
12. Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 516; 286 ALR 12 at 24. This decision is discussed at
38.62–38.66.
13. (1760) 97 ER 676 at 679.
14. (1760) 97 ER 676 at 680–1.
15. (1766) 98 ER 34 at 35.
16. (1762) 97 ER 871.
17. A principle established in Buller v Harrison (1777) 98 ER 1243.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

imported a change of position dimension into such cases in Buller v Harrison18 when, holding
that money paid to an agent and credited against the principal’s indebtedness to the agent
was recoverable, he said:19

In this case, there was no new credit, no acceptance of new bills, no fresh goods
bought or money advanced. In short, no alteration in the situation which the defendant
and his principals stood in towards each other. (Emphasis added.)

Lord Atkinson, 130 years later in Kleinwort, Sons, and Co v Dunlop Rubber Co,20 cited Buller
v Harrison21 and intervening authorities for the proposition that the liability of an agent
depended upon:22

whether, before the mistake was discovered, he had paid over the money which he
received to the principal, or settled such an account with the principal as amounts
to payment, or did something which so prejudiced his position that it would be
inequitable to require him to refund.

The last disjunctive circumstance appeared to foreshadow a distinct change of position

defence. …

Whatever the combination of influences upon Lord Mansfield, his concepts of ‘ex æquo
& bono’, ‘unjust’ retention, and ‘equity that will rebut the action’, were not confined to
equitable doctrines. Nevertheless, equitable principles played their part in this, as in other
areas of his jurisprudence. As Gummow J observed in Roxborough v Rothmans of Pall Mall
Australia Ltd:23

With varying degrees of success, Lord Mansfield sought to translate equitable principles,
doctrines, and procedures into the trial of actions at law; this reflected his appreciation
of equitable doctrine for its flexibility and adaptability to modern needs, particularly in
commercial law. Then, as today, ‘equity is the spur to new thought and further remedy,
and … provides a means of introducing new policies’. (footnotes omitted.)

His Honour gave emphasis to the way in which ‘notions derived from equity have been
worked into and in that sense have become part of the fabric of the common law.’24 In the
light of that observation, Ashburner’s metaphor of the common law and equity as two
streams of jurisprudence which run side-by-side in the same channel and ‘do not mingle
their waters’25 seems at odds not only with commonsense, but also with the reality of equity’s
influence on the common law.26

The general application of equitable considerations to restitutionary actions, and with them
the availability of a general change of position defence, were denied by Lord Mansfield’s

18. (1777) 98 ER 1243.

19. (1777) 98 ER 1243 at 1245.
20. (1907) 97 LT 263.
21. (1777) 98 ER 1243.
22. Buller v Harrison (1907) 97 LT 263 at 265.
23. (2001) 208 CLR 516 at 548; 185 ALR 335 at 358. This decision is discussed at 38.60–38.61 and 38.92.
24. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 554; 185 ALR 335 at 363.
25. W Ashburner, Principles of Equity, Butterworths & Co, London, 1902, p 23.
26. Sir A Mason, ‘The Place of Equity and Equitable Remedies in the Contemporary Common Law World’
(1994) 110 Law Quarterly Review 238 at 238–40.

856
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judicial descendants. Restitutionary remedies were linked to the fiction of an implied

27

contract. In 1914, Lord Sumner in Sinclair v Brougham said:28

There is now no ground left for suggesting as a recognizable ‘equity’ the right to
recover money in personam merely because it would be the right and fair thing that
it should be refunded to the payer.

Earlier, in Baylis v Bishop of London,29 as Lord Justice Hamilton, his Lordship had spoken
disparagingly of the vague jurisprudence ‘which is sometimes attractively styled ‘justice as
between man and man.’ On that question, conflicting views were expressed in academic
writings. Professor Hanbury wrote dismissively in 1924 that ‘equity in the mouth of a
common lawyer is apt to mean equity in its ethical and somewhat nebulous sense.’30
Professor Winfield, writing in 1937, observed sceptically that the implied contract theory
then underlying restitution was itself based on ‘compensation upon equitable principles’. It
was not the foundation of liability in this area of the law but ‘only the facade of it.’31 At least
in appearance, however, the tide was running the other way. In 1957, Professor Jones wrote,
referring to Baylis v Bishop of London32 and other decisions:33

Moses v Macferlan34 and its equitable offspring of change of circumstances were

regarded as the excesses of the fertile mind of Lord Mansfield, and delicately
forgotten. …

In the event, the disparaging references, sceptical rejoinders, pejorative dismissals and
pungent criticisms were soon to retire onto the well-populated field of ‘old, unhappy, far-
off things, and battles long ago’. New contentions arose about the theory, bases and limits
of restitutionary recovery and defences against it. Professor Burrows, writing in 2004,
described the law of restitution as ‘the most debated subject in English private law over the
last ten years.’35

The latter part of the twentieth century saw the rejection of the implied contract as the
foundation for such claims and the rise of ‘unjust enrichment’. In 1988, this Court in the ANZ
Case36 held that the basis of the common law action of money had and received for recovery
of money paid under ‘fundamental mistake of fact’ should be recognised as lying not in
implied contract, but in restitution or unjust enrichment. That followed upon the rejection
of implied contract as a basis for the action on quantum meruit in Pavey & Matthews Pty Ltd
v Paul.37

27. See, for example, Standish v Ross (1849) 154 ER 954; Newall v Tomlinson (1871) LR 6 CP 405; Durrant
v Ecclesiastical Commissioners (1880) 6 QBD 234.
28. [1914] AC 398 at 456.
29. [1913] 1 Ch 127 at 140.
30. H G Hanbury, ‘The Recovery of Money’ (1924) 40 Law Quarterly Review 31 at 35.
31. P H Winfield, ‘Notes’ (1937) 53 Law Quarterly Review 447 at 448.
32. [1914] AC 398 at 456.
33. G H Jones, ‘Change of Circumstances in Quasi-Contract’ (1957) 73 Law Quarterly Review 48 at 58.
34. (1760) 97 ER 676.
35. A Burrows, ‘The English Law of Restitution: A Ten-Year Review’, in J W Neyers, M McInnes and S G A Pitel (eds),
Understanding Unjust Enrichment, Hart Publishing, Oxford, 2004, p 14.
36. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673;
78 ALR 157 at 161.
37. (1987) 162 CLR 221 at 227, 256–7; 69 ALR 577 at 583, 604. This decision is discussed at 38.36–38.38.

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While legal principles of restitution or unjust enrichment can be equated with seminal
equitable notions of good conscience, the action for money had and received was described
in the ANZ Case38 as ‘a common law action for recovery of the value of the unjust enrichment’.
The change of position defence was recognised in that case in the context of recovery of
money paid under a mistake of fact. The law imposed a prima facie liability on the recipient
of a mistaken payment to make restitution and:39

[b]efore that prima facie liability will be displaced, there must be circumstances
(eg, that the payment was made for good consideration such as the discharge of an
existing debt or, arguably, that there has been some adverse change of position by
the recipient in good faith and in reliance on the payment) which the law recognizes
would make an order for restitution unjust.

So a concept of injustice, redolent of Lord Mansfield’s equity, informed the right of recovery
and, at the same time, qualified and limited it. That normative concept resembled what
Professor Stone called a ‘legal standard’ in a ‘category of indeterminate reference’,40 albeit a
standard informing guiding criteria for particular classes of case.

38.4 There is an accepted view that the decision in Moses v Macferlan41 supplies a juristic
concept by reference to which the common law principles provide a remedy in cases of unjust
enrichment.42 The historical development of restitution as shown above appears to support this
description.
38.5 Restitution can therefore be seen as being concerned with reversing a defendant’s gain
or benefit in circumstances where they would be unjustly enriched if they were allowed to
retain that gain or benefit and where the circumstances preclude the application of one of the
so-called ‘defences’ by the defendant to enable them to retain that gain or benefit.43 Focus is
upon the gain or benefit. Thus, in Benedetti v Sawiris44 Etherton LJ said:
In assessing and award of restitution … it is the defendant’s benefit which must be identified
and valued. Concentration is on the defendant’s benefit rather than the expense, loss or other
personal aspect of the claimant’s condition. In Sempra45 Lord Hope said that, for restitution,
it is the gain that needs to be measured, not the loss of the claimant; that the claimant’s
remedy is the reversal of the defendant’s gain; and that the process is one of subtraction,
not compensation. That gain is to be measured objectively, that is to say, what a reasonable
person would pay for the benefit in question; and so, where there is a market, by reference
to market rates.

38. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673;
78 ALR 157 at 162.
39. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673;
78 ALR 157 at 162.
40. J Stone, Legal System and Lawyers’ Reasonings, Stanford University Press, Palo Alto, 1964, pp 263–4.
41. (1760) 97 ER 676.
42. See Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 613; 307
ALR 512 at 549–50. See also Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32
at 62–3.
43. These ‘defences’ are analysed at 38.85–38.97.
44. [2010] EWCA Civ 1427 at [142].
45. Sempra Metals Ltd v Inland Revenue Commissioners [2008] 1 AC 561; [2007] 4 All ER 657.

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38.6 Thus, restitution is based upon preventing unjust enrichment. Indeed, since the decision
of the High Court in Pavey & Matthews Pty Ltd v Paul,46 it is the case that the principle of
preventing unjust enrichment explains the availability of an order for restitution. In this case,
Pavey & Matthews had performed work for Paul, but did not have any enforceable contract
that would have entitled them to bring a contractual claim for payment. The High Court ruled
that Paul pay Pavey & Matthews by way of restitution on the basis that Paul would be unjustly
enriched at Pavey & Matthews’ expense if no payment was to be made for the work done.
38.7 According to Deane J47 unjust enrichment operates as:
… a unifying legal concept which explains why the law recognises, in a variety of distinct
categories of case, an obligation on the part of the defendant to make fair and just restitution
for a benefit derived at the expense of a plaintiff and which assists in the determination, by
the ordinary processes of legal reasoning, of the question whether the law should, in justice,
recognise such an obligation in a new or developing category of case.
38.8 Consistently with this view, various editions of Goff and Jones’s Law of Restitution48
have commenced in the following way:
The law of restitution is the law relating to all claims, quasi contractual or otherwise, which
are founded upon the principle of unjust enrichment. Restitutionary claims are to be found
in equity as well as law. But the common law of quasi-contract is the most ancient and
significant part of restitution. …
38.9 Further, according to Mason J,49 writing extra-judicially:
The unjust enrichment concept is an organising principle that assists in sorting, teaching
and developing the detailed case law in a principled manner. A five point template usefully
presents the issues by posing the following questions:
1. Was the defendant enriched?
2. Was it at the plaintiff ’s expense?
3. Was it unjust, according to the categories developed in the caselaw?
4. Do any restitutionary or other defences apply?
5. What remedies are available and appropriate?

38.10 This so-called ‘unifying legal concept’50 or ‘organising principle’ served by unjust
enrichment also extends to the recognition of the existence and proper boundaries of certain

46. (1987) 162 CLR 221; 69 ALR 577.

47. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256–7; 69 ALR 577 at 604. These remarks were
cited with approval in Australia and New Zealand Banking Group v Westpac Banking Corporation (1988)
164 CLR 662 at 673; 78 ALR 157 at 162.
48. See, for example, R Goff and G H Jones, The Law of Restitution, 4th ed, Sweet and Maxwell, London, 1993,
p 3.
49. K Mason, ‘What has Equity to do with Restitution? Does it Matter?’ (27 November 2006) Chancery Bar
Association, Inner Temple 1. It should be noted that in his article Justice Mason acknowledged that parts
of historical restitution cannot be addressed entirely by this template — for example, cases concerned
with entitlement to lost or misappropriated money and claims for remuneration where it is just that the
defendant pay at market rates regardless of the enduring value of the benefit received. See also Chief
Constable of Greater Manchester Police v Wigan Athletic Football Club [2008] EWCA Civ 1449 at [38].
50. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673;
78 ALR 157 at 162.
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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

‘defences’51 that have been recognised to restitutionary claims. However, such a unifying legal
concept does not operate as a principle acting as a premise for recovery.52 According to Allsop P
in Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd: 53
The importance of this character of unjust enrichment can be seen from what was said by
Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities,54 namely that the
plaintiff does not need to prove a lack of ‘justness’ by reference to a general evaluation of
the circumstances of what is fair or not or conscionable or not. It is the existence of the
qualifying or vitiating factor and the receipt which gives rise to the prima facie liability in
restitution. The receipt in those circumstances and the retention … will be seen to be unjust
enrichment, unless there are circumstances which the law recognises would make an order
for restitution unjust. The ‘moment of enrichment’ is that of receipt but it is the retention that
is to be regarded as unjust for an order to be made.

38.11 The law on what we today refer to as restitution is in fact the bringing together of
various and disparate long-established causes of action as instances of a remedy justified by the
principle of preventing unjust enrichment. This was in the main revealed by both French CJ
and Gageler J in Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd55 and
is illustrated by looking at a number of leading cases. The decision in Pavey & Matthews Pty
Ltd v Paul56 is an example of what is known as a quantum meruit claim — that is, a claim for a
reasonable sum of money for work done and materials supplied. Historically, such claims were
justified on the basis of a quasi-contract. In Pavey & Matthews Pty Ltd v Paul57 the High Court
rejected the quasi-contract explanation and ruled, instead, that a quantum meruit claim was
based upon preventing unjust enrichment. Similarly, in Australia and New Zealand Banking
Group Ltd v Westpac Banking Corporation58 the High Court held that the long-established
common law action for money had and received was underpinned by the principle of preventing
unjust enrichment.
38.12 What is important to appreciate is that, in Australia at least, there is no acceptance
of the idea that unjust enrichment constitutes an independent cause of action. Rather, as
was confirmed by the Court of Appeal in Victoria, unjust enrichment simply ‘explain[s] the
availability of relief in a number of different circumstances’59 but those circumstances are not

51. These ‘defences’ are set out at 38.85–38.97.

52. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 378–9; 109 ALR 57
at 75–6; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 543–5; 185 ALR 335 at
353–6; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 156; 236 ALR 209 at 256–7;
Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 665; 247 ALR 412 at 433; Equuscorp Pty
Ltd v Haxton (2012) 246 CLR 498 at 515–16; 286 ALR 12 at 23–4.
53. (2012) 295 ALR 147 at 159. The appeal to the High Court from this case was dismissed: Australian Financial
Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; 307 ALR 512.
54. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 378–9; 109 ALR 57 at
75–6.
55. (2014) 253 CLR 560 at 569–1, 573–6, 606–7, 612–13; (2014) 307 ALR 512 at 517–22, 544–5, 549.
56. (1987) 162 CLR 221; 69 ALR 577.
57. (1987) 162 CLR 221; 69 ALR 577.
58. (1988) 164 CLR 662 at 673; 78 ALR 157 at 161–2.
59. Haxton v Equuscorp Pty Ltd (2010) 28 VR 499 at 521; 265 ALR 335 at 358.

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unlimited. In David Securities Pty Ltd v Commonwealth Bank of Australia60 Mason CJ, and
Deane, Toohey, Gaudron, and McHugh JJ said:
[I]t is not legitimate to determine whether an enrichment is unjust by reference to some
subjective evaluation of what is fair or unconscionable. Instead, recovery depends upon the
existence of a qualifying or vitiating factor such as mistake, duress or illegality.

38.13 To be entitled to restitution there is a need to establish an ‘unjust’ factor. This

requirement was further confirmed by the High Court in Farah Constructions Pty Ltd
v Say-Dee Pty Ltd,61 where Gleeson CJ, and Gummow, Callinan, Heydon, and Crennan JJ said:
First, whether enrichment is unjust is not determined by reference to a subjective evaluation
of what is unfair or unconscionable: recovery rather depends on the existence of a qualifying
or vitiating factor falling into some particular category. … In David Securities Pty Ltd
v Commonwealth Bank of Australia,62 Mason CJ, Deane, Toohey, Gaudron and McHugh JJ
gave as instances of a qualifying or vitiating factor mistake, duress or illegality. … Further,
principles respecting fiduciary duty have been said to be foreign to unjust enrichment
notions because the unjust factors are commonly concerned with vitiation or qualification
of the intention of a claimant.63

38.14 The main historical derivation for the modern law of restitution can be traced to
the common law dealing with quasi-contract, where a fiction was maintained that liability in
restitution was contractual. The two major quasi-contractual claims (or classes of claim) were:
• for money had and received by the defendant to the use of the plaintiff, and
• quantum meruit and quantum valebat for the recovery of a reasonable sum representing the
value of work, services, or goods requested and accepted by the defendant.
In relation to claims for money had and received, there were a number of distinct types of
claims which, in order to be successful, required one of the following qualifying or vitiating
factors to form the basis for the claim:
• payment under mistake;
• payment under compulsion (including duress);
• payment following an ultra vires demand;
• payment following an illegal demand; and
• payment made on a consideration which failed totally.
38.15 In determining such claims, the High Court in David Securities Pty Ltd v Commonwealth
Bank of Australia64 provided the following approach:
• Recovery depended upon enrichment of the defendant by reason of one or more recognised
classes of ‘qualifying or vitiating’ factors.

60. (1992) 175 CLR 353 at 379; 109 ALR 57 at 75.

61. (2007) 230 CLR 89 at 156; 236 ALR 209 at 256; Salib v Gakas [2010] NSWSC 505 at [322]; Rema Tip Top
Asia Pacific Pty Ltd v Grüterich [2019] NSWSC 1594 at [620].
62. (1992) 175 CLR 353 at 379; 109 ALR 75 at 75.
63. J Edelman, ‘A Principled Approach to Unauthorised Receipt of Trust Property’ (2006) 122 Law Quarterly
Review 174 at 177–8.
64. (1992) 175 CLR 353 at 379; 109 ALR 57 at 75–6.

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• The category of case must involve a qualifying or vitiating factor such as mistake, duress,
illegality, or failure of consideration, by reason of which the enrichment of the defendant is
treated by the law as unjust.
• Unjust enrichment so identified gives rise to a prima facie obligation to make restitution.
• The prima facie liability can be displaced by circumstances which the law recognises would
make an order for restitution unjust.
38.16 According to French CJ, and Crennan and Kiefel JJ in Equuscorp Pty Ltd v Haxton:65
Unjust enrichment therefore has a taxonomical function referring to categories of cases in
which the law allows recovery by one person of a benefit retained by another. In that aspect, it
does not found or reflect any ‘all-embracing theory of restitutionary rights and remedies’.
It does not, however, exclude the emergence of novel occasions of unjust enrichment
supporting claims for restitutionary relief. It has been said of Lord Mansfield’s judgment in
Moses v Macferlan66 that it was his view that ‘the grounds for obtaining relief in money had
and received were not to be considered static and the remedy could be made available in any
case in which money had been paid in circumstances where it was unjust for the defendant
to retain it.’ Nor is the emergence of general principle precluded when ‘derived from judicial
decisions upon particular instances’.

38.17 This limited indirect function of unjust enrichment as a basis for restitutionary relief
in Australian law was summarised in Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd
(No 3)67 by Edelman J as follows:
The concept of unjust enrichment is, in Australia, limited to [a] taxonomic function. It has
been emphasised on numerous occasions that unjust enrichment is not a ‘definitive legal
principle’, and does not supply ‘a sufficient premise for direct application in a particular
case’.68 In this sense, unjust enrichment is not the direct basis of restitutionary relief in
Australian law. A comparison might be drawn with the category of torts. A plaintiff cannot
plead that a defendant is liable for having committed a ‘tort’. ‘Torts’ describes the category
not the action (which might be assault, battery, conversion etc). At an even higher level of
theory, the ultimate basis of restitutionary liability was expressed by the joint judgment in
Australian Financial Services as depending upon whether retention is against ‘conscience’.69
Their Honours explained that ‘conscience’ does not invite subjective evaluation. Instead, it
is ‘a construct of values and standards against which the conduct of “suitors” — not only
defendants — is to be judged’.70 Provided that unjust enrichment is not applied as a direct
source of liability, in Australia the taxonomic category of unjust enrichment has served a
useful function and might continue to do so. Like the category of ‘torts’ the category of
unjust enrichment assists in understanding even though it is not a direct source of liability.

65. (2012) 246 CLR 498 at 516; 286 ALR 12 at 24.

66. (1760) 97 ER 676.
67. [2014] WASC 162 at [50]–[51].
68. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 595; 307 ALR
512 at 536.
69. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 592–6; 307
ALR 512 at 534–7.
70. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) CLR 560 at 596; 307 ALR 512
at 537.

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The category directs attention to a common legal foundation shared by a number of instances
of liability formerly concealed within the forms of action or within bills in equity.

38.18 The quantum meruit and quantum valebat type of claims were brought as counts for
work done, or for work done and materials supplied, and for goods bargained and sold, or for
goods sold and delivered.

ELEMENTS OF RESTITUTION
38.19 There are three basic elements that give rise to unjust enrichment and thus a remedy
in restitution. In Australia and New Zealand Banking Group v Westpac Banking Corporation71
the High Court stated that a prima facie case for restitution is established if one can establish:
• a benefit has been received by the defendant;
• the benefit is at the expense of the plaintiff; and
• it would be unjust in the circumstances to allow the defendant to retain the benefit.
If a plaintiff established these three elements, he or she is entitled to restitution, unless the
defendant has a defence to the claim, the most significant defence being that of change of
position.

Benefit
38.20 A ‘benefit’ may be tangible or intangible. It includes any increase in wealth, in the form
of money, services, property (both real and personal), the discharge of a debt, the use of property
or information, or the saving of an expense. Where the defendant obtains a money sum, the
award is an order that the same amount be paid to the plaintiff. However, services and in many
cases goods cannot be restored. Thus, where a non-monetary benefit is obtained, an order is
made for the payment of a sum of money that is the equivalent of the value of the benefit.

Plaintiff’s expense
38.21 The words ‘at the plaintiff ’s expense’ means that, in general, the benefit in respect
of which the plaintiff seeks restitution must have been obtained by the defendant from the
plaintiff, rather than a third party. The purpose of this requirement is to identify the proper
person from whom to recover the enrichment. A possible exception to this principle was
provided by Gaudron J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd72 in the
context of an ‘exception’ to the doctrine of privity. In that case Gaudron J based her decision in
favour of McNiece Bros on the basis of the principle of unjust enrichment. Her Honour73 said:
In my view it should now be recognized that a promisor who has accepted agreed
consideration for a promise to benefit a third party is unjustly enriched at the expense of
the third party to the extent that the promise is unfulfilled and the non-fulfilment does
not attract proportional legal consequences. Although exceptions to and qualifications of

71. (1988) 164 CLR 662 at 673; 78 ALR 157 at 161–2. See also A & A Martins Pty Ltd v Liu [2018] ACTSC 102
at [25]; Lloyd v Belconnen Lakeview Pty Ltd (2019) 377 ALR 234 at 302.
72. (1988) 165 CLR 107; 80 ALR 574.
73. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 176; 80 ALR 574 at 623.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

the rules of privity and consideration and the doctrines of trust and estoppel operate in
certain circumstances to preclude any unjust enrichment, the exceptions, qualifications and
doctrines should not be seen as reasons to impede the development of legal principle which
will obviate all possibility of unjust enrichment. Rather, their existence should be seen as
demonstrating the necessity for the recognition of such an obligation.

38.22 Although there is tentative support for her Honour’s views in Deane J’s judgment in
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,74 Gaudron J’s approach has been
criticised by academics,75 and rejected by the Court of Appeal in New South Wales.76

Injustice
38.23 Clearly the critical element for a restitution case is the ‘unjust’ factor. ‘Unjust’ is a
description of a wide variety of circumstances that have been recognised as providing bases
for claims in restitution. In Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3)77
Edelman J said:
The boundaries of what will count as an unjust factor are not fixed. Examples of unjust
factors were given by Lord Mansfield in Moses v Macferlan:78

money paid by mistake; or on a consideration which happens to fail; or for money got
through imposition, (express, or implied) or extortion; or oppression; or an undue
advantage taken of the plaintiff ’s situation.

A quarter of a millennium later, although it is well established that liability in the ‘taxonomic’
category of unjust enrichment requires the existence of an ‘unjust factor’, there is only
limited judicial recognition of unjust factors beyond those in this list. The first fundamental
objection in this application concerns one possible additional unjust factor which has been
described as ‘free acceptance’. The second fundamental objection concerns the boundaries
of operation of the unjust factor of failure of consideration. No submissions were made,
nor was there any suggestion, alleging any fundamental objection concerning the ground of
restitution which relied upon express or implied request.

38.24 Thus, a determination that the enrichment by the defendant is unjust cannot be
established ‘by reference some subjective evaluation of what is fair or unconscionable. Instead,
recovery depends upon the existence of some qualifying or vitiating factor such as mistake,79
duress, or illegality.’80 For example, the mere provision of goods or services and non-payment
of them by the defendant does not give rise to a conclusion that the defendant’s enrichment is
unjust.81

74. (1988) 165 CLR 107 at 145–6; 80 ALR 574 at 601–2.

75. See K B Soh, ‘Privity of Contract and Restitution’ (1989) 105 Law Quarterly Review 4; D A Butler, ‘Privity
of Contract in Queensland’ (1990) 10 Queensland Lawyer 147.
76. Benson v Rational Entertainment Enterprises Ltd (2018) 97 NSWLR 798 at 818–21; 355 ALR 671 at 690–3.
77. [2014] WASC 162 at [54]–[55].
78. (1760) 97 ER 676 at 681. This case is discussed at 38.2–38.4.
79. See, for example, Adrenaline Pty Ltd v Bathurst Regional Council (2015) 322 ALR 180 at 196–8.
80. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379; 109 ALR 75 at 75;
Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 587 at [249].
81. Christiani and Nielsen Pty Ltd v Goliath Portland Cement Company Ltd [1993] TASSC 156 at [31]; Lumbers
v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 663; 247 ALR 412 at 432.
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38.25 In Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3)82 Edelman J
discussed the controversial issue of whether the so-called free acceptance principle came
within the category of unjust factors and concluded that it was. His Honour83 defined the free
acceptance principle as follows:
[A defendant] will be held to have benefited from the services rendered if he, as a reasonable
man, should have known that the claimant who rendered the services expected to be paid
for them, and yet did not take a reasonable opportunity open to him to reject the proffered
services. Moreover, in such a case, he cannot deny that he has been unjustly enriched.

38.26 In considering the availability of restitution, only some of the more significant areas
are looked at below. More exhaustive analyses of the areas in which restitution is available can
be found in Australia’s leading text on restitution.84

CONTRACT AND AVAILABILITY OF RESTITUTION

38.27 Restitutionary remedies have been sought in many situations where a defendant has
received and accepted a benefit in circumstances where a contract is said to be unenforceable
or ineffective. This is discussed in more detail below. What is of importance at this stage is
whether a claim can be made in restitution where an enforceable contract exists. The answer to
this question is not clear in terms of the relevant case law.
38.28 The first point to note is that it is clear that restitutionary claims must respect
contractual regimes and the allocations of risk made under those regimes.85 Care needs to be
taken not to undermine that contractual arrangement.86 In Pavey & Matthews Pty Ltd v Paul87
Deane J said:
The quasi-contractual obligation to pay fair and just compensation for a benefit which has
been accepted will only arise in a case where there is no applicable genuine agreement or
where such an agreement is frustrated, avoided or unenforceable. In such a case, it is the very
fact that there is no genuine agreement or that the genuine agreement is frustrated, avoided
or unenforceable that provides the occasion for (and part of the circumstances giving rise to)
the imposition by the law of the obligation to make restitution.

38.29 On the basis of this line of thought, it has been held that a party who terminates
a contract for breach or repudiation by the other party does not have a choice of suing for
common law damages or seeking restitution because such a termination does not preclude the

82. [2014] WASC 162 at [58]–[90].

83. Lampson (Australia) Pty Ltd v Fortescue Metals Group Ltd (No 3) [2014] WASC 162 at [58]–[90].
84. K Mason, J W Carter, and G J Tolhurst, Mason & Carter’s Restitution Law in Australia, 3rd ed, LexisNexis
Butterworths, Chatswood, 2016.
85. Mann v Paterson Constructions Pty Ltd (2019) 373 ALR 1 at 7–8.
86. MacDonald, Dickens & Macklin (A Firm) v Costello [2012] QB 244 at 251; Barton v Gwyn-Jones [2019]
EWCA Civ 1999 at [61].
87. (1986) 162 CLR 221 at 256; 69 ALR 577 at 604. This statement was cited with approval by French CJ,
Crennan and Kiefel JJ in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 and was referred to in Lloyd v
Belconnen Lakeview Pty Ltd (2019) 377 ALR 234 at 248–9.

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innocent party from enforcing accrued rights which have been unconditionally acquired.88 On
this view, the innocent party’s rights are confined to suing for common law damages for breach
of contract. In MacDonald Dickens & Macklin (A Firm) v Costello89 Etherton LJ, speaking for
the English Court of Appeal, supported this approach for the following reasons:
Contractual damages are calculated by reference to the contract price and terms.
Compensation for unjust enrichment as a result of the plaintiff ’s services is calculated by
reference to the value of the services (generally at the date of their receipt), which may or
may not be the same as the contractual rate. This raises the possibility of compensation
in restitution at a higher rate than the contractual rate, so enabling a claimant to improve
on a bad bargain, and with consequential implications for contribution by the defaulting
contracting party.

38.30  However, contrary to what was said in Pavey & Matthews Pty Ltd v Paul,90 there is
appellate court authority in a number of Australian states to the effect that an innocent party
can sue for either common law damages or in restitution.91
Subsequently, this was the issue at the core of the High Court’s decision in Mann v Paterson
Constructions Pty Ltd.92 In that case the owners of a property had repudiated a domestic
building contract when the building works had been partially executed. Most building
contracts are divisible, so that agreed payments are to be made by the owner at the completion
of each stage of construction. In such a situation, if payment has not been made for a
completed stage, the High Court unanimously held that the builder’s claim in relation to the
completed stage of the contract rests only in contract. In relation to a partially completed
stage of the contract, a majority of the court93 held that a builder would not be entitled to
a quantum meruit claim for work done where the builder had accrued a right to payment
under the contract. However, the majority did find that a builder had a concurrent quantum
meruit claim where the builder has not accrued a right to payment under the contract, for
example, where payment is not due until the completion of the whole of the works.94 The
existence of the contract meant, however, that the total amount recoverable on a quantum
meruit claim, where a contract is terminated for repudiation, is limited to the contract price
for the particular stage of the works.95

88. Trimis v Mina [1999] NSWCA 140 at [54].

89. [2012] QB 244 at 254–5.
90. (1987) 162 CLR 221; 69 ALR 577.
91. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 277; Iezzi
Constructions Pty Ltd v Watkins Pacific (Qld) Pty Ltd [1995] 2 Qd R 350 at 361; Sopov v Kane Constructions
Pty Ltd (No 2) (2009) 24 VR 510 at 518 at 512–18; 257 ALR 182 at 183–9.
92. (2019) 373 ALR 1.
93. Mann v Paterson Constructions Pty Ltd (2019) 373 ALR 1 (Nettle, Gordon, Edelman JJ and, separately
Gageler J). See also Wilson Pastoral International Pty Ltd v George Street Steel Pty Ltd [2020] SASCFC 54
at [102].
94. Mann v Paterson Constructions Pty Ltd (2019) 373 ALR 1 at 9, 11–12, 18–19, 47.
95. Mann v Paterson Constructions Pty Ltd (2019) 373 ALR 1 at 28, 59. It should be noted that, despite this
last finding, Nettle, Gordon and Edelman JJ, at 62–3, observed that there may be circumstances where it is
appropriate that a builder recover an amount greater than the contract price, although this would be only
in exceptional cases. However, Kiefel CJ, Bell and Keane JJ, at 9, and Gageler J, at 28, did not embrace this
observation.

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INEFFECTIVE CONTRACTS
38.31 As previously noted, restitutionary remedies have been sought in many situations
where a defendant has received and accepted a benefit in circumstances where a contract is
said to be unenforceable or ineffective. A contract (or transaction) may be ineffective for a
variety of reasons. The basic division is between inherently ineffective contracts and those
which subsequently become ineffective. The former includes transactions which are not fully
effective as contracts, because of a failure to pass the law’s criteria for contract formation, or a
failure to satisfy the criteria applied to show that a contract is enforceable.
Recovery in restitution depends upon the existence of a qualifying or vitiating factor falling
into some particular category. According to Sifris J in Rozenblit v Vainer,96 ‘[t]his vitiating
factor is a circumstance, recognised by the law, which imposes a prima facie obligation for
the recipient of a benefit to make restitution. Categories that qualify for restitutionary claims,
and which are relevant to the present claim include mistake, total failure of consideration and,
perhaps, unconscionable conduct’.
38.32 A contract valid in its inception may subsequently become ineffective by its discharge
or rescission (including the setting aside of a contract). The three main categories are:
• contracts discharged for breach or repudiation;
• contracts discharged without breach, for example, under the doctrine of frustration; and
• contracts rescinded or set aside for vitiating factors such as misrepresentation and undue
influence.

38.33 There are two defences that have particular relevance to ineffective contracts, namely,
election and illegality. An election (for example, an election to affirm a contract instead of
rescinding it for a vitiating factor or terminating it for breach) will prevent a claim for
restitution. In relation to illegality, the mere existence of an illegal transaction does not deny
a restitutionary claim. However, the illegality that makes the contract ineffective may also
operate as a defence to the restitutionary claim.

Unenforceable contracts
38.34 An important example of an ineffective contract is where the contract is unenforceable
due to the non-compliance with a statutory writing requirement. Work may have been done
under such a contract. The question is whether the party accepting and receiving the benefit
can be forced to make restitution. Historically these claims were referred to as claims for an
award by way of quantum meruit (literally translated as ‘as much as he deserves’).
38.35 In Sunwater Ltd v Drake Coal Pty Ltd,97 the Court of Appeal in Queensland observed
that in relation to such claims, the necessary elements are that the plaintiff has performed the
work, at the request of the defendant and that in such circumstances there is a right to be paid
a reasonable amount for the work. If those elements are established, it is neither necessary nor
appropriate to consider whether the defendant benefited from the work. It was pointed out
that the fact that a defendant may claim that the plaintiff did not receive a benefit may be a

96. [2019] VSC 316 at [128].

97. [2017] 2 Qd R 109 at 115, 122–3.

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reflection on the nature or wisdom of the work requested but it was not, as a matter of law, a
relevant factor in defeating the plaintiff ’s restitutionary claim.
38.36 In Pavey & Matthews Pty Ltd v Paul98 Pavey & Matthews, a licensed building company,
supplied building materials to and carried out building work for Paul. The building work and
supply of building materials was made by Pavey & Matthews pursuant to an oral contract. It was
common ground that the work was ‘building work’ within the meaning of s 45 of the Builders
Licensing Act 1971 (NSW). Pursuant to the oral contract between the parties, it was agreed
that Pavey & Matthews would do the work requested by Paul and that Paul would pay Pavey
& Matthews ‘a reasonable remuneration for that work, calculated by reference to prevailing
rates of payment in the building industry’. After the work had been completed and Paul had
accepted the benefit of it and taken up occupation of the renovated cottage, Pavey & Matthews
instituted proceedings in the Supreme Court of New South Wales for what it claimed to be the
balance owing to it in respect of the work, after giving credit for $36,000 already paid. Pavey
& Matthews’ claim was for money payable as on a quantum meruit. By her defence, Paul put
in issue certain matters of fact and denied the reasonableness of the charges. She also pleaded
that the contract pursuant to which the work had been carried out was a building contract that
was not enforceable by the builder by reason of the provisions of s 45 of the Builders Licensing
Act 1971 (NSW). Section 45 of the Builders Licensing Act 1971 (NSW) relevantly provided that
a contract under which a licensed builder ‘undertakes to carry out … any building work … is
not enforceable against the other party to the contract’ unless it ‘is in writing signed by each of
the parties or his agent in that behalf and sufficiently describes the building work the subject
of the contract’. It was clear that the oral contract between the parties to the dispute was of the
kind described in s 45 and failed to satisfy its requirements.
38.37 The issue before the High Court in Pavey & Matthews Pty Ltd v Paul99 was whether
the words of the section were to be construed as applying to preclude a plaintiff from suing
to recover recompense for building work completed under an oral contract in circumstances
where the work has been fully completed by the plaintiff and accepted by the building owner.
The majority of the High Court upheld Pavey & Matthews’ claim to be paid for the work done
on the basis that Paul, having accepted the benefits accruing from the unenforceable contract,
would have been unjustly enriched at Pavey & Matthews’ expense if payment was not made.
The majority confirmed that Pavey & Matthews’ claim was not enforcement of the oral contract
between the parties, but was an independent claim in restitution, which meant that the claim
for payment was not precluded by s 45.
38.38 In Pavey & Matthews Pty Ltd v Paul,100 Deane J101 said:
There is no apparent reason in justice why a builder who is precluded from enforcing an
agreement should also be deprived of the ordinary common law right to bring proceedings
on a common indebitatus count to recover fair and reasonable remuneration for work
which he has actually done and which has been accepted by the building owner. Nor, upon
a consideration of the words of s 45 in their context in the Act, am I able to identify any
legislative intent to deprive the builder of that ordinary common law right. The section does

98. (1987) 162 CLR 221; 69 ALR 577.

99. (1987) 162 CLR 221; 69 ALR 577.
100. (1987) 162 CLR 221; 69 ALR 577.
101. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 262–3; 69 ALR 577 at 608–9.

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not make an agreement to which it applies illegal or void. Nor do its words disclose any
legislative intent to penalize the builder beyond making the agreement itself unenforceable
by him against the other party. It may be that the bringing of an action as on a common
indebitatus count would conflict with the apparent legislative policy underlying s 45 if the
claimant in such an action were entitled as of right to recover the amount which the building
owner had agreed to pay under the unenforceable agreement. I am, however, unpersuaded
that the bringing by a builder of an action on the common indebitatus count in which he can
recover no more than what is fair and reasonable in the circumstances as compensation for the
benefit of the work which he has actually done and which has been accepted by the building
owner conflicts with any discernible legislative policy. Plainly enough, the survival of the
ordinary common law right of the builder to recover, in an action founded on restitution or
unjust enrichment, reasonable remuneration for work done and accepted under a contract
which is unenforceable by him does not frustrate the purpose of the section to provide
protection for a building owner. The building owner remains entitled to enforce the contract.
He cannot, however, be forced either to comply with its terms or to permit the builder to
carry it to completion. All that he can be required to do is to pay reasonable compensation
for work done of which he has received the benefit and for which in justice he is obligated
to make such a payment by way of restitution. In relation to such work, he can rely on the
contract, if it has not been rescinded, as to the amount of remuneration and the terms of
payment. If the agreed remuneration exceeds what is reasonable in the circumstances, he can
rely on the unenforceability of the contract with the result that he is liable to pay no more
than what is fair and reasonable.

38.39 A party in breach of contract to perform certain work for a fixed price, may be able to
bring a restitutionary claim for the work performed if the other party has accepted the partial
performance. However, there can be no finding of acceptance in the absence of an opportunity
to reject the partial performance.102 In Sumpter v Hedges103 a builder contracted with an owner
to construct certain buildings on the owner’s land for a lump sum. The builder did part of the
work and then abandoned the contract. The owner completed the work. The builder sued the
owner on a quantum meruit for the value of the work he had carried out. The Court of Appeal
in England held that the builder could not claim on a quantum meruit unless a fresh contract
could be inferred. Collins LJ104 said:
There are cases in which, though the plaintiff has abandoned the performance of a contract,
it is possible for him to raise the inference of a new contract to pay for the work done on a
quantum meruit from the defendant’s having taken the benefit of that work, but, in order
that that may be done, the circumstances must be such as to give an option to the defendant
to take or not to take the benefit of the work done. It is only where the circumstances are
such as to give that option that there is any evidence on which to ground the inference of a
new contract. Where, as in the case of work done on land, the circumstances are such as to
give the defendant no option whether he will take the benefit of the work or not, then one
must look to other facts than the mere taking the benefit of the work in order to ground the
inference of a new contract. In this case I see no other facts on which such an inference can
be founded. The mere fact that a defendant is in possession of what he cannot help keeping,
or even has done work upon it, affords no ground for such an inference. He is not bound to

102. Liu v A & A Martins Pty Ltd [2019] ACTCA 8 at [51].

103. [1898] 1 QB 673.
104. Sumpter v Hedges [1898] 1 QB 673 at 676.

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keep unfinished a building which in an incomplete state would be a nuisance on his land. I
am therefore of opinion that the plaintiff was not entitled to recover for the work which he
had done.

38.40 In Steele v Tardiani105 the plaintiffs were employed by the defendant to cut firewood
into certain sizes in terms of width or diameter. Subsequently the plaintiffs cut the firewood,
but not into the required sizes. Dixon J said that each divisible application of the contract was
entire and was only satisfied by performance that was not partial, but substantially complete.
Dixon J106 said that to recover on a quantum meruit in the above circumstances, the plaintiffs
needed to show ‘circumstances removing their right of remuneration from the exact conditions
of the special contract’. It was not enough for the plaintiffs to show that the work they carried
out had been beneficial to the defendant. It was necessary to show that the defendant had
taken the benefit of the work, and that in turn involved the exercise of some choice open to the
defendant. Dixon J then referred to the difference between an innocent party who has a choice
of accepting defective or incomplete performance of work in relation to a chattel, and taking the
benefit of defective or incomplete work on land. The mere fact that the owner takes possession
of his or her own land cannot be considered to be taking the benefit of the work carried out
on the land. Dixon J107 then referred with approval to the judgment of Collins LJ in Sumpter
v Hedges.108 On the facts of the case Dixon J109 held that the defendant had acquiesced and had
taken the benefit of the work, and thus, ‘as … either a dispensation from precise performance
or an implication at law of a new obligation to pay for the value of the work done’.
38.41 In relation to quantifying the quantum of restitution in a quantum meruit claim, the
proper approach to assessment is to ascertain the fair and reasonable value of the work that
has been performed.110 However, it should be pointed out that the existence of a contract may
have some relevance in assessing the value of a restitutionary claim. In Peet Ltd v Richmond111
Nettle JA, speaking for the Court of Appeal in Victoria, said that ‘[t]he agreed price may also set
an outer limit on the amount which can be recovered (and so result in recovery of something
less than the services are worth)’.
38.42 In Sopov v Kane Constructions (No 2)112 it was held that, although the contract price
does not impose a ceiling on the amount recoverable in a quantum meruit claim, it does provide
some evidence — not necessarily the ‘best evidence’ — as to what is a reasonable sum to be paid
for the work done.113 As was explained in Sopov v Kane Constructions (No 2),114 this is because
‘the contract price is struck prospectively, based upon the parties’ expectations of the future
course of events, [whereas] quantum meruit … is assessed with the benefit of hindsight, on

105. (1946) 72 CLR 386.

106. Steele v Tardiani (1946) 72 CLR 386 at 402.
107. Steele v Tardiani (1946) 72 CLR 386 at 403.
108. [1898] 1 QB 673.
109. Steele v Tardiani (1946) 72 CLR 386 at 405.
110. Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510 at 518; 257 ALR 182 at 189; Tim Barr Pty Ltd
v Narui Gold Coast Pty Ltd [2010] NSWSC 828 at [22]–[23]; Moorgate Capital (Corporate Finance) Ltd v
HIG European Capital Partners LLP [2019] EWHC 1421 (Comm) at [88].
111. (2011) 33 VR 465 at 482.
112. (2009) 257 ALR 182 at 189–90.
113. Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510 at 518; 257 ALR 182 at 189–90.
114. (2009) 257 ALR 182 at 189–90.

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the basis of the events which actually happened’. Thus, a quantum meruit claim may yield a
figure in excess of what would be the case if the claim was assessed on the basis of common
law damages.115
38.43 This issue was raised in the High Court decision in Mann v Paterson Constructions Pty
Ltd,116 where the majority indicated that the contract price is relevant and that a restitutionary
claim in excess of the contractual price would be difficult to uphold. Nettle, Gordon and
Edelman JJ117 said:
It is, therefore, appropriate to recognise that, where an entire obligation (or entire divisible
stage of a contract) for work and labour (such as, for example, an entire obligation under
or an obligation under a divisible stage of a domestic building contract) is terminated by
the plaintiff upon the plaintiff ’s acceptance of the defendant’s repudiation of the contract,
the amount of restitution recoverable as upon a quantum meruit by the plaintiff for work
performed as part of the entire obligation (or as part of the entire divisible stage of the
contract) should prima facie not exceed a fair value calculated in accordance with the
contract price or appropriate part of the contract price.

Gageler J118 said:

The common law rule should accordingly be that the amount recoverable on a non-
contractual quantum meruit as remuneration for services rendered in performance of a
contract prior to its termination by acceptance of a repudiation cannot exceed that portion
of the contract price as is attributable to those services. Issues concerning the identification
and appropriate method of apportionment of the contract price are best left to be addressed
on a case by case basis if and when they arise.

38.44 In relation to contracts for building work, Lumbers v W Cook Builders Pty Ltd (in liq)119
is a useful case that indicated the limitations on the availability of restitution.120
38.45 In Lumbers v W Cook Builders Pty Ltd (in liq)121 the Lumbers contracted with a building
company, Cook & Sons, for the construction of a house. During the building construction, the
building company subcontracted the work to a closely related company, Cook Builders. The
Lumbers were unaware of this arrangement. After the building work was completed, Cook
Builders advised the Lumbers of the arrangement it had entered into with Cook & Sons, told
the Lumbers that they owed nothing to Cook & Sons, and requested payment of the balance
of money for the construction of the house. The issue before the High Court was whether
Cook Builders, not having a contract with the Lumbers, could sue the Lumbers for unjust
enrichment. The High Court held that the claim by Cook Builders failed because there was no

115. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 277–8.
116. (2019) 373 ALR 1.
117. Mann v Paterson Constructions Pty Ltd (2019) 373 ALR 1 at 62.
118. Mann v Paterson Constructions Pty Ltd (2019) 373 ALR 1 at 28.
119. (2008) 232 CLR 635; 247 ALR 412.
120. M Riley, ‘The Conceptual Relationship Between Contract Law and Unjust Enrichment and the Decision in
Lumbers v Cook’ (2011–12) 28 Journal of Contract Law 267.
121. (2008) 232 CLR 635; 247 ALR 412.

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unjust enrichment of the Lumbers at Cook Builders’ expense. In this respect, Gummow, Hayne,
Crennan, and Kiefel JJ122 said:
[T]he legal relationship between [Cook &] Sons and the Lumbers cannot be dismissed from
consideration. … When proper account is taken of the rights and obligations that existed
between [Cook &] Sons and the Lumbers under their contract … [it is clear that the]
Lumbers are not shown to have received a ‘benefit’ at [Cook] Builders’ ‘expense’ which they
‘accepted’, and which it would be unconscionable for them to retain without payment.

38.46 The High Court’s decision in Lumbers v W Cook Builders Pty Ltd (in liq)123 reflected its
concern that to allow the claim for restitution would result in the interference with contractual
allocation of risk. Thus, Gummow, Hayne, Crennan, and Kiefel JJ124 said:
To now impose on the Lumbers an obligation to pay Builders would constitute a radical
alteration of the bargains the parties struck and of the rights and obligations which each
party thus assumed. There is no warrant for doing that.

38.47 This view was expanded when their Honours125 stated the following:
The doing of work, or payment of money, for and at the request of another, are archetypal
cases in which it may be said that a person receives a ‘benefit’ at the ‘expense’ of another
which the recipient ‘accepts’ and which it would be unconscionable for the recipient to retain
without payment. And as is well apparent from this Court’s decision in Steele v Tardiani,126
an essential step in considering a claim in quantum meruit (or money paid) is to ask whether
and how that claim fits with any particular contract the parties have made. It is essential to
consider how the claim fits with contracts the parties have made because, as Lord Goff of
Chieveley rightly warned in Pan Ocean Shipping Co Ltd v Creditcorp Ltd,127 ‘serious difficulties
arise if the law seeks to expand the law of restitution to redistribute risks for which provision
has been made under an applicable contract’. In a similar vein, in the Comments upon §29 of
the proposed Restatement, the Reporter says:

Even if restitution is the claimant’s only recourse, a claim under this Section will be
denied where the imposition of a liability in restitution would overturn an existing
allocation of risk or limitation of liability previously established by contract.

38.48 In referring to Pavey & Matthews Pty Ltd v Paul,128 Gummow, Hayne, Crennan, and
Kiefel JJ in Lumbers v W Cook Builders Pty Ltd (in liq)129 said the following:
It is important to recognise two points about Pavey & Matthews.130 First, there was no issue
in that case about whether the plaintiff, a builder, had a claim for work and labour done and
materials supplied. The issue in the case was whether that claim was defeated by a statutory

122. Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 662; 247 ALR 412 at 431.
123. (2008) 232 CLR 635; 247 ALR 412.
124. Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 674; 247 ALR 412 at 442.
125. Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 663; 247 ALR 412 at 432.
126. (1946) 72 CLR 386.
127. [1994] 1 All ER 470.
128. (1987) 162 CLR 221; 69 ALR 577.
129. (2008) 232 CLR 635; 247 ALR 412.
130. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 577.

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provision analogous to s 4 of the Statute of Frauds 1677 (UK) (no action shall be brought
upon any agreement … unless the agreement upon which such action shall be brought or
some memorandum or note thereof shall be in writing and signed by the party to be charged
therewith or some other person thereunto by him lawfully authorised). In particular,
the issue was whether the builder’s action on a quantum meruit was a direct or indirect
enforcement of the oral contract the parties had made. The majority in Pavey & Matthews131
held that because ‘the true foundation of the right to recover on a quantum meruit does not
depend on the existence of an implied contract’ the action was not ‘one by which the plaintiff
seeks to enforce the oral contract’.

The second point to be noted is that unjust enrichment was identified as a legal concept
unifying ‘a variety of distinct categories of case’. It was not identified as a principle which can
be taken as a sufficient premise for direct application in particular cases. Rather, as Deane J
emphasised in Pavey & Matthews,132 it is necessary to proceed by ‘the ordinary processes of
legal reasoning’ and by reference to existing categories of cases in which an obligation to pay
compensation has been imposed. ‘To identify the basis of such actions as restitution and not
genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions
of what is fair and just might dictate’.133 On the contrary, what the recognition of the unifying
concept does is to assist ‘in the determination, by the ordinary processes of legal reasoning,
of the question whether the law should, in justice, recognise such an obligation in a new or
developing category of case’.134 (emphasis added)

38.49 The decision in Lumbers v W Cook Builders Pty Ltd (in liq)135 was followed in the
English Court of Appeal decision of MacDonald, Dickens & Macklin v Costello (A Firm).136 In
that case, Costello owned land that was to be developed. Costello engaged MacDonald to do
the building work, but for taxation purposes it was agreed that the building contract would be
entered into between Macdonald and Oakwood, the latter being a company owned by Costello.
The building work was partially done, but some of the payments were not made by Oakwood,
which was insolvent. Macdonald brought a claim in restitution against Costello on the basis that
Costello was unjustly enrichment at MacDonald’s expense. The Court of Appeal unanimously
rejected the claim on the basis that a plaintiff should not be able to get restitutionary relief
in circumstances where the defendant has benefitted from services rendered by the plaintiff
under a contract to which the defendant was not a party. Etherton LJ137 said:
[T]he unjust enrichment claim against … Costello must fail because it would undermine
the contractual arrangements between the parties, that is to say the contract between
[MacDonald] and Oakwood and the absence of any contract between [MacDonald] and …
Costello. The general rule should be to uphold contractual arrangements by which parties
have defined and allocated and, to that extent, restricted their mutual obligations, and, in so
doing, have similarly allocated and circumscribed the consequences of non-performance.
That general rule reflects a sound legal policy, which acknowledges the parties’ autonomy

131. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 227; 69 ALR 577 at 583.
132. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 257; 69 ALR 577 at 604.
133. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256; 69 ALR 577 at 604.
134. Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256; 69 ALR 577 at 604.
135. Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; 247 ALR 412.
136. [2012] QB 244.
137. MacDonald, Dickens & Macklin v Costello [2012] QB 244 at 251.

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to configure the legal relations between them and provides certainty, and so limits disputes
and litigation.

38.50 Similar cautionary remarks were made in Old v Hodgkinson,138 where Young JA stated
the following:
Again, one must be very wary of employing a restitutionary cause of action where the
parties have failed to make a contract where there was no impediment to them so doing.
Analogously, one cannot rely on equitable estoppel merely because one failed to reduce an
understanding into an enforceable contract.

Void contracts
38.51 Generally, money paid under a void contract is recoverable.139 An example of
restitution in the context of void contracts is the decision in Close v Wilson.140 In this case
Close paid over £20,000 to Wilson for the purpose of Wilson placing bets on horse races, with
an agreement as to share of any profits made as a result. As to what subsequently happened
to the money was in dispute. Wilson claimed that the money was placed on unsuccessful
bets and all had been lost. Close claimed that most of it had been appropriated by Wilson
for personal purposes. Section 18 of the Gaming Act 1845 (UK) rendered all gaming and
wagering contracts null and void.141
38.52 In the Court of Appeal it was held that it was not necessary to determine whether the
payment of money was made by way of agency, loan, or joint venture because on any view
there was a promise by Wilson to repay the money in respect of bets that were to be placed. The
court held that the agreement between the parties was void by virtue of s 18. In relation to the
availability of restitution Toulson LJ142 said:
I do not agree with the judge that it was immaterial whether the whole of £20,000 was used
for the purposes for which it was advanced, the entire agreement being void. If part of the
money was used for bets which were successful, it follows from the authorities which I have
cited that Mr Close would be entitled to the proceeds under the law of restitution. If part
of it was used by Mr Wilson for his own purposes, Mr Close would likewise be entitled to
recover that sum under ordinary principles of restitution. It would be simply a case in which
Mr Wilson had used money outside the scope of the agreement under which it had been
provided. The unenforceable nature of the agreement itself would be no bar to the Mr Close’s
restitutionary claim if the money was used for a purpose extraneous to the agreement.
Mr Close’s claim would not amount to enforcement of the agreement. It would be for the
recovery of money put by Mr Wilson to his own use.

The case was remitted back to the lower court for a retrial before a different judge.

138. [2009] NSWSC 1160 at [99]–[100].

139. DD Growth Premium 2X Fund v RMF Market Neutral Strategies (Master) Ltd (Cayman Islands) [2017]
UKPC 36 at [60].
140. [2011] EWCA Civ 5.
141. The equivalent provision in New South Wales is s 56 of the Unlawful Gambling Act 1998 (NSW).
142. Close v Wilson [2011] EWCA Civ 5 at [31].

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Recovery of money paid where consideration has totally failed

38.53 Failure of consideration is one of the factors that makes retention of a benefit prima
facie unjust.143 According to Birks,144 ‘failure of the consideration for a payment … means that
the state of affairs contemplated as the basis or reason for the payment has failed to materialise
or, if it did exist, has failed to sustain itself ’.
38.54 Where a party to a contract (the defaulting party) breaches a condition or a serious
intermediate term of the contract, the innocent party may elect to affirm the contract or
to terminate it. In both cases (and in the case where there is a breach of warranty) the
innocent party may sue for damages. In addition, they may have a claim in restitution for
recovery of money that they may have paid. However, as was pointed out by Mason CJ in
Baltic Shipping Co v Dillon,145 ‘full damages and complete restitution will not be given for
the same breach of contract’ (emphasis added). To allow this to occur would be to allow
double recovery.
38.55 In the context of a contract for the sale of goods, a buyer’s right to restitution upon a
seller’s breach of contract is confirmed by s 55 of the Sale of Goods Act 1923 (NSW), which
stipulates that ‘[n]othing in [the Sale of Goods] Act shall affect the right of a buyer … to
recover money paid where the consideration for payment of it has failed’. Another context is
the recovery of payments made where a contract is frustrated.
38.56 However, in order to pursue such a restitutionary claim, a plaintiff must establish that
there has been a total failure of consideration.146 A total failure of consideration arises where the
plaintiff has been deprived of the total value of the defendant’s performance under a contract.
In this context, in Baltic Shipping Co v Dillon147 Mason CJ said:
When … an innocent party seeks to recover money paid in advance under a contract in
expectation of the entire performance by the contract-breaker of its obligations under
the contract and the contract-breaker 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.

143. Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 517; 286 ALR 12 at 25.
144. P Birks, An Introduction to the Law of Restitution, rev ed, Clarendon Press, Oxford, 1989, p 223. See also Nu
Line Construction Group Pty Ltd v Fowler [2012] NSWSC 587 at [249]; Chou v AWAP SGT 26 Investment
Ltd (No 3) [2018] WASC 383 at [169].
145. (1993) 176 CLR 344 at 359; 111 ALR 289 at 299–300.
146. See generally, L Wirth, ‘Unjust Enrichment: Unifying Concept or Cause of Action?’ (2015) 89 Law Institute
Journal 34.
147. Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 350–1; 111 ALR 289 at 293.
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38.57 English authorities, notably the decisions of the House of Lords in Hyundai Heavy
Industries Co Ltd v Papadopoulos148 and Stocznia Gdanska SA v Latvian Shipping Co,149 support
this view and confirm that such payments will be recoverable only if there has been a total
failure of consideration. Both cases concerned contracts for the construction and sale of ships,
with stage payments due at various stages of the construction process. In Stocznia Gdanska SA
v Latvian Shipping Co150 Lord Goff said:
I start from the position that failure of consideration does not depend upon the question
whether the promisee has or has not received anything under the contract like, for example,
the property in the ships being built under contracts 1 and 2 in the present case. Indeed,
if that were so, in cases in which the promisor undertakes to do work or render services
which confer no direct benefit on the promisee, for example where he undertakes to paint
the promisee’s daughter’s house, no consideration would ever be furnished for the promisee’s
payment. In truth, the test is not whether the promisee has received a specific benefit, but
rather whether the promisor has performed any part of the contractual duties in respect of
which the payment is due. The present case cannot, therefore, be approached by asking the
simple question whether the property in the vessel or any part of it has passed to the buyers.
That test would be apposite if the contract in question was a contract for the sale of goods (or
indeed a contract for the sale of land) simpliciter, under which the consideration for the price
would be the passing of the property in the goods (or land). However before that test can
be regarded as appropriate, the anterior question has to be asked: is the contract in question
simply a contract for the sale of a ship? or is it rather a contract under which the design and
construction of the vessel formed part of the yard’s contractual duties, as well as the duty to
transfer the finished object to the buyers? If it is the latter, the design and construction of the
vessel form part of the consideration for which the price is to be paid, and the fact that the
contract has been brought to an end before the property in the vessel or any part of it has
passed to the buyers does not prevent the yard from asserting that there has been no total
failure of consideration in respect of an instalment of the price which has been paid before
the contract was terminated, or that an instalment which has then accrued due could not, if
paid, be recoverable on that ground.

38.58 In contrast, where there has only been a partial failure of consideration, there can be
no action for the recovery of money paid. Thus, in Baltic Shipping Co v Dillon151 Mrs Dillon was
unable to recover the cost of her cruise because there was only a partial failure of consideration.
McHugh J152 explained the situation as follows:
The purpose of the advance payment would be negated if the shipowner’s right to retain the
fare was conditional upon an exact performance of its promise to carry the payee for the
duration of the cruise. If that was the basis of the payment, the shipowner would be obliged
to refund the fare if the contract was discharged by frustration even though the cruise was
almost completed. The proper conclusion, therefore, is that once the passenger commences
to enjoy the promised benefits, the right of the shipowner to retain the fare becomes
unconditional. If the shipowner fails to fulfil its contractual promise after the passenger has
commenced to enjoy the promised benefits, the passenger’s remedy is an action for damages

148. [1980] 2 All ER 29.

149. [1998] 1 All ER 883.
150. [1998] 1 All ER 883 at 896.
151. (1993) 176 CLR 344; 111 ALR 289.
152. Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 392–3; 111 ALR 289 at 326.

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for breach of contract. The passenger cannot bring an action for restitution of the payment of
the fare: once the passenger commences to receive the promised benefits, he or she receives
consideration for the payment. Accordingly, once Baltic began to provide the promised
benefits to Mrs Dillon, the right of that company to retain the fare became unconditional.
The loss which she suffered, in paying for a cruise which was not completed, was recoverable
in an action for breach of contract — not in an action for restitution.

38.59 The facts of Baltic Shipping Co v Dillon153 provide a context in which one can appreciate
the difficulty of establishing a total failure of consideration. In such a case there will be total
failure of consideration if the customer did not receive a substantial part of the benefit promised
under the contract. In Luo v Zhai154 this point was addressed by Perram J as follows:
What is substantial? We have it in the strength of the result in Baltic Shipping155 itself that to
receive 10 days of a 14 day cruise on the Mikhail Lermontov before it sank off New Zealand
did not involve a total failure of consideration and that Mrs Dillon was not entitled to get
her fare back. Mason CJ … thought the eight days of uninterrupted and presumably serene
cruising a sufficient benefit under the contract, as did Deane and Dawson JJ, Gaudron J and
McHugh J. Significant to each Justice was the idea that the cruise was not to be characterised
as a mere transportation contract to carry Mrs Dillon from a point of embarkation (Sydney)
to a point of disembarkation (also Sydney). A significant element in the benefit bargained
for by Mrs Dillon was not just her transportation but also the mode of that transportation.
This might suggest that one might get a different outcome where the substantive bargain
is only about transport rather than transport as a recreational activity. Indeed, Deane and
Dawson JJ156 contemplated this very possibility:
There can be circumstances in which there is, for relevant purposes, a complete
failure of consideration under a contract of transportation notwithstanding that the
carrier has provided sustenance, entertainment and carriage of the passenger during
part of the stipulated journey. For example, the consideration for which the fare is
paid under a contract for the transportation of a passenger by air from Sydney to
London would, at least prima facie, wholly fail if, after dinner and the inflight film,
the aircraft were forced to turn back due to negligent maintenance on the part of the
carrier and if the passenger were disembarked at the starting-point in Sydney and
informed that no alternative transportation would be provided. Thus, in Heywood
v Wellers157 Lord Denning MR regarded it as self-evident that, in some circumstances
where part of a journey had been completed, money paid to the carrier or ‘driver’
was recoverable ‘as of right’ for the reason that it was ‘money paid on a consideration
which had wholly failed’.

38.60 For the purposes of a restitutionary claim in this category, as was noted by the United
Kingdom Supreme Court,158 the High Court has recognised that a total failure of consideration
is not confined to cases of a failure to perform contractual promises. As was explained by

153. (1993) 176 CLR 344; 111 ALR 289.

154. [2015] FCA 350 at [38]–[39].
155. Baltic Shipping Co v Dillon (1993) 176 CLR 344; 111 ALR 289.
156. Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 378; 111 ALR 289 at 315.
157. [1976] QB 446; [1976] 1 All ER 300.
158. Barnes (as former Court Appointed Receiver) v Eastenders Group [2015] AC 1 at 42–3; [2014] 3 All ER 1
at 29–30.

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Gummow J in Roxborough v Rothmans of Pall Mall Australia Ltd,159 failure of consideration

‘identifies the failure to sustain itself of the state of affairs contemplated as a basis for the
payments the [plaintiff] seeks to recover’.
38.61 In Roxborough v Rothmans of Pall Mall Australia Ltd160 legislation imposed certain
licence fees on Rothmans, who was a manufacturer of tobacco products. The cost of the licence
fees was passed on to retailers of the tobacco products. The payments made by retailers to
offset the licence fees were part of their contractual obligations with Rothmans. The relevant
legislation was subsequently declared unconstitutional and Rothmans was freed from its
obligation to pay the licence fees from the money it had collected from its retailers. The issue
before the High Court was whether the retailers were entitled to bring a restitutionary claim
to recover the money they had paid to Rothmans in relation to the licence fees. Although the
performance of the contract between Rothmans and its retailers was not prevented by the fact
that the licence fees were declared unconstitutional, the High Court held that there was a total
failure of consideration in this case. The High Court held that in these circumstances Rothmans
had been unjustly enriched at the expense of the retailers, even though the retailer has already
passed-on or recouped the invalid tax payments to customers by charging them higher prices
for the goods. On the issue of total failure of consideration the High Court held that the
notion of total failure of consideration was not confined to situations of non-performance of a
contractual obligation, but extended, in the words of Gleeson CJ, and Gaudron and Hayne JJ,161
to ‘payment for a purpose which has failed as, for example, where a condition has not been
fulfilled, or a contemplated state of affairs has disappeared’.
38.62 In Equuscorp Pty Ltd v Haxton162 Equuscorp, sought to recover money advanced under
loan agreements that were made in furtherance of an illegal purpose. The agreements were an
important part of a number of failed tax-driven investment schemes in which members of the
public were invited to invest in a blueberry farming enterprise (the schemes). The attraction
for investors was that non-farmers could invest in farming businesses and claim amounts
expended on farming enterprises as tax deductions in relation to their non-farming incomes.
The invitations to invest in the schemes were made in contravention of the requirements of
the Companies Code regulating the issue of ‘prescribed interests’. Equuscorp was not a party
to the loan agreements. They were made by Rural Finance Pty Ltd (Rural Finance), which was
a member of a group of companies controlled by the promoters of the schemes. Equuscorp, as
an arms’ length financier of the group, took an assignment of the loan agreements from the
receivers and managers of Rural Finance after the enterprise collapsed. It sued the investors
under the loan agreements. The agreements were found to be unenforceable for illegality,
having been made in furtherance of an illegal purpose. Equuscorp claimed in the alternative
for restitution of the advances made under the agreements as money had and received.
38.63 The Court of Appeal of the Supreme Court of Victoria in Equuscorp Pty Ltd v Haxton163
held that the right to claim for restitution had not been available to Rural and, therefore, was

159. (2001) 208 CLR 516 at 557; 185 ALR 335 at 365. See also Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498
at 517; 286 ALR 12 at 25.
160. (2001) 208 CLR 516; 185 ALR 335. See also Chou v AWAP SGT 26 Investment Ltd (No 3) [2018] WASC 383
at [171]; Harro Group Pty Ltd v Aspire Pty Ltd [2019] QSC 189 at [34].
161. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 525; 185 ALR 335 at 340.
162. (2012) 246 CLR 498; 286 ALR 12.
163. (2012) 246 CLR 498; 286 ALR 12.

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not available to Equuscorp and that, in any event, the assignment of the loan agreements did
not extend to the right to claim such relief. Equuscorp appealed to the High Court against the
decisions of the Court of Appeal in five cases affecting three investors in the schemes.
38.64 The High Court, in dismissing the appeals, found that the illegality that rendered the
loan agreements unenforceable also deprived Rural Finance of the right to claim for money had
and received by way of advances under those agreements. The restitutionary rights, had they
existed, would have been assignable, but on the proper construction of the deed of assignment
(the Deed) were not assigned to Equuscorp.
38.65 According to French CJ, and Crennan and Kiefel JJ:164
Failure of consideration as a basis for a claim for money had and received may arise from a
number of causes. One cause is illegality. Where a payment is made under a contract which
is unenforceable for illegality, the unenforceability of the agreement may constitute a failure
of consideration which is capable of supporting a claim for recovery of the payment. It is not
necessary for present purposes to expatiate upon the concept of ‘total failure of consideration’
debated in the submissions to this Court, its amelioration by the concept of apportionment of
consideration and the question whether ‘total failure of consideration’, however understood,
is necessary to a claim for money had and received based upon failure of consideration.
What is important for present purposes is the interaction between the foundation for the
claims for money had and received in this case and the policy of the common law which
renders unenforceable an agreement made for the furtherance of an illegal purpose.

The outcome of a restitutionary claim for benefits received under a contract which is
unenforceable for illegality, will depend upon whether it would be unjust for the recipient
of a benefit under the contract to retain that benefit. There is no one-size-fits-all answer
to the question of recoverability. As with the question of recoverability under a contract
affected by illegality the outcome of the claim will depend upon the scope and purpose of
the relevant statute. The central policy consideration at stake, as this Court said in Miller,165
is the coherence of the law. In that context it will be relevant that the statutory purpose is
protective of a class of persons from whom the claimant seeks recovery. Also relevant will be
the position of the claimant and whether it is an innocent party or involved in the illegality.

38.66 Gummow and Bell JJ166 stated the following:

The determinative issue, as Equuscorp accepted, is whether the policy of the statute law
represented by Pt IV Div 6 of the Code denies any scope for an action for money had and
received. In that regard, guidance is provided by the statement by Professor Palmer in his
treatise The Law of Restitution:167

The illegality of the transaction will preclude recovery of damages for breach, or any
other judgment aimed at enforcement of the contract, and the problem is whether
the plaintiff can nonetheless obtain restitution of values transferred pursuant to the
contract. The fact that public policy prohibits enforcement of the contract is not a

164. Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 518; 286 ALR 12 at 25–6. See also Rozenblit v Vainer
[2019] VSC 316 at [124].
165. Miller v Miller (2011) 242 CLR 446; 275 ALR 611.
166. Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 540–1 ; 286 ALR 12 at 44.
167. G E Palmer, The Law of Restitution, vol 2, Little, Brown, USA, 2004, pp 512–3.

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sufficient reason for allowing one of the parties to retain an unjust enrichment at the
expense of the other. Such a retention is warranted only when restitution is in conflict
with overriding policies pursuant to which the transaction is made illegal.

That statement requires qualification to include within its scope circumstances where a
contract is ineffective, not by reason of ‘illegality’ sourced in a statute, but where the statute
requires compliance with formalities which have not been observed by the parties, or
restricts legal capacity, as does the doctrine of ultra vires.

38.67 It should also be noted that a guilty party may also seek to recover money that he or
she may have paid. In Dies v British and International Mining and Finance Corp Ltd168 a party
in default under a contract who had paid most of the purchase price, but not enough to take
possession of the goods, was held entitled to the return of the money paid, less the other party’s
claim for damages.

RECOVERY OF MONEY PAID UNDER A MISTAKE

38.68 Based on the principle of unjust enrichment, the law recognises a right to recover
a mistaken payment, as the payee’s receipt due to the payer’s mistake makes the payee’s
enrichment unjust.169 The legitimacy of a claim for restitution for moneys paid under a relevant
mistake is conclusively established.170
38.69 As was explained by Mason, Carter, and Tolhurst:171
It is easy to see why the law favours recovery in mistake situations. The receipt of the money
benefits the payee. A mistaken payment is unofficious, almost by definition. The destruction
of the basis upon which the payment was made, through negating the payer’s intention to
pay in the light of the true facts, leaves the payee as the unintended recipient of a windfall
whose amount corresponds directly to the countervailing detriment of the mistaken payer.
The payee’s receipt due to the payer’s mistake makes the payee’s enrichment unjust, thereby
satisfying the underlying concept identified by the High Court in Pavey & Matthews Pty Ltd
v Paul.172

38.70 In Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation173 the
High Court confirmed that restitution may be available in cases where a payment of money had

168. [1939] 1 KB 724.

169. Berkerly Pty Ltd v Millbrook Finance Pty Ltd [2018] VSC 213 at [55]. See also W A Keener, ‘Recovery of
Money Paid Under Mistake of Fact’ (1887) 1 Harvard Law Review 211; A Kull, ‘Defenses to Restitution:
The Bona Fide Creditor’ (2001) 81 Boston University Law Review 919; K-L Liew, ‘Mistaken Payments —
The Right of Recovery and the Defences’ (1995) 7 Bond Law Review 95.
170. See, for example, Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164
CLR 662; 78 ALR 157; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; 109
ALR 57; Prasad v Sangha [2012] NSWCA 92 at [12]; Adrenaline Pty Ltd v Bathurst Regional Council (2015)
322 ALR 180 at 196–8.
171. J W Carter, K Mason, and G J Tolhurst, Mason and Carter’s Restitution Law in Australia, 3rd ed, LexisNexis
Butterworths, Chatswood, 2016, p 148. This passage was cited with approval in Lloyd v Belconnen Lakeview
Pty Ltd (2019) 377 ALR 234 at 302.
172. (1987) 162 CLR 221; 69 ALR 577.
173. (1988) 164 CLR 662; 78 ALR 157.

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been made as the result of a mistake. In that case the Australia and New Zealand Banking Group
(ANZ) telegraphically transferred to the Westpac Banking Corporation (Westpac) the sum of
$114,158.20. In making the payment, ANZ made a clerical error, in that the sum paid should
have been only $14,158. By the time Westpac became aware that there had been a mistake by
ANZ, it had applied all but $17,000 of the money to reduce its customer’s overdraft. Westpac
sought to recover the money from the customer, but only succeeded in recovering a small part
of it before the customer went into liquidation. The real question before the High Court was
not whether restitution was available in such cases of mistaken payment, but whether Westpac’s
prima facie liability to effect restitution was defeated by any defence available to it. It is in the
context of defences to restitutionary liability that we will return to this decision.
38.71 In Citigroup Pty Ltd v National Australia Bank Ltd174 the National Australia Bank
(NAB) received payment for two of its customers. It then credited the payment to their account.
In doing so it acted in accordance with Citigroup’s faxed instructions. It then paid the money
away and debited that account at the direction of someone who forged the signature of those
customers. If it had not received the payment from Citigroup and believed that it was authorised
by its customers to do so, it would not have paid the money away. NAB was unable to recover
the amount paid away and was not entitled to debit its customer’s account with the amount
of the payment. The question before the court concerned Citibank’s right of recovery against
NAB. When Citibank paid money to NAB, it did so under a mistake of both fact and law.175
The court found that, although there existed a prima facie restitutionary right where mistake
caused the making of the payment, there existed nevertheless ‘the susceptibility of the right to
displacement by “some adverse change of position by the recipient in good faith and in reliance
on the payment’’’.176
38.72 In Citigroup Pty Ltd v National Australia Bank Ltd177 the court affirmed that for the
defence of change of position to apply, the defendant must establish that the detrimental change
of the position must have caused or contributed to the impugned transaction. On the element
of causation,Bathurst CJ, Allsop P, and Meagher JA178 stated:
The circumstances in which the payee acts on the faith of, or in reliance on, the receipt
will be many. It will be a factual question in each case. The acts and omissions will occur
in the context of a certain body of knowledge which will include knowledge of the receipt
and of facts that support reliance upon the stability of the receipt and an entitlement
to treat the receipt as able to be dealt with. In many cases it will be a matter of fact and
degree as to whether there was any such reliance. This introduces both some degree of
mental advertence to the existence of the receipt, and a causal element to the analysis of the
relationship between the payment and the change of position; the ascription of the latter to
the former.179 The nature and degree of the causal connection may vary from case to case.
It is unnecessary to discuss what questions of approach as to causation may intrude at this

174. (2012) 82 NSWLR 391; 294 ALR 779.

175. Citigroup Pty Ltd v National Australia Bank Ltd (2012) 82 NSWLR 391 at 401; 294 ALR 779.
176. Citigroup Pty Ltd v National Australia Bank Ltd (2012) 82 NSWLR 391 at 403; 294 ALR 779 at 790.
177. (2012) 82 NSWLR 391; 294 ALR 779.
178. (2012) 82 NSWLR 391 at 394–5; 294 ALR 779 at 781–2.
179. See Perpetual Trustees Australia Ltd v Heperu Pty Ltd (2009) 76 NSWLR 195 at 222–3; J Edelman and
E Bant, Unjust Enrichment in Australia, Oxford University Press, South Melbourne, 2006, pp 326–31.

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point.180 It is sufficient for the resolution of this case to express our agreement with what
Barrett JA has said on this subject:.181

38.73 Relevantly, Barrett JA in Citigroup Pty Ltd v National Australia Bank Ltd182 stated the
following:
The reference in David Securities Pty Ltd v Commonwealth Bank of Australia183 to expenditure
or financial commitment ‘which can be ascribed to the mistaken payment’ therefore
contemplates a cause and effect relationship between receipt of the mistaken payment and
the subsequent expenditure or financial commitment. If it is found that the subsequent
action would not have been taken ‘but for’ the receipt, the causal link will be established. I do
not say that it might not also be established by proof of some less clear-cut connection; but,
given the facts of the present case, that is a question that need not be pursued.

38.74 In Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd184 all of
the parties to the litigation were victims of a fraud. The following facts are taken from the
headnote185 of the report of the New South Wales Court of Appeal. Mr Skarzynski concocted
invoices for the purchase of equipment from Hills Industries Ltd (Hills) and Bosch Security
Systems Pty Ltd (Bosch). These were then presented to a financier, Australian Financial Services
and Leasing Pty Ltd (AFSL), which paid for the purchases and entered leaseback agreements
with Mr Skarzynski’s companies in respect of the non-existent goods. AFSL believed it was
purchasing equipment that it would own. The purchase moneys were paid to Hills and Bosch
and credited to accounts for companies related to Mr Skarzynski. Mr Skarzynski had advised
Hills and Bosch, his trade creditors, that the payments were being made at his direction in
order to repay debts owed by his companies. The payments were received by Hills and Bosch in
good faith and in the ordinary course of business as moneys owed to them by Mr Skarzynski’s
companies. Hills and Bosch had been pursuing the repayment of those debts and applied the
funds received in discharge of them. Having received the moneys, Hills refrained from taking
proceedings that it would otherwise have taken against Mr Skarzynski and his companies.
It also continued to trade with those companies. Bosch, when it received funds, consented
to the setting aside of default judgments that it had already obtained against Mr Skarzynski’s
companies and abandoned other proceedings that were then on foot. It refunded certain
overpayments to Mr Skarzynski’s companies and continued to trade with them on a COD basis.
Upon discovery of the fraud some six months later, AFSL sought recovery of the moneys as
being paid under a mistake of fact, namely that goods existed to which it obtained title by the
payments. Hills and Bosch resisted making restitution on grounds including the giving of good
consideration, discharge of the debtor’s debts, and change of position.
38.75 At trial AFSL succeeded against Hills and failed against Bosch. In relation to Hills, the
trial judge found that despite the debt owing to it, Hills was enriched by the payment and had
not made out any defence of change of position or good consideration. Any change of position
was held to be speculative and not actual. His Honour ordered repayment of the moneys,

180. See the discussion in E Bant, The Change of Position Defence, Hart Publishing, Oxford, 2009 pp 30–41.
181. (2012) 82 NSWLR 391 at 409–10; 294 ALR 779 at 796–7.
182. (2012) 82 NSWLR 391 at 410; 294 ALR 779 at 796–7.
183. (1992) 175 CLR 353; 109 ALR 57.
184. (2012) 295 ALR 147.
185. [2012] NSWCA 380.

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less the value of GST input tax credits that had accrued to AFSL by virtue of its ‘purchase’ of
the fictitious equipment, and less the sums repaid by Mr Skarzynski’s companies pursuant to
the leaseback arrangement. As against Bosch, his Honour found a change of position to be
made out by virtue of the real detriment it incurred when it extinguished the valid legal claim
represented by its default judgments against Skarzynski companies. Hills appealed against the
order of restitution and AFSL cross-appealed against the reduction in the sum ordered. AFSL
also appealed against the refusal to order restitution against Bosch. It having been established
that the moneys were paid under a mistake of fact, the question on appeal was whether the
recipients of the funds, Hills and Bosch, had any defence capable of denying AFSL its prima
facie right to restitution.
38.76 In its decision in Hills Industries Ltd v Australian Financial Services and Leasing Pty
Ltd186 the Court of Appeal noted that the legitimacy of a claim for restitution for moneys paid
under a relevant mistake is conclusively established in Australia as is evidenced by a number of
cases, such as Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation,187
David Securities Pty Ltd v Commonwealth Bank of Australia,188 and Prasad v Sangha.189 The
court,190 although not analysing the nature of the mistake in question, found that, while the
mistake was sufficiently important to be causal, there were circumstances that would make an
order for restitution unjust. In other words, defences were found to justify why an order for
restitution should not be made. In this respect Allsop P191 referred to a defence to restitution
described in Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation192
in the following way:
[where a] payment was made for good consideration such as the discharge of an existing
debt or, arguably, that there has been some adverse change of position by the recipient in
good faith and in reliance on the payment.

38.77 The Court of Appeal held that the change of position defence, outlined later in this
chapter,193 was made out. An appeal from this decision to the High Court was dismissed.194
Hayne, Crennan, Kiefel, Bell and Keane JJ said:195
The approach argued by AFSL does not involve an enquiry as to whether it would be inequitable
to require the recipient to repay. Instead, AFSL’s approach focuses upon the extent to which
Hills and Bosch have been ‘disenriched’ subsequent to the receipt. This approach seeks to
give effect to an understanding of unjust enrichment as a principle of direct application,
which operates by measuring the extent of enrichment or, where a defence of change of
position is invoked, the extent of disenrichment subsequent to that receipt. Such a ‘principle’

186. (2012) 295 ALR 147.

187. (1988) 164 CLR 662; 78 ALR 157.
188. (1992) 175 CLR 353; 109 ALR 57.
189. [2012] NSWCA 92.
190. Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd (2012) 295 ALR 147 at 159.
191. Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd (2012) 295 ALR 147 at 160.
192. (1988) 164 CLR 662 at 673; 78 ALR 157 at 162.
193. See 38.86–38.97.
194. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; 307 ALR 512.
195. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 596–7; 307
ALR 512 at 537. See also Rozenblit v Vainer [2019] VSC 316 at [125]; Automotive Holdings Group Ltd
v Prime Constructions Australia Pty Ltd [2018] NSWSC 1960 at [250].

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does not govern the resolution of this case because the concept of unjust enrichment is not
the basis of restitutionary relief in Australian law. The principle of disenrichment, like that of
unjust enrichment, is inconsistent with the law of restitution as it has developed in Australia.
Disenrichment operates as a mathematical rule whereas the enquiry undertaken in relation
to restitutionary relief in Australia is directed to who should properly bear the loss and why.
That enquiry is conducted by reference to equitable principles.

38.78 In relation to a transfer of property or payment made under a mistake, in Australian

Financial Services and Leasing Pty Ltd v Hills Industries Ltd , Gageler J196 said:
The explanation comes to this. The fact that a payment is caused by a mistake is sufficient
to give rise to a prima facie obligation on the part of the recipient to make restitution. That
is because causative mistake is a circumstance which the law recognises to be prima facie
sufficient to make the recipient’s receipt, and retention, of the payment unjust. To displace
that prima facie obligation, the recipient must establish some other circumstance which the
law recognises would make an order for restitution unjust. The defence of change of position
comprehends one of those circumstances. The defence, if established, results in the prima
facie obligation of the recipient being in whole or in part displaced at the time an order for
restitution is sought.

38.79 A significant issue in relation to mistaken payment cases is that of what types of mistake
enable a claim to be made for restitution. This was a matter discussed by the High Court in
David Securities Pty Ltd v Commonwealth Bank of Australia.197 In that case David Securities
borrowed money from the Commonwealth Bank. The loan was through the bank’s Singapore
office. Clause 8(b) of the loan agreement required David Securities to pay certain sums to the
bank. However, cl 8(b) was void pursuant to s 261 of the Income Assessment Act 1936 (Cth).
David Securities sought to recover the sums paid to the bank in accordance with cl 8(b). The
issue before the High Court was whether the payments pursuant to cl 8(b) could be recovered
in a restitution claim, given that the payments were made as the result of a mistake of law. The
High Court unanimously found in favour of David Securities.
38.80 An important aspect of the decision in David Securities Pty Ltd v Commonwealth
Bank of Australia198 was the court’s determination in relation to traditional authority that had
held that recovery of payments made as a result of a mistake in law was not possible, and that
recovery was only available in cases of payments made as the result of a mistake of fact. The
High Court rejected the distinction between statements of fact and law in this case and held
that where a payment is made as the result of a mistake of fact or law, a restitutionary claim for
recovery of the payment was prima facie available. According to Mason CJ, and Deane, Toohey,
Gaudron, and McHugh JJ:199
The fact that the payment has been caused by a mistake is sufficient to give rise to a prima
facie obligation on the part of the respondent to make restitution. Before that prima facie

196. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 605; 307 ALR
512 at 543. See also Rozenblit v Vainer [2019] VSC 316 at [129].
197. (1992) 175 CLR 353; 109 ALR 57.
198. (1992) 175 CLR 353; 109 ALR 57.
199. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379; 109 ALR 57 at 76.
See also Automotive Holdings Group Ltd v Prime Constructions Australia Pty Ltd [2018] NSWSC 1960 at
[243].

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liability is displaced, the respondent must point to circumstances which the law recognizes
would make an order for restitution unjust. There can be no restitution in such circumstances
because the law will not provide for recovery except when the enrichment is unjust. It follows
that the recipient of a payment, which is sought to be recovered on the ground of unjust
enrichment, is entitled to raise by way of answer any matter or circumstance which shows
that his or her receipt (or retention) of the payment is not unjust.

38.81 Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation200 was
a case of payment under mistake of fact. Attention is directed to the following passage in the
judgment of the High Court:201
Before that prima facie liability will be displaced, there must be circumstances (eg that
the payment was made for good consideration such as the discharge of an existing debt
or, arguably, that there has been some adverse change of position by the recipient in good
faith and in reliance on the payment) which the law recognizes would make an order for
restitution unjust.

38.82 If money is paid as a result of a mistake, the plaintiff will have a prima facie right to
recover it and the receipt is the basis of that right. However, not every mistaken payment will
ground recovery, and the law recognises the following defences that displace or reduce the
prima facie right to recover:
• change of position;202
• moneys due anyway;
• money paid to compromise an honest claim;
• other payments for good consideration received in good faith;
• the fact that repayment would frustrate the policy of a statutory or common law rule; and
• estoppel by representation.203
38.83 The right of recovery recognised in David Securities Pty Ltd v Commonwealth Bank of
Australia204 and its susceptibility to displacement were summarised by French CJ, and Crennan
and Kiefel JJ in Equuscorp Pty Ltd v Haxton205 as follows:
[R]ecovery depends upon enrichment of the defendant by reason of one or more recognised
classes of ‘qualifying or vitiating’ factors; the category of case must involve a qualifying or
vitiating factor such as mistake, duress, illegality or failure of consideration, by reason of
which the enrichment of the defendant is treated by the law as unjust; unjust enrichment so
identified gives rise to a prima facie obligation to make restitution; the prima facie liability
can be displaced by circumstances which the law recognises would make an order for
restitution unjust.

200. (1988) 164 CLR 662; 78 ALR 157.

201. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673;
78 ALR 157 at 162.
202. Citigroup Pty Ltd v National Australia Bank Ltd (2012) 82 NSWLR 391 at 403–10; 294 ALR 779 at 790–8;
Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd (2012) 295 ALR 147 at 179–84.
203. See 36.16; P Key, ‘Excising Estoppel by Representation as a Defence to Restitution’ (1995) 54 Cambridge
Law Journal 525; P Key, ‘Estoppel by Representation as a Defence to Restitution: The Exception Proves the
Rule?’ (2001) 60 Cambridge Law Journal 465.
204. (1992) 175 CLR 353; 109 ALR 57.
205. (2012) 246 CLR 498 at 516–17; 286 ALR 12 at 24.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

38.84 Early cases dealing with mistaken payment stressed the need for the mistake to be
fundamental to the payment.206 However, recognition of unjust enrichment as the basis for
claims in restitution has led to the replacement of the need to prove that the mistake was
fundamental with the requirement that the mistake caused the payment.207 The mistake must
be one without which the payment would not have been made.208 A plaintiff in such an action
only needs to establish the fact of the mistake and a causal connection between the mistake and
the payment. A payment made irrespective of the mistake, whether for commercial or personal
reasons, will be irrecoverable. On the other hand, carelessness on the part of the plaintiff in
making the payment is not a bar to restitution.209

DEFENCES TO RESTITUTION CLAIMS

38.85 Strictly speaking it is probably unnecessary to speak of defences to restitutionary
claims on the basis that the underlying principle of unjust enrichment that requires the
retention of the benefit to be ‘unjust’, means that what we often refer to as ‘defences’ are in
essence circumstances in which it is not unjust to retain the benefit. The law recognises that that
there are circumstances which would make an order for restitution unjust. In David Securities
Pty Ltd v Commonwealth Bank of Australia210 Mason CJ, and Deane, Toohey, Gaudron, and
McHugh JJ stated:
Before that prima facie liability is displaced, the respondent must point to circumstances
which the law recognizes would make an order for restitution unjust. There can be no
restitution in such circumstances because the law will not provide for recovery except when
the enrichment is unjust. It follows that the recipient of a payment, which is sought to be
recovered on the ground of unjust enrichment, is entitled to raise by way of answer any
matter or circumstance which shows that his or her receipt (or retention) of the payment is
not unjust.

The enquiry that is therefore necessary will be into circumstances that the law recognises
as making a restitution order unjust. Although there are various ‘defences’ that have been
acknowledged, we will look only at arguably the most significant defence, namely, change of
position.

Change of position
38.86 In order to rely on the change of position defence, the defendant must have
‘acted to his or her detriment on the faith of the receipt’.211 Underlying this defence is the

206. Porter v Latec Finance (Qld) Pty Ltd (1964) 111 CLR 177 at 186–7.
207. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 376–7, 395–6, 402; 109
ALR 57 at 73–4, 88–9, 94–5.
208. Marshall v Marshall [1999] 1 Qd R 173 at 178.
209. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 403; 109 ALR 57 at 95.
210. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 379; 109 ALR 57 at 76.
211. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 385; 109 ALR 57 at 81.
See also Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at
625–6; 307 ALR 512 at 559; Automotive Holdings Group Ltd v Prime Constructions Australia Pty Ltd [2018]
NSWSC 1960 at [248].

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requirement that the defendant has suffered detriment arising out of this change of position
and therefore restitution would be unjust.212 In Haugesund Kommune v Depfa ACS Bank213
Etherton LJ said:
The defence [of change of position] is to be regarded as founded on a principle of justice
designed to protect the defendant from a claim to restitution in respect of a benefit received
by him in circumstances in which it would be inequitable to pursue that claim or to pursue
it in full.

38.87 The most common area where this defence has an application is with cases of mistaken
payments. This defence has two major requirements. The first is that the defendant acted in
good faith. In this respect, mere negligence is not enough to establish a lack of good faith.214 If
the defendant acts with knowledge of a mistake made by the plaintiff, the change of position is
not available. Apart from actual knowledge, ‘having good reason to believe that the payment was
made by mistake’ was enough to deny the defendant the defence in Niru Battery Manufacturing
Co v Milestone Trading Ltd.215
38.88 The second major requirement, as was made clear in Australia and New Zealand
Banking Group Ltd v Westpac Banking Corporation,216 is that the defendant acted ‘in reliance on
the payment’. Thus, to simply spend money on ordinary living expenses is not enough.217 There
needs to be some causal connection between the defendant’s receipt of the payment and his or
her incurring the detriment. This normally means that the receipt of the payment comes first
in point of time. However, if the defendant incurred the detriment in anticipation of the receipt,
the change of position defence is available.218
38.89 The defence of change of position was first recognised in Australia in Australia and
New Zealand Banking Group Ltd v Westpac Banking Corporation.219 In that case the High Court
ruled that there was an agency relationship between Westpac and its customer, treated the
payment by Westpac to itself as a payment by an agent (Westpac) to a third party (also Westpac)
on behalf of its principal (the customer), and went on to hold that Westpac was not liable to
make restitution of the funds it had applied to itself. In the joint judgment of Mason CJ, and
Wilson, Deane, Toohey, and Gaudron JJ220 their Honours said:
[A]n agent who has received money on his principal’s behalf will, without more, have a good
defence if, before learning that the money was paid under fundamental mistake, he has ‘paid
it to the principal or done something equivalent’ thereto.

212. Commercial Bank of Australia Ltd v Younis [1979] 1 NSWLR 444 at 450.
213. [2011] 1 All ER 190 at 238.
214. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 580; [1992] 4 All ER 512 at 534.
215. [2004] QB 985 at 1004.
216. (1988) 164 CLR 662 at 673; 78 ALR 157 at 162.
217. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 385–6; 109 ALR 57 at 81.
218. South Tyneside Metropolitan Borough Council v Svenska International plc [1995] 1 All ER 545 at 565.
219. (1988) 164 CLR 662; 78 ALR 157.
220. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at
681–2; 78 ALR 157 at 168.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

38.90 Their Honours,221 in recognising that the agency defence here was a specific example
of a broader, more general principle, went on and said:
If the matter needs to be expressed in terms of detriment or change of position, the payment
by the agent to the principal of the money which he has received on the principal’s behalf,
of itself constitutes the relevant detriment or change of position. In that regard, no relevant
distinction can be drawn between payment to the principal or payment to another or others
on behalf of the principal.

38.91 More recently in Australian Financial Services and Leasing Pty Ltd v Hills Industries
Ltd222 Hayne, Crennan, Kiefel, Bell, and Keane JJ said the following in relation to the change of
position defence:
In §65 of the Restatement of the Law Third, Restitution and Unjust Enrichment, under the
rubric ‘Change of Position’, the American Law Institute states:

If receipt of a benefit has led a recipient without notice to change position in such
manner that an obligation to make restitution of the original benefit would be
inequitable to the recipient, the recipient’s liability in restitution is to that extent
reduced.

In Lipkin Gorman223 Lord Goff used similar language in explaining the basis of the change
of position defence:

[W]here an innocent defendant’s position is so changed that he will suffer an injustice

if called upon to repay or to repay in full, the injustice of requiring him so to repay
outweighs the injustice of denying the plaintiff restitution.

In David Securities,224 reference was made to what was said in Lipkin Gorman225 concerning
the defence. It was observed that in Lipkin Gorman,226 Lord Bridge of Harwich, Lord Ackner
and Lord Goff said that the defence should be recognised by English law but declined to
define its scope. However, in David Securities227 the ‘central element’ of the defence was
identified as being ‘that the defendant has acted to his or her detriment on the faith of the
receipt’ (emphasis in original). Whether English cases subsequent to Lipkin Gorman228 have
taken a wider view of the defence, one which eschews a requirement of detrimental reliance
in favour of a mere causal link, cannot alter what was said in David Securities229 regarding the
defence. Whether the conclusion reached in the English cases, including Lipkin Gorman,230
is different from that which would be reached by reference to equitable principles is a moot
point. In any event, consistently with an enquiry as to whether it is unconscionable for the

221. Australia and New Zealand Banking Group v Westpac Banking Corporation Corporation (1988) 164 CLR
662 at 682; 78 ALR 157 at 168.
222. Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 596–601; 307
ALR 512 at 537–41.
223. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 579; [1992] 4 All ER 512 at 533.
224. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; 109 ALR 57.
225. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1992] 4 All ER 512.
226. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1992] 4 All ER 512.
227. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 385; 109 ALR 57 at 81.
228. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1992] 4 All ER 512.
229. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; 109 ALR 57.
230. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1992] 4 All ER 512.
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 CHAPTER 38: RESTITUTION­

recipient to retain the monies, it is necessary in cases such as the present to consider what
was done by the recipient in reliance upon the receipt.

In David Securities,231 in the passage in which reference is made to a recipient acting on the faith of
the receipt, it was said that a common element in cases in Canada and the United States, where
the defence has been accepted, is that it is necessary that the defendant point to ‘expenditure or
financial commitment’ which can be ascribed to the mistaken payment. The passage does not
provide precise direction as to the resolution of the issue in this case, but it is tolerably clear that
their Honours did not suggest that the defence was available only to a recipient who was able to
demonstrate monetary disenrichment on the faith of the mistaken payment.

AFSL argued that it is necessary and appropriate to assess, forensically, the value of TCP’s
debts to Hills and Bosch, or their prospects of recovery, in order to measure the extent
to which they remained enriched by AFSL’s mistaken payments. AFSL’s argument in this
regard relied upon cases such as The Commonwealth v Amann Aviation Pty Ltd232 and Sellars
v Adelaide Petroleum NL.233 However, these cases concerned the assessment of damages by
way of compensation for breach of contract or statutory or common law norms of conduct
predicated upon proof of loss by reason of the breach. Here, Hills and Bosch had done AFSL
no wrong that gave rise to an obligation to compensate AFSL for the loss suffered by it as a
result.

As Lord Goff observed in Lipkin Gorman,234 restitutionary claims are not founded upon a
wrong done to the payer.

More importantly, under Australian law, a mathematical assessment of enduring economic

benefit does not determine the availability of restitutionary remedies. The equitable doctrine
which protects expectations, with which the notion of ‘detriment’ is associated, is not
concerned with loss caused by a wrong or a breach of promise.235 As Deane J observed in The
Commonwealth v Verwayen,236 ‘[e]quity has never adopted the approach that relief should
be framed on the basis that the only relevant detriment … is that which is compensable by
an award of monetary damages’. The equitable doctrine concerning detriment is concerned
with the consequences that would enure to the disadvantage of a person who has been
induced to change his or her position if the state of affairs so brought about were to be
altered by the reversal of the assumption on which the change of position occurred. On this
view, the injustice which precludes such a result lies in the disadvantage which would result
to the recipient if the payer were to be permitted to recover payments as mistakenly made
where they have been applied by the recipient. This view accords with the understanding
of detrimental reliance sufficient to ground an estoppel. … The fundamental purpose of
an estoppel is to provide protection against the detriment which would flow from a party’s
change of position if the assumption which led to it were deserted. While it may be accepted
that estoppel affords a level of protection to expectations different from that afforded by

231. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; 109 ALR 57.
232. (1991) 174 CLR 64 at 83–4, 89–94, 100–4, 112–13, 118–26, 138, 145–7, 157–8; 104 ALR 1 at 11–12, 16–19,
24–7, 33–4, 37–44, 52–3, 58–9, 67.
233. (1994) 179 CLR 332 at 349–50, 368; 120 ALR 16 at 25–6, 40.
234. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 578; [1992] 4 All ER 512 at 532.
235. Crabb v Arun District Council [1976] Ch 179 at 198–9; [1975] 3 All ER 865 at 880; The Commonwealth
v Verwayen (1990) 170 CLR 394 at 415, 429; 95 ALR 321 at 334–5, 345.
236. (1990) 170 CLR 394 at 448; 95 ALR 321 at 359.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

the change of position defence, and estoppel is also concerned with the manner in which
expectations are created, both estoppel and the defence are grounded in that body of equitable
doctrine that prevents the unconscientious assertion of what are said to be legal rights. …

[T]he detriment must flow from reliance upon that assumption, when that assumption has
been departed from. Detriment has not been considered to be a narrow or technical concept
in connection with estoppel. So long as it is substantial, it need not consist of expenditure of
money or other quantifiable financial detriment. … In the context of mistaken payments, the
question is whether it would be unconscionable for a recipient who has changed its position
on the faith of the receipt to be required to repay. …

In Kleinwort Benson Ltd v Lincoln City Council237 Lord Goff suggested that defences such
as change of position are concerned to protect the stability or finality of transactions. It
may perhaps be more accurate to say that, where the defence of change of position is made
out, finality is the result that is achieved. But the desirability of ‘certainty of receipts’ cannot
itself dictate the outcome of the enquiry respecting the actions taken by a recipient where a
mistaken payment is made in a commercial context. It is necessary to recall that the action
for money had and received is itself a qualification upon what the law otherwise regards as
the overriding importance attached to the security of actual receipts.

38.92 In addition to the above remarks, French CJ in Australian Financial Services and
Leasing Pty Ltd v Hills Industries Ltd238 relevantly provided the following analysis of the change
of position defence:
It was accepted in Australia and New Zealand Banking Group Ltd v Westpac Banking
Corporation239 that if the defence of payment over by an agent to his principal had to be
justified in terms of detriment or change of position, ‘the payment by the agent to the
principal of the money which he has received on the principal’s behalf, of itself constitutes
the relevant detriment or change of position.’ Some academic writing has supported, or
at least acknowledged, the proposition that payment over by an agent can be treated as an
aspect of the change of position defence. Professor Virgo240 … wrote:
Essentially, the defence will only be available to the extent that the agent’s
circumstances have changed because the principal has effectively received the benefit
from the agent.

In so saying, Professor Virgo241 acknowledged that ‘[t]he rationale of the agent’s defence is a
matter of some uncertainty.’

Meagher JA,242 in the Court of Appeal [in this case], referred to the ‘payee agent’s defence’
as one ‘which rested on notions of change of position’. He243 cited the Restatement Third,

237. [1999] 2 AC 347 at 382, 384; [1998] 4 All ER 513 at 538, 540.
238. (2014) 253 CLR 560 at 571–3, 575–9; (2014) 307 ALR 512 at 518–9, 521–5.
239. Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 682;
78 ALR 157 at 168 — but not as a separate requirement of overall prejudice where money received by an
agent is paid over to the principal.
240. G Virgo, The Principles of the Law of Restitution, 2nd ed, Oxford University Press, Oxford, 2006, p 686.
241. Virgo, The Principles of the Law of Restitution, note 243 above, p 688.
242. Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd (2012) 295 ALR 147 at 191.
243. Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd (2012) 295 ALR 147 at 191.

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Restitution and Unjust Enrichment for the proposition that it is a ‘specific application of the
general defense [of change of position] differing from the ordinary rule only by its more
generous definition of the acts by the agent/recipient that constitute a change of position’.
However, as his Honour244 found, the appellant did not pay the respondents on the basis that
they were agents for their client or TCP. Nor did the appellant intend that the respondents
might pay or apply the moneys received as directed by their client or TCP.

An obscure invocation of change of position was also made in Brisbane v Dacres,245 in which
a payment was held irrecoverable as made under a mistake of law. Chief Justice Mansfield,246
reflecting the sweeping language of Lord Mansfield 50 years earlier in Moses v Macferlan,247
said:

[I]t would be most contrary to æquum et bonum, if he were obliged to repay it

back. For see how it is! If the sum be large, it probably alters the habits of his life, he
increases his expences, he has spent it over and over again; perhaps he cannot repay
it at all, or not without great distress: is he then, five years and eleven months after, to
be called on to repay it?

It has been suggested that in formulating this broad legal standard for restitution, Lord
Mansfield was informed variously by Roman law, by the writings of Lord Kames and by
Chancery practice.248 Its origin has been the subject of judicial and academic contention.249
Associate Professor Swain250 has suggested that the roots of English hostility to an equitable
explanation of Moses v Macferlan251 go back to the nineteenth century and can be related to
sensitivities about the relationship between law and equity. …

A detrimental change of position could support a defence of estoppel if other necessary

elements were present. In Holt v Markham,252 the plaintiffs, seeking recovery of money paid
under mistake, were held to be estopped from asserting mistake of fact. Scrutton LJ,253 after
referring to Sadler v Evans,254 adopted the ‘very pungent criticisms which Lord Sumner has
made upon that now discarded doctrine of Lord Mansfield’. Little room was left for a general
change of position defence, which, outside the framework of estoppel, would necessarily
depend upon Lord Mansfield’s equity. The incompatibility of the change of position defence
with the implied contract theory of restitutionary claims was pointed out in the decision
of the Supreme Court of Canada in 1975 in Rural Municipality of Storthoaks v Mobil Oil
Canada Ltd255 Martland J, delivering the judgment of the Court, observed that if the claim

244. Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd (2012) 295 ALR 147 at 188.
245. (1813) 128 ER 641.
246. Brisbane v Dacres (1813) 128 ER 641 at 648–9.
247. (1760) 97 ER 676.
248. W Swain, ‘Moses v Macferlan’, in C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Restitution,
Hart Publishing, Oxford, 2006, p 26–8.
249. See generally W Swain, ‘Unjust Enrichment and the Role of Legal History in England and Australia’ (2013) 36
University of New South Wales Law Journal 1030 at 1042–4.
250. Swain, ‘Unjust Enrichment and the Role of Legal History in England and Australia’, note 252 above, at 1048.
251. (1760) 97 ER 676.
252. [1923] 1 KB 504 at 511, 512–13, 514–15.
253. Holt v Markham [1923] 1 KB 504 at 513.
254. (1766) 97 ER 871.
255. [1976] 2 SCR 147 at 162.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

for recovery of the money was founded upon Moses v Macferlan,256 then the recipient could
‘defend himself by everything which shows that the plaintiff ex æquo et bono is not entitled to
the whole of his demand, or to any part of it.’ Martland J257 added: ‘If, however, the obligation
to repay is contractual, it does not depend upon whether the requirement to repay is just and
equitable’. …

Recognition of a general change of position defence for restitutionary claims, also rooted
in a broad concept of ‘equity’, followed in the United Kingdom in 1991 in the judgment
of Lord Goff of Chieveley in Lipkin Gorman v Karpnale Ltd.258 That recognition had been
foreshadowed in his Lordship’s judgment as Robert Goff J in Barclays Bank Ltd v W J Simms
Son & Cooke (Southern) Ltd.259 In that case he held, as a matter of deduction from previous
authority, that a claim for money had and received may fail if the payee ‘has changed his
position in good faith, or is deemed in law to have done so’.260 In Lipkin Gorman,261 he
formulated the defence broadly so as not to inhibit its development on a case-by-case basis:

At present I do not wish to state the principle any less broadly than this: that the
defence is available to a person whose position has so changed that it would be
inequitable in all the circumstances to require him to make restitution, or alternatively
to make restitution in full.

He was there dealing with change of position as a defence to restitutionary claims generally,
albeit he accepted that the claim for recovery of money paid under a mistake of fact was a
prominent example of a case in which the defence could be invoked. That defence provided
what Professor Burrows262 called:

the normative balance to the strict liability imposed by unjust enrichment: the
defendant can have no objection to the reversal of the enrichment provided it is left
no worse off than if it had not been enriched in the first place.

Consistently with the flexibility of its foundation standard, the defence could be applied
pro tanto. Relevantly to the present appeal, that flexibility is not constrained by a global
limitation based on a quantitative or pseudo-quantitative concept of disenrichment. …
[D]isenrichment … is at best a circumstance which may define a class of case in which
recovery could be held to be inequitable. It is not a unifying rule for the change of position
defence.

In Australia, the principle enunciated in Barclays Bank263 was quoted with approval in David
Securities Pty Ltd v Commonwealth Bank of Australia.264 This Court decided in that case
that the rule precluding recovery of a payment made under a mistake of law, enunciated

256. (1760) 97 ER 676.

257. Rural Municipality of Storthoaks v Mobil Oil Canada Ltd [1976] 2 SCR 147 at 162.
258. [1991] 2 AC 548; [1992] 4 All ER 512.
259. [1980] QB 677; [1979] 3 All ER 522.
260. Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677 at 695; [1979] 3 All ER 522
at 535.
261. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 580; [1992] 4 All ER 512 at 534.
262. A Burrows, ‘Good Consideration in the Law of Unjust Enrichment’ (2013) 129 Law Quarterly Review 329
at 330.
263. Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677; [1979] 3 All ER 522.
264. (1992) 175 CLR 353 at 380; 109 ALR 57 at 76–7.

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in Bilbie v Lumley, was not part of the common law in Australia. As that ‘rule’ had not
265 266

been much debated in the earlier stage of proceedings in the Federal Court, the change
of position defence, raised for the first time in this Court, was not supported by relevant
findings of fact. The question of its application in the particular case was remitted to the
Federal Court. However, in holding that change of position was available as a defence to a
claim for money paid under mistake of law (and also under mistake of fact), the plurality
referred to Lipkin Gorman267 and to academic support for the defence, particularly in
light of the inflexibility of estoppel, which it was thought could not operate pro tanto.268
The plurality relied also upon support for the defence in Canada and the United States
and its statutory recognition in Western Australia and New Zealand.269 In the event, their
Honours270 held that:

the defence of change of position is relevant to the enrichment of the defendant

precisely because its central element is that the defendant has acted to his or her
detriment on the faith of the receipt.

This Court has subsequently held restitutionary claims against governments in respect
of overpayments of tax or tax paid under an invalid law to be subject to the same general
principles and has discussed those principles in that context.271 In Roxborough,272 Gleeson CJ,
Gaudron and Hayne JJ quoted with approval the observation of Mason CJ in Commissioner
of State Revenue (Vict) v Royal Insurance Australia Ltd273 that:

Restitutionary relief, as it has developed to this point in our law, does not seek to
provide compensation for loss. Instead, it operates to restore to the plaintiff what has
been transferred from the plaintiff to the defendant whereby the defendant has been
unjustly enriched.

In discussing so-called ‘unjust enrichment theory’ in Roxborough,274 in the context of claims

for money had and received, Gummow J275 referred to Lord Mansfield’s observation [in
Ringsted v Lady Lanesborough276] that:

General rules are … varied by change of circumstances. Cases arise within the letter,
yet not within the reason, of the rule; and exceptions are introduced, which, grafted
upon the rule, form a system of law.

265. (1802) 102 ER 448.

266. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 376, 393, 399, 402; 109
ALR 57 at 73, 87, 92, 94–5.
267. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1992] 4 All ER 512.
268. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 385, 406; 109 ALR 57 at
80, 97–8.
269. Property Law Act 1969 (WA) ss 124, 125; Judicature Act 1908 (NZ) ss 94A, 94B, inserted by the Judicature
Amendment Act 1958 (NZ).
270. David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 385, 405–6; 109 ALR 57
at 81, 97–8.
271. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; 185 ALR 335.
272. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 529; 185 ALR 335 at 343.
273. (1994) 182 CLR 51 at 75; 126 ALR 1 at 15.
274. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; 185 ALR 335.
275. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 544; 185 ALR 335 at 355.
276. (1783) 99 ER 610 at 613.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Unjust enrichment came to be seen not as a principle of ‘direct application in a particular

case’277 but rather as a taxonomical concept.278 It was not at large. As this Court said in Farah
Constructions Pty Ltd v Say-Dee Pty Ltd,279 it was not to be determined:

by reference to a subjective evaluation of what is unfair or unconscionable: recovery

rather depends on the existence of a qualifying or vitiating factor falling into some
particular category.

That being said, the equitable norm underlying the concept of unjust enrichment is to be
found in Moses v Macferlan.280 Neither that case nor subsequent authority precluded the
emergence of ‘novel occasions of unjust enrichment supporting claims for restitutionary
relief ’.281

38.93 In the light of these cases on the change of position defence, in Southage Pty Ltd
v Vescovi282 the Victorian Court of Appeal concluded that ‘the ultimate inquiry is whether it
would be inequitable in all the circumstances to require the respondent to make restitution.
The focus for the court in answering this question is on what was done by the recipient in
reliance upon the receipt.’
38.94 A useful case illustrating the connection between the element of requirement of
‘injustice’ in relation to a restitution claim and the change of position defence is the decision
of the Court of Appeal in New South Wales in Ford v Perpetual Trustees Victoria Ltd.283 In that
case Ford, a man with a congenital intellectual impairment, signed a loan agreement for the
purposes of financing the purchase of a cleaning business in his name. However, the business
was for the benefit of his son, who had manipulated his father’s entry into the transaction.
The purchase price for the business was paid by the lender to the vendors on settlement of the
purchase. The balance of the loan funds — $24,857 — was paid into Ford’s bank account. The
New South Wales Court of Appeal unanimously found the loan agreement signed by Ford to be
void ab initio on the basis of the principle of non est factum.284 The lender’s claim for restitution
in relation to the whole of the loan moneys was refused, even though Ford did not plead a
change of position defence. The Court only ordered restitution in relation to the funds actually
paid into Ford’s bank account.

277. Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 299; 260 ALR 71 at 90.
278. Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 544–5; 185 ALR 335 at 355–6.
279. (2007) 230 CLR 89 at 156; 236 ALR 209 at 256.
280. (1760) 97 ER 676.
281. Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 516; 286 ALR 12 at 24.
282. (2015) 321 ALR 383 at 399.
283. (2009) 75 NSWLR 42; 257 ALR 658. The decision in Ford v Perpetual Trustees Victoria Ltd has been
applied in several cases including Heperu Pty Ltd v Belle (2009) 76 NSWLR 230 at 266–7; Edwards
v Sydney Building Group Pty Ltd [2011] NSWCA 154 at [32]; Quikfund (Australia) Pty Ltd v Airmark
Consolidators Pty Ltd (2014) 222 FCR 13 at 41–3; 312 ALR 254 at 280–3; Adrenaline Pty Ltd v Bathurst
Regional Council (2015) 97 NSWLR 207 at 225–6; Hodgson v Besters [2018] NSWSC 21 at [134]; Silversea
Cruises Australia Pty Ltd v Abellanoza [2018] NSWSC 1565 at [28]; Simmons v Simmons [2019] NSWSC
1050 at [114]–[115].
284. See 16.88–16.95.

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38.95 In relation to the failure to plead a change of position, or indeed any other defence,
Allsop P and Young JA285 said:
The relevant enquiry as to the availability of the order for payment or repayment does not
cease with the identification of the relevant qualifying consideration, such as mistake. The
enquiry is as to the injustice of the retention of any money or benefit. This lies at the root of
the claim and of any defence such as change of position.

38.96 In their conclusion as to the amount of restitution to be made to the lender, their
Honours286 said:
The question of request, payment, receipt and benefit should be viewed as matters of substance
and not form or legal technicality. A good illustration of the legitimacy of this approach can
be found in National Commercial Banking Corporation of Australia Ltd v Batty.287 … [This
case] is authority for the proposition that in circumstances where funds have been placed in
a bank account of a party, that party will not be taken to have received the funds unless he,
she or it ought to have known of their presence through some fault. In those circumstances,
the relevant fault of the recipient and the consequent conclusion that he, she or it ought to
have known of the receipt will then suffice for non repayment of the funds to be unjust or
against justice and equity. …

Here, on the facts, Mr Ford was a manipulated intermediary with no understanding of any
aspect of the overall transaction. In substance, he received no benefit from the loan, beyond
the receipt and retention in his account of $24,857. Executory obligations to the [vendors of
the business] were discharged with the loaned funds, but, on his Honour’s findings, it can be
accepted with confidence that Mr Ford did not know what he was signing in relation to the
purchase documentation, giving rise to a likely defence of non est factum … which would
have entitled him to a release from such executory obligations. Looking at the matter as one
of substance, Mr Ford was the innocent, mentally incapable dupe of his son. Save for the
$24,857, in no real or substantive sense did he receive and retain benefits such that it would
be unjust for him not to repay the loan. …

In all these circumstances, as a matter of substance, apart from the $24,857 placed in his
account, Mr Ford did not receive the benefit of the funds in circumstances that would make
it unjust for him not to pay to Perpetual the balance of the loan.

38.97 Restitution may also be available pursuant to a statute. Illustrative is the frustrated
contracts legislation.288 Similarly, where courts have determined the existence of an
unconscionable or unjust contract there may be a need to examine restitutionary issues.289

285. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 69; 257 ALR 658 at 684.
286. Ford v Perpetual Trustees Victoria Ltd (2009) 75 NSWLR 42 at 69–71; 257 ALR 658 at 684–6.
287. (1986) 160 CLR 251; 65 ALR 385.
288. This legislation is discussed in 25.72–25.98.
289. See, for example, s 8 of the Contracts Review Act 1980 (NSW) discussed in Chapter 20.

895
 Part IX:
Third Party Rights
 39
PRIVITY OF CONTRACT

INTRODUCTION
39.1 The basis of the doctrine of privity of contract is that only the parties to a contract can
acquire rights and liabilities under that contract. A third person who stands to benefit from the
contract, but who is not a party to it, has no rights or liabilities under the contract. Although
the doctrine is well entrenched by authority,1 it has not escaped considerable judicial and
academic criticism. Thus, in Swain v Law Society,2 Lord Diplock described it as ‘an anachronistic
shortcoming that has for many years been regarded as a reproach to English private law’. This
widespread criticism has, no doubt, influenced courts to sanction various so-called ‘exceptions’
to the doctrine by which it can be effectively circumvented.
39.2 The classic statement of the doctrine of privity is found in Dunlop Pneumatic Tyre Co
Ltd v Selfridge & Co,3 where Viscount Haldane said:
My Lords, in the law of England certain principles are fundamental. One is that only a person
who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio
arising by way of contract. Such a right may be conferred by way of property, as, for example,
under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the
contract in personam.

A simple illustration of the operation of the doctrine is where A promises B, for consideration
moving from B, to pay C $100. Here A and B are parties to the contract — privy to the
contract — and can sue each other if there is a breach by the other. C is not a party to the
contract and cannot sue A if A fails to pay C the sum of $100.
39.3 Although the doctrine of privity precludes C from bringing an action to enforce the
contract, it does not preclude C from seeking declaratory relief in relation to the contract. This
is so because declaratory relief is not relief in the form of an order enforcing the contract.4 Thus,
provided C meets the requirements for declaratory relief, he or she may get an order relating to

1. Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 478; Wollongong Coal Ltd v Gujarat
NRE India Pty Ltd (2019) 100 NSWLR 432 at 445–7; 372 ALR 165 at 178–9; Clarence City Council v The
Commonwealth [2020] FCAFC 134 at [76]–[79].
2. [1983] 1 AC 598 at 611; [1982] 2 All ER 827 at 832.
3. [1915] AC 847 at 853.
4. Clarence City Council v The Commonwealth [2020] FCAFC 134 at [92]-[93].

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

the interpretation and application of the contract, as occurred in Clarence City Council v The
Commonwealth.5

PRIVITY AND ITS RELATIONSHIP TO THE DOCTRINE OF

CONSIDERATION
39.4 In Chapter 6, note was made of the rule that consideration must move from a promisee,
or, in other words, that only a person who has provided consideration can enforce a promise. In
the above example,6 it could be argued that C could not sue on the basis that C did not provide
any consideration for A’s promise to pay C the sum of $100.
39.5 This raises the question of whether there is a distinction between the privity and
consideration rules. This question has generated considerable discussion in academic circles and
there is a division of opinion between those who say the rules are in fact one rule differently
expressed, and those who argue that the two are distinct rules.7 In the following cases, the relatively
scant references to the question tend to support the distinct rules approach. For example, in
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,8 Mason CJ and Wilson J said:
So far we have proceeded on the footing that there are two distinct common law rules.
This accords with the law as Lord Haldane stated it in Dunlop.9 … However, … there is an
opposing view that the two rules are but one. In other words, to say that A is not a party
to the contract is to say only that he is not a person who gave a promise in exchange for
another. … As a matter of history this view has much to support it. The consideration
requirement was the nub of the earlier cases. The privity requirement seems to have gained
acceptance either as an alternative way of asserting the consideration requirement or as a
by-product of it. Nevertheless the weight of authority points to the existence of two distinct,
albeit interrelated, principles. Thus, if A, B and C are parties to a contract and A promises
B and C that he will pay C $1,000 if B will erect a gate for him, C cannot compel A to carry
out his promise, because, though a party to the contract, C is a stranger to the consideration.

REMEDIES AGAINST A PROMISOR IN BREACH OF OBLIGATIONS

TO A THIRD PARTY
39.6 Here we are concerned with the remedies that can be pursued against a promisor who
is in breach of his or her obligations to a third party. In the example above10 there are two
questions that need to be answered.

5. [2020] FCAFC 134 at [191].

6. See 39.3.
7. M P Furmston, ‘Return to Dunlop v Selfridge?’ (1960) 23 Modern Law Review 373 at 382–5; G Samuels,
‘Contracts for the Benefit of Third Parties’ (1967–68) 8 University of Western Australia Law Review 378 at
381–5; V V Palmer, The Paths to Privity, The History of Third Party Beneficiary Contracts at English Law,
Austin & Winfield, San Francisco, 1992, pp 23–5.
8. (1988) 165 CLR 107 at 115–16; 80 ALR 574 at 579. See also Coulls v Bagot’s Executor & Trustee Co Ltd
(1967) 119 CLR 460 at 478, 494–5; Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (2019) 100 NSWLR
432 at 436; 372 ALR 165 at 168.
9. Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 853.
10. See 39.3.
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 CHAPTER 39: PRIVITY OF CONTRACT­

39.7 First: Who can sue A? Because C is a third party and not privy to the contract, C has no
right of action against A. However, B as the promisee under the contract and a party to it can
sue A.
39.8 Second: What remedies are available to B? Two possible remedies arise, namely, damages
at common law and specific performance in equity. It must be remembered that the decision
as to whether to sue A, and what remedy will be sought, is a matter for B. C has no right to
force B’s hand on either of these decisions.11 Each of the two remedies needs to be looked at in
more detail.

Damages at common law

39.9 Because the remedy of common law damages for breach of contract will always be
granted to a plaintiff, B will succeed. However, the critical issue for present purposes is the
measure of damages that will be recovered by B. In this respect, the general rule is that B,
as plaintiff, can only recover damages for the loss that he or she has suffered.12 The issue of
whether B can recover damages in relation to losses suffered by C will be dealt with below.13
39.10 Critical to an understanding of B’s position in relation to the recovery of damages for
his or her own losses, is the basic principle that an award of damages is based upon the principle
of compensating the plaintiff for the losses suffered as a result of the breach of contract.14 If no
loss is suffered, then only nominal damages are ordered in favour of the plaintiff. If the plaintiff
suffers a loss, then an award of substantial damages is made in his or her favour.
39.11 In the above example it is likely that B would recover nominal damages because
B suffered no loss as a result of the breach by A.15 Put another way, B’s position is the same
irrespective of whether or not A pays the sum of $100 to C. In special circumstances it may
be that B will suffer a real loss, in which case substantial damages will be awarded to reflect
the monetary value of B’s loss.16 Because in most cases the measure of damages recovered will
be nominal, there is little reason for B to pursue common law damages.
39.12 The question of whether B can recover damages in relation to losses suffered by
C brings into focus the general rule that a plaintiff can only recover damages for losses suffered
by the plaintiff.17 This suggests that B cannot recover damages in relation to any losses suffered
by C. However, ‘driven by legal necessity … to avoid a “legal black hole”’,18 English law has
moved towards some exceptions to this general rule. In these exceptional cases, if B recovers
damages for loss suffered by C, B holds the sum recovered on trust for C.19

11. Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 502.
12. The Albazero [1977] AC 774 at 845; [1976] 3 All ER 129 at 136; Darlington Borough Council v Wiltshier
Northern Ltd [1995] 3 All ER 895 at 900.
13. See 39.12–39.18.
14. See 29.8.
15. Darlington Borough Council v Wiltshier Northern Ltd [1995] 3 All ER 895 at 900.
16. Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 501–2.
17. See 39.9.
18. Swynson Ltd v Lowick Rose LLP (in liq) [2018] AC 313 at 324; [2017] 3 All ER 785 at 793–4.
19. Gard Marine and Energy Ltd v China National Chartering Co Ltd [2018] 1 All ER 832 at 862.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

39.13 First, in holiday contract cases, a plaintiff can recover damages for non-economic
losses suffered by members of his or her family.20
39.14 Second, English law, through a series of cases, has developed a broader exception
whereby B can recover damages in relation to the loss suffered by C, but only if C has no
claim of its own that can be pursued against A. The first of these cases arose in the context of
contracts for the carriage of goods. In The Albazero,21 Lord Diplock said:
[I]n a commercial contract concerning goods where it is in the contemplation of the parties
that the proprietary interests in the goods may be transferred from one owner to another
after the contract has been entered into and before the breach which causes loss or damage
to the goods, an original party to the contract, if such be the intention of them both, is to
be treated in law as having entered into the contract for the benefit of all persons who have
or may acquire an interest in the goods before they are lost or damaged, and is entitled to
recover by way of damages for breach of contract the actual loss sustained by those for whose
benefit the contract is entered into.

39.15 In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd,22 the House of Lords
effectively extended the principle in The Albazero23 to cases of contracts in general, and in
the case before it to the transfer of real property in the context of property development and
construction. This meant that B, a contracting party, could bring an action to recover damages
from A, the builder, for losses suffered by C, a third party, where under the building contract
it was contemplated that the property would be purchased by C and there was a prohibition
on the assignment of the benefit of the contract from B to C without the consent of A, thereby
making it reasonably foreseeable that C would be unable to bring an action against A.24
39.16 More recently, in Alfred McAlpine Construction Ltd v Panatown Ltd,25 the House of
Lords was faced with a situation in which A entered into a building contract with B, for B to
build commercial premises on land owned by C. B and C were part of a group of companies.
As part of the arrangements made for the building work, A also executed a duty of care deed
in favour of C in relation to the building work. This gave C a cause of action against A in
relation to any defective building work on A’s part. A’s work was defective and the issue before
the court was whether B could sue A to recover damages for losses incurred by C as a result of
the defective building work. The majority of the House of Lords held that B could not recover
damages for C’s losses because C had a separate cause of action against A pursuant to the duty
of care deed. The view of the minority was to the effect that if B was unable to recover for C’s
losses, the law was defective in that B would be unable to get compensation in relation to not
getting what B contracted for — that is, performance of the contract in favour of C.
39.17 The picture that emerges from the decision in Alfred McAlpine Construction Ltd
v Panatown Ltd26 is that in England B can sue A and recover damages for losses suffered by C,

20. Jackson v Horizon Holidays [1975] 3 All ER 92.

21. [1977] AC 774 at 847; [1976] 3 All ER 129 at 137.
22. [1994] 1 AC 85; [1993] 3 All ER 417.
23. [1977] AC 774; [1976] 3 All ER 129.
24. Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 114–15; [1993] 3 All ER 417
at 436–7.
25. [2001] 1 AC 518; [2000] 4 All ER 97.
26. [2001] 1 AC 518; [2000] 4 All ER 97.

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 CHAPTER 39: PRIVITY OF CONTRACT­

but only if C has no cause of action of its own against A. In Swynson Ltd v Lowick Rose LLP
(in liq),27 Lord Sumption referred to B’s claim for C’s loss as the recovery of ‘transferred loss’.
In light of these earlier decisions, in BV Nederlandse Industrie Van Eiprodukten v Rembrandt
Enterprises Inc,28 Coulson LJ said that, in order for the principle of transferred loss to apply,
B ‘must show that, at the time that the underlying contract was made, there was a common
intention and/or a known object to benefit the [C] or a class of persons to which [C] belonged’.
39.18 In Australia, the approach signaled by Alfred McAlpine Construction Ltd v Panatown
Ltd29 has been considered by a number of courts,30 but none of them have applied it, which
led Liversey J, in Yuan v O’Neill,31 to conclude that none of them ‘suggest that [the Panatown
principle] forms part of the common law of Australia’.

Specific performance in equity

39.19 Unlike common law damages, specific performance will not always be granted to a
plaintiff upon proof of a breach of contract. There are various grounds upon which a court
will refuse specific performance. A particularly important one in the present context is that a
court has no jurisdiction to order specific performance if common law damages would be an
adequate remedy.32
39.20 The critical decision in this respect is Beswick v Beswick,33 a case discussed in more
detail in the chapter on specific performance.34 The important point to emerge from that case
was the finding that an award of nominal damages would generally be inadequate in a case
such as the example above because such an award would be inadequate to meet the demands
of justice.35
39.21 If the measure of damages recoverable by B is substantial and, pursuant to the
principles in Alfred McAlpine Construction Ltd v Panatown Ltd,36 includes compensation for
C’s loss, damages would generally be an adequate remedy and thus specific performance would
be refused.
39.22 Although B has remedies that he or she can pursue against A, the reality is that in most
cases there is little incentive for B to pursue either of them. Seeking common law damages is
of no practical utility because the usual result will be an award of nominal damages. In relation

27. [2018] AC 313 at 324; [2017] 3 All ER 785 at 793–4.

28. (2019) 4 All ER 612 at 638. See also Dr Jones Yeovil Ltd v The Stepping Stone Group Ltd [2020] EWHC 2308
(TCC) at [132]–[139].
29. [2001] 1 AC 518; [2000] 4 All ER 97.
30. Roman Catholic Trusts Corporation v Van Driel Ltd [2001] VSC 310 at [108]–[109]; Transpacific Fish
Exports Pty Ltd v Austmarine Pty Ltd [2005] SASC 147 at [186]; Stanley v Layne Christensen Co [2006]
WASCA 56 at [27]–[28]; Australian Goldfields NL (in liq) v North Australian Diamonds (2009) 40 WAR 191
at 208; Pourzand v Telstra Corporation Ltd [2012] WASC 210 at [205]; McLeary v Swift [2012] NSWSC 1403
at [26].
31. [2020] SASC 49 at [77].
32. See 31.18–31.38.
33. [1968] AC 58; [1967] 2 All ER 1197.
34. See 31.36–31.37.
35. See also Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 503.
36. [2001] 1 AC 518; [2000] 4 All ER 97.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

to seeking specific performance, it is only altruism that will lead B to bring such a claim. This
is because an order for specific performance does not benefit B — it only benefits C. It is B’s
understandable passivity in relation to suing A that leads to dissatisfaction with the doctrine
of privity. If B is unwilling to sue A and C is unable to sue A, the end result is that A escapes
liability for his or her breach of contract.
39.23 It is for this reason that there have been many calls for the abolition of the doctrine of
privity. To date there have been partial responses to these calls in the form of various legislative
reforms in a number of jurisdictions in the common law world. Furthermore, the courts have
been creative in terms of circumventing the doctrine as will be discussed below. However, the
courts have been reluctant to attack the legitimacy of the doctrine head on, although various
members of the High Court did do so in the case of Trident General Insurance Co Ltd v McNiece
Bros Pty Ltd.37

THE DECISION IN TRIDENT GENERAL INSURANCE v MCNIECE

BROS PTY LTD
39.24 In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,38 a construction company,
Blue Circle Southern Cement Ltd, entered into a contract of insurance with Trident in June 1977,
insuring contract works in relation to a construction site at Marulan. In addition, it obtained
public liability insurance cover and maintenance/defects liability insurance cover from Trident.
The insurance policy defined ‘The Assured’ (or the Insured) as ‘Blue Circle Southern Cement
Ltd, all its subsidiary, associated and related companies, all contractors and sub-contractors
and/or suppliers’. McNiece Bros was Blue Circle’s principal contractor on the site. A worker on
the site, Hammond, working under the direction of McNiece Bros, was injured and suffered
personal injuries. He successfully sued McNiece Bros for damages for those injuries. McNiece
Bros sought to be indemnified by Trident under the insurance policy in relation to the damages
of over half a million dollars that it had been ordered to pay to Hammond. Trident denied
liability to McNiece Bros on the basis that McNiece Bros could not enforce a claim under the
insurance policy to which it was not a party. The principal question before the High Court was
whether the doctrine of privity of contract applied in favour of Trident, or whether there were
any exceptions to the doctrine that could be relied upon by McNiece Bros. By a majority, the
High Court found in favour of McNiece Bros.
39.25 The various judgments in this case display a variety of approaches to the facts of the
case, with no clear majority reasoning. Various exceptions to the doctrine of privity were relied
upon and the case is important in that respect. However, the present importance of the case is
in relation to what the members of the High Court had to say about the doctrine itself.

The radical judges

39.26 Three judges, Mason CJ, and Wilson and Toohey JJ, were prepared to abolish the
doctrine of privity, at least in the context of an insurance contract. Mason CJ and Wilson J, in
a joint judgment, expressed their reason in very general terms, indicating that privity should

37. (1988) 165 CLR 107; 80 ALR 574.

38. (1988) 165 CLR 107; 80 ALR 574.

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be abolished in all cases. Toohey J specifically confined his comments to insurance contracts,
leaving it for the court to determine in later cases whether it applied to other types of contract.
It can be noted that Dawson J39 made the point that such a partial abolition of privity could not
be sustained on the basis of ‘any coherent body of principle’. His Honour was clearly of the view
that privity applied across the board to all contracts or to none. As noted below,40 his preference
was for the former alternative.
39.27 In terms of the justification for the abolition of privity, Mason CJ and Wilson J41 stated
three major substantive objections to the doctrine. First, they claimed that the remedy of
damages by the promisee (B in our example) against the promisor (A in our example), was ‘not
a sufficient sanction to secure performance of the promise’ by A. This flowed from the reality
that the remedy would often only attract nominal damages. Second, specific performance
did not provide a sufficient sanction, as it is not always available because of the discretionary
nature of the remedy and the fact that in many cases it would not be a practical remedy. Third,
although there were various so-called exceptions to privity, they were inadequate and not
always available to overcome the injustices that arise as a consequence of the privity doctrine
being applied. Their Honours were of the view that a third party (C in our example) should
not have to establish the grounds for any of these so-called exceptions, and that the third party
should simply be able to enforce the promise made by the promisor (A in our example).
39.28 Their Honours42 also observed that in any abolition of the doctrine, due recognition
had to be given to the right of the promisor and promisee (A and B in our example) to generally
be able to vary or revoke, by agreement, the benefit to the third party pursuant to the contract.
39.29 Toohey J43 expressed similar views to those of Mason CJ and Wilson J and concluded
with the following comment:
[W]hen a rule of the common law harks back no further than the middle of the [nineteenth]
century, when it has been the subject of constant criticism and when, in its widest form,
it lacks a sound foundation in jurisprudence and logic and further, when that rule has
been so affected by exceptions or qualifications, I see nothing inimical to principled
development in this Court now declaring the law to be otherwise in the circumstances of
the present case.

The conservative judges

39.30 Three members of the High Court, Brennan J,44 Deane J,45 and Dawson J46 emphatically
confirmed the status of the doctrine of privity as a fundamental doctrine in the law of contract.

39. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 162; 80 ALR 574 at 613.
40. See 39.30–39.31.
41. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 118–21; 80 ALR 574
at 582–3.
42. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 122; 80 ALR 574 at 583.
43. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 170–1; 80 ALR 574 at 619.
44. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 128–9; 80 ALR 574
at 588–9.
45. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 141–3; 80 ALR 574
at 598–9.
46. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 155; 80 ALR 574 at 608.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW

All three were of the view that it was inappropriate for the High Court to overrule such an
established doctrine. Thus, Deane J47 said:
Circumstances can undoubtedly arise in which accepted processes of legal reasoning require
a court, usually a final appellate court, to reverse the development of the law by disowning
established principle. However, where the established principle is as entrenched, by authority
and in legal conception, as is the principle of privity, such a reversal can only be justified by
precisely defined and compelling reasons advanced as part of a plainly identified process of
legal reasoning. No such reasons are available to justify a wholesale abrogation of the general
common law rule of privity of contract.

39.31 All three judges noted that any injustices that may arise in the application of the privity
doctrine can be dealt with by application and development of various so-called exceptions to
the doctrine.

The seventh judge

37.32 The final judge in the High Court, Gaudron J,48 in a short statement confirmed the
doctrine of privity, but without the background discussion and reference to authority that
marked the discussion of the doctrine by the other members of the court. Her Honour’s
judgment was focused on establishing that, notwithstanding the doctrine, the promisor’s
promise could, where necessary, give rise to obligations that would be enforceable on principles
totally independent of contract law — in this case the principle of unjust enrichment. Gaudron J
made it clear that this alternative cause of action in no way denied the existence of privity
and indeed was dependent on the existence of a contract for the benefit of a third party. To
that extent her judgment on the issue of the place of privity in Australian contract law is to be
grouped with the three conservative judges noted above.
39.33 It should be noted that Gaudron J’s view that unjust enrichment formed a basis for
enforcement of the promisor’s promise was subsequently rejected by the Court of Appeal in
New South Wales in Benson v Rational Entertainment Enterprises Ltd.49
39.34 In Winterton Constructions Pty Ltd v Hambros Australia Ltd50 Gummow J, after a
long analysis of Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,51 concluded with the
following observation:
At best … there is support by three only of their Honours for the proposition … that the old
rules do not apply in their full vigour.

His Honour was, of course, referring to Mason CJ, and Wilson and Toohey JJ.

47. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 143; 80 ALR 574 at 599.
48. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 174; 80 ALR 574 at 622.
49. (2018) 97 NSWLR 798 at 818–21; 355 ALR 671 at 690–3.
50. (1991) 101 ALR 363 at 368.
51. (1988) 165 CLR 107; 80 ALR 574.

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‘EXCEPTIONS’ TO THE DOCTRINE OF PRIVITY OF CONTRACT

39.35 There are several situations where a non-contracting third party who is intended to get a
benefit from the contract made between other parties, has a legal remedy against a party who has
promised to confer the benefit. These situations are often referred to as ‘exceptions’ to the doctrine
of privity, but are more correctly analysed as arising for reasons other than from contract law.52

Agency
39.36 The rule here is that if one of the contracting parties contracts as an agent for the third
party, then either the agent or the principal, but not both, can sue to enforce the contract. In
our example, if B is C’s agent, then either B (the agent) or C (the principal) can enforce the
contract against A. The essence of an agency relationship is where ‘one party [B in the present
context] acts on the other’s [C’s in the present context] behalf, and that this will generally be in
circumstances of a requirement or duty not to act otherwise than in the interests of [C] in the
performance of the consensual arrangement’.53
39.37 The critical question here is whether A knew of the agency relationship when he or she
contracted with B. The law on this question was summarised by Diplock LJ in Teheran-Europe
Co Ltd v S T Belton (Tractors) Ltd,54 as follows:
Where an agent has … actual authority and enters into a contract with another party
intending to do so on behalf of his principal, it matters not whether he discloses to the other
party the identity of his principal, or even that he is contracting on behalf of a principal at all,
if the other party is willing or leads the agent to believe that he is willing to treat as a party to
the contract anyone on whose behalf the agent may have been authorised to contract. In the
case of an ordinary commercial contract such willingness of the other party may be assumed
unless either the other party manifests his unwillingness or there are other circumstances
which should lead the agent to realise that the other party was not so willing.

Exclusion clauses and third parties

39.38 A particular situation where agency principles arise is with contracts for the carriage of
goods. Typically, the situation will involve a carrier who includes in the contract an exclusion
clause, and the exclusion clause is expressed to be for the benefit of not only the carrier, but
third parties that might be engaged by the carrier for the purpose of transporting the goods.
39.39 A common example where such clauses have been used is with a contract for the carriage
of goods by sea. Such a contract, known as a bill of lading, usually contains a clause purporting
to extend the exclusion or limitation of liability to the employees, agents, and subcontractors of
the principal party benefiting from the clause. Typical wording in such a clause is:
It is hereby expressly agreed that no servant or agent of the carrier shall in any circumstances
whatever be under any liability whatsoever to the shipper, consignee or owner of the goods
or to any holder of this bill of lading for … negligence.

52. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 143; 80 ALR 574 at 599;
Clarence City Council v The Commonwealth [2020] FCAFC 134 at [89].
53. Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [177].
54. [1968] 2 QB 545 at 555; [1968] 2 All ER 886 at 890.
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39.40 It is often the case that such a clause, popularly referred to as a ‘Himalaya clause’, is
also expressed to be made on behalf of the servant or subcontractor by going on to say that
the carrier is agent or trustee on behalf of their servants or agents and all such persons shall be
deemed to be parties to the contract.
39.41 The application of a Himalaya clause can be illustrated in a number of cases. In Wilson
v Darling Island Stevedoring,55 a shipping company agreed to ship, for Wilson, some cloth from
Marseilles to Sydney. The contract excluded any liability by the shipping company for damage
to the cloth after unloading from the ship. In Sydney, the shipping company engaged Darling
Island to unload the ship and store the cloth. As a result of the stevedore’s negligence, a crane
broke a water pipe and water flow ruined the cloth. Wilson sued Darling Island, which pleaded
as a defence the exclusion clause in the contract between Wilson and the shipping company.
It relied on the ground that the shipping company had employed it to unload the ship and store
the goods.
39.42 A majority of the High Court (Dixon, Fullagar, and Kitto JJ) held that, as a stranger to
the contract, Darling Island did not get the benefit of the exclusion clause and so was liable to
Wilson in negligence. Fullagar J56 said that ‘the obvious answer to [Darling Island’s] argument
was that [it] was not a party to the contract’, and what flowed from this was that Darling Island
‘can neither sue nor be sued on that contract’, and that ‘nothing in a contract between two
other persons can relieve [Darling Island] from the consequences of a tortious act committed
by it against [Wilson]’. Thus, the privity rule was applied. The other member of the majority,
Kitto J,57 did not regard the doctrine of privity to be relevant, and instead emphasised that the
court was concerned with an action in tort, rather than an action in contract.
39.43 In Midland Silicones Ltd v Scruttons Ltd,58 Lord Reid set out the following four
requirements that a third party had to satisfy in order to be able to rely on a Himalaya clause:
• It must be clear from the wording that that the third party is intended to be protected by the
exclusion or limiting clause.
• The primary contracting party, besides contracting for the relevant clause on its own behalf,
‘must also contract as agent for the third party’.
• The primary contracting party must have the express or implied authority to contract on
behalf of the third party. It is also possible that this authority can be given retrospectively by
an act of ratification. It should be noted by way of passing that pursuant to the law of agency,
the unauthorised acts of an agent can be subsequently ratified by the principal. Ratification
can be express or implied, in that the principal acts in such a way as to imply an adoption
of the agent’s actions.
• Any difficulties about the need for ‘consideration moving from the [third party must be]
overcome’. In other words, the third party must show that he or she provided consideration
for the primary contracting party’s promise to exempt the third party from liability.

55. (1956) 95 CLR 43.

56. Wilson v Darling Island Stevedoring (1956) 95 CLR 43 at 67.
57. Wilson v Darling Island Stevedoring (1956) 95 CLR 43 at 81.
58. [1962] AC 446 at 474; [1962] 1 All ER 1 at 10.

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39.44 Lord Reid’s statement of principles were applied in New Zealand Shipping Co Ltd v A
M Satterthwaite & Co Ltd; ‘The Eurymedon’.59 The Himalaya clause in the bill of lading in this
case read as follows.
It is hereby expressly agreed that no servant or agent of the carrier (including every
independent contractor from time to time employed by the carrier) shall in any circumstances
whatsoever be under any liability whatsoever to the shipper, consignee or owner of the goods
or to any holder of this bill of lading for any loss or damage or delay of whatsoever kind
arising or resulting directly or indirectly from any act, neglect or default on his part while
acting in the course of or in connection with his employment and, without prejudice to the
generality of the foregoing provisions in this clause, every exemption, limitation, condition
and liberty herein contained and every right, exemption from liability, defence and immunity
of whatsoever nature applicable to the carrier or to which the carrier is entitled hereunder
shall also be available and shall extend to protect every such servant or agent of the carrier
acting as aforesaid and for the purpose of all the foregoing provisions of this clause the carrier
is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all
persons who are or might be his servants or agents from time to time (including independent
contractors as aforesaid) and all such persons shall to this extent be or be deemed to be
parties to the contract in or evidenced by this bill of lading.

The goods were subsequently damaged by the negligence of the stevedore’s unloading of the
ship. International rules of carriage of goods by sea discharged the carrier from liability if there
was no claim made within a year. The owners did not commence an action for negligence
within the 12-month period. The question was whether the stevedore had the benefit of the
limitation and was exempt from liability.
39.45 A majority of the Privy Council held that the clause in question satisfied the conditions
laid down by Lord Reid and found in favour of the stevedore. The clause was intended to
protect the stevedore, was contracted for on its behalf, and the shipper had the stevedore’s
authority to do so. The fourth condition — consideration — was satisfied by the stevedore
performing the service of unloading the goods from the ship. Thus, the 12-month limitation
clause protected the stevedore from liability. According to Lord Wilberforce,60 with whom the
others in the majority agreed:
[T]he bill of lading brought into existence a bargain initially unilateral but capable of becoming
mutual, between the shipper and the [stevedore], made through the carrier as agent. This
became a full contract when the [stevedore] performed services by discharging the goods.
The performance of these services for the benefit of the shipper was the consideration for the
agreement by the shipper that the [stevedore] should have the benefit of the exemptions and
limitations contained in the bill of lading.

39.46 The High Court and the Privy Council endorsed New Zealand Shipping Co Ltd in
Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon Pty Ltd; ‘The New York Star’.61 In
that case a consignment of razor blades was shipped from Canada to Australia on a ship of
the Blue Star line known as ‘The New York Star’. The bill of lading issued in Canada contained

59. [1975] AC 154; [1974] 1 All ER 1015.

60. New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd; ‘The Eurymedon’ [1975] AC 154 at 167–8;
[1974] 1 All ER 1015 at 1020.
61. (1978) 139 CLR 231; 18 ALR 333 (High Court); (1980) 144 CLR 300; 30 ALR 588 (Privy Council).

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a clause extending the benefit of limitation and exclusion clauses conferred on the carrier to
all independent contractors employed by the carrier. There was also a time clause barring any
action if not brought within 12 months of the delivery of the goods. When the ship arrived in
Sydney, the stevedore unloaded the boxes of razor blades from the ship and placed them in a
warehouse on the wharf. The stevedore’s employees negligently allowed a thief to remove them
from the warehouse. The consignee sued the stevedore for negligence. The stevedore sought to
rely on the exclusion clauses and time bar in the bill of lading.
39.47 The majority of the High Court (Barwick CJ, and Jacobs and Mason JJ) held that the
Himalaya clause protected the stevedore on the basis that the first and second of Lord Reid’s
requirements were met and that the facts supported an inference that the carrier had contracted
with the stevedore’s authority. With regards to Lord Reid’s fourth requirement, Jacobs and
Mason JJ thought that the provisions of the bill of lading constituted an offer that was capable
of acceptance and that when the stevedore, knowing of it and of its conditions, performed its
conditions by unloading the ship, it had accepted the offer and provided the consideration. In
contrast, Barwick CJ thought that the provisions constituted an agreement with the stevedore,
rather than an offer to it, and that the stevedore gave consideration by unloading the ship.
Barwick CJ62 said:
I can see no validity in a suggestion that the bill of lading could not at the one time contain
a contract of carriage between the consignor and carrier and an arrangement between
consignor and stevedore, made through the agency of the carrier, to regulate the relationship
of consignor and stevedore, when the stevedoring work was undertaken.

39.48 On appeal, the Privy Council also found for the stevedore. Lord Wilberforce said that
it was normal commercial practice for the benefit of this type of clause to extend to third parties
unloading goods from a ship and storing them pending final delivery.
39.49 The law in this area is not limited to contracts for the carriage of goods by sea,
but also extends to other types of contract, such as road carriage contracts.63 In Lifesavers
(Australasia) Pty Ltd v Frigmobile Pty Ltd,64 Frigmobile agreed with Lifesavers to transport
a load of chocolate in a refrigerated van from Sydney to Brisbane. The chocolate was to be
chilled and maintained at a specified temperature. Frigmobile contracted with a haulage
company, which provided the prime mover and driver to haul the refrigerated van from
Sydney to Brisbane. The chocolate was carried at a higher temperature than specified in the
contract and was ruined as a result. The contract of carriage contained an exclusion clause
that extended to exempt not only Frigmobile from liability, but also Frigmobile’s servants,
agents, and subcontractors.
39.50 The Court of Appeal confirmed that principles set out by Lord Reid in Midland
Silicones Ltd v Scruttons Ltd65 could extend to contracts of carriage over land and benefit third
party agents and subcontractors. In this case the conditions were satisfied and the haulage
company could rely on the exclusion clause to avoid liability. In relation to the third of the four

62. Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon Pty Ltd; ‘The New York Star’ (1978) 139 CLR 231
at 243; 18 ALR 333 at 343.
63. Celthene Pty Ltd v WKJ Hauliers Pty Ltd [1981] 1 NSWLR 606.
64. [1983] 1 NSWLR 431.
65. [1962] AC 446; [1962] 1 All ER 1.

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requirements set out by Lord Reid, Hutley JA said that the third party’s ratification of the
66

agency clause in the Himalaya clause could be achieved by simply pleading the exclusion clause
as a defence to liability.
39.51 More recently in Homburg Houtimport BV v Agrosin Private Ltd (The Starsin),67
Lord Millett said:
It is well established by the authorities that the Himalaya clause has the effect of bringing into
being a separate or collateral contract between the cargo owner and a third party, usually an
independent contractor such as a stevedore, under which the third party enjoys exemption
from liability to the cargo owner. They also establish that the contract is a unilateral or
‘if ’ contract by which the third party undertakes no obligation to the cargo owner of any
kind, but the cargo owner promises that if the third party does anything in the course of its
employment which damages the cargo it will have the benefit of the protective provisions of
the clause. … Such a contract is a promise for an act, not a promise for a promise. If in the
course of its employment the third party performs an act in relation to the goods, which it
is under no obligation to the cargo owner to perform, it will at the one and same time bring
the contract with the cargo owner into existence and supply the consideration for the cargo
owner’s promise of exemption from liability.

39.52 Lord Millett’s comment illustrates that the Midland Silicones Ltd v Scruttons Ltd68
principles do not, strictly speaking, amount to an exception to the doctrine of privity. This is
because they give rise to a separate contract to which the stevedore is a party, and of which the
exclusion clause is a term.
Covenants on land
39.53 The law of real property allows for the attachment of restrictive covenants to land.
Suppose that X conveys land to Y and Y agrees not to erect on the land a house made of fibro.
This is a covenant on land and, if in the proper form, will bind any subsequent owner of
the land.69
39.54 An example of a binding covenant occurred in Smith and Snipes Hall Farm Ltd
v River Douglas Catchment Board.70 In this case, in 1938 several owners of land that adjoined a
stream agreed in a deed to improve and maintain the banks of the stream, each owner to pay
a proportion of the costs of the project. In 1940 Smith purchased one of the properties and
leased it out to the respondent. In 1946 the land was flooded as a result of the stream bursting
its banks. Action was then taken by Smith and the lessee against the River Douglas Catchment
Board for negligence and for breach of covenant between the land owners.
39.55 The Court of Appeal held that despite the fact that the plaintiffs were not parties to
the original contract, the covenants that were contained in this contract were intended to
benefit both the original parties to the contract and any transferees from them. The principles

66. Lifesavers (Australasia) Pty Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431 at 438.
67. [2004] 1 AC 715 at 798; [2003] 2 All ER 785 at 851–2.
68. [1962] AC 446; [1962] 1 All ER 1.
69. New Zealand Industrial Park Ltd v Stonehill Trustee Ltd [2019] NZCA 147 at [55].
70. [1949] 2 KB 500; [1949] 2 All ER 179.

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applicable to such covenants are important within the law relating to real property. A detailed
analysis of these principles is beyond the scope of this book.

Trusts
39.56 The law of trusts enables a third party beneficiary to initiate action that will enforce the
promisor’s obligation.71 In Kowalski v Mitsubishi Motors Australia Staff Superannuation Fund
Pty Ltd,72 Nicholson J explained the trust exception to privity as follows:
This exception arises where a court is prepared to accept that a promise to benefit a non-
party, and on which it seeks to rely, can be said to have been made by one party to another
party to the contract in circumstances which speak of the promisee party’s intention to hold
the benefit of that promise on trust for the non-party.

39.57 Thus, in a contract where A promises B, for consideration moving from B, to pay C
$100, if B has contracted with A in the capacity of trustee for C, C as beneficiary under the
trust has enforceable rights. These rights arise because the law of trusts gives a beneficiary
certain rights against a trustee. These rights arise because it is the duty of the trustee to protect
and preserve trust property.73 In this example, this duty would require B to sue A for breach
of contract if A fails to pay C. If B fails to carry out his duty, C, as beneficiary of the trust, is
entitled to bring an action against B, the defaulting trustee and join A as a second defendant.
The substance of these is to, in effect, compel B to sue A for breach of contract.74 However,
C can only initiate such proceedings if B refuses to sue A.75
39.58 The use of trust law here does not give rise, in the strict sense, to an exception to
the doctrine of privity. In conceptual terms, the action against A is pursued by B, albeit at C’s
insistence.
39.59 For the trust relationship to arise, two points need to be examined. First, for a trust to
exist there must be property that is held on trust.76 For the purposes of trusts, contractual rights
or promises may be the subject matter of a trust.77 In other words, in the contract between
A and B, it is the promise made by A to B that is held on trust by B for C. Second, for the trust to
arise in this context, it must be established that there is an intention, at the time of the contract
between A and B, that B was contracting in the capacity of trustee. The intention is usually
the joint intention of A and B. However, in Trident General Insurance Co Ltd v McNiece Bros
Pty Ltd,78 Deane J said that it was enough if B alone had the intention.

71. Gandy v Gandy (1885) 30 Ch D 57 at 66–7; Re Schebsman [1944] Ch 83 at 101–2.

72. [2018] SASCFC 44 at [65].
73. Byrnes v Kendle (2011) 243 CLR 253 at 291–2; 279 ALR 212 at 243.
74. Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 at [79]. See also Vandepitte v Preferred
Accident Insurance Corporation of New York [1933] AC 70 at 79; Colin R Price & Associates Pty Ltd v Four
Oaks Pty Ltd (2017) 251 FCR 404 at 429–31; 349 ALR 100 at 124–6.
75. Stanley v Layne Christensen Co [2006] WASCA 56 at [30].
76. Public Curator of Queensland v Union Trustee Co of Australia (1922) 31 CLR 66 at 75.
77. Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd [1926] AC 108 at 124; Secure Parking (WA) Pty
Ltd v Wilson (2008) 38 WAR 350 at 377; Parkview Qld Pty Ltd v Commonwealth Bank of Australia [2013]
NSWCA 422 at [129].
78. (1988) 165 CLR 107 at 149; 80 ALR 574 at 603. See also Kowalski v Mitsubishi Motors Australia Staff
Superannuation Fund Pty Ltd [2018] SASCFC 44 at [67].

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39.60 In ascertaining whether the intention to contract as trustee is present, a court

will look to the language in the contract, the nature of the transaction and relevant
circumstances attending the relationship between the parties.79 Furthermore, the court
needs to be satisfied that ‘not only must the requisite intention exist but, in addition, the
imposition of a trust must be the appropriate legal mechanism for giving effect to that
intention’.80 Certain types of contracts may be more readily amenable to finding a trust
intention than others. On the facts of Trident General Insurance Co Ltd v McNiece Bros Pty
Ltd,81 Deane J said:
It is difficult to envisage a class of contract in which the creation of such a trust would be
more readily discernible than the type of contract which is involved in the present case,
namely, a policy of liability insurance indemnifying both a party to the contract and others
who are designated either by specific identification or by their membership of an identified
group.

39.61 When the trust exception is pursued and B sues for damages, the measure of damages
that is recovered reflects the loss to C, the beneficiary of the trust. The damages that are
recovered are held by B on trust for C.82

Equitable estoppel
39.62 Following the decision in Waltons Stores (Interstate) Ltd v Maher,83 a third party may be
able to seek relief against a promisor on the basis of equitable estoppel principles. To succeed,
the third party would need to establish the elements of equitable estoppel.84
39.63 In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,85 Mason CJ and Wilson J
were of the view that it was likely that estoppel could be established on the facts of the case, but
it was not necessary for them to determine the issue on the basis that they had decided the case
on other grounds.

Statutory exceptions
39.64 Statute law has created various specific exceptions to the doctrine of privity. Some of
the more important statutory exceptions are briefly discussed below.

Bills of exchange
39.65 The law relating to bills of exchange is very complex. A bill of exchange is an order by
one person, the drawer, directed to another person, the drawee, to pay a sum of money to a
third person, the payee. If the drawee accepts the direction to pay, the sum of money must be

79. Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363 at 370.
80. Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1 at 378.
81. (1988) 165 CLR 107 at 148–9; 80 ALR 574 at 603.
82. Lloyd’s v Harper (1880) 16 Ch D 290; Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175.
83. (1988) 164 CLR 387; 76 ALR 513.
84. See 36.42.
85. (1988) 165 CLR 107 at 123–4; 80 ALR 574 at 584–5.

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paid when it falls due. It can be transferred and negotiated to third parties. The ultimate holder
can present the bill for payment, notwithstanding that it was not originally drawn to them.
39.66 A cheque is a special kind of bill in which the drawee must be a bank. A cheque
can be transferred by negotiation. If the cheque is payable to bearer, negotiation is by simple
delivery — handing over. If the cheque is payable to order, negotiation must be by delivery
and indorsement — that is, the payee also signs the cheque on the back. If negotiation takes
place properly, the rights of the payee pass to the transferee. It does not matter that the person
presenting the cheque is not the person whom the drawer originally intended to receive
payment. It is enough that the presenter is a person who has taken a properly endorsed cheque.
39.67 Relevant to this area are ss 36–43 of the Bills of Exchange Act 1909 (Cth), relating to
the negotiation of bills of exchange, and s 73 of the Cheques Act 1986 (Cth), relating to cheques.
A detailed analaysis of these provisions is beyond the scope of this book.

Insurance contracts
39.68 Certain obligations incurred under insurance contracts are also exceptions to the
principle that there must be privity of contract. However, at common law the rationale behind
the departure from the traditional notion of privity is certainly not consistent, as the decision
by the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd86 demonstrates.
It will be recalled that in that case the High Court held that contracts of liability insurance were
an exception to the common law rules about privity of contract, but gave a number of different
reasons in support.
39.69 Since the High Court decision, s 48(1) of the Insurance Contracts Act 1984 (Cth) has
commenced operation. Section 48 stipulates as follows:
Entitlement of named persons to claim

(1) Where a person who is not a party to a contract of general insurance is specified or
referred to in the contract, whether by name or otherwise, as a person to whom the
insurance cover provided by the contract extends, that person has a right to recover
the amount of the person’s loss from the insurer in accordance with the contract
notwithstanding that the person is not a party to the contract.
(2) Subject to the contract, a person who has such a right:
(a) has, in relation to the person’s claim, the same obligations to the insurer as the
person would have if he were the insured; and
(b) may discharge the insured’s obligations in relation to the loss.

(3) The insurer has the same defences to an action under this section as the insurer would
have in an action by the insured.

39.70 The facts in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd87 are now covered
by s 48.

86. (1988) 165 CLR 107; 80 ALR 574.

87. (1988) 165 CLR 107; 80 ALR 574.

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39.71 In relation to the effect of s 48, in Zurich Australian Insurance Ltd v Metals & Minerals
Insurance Pty Ltd,88 French CJ, and Gummow and Crennan JJ said:
Section 48 confers a statutory right of recovery upon a non-party referred to or specified
in a general contract of insurance as a person insured or to whom cover extends. It does so
directly. … Section 48 does not deem such a person to be a party to the insurance contract
thus attracting the rights conferred on a party. It does not purport to confer contractual
or equitable rights upon such a person. There is therefore no basis in s 48 for assimilating
the position of a non-party insured to that of a person who has ‘entered into’ a contract of
insurance within the meaning of s 45(1) [of the Insurance Contracts Act 1984 (Cth)].

General statutory exceptions

39.72 Significant modification to the privity doctrine has occurred in the Northern Territory,
Queensland, and Western Australia. In Western Australia, s 11(2) of the Property Law Act 1969
allows a third party to enforce a contract if it confers a benefit upon the third party. In this
respect, in Westina Corporation Pty Ltd v BGC Contracting Pty Ltd,89 Buss JA said:
Section 11(2) does not apply unless the person who seeks to enforce a benefit conferred
under the contract in question is identified in the contract as the conferee of that benefit. …
The identification may be by name, but it is not essential expressly to name a third party
beneficiary before the beneficiary can invoke s 11(2). It is sufficient if the beneficiary can be
ascertained by reference to an existing and identifiable class, or if the beneficiary answers a
particular description, expressly referred to or identified in the contract.

The third party is entitled to the same sort of relief as are the parties to the contract.90
However, s 11(2) only applies to written contracts and not to informal contracts.91 On the
other hand, s 11(3) allows the parties to the contract to nullify or modify the third party’s
rights by agreement, if it is done prior to the adoption of the contract by the third party.

39.73 In Queensland, s 55 of the Property Law Act 1974 deals with promises to do or refrain
from doing some act for the benefit of a third party. The third party can enforce the promise
once he or she has accepted it. Prior to acceptance, the promise can be varied or discharged
without the third party’s consent. After acceptance, such variation or discharge requires the
third party’s consent. Section 55 appears to require that the contract displays an intention that
the third party can sue. The third party is entitled to such relief as is ‘just and convenient’ for
the enforcement of the promise. In the Northern Territory, s 56 of the Law of Property Act 2000
is, in substance, identical to the provisions in Queensland.

88. (2009) 240 CLR 391 at 403; 261 ALR 468 at 476.
89. (2009) 41 WAR 263 at 276.
90. The requirements of s 11(2) are more fully discussed in Bell Group Ltd (in liq) v Westpac Banking Corporation
(No 9) (2008) 225 FLR 1 at 375–6.
91. Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 225 FLR 1 at 373–4.

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ASSIGNMENT OF CONTRACTUAL RIGHTS
AND LIABILITIES

INTRODUCTION
40.1 The essential feature of an assignment is the transfer of rights. Tolhurst1 states that ‘a
transaction is properly termed an assignment only if its effect is to transfer to the assignee the
ownership of a right vested in the assignor. Transfer is the essence of assignment.’ A transfer
occurs when a person (the transferor) parts with something in circumstances where the
recipient (the transferee) of that thing receives the same thing previously held by the transferor.2
Common examples of transfers, and therefore assignments, include a sale of goods and a
conveyance of land.
40.2 The result of an assignment is that the assignor no longer has the interest in the property
or right he or she has assigned, ownership having passed to the assignee. A crucial aspect of the
law of assignment is that of intention. For the transaction to be an assignment, the intention of
the assignor must be that he or she is to have no interest in the property once the assignment
has been completed. If the intention is to maintain some form of ownership of the property,
there can be no assignment.
40.3 An assignment can be recognised at common law or in equity. An assignment can
also be regulated by statute. It is common to refer to common law and statutory assignments
as ‘legal assignments’, whereas an ‘equitable assignment’ refers to an assignment pursuant
to principles of equity. A legal assignment can only occur in relation to rights and liabilities
recognised by the common law or relevant statute. If the requirements of a legal assignment
are not satisfied, the right or liability may, nevertheless, have been assigned in equity.
Finally, if the right or liability is one recognised only in equity, it can only be the subject
of an equitable assignment, although in the Australian Capital Territory a ‘right under
a trust’ — an equitable interest — can be assigned pursuant to s 205 of the Civil Law
(Property) Act 2006.

1. G Tolhurst, The Assignment of Contractual Rights, 2nd ed, Hart Publishing, Oxford, 2016, p 30.
2. Lyle & Scott Ltd v Scott’s Trustees [1959] AC 763 at 778; [1959] 2 All ER 661 at 668.

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CONTRACTUAL RIGHTS
40.4 Contractual rights are choses in action. In Torkington v Magee3 Channell J defined choses
in action as ‘personal rights of property which can only be claimed or enforced by action, and
not by taking physical possession’. Thus, choses in action are a form of intangible property.4
Choses in action can be legal or equitable.5 The most common legal chose in action is a debt.
An example of an equitable chose in action is an interest in a partnership.6
40.5 In the context of assigning contractual rights, the benefit (the right to receive
performance) of the contract can be assigned.7 The right to receive performance of a contract
is a chose in action and constitutes an assignable property right. However, the burden (the
obligation to render performance) cannot be assigned.8 The usual way in which the burden of
a contract is transferred is by way of novation.9
40.6 In relation to the distinction between an assignment of the benefit of contractual
rights and novation, in Kakara Estate Ltd v Savvy Vineyards 3552 Ltd10 the Court of Appeal in
New Zealand said:
The essential difference between assignment and novation for the purposes of this case is
that under an assignment, the assignor is not relieved of the burden of a contract as regards
the other original contracting party, and the assignment can take place by agreement
between the assignor and the assignee without the consent of the other contracting party,
unless the terms of the original contract provide otherwise. In contrast to this, a novation is
a transaction that creates a new contract that is substituted for the original contract. In order
to create this new contract, the consent of all the parties to the original contract is required.

40.7 Assignable contractual rights can be assigned at law or in equity.11 The assignment,
whether it be at law or in equity, entitles the assignee to sue the other party to the contract (the
obligor) for damages for breach of contract irrespective of whether the breach occurred before
or after the assignment. The assessment of damages in the assignee’s action against the obligor
has not been the subject of significant judicial analysis and the principles that are applicable
are not firmly established. If the breach occurs after the assignment, the damages recoverable
should reflect the assignee’s loss, subject to the limitation that the damages cannot exceed
what the assignor would have recovered had there been no assignment. This qualification
stems from the basic principle that the obligor’s position cannot be made worse as a result of
an assignment of the contract. In cases where the breach occurs before the assignment, the
position is less clear. The issue that arises is whether the damages recoverable by the assignee

3. [1902] 2 KB 427 at 430.

4. Berryman v Zurich Australia Ltd (2016) 310 FLR 108 at 110.
5. On choses in action see T Y Lin, ‘Choses in Action: Still More Contract than Property?’ (2010) 26 Journal
of Contract Law 160.
6. Commissioner of State Taxation of the State of South Australia v Cyril Henschke Pty Ltd (2010) 242 CLR 508
at 516–17; 272 ALR 440 at 446; Atwell v Roberts (2013) 43 WAR 507 at 543.
7. Queensland Insurance Co Ltd v Australian Mutual Fire Insurance Society Ltd (1941) 41 SR 195 at 201.
8. Scarf v Jardine (1882) 7 App Cas 345 at 351.
9. On novation see 23.26–23.27.
10. [2013] 3 NZLR 297 at 303.
11. Pacific Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395 at 404.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW ­

reflect the assignor’s loss or the assignee’s loss. Tolhurst12 argues that, notwithstanding Court
of Appeal decisions to the contrary in England in Technotrade Ltd v Larkstore Ltd13 and in
Australia in Renold Australia Pty Ltd v Fletcher Insulation (Vic) Pty Ltd,14 the better approach
is that an assignee recovers damages measured against the assignor’s loss flowing from the
obligor’s breach of contract. This is so because the assignment assigns the assignor’s cause of
action, and it does not have the effect of recharacterising that right as the assignee’s cause of
action. This means that the assignee enforces the assignor’s cause of action, which in turn leads
to damages being awarded on the basis that they reflect the assignor’s loss.

NON-ASSIGNABLE CONTRACTUAL RIGHTS

40.8 Not all contractual rights are assignable. Important examples include personal services
contracts and pay received by a person holding a public office.

Personal services contracts

40.9 Contracts for personal services are generally not assignable.15 This is so because the
obligor ought not be prejudiced by the substitution of the assignor by an assignee. Thus, rights
under a share farming agreement are not assignable.16 Similarly, an employer cannot assign to
another person the right of services from an employee under an employment contract. As the
House of Lords indicated in Nokes v Doncaster Amalgamated Collieries Ltd,17 an employee is
entitled to choose the employer for whom he or she wishes to work.
40.10 Whether a contractual right is of a personal nature is a question of construction of
the contract. Thus, if it makes no difference to the obligor to whom it performs its obligations,
the assignment of the benefit of the contract will not be seen as one of personal services. In
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd18 Tolhurst agreed, for a term
of up to 50 years, to supply chalk to a particular cement manufacturing company, which later
assigned this contractual right to another company who took over the first company’s business.
Tolhurst’s claim that the assignment was invalid was rejected because the House of Lords took
the view that it could not make any difference to Tolhurst whether it supplied chalk to the
assignor or assignee.
40.11 However, in some circumstances a personal obligation in an employment contract
can be assigned. In Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak19 Zahedi, a medical
practitioner, was contractually bound by an implied obligation of confidence in relation to
records on patients kept by a medical practice where he was employed. In breach of this

12. G J Tolhurst, ‘The Nature of an Assignee’s Right to Damages for Breaches of Contract That Occur Prior to
Assignment’ (2008) 24 Journal of Contract Law 77 at 95.
13. [2006] 1 WLR 2926.
14. [2007] VSCA 294.
15. Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 234; ACE Insurance Ltd v Trifunovski
(2013) 209 FCR 146 at 150; 295 ALR 407 at 410.
16. Moore v Collins [1937] SASR 195.
17. [1940] AC 1014; [1940] 3 All ER 549.
18. [1903] AC 414.
19. (2006) 67 NSWLR 569.

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contractual obligation, Zahedi used those records to assist in compiling a list of patients for
his own practice that he established after ending his employment with the medical practice.
Campbell J held that the implied obligation of confidence had been assigned in equity to the
purchaser of his former employer’s medical practice, and that the assignee, having joined the
assignor to the proceedings, could enforce the contractual obligation against Zahedi. His
Honour20 said:
If one considers the contract between Dr Zahedi and [his former employer], it has now come
to an end, so far as either side having ongoing obligations to provide services is concerned.
However, the contractual obligation continues whereby lists of patient names and addresses
which Dr Zahedi obtained … cannot be disclosed, and cannot be used except for the purposes
of the [former employer]. The obligations of Dr Zahedi under that term of the contract do
not require any personal interaction with the person to whom the obligation is owed, and
the content of the obligation is not influenced by any action or decision of the person to
whom the obligation is owed. It is not an obligation requiring Dr Zahedi to do things — it
is an obligation requiring him not to do things. Dr Zahedi can perform it perfectly by total
inaction. In my view, for these reasons no analogy can be drawn with the reasons whereby
the benefit of a contract of service is unassignable.

40.12 Furthermore, a distinction must be made between the assignment of the benefit of a
contractual right of a personal contract as a whole and the assignment of money due under
it. For example, in a contract for the writing of a book, although neither author nor publisher
can without consent assign the right to the other’s future performance in terms of writing or
publishing, that does not prevent the author assigning the right to be paid royalties.21
40.13 Finally, although certain contractual rights are not assignable under general principles
of law, such rights can be assigned if a contract expressly or impliedly authorises their
assignment.22

Public pay
40.14 An assignment of pay by the holder of a public office is prohibited on the basis that
such pay is made to enable the office holder to maintain his or her office with decorum
and propriety. However, this does not mean that public pay cannot be assigned under any
circumstances. In Arbuthnot v Norton23 Norton, a judge, assigned the equivalent of six months’
pay to which he was entitled to his legal personal representative upon death. The entitlement
was assigned as security for an advance. The Privy Council ruled, after Norton’s death, that the
assignment was valid. This was so because the pay that was assigned only fell due upon Norton’s
death — that is, when Norton no longer held public office. Because the pay was not payable
during his life, the assignment in no way diminished Norton’s ability to maintain the dignity of
his office. Thus, there was no infringement of the rationale upon which the prohibition against
assigning public pay was based.

20. Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak (2006) 67 NSWLR 569 at 605–6.
21. Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 105; [1993] 3 All ER 417
at 428–9.
22. Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 235.
23. (1846) 18 ER 565.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW ­

40.15 In the Australian Capital Territory, s 80 of the Court Procedures Act 2004 renders
unenforceable any assignment of any salary or pension or periodical payment related to a salary.

PROHIBITIONS AGAINST ASSIGNMENT

40.16 Contractual obligations that are otherwise assignable may, nevertheless, be rendered
unassignable by express contractual provisions against the assignment of contractual rights. In
Owners of Strata Plan 5290 v CGS & Co Pty Ltd24 Sackville AJA set out the following reason why
such a non-assignability clause may be desirable:
• it would prevent an obligor dealing with a party with whom he or she does not wish to deal;
• the obligor may wish to preserve set-off claims which could, if the contract were assigned,
end up being prejudiced; and
• an assignor may be less inclined to perform his or her contractual obligations if the benefit
of the contract was assigned to a third party.

40.17 A contractual provision against assignment of contractual rights is enforceable, unless

it is illegal pursuant to statute or on public policy grounds, in which case it will be severable
from the contract and will not preclude assignment of contractual rights. Where such a
provision is enforceable, its effect depends upon its construction.25 Possible effects of a breach
of such a clause include:
• the assignment is valid, but the assignor is liable for damages for breach of contract;
• the assignment is ineffective, with the obligor still obliged to render performance to the
assignor, not the assignee, although the assignor could assign the benefit of the clause after
receiving it from the obligor;
• the assignment is ineffective, with the obligor still obliged to render performance to the
assignor, not the assignee, and the assignor is not entitled to assign the benefit of the clause
after receiving it from the obligor;
• the assignment constitutes a terminating breach of contract, either automatically or at the
election of the obligor.

40.18 The effect of a contractual provision against assignment of contractual rights can be
circumvented by means of a declaration of trust of the benefit of the clause.26 Such a procedure
results in the contracting party becoming a trustee, rather than an assignor, and the third party
becoming a beneficiary under a trust, rather than an assignee. The beneficiary can effectively
enforce the contract by bringing an action against the obligor and joining the trustee to
the proceedings.27 The use of a declaration of trust to circumvent a contractual provision
against assignment of contractual rights can be prohibited by a clear term to that effect in
the contract.28 However, a mere prohibition against assignment of contractual rights does

24. (2011) 81 NSWLR 285 at 299–300; 281 ALR 575 at 588–9.

25. Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 104–5; [1993] 3 All ER 417
at 428.
26. Don King Productions Inc v Warren [2000] Ch 291; [1998] 2 All ER 608.
27. Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 at [79].
28. Secure Parking (WA) Pty Ltd v Wilson (2008) 38 WAR 350 at 377.

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not extend to a prohibition against a declaration of trust.29 In Australian Zircon NL v Austpac

Resources NL (No 2)30 Corboy J ruled that, in the context of the particular contract, the word
‘dealing’ included a declaration of trust and thus prohibited the declaration of trust of the
relevant contractual right.

ASSIGNMENT OF CONTRACTUAL RIGHTS

AT COMMON LAW AND EQUITY
40.19 As noted above,31 contractual rights are choses in action. Originally choses in action
were seen as personal rights only. However, today they are recognised as being proprietary, and
therefore capable of being assigned.32
40.20 Originally legal choses in action were generally not assignable at common law.33
The exception to the rule was that assignments to or by the Crown were recognised. The
common law rule could be circumvented in various ways. For example, the use of a power of
attorney would enable a creditor to stipulate that the attorney could sue to recover the debt
and also keep the proceeds of such an action. However, as newer forms of choses in action,
such as patents and shares, were recognised, the common law permitted their assignment
in some cases.34
40.21 On the other hand, very early in its development, considerations of mercantile
convenience and necessity led equity to recognise that legal choses in action could be assigned.35
No particular form of words was necessary for such equitable assignments.36 The effect of
such an assignment was to make the assignor the trustee for the assignee of the legal chose in
action in what is often called a bare trust.37 In Herdegen v Federal Commissioner of Taxation38
Gummow J defined a bare trust as follows:
Today the usually accepted meaning of ‘bare’ trust is a trust under which the trustee or
trustees hold property without any interest therein, other than that existing by reason of the
office and the legal title as trustee, and without any duty or further duty to perform, except
to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for
example, on sale to a third party.

40.22 Equity intervened on behalf of the assignee by insisting that the assignor do whatever
was necessary to enable the assignee to obtain the benefit of the assignment. In practical terms

29. Barbados Trust Company v Bank of Zambia [2007] 1 Lloyd’s Rep 495 at 506, 513.
30. [2011] WASC 186 at [159].
31. See 40.4.
32. Fitzroy v Cave [1905] 2 KB 364 at 373; Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 All ER 98 at 117.
33. Lampet’s case (1612) 77 ER 994 at 997; Owners of Strata Plan 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR
285 at 298; 281 ALR 575 at 587–9.
34. M Smith and N Leslie, The Law of Assignment, 2nd ed, Oxford University Press, Oxford, 2013, pp 207–12.
35. Sprint Communications Company v APPC Services Inc 554 US 269, at 276 (2008).
36. Row v Dawson (1749) 27 ER 1064 at 1064.
37. Smith and Leslie, The Law of Assignment, note 34 above, pp 221–3.
38. (1988) 84 ALR 271 at 281.

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this meant that equity generally required an assignor to lend his or her name to any suit to
recover the debt or enforce the chose in action.39 By being joined to such litigation the assignor
was bound by its result and was precluded from subsequently suing on the debt or chose in
action at common law.40 Being a party to the litigation also meant that the assignor had the
opportunity to dispute the validity of the assignment.
40.23 However, if the equitable assignee fails to join the assignor in proceedings to
enforce the assignment, that does not mean that the proceedings are a nullity. This flows
from the preponderance of authority to the effect that the need to join the assignor is a
procedural matter only and not a substantive component of the cause of action against
the debtor.41 Although the proceedings in such circumstances are not a nullity, the cases
are divided over whether the assignor must nevertheless be joined after proceedings have
been commenced and before the case goes to final judgment. The decisions in Thomas
v National Australia Bank Ltd42 and Alma Hill Constructions Pty Ltd v Onal43 suggest that
it is not always necessary, although it would only be in exceptional circumstances that the
assignor would not be required to be joined to the proceedings. However, in Equuscorp Pty
Ltd v Haxton44 Gummow and Bell JJ said:
[A]n action by an equitable assignee without joining the assignor is not a nullity; the action
may be liable to be stayed pending joinder, but no such application for a stay has been made
in the present litigation. … [A]ny outstanding assignor must be joined before final judgment
can be obtained by the assignee, but that has been held not to be necessary where the assignee
is seeking interlocutory relief.

40.24 On the other hand, in some circumstances, such as with a winding up petition, the need
to join the assignor is unnecessary.45 Another example of where the assignor did not need to
be joined to the proceedings occurred in Tolhurst v Associated Portland Cement Manufacturers
(1900) Ltd,46 where the assignor clearly had no interest in the chose in action and had ceased to
exist. The assignee was not denied its right to enforce the chose in action because of a failure to
join the assignor to the enforcement proceedings.
40.25 By the 19th century the common law’s prohibition on assignments of debts and choses
in action had been modified. The common law came to recognise that the assignee was able to
sue in the assignor’s name on the debt or chose in action.47

39. APT Finance Pty Ltd v Bajada [2008] WASCA 73 at [26].

40. Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 at 14.
41. Thomas v National Australia Bank Ltd [2000] 2 Qd R 448 at 456–8; Alma Hill Constructions Pty Ltd v Onal
(2007) 16 VR 190 at 194–202.
42. [2000] 2 Qd R 448 at 458.
43. (2007) 16 VR 190 at 194–5, 202.
44. (2012) 246 CLR 498 at 532; 286 ALR 12 at 37–8.
45. Re Steel Wing Co, Ltd [1921] 1 Ch 349 at 357; Jenkins v Visualeyes Pty Ltd [2005] VSC 218 at [119]–[121].
46. [1903] AC 414. See 40.10.
47. Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26–7.

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ASSIGNMENT OF CONTRACTUAL RIGHTS

PURSUANT TO STATUTE
40.26 In England, legislation was passed in 1873 governing the legal assignment of debts and
choses in action.48 Substantially similar provisions were subsequently enacted in all Australian
jurisdictions.49 The only significant variations in these provisions are in the Australian Capital
Territory and Western Australia. In the Australian Capital Territory, a note to the relevant
provision states that a chose in action is not confined to legal choses in action and includes,
inter alia, ‘rights under a trust’.50 In Western Australia a debt or other chose in action is deemed
to include part of a debt or other chose in action.51
40.27 These statutory provisions do not prohibit or invalidate assignments of debts and
choses in action according to the traditional rules of equity.52 Their purpose is not to change
the equitable rules as to the assignment of choses in action, but rather to enable the assignee
to sue the debtor without having to join the assignor to the proceedings.53 By insisting that an
assignment pursuant to these statutory provisions is absolute and that notice of the assignment
is given to the debtor or obligor, it is unnecessary to insist upon the assignor being a party
to proceedings initiated by the assignee.54 Thus, ‘[o]nce there has been a perfected legal
assignment, any action must be in the name of the assignee and not in the name of the assignor,
as the assignor no longer has any right to sue for the debt’.55
40.28 If there has been a valid legal assignment the assignor will not be able to sue the debtor
or other person.56 Thus, in enforcing the debt, an assignee has available to it all legal means of
enforcement, including garnishee proceedings and, in the case of a corporation, winding up
the corporation.57
40.29 Not all legal choses in action are assignable pursuant to statute. The assignment of
choses in action such as patents, copyright, trade marks, life insurance policies, and marine
insurance policies are covered by separate statutory provisions.58

48. Supreme Court of Judicature Act 1873 s 25(6).

49. Civil Law (Property) Act 2006 (ACT) s 205; Conveyancing Act 1919 (NSW) s 12; Law of Property Act 2000
(NT) s 182; Property Law Act 1974 (Qld) s 199; Law of Property Act 1936 (SA) s 15; Conveyancing and Law
of Property Act 1884 (Tas) s 86; Property Law Act 1958 (Vic) s 134; Property Law Act 1969 (WA) s 20.
50. Civil Law (Property) Act 2006 (ACT) s 205(1).
51. Property Law Act 1969 (WA) s 20(3).
52. William Brandt’s Sons & Co v Dunlop Rubber Company Ltd [1905] AC 454 at 461.
53. Re Westerton [1919] 2 Ch 104 at 133; Ramsey v Hartley [1997] 2 All ER 673 at 684; Equuscorp Pty Ltd
v Haxton (2012) 246 CLR 498 at 527; 286 ALR 12 at 33.
54. Chamberlain Early Learning Centre Pty Ltd v Precious 1 Pty Ltd in its own right and as trustee for
4 Chamberlain Holdings Family Trust [2017] NSWSC 189 at [45].
55. APT Finance Pty Ltd v Bajada [2008] WASCA 73 at [29].
56. Read v Brown (1888) 22 QBD 128 at 132.
57. Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 529; 286 ALR 12 at 34–5.
58. Patents Act 1990 (Cth) s 14; Copyright Act 1968 (Cth) ss 196–197; Trade Marks Act 1995 (Cth) ss 106–111;
Life Insurance Act 1999 (Cth) ss 200–203; Marine Insurance Act 1909 (Cth) ss 56–57.

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW ­

Requirements for legal assignments of debts and choses in action

40.30 For those debts and choses in action that are assignable pursuant to these statutory
provisions, the following conditions must be satisfied:
• There must be an intention to make an immediate and irrevocable transfer.
• The assignment must be absolute.
• The assignment must be in writing and signed by the assignor.
• Express notice must be given to the debtor or other person in writing.
Consideration is not necessary for a valid legal assignment pursuant to these statutory
provisions.59

Intention
40.31 There must be a clear intention to make ‘an immediate and irrevocable transfer’ of the
debt or chose in action to the assignee.60 It is not sufficient to merely authorise the debtor or
other person to pay someone else.

The assignment must be absolute

40.32 The reason why the assignment must be absolute is to ensure that the debtor or other
person is protected, in that at all times he or she knows to whom payment must be made.61 Thus,
an assignment can only be absolute if it enables the assignee to give a good discharge for the
debt. Furthermore, the requirement that the assignment must be absolute enables the assignee
to sue on the debt or chose in action in his or her name, because an absolute assignment means
that the assignor no longer has any interest at all in the debt or chose in action.
40.33 However, the requirement of an absolute assignment does not preclude there being a
valid assignment pursuant to s 12 where the assignment provides for, or implies, the need for a
re-assignment back to the assignor.62
40.34 Because an assignee can sue in his or her own name if the assignment is absolute,
a logical consequence of this is that part of a debt or chose in action cannot be assigned pursuant
to statute,63 although the relevant legislation in Western Australia does permit assignment of
part of a debt or chose in action.64 This is because the assignor still has an interest in the debt
or chose in action. Thus, part of a debt or chose in action can only be assigned in equity. In
enforcing an equitable assignment of part of a debt or chose in action, the assignee needs to join

59. Re Westerton [1919] 2 Ch 104 at 110–14; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012)
295 ALR 550 at 574.
60. Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 32.
61. Durham Bros v Robertson [1898] 1 QB 765 at 773.
62. Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 20, 35 ALR 567 at 580; Austino Wentworthville
Pty Ltd v Metroland Australia Ltd [2013] NSWCA 59 at [62].
63. Deposit Protection Board v Dalia [1994] 2 AC 367 at 380–1, 392; [1994] 2 All ER 577 at 580; Austino
Wentworthville Pty Ltd v Metroland Australia Ltd [2013] NSWCA 59 at [62]; Mango Boulevard Pty Ltd
v Mio Art Pty Ltd [2016] QCA 148 at [14].
64. Property Law Act 1969 (WA) s 20(3).

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the assignor to the proceedings.65 Similarly, if the assignor of part of a debt or chose in action
sues to enforce the part of the debt or chose retained, he or she must join the assignee to the
proceedings.66

Writing signed by the assignor

40.35 The statutory provisions all state that an assignment must be in writing and signed by
the assignor. This means that it cannot be signed by another person, even if that person has the
authority of the assignor.67 No particular form of words is necessary.68

Express notice
40.36 Express notice in writing must be given to the debtor or other person. Notice can be
given by either the assignor or assignee.69 Notice by implication, or by operation of law, or by
the equitable doctrine of constructive notice is not sufficient.70 Notice can only be given at
the time of, or after, the assignment.71 There are no formal requirements as to the notice and
it need not even state the date of the assignment.72 Notice can be given by post if it is properly
addressed and posted. Receipt of the notice in such cases is presumed in the absence of evidence
to the contrary.73 Giving the debtor or other person a copy of the instrument of assignment is
sufficient notice of the assignment. This is so because the statutory provisions only require the
giving of ‘notice’ and do not require giving ‘a notice’ of the assignment.74 In Leveraged Equities
Ltd v Goodridge75 it was held that compliance with statutory provisions relating to the giving
of notice set out in s 170 of the Conveyancing Act 1919 (NSW) and its equivalents in other
Australian jurisdictions76 would satisfy the statutory requirements for the giving of notice. The
debtor or other person can sight the assignment to check its validity before paying.77 Notice to
the assignee is not required.78
40.37 The assignment pursuant to statute is only effective when the notice has been received
by the debtor or other person.79 The effect of giving notice is that the legal right to the debt or

65. Re Steel Wing Company Ltd [1921] 1 Ch 349 at 357.

66. Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584 at 588–9; [1955] 1 All ER 843 at 845.
67. Technocrats International v Fredic Ltd [2004] EWHC 692 (QB) at [53]; Trustee Solutions Ltd v Dubery
[2007] 1 All ER 308 at 316.
68. William Brandt’s Sons & Co v Dunlop Rubber Company Ltd [1905] AC 454 at 462.
69. Anning v Anning (1907) 4 CLR 1049 at 1059; Norman v Federal Commissioner of Taxation (1963) 109 CLR
9 at 29; Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2016] QCA 148 at [35].
70. Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 438–9.
71. Bishop v Financial Trust Ltd [2008] NZCA 170 at [35].
72. Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2016] QCA 148 at [96]–[97].
73. Australian Trade Commission v Solarex Pty Ltd (1987) 78 ALR 439 at 443, 446.
74. E C Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183 at [920].
75. (2011) 274 ALR 655 at 703.
76. Law of Property Act 2000 (NT) s 219; Property Law Act 1974 (Qld) s 347; Law of Property Act 1936 (SA)
s 112.
77. Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 681.
78. Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 675–6, 678–9.
79. Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd (in liq) [2013] NSWCA 314 at [21].

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PRINCIPLES OF AUSTRALIAN CONTRACT LAW ­

chose in action passes to the assignee.80 The giving of notice means that the debtor or other
person should pay the debt to, or perform for, the assignee.81 If, however, the debtor or other
person fulfils his or her obligation in favour of the assignor in disregard of the notice, the
assignee will, nevertheless, be entitled to enforce his or her claim against the debtor or other
person, notwithstanding that the latter has already paid, or performed for, the assignor.82

Non-compliance with statutory requirements and equitable

assignments of debts and choses in action
40.38 If the requirements of s 12 are not fulfilled, there is no legal assignment of the debt or
chose in action. However, the assignment will be effective in equity in various circumstances.
40.39 If the assignment is for consideration and the consideration has been paid or executed,
there is an effective equitable assignment of a debt or chose in action.83 The meaning of
consideration in this context is generally the same as consideration that is sufficient to support
a simple contract at common law.84
40.40 However, if no consideration has been provided for the assignment of the debt
or chose in action, the validity of the assignment in equity depends upon whether the debt or
chose in action was capable of being assigned pursuant statute. As previously noted,85 except
in Western Australia, part of a debt or chose in action cannot be assigned pursuant to statute.
Such property can only be assigned in equity. However, the assignment of a part of a debt or
chose in action will be effective in equity if the assignor has manifested an intention to make an
immediate and irrevocable transfer.86 In ascertaining whether there is the requisite intention,
the assignment need not purport to be an assignment. What is important is that the language
used clearly establishes that the assignor intended to assign the property, irrespective of whether
it was expressed in the form of a command, courteous request, or mere permission.87
40.41 If the debt or chose in action is one that could have been assigned at law, but the
requirements of the statute have not been met, the assignment will be effective in equity if it
satisfied the test set out in Milroy v Lord,88 where Turner LJ said:
I take the law of this court to be well settled, that, in order to render a voluntary settlement
valid and effectual, the settlor must have done everything which, according to the nature of
the property comprised in the settlement, was necessary to be done in order to transfer the
property and render the settlement binding upon him.

80. Bateman v Hunt [1904] 2 KB 530 at 538.

81. Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439; Mango Boulevard Pty Ltd v Mio Art Pty Ltd
[2016] QCA 148 at [99].
82. McIntyre v Gye (1994) 51 FCR 472 at 479–80; 122 ALR 289 at 295.
83. Holroyd v Marshall (1862) 11 ER 999 at 1006.
84. J D Heydon, M J Leeming, and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies,
5th ed, LexisNexis Butterworths, Sydney, 2015, p 243.
85. See 40.34.
86. Shepherd v Commissioner of Taxation of the Commonwealth of Australia (1965) 113 CLR 385 at 391.
87. William Brandt’s Sons & Co v Dunlop Rubber Company Ltd [1905] AC 454 at 462.
88. (1862) 45 ER 1185 at 1189.

926
 CHAPTER 40: ASSIGNMENT OF CONTRACTUAL RIGHTS AND LIABILITIES

40.42 In practical terms, the test in Milroy v Lord89 means that for the assignment to be
effective in equity it will need to be in writing and signed by the assignor. However, notice to
the debtor or obligor does not have to be given.90 In enforcing the debt or chose in action, the
assignee will generally need to join the assignor to the enforcement proceedings.

INVOLUNTARY ASSIGNMENT
40.43 Assignment of contractual rights and liabilities takes place automatically by operation
of law in the following situations:
• Upon the death of a contracting party, rights and liabilities under a contract pass to the
deceased’s estate, except where the obligation is to render a personal service.91 Those rights
also include rights under the Competition and Consumer Act 2010 (Cth).92
• The property of a bankrupt, including any rights under a contract, vests in the trustee in
bankruptcy, who holds them for the benefit of creditors.93

ASSIGNMENT OF THE RIGHT TO LITIGATE FOR

BREACH OF CONTRACT
40.44 Separate to assignment of contractual rights is the question of assigning the right to
litigate that arises as the result of a breach of contract. Generally, such rights are not assignable.94
However, the right to sue on a debt or a fixed or liquidated sum95 is assignable because they are
regarded as rights of property.96
40.45 In Prosser v Edwards,97 it was said that a bare right to litigate was unassignable because
it, in effect, encouraged litigation of matters that the assignor was not disposed to prosecute. In
terms of legal principle, bare rights to litigate could not be assigned on public policy grounds
because such assignments savoured of maintenance or champerty,98 or what was referred to
in Dover v Lewkovitz99 as ‘trafficking in litigation’. Maintenance is the support of an action by

89. (1862) 45 ER 1185.

90. McIntyre v Gye (1994) 51 FCR 472 at 479–80; 122 ALR 289 at 295.
91. Laybutt v Amoco (Australia) Pty Ltd (1974) 132 CLR 57; 4 ALR 582.
92. Premiership Investments Pty Ltd v White Diamond (1995) 61 FCR 178; 133 ALR 64.
93. Bankruptcy Act 1966 (Cth) s 58.
94. In the Australian Capital Territory, s 205(1) of the Civil Law (Property) Act 2006 deals with the assignment
of ‘things in action’. A note to the legislation states that a ‘thing in action’ includes ‘the right to sue for breach
of contract’. It is unclear whether this section permits the assignment of the right to litigate for a breach of
contract in all circumstances or whether it simply describes what a ‘thing in action’ is and does not change
the existing law which permits the assignment of the right to sue in contract in the special circumstances
set out in this chapter.
95. See Chapter 30.
96. Fitzroy v Cave [1905] 2 KB 364 at 373–4.
97. (1835) 160 ER 196.
98. Glegg v Bromley [1912] 3 KB 474 at 489–90.
99. [2013] NSWCA 452 at [23].

927
PRINCIPLES OF AUSTRALIAN CONTRACT LAW ­

a person who has no interest in the cause of action.100 Champerty is the support of such an
action by a person on the basis that the person receives a part of any verdict on completion.101
Historically, maintenance and champerty were regarded as torts and criminal offences. However,
it is now widely regarded that the law’s distaste of ‘trafficking in causes of action’ is not based
on solid foundations and ‘has long been regarded as outmoded, if not obsolete’.102 Indeed, it
has been suggested that ‘the public policy rationale regarding maintenance and champerty has
turned full circle so that relaxation of the policy against maintenance and champerty may be
justified to help safeguard the rule of law’.103 It can also be noted that in some jurisdictions the
criminal offences and torts associated with maintenance and champerty have been abolished.104
40.46 The principle in Glegg v Bromley105 does not preclude the assignment of the verdict to
which the assignor may become entitled as a result of the prosecution of litigation proceedings,
‘provided that the assignee’s purpose is not to engage or participate in the conduct of
proceedings’.106
40.47 However, it must be noted that there are various qualifications to the principle in Glegg
v Bromley.107 In certain cases a bare right to litigate is assignable. Such cases include those
involving the following:
• a genuine commercial interest;
• property with an incidental right to litigate; and
• an assignment to an insurer.

Genuine commercial interest

40.48 If the assignee has a genuine commercial interest in taking the assignment of a bare
right to litigate, then the assignment is valid.108 For an interest to be a genuine commercial or
legitimate interest, it ‘must be distinct from the benefit that the person supporting the action
seeks to derive from the litigation. It must be something beyond a mere personal interest in
profiting from the outcome of the proceedings.’109 In EWC Payments Pty Ltd v Commonwealth
Bank of Australia (No 2)110 Derham AsJ said that this required that the assignee ‘was not an
officious intermeddler or was trafficking in litigation’. In National Mutual Property Services
(Australia) Pty Ltd v Citibank Savings Ltd111 Lindgren J said that ‘the expression [genuine
commercial interest] refers to a commercial interest which exists already or by reason of other
matters, and which receives ancillary support from the assignment’.

100. British Cash and Parcel Conveyers Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 at 1014.
101. Giles v Thompson [1994] 1 AC 142 at 161; [1993] 3 All ER 321 at 328.
102. Owners of Strata Plan 5290 v CGS & Co Pty Ltd (2011) 81 NSWLR 285 at 302; 281 ALR 575 at 591.
103. JEB Recoveries LLP v Binstock [2015] EWHC 1063 (Ch) at [17].
104. Crimes Act 1900 (NSW) cl 5 of Sch 3; Civil Liability Act 2002 (NSW) cl 2 of Sch 2; Criminal Law
Consolidation Act 1935 (SA) ss 1, 3 of Sch 11; Crimes Act 1958 (Vic) s 322A; Wrongs Act 1958 (Vic) s 32.
105. [1912] 3 KB 474.
106. Cummings v Claremont Petroleum NL (1996) 184 CLR 124 at 145; 137 ALR 1 at 14.
107. [1912] 3 KB 474.
108. Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703; [1981] 3 All ER 520 at 531.
109. Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) v Barr [2005] NSWCA 240 at [41].
110. [2014] VSC 4 at [69].
111. (1995) 132 ALR 514 at 540.

928
 CHAPTER 40: ASSIGNMENT OF CONTRACTUAL RIGHTS AND LIABILITIES

40.49 The application of the genuine commercial interest exception is illustrated in

the following two cases. In Re Timothy’s Pty Ltd112 Timothy’s Pty Ltd had sued Affiliated
Holdings Ltd in relation to a breach of lease. Timothy’s was also indebted to Bronze Lamp
Pty Ltd. Timothy’s assigned its cause of action against Affiliated Holdings to Bronze Lamp in
consideration of Bronze Lamp releasing Timothy’s from its substantial debt to Bronze Lamp.
Because Bronze Lamp was found to have had little hope of being repaid on the debt except
by assignment of the cause of action against Affiliated Holdings, Needham J held that Bronze
Lamp had a sufficient commercial interest in the assignment and upheld its validity. In Re
Daley; Ex parte National Australia Bank Ltd113 Daley was the sole shareholder in two companies
who had guaranteed the companies’ bank overdrafts. The companies had claims against the
bank for wrongly honouring cheques drawn by the companies. These claims were assigned to
Daley. In the Federal Court, Heerey J114 upheld the validity of the assignments on the basis that
Daley had ‘a genuine commercial interest in the enforcement of the claims by [the companies]
against the Bank’.
40.50 In relation to the assignment of the right to sue for breach of statutory duties, much
will depend upon the relevant statute as to whether such a right is assignable. Thus, because
proceedings for damages or ancillary relief pursuant to the Competition and Consumer Act
2010 (Cth) and the Australian Consumer Law can only be pursued by the person who has
suffered loss or damage as a result of an infringement of any of their provisions (such as the
prohibition against misleading or deceptive conduct in s 18 of the Australian Consumer Law),
such proceedings are not assignable.115 Furthermore, such proceedings cannot be pursued
by the estate of a deceased person who, prior to his or her death, had suffered such loss or
damage.116

Property with an incidental right to litigate

40.51 An assignment of property with an incidental right to litigate is valid.117 This is because
there is no assignment of a bare right to litigate, the right being incidental to a right of property.
Accordingly, no issues of maintenance or champerty can arise. Thus, in Dickinson v Burrell118
the right to rescind for undue influence was assignable because it was incidental to the real
property assigned to the assignor.
40.52 Furthermore, in Krishell Pty Ltd v Nilant119 it was held that a right of appeal in relation
to a judgment debt, although generally not assignable, could be assigned if it was incidental to
a property right. For example, if X gets judgment against Y for $20,000, but Y has a successful
counter-claim against X for $5000, the court will set off the latter amount against Y’s judgment

112. [1981] 2 NSWLR 706.

113. (1992) 37 FCR 390.
114. Re Daley; Ex parte National Australia Bank Ltd (1992) 37 FCR 390 at 394–5.
115. Chapman v Luminis Pty Ltd (No 4) (2001) 123 FCR 62 at 116–17; Rosebridge Nominees Pty Ltd
v Commonwealth Bank of Australia (No 6) [2014] WASC 203 at [19]–[21].
116. Pritchard v Racecage Pty Ltd (1997) 72 FCR 203 at 218; 142 ALR 527 at 541.
117. Ellis v Torrington [1920] 1 KB 399 at 412; Re Kenneth Wright Distributors Pty Ltd (in liq); W J Vine Pty Ltd
v Hall [1973] VR 161 at 166–7.
118. (1866) LR 1 Eq 337.
119. (2006) 204 FLR 182 at 192–3, 200.

929
PRINCIPLES OF AUSTRALIAN CONTRACT LAW ­

debt. Effectively, X would recover $15,000. However, if X appeals against Y’s counter-claim, his
or her right of appeal is assignable because it is closely connected to X’s interest in the judgment
debt of $20,000 (X’s property right) obtained against Y.

Assignment to an insurer
40.53 An assignment by an insured to an insurer of the insured’s right to sue is valid if it
is made in consideration of a payment made by the insurer to the insured in satisfaction of
a claim pursuant to an insurance policy between them. This stems from the insurer’s right of
subrogation.120
40.54 Under the principle of subrogation, the insurer stands in the insured’s shoes. This
entitles the insurer to pursue any claims that the insured has against any person in relation
to the loss or injury upon which the insured has been paid by the insurer pursuant to the
relevant indemnity insurance policy. Because the insurer already has a legitimate interest in
the insured’s right to litigate, an assignment of it to the insurer does not savour of maintenance
and champerty.121

120. Hazard Systems Pty Ltd v Car-Tech Services Pty Ltd (in liq) [2013] NSWCA 314 at [15]–[18].
121. Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at 121–2; [1964] 1 All ER
216 at 231.

930
 Index
References are to paragraph numbers
A exclusion of rule .... 4.96
Acceptance see also Offer
applicability of rules .... 4.103
‘battle of the forms’ cases .... 4.104–4.113
difficulties .... 4.106
auctions .... 4.26
highest bid .... 4.27, 4.28
‘battle of the forms’ cases .... 4.104–4.113
courts’ approaches .... 4.107–4.110
‘global’ or ‘synthesis’ approach .... 4.110,
4.112, 4.113
‘higher status’ doctrine .... 4.109
‘last shot’ doctrine .... 4.1087
objective assessment .... 4.111
communication requirement .... 4.24, 4.84, 4.93
dispensation .... 4.87, 4.88
postal acceptance rule .... 4.54, 4.55, 4.87,
4.89–4.97
rationale for requirement .... 4.85
time of occurrence .... 4.86
conduct of parties, by .... 4.80–4.83
correspondence with offer .... 4.75
counter-offers .... 4.75, 4.76, 4.77
errors or misdescriptions .... 4.77
date of contract .... 4.7, 4.100, 4.101
postal acceptance rule .... 4.101
display of goods .... 4.23–4.25
entitlement to accept .... 4.42
express acceptance .... 4.78
implied acceptance .... 4.78
conduct of parties .... 4.80–4.83
overview .... 4.4, 4.5, 4.7, 4.8, 4.70
place of contract .... 4.7, 4.102
postal acceptance rule .... 4.54, 4.55, 4.87, 4.89
application .... 4.91–4.93, 4.96
change of mind by offeree .... 4.96
date of contract .... 4.101
effect of non-delivery .... 4.96
effect of rule .... 4.91, 4.95
electronic communications .... 4.93
excluded communications
.... 4.92, 4.93
931
operation .... 4.96, 4.97
properly posted requirement .... 4.96
rationale for rule .... 4.94
recall of acceptance .... 4.93
revocation of offers, and .... 4.97
telegrams .... 4.90, 4.94
telex communications .... 4.92
time of acceptance .... 4.91
prescribed method .... 4.98
signature .... 4.99
reliance on offer .... 4.72
R v Clarke .... 4.73, 4.74
silence as acceptance .... 4.78
standing offers .... 4.40
unequivocal requirement .... 4.71
Accord and satisfaction
acceptance requirement .... 23.45, 23.47, 23.48
contractual accords .... 23.52
failure to perform .... 23.53
McDermott v Black .... 23.48, 23.54
nature of accord .... 23.52
operation of principles .... 23.54
D & C Builders v Rees .... 23.55, 23.56
El-Mir v Risk .... 23.61, 23.62
Flowers v Vescio .... 23.59, 23.60
Illawong Village v State Bank .... 23.57, 23.58
Scaffidi v Perpetual Trustees .... 23.63
Osborn v McDermott .... 23.46, 23.47, 23.52
overview .... 23.44, 23.45, 23.49
question of fact .... 23.51
release .... 23.50, 23.53, 23.63
reversion to original claim .... 23.50, 23.53
ACL see Australian Consumer Law
Actions for debt see Debt actions
Advertisements see also Circulars or catalogues
offers, as .... 4.16, 4.17
Carlill v Carbolic Smoke Ball Co .... 4.20
invitation to treat .... 4.17, 4.18
limitation of liability .... 4.19
stock on hand .... 4.19
tenders .... 4.39
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Advertising puff
misrepresentations, as .... 14.7
Agency
privity of contract .... 39.36, 39.37
carriage of goods .... 39.38–39.52
disclosure of principal .... 39.37
Agreement see also Commercial agreements;
Family or social agreements
acceptance see Acceptance
alternative approaches .... 4.103
‘battle of the forms’ cases .... 4.104–4.113
‘global’ or ‘synthesis’ approach .... 4.110, 4.112,
4.113
certainty see Certainty
completeness see Completeness
contract, definition .... 1.4, 1.5
‘in principle’ agreement .... 5.28
informal agreement see Subject to contract
international sale of goods .... 4.9
necessity .... 4.3
negotiations .... 4.4–4.6
objective approach .... 1.5, 4.2
offer see Offer
overview .... 1.5, 4.1, 4.4, 5.1, 6.2
Aliens
capacity to contract .... 9.68
state of war .... 9.68
Anticipatory breach
acceptance of breach .... 24.75, 24.95
applicable principles .... 24.76
conduct constituting .... 24.76, 24.79
Foran v Wright .... 24.80–24.82
Ryder v Frohlich .... 24.83–24.85
damages .... 29.4, 29.34, 29.154
development of concept .... 24.78
overview .... 24.14, 24.75–24.77
test for renunciation .... 24.76
test for repudiation .... 24.76, 24.86
Assignments
choses in action
common law .... 40.20, 40.25
contractual rights, as .... 40.4, 40.19
definition .... 40.4
equity .... 40.21–40.23
statutory assignments .... 40.26–40.37
common law .... 40.3, 40.25
legal choses in action .... 40.20, 40.25
contractual rights .... 40.4, 40.7
breach of contract .... 40.7
choses in action, as .... 40.4, 40.19
damages .... 40.7
932
non-assignability clauses .... 40.16–40.18
novation, distinction .... 40.5, 40.6
equitable assignments .... 40.3, 40.22
bare trusts .... 40.21
joining in proceedings .... 40.23, 40.24
legal choses in action .... 40.21–40.23
non-compliance with statutory
requirements .... 40.38–40.42
essential feature .... 40.1
intention of assignor .... 40.2, 40.31
involuntary assignments .... 40.43
legal assignments .... 40.3
litigation rights .... 40.44–40.47
genuine commercial interest .... 40.48–40.50
incidental right to litigate .... 40.51, 40.52
insured to insurer .... 40.53, 40.54
public policy .... 40.45
non-assignability clauses .... 40.16, 40.17
declarations of trust .... 40.18
effects of breach .... 40.17
non-assignable contractual rights .... 40.8
personal services contracts .... 40.9–40.13
public pay .... 40.14, 40.15
overview .... 40.1
prohibitions against assignment .... 40.16–40.18
result of assignment .... 40.2
statutory assignments .... 40.3, 40.26, 40.29
absolute assignment .... 40.32–40.34
availability of equitable assignment .... 40.27
enforcement of assignment .... 40.28
express notice .... 40.36, 40.37
intention .... 40.31
joining in proceedings .... 40.27
non-compliance with requirements .... 40.38–
40.42
requirements .... 40.30–40.37
signature requirement .... 40.35
written requirement .... 40.35
Assumpsit see also Consideration
historical development .... 2.2, 2.12, 2.13
consideration .... 2.22
debt actions, and .... 2.14
indebitatus assumpsit .... 2.15, 2.17–2.19
money had and received .... 2.15
services rendered .... 2.17
Slade’s Case .... 2.16
supply of goods .... 2.17
Auctions
acceptance .... 4.26
highest bid .... 4.27, 4.28
cancellation .... 4.26

offer .... 4.26
consideration .... 4.29
highest bid .... 4.27, 4.28, 4.30
reserve price .... 4.30
withdrawal of offer .... 4.26
Australian Capital Territory
assignments .... 40.26
equitable damages .... 33.4
minors’ contracts .... 9.46
rescission .... 35.41
application of provisions .... 35.42
purpose of provisions .... 35.43
Australian Consumer Law
commencement .... 21.5
consumer guarantees .... 13.39, 13.42
consumer of goods, definition .... 13.42
exclusion clauses .... 13.38–13.45
predecessor provision .... 13.45
recreational services .... 13.44
supply of goods .... 13.39
supply of services .... 13.40, 13.44
implementation .... 21.4, 21.5
implied terms .... 11.32
misleading or deceptive conduct see Misleading
or deceptive conduct
overview .... 1.27, 21.4, 21.5
unconscionable conduct see Statutory
unconscionability
unfair contract terms see Unfair contract terms
B powers and objects .... 9.66, 9.67
Bankrupts
capacity to contract .... 9.58
Bilateral contracts
breach of contract .... 6.7
consideration .... 6.6, 6.7
reliance element .... 6.14
overview .... 1.35, 1.36
Bills of exchange
cheques .... 39.66, 39.67
consideration .... 6.30
overview .... 39.65
privity of contract .... 39.65–39.67
Breach of contract
alternative claims, and .... 1.10
assignment of contractual rights .... 40.7
assignment of litigation rights .... 40.44–40.47
genuine commercial interest .... 40.48–40.50
incidental right to litigate .... 40.51, 40.52
insured to insurer .... 40.53, 40.54
public policy .... 40.45
933
Index­
bilateral contracts .... 6.7
causation .... 29.93
‘but for’ test .... 29.94–29.96
intervening events .... 29.97–29.101
onus of proof .... 29.93
compensation for breach .... 3.15, 3.19, 3.20
damages for breach see Damages
definition .... 3.14
efficiency theories .... 3.31, 3.32, 29.16
inducing a breach see Inducing a breach
liquidated damages see Liquidated damages
clauses
overview .... 1.8, 29.1
penalties see Penalties, relief against
recovery of debt see Debt actions
reliance theories .... 3.14, 3.15, 3.19, 3.20
remedies see Remedies
termination for breach see Discharge by breach
terms of contract .... 10.2, 14.1
Building contracts
accord and satisfaction .... 23.61, 23.62
damages .... 29.82–29.89
liquidated damages clauses .... 30.3
part performance .... 22.39
restitution see Restitution
C
Capacity to contract
bankrupts .... 9.58
corporations .... 9.59, 9.60, 9.66
ultra vires doctrine .... 9.59–9.67
foreign nationals .... 9.68
state of war .... 9.68
married women .... 9.69
mental incapacity .... 9.47, 9.48
burden of proof .... 9.54
drunkenness .... 9.55–9.57
fairness of contract .... 9.51–9.53
knowledge of other party .... 9.49, 9.52,
9.54, 9.57
necessaries .... 9.47
non est factum .... 9.50
reasonableness of contract .... 9.51
unconscionability .... 9.52, 9.53
minors see Minors’ contracts
overview .... 9.1
Catalogues see Circulars or catalogues
Causation
‘but for’ test .... 29.94
failure to establish .... 29.95, 29.96
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Causation – cont’d
intervening events .... 29.97, 29.101
conduct of plaintiff .... 29.98, 29.100, 29.102
knowledge of breach .... 29.99
onus of proof .... 29.93
overview .... 29.93
Certainty see also Completeness
agreements to agree .... 5.21
agreements to negotiate in good
faith .... 5.21–5.27
ambiguity .... 5.12
clarification of terms .... 5.17
courts’ approach .... 5.2, 5.3, 5.13, 5.14
business parties .... 5.15
executed contracts .... 5.7
incidental matters .... 5.15
limbs of doctrine .... 5.1
overview .... 5.1, 5.4, 6.2
reasonable terms .... 5.17, 5.19
severance of matter .... 5.15, 5.16, 5.17
sufficient certainty .... 5.2, 5.12, 5.14
usual agreements .... 5.18
usual procedure .... 5.20
Circulars or catalogues see also Advertisements
offers, as .... 4.16, 4.17
invitation to treat .... 4.17, 4.18
limitation of liability .... 4.19
stock on hand .... 4.19
Collateral contracts
consistency with main contract .... 10.73
entire agreement clauses .... 10.74–10.81
equitable estoppel .... 10.80–10.82
misleading or deceptive conduct .... 10.83
third parties .... 10.84–10.86
elements .... 10.69
entire agreement clauses .... 10.74–10.81
Australian position .... 10.77
effect .... 10.77, 10.78
illegal contracts .... 28.21
overview .... 10.8, 10.66–10.69
promissory nature .... 10.70, 10.72
intention of parties .... 10.70, 10.71
sale of land contracts .... 8.7
third parties .... 10.84–10.86
Commercial agreements
government agreements .... 7.43, 7.45
implementation of policy .... 7.43
key factors .... 7.44
honour clauses .... 7.21
intention to create legal relations .... 7.6, 7.19,
7.30, 7.34
934
ambiguous wording .... 7.22
express exclusion .... 7.21, 7.22
government agreements .... 7.43–7.45
honour clauses .... 7.21
letters of comfort .... 7.36–7.42
onus of proof .... 7.34
rebuttal of presumption .... 7.20
letters of comfort .... 7.36, 7.40–7.42
illustration .... 7.36
interpretation difficulties .... 7.37
moral or legal responsibility .... 7.37–7.39
origins .... 7.37
Commercial contracts
construction of terms .... 12.2
business common sense .... 12.45–12.52
commercial purpose .... 12.26
preservation of validity .... 12.9
surrounding circumstances .... 12.28
exclusion clauses .... 13.4, 13.11, 13.28, 13.29
implied terms .... 11.9
good faith .... 11.48–11.66
meaning .... 11.52
unconscionable transactions .... 19.10
writing requirement .... 8.2
Common law see also Equity
assignments .... 40.3, 40.25
legal choses in action .... 40.20, 40.25
estoppel .... 36.2, 36.4
conduct, by .... 36.13–36.19
deed, by .... 36.6
forms of estoppel .... 36.1, 36.2, 36.5
judgment, by .... 36.7–36.12
frustration of contract .... 25.60–25.72
hierarchy of laws .... 1.28
historical development .... 1.20–1.23
equity, and .... 1.25, 1.26
judicature system .... 1.29, 1.30
implied terms .... 11.33, 11.39
cooperation between parties .... 11.39–11.41
displacement of terms .... 11.36
employment contracts .... 11.38
exclusion of terms .... 11.36
facts of case, and .... 11.35
necessity .... 11.33, 11.34, 11.37
performance of contract .... 11.42
‘prevention principle’ .... 11.41
test of necessity .... 11.33, 11.34
threat of breach .... 11.43
minors’ contracts .... 9.7
employment contracts .... 9.18–9.26
necessaries .... 9.8–9.17

mistake .... 16.5
rescission see Rescission
termination rights .... 24.22
time stipulations .... 24.43, 24.44, 24.47
waiver .... 23.71
writing requirement .... 8.1, 8.2, 8.3
Common law damages see Damages
Common law illegality see also Statutory
illegality
effects of illegality .... 28.2, 28.5–28.11, 28.13
availability of remedies .... 28.6, 28.12
collateral contact claims .... 28.21
ex turpi causa non oritur actio .... 28.2
independent cause of action .... 28.14–28.22
Karl Suleman .... 28.10, 28.11
North v Marra Developments .... 28.3, 28.4
parties not equally at fault .... 28.23–28.28
repentance .... 28.25, 28.27, 28.28
restitutionary claims .... 28.15, 28.16
severance .... 28.29–28.41
tortious claims .... 28.17–28.20
enemy aliens .... 27.37, 27.38
ex turpi causa non oritur actio .... 27.4, 27.5,
27.7, 28.2
operation of principle .... 27.4, 27.7
illegal, meaning .... 27.6, 27.7
illegal purpose .... 27.8
intention to act unlawfully .... 27.14, 27.22
proof of intention .... 27.15, 27.23
maintenance and champerty .... 27.19, 27.20
ousting courts’ jurisdiction .... 27.26
agreements between parties .... 27.27–27.29
conferred by statute .... 27.30
Hyman v Hyman .... 27.28
Soulsbury v Soulsbury .... 27.29
overview .... 27.1–27.3, 27.9, 28.1
prejudicial to administration of justice .... 27.16,
27.18
Callaghan v O’Sullivan .... 27.17
enforceability of contract .... 27.21–27.25
gravity of illegality .... 27.22, 27.24
intention to act unlawfully .... 27.22, 27.23
maintenance and champerty .... 27.19, 27.20
nature of illegality .... 27.22, 27.25
prejudicial to status of marriage .... 27.32–27.36
public duties .... 27.11, 27.31
conflicts of interest .... 27.11, 27.31
public policy .... 27.9, 27.11, 28.1
enemy aliens .... 27.37, 27.38
example of voided contract .... 27.10
examples of contracts .... 27.13
Hounga v Allen .... 27.12
935
Index­
intention to act unlawfully .... 27.14, 27.15,
27.22, 27.23
ousting courts’ jurisdiction .... 27.26–27.30
prejudicial to administration of
justice .... 27.16–27.25
prejudicial to status of
marriage .... 27.32–27.36
public duties .... 27.11, 27.31
restraints of trade .... 27.39–27.123
sexual immorality .... 27.32–27.36
rationale .... 27.4, 27.5
restraints of trade see Restraints of trade
severance .... 28.29–28.41
forms of severance .... 28.30
restraints of trade .... 27.108, 28.30–28.32,
28.37–28.41
test .... 28.33–28.35
sexual immorality .... 27.32–27.36
Compensation see also Damages; Equitable
damages
unfair contracts .... 21.39
Competition and Consumer Act see also
Australian Consumer Law
restrictive trade practices .... 27.109
application of provisions .... 27.110
employment contracts .... 27.111
Completeness see also Certainty
courts’ approach .... 5.2, 5.3
essential terms .... 5.5
lease of land .... 5.6
machinery provisions .... 5.8, 5.9
sale of land .... 5.6
third party determinations .... 5.10, 5.11
executed contracts .... 5.7
overview .... 5.1, 5.4, 6.2
sufficiency .... 5.2
Conditional contracts
options, as .... 4.52, 4.53
Conditions see also Warranties
breach of condition .... 10.2, 14.1, 24.15, 24.16,
24.18, 24.20, 24.21
election to terminate .... 24.20
enforcement of contract .... 24.20
classification of terms .... 24.19, 24.22, 24.25
future of classification .... 24.40
test to determine .... 24.26–24.29
United Kingdom .... 24.19, 24.30, 24.31
construction of terms .... 24.25, 24.28, 24.30
express stipulation .... 24.24
overview .... 10.6, 23.9, 24.20, 24.25
test to determine .... 24.26
application of test .... 24.29
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Conditions – cont’d
quality of essentiality .... 24.27
surrounding circumstances .... 24.28
Conditions precedent
conditions subsequent, distinction .... 23.22
construction .... 23.14, 23.15
existence of contract .... 23.13, 23.14, 23.17
liability for damages .... 23.18
overview .... 23.9, 23.13
performance of contract .... 23.13, 23.14
Perri v Coolangatta Investments .... 23.16
strict performance .... 23.19
substantial performance, and .... 22.45, 22.46
Conditions subsequent
conditions precedent, distinction .... 23.22
example .... 23.21
overview .... 23.9, 23.20
Consideration see also Equitable estoppel
absence of consideration .... 6.9
adequacy of consideration .... 6.38, 6.39, 18.42,
19.8
specific performance .... 31.16, 31.17
auctions .... 4.29
bargain element .... 6.12
benefit-detriment definition .... 6.11
bilateral contracts .... 6.6, 6.7
breach of contract .... 6.7
reliance element .... 6.14
compromise of claims .... 6.65, 6.66
Hercules Motors .... 6.67
Wigan v Edwards .... 6.68
deeds .... 6.75–6.78
advantages to use .... 6.81
right of enforcement .... 6.79
specific performance .... 6.80, 31.14
definition .... 6.10
benefit-detriment .... 6.11
element of a bargain .... 6.12
discharge by agreement .... 23.42
executed contracts .... 23.44
enforceability of informal promises .... 2.21
enforcement by promisee .... 6.23–6.26
joint promisees .... 6.25, 6.26
executed consideration .... 6.8
executory consideration .... 6.6
existence of consideration .... 6.4
existing contractual duties .... 6.47, 6.63
additional payment .... 6.50
Anton Trawling v Smith .... 6.57–6.61
endorsement of rule .... 6.54
formation of contract .... 6.63
936
Hartley v Ponsonby .... 6.49
modifications to rule .... 6.55
policy reasons .... 6.57, 6.58
practical benefit rule .... 6.50, 6.52–6.57, 6.62,
6.63
principles .... 6.53
Stilk v Myrick .... 6.48, 6.56, 6.57
third parties .... 6.64
variation of contract .... 6.47, 6.63
Williams v Roffey Bros .... 6.51, 6.52, 6.54–6.57,
6.61, 6.62
forbearance to sue .... 6.65–6.68
frustration .... 25.67–25.71
historical development .... 2.20–2.29
assumpsit cases .... 2.22
enforceability of informal promises .... 2.21
‘in consideration’ clauses .... 2.22
moral obligations .... 2.24, 6.5
quid pro quo clauses .... 2.22
‘restraints’ .... 2.23
illusory consideration .... 6.31, 6.33
British Empire Films .... 6.33
manner or extent of performance .... 6.32
informal contracts .... 6.75
intention to create legal relations,
and .... 7.47–7.49
joint promisees .... 6.25, 6.26
moral obligations .... 2.24, 6.5
mutual exchange of promises .... 6.6
nominal consideration .... 6.36
overview .... 6.1–6.3
parental obligations .... 6.45, 6.46
part payments of debts .... 6.69, 6.70
application of rule .... 6.71
exceptions to rule .... 6.72, 6.73
Foakes v Beer .... 6.71, 6.74
Pinnel’s Case .... 6.69–6.74
practical benefit rule .... 6.73, 6.74
past consideration .... 6.27, 6.28
bills of exchange .... 6.30
exceptions to rule .... 6.29, 6.30
meaning .... 6.27
performance of services .... 6.29
subsequent promises .... 6.28
pre-existing moral obligations .... 6.5
privity of contract, and .... 39.4
carriage of goods .... 39.43, 39.45, 39.47, 39.51
distinction between rules .... 39.5
promisee, movement from .... 6.3, 6.23–6.26, 39.4
promisor, movement to .... 6.23, 6.24
promisor’s request .... 6.20

public law duties .... 6.40, 6.46
additional services .... 6.42–6.44
court attendance .... 6.41
examples of duties .... 6.40
parental obligations .... 6.45, 6.46
special police services .... 6.43, 6.44
reciprocity .... 6.2, 6.3
reliance element .... 6.13, 6.22
Australian Woollen Mills .... 6.21
bilateral contracts .... 6.14
Carlill v Carbolic Smoke Ball Co .... 6.19
need for reliance .... 6.21, 6.22
possible outcomes .... 6.19
unilateral contracts .... 6.21, 6.22
remedies, and .... 6.1, 6.2, 6.7
restraint of trade .... 27.65, 27.66
specific performance .... 31.13–31.17
deeds .... 6.80, 31.14
subsequent agreements .... 23.42
sufficient consideration .... 6.34, 6.37
adequacy, and .... 6.38, 6.39
commercial value .... 6.37
definition .... 6.35
reasons for approach .... 6.39
threshold of legal recognition .... 6.35, 6.36
Woolworths Ltd v Kelly .... 6.39
total failure see Frustration; Restitution
unconscionable transactions .... 19.8, 19.42
undue influence .... 18.42
unilateral contracts .... 6.8
reliance element .... 6.21, 6.22
valuable consideration .... 31.15
Constitution
corporations power .... 15.5
unconscionable conduct .... 19.46
Construction of terms see also Exclusion clauses
ambiguities .... 12.15–12.29
broad view .... 12.21–12.23
business common sense, and .... 12.51
entire agreement clauses .... 12.69
meaning .... 12.20, 12.21
parol evidence rule .... 12.67
restraint of trade clauses .... 27.52
surrounding circumstances .... 12.15–12.19,
12.24, 12.26–12.35
business common sense .... 12.45–12.52
absurdity or irrationality .... 12.49, 12.51
ambiguity .... 12.51
illustration of approach .... 12.52
justification for approach .... 12.47
time of contract .... 12.48
937
Index­
unfairness .... 12.49
conditions .... 24.25, 24.28, 24.30
conditions precedent .... 23.14, 23.15
dictionaries .... 12.53
‘private’ dictionaries .... 12.55, 12.67
use by court .... 12.53, 12.54, 12.56
English language, and .... 12.3
legal English .... 12.73
plain English .... 12.74–12.77
entire agreement clauses .... 12.68, 12.69
inconsistencies .... 12.42–12.44
incorporated document .... 12.43
meaning .... 12.44
objective approach .... 12.42
standard form contracts .... 12.43
intention of parties .... 12.4, 12.5
ambiguities .... 12.15–12.29, 12.67
composite exercise, as .... 12.10
contract as a whole .... 12.6
justification for approach .... 12.13
objective approach .... 12.13, 12.14, 12.36
preservation of validity .... 12.9
redundancy .... 12.7
restraint of trade clauses .... 27.49
role of court .... 12.5
surrounding circumstances .... 12.15–12.19,
12.24, 12.26–12.35
technical words .... 12.11
third parties .... 12.12
words used more than once .... 12.8
legal drafting, and .... 12.70
impact of poor drafting .... 12.71, 12.72
legal English .... 12.73
plain English .... 12.74–12.77
overview .... 12.1, 12.2
parol evidence rule .... 12.57, 12.68
exceptions to rule .... 12.67
post-contract conduct .... 12.64–12.66
prior negotiations .... 12.58–12.63
principles of construction .... 12.36
business common sense .... 12.45–12.52
inconsistencies .... 12.42–12.44
unreasonable results .... 12.37–12.41
prior negotiations .... 12.58, 12.60, 12.68
appropriateness of rule .... 12.61
establishing background facts .... 12.60
proposed abolition .... 12.61–12.63
rationale for rule .... 12.59
restraint of trade clauses .... 27.48
ambiguities .... 27.52
intention of parties .... 27.49
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Construction of terms – cont’d
surrounding circumstances .... 12.15–12.19,
12.24, 12.26–12.35
Canada .... 12.34
entire agreement clauses .... 12.68
giving rise to ambiguity .... 12.35
inclusions .... 12.30
what constitutes .... 12.32
‘without prejudice’ communications .... 12.33
unreasonable results .... 12.37–12.41
absurdity .... 12.40
courts’ approach .... 12.39, 12.40
presumption against .... 12.37
rectification, and .... 12.41
warranties .... 24.25
Consumer contracts
definition .... 21.9, 21.10
exclusion clauses .... 13.11, 13.29
standard form contracts .... 21.3, 21.4
drafting of contracts .... 21.7
unfair terms see Unfair contract terms
Consumer credit contracts
plain English .... 12.76
Consumer guarantees
consumer of goods, definition .... 13.42
exclusion clauses .... 13.38, 13.44
qualifications .... 13.43, 13.44
overview .... 13.39, 13.42
predecessor provision .... 13.45
supply of goods .... 13.39
supply of services .... 13.40
recreational services .... 13.44
Contempt of court
specific performance, and .... 31.4–31.6
Contingent conditions see Conditions
Contract law
aim of book .... 1.14–1.18
commercial activity, and .... 1.12
common law, historical development
.... 1.20–1.23
critical legal studies .... 3.1, 3.41
criticisms .... 3.44
dualities in law .... 3.42, 3.43
critiques .... 3.1, 3.40
critical legal studies .... 3.41–3.44
feminism .... 3.45–3.48
employment contracts .... 1.16–1.18
equity .... 1.25
historical development .... 1.23–1.26
examples of contracts .... 1.11
significance .... 1.12
938
feminism .... 3.45
difference approach .... 3.46
subordination approach .... 3.47, 3.48
undue influence .... 3.48
fundamental role .... 1.12
general principles .... 1.15–1.18, 1.44, 3.1
sources of law .... 1.19–1.32
historical development see Historical
development
internationalisation .... 1.32
overview .... 1.11
quasi-contractual liability .... 38.1
significance .... 1.11–1.13
sources of law .... 1.19, 1.28
common law .... 1.20–1.23, 1.25, 1.26, 1.29, 1.31
English law .... 1.31
equity .... 1.23–1.29, 1.29, 1.31
hierarchy of laws .... 1.28
statute law .... 1.27, 1.28
structure of book .... 1.44
Contract theories
analytic questions .... 3.3–3.5
promissory theories .... 3.6–3.11, 3.22, 3.37
reliance theories .... 3.12–3.20, 3.37
transfer theories .... 3.21–3.24, 3.37
autonomy theories .... 3.35
categories of theories .... 3.2–3.4
analytic questions .... 3.5–3.24
normative questions .... 3.25–3.39
distributive justice .... 3.33
efficiency theories .... 3.28, 3.30, 29.16
illustrative example .... 3.29
objections .... 3.32
remedies .... 3.31
frustration .... 25.8
general contract theory .... 3.2
categories .... 3.2–3.4
normative questions .... 3.3, 3.4, 3.25
rights-based theories .... 3.36–3.39
utilitarian theories .... 3.26–3.35
overview .... 3.1
promissory theories .... 3.3, 3.6, 3.37
consistencies .... 3.7
criticisms .... 3.8, 3.9
Fried’s theory .... 3.10, 3.11
implied terms .... 3.9, 3.11
inconsistencies .... 3.8, 3.9
relevance .... 3.7
transfer theories, distinction .... 3.22
reliance theories .... 3.3, 3.12, 3.37
Atiyah’s theory .... 3.17–3.20

compensation for breach .... 3.15, 3.19, 3.20
executory contracts .... 3.19, 3.20
objections to theories .... 3.13–3.16
specific performance .... 3.16
rights-based theories .... 3.3, 3.36
damages .... 3.39
nature of contractual rights .... 3.37
specific performance .... 3.38
special relationship theories .... 3.34
transfer theories .... 3.3, 3.21, 3.37
Barnett’s conception .... 3.24
conceptual problems .... 3.23
consent .... 3.24
promissory theories, distinction .... 3.22
utilitarian theories .... 3.3, 3.26
autonomy theories .... 3.35
definition .... 3.26, 3.27
distributive justice .... 3.33
efficiency theory .... 3.28–3.32
special relationship .... 3.34
Contracts
agreement, as .... 1.4, 1.5
bilateral contracts .... 1.35, 1.36
consideration .... 6.6, 6.7
breach of contract see Breach of contract
building contracts .... 22.39
accord and satisfaction .... 23.61, 23.62
damages .... 29.82–29.89
liquidated damages clauses .... 30.3
part performance .... 22.39
capacity see Capacity to contract
classification of contracts .... 1.33
bilateral contracts .... 1.35, 1.36
formal contracts .... 1.34
illegal contracts .... 1.43
informal contracts .... 1.34
simple contracts .... 1.34
unenforceable contracts .... 1.38, 1.42
unilateral contracts .... 1.35, 1.37
void contracts .... 1.38, 1.39
voidable contracts .... 1.38, 1.40, 1.41
consumer contracts see Consumer contracts
creation see Formation of contract
date of contract .... 4.7, 4.100, 4.101
postal acceptance rule .... 4.101
definition .... 1.1–1.10, 6.1
derivation of term .... 1.2
discharge see +Discharge
divisible contracts .... 22.39–22.42
elements .... 1.6
employment contracts see Employment
contracts
939
Index­
enforceable obligations .... 1.1–1.3, 1.7
examples of contracts .... 1.11
significance .... 1.12
executory contracts .... 3.19, 3.20
finance, subject to .... 5.47
effect .... 5.47
leading case .... 5.48–5.50
satisfaction .... 5.49, 5.50
formal contracts see Formal contracts
formation see Formation of contract
general policy .... 20.2
illegal contracts .... 1.43
informal contracts see Informal contracts
lease of land .... 5.6
legislation .... 20.1
oral contracts see Oral contracts
place of contract .... 4.7, 4.100, 4.102
privity of contract see Privity of contract
promise, as .... 1.2, 1.3
sale of land see Sale of land contracts
termination see Discharge
terms of contract see Terms of contract
unenforceable contracts .... 1.38, 1.42
unfair contracts see Unfair contracts
unilateral contracts .... 1.35, 1.37
consideration .... 6.8
unjust contracts see Unjust contracts
variation in creation .... 1.13
void contracts .... 1.38, 1.39, 20.1
voidable contracts .... 1.38, 1.40, 1.41
Contracts Review Act 1980 see also Unjust
contracts
aim .... 20.7
applicable arrangements .... 20.5
application .... 20.8–20.10, 20.11, 20.50
availability of relief .... 20.11
law of New South Wales .... 20.9
background to introduction
.... 20.4
binding Crown .... 20.10
contracting out .... 20.9
genesis .... 20.4
judicial analysis .... 20.51
overview .... 20.2, 20.3
purpose .... 20.3, 20.8
relief .... 20.31, 20.34, 20.54, 20.55
availability of relief .... 20.11
awareness of disability .... 20.42, 20.43
Baltic Shipping Company .... 20.49, 20.50
Beneficial Finance .... 20.48, 20.50
criteria for consideration .... 20.37–20.39,
20.49, 20.50
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Contracts Review Act 1980 – cont’d
discretion to grant .... 20.32, 20.50
exercise of powers .... 20.33
Ford v Perpetual Trustees .... 20.43
general principles .... 20.54
grant determination .... 20.36
injunctions .... 20.41
pleaded circumstances .... 20.40
public interest .... 20.26, 20.35
restrictions on grant .... 20.11
scope of circumstances .... 20.42
Sharman v Kunert .... 20.44
threshold for relief .... 20.22
underlying transaction .... 20.46
West v AGC (Advances) .... 20.45–20.47, 20.51
relief procedure .... 20.16, 20.29, 20.30
plain English .... 12.76
three stage process .... 20.16–20.18
reviewable contracts .... 20.6
unjust, definition .... 20.19, 20.20
Contracts subject to finance
effect .... 5.47
leading case .... 5.48–5.50
overview .... 5.47
satisfaction .... 5.49, 5.50
Contributory negligence
apportionment legislation .... 29.103, 29.104
common law .... 29.104
concurrent liability .... 37.18, 37.27, 37.30, 37.31,
37.35
express stipulations .... 29.104
misleading or deceptive conduct .... 37.35
overview .... 29.103
Corporations
capacity to contract .... 9.59, 9.60, 9.66
powers and objects .... 9.66, 9.67
ultra vires doctrine .... 9.59–9.67
misleading or deceptive conduct .... 15.3
ultra vires doctrine .... 9.59, 9.61, 9.63
application .... 9.62
authority of directors .... 9.62, 9.63
consequences .... 9.64, 9.65, 9.67
drafting of objects clauses .... 9.65
statutory abolition .... 9.60, 9.66
unconscionable conduct .... 19.46
Counter-offers .... 4.47, 4.48, 4.75, 4.76, 4.77
Covenant actions see also Restrictive covenants
historical development .... 2.3–2.9
defences .... 2.8
Holgyl’s Case .... 2.7
separation of writs .... 2.9, 2.11
specialty requirement .... 2.5
940
types of actions .... 2.6
meaning .... 2.4
Creation of contract see Formation of contract
Credit provision
writing requirement .... 8.5
Critical legal studies
criticisms .... 3.44
dualities in law .... 3.42, 3.43
overview .... 3.1, 3.41
D
Damages see also Equitable damages; Liquidated
damages clauses
alternative methods of assessment .... 29.159
express right to terminate .... 29.160–29.164
Golden Strait Corp .... 29.163, 29.164
loss of discretionary benefits .... 29.165–29.169
Mihalis Angelos .... 29.160, 29.162
TCN Channel 9 v Hayden .... 29.162
anticipatory breach .... 29.4, 29.34, 29.154
assignment of contractual rights .... 40.7
avoidable loss .... 29.135, 29.144
Castle Constructions .... 29.140
costs of mitigation .... 29.137
employment contracts .... 29.141, 29.142
entry into new contracts .... 29.139
excluded matters .... 29.138
onus of proof .... 29.143
reasonableness .... 29.135, 29.136
avoided loss .... 29.145–29.152
Brown v Dream Homes SA .... 29.152
Hussey v Eels .... 29.150, 29.151
Lavarack v Woods of Colchester .... 29.149
Manwelland v Dames & Moore .... 29.151,
29.152
recovery of expenses .... 29.153
breach of contract .... 29.4
causation .... 29.93
‘but for’ test .... 29.94–29.96
intervening events .... 29.97–29.101
onus of proof .... 29.93
claim requirements .... 29.4
compensation principle .... 29.8, 29.11, 29.15,
29.70
date for assessment, and .... 29.30
expectation interest .... 29.38
inconsistencies with principle .... 29.11
qualification .... 29.10
underlying purpose .... 29.9
contributory negligence .... 29.103
apportionment legislation .... 29.103, 29.104

common law .... 29.104
concurrent liability .... 37.18, 37.27, 37.30,
37.31, 37.35
express stipulations .... 29.104
misleading or deceptive conduct .... 37.35
date for assessment .... 29.29, 29.30
anticipatory breach .... 29.34
compensatory principle, and .... 29.30
exceptions .... 29.31–29.33
Hocking Stuart (Hawthorn) .... 29.33
limitation periods .... 29.28
deceit .... 37.5, 37.15
exemplary damages .... 37.4
measure of damages .... 37.16
efficiency theories .... 3.31, 3.32, 29.16
establishing breach .... 29.4
exemplary damages .... 29.11, 29.15, 37.4
Australia .... 29.19
Canada .... 29.17
deceit .... 37.4
inducing a breach .... 37.4
justifications for rule .... 29.16
New Zealand .... 29.18
expectation damages .... 29.4, 29.39
impossibility of assessment .... 29.60–29.68
non-economic loss .... 29.46–29.54
profit, meaning .... 29.71, 29.72
reliance loss, and .... 29.70–29.72
restitution loss, and .... 29.75, 29.78
termination of contract .... 29.39
expectation interest .... 29.35, 29.38
compensation principle .... 29.38
loss of chance .... 29.40–29.45
gains-based damages .... 29.11, 29.12
Attorney-General v Blake .... 29.13
Australian position .... 29.14
exceptional circumstances .... 29.13
historical development .... 1.25
indemnity interest .... 29.35, 29.79
betterment .... 29.90–29.92
circumstances of loss .... 29.80
reinstatement costs .... 29.82–29.89
supply of defective goods .... 29.81
injunctions, and .... 32.2, 32.3, 33.10
interest .... 29.155
court’s discretion .... 29.157
damages, as .... 29.156
function of awards .... 29.155
Hungerfords v Walker .... 29.158
interests reflected in awards .... 29.35, 29.36
combination of losses .... 29.37
941
Index­
expectation interest .... 29.38–29.54
indemnity interest .... 29.79–29.92
reliance interest .... 29.55–29.72
restitution interest .... 29.73–29.78
limitation periods .... 29.28
loss of chance .... 29.40, 29.45
approach to assessment .... 29.44
Chaplin v Hicks .... 29.41
loss or damage requirement .... 29.42, 29.43
loss of use of money .... 29.155
interest .... 29.155–29.158
losses attracting .... 29.3
misleading or deceptive conduct .... 15.89–15.96
causation .... 15.92
concurrent liability .... 37.35
contributory negligence .... 37.35
measure of damages .... 15.92, 15.96
reliance .... 15.92–15.95
misrepresentations .... 37.5
mitigation .... 29.10, 29.129, 29.130
anticipatory breach .... 29.154
avoidable loss .... 29.135–29.144, 29.153
avoided loss .... 29.145–29.152
duty, as .... 29.133
principles .... 29.131, 29.132, 29.134
negligence .... 29.102
common law .... 29.104
concurrent liability .... 29.128, 37.27–37.35
contributory negligence .... 29.103, 29.104,
37.27, 37.30, 37.31
remoteness .... 29.128, 37.27–37.29,
37.32–37.34
negotiation damages .... 29.11, 29.20–29.24
availability .... 29.23
breach of contract .... 29.24
measure of damages .... 29.21, 29.22
Wrotham Park .... 29.20–29.22
nominal damages .... 29.6
costs, and .... 29.7
meaning .... 29.6
token amounts .... 29.7
non-economic loss .... 29.46
approach to assessment .... 29.51
civil liability legislation .... 29.52, 29.53
criticisms of principle .... 29.54
holiday cases .... 29.49
injured feelings .... 29.47, 29.48, 29.54
other examples .... 29.50
‘peace of mind’ exception .... 29.48, 29.49, 29.52
once and for all lump sum .... 29.25
criticism .... 29.26
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Damages – cont’d
overview .... 1.9, 29.1, 29.2, 29.3, 29.5, 31.1, 31.10
plaintiff ’s conduct .... 29.98, 29.100, 29.102
quantum .... 29.2
reliance loss .... 29.35, 29.37, 29.55, 29.58
Cth v Amann Aviation .... 29.57, 29.61–29.68
expectation loss, and .... 29.70–29.72
McRae v Cth Disposals .... 29.56, 29.60, 29.61,
29.116
onus of proof .... 29.60–29.65
pre-contractual loss .... 29.69
recoverable loss .... 29.59
restitution loss, and .... 29.78
wasted expenditure .... 29.55, 29.60–29.68,
29.116
reliance theories .... 3.15
remoteness .... 29.10, 29.105, 29.106, 37.28
actual knowledge .... 29.115–29.118
concurrent liability .... 29.128, 37.27–37.29,
37.32–37.34
degree of knowledge .... 29.107–29.118
extent of loss .... 29.121
first limb .... 29.107, 29.108, 29.110–29.114
Hadley v Baxendale .... 29.106–29.109
likelihood of loss .... 29.119, 29.120
presumed knowledge .... 29.110–29.114
scope of liability .... 29.122–29.127
second limb .... 29.107, 29.108, 29.115–29.118
source .... 29.106
tortious claims .... 37.3
restitution interest .... 29.35, 29.37, 29.73–29.78
Baltic Shipping v Dillon .... 29.73–29.78
expectation loss, and .... 29.75, 29.78
law of restitution .... 29.74, 29.75
reliance loss, and .... 29.78
rights-based theories .... 3.39
specific performance, and .... 31.18–31.22, 33.10,
39.19, 39.21
benefits to third parties .... 31.35–31.38,
39.20–39.22
distinction .... 31.10–31.12
payment or loan contracts .... 31.33, 31.34
sale of land .... 31.27–31.32
sale of personalty .... 31.23–31.26
substantial damages .... 29.6
taxation .... 29.27
termination of contract, and .... 29.4
expectation damages .... 29.39
express right to terminate .... 29.160–29.164
third party obligations .... 39.9–39.18
tortious claims .... 37.2–37.4
942
damage requirement .... 37.4
exemplary damages .... 29.15–29.19, 37.4
remoteness .... 37.3
unconscionable conduct .... 19.76
Wrotham Park damages see negotiation
damages above
Debt actions
frustration .... 30.44
historical development .... 2.3, 2.10–2.12
assumpsit, and .... 2.14
detinue, and .... 2.11
instalment debts .... 2.12
separation of writs .... 2.9, 2.11
uncertain sums .... 2.12
mitigation .... 30.46, 30.48
co-operation qualification .... 30.50–30.53
legitimate interest qualification .... 30.49,
30.54–30.58
White and Carter .... 30.47, 30.48
overview .... 30.1, 30.34, 30.35
procedural advantages .... 30.36
requirements for actions .... 30.37
ascertainable or certain sum .... 30.38
performance requirement .... 30.39, 30.40,
30.43
sale of land .... 30.40–30.42
sale of land contracts .... 30.40
deposits .... 30.40, 30.41
set date for payment .... 30.42
termination by breach .... 30.44, 30.45
Deceit
ambiguous statements .... 37.9
damages .... 37.5, 37.15
exemplary damages .... 37.4
measure of damages .... 37.16
establishing deceit .... 37.6–37.12
fraud .... 37.7, 37.11
ambiguous statements .... 37.9
Derry v Peek .... 37.7, 37.10
inducement .... 37.12, 37.13, 37.15
intention to deceive .... 37.8
standard of proof .... 37.14
honest belief of representor .... 37.10
overview .... 37.1, 37.5
remedies .... 14.2
Deeds
advantages of use .... 6.81
consideration .... 6.75–6.83
historical significance .... 6.77
intention of parties .... 6.83
overview .... 1.34, 6.75, 6.76

right of enforcement .... 6.79
seals .... 6.82
specific performance .... 6.80, 31.14
statutory formalities .... 6.82
unexecuted deeds .... 6.83
unjust contracts .... 20.6
Defences see also Equitable defences
covenant actions .... 2.8
inducing a breach .... 37.56
intention, and .... 37.61
Mainstream Properties v Young .... 37.63
OBG Ltd v Allan .... 37.61, 37.62
public interest grounds .... 37.60
scope of defence .... 37.58, 37.59
non est factum see Non est factum
restitution .... 38.82, 38.85
change of position .... 38.75–38.78, 38.81,
38.86–38.96
unconscionable transactions .... 19.40
adequacy of consideration .... 19.42
assistance to weaker party .... 19.41
equitable defences .... 19.43
independent advice .... 19.41
undue influence .... 18.45
Allcard v Skinner .... 18.46
laches .... 18.45–18.47
Definitions
breach of contract .... 3.14
choses in action .... 40.4
civil act .... 9.28
consideration .... 6.10–6.12
consumer contract .... 21.9, 21.10
consumer of goods .... 13.42
contract .... 1.1–1.10, 6.1, 20.7, 21.36
contractual benefit .... 25.89
contractual performance .... 25.90
court .... 9.43
deceive .... 15.34
disposition .... 8.10
mislead .... 15.34
necessaries .... 9.8, 9.10, 9.47
offer .... 4.10
profit .... 29.71, 29.72
sale .... 8.10
sufficient consideration .... 6.35
trade or commerce .... 19.47
unfair .... 21.16
unfair contract .... 21.36
unjust .... 20.19, 20.20
utilitarian theory .... 3.26, 3.27
valuable consideration .... 31.15
943
Index­
waiver .... 23.64, 23.65
Detinue
debt actions, and .... 2.11
Disability see Mental incapacity
Discharge
agreement see Discharge by agreement
breach see Discharge by breach
frustration see Frustration
meaning .... 22.1
overview .... 22.2, 22.3, 24.1
performance see Discharge by performance
Discharge by agreement
abandonment of contract .... 23.1, 23.2, 23.6
conduct of parties .... 23.4–23.7
paid deposits .... 23.8
statement of principle .... 23.3
accord and satisfaction .... 23.44, 23.45, 23.49
acceptance requirement .... 23.45, 23.47, 23.48
contractual accords .... 23.52
D & C Builders v Rees .... 23.55, 23.56
El-Mir v Risk .... 23.61, 23.62
failure to perform .... 23.53
Flowers v Vescio .... 23.59, 23.60
Illawong Village v State Bank .... 23.57, 23.58
McDermott v Black .... 23.48, 23.54
nature of accord .... 23.52
operation of principles .... 23.54–23.63
Osborn v McDermott .... 23.46, 23.47, 23.52
question of fact .... 23.51
release .... 23.50, 23.53, 23.63
reversion to original claim .... 23.50, 23.53
Scaffidi v Perpetual Trustees .... 23.63
conditions precedent .... 23.9, 23.13
conditions subsequent, distinction .... 23.22
construction .... 23.14, 23.15
existence of contract .... 23.13, 23.14, 23.17
liability for damages .... 23.18
performance of contract .... 23.13, 23.14,
23.16, 23.19
Perri v Coolangatta Investments .... 23.13,
23.16
strict performance .... 23.19
conditions subsequent .... 23.9, 23.20
conditions precedent, distinction .... 23.22
example .... 23.21
contractual right to terminate .... 23.10
implied terms .... 23.11, 23.12
overview .... 23.1
subsequent agreements .... 23.1, 23.23, 23.25
accord and satisfaction .... 23.44–23.63
consideration .... 23.42
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Discharge by agreement – cont’d
executed contracts .... 23.43–23.63
executory contracts .... 23.32–23.42
intention of parties .... 23.25
mergers .... 23.30
no oral modification clause .... 23.35–23.40
novation agreements .... 23.26–23.31
termination of contract .... 23.23–23.25, 23.31,
23.33, 23.41
validity of agreements .... 23.31
variation of contract .... 23.23–23.25, 23.31,
23.34, 23.35
terms of contract .... 23.1, 23.9
conditions precedent .... 23.13–23.19, 23.22
conditions subsequent .... 23.20–23.22
contractual right to terminate .... 23.10–23.12
implied terms .... 23.11, 23.12
waiver .... 23.1, 23.64, 23.66, 23.69
common law .... 23.71
definition .... 23.64, 23.65
election .... 23.64, 23.67, 23.68
equitable rights .... 23.72, 23.73
independent doctrine, as .... 23.70
legal rights .... 23.72
Discharge by breach
anticipatory breach .... 24.14, 24.75–24.77
acceptance of breach .... 24.75
applicable principles .... 24.76
conduct constituting .... 24.76, 24.79
development of concept .... 24.78
Foran v Wright .... 24.80–24.82
Ryder v Frohlich .... 24.83–24.85
test for renunciation .... 24.76
test for repudiation .... 24.76, 24.86
conduct constituting breach .... 24.5, 24.6, 24.14
manner of performance .... 24.7
renunciation .... 24.9, 24.10, 24.12
repudiation .... 24.8–24.13, 24.15, 24.16,
24.63–24.86
time stipulations .... 24.6, 24.7
contractual right to terminate .... 24.58
effect of termination .... 24.92
notice of termination .... 24.60, 24.61
operation of clauses .... 24.59
restrictions on termination .... 24.100
Sargent v ASL Developments .... 24.61, 24.62
effect of termination .... 24.91, 24.92
election .... 24.105, 24.106
abandonment of available right .... 24.103
affirmation of contract .... 24.104, 24.109,
24.110, 24.112, 24.113
944
communication .... 24.106, 24.107
conduct constituting affirmation .... 24.109,
24.112, 24.113
knowledge of material facts .... 24.108
principles .... 24.102
summary of principles .... 24.114–24.116
termination of contract .... 24.20, 24.87,
24.104, 24.111
failure to perform obligations
.... 24.5, 24.18–24.62
breach of terms .... 12.1, 24.7, 24.15, 24.16,
24.18–24.62
contractual right to terminate .... 24.58–24.62
time stipulations .... 24.6, 24.7, 24.42–24.57
manner of performance .... 24.7
notice of termination .... 24.60, 24.61, 24.87
grounds of termination .... 24.89, 24.90
requirements .... 24.88
overview .... 24.1–24.4
repudiation .... 24.2, 24.8, 24.11, 24.15, 24.16,
24.63
acceptance .... 24.93, 24.94
anticipatory breach .... 24.14, 24.75–24.86,
24.95
communication of intention .... 24.93
conduct of party .... 24.63, 24.66–24.72
erroneous interpretations .... 24.11, 24.74
inconsistent performance .... 24.66
intention of parties .... 24.67
meaning .... 24.64, 24.65
renunciation, and .... 24.9, 24.10, 24.12, 24.63,
24.65
serious matter, as .... 24.73
Shevill v Builders Licensing Board .... 24.64
summary of principles .... 24.12
uses of term .... 24.9, 24.10, 24.13, 24.63, 24.64
rescission .... 24.2
termination, distinction .... 24.2–24.4
restrictions on termination .... 24.96
both parties in breach .... 24.98, 24.99, 24.101
election .... 24.102–24.116
forfeiture, relief against .... 24.118–24.134
good faith obligation .... 24.117
unable or unwilling to perform .... 24.97–24.101
right to terminate .... 24.15–24.17
implied right .... 24.15
terminology .... 24.2
terms of contract .... 10.2, 12.1, 14.1, 24.7, 24.18,
24.23
classification of terms .... 24.19, 24.22, 24.25,
24.39–24.41

common law termination .... 24.22
conditions .... 24.15, 24.16, 24.20, 24.24–24.31
conditions, warranties and innominate terms
distinguished .... 24.25
contractual right to terminate .... 24.58–24.62
express stipulation of type .... 24.24
future of classification .... 24.39–24.41
intermediate terms .... 24.15, 24.25,
24.33–24.40, 24.47, 24.48
manner of performance .... 24.7
sale of goods .... 24.24, 24.38, 24.41
time stipulations .... 24.6, 24.7, 24.42–24.57
warranties .... 24.22, 24.24, 24.25, 24.32, 24.40,
24.41, 24.47
time stipulations .... 24.6, 24.42
circumstances for termination .... 24.44, 24.47
common law .... 24.43, 24.44, 24.47
equity .... 24.43–24.47, 24.54, 24.55
essence by implication .... 24.49
essence of contract .... 24.44, 24.45,
24.47–24.50
failure to perform .... 24.6, 24.7
historical treatment .... 24.43–24.47
notices to complete .... 24.50–24.57
Discharge by frustration see Frustration
Discharge by performance
‘best endeavours’ .... 22.24, 22.25
objective test .... 22.24
concurrent performance .... 22.17
co-operation of parties .... 22.18–22.20
limits of duty .... 22.22, 22.23
scope of duty .... 22.21
de minimus non curat lex rule .... 22.44
divisible contracts .... 22.39
apportionment legislation .... 22.42
building contracts .... 22.39
payment of contract price by
instalments .... 22.40
sale of goods by instalments .... 22.41
level of performance .... 22.29
exact performance .... 22.31–22.35, 22.38, 24.5
exceptions to rule .... 22.38–22.50
partial performance .... 22.36, 22.37
payment of money .... 22.30
rationale for rule .... 22.32
strict performance .... 22.29, 22.33
unjust results .... 22.34, 22.35
obstruction of performance .... 22.43
order for performance .... 22.12
concurrent performance .... 22.17
dependent obligations .... 22.13, 22.14, 22.16
945
Index­
independent obligations .... 22.13–22.15
overview .... 22.4
partial performance .... 22.36, 22.37
acceptance .... 22.50
obstruction of performance .... 22.43
payment of money .... 22.30
performance, meaning .... 22.31
prevention of performance .... 22.27, 22.28
‘reasonable endeavours’ .... 22.24–22.26
objective test .... 22.24
substantial performance .... 22.31, 22.45
Cordon Investments .... 22.45
extent of defective performance .... 22.48
Highmist v Tricare .... 22.49
Hoenig v Isaacs .... 22.46, 22.47
time for performance .... 22.5
Electronic Industries v David Jones .... 22.9,
22.10
express stipulation .... 22.6
failure to perform .... 22.11
reasonable time .... 22.6–22.10
Disclaimer clauses see also Exclusion clauses
misleading or deceptive conduct .... 15.84, 15.85
precluding reliance .... 15.86
Display of goods
acceptance .... 4.23–4.25
offer, as .... 4.21
invitation to treat .... 4.21–4.23
Pharmaceutical Society of Great Britain
v Boots Cash Chemists (Southern)
Ltd .... 4.22–4.25
Divisible contracts
apportionment legislation .... 22.42
building contracts .... 22.39
discharge by performance .... 22.39–22.42
overview .... 22.39
payment of contract price by
instalments .... 22.40
sale of goods by instalments .... 22.41
Domestic agreements see Family or social
agreements
Duress
applicability .... 17.3
assessment of conduct .... 17.20
Australian concept .... 17.11
bad faith .... 17.9
boundaries .... 17.13
categories of duress .... 17.23
coercion .... 17.20
compulsion .... 17.8, 17.20
development of law .... 17.1
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Duress – cont’d
economic pressure/duress .... 17.3, 17.10, 17.23,
17.28–17.34
ANZ v Karam .... 17.32
Progress Bulk .... 17.33, 17.34
effect on contract .... 17.21, 17.22
elements .... 17.3, 17.23
goods, of .... 17.23, 17.27
illegitimate pressure .... 17.1, 17.8, 17.9
courts’ considerations .... 17.28
demand for payment .... 17.5, 17.6, 17.7, 17.10
illegitimate, meaning .... 17.4, 17.5, 17.8
lawful acts .... 17.2
lawful means .... 17.16–17.19, 17.34
test for .... 17.18
unconscionable conduct, as .... 17.11–17.13
unlawful acts .... 17.2, 17.17, 17.34
intimidation .... 17.40
lawful means .... 17.2, 17.6, 17.7, 17.16–17.19,
17.34
demand for payment .... 17.5, 17.6, 17.7, 17.10
overview .... 17.1, 18.6
person, of .... 17.14, 17.23, 17.26
death threats .... 17.14
nature of threat .... 17.25
property, threats to .... 17.3
quality of consent .... 17.21
remedies .... 17.35
affirmation of contract, and .... 17.36
rescission .... 17.21, 17.35–17.37
statutory remedies .... 17.38
rescission .... 17.21, 17.35
affirmation of contract, and .... 17.36
third persons .... 17.37
unconscionable conduct, and .... 17.11–17.13,
17.21, 17.24
undue influence, and .... 17.21, 17.24
unjustness of contract .... 17.39
unlawful conduct
limitation to .... 17.14
threatened or actual .... 17.11, 17.12, 17.15
E discretionary nature .... 33.12
Election
abandonment of available right .... 24.103
affirmation of contract .... 24.104, 24.110
conduct constituting .... 24.109, 24.112, 24.113
communication .... 24.106, 24.107
knowledge of material facts .... 24.108
overview .... 23.64, 24.105, 24.106
principles .... 24.102
946
summary of principles .... 24.114–24.116
termination of contract .... 24.20, 24.87, 24.104,
24.111
waiver .... 23.64, 23.67, 23.68
Employment contracts see also Personal service
contracts; Unfair contracts
avoidable loss .... 29.141, 29.142
debt actions .... 30.45
implied terms .... 11.38
intention to create legal relations .... 7.24
engagement of clergy .... 7.23–7.26
minors .... 9.18, 9.24
apprenticeships .... 9.19, 9.20
representation agreements .... 9.21–9.24
restraint of trade clauses .... 9.25, 9.26
overview .... 1.16–1.18
restraint of trade clauses .... 27.39, 27.47, 27.79,
27.82
ambiguities .... 27.52
application of doctrine .... 27.83
Competition and Consumer Act .... 27.111
confidential information .... 27.80, 27.81,
27.91–27.97
court’s approach .... 27.50, 27.52, 27.79
customer connections .... 27.85, 27.86, 27.91,
27.98–27.103
express terms .... 27.84
goodwill .... 27.98, 27.99
minors .... 9.25, 9.26
personal services contracts .... 32.6–32.20
repudiated contracts .... 27.87, 27.88
severance .... 28.38, 28.40
trade secrets .... 27.91–27.97
use of information .... 27.80, 27.81
specific performance .... 31.40–31.44
mutual confidence .... 31.42
obligation to enter contract .... 31.41
Quinn v Overland .... 31.43
Equitable damages
assessment of damages .... 33.7
Wroth v Tyler .... 33.9
date of assessment .... 33.9
historical background .... 33.1, 33.2
Lord Cairns’ Act .... 33.2, 33.3, 33.20
injunctions, and .... 33.13
in lieu of .... 33.14, 33.18
jurisdiction .... 33.10, 33.11
Lord Cairns’ Act .... 33.2, 33.3
continuing significance .... 33.20
contracts not evidenced in writing .... 33.22

damages before injury .... 33.21
purpose of Act .... 33.6
states and territories .... 33.4, 33.5
mitigation of damage .... 33.8
overview .... 29.5, 33.1
rationale .... 33.7
specific performance, and .... 31.11, 33.13
in lieu of .... 33.14–33.19
states and territories .... 33.4
New South Wales .... 33.5
Wrotham Park damages .... 29.23
Equitable defences
injunctions .... 32.5
laches .... 18.45–18.47, 31.64, 31.65
court’s approach .... 31.71, 31.72
elements .... 31.67
establishing defence .... 31.66, 31.70, 31.73
knowledge of wrong .... 31.67
measurement of delay .... 31.69
mere delay .... 31.68
prejudice to defendant .... 31.70, 31.73
rescission, and .... 35.34, 35.35
specific performance, and .... 31.64–31.73
unconscionable transactions .... 19.43
undue influence .... 18.45–18.47
Allcard v Skinner .... 18.46
waiver .... 23.1, 23.64, 23.66, 23.69
definition .... 23.64, 23.65
election .... 23.64, 23.67, 23.68
equitable rights .... 23.72, 23.73
independent doctrine, as .... 23.70
legal rights .... 23.72
Equitable estoppel
assumption or expectation .... 36.45
detriment, and .... 36.62
legal relationship .... 36.48, 36.49
nature of assumption .... 36.47
reasonableness of assumptions .... 36.50
circumstances for relief .... 36.3
clear and unambiguous representation .... 36.34,
36.42
elements .... 36.42–36.44
mere silence .... 36.36
rationale for requirement .... 36.37
standard of clarity .... 36.38, 36.39
test of certainty .... 36.41
test of clarity .... 36.40
truth of representation .... 36.35
Waltons Stores v Maher .... 36.42, 36.43
collateral contracts .... 10.80–10.82
detriment .... 36.61–36.65
947
Index­
expectation loss .... 36.65
failure to avoid .... 36.66, 36.67
reliance loss .... 36.65
requirements .... 36.64
development .... 36.20, 36.21
consolidation of forms .... 36.27–36.30
promissory estoppel .... 36.22–36.24
proprietary estoppel .... 36.25, 36.26
Waltons Stores v Maher .... 36.27–36.29, 36.30
elements .... 36.31–36.33, 36.42–36.44
assumption or expectation .... 36.45–36.50
clear and unambiguous
representation .... 36.34–36.44
detriment .... 36.61–36.67
failure to avoid detriment .... 36.66, 36.67
inducement .... 36.51–36.53
knowledge or intention .... 36.59, 36.60
reliance .... 36.54–36.58
Waltons Stores v Maher .... 36.42, 36.43
entire agreement clauses, and .... 36.68
entitlement to relief .... 36.69
expectation-based relief .... 36.72, 36.75, 36.76
proportionality .... 36.70, 36.71
reliance-based relief .... 36.70, 36.73, 36.74
forms of estoppel .... 36.1, 36.2
negotiations .... 4.6
overview .... 1.10, 36.1, 36.4
privity of contract .... 39.62, 39.63
promissory estoppel .... 36.1, 36.3, 36.20–36.22
consolidation with proprietary .... 36.27–36.30
development .... 36.22, 36.23
limitations .... 36.24
reliance-based relief .... 36.73, 36.74
proprietary estoppel .... 36.1, 36.20, 36.21, 36.25
acquiescence, by .... 36.26
consolidation with promissory .... 36.27–36.30
encouragement, by .... 36.26
expectation-based relief .... 36.75, 36.76
remedies .... 1.10
Equitable fraud
part performance .... 8.29, 8.30
origins of doctrine .... 8.31
payments of money .... 8.42, 8.43
permitted acts .... 8.34
principles .... 8.32
reliance on contract .... 8.35
requirements .... 8.33, 8.34, 8.36–8.41
test .... 8.30
unequivocal acts .... 8.36, 8.39–8.41
sale of land contracts .... 8.24, 8.25–8.28
common law damages excluded .... 8.26
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Equitable fraud – cont’d
example of principle .... 8.27
part performance .... 8.29–8.43
remedies .... 8.28
specific performance .... 8.25, 8.26
Equitable remedies
damages see Equitable damages
injunctions see Injunctions
rectification see Rectification
rescission see Rescission
specific performance see Specific performance
Equity see also Common law
assignments .... 40.3, 40.22
bare trusts .... 40.21
joining in proceedings .... 40.23, 40.24
legal choses in action .... 40.21–40.23
non-compliance with statutory
requirements .... 40.38–40.42
election .... 23.64
waiver .... 23.64, 23.67, 23.68
forfeiture, relief against .... 24.118–24.134
hierarchy of laws .... 1.28
historical development .... 1.23–1.26
common law, and .... 1.25, 1.26
judicature system .... 1.29, 1.30
mistake .... 16.5
overview .... 1.25
penalties, relief against see Penalties, relief
against
time stipulations .... 24.43–24.47, 24.54, 24.55
unconscionable conduct see Unconscionable
conduct
undue influence see Undue influence
Essential terms see also Conditions
informal agreements .... 5.28
lease of land .... 5.6
machinery provisions .... 5.8, 5.9
overview .... 5.5
sale of land contracts .... 5.6, 8.14, 8.15
third party determinations .... 5.10, 5.11
Estoppel
conduct, by .... 36.13–36.15
convention .... 36.17–36.19
representation .... 36.16
deed, by .... 36.6
equity see Equitable estoppel
forms of estoppel .... 36.2, 36.5
judgment, by .... 36.7
Anshun estoppel .... 36.12
issue estoppel .... 36.8, 36.9, 36.11
res judicata .... 36.10, 36.11
948
overview .... 36.2, 36.4
Exclusion clauses see also Disclaimer clauses
carriage of goods .... 39.38–39.52
cases involving .... 13.2
construction of clauses .... 13.2, 13.4, 13.11, 13.22
application of principles .... 13.6–13.10, 13.27,
13.28
consumer contracts .... 13.11
context of clause .... 13.5, 13.7, 13.10
contra proferentum .... 13.5, 13.8, 13.9, 13.12,
13.14
courts’ approach .... 13.3–13.5
Darlington Futures v Delco .... 13.13
deviation cases .... 13.31–13.33
four corners rule .... 13.15, 13.31, 13.34–13.36
natural and ordinary meaning .... 13.5, 13.10,
13.22–13.24
negligence .... 13.14–13.30
Photo Production v Securicor .... 13.12
principles .... 13.5–13.10, 13.23, 13.27, 13.28,
13.31
consumer contracts .... 13.11, 13.29
consumer guarantees .... 13.38, 13.44
qualifications .... 13.43, 13.44
courts’ approach .... 13.3–13.5
extrinsic evidence and .... 12.68, 12.69
issues to be determined .... 13.2
misleading or deceptive conduct .... 13.41, 15.77
precluding reliance .... 15.86
misrepresentation .... 10.27–10.30, 13.41,
14.54–14.57
negligence .... 13.14, 13.22, 13.30
application of principles .... 13.25, 13.27, 13.28
drafting clauses .... 13.30
express references .... 13.15, 13.25
non-commercial contracts .... 13.27
other grounds of liability .... 13.17–13.20,
13.22, 13.26
other words and expressions .... 13.16, 13.25
rules .... 13.15–13.18, 13.25
status of rules .... 13.22–13.30
unfair contract terms .... 13.29
notice, incorporation by .... 10.37–10.39
overview .... 13.1, 13.2
prior dealings, incorporation by .... 10.50
rescission .... 35.40
signature, incorporation by .... 10.20–10.22, 10.25
misrepresentation .... 10.27–10.30
statutory intervention .... 13.37
Australian Consumer Law .... 13.38–13.45
Contracts Review Act .... 13.46

terms of contract, as .... 13.2, 13.3
incorporation by notice .... 10.37–10.39
incorporation by prior dealings .... 10.50
incorporation by signature .... 10.20–10.22,
10.25, 10.27, 10.28
unfair contract terms .... 13.29
unjust contracts .... 13.46, 20.9
Executory contracts
reliance theories, and .... 3.19
Exemplary damages
breach of contract .... 29.11, 29.15, 37.4
Australia .... 29.19
Canada .... 29.17
justifications for rule .... 29.16
New Zealand .... 29.18
deceit .... 37.4
inducing a breach .... 37.4
Express terms see also Implied terms
‘boilerplate’ clauses .... 10.6
collateral contracts .... 10.8, 10.66–10.69
consistency with main contract .... 10.73–10.83
elements .... 10.69
entire agreement clauses .... 10.74–10.81
promissory nature .... 10.70–10.72
third parties .... 10.84–10.86
contingent conditions see Conditions
implied terms, distinction .... 10.3
incorporation by notice .... 10.7, 10.31, 10.32,
10.42
commercially sophisticated parties .... 10.41
exclusion clauses .... 10.37–10.39
non-contractual documents .... 10.36
reasonableness of notice .... 10.35–10.42
summary of principles .... 10.42
timing of notice .... 10.33, 10.34
incorporation by prior dealings .... 10.7, 10.43,
10.52
all past contracts .... 10.45
application of principles .... 10.52
exclusion clauses .... 10.50
knowledge of terms .... 10.46–10.49
reasonableness .... 10.44
summary of principles .... 10.53
incorporation by signature .... 10.17
additional terms .... 10.25
criticisms of rule .... 10.18
exceptions to rule .... 10.26–10.30, 16.88
exclusion clauses .... 10.20–10.22, 10.25, 10.27,
10.28
L’Estrange v Graucob .... 10.17, 10.18
misrepresentation .... 10.27–10.30
949
Index­
notice of terms .... 10.20, 10.22, 10.24
reasons for rule .... 10.19
separate documents .... 10.24
Toll v Alphapharm .... 10.20–10.23
vitiating factors .... 10.23
mere representations .... 10.5, 10.11
terms, distinction .... 10.11
terms or representations .... 10.7, 10.9–10.16
overview .... 10.1, 10.3, 10.4, 10.7, 11.1
parol evidence rule .... 10.8, 10.54, 10.54
entire agreement clauses .... 10.63, 10.64
entirely written contracts
.... 10.54, 10.57–10.63
exceptions .... 10.65
extrinsic evidence .... 10.57, 10.58
intention of parties .... 10.59, 10.60, 10.64
justification for rule .... 10.56
oral agreement on terms .... 10.62
partly written and partly oral .... 10.59–10.63
significance of rule .... 10.55
promissory statements .... 10.5
representations or terms .... 10.7, 10.9
example .... 10.10, 10.11
false representations .... 10.9
intention of parties .... 10.13–10.16
objective approach .... 10.13, 10.14
relevant factors .... 10.12, 10.13
types of terms .... 10.5, 10.6
writing requirement .... 10.8
F
Family or social agreements
intention to create legal relations .... 7.6, 7.9,
7.12, 7.26, 7.33
application of presumption .... 7.9–7.12
commercial context .... 7.11, 7.18
duration of agreement .... 7.12
examples of relationships .... 7.10, 7.11
justification for presumption .... 7.13, 7.14
nature of agreement .... 7.11
onerous obligations .... 7.16, 7.17
onus of proof .... 7.33
rationale of presumption .... 7.13, 7.14
rebuttal of presumption .... 7.7, 7.13, 7.15–7.18
relevance of presumptions .... 7.31
spouses .... 7.3, 7.10, 7.13, 7.14
Feminism
contract law analyses .... 3.45
difference approach .... 3.46
subordination approach .... 3.47, 3.48
undue influence .... 3.48
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Finance
contracts subject to .... 5.47
effect .... 5.47
leading case .... 5.48–5.50
satisfaction .... 5.49, 5.50
Financial services
misleading or deceptive conduct .... 15.4
unconscionable conduct .... 19.45
Fixed sums see Debt actions; Liquidated
damages clauses
Foreign nationals
capacity to contract .... 9.68
state of war .... 9.68
Forfeiture, relief against
court’s considerations .... 24.122, 24.123
court’s willingness .... 24.124, 24.130
establishing .... 24.121
leases .... 24.123
sale of land contracts .... 24.125, 24.126, 30.41,
30.42
Tanwar Enterprises .... 24.129, 24.132
Union Eagle Ltd .... 24.127, 24.128, 24.130, 24.131
scope of jurisdiction .... 24.130
termination by breach, and .... 24.118–24.134
unconscientiousness .... 24.119
fraud or surprise .... 24.133, 24.134
Formal contracts
deeds .... 1.34, 6.75, 6.77
advantages to use .... 6.81
consideration .... 6.75–6.83
historical significance .... 6.77
intention of parties .... 6.83
right of enforcement .... 6.79
seals .... 6.82
specific performance .... 6.80
statutory formalities .... 6.82
unexecuted deeds .... 6.83
implied terms .... 11.8
business efficacy .... 11.14–11.17, 11.20
clear expression .... 11.24, 11.25
consistency with express terms .... 11.26–11.28
elements .... 11.8, 11.9, 11.13–11.28
enforceable contract prerequisite .... 11.12
entire agreement clauses .... 11.28
equitable and reasonable .... 11.13, 11.23
fairness between parties .... 11.13
obviousness .... 11.18–11.23
overview .... 1.34, 6.75
Formation of contracts
acceptance see Acceptance
agreement see Agreement
950
certainty see Certainty
completeness see Completeness
conduct of parties, by .... 4.79
consistency with offer .... 4.80
intention of parties .... 4.79
offer without acceptance .... 4.80–4.83
consideration see Consideration
informal agreements see Subject to contract
intention to create legal relations see Intention
to create legal relations
international sale of goods .... 4.9
offer see Offer
overview .... 4.1, 10.1
variation in creation .... 1.13
writing requirement see Writing requirement
Franchise agreements
restraints of trade .... 27.106
unfair contracts .... 21.37, 21.38
Fraud see Deceit; Equitable fraud
Frustration
agreements between parties .... 25.10
application of doctrine .... 25.12
leases .... 25.16
automatic termination .... 25.61, 25.62
common mistake, and .... 25.57
distinctions .... 25.57, 25.58
contract theories .... 25.8
court’s approach .... 25.12
criticisms of doctrine .... 25.99
debt actions .... 30.44
effect of frustration .... 25.19, 25.58, 25.59
common law .... 25.60–25.72
elements of frustration .... 25.16–25.20
essence .... 25.19
force majeure clauses .... 25.10, 25.55, 25.56,
25.100
advantages .... 25.101
frustrating events .... 25.21
commercial impracticability .... 25.28
court orders .... 25.25–25.27
delay .... 25.45
destruction of subject matter .... 25.32, 25.33
failure of a condition .... 25.38–25.42
government intervention .... 25.43, 25.44
personal service contracts .... 25.34–25.37
subsequent change in law .... 25.29
supervening illegality .... 25.30, 25.31
war .... 25.30, 25.46, 27.37
historical background .... 25.2
‘Coronation Cases’ .... 25.4
Taylor v Caldwell .... 25.2, 25.3

limits to doctrine .... 25.14, 25.15
New South Wales .... 25.59, 25.72, 25.74, 25.81
examples of effect .... 25.79, 25.80
excluded contracts .... 25.73
full performance .... 25.75
partial performance .... 25.76
payments of money .... 25.77
wasted expenditure .... 25.78
non-frustrating events .... 25.47
object of doctrine .... 25.19
overview .... 24.1, 25.1, 25.6–25.8, 25.13
partial frustration .... 25.60
partial performance .... 25.63
New South Wales .... 25.76
post-frustration benefits .... 25.64
pre-frustration benefits .... 25.65, 25.66
total failure of consideration .... 25.67–25.71
preconditions .... 25.17
propositions .... 25.19, 25.20
South Australia .... 25.59, 25.84, 25.98
adjustments between parties .... 25.88–25.96
contractual benefit, definition .... 25.89
contractual performance, definition .... 25.90
court’s orders .... 25.95
definitions .... 25.89, 25.90
effect of frustration .... 25.87
excluded contracts .... 25.85
joint parties .... 25.97
post-frustration performance .... 25.96
severance of part .... 25.86
value of benefits .... 25.91, 25.92
value of performance .... 25.93, 25.96
supervening events .... 25.17, 25.20, 25.47
effect of events .... 25.9, 25.11, 25.22–25.24
fault .... 25.48–25.51
force majeure clauses .... 25.10, 25.55, 25.56,
25.100, 25.101
foreseeability .... 25.52–25.56
frustrating events .... 25.21, 25.25–25.46
making more onerous or expensive
.... 25.22–25.24
recent events .... 25.5
timing of event .... 25.57
termination in futuro .... 25.61, 25.62
threshold .... 25.8
Victoria .... 25.59, 25.82
application of provisions .... 25.83
G 18.64
Gifts
enforcement of promises .... 6.9
951
Index­
promotional offers .... 7.46
unconscionable transactions see
Unconscionable transactions
undue influence see Undue influence
Good faith
agreements to negotiate .... 5.21–5.27
contracts uberrimae fidei .... 14.25, 14.34
discharge by breach .... 24.117
implied good faith .... 11.48, 11.51
application of term .... 11.52–11.57, 11.63, 11.64
English position .... 11.57
exclusion of term .... 11.65, 11.66
facts of particular case .... 11.55, 11.57
good faith, meaning .... 11.58–11.64
relational contracts .... 11.54
reluctance to recognise .... 11.57
scope of duty .... 11.58
standard form contracts .... 11.54
support for existence .... 11.50
unresolved existence .... 11.49
meaning .... 11.58–11.64
termination .... 24.117
Government agreements
intention to create legal relations .... 7.43, 7.45
implementation of policy .... 7.43
key factors .... 7.44
Guarantees see also Consumer guarantees
minors .... 9.41
third party guarantees .... 18.44, 18.49, 18.56
agents .... 18.50, 18.51
Bank of NSW v Rogers .... 18.52–18.54, 18.57
constructive notice .... 18.51, 18.55, 18.57
Gardiner v Westpac .... 18.56
wife as guarantor .... 18.57–18.79
Yerkey v Jones principle .... 18.57–18.79
undue influence .... 18.44, 18.49, 18.55
agents .... 18.50, 18.51
third parties .... 18.49–18.79
wife as guarantor .... 18.57
actual undue influence .... 18.67
application of principle .... 18.62
consent to guarantee .... 18.72
explanation of transaction .... 18.68–18.71
Garcia v National Bank .... 18.60–18.62, 18.68,
18.74, 18.75
illustrative case .... 18.64
independent advice .... 18.67
material misunderstanding by wife .... 18.63,
onus of proof .... 18.63, 18.65
other relationships .... 18.77–18.79
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Guarantees – cont’d
Royal Bank of Scotland v Etridge .... 18.72, 18.73
special equity .... 18.58, 18.59
understanding of effect .... 18.63
United Kingdom .... 18.72, 18.73
volunteer, as .... 18.65
Yerkey v Jones principle .... 18.57–18.79
H illegality
Historical development
19th century .... 2.30–2.34
bilateral promises .... 2.32
classical age of English contract law .... 2.30
contract criteria development .... 2.33
judgment debts, enforcement .... 2.34
assumpsit .... 2.2, 2.12, 2.13
consideration .... 2.22
debt actions, and .... 2.14
indebitatus assumpsit .... 2.15, 2.17–2.19
money had and received .... 2.15
services rendered .... 2.17
Slade’s Case .... 2.16
supply of goods .... 2.17
common law .... 1.20–1.23
equity, and .... 1.25, 1.26
judicature system .... 1.29, 1.30
consideration .... 2.20–2.29
assumpsit cases .... 2.22
‘in consideration’ clauses .... 2.22
moral obligations .... 2.24, 6.5
quid pro quo clauses .... 2.22
‘restraints’ .... 2.23
covenant actions .... 2.3–2.9
defences .... 2.8
Holgyl’s Case .... 2.7
separation of writs .... 2.9, 2.11
specialty requirement .... 2.5
types of actions .... 2.6
debt actions .... 2.3, 2.10–2.12
assumpsit, and .... 2.14
detinue, and .... 2.11
instalment debts .... 2.12
separation of writs .... 2.9, 2.11
uncertain sums .... 2.12
economic developments .... 2.28
equity .... 1.23–1.26
common law, and .... 1.25, 1.26
judicature system .... 1.29, 1.30
fairness of exchange .... 2.27
intention to create legal relations .... 7.2, 7.3
Balfour v Balfour .... 7.3
952
overview .... 2.1, 2.28, 2.29
property law, and .... 2.26
title theory of exchange .... 2.27, 2.28
writing requirement .... 8.9
Honour clauses .... 7.21
I
Illegality see Common law illegality; Statutory
Implied terms see also Express terms
categories of terms .... 11.3–11.5
commercial contracts .... 11.9
good faith .... 11.48–11.66
common law .... 11.33, 11.39
cooperation between parties .... 11.39–11.41
displacement .... 11.36
employment contracts .... 11.38
exclusion .... 11.36
facts of case, and .... 11.35
necessity .... 11.33, 11.34, 11.37
performance of contract .... 11.42
‘prevention principle’ .... 11.41
test of necessity .... 11.33, 11.34
threat of breach .... 11.43
courts’ approach .... 11.10, 11.11
custom or usage, by .... 11.3, 11.4, 11.44
application of principles .... 11.47
Con-Stan Industries .... 11.45
onus of proof .... 11.5
propositions .... 11.46
discharge by agreement .... 23.11, 23.12
express terms, distinction .... 10.3
facts of case, by .... 11.3, 11.4, 11.6, 11.7, 11.35
business efficacy .... 11.14–11.17, 11.20
clear expression .... 11.24, 11.25
consistency with express terms .... 11.26–11.28
elements .... 11.8, 11.9, 11.13–11.28
enforceable contract prerequisite .... 11.12
entire agreement clauses .... 11.28
equitable and reasonable .... 11.13, 11.16
fairness between parties .... 11.13
formal contracts .... 11.8–11.28
informal contracts .... 11.29
obviousness .... 11.18–11.23
onus of proof .... 11.5, 11.10
good faith .... 11.48
application of term .... 11.52–11.57, 11.63, 11.64
English position .... 11.57
exclusion of term .... 11.65, 11.66
facts of particular case .... 11.55, 11.57
meaning .... 11.58–11.64

relational contracts .... 11.54
reluctance to recognise .... 11.57
scope of duty .... 11.58
standard form contracts .... 11.54
support for existence .... 11.50
unresolved existence .... 11.49
illustration of process .... 11.2
law, by .... 11.3, 11.4, 11.30
common law .... 11.33–11.43
consumer protection .... 11.32
onus of proof .... 11.5
sale of goods .... 11.32
statute .... 11.31, 11.32
onus of proof .... 11.5, 11.10
overview .... 10.3, 11.1, 11.2, 11.11
promissory theories, and .... 3.9, 3.11
sale of goods .... 11.32, 24.41
Incompleteness see Completeness
Inducing a breach
breach requirement .... 37.54
damage requirement .... 37.55
damages, exemplary .... 37.4
direct interference .... 37.50
elements .... 37.43
historical background .... 37.37, 37.39
narrowing of scope .... 37.38
indirect interference .... 37.50
intention .... 37.48–37.53, 37.61
mere facilitation .... 37.53
to induce, meaning .... 37.52
to procure, meaning .... 37.52
justification defence .... 37.56
difficulty of establishing .... 37.57
intention, and .... 37.61
Mainstream Properties v Young .... 37.63
OBG Ltd v Allan .... 37.61, 37.62
public interest grounds .... 37.60
scope of defence .... 37.58, 37.59
knowledge requirement .... 37.44, 37.45
employment context .... 37.47
reasonable belief .... 37.46
minors’ contracts .... 9.19, 9.20, 9.24
overview .... 37.1, 37.4, 37.36, 37.40
primary liability .... 37.40
scope of tort .... 37.39
narrowing of scope .... 37.38
secondary liability .... 37.40
unlawful interference with trade, and .... 37.39,
37.41, 37.42
Industrial Relations Act (NSW) see also Unfair
contracts
953
Index­
applicable contracts .... 21.37
collateral arrangements .... 21.37, 21.41
‘significant purpose’ .... 21.42
contract, definition .... 21.36
franchise agreements .... 21.37, 21.38
related conditions .... 21.37, 21.41
text of provisions .... 21.36
unfair contract .... 20.35
definition .... 21.36
unfair contract relief
compensation .... 21.39
orders .... 21.41
scope of relief .... 21.40
Informal agreements see Subject to contract
Informal contracts see also Formal contracts;
Oral contracts
consideration .... 6.75
implied terms .... 11.29
elements .... 11.29
overview .... 1.34, 6.75
Injunctions see also Specific performance
adequacy of damages .... 32.2, 32.3, 33.10
equitable damages, and .... 33.13
in lieu of injunctions .... 33.14, 33.18
equitable defences .... 32.5
mandatory injunctions .... 32.1
misleading or deceptive conduct .... 15.89, 15.90
negative contractual obligations .... 32.1, 32.4
discretion .... 32.5
overview .... 1.9, 31.1, 32.1
prohibitory injunctions .... 32.1
restraints of trade .... 32.6, 32.7
Buckenara v Hawthorn Football Club .... 32.11
court’s approach .... 32.8–32.10
Curro v Beyond Productions .... 32.12
Lumley v Wagner .... 32.10, 32.13, 32.15
personal services contracts .... 32.6–32.20
Troggs case .... 32.16, 32.17
Warner Bros v Nelson .... 32.10, 32.14
Warren v Mendy .... 32.18–32.20
Whitwood Chemical Co v Hardman .... 32.15
unjust contracts .... 20.41
Insurance contracts
duty of disclosure .... 14.25, 14.26
statutory regulation .... 14.26
privity of contract .... 39.68
confirmation of doctrine .... 39.30–39.34
partial abolition of doctrine .... 39.26–39.29
statutory exceptions .... 39.69–39.71
Trident General Insurance v
McNiece .... 39.24–39.34, 39.68
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Intention to create legal relations
cases, notable early .... 7.3
commercial agreements .... 7.6, 7.19, 7.30, 7.34
ambiguous wording .... 7.22
express exclusion of intent .... 7.21, 7.22
government agreements .... 7.43–7.45
honour clauses .... 7.21
letters of comfort .... 7.36–7.42
onus of proof .... 7.34
promotional offers .... 7.46
rebuttal of presumption .... 7.20
consideration, and .... 7.47–7.49
determination .... 7.4, 7.8
consideration, and .... 7.47–7.49
evidence .... 7.5, 7.6
objective approach .... 7.4, 7.5, 7.26, 7.31
presumptions .... 7.6–7.8
engagement of clergy .... 7.23
employment agreements .... 7.23–7.26
use of presumptions .... 7.23, 7.26
evidence .... 7.5, 7.6
express intention .... 7.6
family or social agreements .... 7.6, 7.9, 7.12,
7.26, 7.33
application of presumption .... 7.9–7.12
commercial context .... 7.11, 7.18
duration of agreement .... 7.12
examples of relationships .... 7.10, 7.11
justification for presumption .... 7.13, 7.14
nature of agreement .... 7.11
onerous obligations .... 7.16, 7.17
onus of proof .... 7.33
rationale of presumption .... 7.13, 7.14
rebuttal of presumption .... 7.7, 7.13,
7.15–7.18
relevance of presumptions .... 7.31
spouses .... 7.3, 7.10, 7.13, 7.14
government agreements .... 7.43, 7.45
implementation of policy .... 7.43
key factors .... 7.44
historical development .... 7.2, 7.3
Balfour v Balfour .... 7.3
implied intention .... 7.6
objective intention .... 7.4, 7.26, 7.31
evidence .... 7.5, 7.6
onus of proof .... 7.27–7.29, 7.35
commercial agreements .... 7.34
family agreements .... 7.33
overview .... 7.1
presumptions .... 7.6–7.8, 7.26, 7.35
954
commercial agreements .... 7.19–7.22, 7.34
engagement of clergy .... 7.23, 7.26
family or social agreements .... 7.9–7.18, 7.26,
7.31–7.33, 7.33
justification .... 7.13, 7.14
onus of proof .... 7.27, 7.33–7.35
rationale .... 7.13, 7.14
rebuttal .... 7.7, 7.13, 7.15–7.18, 7.20
relevance of presumptions .... 7.31
role .... 7.8, 7.23–7.35
promotional offers .... 7.46
Interference with contractual relations
see Inducing a breach
International sale of goods .... 4.9
Interpretation of terms see Construction of
terms
J
Judicature system
historical background .... 1.29, 1.30
L
Laches
court’s approach .... 31.71, 31.72
elements
knowledge of wrong .... 31.67
establishing defence .... 31.66, 31.73
prejudice to defendant .... 31.70, 31.73
measurement of delay .... 31.69
mere delay .... 31.68
overview .... 31.64, 31.65
rescission, and .... 35.34, 35.35
specific performance, and .... 31.64–31.73
undue influence .... 18.45, 18.46
requirements .... 18.47
Leases
discharge by breach .... 24.17
forfeiture, relief against .... 24.123
essential terms .... 5.6, 5.8, 5.9
frustration .... 25.16
specific performance .... 31.48–31.54
Legal drafting
construction of terms, and .... 12.70
impact of poor drafting .... 12.71, 12.72
exclusion clauses .... 13.30
legal English .... 12.73
plain English .... 12.74
benefits of use .... 12.75, 12.77
statutory prescription .... 12.76
standard form contracts .... 21.7

Letters of comfort
intention to create legal relations .... 7.36,
7.40–7.42
illustration .... 7.36
interpretation difficulties .... 7.37
moral or legal responsibility .... 7.37–7.39
origins .... 7.37
Life insurance contracts
minors .... 9.2, 9.3
Liquidated damages clauses
advantages of clauses .... 30.3
clause or penalty, distinction .... 30.20
Dunlop case .... 30.20, 30.21
summary of principles .... 30.21
enforceability .... 30.4
effect of enforceable clauses .... 30.30, 30.31
establishing existence .... 30.11
Bridge v Campbell Discount .... 30.14
burden of proof .... 30.15
genuine pre-estimates .... 30.13
illustrative cases .... 30.22–30.29
overview .... 30.1, 30.2
penalties .... 30.4, 30.6
application to other clauses .... 30.6, 30.7
basis of intervention .... 30.8–30.10
breach requirement .... 30.16–30.19
distinctions .... 30.20, 30.21
Dunlop case .... 30.20, 30.21
effect of penalties .... 30.32, 30.33
establishing existence .... 30.11–30.15
historical origins .... 30.5
illustrative cases .... 30.22–30.29
M overview .... 9.2
Maintenance and champerty .... 27.19, 27.20, 40.45
Married women
capacity to contract .... 9.69
Mental incapacity
burden of proof .... 9.54
drunkenness .... 9.55–9.57
fairness of contract .... 9.51–9.53
knowledge of other party .... 9.49, 9.52, 9.54,
9.57
necessaries .... 9.47
non est factum .... 9.50, 16.93
overview .... 9.47, 9.48
reasonableness of contract .... 9.51
statutory remedies .... 9.53
unconscionability .... 9.52, 9.53
Minors’ contracts
acquisition of property .... 9.27
955
Index­
age of majority .... 9.2
Australian Capital Territory .... 9.46
common law .... 9.7
employment contracts .... 9.18–9.26
necessaries .... 9.8–9.17, 9.24
disposition of property .... 9.27
employment contracts .... 9.18, 9.24
apprenticeships .... 9.19, 9.20
representation agreements .... 9.21–9.24
restraint of trade clauses .... 9.25, 9.26
life insurance .... 9.2, 9.3
necessaries .... 9.7–9.9
courts’ approach .... 9.17
definition .... 9.8, 9.10
loans .... 9.11, 9.12
meaning .... 9.8–9.11
representation agreements .... 9.16, 9.24
services rendered .... 9.14, 9.15
social changes, and .... 9.10
supply of goods .... 9.10, 9.17
tuition or instruction .... 9.13
New South Wales .... 9.28, 9.32
affirmation of contracts .... 9.36
age of understanding .... 9.29
beneficial to minor .... 9.30–9.32
categories of acts .... 9.31
civil acts .... 9.28, 9.31–9.33
court’s power .... 9.32
fairness of bargain .... 9.35
grant of capacity .... 9.32–9.34
primary test .... 9.30, 9.31
voidable contracts .... 9.37
Northern Territory .... 9.46
South Australia .... 9.39
appointments to transact .... 9.44
approval of contracts .... 9.42
guarantees .... 9.41
ratification of contracts .... 9.39, 9.40
restitution .... 9.43
Tasmania .... 9.45
Victoria .... 9.4, 9.38
grounds to set aside .... 9.6
specified contracts .... 9.4, 9.5
Western Australia .... 9.46
Misleading or deceptive conduct
ancillary orders .... 15.97
discretionary powers .... 15.98
predecessor provision .... 15.99
range of orders .... 15.97
application to persons .... 15.3
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Misleading or deceptive conduct – cont’d
corporations .... 15.3, 15.6
causation .... 15.68, 15.69, 15.92
collateral contracts .... 10.83
Constitution .... 15.5
contributory negligence .... 37.35
damage or loss .... 15.68
causation .... 15.68, 15.69, 15.92
damages .... 15.89–15.96
causation .... 15.92
concurrent liability .... 37.35
contributory negligence .... 37.35
measure of damages .... 15.92, 15.96
reliance .... 15.92–15.95
disclaimer clauses .... 15.84, 15.85
case example .... 15.87
precluding reliance .... 15.86
‘engage in conduct’ .... 15.17
meaning .... 15.17–15.31
silence .... 15.18–15.31
exclusion clauses .... 13.41, 15.77
irrelevance where inducement .... 15.83
no-exclusion principle .... 15.78–15.80
precluding reliance .... 15.81, 15.86
time .... 15.82
false representations .... 10.9
financial services .... 15.4
future matters .... 15.72
belief in matters .... 15.75
deeming provision .... 15.73
establishing .... 15.73–15.75
evidential burden .... 15.73, 15.74
predecessor provision .... 15.76
reasonable grounds .... 15.73–15.75
general law, and .... 15.8
injunctions .... 15.89, 15.90
intention .... 15.66, 15.67
misleading or deceptive, meaning .... 15.32, 15.33
conduct considered as a whole .... 15.43
confusion, uncertainty or
wonderment .... 15.41
damage .... 15.46
deceive, definition .... 15.34
effect of conduct on class of persons .... 15.44,
15.45
former provision .... 15.33
inducing or leading to error .... 15.39
likely to mislead or deceive .... 15.36, 15.42
mislead, definition .... 15.34
relevant date .... 15.37
spoken words .... 15.47–15.49
956
summary of principles .... 15.35–15.46
word use .... 15.40
negotiations .... 4.6
objective test to establish .... 15.65
opinion statements .... 15.70, 15.71
overview .... 1.10, 15.1, 15.2, 16.2, 37.5
predecessor provisions .... 15.76, 15.99, 21.5
remedies .... 1.10, 14.2, 15.8, 15.89
ancillary orders .... 15.97–15.99
damages .... 15.89–15.96
requirements for breach .... 15.9
scope of enquiry .... 15.7
silence .... 15.18, 15.19
categories of cases .... 15.19
commercial dealings .... 15.22–15.24, 15.26,
15.30
Demagogue v Ramensky .... 15.21, 15.22,
15.26, 15.28
duty to volunteer information .... 15.22–15.24,
15.30
expectation of disclosure .... 15.19–15.25
Henjo Investments .... 15.20, 15.22
impact .... 15.20
materiality of information .... 15.31
position .... 15.30, 15.31
summary of principles .... 15.30
states and territories .... 15.5, 15.6
target audience .... 15.50, 15.51
public in general .... 15.60–15.64
specific individuals .... 15.52–15.59
text of provision .... 15.2
‘trade and commerce’ .... 15.9
breadth .... 15.11
incidental activities .... 15.12
meaning .... 15.9–15.16
personal transactions .... 15.16
trade mark registration .... 15.88
unconscionable conduct, and .... 19.73
Misrepresentation see also Deceit
changed circumstances .... 14.31, 14.32, 14.34
awareness of change .... 14.33
continuing representations .... 14.30
damages .... 37.5
duty of disclosure .... 14.23, 14.25
caveat emptor .... 14.24, 14.35
changed circumstances .... 14.31–14.34
continuing representations .... 14.30
contracts uberrimae fidei .... 14.25, 14.34
insurance contracts .... 14.25, 14.26
partially true statements .... 14.27, 14.28
sale of goods .... 14.35

silence .... 14.23, 14.24, 14.29, 14.34
summary of principles .... 14.34
elements .... 14.3
exclusion clauses .... 10.27, 10.28, 13.41,
14.54–14.57
falsity of representation .... 14.21
future matters .... 15.72
assurances as to the future .... 14.8–14.11
future intentions .... 14.12–14.15
intention to induce .... 14.36, 14.37
establishing inducement .... 14.39, 14.40,
14.50, 14.51
inquiries into accuracy .... 14.42–14.45
materiality .... 14.52, 14.53
onus of proof .... 14.38
reliance on inducement .... 14.36, 14.37, 14.41,
14.46–14.49, 14.53
manner of communication .... 14.22
materiality .... 14.52, 14.53
overview .... 14.2, 16.2, 37.5
partially true statements .... 14.27, 14.28
reliance on inducement .... 14.36
awareness of falsity .... 14.41
establishing reliance .... 14.46–14.49
materiality .... 14.53
onus of proof .... 14.38
remedies .... 14.2
signature rule .... 10.27–10.30
silence .... 14.23, 14.24, 14.29, 14.34
caveat emptor .... 14.24
statements of fact .... 14.4
advertising puff .... 14.7
assurances as to the future .... 14.8–14.11
fact/law distinction .... 14.5
future intentions .... 14.12–14.15
material facts .... 14.52, 14.53
promises as to the future .... 14.8
statements of opinion .... 14.15–14.20
statements of law .... 14.4, 14.6
fact/law distinction .... 14.5
written representations .... 14.22
Mistake
common law .... 16.5
common mistake .... 16.7, 16.54, 25.57, 25.58
Australian Estates .... 16.39–16.44, 16.46
Australian position .... 16.37–16.49
Canada .... 16.50
destruction of subject matter .... 16.9
elements .... 16.34, 16.43
equitable relief .... 16.25, 16.27, 16.28, 16.30,
16.32, 16.33, 16.36, 16.42, 16.43, 16.46–16.52
957
Index­
existence of subject matter .... 16.9–16.19
frustration, and .... 25.57, 25.58
Great Peace Shipping .... 16.30–16.33, 16.35,
16.42, 16.43, 16.46, 16.48, 16.51, 16.53
Hawcroft .... 16.48
HWG Holdings .... 16.45
impossibility of performance .... 16.34, 16.35,
16.42
Menegazzo .... 16.46, 16.47
nature of subject matter .... 16.21
quality of subject matter .... 16.21–16.24
rectification .... 16.54, 34.12–34.31
Rees v Rees .... 16.49
relevant matters .... 16.8
rescission .... 16.24, 16.25, 16.29, 16.30, 16.32,
16.33, 16.36, 16.42, 16.46, 16.49, 16.52, 16.54
sale of land .... 16.20, 16.49
Singapore .... 16.51, 16.52
Solle v Butcher .... 16.26–16.30, 16.33, 16.37,
16.38, 16.42
United Kingdom .... 16.26–16.36
value of subject matter .... 16.21
description of law .... 16.3
effect of mistake .... 16.4, 16.5
equity .... 16.5
meanings .... 16.1
mutual mistake .... 16.55, 16.60
divergence of intention .... 16.57
latent ambiguity .... 16.56
Scriven Bros .... 16.58, 16.59
test of reasonableness .... 16.55
non est factum .... 10.26, 16.88, 16.89
alternative actions .... 16.95
applicable class of persons .... 16.92
competing policy considerations .... 16.89
legal consequences .... 16.90
mental incapacity .... 16.93
nature of the document .... 16.88, 16.91
onus of proof .... 16.89, 16.92
third parties .... 16.94
operative mistake .... 16.4
overview .... 16.1–16.3
payments of money see Restitution
rectification see Rectification
types of mistake .... 16.6
unilateral mistake .... 16.61
identity of other party .... 16.62–16.75
nature of document .... 16.88–16.95
rectification .... 16.82, 16.84–16.86, 34.11,
34.32–34.35
terms of contract .... 16.76–16.87
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
N minors’ contracts .... 9.28, 9.32
Negligence
causation .... 37.18
concurrent liability .... 29.128, 37.23, 37.25
assessment of damages .... 37.27–37.35
professionals .... 37.25, 37.26
contributory negligence .... 29.103, 37.18, 37.27,
37.30, 37.31, 37.35
apportionment legislation .... 29.103, 29.104
common law .... 29.104
damages .... 29.102–29.104, 37.27, 37.35
contributory negligence .... 37.27, 37.30, 37.31
remoteness of damage .... 29.128, 37.27–37.29,
37.32–37.34
duty of care .... 37.19
ABN Amro Bank .... 37.21
professionals .... 37.25, 37.26
reliance on statements .... 37.22
duty to exercise reasonable care .... 37.21
establishing negligence .... 37.17
exclusion clauses .... 13.14, 13.22, 13.30
drafting clauses .... 13.30
express references .... 13.15, 13.25
non-commercial contracts .... 13.27
other grounds of liability .... 13.17–13.20,
13.22, 13.26
other words and expressions .... 13.16, 13.25
rules .... 13.15–13.18, 13.25
status of rules .... 13.22–13.30
unfair contract terms .... 13.29
misrepresentations and misstatements .... 37.23
pre-contractual negotiations .... 37.24
negligent misstatement .... 37.20–37.22
overview .... 1.10, 37.1, 37.17, 37.22
reliance on statements .... 37.22
remedies .... 1.10, 14.2
remoteness of damage .... 29.128, 37.18,
37.27–37.29, 37.32–37.34
Negotiations in good faith .... 5.21–5.27
New South Wales
Contracts Review Act see Unjust contracts
equitable damages .... 33.5
exclusion clauses .... 13.37, 13.46
frustrated contracts .... 25.59, 25.72, 25.74, 25.81
examples of effect .... 25.79, 25.80
excluded contracts .... 25.73
full performance .... 25.75
partial performance .... 25.76
payments of money .... 25.77
wasted expenditure .... 25.78
Industrial Relations Act see Unfair contracts
958
affirmation of contracts .... 9.36
age of understanding .... 9.29
beneficial to minor .... 9.30–9.32
categories of acts .... 9.31
civil acts .... 9.28, 9.31–9.33
court’s power .... 9.32
fairness of bargain .... 9.35
grant of capacity .... 9.32–9.34
primary test .... 9.30, 9.31
voidable contracts .... 9.37
restraint of trade .... 27.112, 27.113
application of provision .... 27.118–27.121,
27.123
common law, and .... 27.116
court’s power .... 27.117, 27.123
effect of provision .... 27.114
operation of provision .... 27.115
purpose of provision .... 27.114
scope of provision .... 27.122
severance .... 28.41
sale of land contracts .... 8.8
Non est factum
alternative actions .... 16.95
applicable class of persons .... 16.92
competing policy considerations .... 16.89
legal consequences .... 16.90
mental incapacity .... 9.50, 16.93
nature of the document .... 16.88, 16.91
onus of proof .... 16.89, 16.92
overview .... 10.26, 16.88, 16.89, 18.6
third parties .... 16.94
Novation agreements .... 23.26–23.31, 40.5, 40.6
O
Offer see also Acceptance
absence of acceptance .... 4.80–4.83
advertisements .... 4.16, 4.17
Carlill v Carbolic Smoke Ball Co .... 4.20
invitation to treat .... 4.17, 4.18
limitation of liability .... 4.19
stock on hand .... 4.19
tenders, as .... 4.39
applicability of rules .... 4.103
‘battle of the forms’ cases .... 4.104–4.113
difficulties .... 4.106
auctions .... 4.26
consideration .... 4.29
highest bid .... 4.27, 4.28, 4.30
reserve price .... 4.30
‘battle of the forms’ cases .... 4.104–4.113

courts’ approaches .... 4.107–4.110
‘global’ or ‘synthesis’ approach .... 4.110, 4.112,
4.113
‘higher status’ doctrine .... 4.109
‘last shot’ doctrine .... 4.108
objective assessment .... 4.111
circulars or catalogues .... 4.16, 4.17
invitation to treat .... 4.17, 4.18
limitation of liability .... 4.19
stock on hand .... 4.19
communication of revocation .... 4.54, 4.97
conduct displacing rule .... 4.59
electronic communications .... 4.60
reliability of information .... 4.56, 4.57
time of effect .... 4.54, 4.55
time of occurrence .... 4.58
counter-offers .... 4.47, 4.48, 4.75, 4.76, 4.77
death of offeree .... 4.69
death of offeror .... 4.68
definition .... 4.10
display of goods .... 4.21
invitation to treat .... 4.21–4.23
Pharmaceutical Society of Great Britain
v Boots Cash Chemists (Southern)
Ltd .... 4.22–4.25
existence of offer .... 4.12–4.16
advertisements .... 4.17–4.20, 4.39
auctions .... 4.26–4.30
circulars or catalogues .... 4.17–4.20
display of goods .... 4.21–4.25
invitation to treat .... 4.17, 4.18, 4.21–4.23
standing offers .... 4.40
statement of price .... 4.14
supply of information .... 4.14
tenders .... 4.31–4.39
failure of conditions .... 4.64, 4.65, 4.67
implication .... 4.65
meaning of offer .... 4.66
lapse of time .... 4.45
conduct of offeree .... 4.46
objective determination .... 4.11
offerees .... 4.41
death .... 4.69
entitlement to accept .... 4.42
lapse of time .... 4.46
world at large .... 4.43, 4.61–4.63
options .... 4.50, 4.51
nature of options .... 4.52
overview .... 4.4, 4.5, 4.7, 4.8
rejection of offer .... 4.47
requests for information .... 4.48, 4.49
959
Index­
revocation .... 4.50
communication to offeree .... 4.54–4.61, 4.97
options .... 4.50–4.53
partial performance .... 4.62, 4.63
postal acceptance rule, and .... 4.97
world at large .... 4.61–4.63
standing offers .... 4.40
tenders .... 4.31
advertisements .... 4.39
Blackpool & Fylde .... 4.35–4.37
exclusion clauses .... 4.38
private sector entities .... 4.39
process contracts .... 4.31–4.39
termination of offer .... 4.44
death of offeree .... 4.69
death of offeror .... 4.68
failure of conditions .... 4.64–4.67
lapse of time .... 4.45, 4.46
rejection .... 4.47–4.49
revocation .... 4.50–4.63, 4.97
Onus of proof
causation .... 29.93
damages .... 29.93
avoidable loss .... 29.143
reliance loss .... 29.60–29.65
implied terms .... 11.5, 11.10
intention to create legal relations .... 7.27–7.29,
7.35
commercial agreements .... 7.34
family agreements .... 7.33
liquidated damage clauses .... 30.15
mental incapacity .... 9.54
misleading or deceptive conduct .... 15.73, 15.74
misrepresentation .... 14.38
non est factum .... 16.89, 16.92
restraint of trade .... 27.59, 27.67
undue influence .... 18.12
wife as guarantor .... 18.63, 18.65
unfair contract terms .... 21.14
Options
conditional contracts, as .... 4.52, 4.53
irrevocable offers, as .... 4.52, 4.53
nature of options .... 4.52
overview .... 4.50, 4.51
Oral contracts
implied terms .... 11.29
informal agreements .... 5.46
overview .... 8.1
sale of land .... 8.6, 8.24, 8.27
equitable relief .... 8.24–8.43
part performance .... 8.29–8.43
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
P overview .... 30.4, 30.6
Parol evidence rule
construction of terms .... 12.57, 12.68
exceptions to rule .... 12.67
post-contract conduct .... 12.64–12.66
prior negotiations .... 12.58–12.63
entire agreement clauses .... 10.63, 10.64, 12.68
entirely written contracts .... 10.54, 10.57–10.63
intention of parties .... 10.59, 10.60
oral agreement on terms .... 10.62
exceptions .... 10.65, 12.67
extrinsic evidence .... 10.57, 10.58, 12.68, 12.69
justification for rule .... 10.56
overview .... 8.1, 10.8, 10.54, 12.57
partly written and partly oral .... 10.59–10.63
significance of rule .... 10.55
Part performance
origins of doctrine .... 8.31
overview .... 8.29, 8.30
payments of money .... 8.42, 8.43
permitted acts .... 8.34
principles .... 8.32
reliance on contract .... 8.35
requirements .... 8.33, 8.34, 8.36–8.41
test .... 8.30
unequivocal acts .... 8.36, 8.39–8.41
Partnerships
restraints of trade .... 27.52, 27.107
Penalties
abolition of doctrine .... 30.10
rejection .... 30.10
application to other clauses .... 30.6
examples .... 30.6
payment by instalments .... 30.7
basis of intervention .... 30.8
breach requirement .... 30.16, 30.17, 30.19
Andrews v ANZ .... 30.17
loan contracts .... 30.18
clause or penalty, distinction .... 30.20
Dunlop case .... 30.20, 30.21
summary of principles .... 30.21
criticisms of rule .... 30.9
abolition of doctrine .... 30.10
Dunlop case .... 30.20, 30.21
effect of penalties .... 30.32, 30.33
establishing existence .... 30.11
Bridge v Campbell Discount .... 30.14
burden of proof .... 30.15
genuine pre-estimates .... 30.13
historical origins .... 30.5
illustrative cases .... 30.22–30.29
960
policy underpinning .... 30.12
Personal service contracts see also Employment
contracts
frustration .... 25.34–25.37
injunctions .... 32.6, 32.7
Buckenara v Hawthorn Football Club .... 32.11
court’s approach .... 32.8–32.10
Curro v Beyond Productions .... 32.12
Lumley v Wagner .... 32.10, 32.13
restraint of trade .... 32.6–32.20
Warner Bros v Nelson .... 32.10
Warren v Mendy .... 32.18–32.20
non-assignable rights .... 40.9–40.13
specific performance .... 31.40–31.44
mutual confidence .... 31.42
obligation to enter contract .... 31.41
Quinn v Overland .... 31.43
Privity of contract
abolition .... 39.23
agency .... 39.36, 39.37
carriage of goods .... 39.38–39.52
disclosure of principal .... 39.37
bills of exchange .... 39.65, 39.67
cheques .... 39.66, 39.67
consideration, and .... 39.4
carriage of goods .... 39.43, 39.45, 39.47, 39.51
distinction between rules .... 39.5
covenants on land .... 39.53–39.55
criticisms of doctrine .... 39.1, 39.22, 39.23
declaratory relief .... 39.3
exceptions to doctrine .... 39.25, 39.35
agency .... 39.36–39.52
carriage of goods .... 39.38–39.52
covenants on land .... 39.53–39.55
equitable estoppel .... 39.62, 39.63
insurance contracts .... 39.68–39.71
statutory exceptions .... 39.64–39.73
trusts .... 39.56–39.61
exclusion clauses .... 39.38
carriage of goods .... 39.38–39.52
historical development .... 39.2
overview .... 39.1–39.3
remedies against promisor .... 39.6–39.8
breach of third party obligations .... 39.6–39.23
damages .... 39.9–39.18
specific performance .... 39.19–39.23
statutory exceptions .... 39.64
bills of exchange .... 39.65–39.67
general exceptions .... 39.72, 39.73
insurance contracts .... 39.69–39.71
 Index­

statutory reforms .... 39.23 duress .... 17.35

Trident General Insurance v McNiece .... 39.23, affirmation of contract .... 17.36
39.24, 39.25, 39.68 rescission .... 17.21, 17.35–17.37
confirmation of doctrine .... 39.30–39.34 statutory remedies .... 17.38
facts of case .... 39.24 efficiency theories .... 3.31, 3.32
partial abolition of doctrine .... 39.26–39.29 equitable estoppel see Equitable estoppel
trusts .... 39.56–39.61 injunctions see Injunctions
intention to contract .... 39.59, 39.60 misleading or deceptive conduct .... 1.10, 14.2,
measure of damages .... 39.61 15.8, 15.89
property held on trust .... 39.59 ancillary orders .... 15.97–15.99
Promissory estoppel see Equitable estoppel damages .... 15.89–15.96
Promotional offers .... 7.46 misrepresentation .... 14.2
Proprietary estoppel see Equitable estoppel negligence .... 1.10, 14.2
overview .... 1.8, 1.9
Q rectification see Rectification
Quantum meruit see Restitution rescission see Rescission
restitution see Restitution
R specific performance see Specific performance
statutory unconscionability .... 9.53, 19.49,
Rectification
19.55, 19.75–19.79
appropriateness of remedy .... 34.7–34.9
unconscionable conduct .... 19.44, 19.55
common mistake .... 16.54, 16.86, 34.12, 34.13
undue influence .... 18.80
clear and precise terms .... 34.13, 34.15
unfair contract terms .... 21.33, 21.34
concluded agreements .... 34.17
Repudiation see Discharge by breach
consequences of words used .... 34.26–34.29
Rescission
essential principles .... 34.13
affirmation of contract, and .... 35.25, 35.26, 35.31
establishing common intention
Coastal Estates .... 35.27, 35.28, 35.31
.... 34.19–34.25, 34.27
duress .... 17.36
legal effect of document .... 34.30, 34.31
examples of conduct .... 35.25
Maralinga v Major Enterprises .... 34.18
knowledge of right to rescind .... 35.26–35.30
subjective intention .... 34.21, 34.22, 34.24
availability of rescission .... 1.40, 35.6, 35.8, 35.9,
true intention .... 34.16
35.20, 35.21
court’s discretion .... 34.6
common mistake .... 16.24, 16.25, 16.29, 16.30,
court’s orders .... 34.12
16.32, 16.33, 16.36, 16.42, 16.46, 16.49,
intention of parties .... 34.4, 34.9
16.52, 16.54
clear and convincing proof .... 34.4, 34.5
communication of election .... 35.3
standard of proof .... 34.5
court’s role .... 35.18
overview .... 12.41, 34.1–34.3
duress .... 17.21, 17.35
time of effect .... 34.3
affirmation, and .... 17.36
unilateral mistake .... 34.11, 34.32, 34.35
third persons .... 17.37
elements .... 34.33, 34.34
effect of rescission .... 1.41, 35.2
knowledge .... 34.34
justification .... 35.18
terms of contract .... 16.82, 16.84, 16.85, 16.86
limitations on right .... 35.4, 35.24
Relational contracts
affirmation .... 35.25–35.31
implied good faith .... 11.54
exclusion clauses .... 35.40
Releases .... 20.6
laches .... 35.34, 35.35
accord and satisfaction .... 23.50, 23.53, 23.63
sale of goods .... 35.38, 35.39
Relief against forfeiture see Forfeiture, relief
Seddon’s case .... 35.36, 35.37
against
statutory provisions .... 35.41–35.43
Remedies
third party rights .... 35.32, 35.33
consideration, and .... 6.1, 6.2, 6.7
misrepresentation .... 10.9
damages see Damages; Equitable damages

961
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Rescission – cont’d
nature of remedy .... 35.4, 35.17
court’s role .... 35.18
validity of rescission .... 35.19–35.23
overview .... 10.9, 14.2, 24.2–24.4, 35.1, 35.2
partial rescission .... 35.15, 35.16
purpose of rescission .... 35.1, 35.5
restitutio in integrum .... 35.1, 35.4, 35.5, 35.11
Balfour & Clark v Hollandia Ravensthorpe
NL .... 35.13
Brown v Smitt .... 35.12
common law .... 35.8, 35.10
common law and equity, distinction
.... 35.5–35.10, 35.19, 35.20
consequence of distinction .... 35.10
controversial developments .... 35.14–35.16
defendant’s fraudulent, wilful or deliberate
conduct .... 35.11
equity .... 35.9, 35.10
JAD International .... 35.14
partial rescission .... 35.15, 35.16
Vadasz v Pioneer Concrete .... 35.15, 35.16
statutory provisions .... 35.41
application .... 35.42
purpose of provisions .... 35.43
termination for breach .... 24.2
rescission, distinction .... 24.2–24.4
undue influence .... 18.80
unilateral mistake .... 16.78, 16.80, 16.82, 16.83,
16.85
validity of rescission .... 35.19–35.23
Restitution
assessment of awards .... 38.5
quantum meruit .... 38.41
availability in contract .... 38.26, 38.27
enforceable contracts .... 38.27–38.30
failure of consideration .... 38.53–38.67
ineffective contracts .... 38.31–38.52
unenforceable contracts .... 38.34–38.50
void contracts .... 38.51, 38.52
benefit .... 38.5, 38.20
damages, and .... 29.74, 29.75
defences to claims .... 38.82, 38.85
change of position .... 38.75–38.78, 38.81,
38.86–38.96
duress .... 17.35, 17.36
elements .... 38.19
benefit .... 38.20
injustice .... 38.23–38.26
plaintiff ’s expense .... 38.21, 38.22
failure of consideration .... 38.53, 38.54, 38.67
962
Baltic Shipping v Dillon .... 38.59
English authorities .... 38.57
Equuscorp v Haxton .... 38.62–38.66
partial failure .... 38.58
Roxborough v Rothmans .... 38.60, 38.61
sale of goods .... 38.55
total failure requirement .... 38.56, 38.57, 38.59
historical background .... 38.2, 38.3
Moses v Macferlan .... 38.2, 38.3
quasi-contract .... 38.11, 38.14
illegal contracts .... 28.15, 28.16
ineffective contracts .... 38.31
relevant defences .... 38.33
subsequently ineffective .... 38.32
unenforceable contracts .... 38.34–38.50
void contracts .... 38.51, 38.52
minors’ contracts .... 9.43
mistaken payments .... 38.68–38.70, 38.82–38.84
change of position .... 38.75–38.78, 38.81, 38.86
Citigroup v NAB .... 38.71–38.73
fundamental mistake .... 38.84
Hills Industries .... 38.74–38.76
types of mistake .... 38.79, 38.80
overview .... 38.1–38.3, 38.8, 38.9, 38.11
quantum meruit .... 38.3, 38.11, 38.14, 38.18, 38.34
assessment of restitution .... 38.41
contract price .... 38.42, 38.43
limitations on availability .... 38.44–38.50
meaning .... 38.34
partial performance .... 38.39, 38.40
Pavey & Mathews v Paul .... 38.36–38.38, 38.48
Sunwater Ltd v Drake Coal Pty Ltd .... 38.35
quantum valebat .... 38.14, 38.18
quasi-contract .... 38.11, 38.14
approach to claims .... 38.15
money had and received .... 38.14
quantum meruit .... 38.14, 38.18
quantum valebat .... 38.14, 38.18
statutory provisions .... 38.97
unjust enrichment .... 38.3–38.5, 38.11, 38.85
Australian position .... 38.12
Equuscorp v Haxton .... 38.15
Farrah Constructions .... 38.13
function .... 38.16, 38.17
operation .... 38.7, 38.10
organising principle, as .... 38.9, 38.10
Pavey & Mathews v Paul .... 38.3, 38.6
quantum meruit .... 38.3, 38.11, 38.14
unjust factors .... 38.13, 38.23, 38.24
examples .... 38.23, 38.24
free acceptance principle .... 38.25

Restraint of trade
area of restraint .... 27.67, 27.77, 27.78
Competition and Consumer Act .... 27.109
application of provisions .... 27.110
employment contracts .... 27.111
concept .... 27.39–27.52
consequences of excessive restraints .... 27.71
consideration .... 27.65, 27.66
construction of clauses .... 27.48
ambiguities .... 27.52
intention of parties .... 27.49
duration of restraint .... 27.58, 27.77, 27.78
effect of restraint .... 27.55, 27.56, 27.61, 27.67
employment contracts .... 27.39, 27.47, 27.79,
27.82
adequacy of damages .... 32.2, 32.3
application of doctrine .... 27.83
Competition and Consumer Act .... 27.111
confidential information .... 27.80, 27.81,
27.91–27.97
court’s approach .... 27.50, 27.52, 27.79
customer connections .... 27.85, 27.86, 27.91,
27.98–27.103
express terms .... 27.84
goodwill .... 27.98, 27.99
minors .... 9.25, 9.26
repudiated contracts .... 27.87–27.90
severance .... 28.38, 28.40
trade secrets .... 27.91–27.97
use of information .... 27.80, 27.81
enforceability .... 27.64
consideration .... 27.65, 27.66
exclusive service contracts .... 27.107
franchise agreements .... 27.106
freedom of contract, and .... 27.44, 27.45, 27.87
injunctions .... 32.6, 32.7
adequacy of damages .... 32.2, 32.3
Buckenara v Hawthorn Football Club .... 32.11
courts’ approach .... 32.8–32.10
Curro v Beyond Productions .... 32.12
Lumley v Wagner .... 32.10, 32.13
Warner Bros v Nelson .... 32.10
Warren v Mendy .... 32.18–32.20
minors’ contracts .... 9.25, 9.26
New South Wales .... 27.112, 27.113
application of provision .... 27.118–27.121,
27.123
common law, and .... 27.116
court’s power .... 27.117, 27.123
effect of provision .... 27.114
operation of provision .... 27.115
963
Index­
purpose of provision .... 27.114
scope of provision .... 27.122
severance .... 28.41
operation of restraint .... 27.57
overview .... 27.39, 27.43, 27.46, 27.71, 27.87
partnerships .... 27.52, 27.107
purpose of restraints .... 27.39
rationale .... 27.44
reasonableness .... 27.40, 27.44, 27.53, 27.67
adequacy of protection .... 27.59, 27.67
approach to assessment .... 27.53, 27.55, 27.67
area of restraint .... 27.67, 27.77, 27.78
Baker v Lintott .... 27.61
Buckley v Tutty .... 27.69, 27.70
duration of restraint .... 27.58, 27.77, 27.78
effect of restraint .... 27.55, 27.56, 27.61, 27.67
Howard Hudson v Ronayne .... 27.56
inequality of bargaining power .... 27.67
interests of parties .... 27.60, 27.61, 27.67
Nordenfelt v Maxim-Nordenfelt
Guns .... 27.41–27.43
onus of proof .... 27.59, 27.67
operation of restraint .... 27.57
principles .... 27.54, 27.67, 27.68, 27.69
time for assessment .... 27.63, 27.67
unreasonableness example .... 27.62
severance .... 27.108, 28.30–28.32, 28.37–28.41
Egon Zehnder Ltd v Tillman .... 28.31, 28.32
Nordenfelt v Maxim-Nordenfelt Guns
.... 28.39
Rentokil v Lee .... 28.40
trader agreements .... 27.104, 27.105
unreasonableness example .... 27.62
vendor-purchaser restraints .... 27.51, 27.72,
27.75, 27.77
area of restraint .... 27.77, 27.78
competition, against .... 27.75–27.77
Cream v Bushcolt .... 27.78
duration of restraint .... 27.77, 27.78
goodwill .... 27.67, 27.72–27.75
goodwill, meaning .... 27.72–27.74
Restrictive covenants
overview .... 39.53
privity of contract .... 39.53–39.55
S
Sale of goods contracts
classification of terms .... 24.24, 24.38
implied warranties .... 24.41
duty of disclosure .... 14.35
implied terms .... 11.32, 24.41
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Sale of goods contracts – cont’d
instalments .... 22.41
international sale of goods .... 4.9
mental incapacity .... 9.47
minors’ contracts .... 9.10, 9.17
necessaries, definition .... 9.10, 9.47
perished goods .... 16.9
rescission .... 35.38, 35.39
restitution .... 38.55
Sale of land contracts
acknowledgment of existence .... 8.16, 8.17
collateral contracts .... 8.7
damages .... 31.27
adequacy of damages.... 31.27–31.32
Canada .... 31.32
debt actions .... 30.40
deposits .... 30.40, 30.41
set date for payment .... 30.42
discharge by performance .... 22.17
disposition, meaning .... 8.10
equitable fraud .... 8.25–8.28
common law damages excluded .... 8.26
example of principle .... 8.27
part performance .... 8.29–8.43
remedies .... 8.28
specific performance .... 8.25, 8.26
essential terms .... 5.6, 8.14
specific terms .... 8.15
exchange of contracts .... 8.22
forfeiture, relief against .... 24.125, 24.126, 30.41,
30.42
Tanwar Enterprises .... 24.129, 24.132
Union Eagle Ltd .... 24.127, 24.128, 24.130, 24.131
informal agreements .... 5.45
interests in land .... 8.11
mistake .... 16.20, 16.49
more than one document .... 8.13
notes or memoranda .... 8.12, 8.13
oral contracts .... 8.6, 8.24, 8.27
equitable relief .... 8.24–8.43
part performance .... 8.29, 8.30
origins of doctrine .... 8.31
payments of money .... 8.42, 8.43
permitted acts .... 8.34
principles .... 8.32
reliance on contract .... 8.35
requirements .... 8.33, 8.34, 8.36–8.41
test .... 8.30
unequivocal acts .... 8.36, 8.39–8.41
sale, meaning .... 8.10
signature .... 8.18
964
authority .... 8.19
electronic signature .... 8.21
email .... 8.21
methods .... 8.20, 8.21
parties to contract .... 8.22
specific performance .... 8.25, 8.26, 31.27
adequacy of damages.... 31.27–31.32
Canada .... 31.32
writing requirement .... 8.8
acknowledgment of contract .... 8.16, 8.17
applicable contracts .... 8.10, 8.11
collateral contracts .... 8.7
effect of compliance .... 8.23
equitable relief .... 8.24–8.43
essential terms .... 8.14, 8.15
historical background .... 8.9
informal agreements .... 5.45
New South Wales .... 8.8
non-compliance .... 8.5, 8.24–8.43
notes or memoranda .... 8.12, 8.13
part performance .... 8.29–8.43
rationale .... 8.9
signature .... 8.18–8.22
subsequent agreements .... 8.6
variation of contracts .... 8.6
Sale of personalty
specific performance .... 31.23
adequacy of damages .... 31.23–31.26
Signature
acceptance by .... 4.99
assignments .... 40.35
incorporation of terms by .... 10.17
additional terms .... 10.25
criticisms of rule .... 10.18
exceptions to rule .... 10.26–10.30, 16.88
exclusion clauses .... 10.20–10.22, 10.25, 10.27,
10.28
L’Estrange v Graucob .... 10.17, 10.18
misrepresentation .... 10.27–10.30
notice of terms .... 10.20, 10.22, 10.24
reasons for rule .... 10.19
separate documents .... 10.24
Toll v Alphapharm .... 10.20–10.23
vitiating factors .... 10.23
non est factum .... 10.26, 16.88
sale of land contracts .... 8.18
authority .... 8.19
electronic signature .... 8.21
email .... 8.21
methods .... 8.20, 8.21
parties to contract .... 8.22

Simple contracts see Informal contracts
Social agreements see Family or social
agreements
Sources of law
common law .... 1.20, 1.28
historical development .... 1.20–1.23, 1.25,
1.26, 1.29, 1.31
English law .... 1.31
equity .... 1.25, 1.28
historical development .... 1.23–1.26, 1.29, 1.31
hierarchy of laws .... 1.28
overview .... 1.19, 1.28
statute law .... 1.27–1.29
South Australia
frustrated contracts .... 25.59, 25.84, 25.98
adjustments between parties .... 25.88–25.96
contractual benefit, definition .... 25.89
contractual performance, definition .... 25.90
court’s orders .... 25.95
definitions .... 25.89, 25.90
effect of frustration .... 25.87
excluded contracts .... 25.85
joint parties .... 25.97
post-frustration performance .... 25.96
severance of part .... 25.86
value of benefits .... 25.91, 25.92
value of performance .... 25.93, 25.96
minors’ contracts .... 9.39
appointments to transact .... 9.44
approval of contracts .... 9.42
guarantees .... 9.41
ratification of contracts .... 9.39, 9.40
restitution .... 9.43
rescission .... 35.41
application of provisions .... 35.42
purpose of provisions .... 35.43
Specific performance see also Injunctions
adequacy of damages .... 31.18–31.22, 33.10,
39.19, 39.21
benefits to third parties .... 31.35–31.38,
39.20–39.22
payment or loan contracts .... 31.33, 31.34
question of fact .... 31.22
sale of land .... 31.27–31.32
sale of personalty .... 31.23–31.26
damages, and .... 31.21
adequacy of damages .... 31.18–31.22, 33.10
distinction .... 31.10–31.12
deeds .... 6.80, 31.14
denial .... 31.10
discretionary factors .... 31.10–31.12, 31.39
965
Index­
constant court supervision .... 31.45–31.54
delay .... 31.64–31.73
employment contracts .... 31.40–31.44
futility or impossibility .... 31.75
hardship .... 31.55–31.61
laches .... 31.64–31.73
lack of mutuality .... 31.75–31.78
personal services contracts .... 31.40–31.44
unclean hands .... 31.62, 31.63
vitiating factors .... 31.74
effect of orders .... 31.82, 31.83
equitable damages, and .... 31.11, 33.13
in lieu of specific performance .... 33.14–33.19
futility or impossibility .... 31.75
historical development .... 1.25
jurisdictional factors .... 31.3, 31.11, 31.12
adequacy of damages .... 31.18–31.38
benefits to third parties .... 31.35–31.38
payment or loan contracts .... 31.33, 31.34
sale of land .... 31.27–31.32
sale of personalty .... 31.23–31.26
valuable consideration .... 31.13–31.17
nature of remedy .... 31.3, 31.4
analogous relief .... 31.7–31.9
damages, distinction .... 31.10–31.12
in personam .... 31.3, 31.4
in rem .... 31.3
non-compliance with orders .... 31.4–31.6
proper sense .... 31.7, 31.9
non-compliance with orders .... 31.4
contempt of court .... 31.4–31.6
overview .... 1.9, 31.1, 31.2
personal service contracts .... 31.40–31.44
mutual confidence .... 31.42
obligation to enter contract .... 31.41
Quinn v Overland .... 31.43
privity of contract .... 39.19–39.23
ready and willing to perform .... 31.80, 31.81
reliance theories, and .... 3.16
rights-based theories, and .... 3.38
sale of land contracts .... 8.25, 8.26, 31.27
adequacy of damages.... 31.27–31.32
Canada .... 31.32
substantial breach .... 31.79
unconscientiousness .... 31.12
unilateral mistake .... 16.79, 16.80
valuable consideration .... 31.13, 31.14
adequacy of consideration .... 31.16, 31.17
deeds .... 6.80, 31.14
meaning .... 31.15
rationale .... 31.14
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Spouses
capacity to contract .... 9.69
intention doctrine see Family or social
agreements
undue influence .... 18.24, 18.25, 18.59
wife as guarantor .... 18.57–18.79
Yerkey v Jones .... 18.24, 18.57–18.79
Standing offers .... 4.40
States and territories
apportionment legislation .... 29.103, 29.104
civil liability legislation .... 29.52, 29.53
equitable damages .... 33.4
New South Wales .... 33.5
misleading or deceptive conduct .... 15.5, 15.6
unconscionable conduct .... 19.46
unfair contracts .... 21.6
Statutory illegality see also Common law
illegality
courts’ approach .... 26.4–26.6
ascertaining intention .... 26.7–26.10
change in approach .... 26.4, 28.1
effect on enforceability .... 26.1, 26.11–26.14,
26.32, 28.7–28.11
breach requirement .... 26.14
Fitzgerald v FJ Lionhardt .... 26.15–26.17
public policy .... 26.14, 26.16
effects of illegality .... 28.2, 28.5–28.11, 28.13
availability of remedies .... 28.6, 28.12
collateral contact claims .... 28.21
ex turpi causa non oritur actio .... 28.2
independent cause of action .... 28.14–28.22
Karl Suleman .... 28.10, 28.11
North v Marra Developments .... 28.3, 28.4
parties not equally at fault .... 28.23–28.28
repentance .... 28.25, 28.27, 28.28
restitutionary claims .... 28.15, 28.16
severance .... 28.29–28.36
tortious claims .... 28.17–28.20
void ab initio .... 28.5, 28.12
examples .... 26.3
expressly prohibited contracts .... 26.19, 26.20,
26.35
Baird v Magripilis .... 26.23
Mahmoud and Ispahani, Re .... 26.21, 26.22,
28.5
void ab initio .... 28.5
form of legislation .... 26.2
historical development .... 26.4
illegal purpose .... 26.14, 26.16, 26.48–26.61
availability of remedies .... 28.6
enforceability of contracts....28.7–28.9
966
impliedly prohibited contracts .... 26.14, 26.19,
26.24–26.27, 26.35, 26.61
Anderson v Daniel .... 26.45–26.47
Archbolds v Spanglett .... 26.28–26.30
ascertaining intention .... 26.35
class of contracts .... 26.27
construction of statute .... 26.36
Cope v Rowlands .... 26.42, 26.43
Pretorius Pty Ltd .... 26.44
public protection .... 26.41–26.43, 26.47
QuestCrown P/L .... 26.41
St John Shipping .... 26.24, 26.39, 26.40
unreasonable results .... 26.39, 26.40
void ab initio .... 28.5
Yango Pastoral .... 26.31–26.35, 26.38, 26.39
intention of statute .... 26.5, 26.6, 26.19
ascertaining intention .... 26.7–26.10, 26.35
overview .... 26.1–26.3, 27.1, 28.1
pleading of illegality .... 26.18
prohibited contracts .... 26.12, 26.14, 26.19,
26.53
express prohibition .... 26.20–26.23
illegal purpose .... 26.14, 26.16, 26.48–26.61
implied prohibition .... 26.24–26.47
public policy .... 26.14, 26.16, 26.48, 26.53
Equuscorp v Haxton .... 26.52, 26.53
Fitzgerald v FJ Lionhardt .... 26.50, 26.51
Gnych v Polish Club .... 26.58, 26.60
illegal purpose .... 26.14, 26.16, 26.17,
26.48–26.61
Nelson v Nelson .... 26.49, 26.53–26.57
Polish Club Ltd v Gnych .... 26.59
severance .... 28.29, 28.36
forms of severance .... 28.30
test .... 28.33–28.35
Statutory unconscionability see also Unjust
contracts
acquisition of goods or services .... 19.72–19.74
misleading or deceptive conduct .... 19.73
relevant matters .... 19.72
application of provisions .... 19.46, 19.51
corporations .... 19.46
Constitution .... 19.46
equitable doctrine, and .... 19.49, 19.50, 19.53,
19.54
categories of use .... 19.54–19.56
remedies .... 19.55
financial services .... 19.45
goods and services .... 19.50, 19.61
acquisition .... 19.72–19.74
determination of breach .... 19.63

dispute resolution .... 19.62
equivalent provision .... 19.65
moral obloquy .... 19.67
scope of unconscionability .... 19.64
supply .... 19.68–19.71
text of provision .... 19.61
unconscionability, meaning .... 19.64, 19.66,
19.69
overview .... 19.4, 19.45, 21.1
plain English .... 12.76
predecessor provisions .... 19.45
purpose of provisions .... 19.49
remedies .... 9.53, 19.49, 19.55, 19.75
ancillary orders .... 19.77
civil penalty orders .... 19.79
damages .... 19.76
loss .... 19.78
scope of unconscionability .... 19.64
special disadvantage .... 19.58
states and territories .... 19.46
supply of goods or services .... 19.68, 19.71
ACCC v Keshow .... 19.70
relevant matters .... 19.68
unconscionability, meaning .... 19.69
trade or commerce .... 19.47
definition .... 19.47
meaning .... 19.48
unconscionability, meaning .... 19.64, 19.66
unconscionable conduct, meaning .... 19.56
unwritten law, pursuant to .... 19.52–19.54
ACCC v Berbatis .... 19.57–19.60
categories of use .... 19.54–19.56
remedies .... 19.55
scope of provision .... 19.60
unconscionable conduct, meaning .... 19.56
Subject to contract
categories of cases .... 5.29, 5.39
additional terms .... 5.35–5.41
execution of formal contract .... 5.33, 5.34,
5.44
intention of parties .... 5.39, 5.41
oral agreements .... 5.46
performance conditional on execution .... 5.32
restatement of terms .... 5.30, 5.31, 5.36
sale of land contracts .... 5.45
intention of parties .... 5.39–5.43
ascertaining .... 5.40, 5.41
conduct of parties .... 5.42, 5.43
determination .... 5.42
immediately bound by agreement .... 5.42, 5.43
language of parties .... 5.41
967
Index­
single documents .... 5.42
subsequent conduct .... 5.42, 5.43
oral agreements .... 5.46
overview .... 5.4, 5.28, 5.29
sale of land contracts .... 5.45
use of words .... 5.41, 5.44
Substantial performance
discharge by performance .... 22.31, 22.45
Cordon Investments .... 22.45
extent of defective performance .... 22.48
Highmist v Tricare .... 22.49
Hoenig v Isaacs .... 22.46, 22.47
T
Tasmania
minors’ contracts .... 9.45
Taxation
damages awards .... 29.27
Tenders
offer, as .... 4.31
advertisements .... 4.39
Blackpool & Fylde .... 4.35–4.37
exclusion clauses .... 4.38
private sector entities .... 4.39
process contracts .... 4.31–4.39
Termination of contract see Discharge
Terms of contract see also Certainty;
Completeness
conditions see Conditions
construction of terms see Construction of
terms
discharge by agreement .... 23.1, 23.9
conditions precedent .... 23.13–23.19, 23.22
conditions subsequent .... 23.20–23.22
contractual right to terminate .... 23.10–23.12
implied terms .... 23.11, 23.12
essential terms .... 5.5
informal agreements .... 5.28
lease of land .... 5.6
machinery provisions .... 5.8, 5.9
sale of land contracts .... 5.6, 8.14, 8.15
third party determinations .... 5.10, 5.11
express terms see Express terms
implied terms see Implied terms
interpretation see Construction of terms
overview .... 10.1, 14.1
pre-contractual representations .... 14.1
terminology .... 10.2
unfair terms see Unfair contract terms
unilateral mistake .... 16.76, 16.77, 16.81, 16.87
rectification .... 16.82, 16.84–16.86
PRINCIPLES OF AUSTRALIAN CONTRACT LAW

Terms of contract – cont’d Unconscionable transactions

rescission .... 16.78, 16.80, 16.82, 16.83, 16.85 asset lending .... 19.34, 19.35
specific performance .... 16.79, 16.80 commercial contracts .... 19.10
warranties see Warranties consideration .... 19.8, 19.42
Torts defences .... 19.40
damages .... 37.3 adequacy of consideration .... 19.42
assessment .... 37.2, 37.4 assistance to weaker party .... 19.41
damage requirement .... 37.4 equitable defences .... 19.43
exemplary damages .... 29.15–29.19, 37.4 independent advice .... 19.41
remoteness .... 37.3 determination requirements .... 19.3
deceit see Deceit elements .... 19.6, 19.7
exemplary damages .... 29.15–29.19, 37.4 knowledge of disadvantage
deceit .... 37.4 .... 19.12, 19.29–19.37
inducing a breach .... 37.4 special disadvantage .... 19.7, 19.12–19.28
illegal contracts .... 28.17–28.20 unconscientious exploitation .... 19.36–19.39
interference with contractual relations see inequality of bargaining power .... 19.3, 19.10,
Inducing a breach 19.36
intimidation .... 17.40 knowledge of disadvantage .... 19.6, 19.12, 19.29,
negligence see Negligence 19.40
overview .... 37.1, 38.1 actual knowledge .... 19.29–19.33
unlawful interference with trade, and .... 37.39, constructive knowledge .... 19.30
37.41, 37.42 Elkofairi v Permanent Trustee .... 19.34, 19.35
Trade marks nature of principle .... 19.9, 19.10
misleading or deceptive conduct .... 15.88 overview .... 18.2, 18.3, 18.5, 19.1–19.5, 19.9, 21.1
Trustees rationale for principle .... 19.2
fiduciary obligations .... 18.23 remedies .... 19.44, 19.55
undue influence .... 18.23 special disadvantage .... 18.3, 19.6, 19.7, 19.12,
Trusts 19.40, 19.55
assignment of contractual rights .... 40.18 categories .... 19.13, 19.14, 19.55
bare trusts .... 40.21 Commercial Bank of Australia
privity of contract .... 39.56–39.61 v Amadio .... 19.18–19.20
intention to contract .... 39.59, 39.60 constitutional disadvantage
measure of damages .... 39.61 .... 19.13, 19.15–19.20, 19.55
property held on trust .... 39.59 emotional dependence .... 19.24, 19.25
gamblers .... 19.26
U inequality of position .... 19.20
Uncertainty see Certainty Louth v Diprose .... 19.21–19.25
Unconscionable conduct see also Statutory situational disadvantage
unconscionability .... 19.13, 19.21–19.28, 19.55
duress, and .... 17.11–17.13, 17.21, 17.24 undue influence and .... 19.27, 19.28
meaning .... 19.56 terminology .... 19.5
mental incapacity .... 9.52, 9.53 time for assessment .... 19.11
overview .... 18.2, 18.3, 18.5 unconscientious exploitation .... 19.6, 19.36,
special disability .... 18.3 19.39, 19.40
statutory unconscionability, and .... 19.49, 19.50, case illustrations .... 19.37, 19.38
19.53, 19.54 improvident transactions .... 19.37
categories of use .... 19.54–19.56 inequality of bargaining power .... 19.36
remedies .... 19.55 undue influence, and .... 18.4, 19.4
undue influence, and .... 18.4 undue influence, distinction .... 18.3, 18.5
undue influence, distinction unjust contracts, and
.... 18.3, 18.5 .... 20.20, 20.21, 20.22, 20.27

968

Undue influence
actual undue influence .... 18.8–18.10, 18.14, 18.31
difficulties in proving .... 18.13
establishing .... 18.11
Johnson v Buttress .... 18.29–18.31
onus of proof .... 18.12
presumed undue influence, and .... 18.31
rebuttal of presumption .... 18.12
wife as guarantor .... 18.67
Bester v Perpetual Trustee .... 18.39, 18.41
categories .... 18.8, 18.9
duress, and .... 17.21, 17.24
equitable defences .... 18.45
Allcard v Skinner .... 18.46
laches .... 18.45–18.47
feminist critique .... 3.48
guarantees .... 18.44, 18.49, 18.55
agents .... 18.50, 18.51
third parties .... 18.49–18.79
wife as guarantor .... 18.57–18.79
husband and wife .... 18.24, 18.25, 18.59
Thorne v Kennedy .... 18.33, 19.27, 19.28
wife as guarantor .... 18.57–18.79
Yerkey v Jones principle .... 18.24, 18.57–18.79
independent advice .... 18.36, 18.53, 18.55
Bester v Perpetual Trustee .... 18.39
evidence of advice .... 18.38
requirement to provide .... 18.37
value of advice .... 18.39
wife as guarantor .... 18.67
laches .... 18.45, 18.46
requirements .... 18.47
lack of improvidence .... 18.40
Bester v Perpetual Trustee .... 18.41
consideration .... 18.42
contractual dealings .... 18.42, 18.43
guarantees .... 18.44, 18.49
nature of relationship .... 18.7
overview .... 18.1–18.3, 18.5–18.7
presumed undue influence .... 18.8, 18.9, 18.15,
18.31
actual undue influence, and .... 18.31
effect of presumption .... 18.15
rebuttal of presumption .... 18.16, 18.19,
18.34–18.45
special relationships .... 18.15–18.33
quality of consent .... 18.3, 18.6
rebuttal of presumption .... 18.16, 18.19,
18.34–18.45
independent advice .... 18.36–18.39, 18.53, 18.55
lack of improvidence .... 18.40–18.44, 18.49
969
Index­
parent and child .... 18.35
relationship nature .... 18.7
remedies .... 18.80
special disadvantage and .... 19.27, 19.28
special relationships .... 18.8, 18.15–18.17
authority or superiority .... 18.28
Bester v Perpetual Trustee .... 18.32
Class 2A .... 18.18–18.25
Class 2B .... 18.21, 18.24, 18.26–18.33
doctor and patient .... 18.18, 18.20
dominion or ascendancy .... 18.28
guardian and ward .... 18.18, 18.21
husband and wife .... 18.24, 18.25, 18.59
Johnson v Buttress .... 18.29–18.31
mere conferral of benefit .... 18.20
parent and child .... 18.18, 18.21, 18.35
range of evidence .... 18.27
relevant factors .... 18.27, 18.28, 18.30
religious leader and follower .... 18.18, 18.20,
18.22
solicitor and client .... 18.18, 18.20
traditional relationships .... 18.17–18.25
trustee and beneficiary .... 18.23
third parties, and .... 18.48
third party guarantees .... 18.44, 18.49, 18.56
agents .... 18.50, 18.51
Bank of NSW v Rogers .... 18.52–18.54, 18.57
constructive notice .... 18.51, 18.55, 18.57
Gardiner v Westpac .... 18.56
wife as guarantor .... 18.57–18.79
Yerkey v Jones principle .... 18.57–18.79
unconscionable conduct, and .... 18.4, 19.4
unconscionable conduct, distinction .... 18.3, 18.5
unconscionable conduct and .... 19.27, 19.28
wife as guarantor .... 18.57
actual undue influence .... 18.67
application of principle .... 18.62
consent to guarantee .... 18.72
explanation of transaction .... 18.68–18.71
Garcia v National Bank .... 18.60–18.62, 18.68,
18.74, 18.75
illustrative case .... 18.64
independent advice .... 18.67
material misunderstanding by wife .... 18.63,
18.64
onus of proof .... 18.63, 18.65
other relationships .... 18.77–18.79
Royal Bank of Scotland v Etridge .... 18.72, 18.73
special equity .... 18.58, 18.59
understanding of effect .... 18.63
United Kingdom .... 18.72, 18.73
PRINCIPLES OF AUSTRALIAN CONTRACT LAW
Undue influence – cont’d
volunteer, as .... 18.65
Yerkey v Jones principle .... 18.57–18.79
Unfair contract terms
acquirers .... 21.11
application of provisions .... 21.6
background to provisions .... 21.7
consequences .... 21.7, 21.32
consumer contract, definition .... 21.9
subjective element .... 21.10
court’s considerations .... 21.26
effect of terms .... 21.16
examples of terms .... 21.27, 21.28
excluded contracts .... 21.30, 21.31
excluded terms .... 21.29
exclusion clauses .... 13.29
overview .... 13.29, 21.2, 21.7, 21.8
principles .... 21.20
regulation of contracts .... 21.3, 21.4
relevant matters .... 21.13, 21.17
relief prerequisites .... 21.19
remedies .... 21.33, 21.34
requirements .... 21.21
standard form contracts .... 21.12
establishing .... 21.13, 21.15
meaning .... 21.13
onus of proof .... 21.14
relevant matters .... 21.13
suppliers .... 21.11
threefold threshold test .... 21.22
imbalance test .... 21.23
necessary detriment test .... 21.25
‘significant imbalance’ .... 21.24
transparency of terms .... 21.18, 21.26
unconscionability, lower than .... 21.19
unfair, meaning .... 21.16
Unfair contracts see also Industrial Relations
Act (NSW)
applicable contracts .... 21.37
collateral arrangements .... 21.37, 21.41
‘significant purpose’ .... 21.42
compensation .... 21.39
contract, definition .... 21.36
contracts declared void etc .... 21.36
definition .... 21.36
franchise agreements .... 21.37, 21.38
overview .... 21.2, 21.35
regulation of contracts .... 21.3, 21.4
related conditions .... 21.37, 21.41
relief under Act see Industrial Relations
Act (NSW)
970
unfair, meaning .... 21.16
work performed in an industry .... 21.38, 21.40
Unilateral contracts
consideration .... 6.8
reliance element .... 6.21, 6.22
overview .... 1.35, 1.37
reliance element .... 6.22
Australian Woollen Mills .... 6.21
Carlill v Carbolic Smoke Ball Co .... 6.19
need for reliance .... 6.21, 6.22
possible outcomes .... 6.19
Unjust contracts see also Contracts Review
Act 1980
application of Act see Contracts Review
Act 1980
carrying on a business .... 20.12
Ford v Perpetual Trustees .... 20.14
‘trade, business or profession’ .... 20.13
Zhang v VP 302 SPV .... 20.15
contributing factors .... 20.52, 20.53
courts’ power to review .... 20.7
exclusion clauses .... 13.46, 20.9
moral obloquy .... 20.24
normative evaluation .... 20.19, 20.23
overview .... 20.3, 20.7, 21.2
procedural injustice .... 20.25, 20.36, 20.37, 20.47
purpose or motive .... 20.29
relief under Act see Contracts Review Act 1980
scope of circumstances .... 20.42
substantive injustice .... 20.25, 20.36, 20.47
time for determining .... 20.28
unconscionable transactions, and .... 20.20,
20.21, 20.22, 20.27
unjust, definition .... 20.19, 20.20
what constitutes .... 20.52
Unjust enrichment see Restitution
V
Victoria
frustrated contracts .... 25.59, 25.82
application of provisions .... 25.83
minors’ contracts .... 9.4, 9.38
grounds to set aside .... 9.6
specified contracts .... 9.4, 9.5
Void contracts see also Common law illegality;
Mistake; Statutory illegality
legal effects .... 1.39
minors’ contracts .... 9.37, 9.38
overview .... 1.38
Voidable contracts see also Duress
minors’ contracts .... 9.37
 Index­

overview .... 1.38, 1.40 common law damages excluded .... 8.26
rescission .... 1.40, 1.41 example of principle .... 8.27
part performance .... 8.29–8.43
W remedies .... 8.28
Waiver specific performance .... 8.25, 8.26
common law .... 23.71 no oral modification clause .... 23.35–23.40
definition .... 23.64, 23.65 non-compliance .... 8.5, 8.24
election .... 23.64, 23.67, 23.68 equitable relief .... 8.24–8.43
equitable rights .... 23.72, 23.73 overview .... 6.77, 8.1, 8.3, 10.8
independent doctrine, as .... 23.70 part performance .... 8.29, 8.30
legal rights .... 23.72 origins of doctrine .... 8.31
overview .... 23.1, 23.64, 23.66, 23.69 payments of money .... 8.42, 8.43
War permitted acts .... 8.34
capacity to contract .... 9.68 principles .... 8.32
common law illegality .... 27.37, 27.38 reliance on contract .... 8.35
frustration of contract .... 25.30, 25.46, 27.37 requirements .... 8.33, 8.34, 8.36–8.41
Warranties see also Conditions test .... 8.30
breach of warranties .... 10.2, 14.1, 24.18, 24.22, unequivocal acts .... 8.36, 8.39–8.41
24.32 sale of land .... 8.6, 8.8
classification of terms .... 24.19, 24.22, 24.25 acknowledgment of contract .... 8.16, 8.17
future of classification .... 24.40, 24.41 applicable contracts .... 8.10, 8.11
construction of terms .... 24.25 collateral contracts .... 8.7
express stipulation .... 24.24 effect of compliance .... 8.23
overview .... 24.25, 24.32 essential terms .... 8.14, 8.15
time stipulations .... 24.47 historical background .... 8.9
Western Australia informal agreements .... 5.45
assignments .... 40.26 interests in land .... 8.11
Writ of covenant see Covenant actions more than one document .... 8.13
Writ of debt see Debt actions New South Wales .... 8.8
Writing requirement see also Parol evidence non-compliance .... 8.5, 8.24–8.43
rule; Rectification notes or memoranda .... 8.12, 8.13
assignments .... 40.35 part performance .... 8.29–8.43
commercial contracts .... 8.2 rationale .... 8.9
common law .... 8.1, 8.2, 8.3 signature .... 8.18–8.22
credit provision .... 8.5 subsequent agreements .... 8.6
discharge by agreement .... 23.32–23.42 variation of contracts .... 8.6
executed contracts .... 23.43 Statute of Frauds .... 8.4, 8.5, 8.24, 8.31
equitable fraud .... 8.25–8.28 historical background .... 8.29

971
 Related LexisNexis Titles
Companion Text:
Gooley, Radan & Vickovich, Principles of Australian Contract Law: Cases and Materials,
5th ed, 2021, ISBN 9780409351613

Related Titles:
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Carter, Carter’s Guide to Australian Contract Law, 3rd ed, 2016, ISBN 9780409342871
Carter, Cases and Materials on Contract Law in Australia, 7th ed, 2019,
ISBN 9780409343120
Carter, Contract Law in Australia, 7th ed, 2018, ISBN 9780409348316 (limp);
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Wiseman, Backstrom & Trowse, Focus: Contracts, 4th ed, 2011, ISBN 9780409329186