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DISCHARGE OF A CONTRACT & DISCHARGE OF A CONTRACT & REMEDIES FOR BREACH OF CONTRACTREMEDIES FOR BREACH OF CONTRACT

Objectives:Objectives:

1.1. Discharge of a Contract.Discharge of a Contract.

2.2. Remedies for Breach of Contract.Remedies for Breach of Contract.

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Discharge of a ContractDischarge of a Contract

1.1. When a contract is discharged, the parties When a contract is discharged, the parties to the agreement are freed from their to the agreement are freed from their contractual obligations.contractual obligations.

2.2. A contract can be discharged by:A contract can be discharged by:

i.i. Agreement. Agreement.

ii.ii. Performance.Performance.

iii.iii. Frustration.Frustration.

iv.iv. Breach.Breach.

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3.3. Discharge by AgreementDischarge by Agreementi.i. A contact is made by agreement so can A contact is made by agreement so can

be ended by agreement.be ended by agreement.

ii.ii. Discharge by agreement is usually Discharge by agreement is usually provided for in the contract via a term provided for in the contract via a term allowing for discharge by the:allowing for discharge by the:

i.i. passage of a fixed period of time.passage of a fixed period of time.ii.ii. occurrence of a particular event.occurrence of a particular event.iii.iii. parties giving notice of their intention parties giving notice of their intention

to discharge.to discharge.

Where there is no such provision, Where there is no such provision, another contract would be required to another contract would be required to discharge the parties from their original discharge the parties from their original obligationsobligations. .

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4.4. Discharge by PerformanceDischarge by Performance

i.i. This occurs where the parties perform This occurs where the parties perform their obligations under the contract their obligations under the contract (most common method).(most common method).

ii.ii. Generally, discharge by performance Generally, discharge by performance requires requires COMPLETECOMPLETE and and EXACTEXACT performance by the parties of performance by the parties of ALLALL their their contractual obligations.contractual obligations.

iii.iii. Cutter v Powell [1795]Cutter v Powell [1795] For the injustice For the injustice the application of this general rule can the application of this general rule can cause.cause.

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iv.iv. Complete and exact performance may Complete and exact performance may not be necessary if any one of the not be necessary if any one of the following can be proved:following can be proved:

i.i. The contact is divisible – The contact is divisible – Taylor v Taylor v Webb [1937]Webb [1937]

ii.ii. The contract is capable of being The contract is capable of being fulfilled by substantial performance – fulfilled by substantial performance – Hoenig v Isaacs [1952Hoenig v Isaacs [1952].].

iii.iii. Performance has been prevented by Performance has been prevented by the other party.the other party.

iv.iv. Partial performance has been Partial performance has been accepted by the other party.accepted by the other party.

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5.5. Discharge by FrustrationDischarge by Frustration

i.i. This occurs where it is impossible for the This occurs where it is impossible for the parties to perform their contractual parties to perform their contractual obligations. obligations.

ii.ii. A contract will be discharged by reason of A contract will be discharged by reason of frustration in the following circumstances:frustration in the following circumstances:

i.i. Destruction of contractual subject Destruction of contractual subject matter has occurred. matter has occurred. Taylor v Caldwell Taylor v Caldwell [1863[1863].].

ii.ii. Government interference, or Government interference, or supervening illegality prevents supervening illegality prevents performance.performance. Re Shipton, Anderson Re Shipton, Anderson & Co [1915& Co [1915].].

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iii.iii. A particular event, which was the A particular event, which was the sole reason for the contract, fails to sole reason for the contract, fails to take place. take place. Krell v Henry [1903Krell v Henry [1903] but ] but note note Herne Bay Steamboat Co v Herne Bay Steamboat Co v Hutton [1903Hutton [1903].].

iv.iv. The commercial purpose of the The commercial purpose of the contract no longer exists. contract no longer exists. Jackson v Jackson v Union Marine Insurance Co [1874Union Marine Insurance Co [1874].].

v.v. One of the parties dies or becomes One of the parties dies or becomes otherwise incapacitated. otherwise incapacitated. Condor v Condor v Barron Knights [1966]Barron Knights [1966]

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iii.iii. However a contract will However a contract will NOTNOT be discharged be discharged by reason of frustration in the following by reason of frustration in the following circumstances: circumstances:

i.i. The parties have made express provision The parties have made express provision in the contract for the event which has in the contract for the event which has occurred.occurred.

ii.ii. The frustrating event was self-induced The frustrating event was self-induced i.e. could have been avoided. i.e. could have been avoided. Maritime Maritime National Fish Ltd v Ocean Trawlers Ltd National Fish Ltd v Ocean Trawlers Ltd [1935[1935].].

iii.iii. An alternative method of performance is An alternative method of performance is still possible. still possible.

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iv.iv. The contract simply becomes more The contract simply becomes more expensive to perform i.e. cannot use expensive to perform i.e. cannot use frustration to escape from a bad bargain. frustration to escape from a bad bargain. Davis Contractors v Fareham UDC [1956Davis Contractors v Fareham UDC [1956].].

iv.iv. Effect of FrustrationEffect of Frustration

i.i. Law Reform (Frustrated Contracts) Act Law Reform (Frustrated Contracts) Act 19431943. The position is as follows in . The position is as follows in relation to a contract discharged by relation to a contract discharged by reason of frustration:reason of frustration:

i.i. Any money paid is recoverable.Any money paid is recoverable.

ii.ii. Any money due to be paid ceases to be Any money due to be paid ceases to be payable.payable.

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iii.iii. The courts may allow the parties to:The courts may allow the parties to:

i.i. Cover expenses incurred from any Cover expenses incurred from any money received; ormoney received; or

ii.ii. Recover those expenses from money Recover those expenses from money due to be paid before the frustrating due to be paid before the frustrating event.event.

Expenses cannot be retained or Expenses cannot be retained or recovered if no money was paid or due recovered if no money was paid or due to be paid before the frustrating event.to be paid before the frustrating event.

ii.ii. Law Reform (Frustrated Contracts) Act Law Reform (Frustrated Contracts) Act 19431943 does does NOTNOT apply to contracts: apply to contracts:

i.i. For the carriage of goods by sea.For the carriage of goods by sea.

ii.ii. Of insurance and / or perishable goods.Of insurance and / or perishable goods.

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6.6. Discharge by BreachDischarge by Breach

i.i. One of the parties fails to comply with One of the parties fails to comply with its contractual obligations. Breach of its contractual obligations. Breach of contract may occur in three ways:contract may occur in three ways:

i.i. Prior to performing contractual Prior to performing contractual obligations, one of the parties obligations, one of the parties states that it will not perform its states that it will not perform its obligations.obligations.

ii.ii. One of the parties fails to perform One of the parties fails to perform obligations.obligations.

iii.iii. One of the parties performs its One of the parties performs its contractual obligations defectively. contractual obligations defectively.

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ii.ii. Effect of BreachEffect of Breachi.i. All three types of breaches will allow All three types of breaches will allow

innocent party to sue for damages.innocent party to sue for damages.

ii.ii. In the following instances, in addition to In the following instances, in addition to damages, the innocent party would also damages, the innocent party would also be able to treat the contract as be able to treat the contract as discharged and therefore refuse either to discharged and therefore refuse either to (i) perform their part of the contract or (ii) (i) perform their part of the contract or (ii) accept further performance from the party accept further performance from the party in breach:in breach:

i.i. Where the other party has repudiated Where the other party has repudiated the contract before performance is due the contract before performance is due or fully complete;or fully complete;

ii.ii. Where the other party has committed a Where the other party has committed a fundamental breach of contract.fundamental breach of contract.

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iii.iii. Anticipatory BreachAnticipatory Breach

i.i. Arises when one of the parties, prior to Arises when one of the parties, prior to the actual date of performance, the actual date of performance, demonstrates an intention not to demonstrates an intention not to perform their contractual obligations. perform their contractual obligations.

ii.ii. Intention can be demonstrated Intention can be demonstrated expressly or impliedly:expressly or impliedly:

i.i. ExpresslyExpressly – One of the parties actually – One of the parties actually states that they will not perform their states that they will not perform their contractual obligations. contractual obligations.

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ii.ii. Impliedly Impliedly – One of the parties – One of the parties carries out some act which carries out some act which makes performance impossible. makes performance impossible.

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Remedies for Breach of ContractRemedies for Breach of Contract

1.1. Main remedies are:Main remedies are:

i.i. Damages. Damages. ii.ii. Quantum Meruit.Quantum Meruit.iii.iii.Specific Performance.Specific Performance.iv.iv.Injunction.Injunction.

2.2. DamagesDamages

i.i. Amounts to monetary compensation. Amounts to monetary compensation. Lord Diplock in Lord Diplock in Photo Productions Photo Productions Ltd v Securicor Transport Ltd [1980]Ltd v Securicor Transport Ltd [1980]..

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ii.ii. Two tests used to determine a claim for Two tests used to determine a claim for damages:damages:i.i. Remoteness of damage.Remoteness of damage.ii.ii. Measure of damages.Measure of damages.

iii.iii.Remoteness of Damages Remoteness of Damages

i.i. Damages will only be awarded in respect Damages will only be awarded in respect of losses which:of losses which:

i.i. Are the natural consequence of any Are the natural consequence of any breach; or which breach; or which

ii.ii.Both parties would reasonably have Both parties would reasonably have contemplated when the contract was contemplated when the contract was made as a probable result of any made as a probable result of any breach.breach.

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ii.ii. Hadley v Baxendale [1854Hadley v Baxendale [1854].].iii.iii.Victoria Laundry Ltd v Newham Victoria Laundry Ltd v Newham

Industries Ltd [1949Industries Ltd [1949].].

iv.iv. Measure of DamagesMeasure of Damages

i.i. Aim is to put injured party in the Aim is to put injured party in the same position they would have same position they would have been in, had the contract been been in, had the contract been properly performed.properly performed.

ii.ii. So amount of damages awarded So amount of damages awarded can never be greater than actual can never be greater than actual loss suffered. Aim is not to punish loss suffered. Aim is not to punish party in breach.party in breach.

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iii.iii. Value of damages decided upon by Value of damages decided upon by reference to following principles:reference to following principles:

i.i. Market Rule.Market Rule.i.i. Damages will be valued at market Damages will be valued at market

price of goods in question.price of goods in question.

ii.ii. Duty to Mitigate/Minimise LossesDuty to Mitigate/Minimise Losses..i.i. Injured party under a duty to take Injured party under a duty to take

all reasonable steps to minimise its all reasonable steps to minimise its loss. loss. Pilkington v Wood [1953]Pilkington v Wood [1953]

iii.iii. Non-Pecuniary LossNon-Pecuniary Loss..i.i. Non-financial loss can be recovered. Non-financial loss can be recovered.

Jarvis v Swan Tours Ltd [1973Jarvis v Swan Tours Ltd [1973].].

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v.v. Liquidated Damages and PenaltiesLiquidated Damages and Penalties

i.i. Liquidated DamagesLiquidated Damages

i.i. Where parties incorporate provision(s) Where parties incorporate provision(s) in contract agreeing the amount of in contract agreeing the amount of damages that will be paid in the event damages that will be paid in the event of any breach.of any breach.

ii.ii. Only enforced by courts if damages Only enforced by courts if damages agreed upon represent a genuine pre-agreed upon represent a genuine pre-estimate of loss.estimate of loss.

ii.ii. PenaltiesPenalties

i.i. If courts adjudge damages do If courts adjudge damages do NOTNOT represent a genuine pre-estimate but represent a genuine pre-estimate but instead a penalty against the party in instead a penalty against the party in breach, courts will ignore agreed breach, courts will ignore agreed provision and award damages provision and award damages normally.normally.

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3.3. Quantum MeruitQuantum Meruit

i.i. A party may occasionally claim for A party may occasionally claim for payment on a quantum meruit basis, i.e. payment on a quantum meruit basis, i.e. for work done, paying the amount that is for work done, paying the amount that is deserved.deserved.

ii.ii. Can only be claimed in the following Can only be claimed in the following circumstances:circumstances:i.i. If the other prevented completion of If the other prevented completion of

the contract.the contract.ii.ii. If work has been done and accepted If work has been done and accepted

under a void or partially performed under a void or partially performed contract.contract.

iii.iii. If the contract did not expressly If the contract did not expressly provide what the remuneration should provide what the remuneration should be.be.

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4.4. Specific PerformanceSpecific Performancei.i. Party in breach instructed to complete Party in breach instructed to complete

their part of the contract, providing their part of the contract, providing following rules adhered to:following rules adhered to:

i.i. Only granted where damages Only granted where damages inadequate.inadequate.

ii.ii. Will not be granted if courts cannot Will not be granted if courts cannot supervise enforcement.supervise enforcement.

iii.iii. Specific performance an equitable Specific performance an equitable discretionary remedy, so will not be discretionary remedy, so will not be granted for instance where plaintiff granted for instance where plaintiff acted improperly. acted improperly.

5.5. InjunctionInjunctioni.i. Court order directing a party not to Court order directing a party not to

break its contractual obligations.break its contractual obligations.

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6.6. Time Limits on RemediesTime Limits on Remedies

i.i. Limitation Act 1980.Limitation Act 1980.

ii.ii. A simple contract (i.e. not made by A simple contract (i.e. not made by deed) cannot be sued upon after six deed) cannot be sued upon after six years have expired from date of breach. years have expired from date of breach. ((S.5S.5))

iii.iii.Three years if claim for personal injury. Three years if claim for personal injury.

iv.iv.These limits do not apply to the These limits do not apply to the equitable remedies of injunction and equitable remedies of injunction and specific performance. These remedies specific performance. These remedies lost more quickly through concept of lost more quickly through concept of “unreasonable delay.”“unreasonable delay.”