Interpretation of contracts containing drafting mistakes
In HDI Global Speciality SE v Wonkana No 3 Pty Limited,[8] the NSW Court of Appeal considered exclusions in insurance policies that referred to legislation that had been repealed and replaced. In the absence of any plausible reason why the exclusion should refer to repealed legislation, the court considered different arguments in favour of a more purposive interpretation of the exclusion (so that it would be understood as referring to the replacement legislation). In particular, the insurer argued that:
Ultimately, however, the NSW Court of Appeal declined to interpret the relevant words so as to refer to the new legislation. The court did, however, provide a useful discussion of when a court can depart from the literal meaning of the words used. In two other cases during 2020, appellate courts were persuaded that contracts were affected by a mistake in the drafting. In Pittmore Pty Ltd v Chan,[9] handwritten amendments to one clause were inconsistent with another clause in the contract. The court, through a process of construction, effectively also amended the wording of that other clause. In James Adam Pty Ltd v Fobeza Pty Ltd,[10] however, the court held that, although there was an obvious mistake in the drafting of the contract, it was not clear what was intended by the parties. The court was therefore unable to construe the contract in the manner proposed. Literal or commercial interpretation?Courts often prefer a strictly literal approach when construing notice clauses. An example last year was the decision of the Queensland Court of Appeal in Wagners Cement Pty Ltd v Boral Resources (Qld) Pty Limited[11] which was a typical example of a careful, precise analysis of the actual words used in the contract. The court was more willing to adopt a commercial interpretation in Pilbara Iron Ore Pty Ltd v Ammon.[12] In that case, the court considered an obligation on the party to complete a 'feasibility study', with the contract not containing a definition of the term. Ammon therefore asserted that the contract should imply terms as to the requirements of a feasibility study (including that it be accurate enough to allow Ammon to raise project finance). The court declined to imply terms to this effect. It held, however, that the phrase 'feasibility study', properly construed in context, required a study that would suffice to allow Ammon to raise project finance. However, as Ammon had not put its case in this manner (relying only upon an implied term argument), the matter was sent back to a Warden for final determination. Interdependent obligationsAs a general principle of contract law, a party is not excused from complying with its obligations merely because the other party has failed to comply with their obligations. An exception does arise, however, where the obligations are 'interdependent'. Such interdependency was argued, unsuccessfully, in Kay v Playup Australia Pty Ltd.[13] An interesting extension of the interdependency principle was considered by the NSW Court of Appeal in Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd.[14] In that case, the court held that a franchisee was excused from paying licence fees to the franchisor because of the franchisor's breach of interdependent obligations under a different agreement. Good faithA court might also decline to apply the most natural, literal interpretation of words in a contract if they are inconsistent with other terms it contains. For example, in Macquarie International Health Committee Pty Ltd v Sydney Local Health District,[15] the contract gave the respondent an 'absolute and unfettered discretion' to set a new timetable. Notwithstanding these clear words, the NSW Court of Appeal held that this discretion was still subject to an express, contractual obligation of good faith (even though the obligation of good faith was stated to be 'without limiting the generality of any other provision of this deed'). The court found, however, that there was not, in fact, any breach of a duty to act in utmost good faith. As a general principle of contract law, a party is not excused from complying with its obligations merely because the other party has failed to comply with their obligations. An exception does arise, however, where the obligations are 'interdependent'. 7 Mistakes can also sometimes be corrected by an equitable order for rectification of the contract. Equitable orders are not considered in this Uupdate. 8 [2020] NSWCA 296. 9 [2020] NSWCA 344. 10 [2020] NSWCA 311. 11 [2020] QCA 289. 12 [2020] WASCA 92. 13 [2020] NSWCA 33. 14 [2020] NSWCA 234. 15 [2020] NSWCA161. CasesHDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296Contractual construction – uncommercial literal meaningIn this case, the NSW Court of Appeal considered whether business interruption insurance policies issued by the plaintiffs covered business interruption caused by COVID-19. The relevant policies provided cover for interruption or interference caused by the outbreak of an infectious or contagious disease, but excluded diseases declared 'quarantinable diseases' under the Quarantine Act 1908 (Cth) and subsequent amendments. Before the period of cover for the policies, the Quarantine Act had been repealed and replaced with the Biosecurity Act 2015 (Cth), under which certain diseases could be determined 'listed human diseases'.The court held that the exclusion did not extend to diseases determined to be a 'listed human disease' under the Biosecurity Act. Accordingly, the insurance policies did not exclude defendants' claims for indemnity for business interruption caused by COVID-19. This case highlights that courts will not always remedy a mistake in the language of a contract, even where the words are not consistent with the apparent commercial intent.Too, it highlights the difficulty in interpreting contracts when the literal meaning gives rise to an uncommercial outcome.FactsThe plaintiffs were two insurers who provided business interruption insurance cover to the defendants. The first policy was held by a tourist park for the period 28 February 2020 to 28 February 2021, and the second policy was held by a health store for the period 11 May 2019 to 11 May 2020. Both policies indemnified the insured businesses for business interruption caused by the outbreak of an infectious or contagious disease occurring within a 20-kilometre radius of the respective premises. The policies excluded indemnity for interruption caused by diseases that were 'declared to be quarantinable diseases under the Australian Quarantine Act 1908 and subsequent amendments'. The Quarantine Act was repealed and replaced on 16 June 2016 with the Biosecurity Act. Under the Quarantine Act, the Governor-General could, by proclamation, declare a disease to be a quarantinable disease. Under the Biosecurity Act, the Commonwealth Director of Human Biosecurity may, by writing, determine that a disease is a listed human disease. On 21 January 2020, the Director of Human Biosecurity determined COVID-19 to be a listed human disease under the Biosecurity Act. The insured businesses claimed indemnity under the respective policies for business interruption caused by COVID-19. The insurers denied the claims, and sought declarations from the court that the exclusion clause included diseases 'determined to be listed human diseases under the Biosecurity Act'. The insurers argued that the reference to 'and subsequent amendments' should be read to include replacing the Quarantine Act. The insurers also argued that the reference to the Quarantine Act was a mistake because it had been repealed at the time the policies were entered into, and that it was self-evident the parties intended to refer to legislation actually in operation that dealt with quarantinable diseases. Judgment
The Court of Appeal, sitting with five judges, held that the literal meaning of the reference to the Quarantine Act 'and subsequent amendments' only referred to amendments to the Quarantine Act and did not refer to the Biosecurity Act as a replacement enactment. In three separate judgments, the court found that, even though the policies referred to legislation that had been repealed at the time the policies were entered into, the literal meaning of the exclusion clause could not be corrected to be read to include the Biosecurity Act. Chief Justice Bathurst and President Bell observed that the insurers' argument the exclusion clause should be read to include the Biosecurity Act required a departure from the actual words of the contract on their ordinary grammatical meaning. Their Honours held that the principles of contractual construction were not flexible enough to permit the insurers to expand the meaning of the exclusion clause to include reference to the Biosecurity Act Justices Meagher and Ball held that the language of a contract can be corrected if the literal meaning of the language is absurd or clearly mistaken, and the parties' objective intention is clear. In this case, however, even assuming that the parties made a mistake and had not realised the Quarantine Act had been repealed at the time the policies were entered into, the reference to the repealed Quarantine Act was not absurd and did not reveal an objective intention to refer to the Biosecurity Act. Justice Hammerschlag considered that, in order to correct the meaning of the exclusion clause, the insurers had to show that the literal meaning of the words was absurd. His Honour recognised that while the reference to the repealed Quarantine Act did not make commercial sense and was likely caused by a mistake, it cannot be assumed that it was a mistake. His Honour found that the literal meaning of the clause was not absurd, as the exclusion clause still operated to exclude the 10 diseases that had been declared quarantinable diseases under the Quarantine Act at the time of its repeal. Accordingly, the court held that COVID-19 was not excluded from the disease benefit clauses, as it was not a disease declared to be a quarantinable disease under the Quarantine Act. James Adam Pty Ltd v Fobeza Pty Ltd [2020] NSWCAConstruction of contract – mistake – objective intentions of parties – rectificationIn this case, the NSW Court of Appeal of the Supreme Court considered whether a purchaser of land in rural NSW had validly rescinded its contract of sale. The court dismissed the appeal from the vendor and held that, while the terms of the contract were absurd, that absurdity could not be rectified by construction, as it was not self-evident how the mistake should be fixed. This case reinforces the basic principles underlying the 'rectification by interpretation' of contracts. When attempting to rectify a mistake, the courts will first attempt to correct it through construction. This requires a finding that the literal meaning is absurd or inconsistent and that it is clear what the objective intention is taken to have been. However, while it may be clear that the literal meaning of a contract is absurd, it is difficult to correct a mistake if it is not self-evident how the mistake should be fixed. This is a high bar and may result in one party being able to rescind the contract despite the fact that the contract only contains a small error.FactsJames Adam (vendor) and Fobeza (purchaser) entered into a contract for the sale of rural land that was to be subdivided. 'Lot 101' in the proposed subdivision was to be excluded from the sale. Annexed to the contract was a sketch plan of the proposed subdivision, and clause 39 of the contract stated that completion of the contract was conditional 'upon the registration of the plan of subdivision in accordance with the sketch plan'. The sketch plan incorrectly stated the area of Lot 101 as 2001m2 when it was actually 2205m2. The correct area was included on the plan of the subdivision when it was registered. James Adam notified Fobeza of the subdivision following registration in accordance with the contract. Fobeza then rescinded the contract in accordance with clause 41, which granted the purchaser the right to rescind if the area of Lot 101 'in the plan of the subdivision as registered is shown on the plan as being 2100 sq. m or more'. The vendor denied the validity of the rescission and served a notice to complete. The purchaser brought proceedings seeking a declaration that it had validly rescinded and the return of its deposit. The vendor sought a declaration that the contract be constructed to read '2310' instead of '2100' in clause 41, as this was what the parties clearly meant. At first instance, the primary judge held that the purchaser had validly rescinded. The vendor appealed. JudgmentThe court considered three issues.
Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92Interpretation of express terms of commercial joint venture contract – implied terms of factIn this case, the Western Australian Court of Appeal considered the process of interpreting a commercial joint venture agreement, where a key term of the contract was undefined and one of the parties alleged a number of implied terms to give meaning to that key term. The court held that before a court can find implied terms of a contract, it must first consider the proper interpretation of the express terms of the contract. In this case, the court found the alleged implied terms were not part of the contract following the proper interpretation of the express terms of the contract in light of the commercial context of the joint venture agreement. This case reinforces that courts are reluctant to imply terms into a contract, and will only do so where those terms are certain and necessary. Accordingly, parties to a contract should not expect to rely on implied terms of a contract and attention to detail must be given to the express terms. The case also highlights the importance of the commercial context of a contract, and that courts place great importance on ensuring that ambiguous terms of a commercial contract are given a businesslike meaning.FactsDerek Ammon was the holder of an exploration licence under the Mining Act 1978 (WA). Pilbara and Ammon entered into a joint venture agreement to explore and, if feasible, mine minerals covered by the exploration licence. The joint venture was structured so that Pilbara would earn an 80% interest in the joint venture if it completed a feasibility study by a specified time. If it did not, it would be deemed to have withdrawn from the joint venture. The joint venture did not specify the content of the feasibility study. Pilbara completed a feasibility study and lodged a transfer for an 80% interest in the joint venture with the Western Australia Department of Industry and Resources. Ammon argued that the report produced by Pilbara did not meet the requirements of the joint venture agreement and was therefore deemed to have withdrawn from the joint venture. Specifically, Ammon claimed that the joint venture agreement contained four implied terms that the feasibility study be:
JudgmentThe court, in a unanimous joint decision, interpreted the joint venture agreement with an approach to give a 'businesslike interpretation' of the terms of the contract in order to be 'consistent with the commercial object of the agreement'. The court noted that 'feasibility study' was not defined in the contract, but that it had to be understood in the commercial context of the joint venture agreement. In particular, the feasibility study altered both the parties' economic positions because, once the feasibility study was completed, the parties had a choice of whether or not to proceed with the joint venture. The court found the feasibility study had to be a report for which the nature, scope and analysis would meet the minimum requirements of financiers to the mining industry to allow the parties to raise project finance. In effect, the court gave a technical, rather than ordinary, meaning to the term 'feasibility study'. In light of this interpretation of the express terms of the contract, the court found that the alleged implied terms were not a part of the contract. It considered the contract operated efficiently without the alleged implied terms when considered against the technical meaning of 'feasibility study'. Further, the court held that the alleged implied terms were too imprecise and uncertain to 'go without saying'. The court considered that it was not in a position to determine whether Pilbara's report met the requirements of a feasibility study. Accordingly, it remitted the matter to the mining warden to determine the matter without reference to the alleged implied terms. An application for special leave to appeal to the High Court in this matter was dismissed with costs. Kay v Playup Australia Pty Ltd [2020] NSWCA 33Dependent and independent contractual obligations – whether ‘clear words’ are required to find a relation of independency between obligations– penalty doctrine extends beyond payment of a stipulated sum of money to deprivation of contractual rights; relief against forfeiture – whether doctrine confined to proprietary or possessory rights, as distinct from mere contractual rightsIn this case, the New South Wales Court of Appeal considered:
The decision is significant because it:
FactsMr Kay and Playup entered into a contract for the sale and purchase of Mr Kay's 100% shareholding in a company for $1.6 million. Of that sum, $1 million was payable on exchange, with the remaining $600,000 to be paid in 24 monthly instalments following the 22 May 2018 'completion date' stipulated in the contract. The seller gave a number of warranties regarding the state of the company and agreed to restraints on operating a competing business for three years. Clause 4.3(b) of the contract stipulated that if the buyer was more than seven days late making any of the monthly instalment payments, the warranties and restraints were immediately 'void ab initio' and the total amount of the remaining monthly instalments became payable immediately. Neither the buyer nor the seller performed any of their completion obligations on the 22 May 2018 'completion date'. The following events then occurred:
In order to procure dismissal of the winding up proceedings, the buyer paid the outstanding balance of the monthly instalments. The buyer then commenced proceedings for declaratory relief that the restraints and warranties were not void, contending that:
The buyer succeeded at first instance, with the primary judge agreeing (albeit via different reasoning) that clause 4.3(b) had not been engaged. Had it been necessary, the primary judge would have rejected alternative arguments that clause 4.3(b) was an unenforceable penalty or that relief against forfeiture should be granted. The seller appealed the primary judge's principal finding, with the buyer cross-appealing the judge's findings on the alternative arguments. JudgmentIn deciding the appeal on the primary judge's principal finding, the court had to determine whether the buyer's obligation to pay the monthly instalments was independent of the seller's obligations to calculate the adjustment amount and provide the updated lists of liabilities and debtors. In doing so, the court held that, on its proper construction, the contract dealt with two distinct concepts that were not to be conflated:
The fact that the parties failed to complete on 22 May 2018 meant that they were in default of their contractual obligations – this did not alter the meaning of the term 'completion date'. The buyer's obligation to pay the monthly instalments was linked to the 'completion date', whereas the relevant obligations of the seller were linked to the concept of 'completion'. As such, there was no relation of interdependency between the two sets of obligations, and the buyer's obligation to make the monthly instalments had not been suspended by the seller's failure to discharge some of his completion obligations. Although clause 4.3(b) would have been engaged by the buyer's failure to make the instalment payments on time, the court unanimously held that the clause was an unenforceable penalty as to the warranties and restraints. Justice Brereton further observed that if clause 4.3(b) was not a penalty, relief against forfeiture would not be available, given that no proprietary or possessory rights had been forfeited. Justices Macfarlan and Simpson declined to express a view on relief against forfeiture, as it was not necessary to resolve the appeal. IndependencyThe court held that, on proper construction of the contract, the buyer's obligation to pay the monthly instalments was not dependent upon the seller's obligation to calculate an adjustment amount, nor the seller's obligation to deliver updated lists of liabilities and debtors. The court's ruling is significant in that it rejects the notion that 'clear words' are required in order to make a finding of independency, instead emphasising that the intention of the parties is paramount. The court identified a number of factors that indicated the parties did not intend the two sets of obligations to be dependent upon one another:
Consequently, the court held that while the buyer was entitled to retain the objectively correct adjustment amount out of the monthly instalments, it was not entitled to treat the obligation to pay the monthly instalments as suspended until the seller had agreed to the adjustment amount. The court also observed that seller's obligation to provide updated lists of liabilities and debtors was not necessary to give content to any of the seller warranties, as any new liabilities that would have been disclosed in the updated lists were already covered by an indemnity provided by the seller. The court therefore held that there was no relevant connection between the seller's obligation to provide the updated lists and the buyer's obligation to pay the monthly instalments. PenaltyThe court held that clause 4.3(b) was a penalty insofar as it operated to avoid the seller warranties and restraints, and was thus unenforceable. This finding is significant in that it extends the penalty doctrine to accrued contractual rights, despite the doctrine's 'standard application' being to the payment of a stipulated sum of money. Although the parties did not dispute that the penalty doctrine could apply to accrued contractual rights, the court nevertheless noted that restricting the doctrine to its standard application would 'elevate form over substance'. When determining that clause 4.3(b) , in substance, a penalty, the court identified two key factors:
The court also noted that while clause 4.3(b) was the product of robust negotiation between two properly advised parties of comparable bargaining power, this did not alter the fact the clause was penal in character. Relief against forfeitureJustice Brereton further held that if the court was wrong and clause 4.3(b) was not a penalty, relief against forfeiture would not be available as an alternative. This finding is significant in that it upholds the traditional view of the doctrine, being that it is confined to proprietary or possessory rights and does not extend to mere contractual rights. Justice Brereton made the following observations in response to Justice Edelman's suggestion in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6)[1] that the scope of the doctrine could be broadened beyond proprietary rights:
Although Justice Brereton held that relief against forfeiture was not available for the above reasons, he noted that had the doctrine been applicable, he would have granted relief on discretionary grounds. Meetfresh Franchising Pty Ltd v Ivanman Pty Ltd [2020] NSWCA 234Damages for wasted expenditure – interdependent contracts – force majeureIn this case, the NSW Court of Appeal considered whether the loss of a head franchise agreement constituted a force majeure event, whether poor business performance could negate a claim for wasted expenditure, and whether franchise and licence agreements were interdependent such that a party's breach of one agreement prevented its enforcement of the other. The court held that the loss of the head franchise agreement was not outside the franchiser's reasonable power and control and therefore was not a force majeure event. The court found that poor business performance in the first two years of operation did not establish that expenditure would have been wasted had the contract been fully performed and did not defeat a claim for wasted expenditure. Finally, the court held that the franchise and licence agreements in question were interdependent because they were clearly inextricably linked. The appellant's breach of the franchise agreement excused the respondent from meeting its obligations under the licence agreement. This case is significant because it examines a typical force majeure clause formulation and damages for wasted expenditure in a common commercial context. Further, it shows that in the doctrine of interdependent contracts, references to another contract, the annexing of documents, interconnected obligations and even the content of recitals can serve as indicators of interdependence.FactsOn 9 July 2015, the first respondent, Ivanman Pty Ltd, contracted to purchase a Meet Fresh franchise business selling traditional Taiwanese desserts, beverages and snacks operating at premises in Burwood. The owner of the Meet Fresh intellectual property, Easy Way Station Co Ltd, granted the right to grant franchises to carry on the business in Australia to Meetfresh Australia Pty Ltd, which in turn granted that right to the appellant, Meetfresh Franchising Pty Ltd. Ivanman obtained from the appellant a franchise agreement and a licence to conduct the business at the premises. Both were due to expire in late 2017. In January 2016, the appellant required Ivanman to undertake a new fit out of the premises. The appellant represented to Ivanman that:
Ivanman completed the fit out at a cost of $119,580 and the parties entered into the second franchise agreement for a five-year term. The first and second franchising agreements contained a force majeure clause, which provided that the appellant was not liable for loss caused by events beyond the appellant's reasonable control. On 10 January 2017, Ivanman received notice from Easy Way that Meetfresh Australia, and, as a consequence, its sub-franchisees, were no longer entitled to use the Meet Fresh intellectual property. On 27 July 2017, the appellant advised Ivanman that it could no longer use the Meet Fresh intellectual property. The appellant did not offer a renewal or extension of the licence and, on 10 November 2017, served on Ivanman a notice of termination of any 'holding over' licence or franchise agreement. Ivanman surrendered possession of the premises to the appellant and brought proceedings against the appellant in the District Court. The primary judge found that:
JudgmentThe issues on appeal were:
Force majeureThe court found that rather than qualifying the scope of the appellant's obligation, the force majeure clause operated as an exception to it. This was a matter of construction. The obligations were set out in a broad and relevantly unqualified fashion, and the force majeure clause was included among incidental clauses at the end of the contract. Thus, the appellant bore the onus of demonstrating the applicability of the force majeure clause. The appellant failed to do so because of an absence of evidence to establish how the force majeure event (the loss of the appellant's right to use the intellectual property) came about and the appellant's lack of control to prevent that event. Damages for wasted expenditureThe court made it plain that Ivanman's claim was not for loss of profits amounting to expectation damages but, rather, for what has been described as wasted expenditure or reliance damages. Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 established that for such a claim:
To establish that the expenditure would have been wasted in any case, the appellant sought to rely on the poor performance of the business over the first two years of its operation. The court found this was insufficient to discharge the appellant's onus. Ivanman's decision to seek a second franchise agreement indicated it had reasonably anticipated it would cover its costs or make profits in the future. Expert evidence also projected Ivanman would earn substantial profits from the beginning of the second franchise term. The appellant submitted that Ivanman did not incur the costs of the refit as a result of the appellant's breach of contract, but because it was obliged under the franchise agreement to refurbish the premises at its own expense when the appellant reasonably required it to do so. The court held the appellant had not established its request was reasonable for the purposes of the clause, most notably because only five months of the first two-year term had expired. Interdependent contractsBy its cross claim, the appellant sought $41,575 for licence fees and other monies payable under the licence agreement after its expiry in August 2017. The appellant alleged the agreement had continued on a month-to-month basis. The court agreed with the primary judge that the franchise and licence agreements were interdependent. The court held that the agreements were inextricably linked because:
The appellant's failure to comply with the franchise agreements therefore excused Ivanman from meeting its obligations under the licence agreement. Other than a small reduction in damages owing to a concession given by Ivanman, the primary judgment was upheld. Macquarie International Health Clinic Pty Ltd v Sydney Local Health District [2020] NSWCA 161Default of obligations – breach of contract – right to terminateIn this case, the NSW Court of Appeal of the Supreme Court considered whether the termination of an agreement to build a hospital was valid. The court held that various notices of default and notices of termination were validly issued and that the termination of the agreement was valid. This case reinforces the basic principles underlying the construction and interpretation of contracts. When interpreting a contract, the court will always look at the reasonable meaning of the text and the surrounding commercial circumstances. When considering whether a party to a contract has been given a reasonable time to remedy a default, the actual time given to remedy the default will be considered.FactsIn 1996, Macquarie International Health Clinic Pty Ltd entered into an agreement with Sydney Local Health District to construct and lease a private hospital and related facilities. The agreement gave SLHD the power to grant an extension of time for particular activities involved in the development if there was a delay. Macquarie had several obligations under the agreement, including to lodge all required applications with the council in relation to the development. Plans for the hospital were lodged with a development application and a building application in 1997. In 2000, SLHD tried to terminate the agreement, a move the Court of Appeal found to be invalid in 2010. Macquarie regained possession of the site in 2015. In 2015, SLHD proposed an extension of time due to the delay and warned Macquarie not to propose a different development than it had been contracted to build. SLHD told Macquarie that it was obliged to make a further application for a construction certificate. Without SLHD's knowledge, Macquarie submitted a different proposal than agreed. In February 2017, SLHD served notices of default on Macquarie regarding the agreement. In August 2017, SLHD terminated the agreement. Macquarie challenged the validity of the notices and the termination. At first instance, the court held that the notices and termination of the agreement were valid. Macquarie appealed this decision to the Court of Appeal. JudgmentThe court considered three issues.
Wagners Cement Pty Ltd & Anor v Boral Resources (Qld) Pty Limited & Anor [2020] QCA 289Contractual interpretation – the doctrines of waiver and election between inconsistent rightsIn this case, the Queensland Court of Appeal considered the validity of notices issued by the purchaser of a cement supply contract showing that it could buy cement elsewhere at a lower price (and requesting the supplier match that price). This in turn required consideration of whether the contract had been validly suspended by the supplier, in which case the purchaser was not liable for payment under take-or-pay provisions. The court held that upon the proper construction of the contract, the contract was not validly suspended at the time the purchaser issued its notice (but was later suspended when a subsequent notice, which did fulfil the contractual requirements, was submitted). This case is a reminder of the need to ensure compliance with requirements for notices in contracts. It also affirms that the doctrine of election between inconsistent rights does not apply to parties who rely only on the absence of a legal right in another party.FactsIn a contract dated 8 December 2011, Wagners Cement Pty Ltd sold cement to Boral Resources (Qld) Pty Ltd. Under the contract, Boral was required to purchase a minimum quantity of cement from Wagners annually. If Wagners could not supply all of the cement required by Boral, the contract allowed this quantity to be adjusted downwards. If Boral did not purchase the required minimum quantity, clause 8 of the contract required Wagners to notify Boral of the shortfall and for Boral to pay for that shortfall in order to meet its take-or-pay obligations for the year. Boral was required to pay a set price for the cement, subject to:
The timeline of events unfolded as follows:
Justice Bond, the trial judge, held:
Justice Bond accepted Boral's argument that even if the March pricing notice was invalid, the March suspension notice was valid and Wagners had waived any invalidity in the pricing notice. Put another way, Wagners should be treated as having made an election between inconsistent rights, and it could not be permitted to submit that its own notice was ineffective. As the suspension notice was effective in suspending supply (and Boral's obligations to pay), this meant Boral could avoid paying the penalties associated with any yearly shortfalls under the take-or-pay provisions in clause 8 of the contract and Wagners, in turn, would have been unable to recover those costs. JudgmentOn appeal, Justices Fraser, Philippides and Crow:
Interestingly, on the issue of the efficacy of Wagners' March suspension notice, the court considered that Boral may have had a viable claim based on estoppel or a variation of the contract. If Wagners represented that an ineffective notice was effective as a pricing notice under clause 7 and Boral acted upon that representation to its detriment, Wagners may have been precluded from disputing the validity of the pricing notice. Alternatively, the court considered that the parties may have been found to have varied the contract by treating an ineffective notice as though it was effective as a pricing notice when issued. However, neither of these claims were advanced by Boral. Allens online learningOur webinars and online courses can provide you with the insights you need to help stay ahead of the complex issues businesses are tackling in a rapidly changing landscape, while helping to fulfil your CPD requirements. Get in touchStay updatedSite informationAllens is an independent partnership operating in alliance with Linklaters LLP. © 2021 Allens, Australia Which of the following promises would not have to be in writing under the Statute of Frauds to be enforceable?A collateral promise is an undertaking to be secondarily liable. Where the "main purpose" of the promisor is to obtain an economic benefit for herself that she did not previously have, the promise is outside the statute, and need not be in writing to be enforceable.
What is the rule concerning contracts within the Statute of Frauds quizlet?If a contract falls within the Statute of Frauds, then the general rule is that the contract is unenforceable unless evidenced by a writing signed by the party against whom enforcement is sought.
Which of the following statements is true of the parol evidence rule?Which of the following is true of the parol evidence rule? Amount of damages that are equal to the loss sustained. The parol evidence rule assumes that a written contract represents the complete agreement.
Which contract does not need to be in writing quizlet?Under international law (CISG), contracts for the sale of goods need not be in writing. A promis to answer for and pay someone else's debts does not have to be in writing.
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