I OVERVIEW

Australia has well-developed structures to deal with disputes between commercial parties where they have identified that the advantages of a particular commercial relationship no longer outweigh strict reliance on and enforcement of legal rights.

Litigation is the main method for managing and resolving complex commercial disputes in Australia due to the streamlined procedures in most superior courts and the rigorous enforcement of 'just quick and efficient' principles in procedure. Many state superior courts have special divisions designed to manage commercial disputes with streamlined interlocutory procedures. Increasingly, courts also utilise representative (class) actions with docket judges to manage multi-claimant cases. Class actions are on the increase in Australia.

In some commercial disputes, the parties will agree (or be directed by the court) to refer some aspects of the dispute for expert determination. Arbitration is also widely used in commercial disputes. Of course, most court procedures actively promote alternative dispute resolution (for example mediation, in which a neutral third party (the mediator) assists the parties to agree on a solution to their dispute).

II CONTRACT FORMATION

Australian contract law consists of a combination of common law principles and statute. The common law principles of contract are largely based on inherited principles of English contract law, with a number of jurisprudential divergences and statutory modifications.

In Australia, the existence of a binding contract requires that the following elements be satisfied:

  1. existence of an offer;
  2. acceptance of the offer;
  3. consideration;
  4. intention to create legal relations; and
  5. certain contractual formalities (e.g., statutory requirements that certain agreements be made in writing).

i Offer and acceptance

In order to enter into a binding contract, the parties must reach agreement. Agreement is achieved where one party has made an offer (the offeror) that has been accepted by the other party (the offeree).

An offer may be made in writing, orally, or implied through conduct, and can be directed to a specific person or persons, a class of persons or indeed to the world at large. The offer must be sufficiently clear and also communicated, that is, brought to the notice of the offeree. In addition, the offer must be distinguished from a mere 'invitation to treat' or statement of price. It is important that the offeror intends for the offer to become binding upon acceptance. An offer will terminate in the event of revocation, lapse of time, failure of a contingency, where a counter-offer is made,2 or in the event of death of either the offeror or offeree.

Acceptance by an offeree can be express or implied through conduct. However, acceptance is only effective where it is unequivocal, made by the offeree and communicated to the offeror,3 made with knowledge of the offer, and where the offeree holds a clear intention to accept the offer.

ii Consideration

Consideration is a requirement for all promises made by way of contract unless the parties have entered a formal contract under seal (such as by way of a deed).

Consideration must be sufficient but need not be adequate, that is, it need not form a proportionate or fair exchange. Valuable consideration may consist of some benefit, profit, interest, or right accruing to one party, or some act of forbearance, responsibility, detriment or loss given, suffered or undertaken by the other.

Although consideration must move from the person receiving the promise (the promisee), it need not necessarily move to the person making the promise (the promisor).

As a general rule, consideration can be executed or executory, but must not be past consideration. This means that a promise that has already been performed is not able to constitute consideration for a new promise. However, in the context of bills of exchange, this general rule has been supplanted by legislation and valuable consideration for a bill may be constituted by an antecedent debt or liability.4

iii Intention to create legal relations

Australian law requires that the parties exhibit an intention to create legal relations as an essential element to a valid contract. In the context of commercial agreements, the parties will be presumed to have intended to create legal relations, as distinct from agreements in family, social or domestic contexts where there is a presumption against intention. Intention will be determined objectively, having regard to the content of the agreement, the language and conduct of the parties, the relationship between the parties and the context of the agreement as a whole.5

iv Certainty and completeness of terms

In order for a contract to be enforceable, the essential components to a contract such as identification of the parties, subject matter and price must generally be agreed upon and be sufficiently certain. The contract must also be substantially complete. However, the Courts give primacy to the need to uphold agreements, and as such, can be inclined to imply any reasonable term so as to preserve the validity of the contract and give effect to parties' intentions.6 Courts will readily do so for commercial agreements. seeking to give commercial efficacy to their terms.

v Conditional contracts

Where an agreement contains a condition precedent, the meaning and effect of the provision will be a question of construction having regard to the intention of the parties. Conditions precedent, particularly time stipulations in commercial contracts, are presumed to have been given essentiality by the parties.7

Agreements made 'subject to contract' have received considerable judicial consideration in Australia. The existence of a binding contract which is afoot, and whether, by corollary, the parties are immediately bound to some or all of its terms, is subject to the courts' characterisation of the factual circumstances. Courts have devised four categories for agreements that may be deferred.

vi Contracts required to be in writing

As a general rule, contracts in Australia may be made oral, written, or a blend of both oral and written terms. Contracts may also be implied through conduct. However, in Australia certain promises must be made or evidenced by writing (for example, a contract for the sale of land, or any interest in or concerning it, must be in writing).

vii Forms of pre-contractual liability

Where the legal requirements for formation of a contract are not satisfied, there are still a number of bases of pre-contractual liability that may be enforced. Pre-contractual liability can be based in contract (e.g., under an implied preliminary contract), tort (e.g., negligence or fraud), equity (e.g., promissory estoppel), restitution or under statute (e.g., misleading or deceptive conduct).

III CONTRACT INTERPRETATION

i Interpretation of commercial contracts

In Australia, a court will construe the terms of a contract objectively by determining what a reasonable business person would have understood the words to mean, having regard to the language used by the parties and their context, including the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.8 The Courts undertake the task of contractual interpretation pragmatically, on the basis that the parties intended to produce a commercial result, and so will construe a contract's terms so as to avoid a commercially nonsensical or inconvenient interpretation.9

The commercial purpose of a contract may be appreciated by an understanding of the origin and background of the transaction and the context and market in which the parties are operating.10 The context of a contract is comprised of the entire text of the contract as well as any contract, document, or statutory provision referred to in the contract.11 These factors are not considered to be 'extrinsic' to the contract, and may therefore be taken into account without offending common law or statutory rules of evidence discussed below.

ii Admissibility of extrinsic evidence in contractual interpretation

Where a contract has been reduced to writing 'extrinsic' evidence, such as evidence of the parties' prior negotiations, it is generally inadmissible for the purpose of contradicting the plain meaning of a provision if the provision is unambiguous and susceptible of only one meaning.12 In such circumstances, Australian courts will determine the meaning of what the parties have recorded in the written agreement, not what the parties contend they intended to say.13 Apart from affording contracting parties consistency in interpretation, and therefore a greater measure of commercial certainty, there is also a pragmatic underpinning of this rule of evidence described neatly as follows:

Difficulties and expense may arise not only from disputed oral communications, but also from the parties inviting the court to parse and construe the (often significant) volume of pre-contractual emails and the like which themselves may be redolent with equivocation (deliberate or otherwise) and ambiguity.14

Despite this general prohibition, there are exceptions to the rule prohibiting extrinsic evidence of surrounding circumstances to be used for the task of contractual interpretation. Extrinsic evidence may be admissible when used for limited purposes, such as assisting the court to identify the commercial purpose or objects of the contract,15 particularly where that task of contractual interpretation is facilitated by an understanding of the origin and background to the contract, its context, and the market in which the parties operate.16 Extrinsic evidence may also be admissible to assist in the interpretation of a contract where the language is ambiguous,17 or in determining the proper construction of a contractual term where there exists a 'constructional choice' (that is, a choice between two interpretations which are reasonably open on a review of the plain wording of the contract).18

IV DISPUTE RESOLUTION

i Jurisdiction

Australia's court system is comprised of both federal and state jurisdictions. Each state and territory has established its own Supreme Court, which is a superior court of record reposed with general and unlimited jurisdiction within their own state or territory. Each state has also created various intermediate and lower courts with jurisdiction over specified subject matter or general jurisdiction in civil claims up to a jurisdictional limit.

In terms of federal jurisdiction, federal courts and the supreme courts of the states and territories have been vested with a broad range of federal jurisdiction to determine matters arising under federal legislation. The High Court of Australia is the final appellate court in Australia for both federal and state matters. The High Court is also vested with original federal jurisdiction in relation to certain matters, such as those arising under treaty, matters in which the Commonwealth of Australia is a party, or matters as between states, and generally hears matters which involve questions relating to the Australian constitution or its interpretation.

Aside from certain tribunals (such as the Administrative Appeals Tribunal and Industrial Relations Tribunals), no Australian jurisdiction has established specialist courts per se to hear only complex commercial disputes. However, most superior Australian courts have established dedicated 'lists' to manage complex or specialised cases. One example is the Technology and Construction List in the Supreme Court of New South Wales, which is responsible for managing large and complex construction disputes involving claims over A$750,000 in that jurisdiction.

Ordinarily, Australian courts will give effect to an express choice of law and jurisdiction used by parties to a contract19 even where the contract has no factual connection with the chosen legal system.20 A clause which submits the parties to a particular jurisdiction may be either:

  1. exclusive, which creates a contractual obligation on a party to sue or be sued in the stipulated jurisdiction with the bringing of proceedings in a court other than the chosen tribunal constituting a breach of contract;
  2. non-exclusive, which specifies a place for litigation in the contract but allows the parties to proceed elsewhere, if they wish;21 or
  3. asymmetrical, which obliges one party to submit to a particular exclusive jurisdiction but allows a different party to have the option of bringing proceedings in a different court.22

Where a party is found to have commenced proceedings in contravention of a choice of jurisdiction clause, the remedies available can include anti-suit injunctive relief or a stay of proceedings. In the absence of an express choice by the parties, Australian courts generally view the proper law of the contract as being 'the law with which the contract has the closest and most real connection'.23

ii Alternative dispute resolution

Alternative dispute resolution or 'ADR' is frequently used by commercial parties in Australia. The main types of alternative dispute resolution methods employed are arbitration, mediation, conciliation, and expert determination. Parties may also agree upon mandatory dispute resolution processes, which can comprise of any number and combination of these forms of dispute resolution.

Arbitration

Arbitration is a consensual process where parties agree to refer all, or particular, disputes for determination by one or more independent arbitrators. Such a referral must arise by way of an arbitration agreement with respect to a recognised legal relationship between the parties, such as a contractual relationship. The tribunal is then called to make a determination of the dispute in the form of an arbitral award, which is usually legally binding on the parties and enforceable.

Australia is considered to be a pro-arbitration jurisdiction, in the sense that it has established mechanisms which support the conduct of arbitration proceedings and the enforcement of arbitral awards (Australia has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards). As with other like jurisdictions, arbitration in Australia is typically viewed as a flexible process in which the parties are free to agree upon the rules of evidence and procedure that will apply to the resolution of their dispute. At the federal level, the International Arbitration Act 1974 (Cth) (IAA) provides the legal framework for international commercial arbitrations with a connection to Australia. Domestic commercial arbitrations in Australia are governed by separate legislation within each State based upon a uniform framework for domestic arbitrations (the Commercial Arbitration Acts, referred to below collectively as the CAAs).24

The High Court25 recently confirmed Australia's pro-arbitration approach to the construction of arbitration agreements, which is in line with the approach adopted in most sophisticated legal jurisdictions. The Court confirmed, in effect, that the scope of an arbitration agreement will be construed liberally (as opposed to narrowly) and by reference to the surrounding circumstances of the agreement.26 This has the effect that agreements to arbitrate will be given a broad meaning, unless clear words are included to narrow the scope of disputes captured by the agreement. Parties may therefore expect Australian courts to generally look unfavorably upon litigation commenced in the face of a valid and enforceable arbitration agreement (although the assessment is one of case-by-case). It should be noted, however, that the High Court's decision did not go as far as to endorse the 'presumptive liberal approach' to the interpretation of arbitration agreements that is applicable in other jurisdictions, such as Singapore and the United Kingdom.27

The IAA and the CAAs each adopt a version of the United Nations Commission on International Trade Law (UNCITRAL) 'Model Law', meaning that Australia's arbitration framework is generally consistent with the framework applicable in other Model Law States. The statutes provide Australian courts with a wide range of powers to oversee and support the conduct of arbitration proceedings, such as:

  1. staying court proceedings when there is a valid arbitration agreement governing the parties' dispute;
  2. providing parties with interim measures of protection;
  3. assisting with the appointment of a tribunal;
  4. determining the jurisdiction of a tribunal;
  5. recognition and enforcement of awards and interim measures issued by an arbitral tribunal subject to a number of grounds for resistance; and
  6. assisting in taking evidence.

There are, however, certain areas where Australian courts have restricted the latitude for parties to gather evidence in Australia to support arbitral proceedings seated in foreign jurisdictions. It remains to be seen whether this approach will also be adopted by the state courts in Australia, where there are examples of equivalent applications for subpoenas (albeit earlier in time) having been granted.

In contrast, where arbitral proceedings are 'seated' in Australia, an Australian court may issue subpoenas under the IAA where the application is made with the permission of the arbitral tribunal and the issue of the subpoena is reasonable in the circumstances.28

Mediation

Mediation is a structured negotiation process in which an independent mediator assists the parties to identify and assess options and to negotiate a resolution of their dispute. Unlike litigation or arbitration, a decision determining the dispute in a final and binding manner cannot be forced on a party. Any settlement must be agreed upon and accepted by the parties, and any negotiations held at mediation are generally conducted on a confidential and without prejudice basis.

Most courts in Australia have introduced mandatory rules or procedures for case management which require parties in complex commercial cases to submit their dispute to mediation at an early stage in any legal proceedings, either through court-driven process or private mediation. These rules are designed to encourage the early resolution of disputes before parties become entrenched in litigation.

Australia is also a signatory to the recent United Nations Convention on International Settlement Agreements Resulting from Mediation, convened in August 2019. Although Australia has not, at the timing of writing, taken steps to implement the convention, once ratified it is expected to have the effect of simplifying the direct enforcement of cross-border settlement agreements resulting from mediation between parties whose principal places of business are located in Australia and other signatory states.

Conciliation

Conciliation is employed in Australia, although less commonly than mediation. It is a process in which parties seek to resolve their dispute with the assistance of an independent conciliator. The primary difference between conciliation and mediation is that a conciliator is usually expected to take a more active role throughout the process, providing the parties with their views on particular issues in an effort to resolve the dispute. The conciliator may offer views to the parties with respect to the content of the dispute or the outcome of its resolution. The conciliator may also make suggestions for terms of settlement, give expert views on likely settlement terms, and may actively encourage the participants to reach an agreement.

Expert determination

Australian courts are generally supportive of parties adopting contractual dispute resolution mechanisms which provide for the independent determination of all, or part, of a dispute by way of an independent expert (who are often either legally or technically qualified, or both). Such provisions may provide for expert determination to be:

  1. binding on the parties;
  2. non-binding, meaning that the determination will generally serve only as a tool to assist parties in facilitating a negotiated outcome;
  3. binding or non-binding up to certain monetary limits; or
  4. binding or non-binding in relation to specific technical questions or issues (for example, a construction contract may provide for the referral of technical questions for binding determination, but leaving open questions of contractual entitlement and quantum); or both.

The scope and role of any expert determination process in Australia is governed by the parties' contractual agreement. Experts are also generally considered to owe a duty to act consistently with the parties' agreement, including with respect to the provision of reasons for the determination.29

Parties entering into complex or long term contractual relationships may adopt mechanisms which enable disputes to be resolved, or referred to, a standing board of experts. These boards are generally known as a Dispute Avoidance Board (DAB) (other common names are Dispute Resolution Board, Dispute Review Board, or Dispute Adjudication Board) and will usually remain established throughout the life of a contract. The scope of a DAB's powers to resolve a dispute are also governed by the parties' contractual agreement. In a typical example, usually either party will be provided with a right to refer a dispute to the DAB, who is empowered to hold a hearing, question witnesses, and provide a determination. Like the simpler forms of expert determination, the contract may provide for the DAB's determination to be binding, binding unless disputed, or have the status of a recommendation to the parties with no contractual effect.

Dispute resolution clauses

In Australia, parties may agree upon contractual provisions which require that they participate in specific procedures in the event of a dispute, such as negotiations, senior representative meetings, or other forms of alternative dispute resolution, before commencing formal dispute resolution proceedings. This extends to multi-tiered dispute resolution clauses, which may, for example, require parties to:

  1. first, have their senior, or authorised, representatives negotiate in good faith with a view to resolving the dispute or difference;
  2. second, if the negotiation is unsuccessful, refer the matter to a mediator for mediation; and
  3. third, if the mediation is unsuccessful, refer the matter to the courts or to arbitration.

Both multi-tiered and single-tiered dispute resolution clauses will be strictly enforced where they provide for a mechanism which is sufficiently certain and identifiable, and is cast in mandatory language.30

V BREACH OF CONTRACT CLAIMS

In Australia, a cause of action for breach of contract arises where one party fails to perform its obligations under a contract. This may occur by way of a failure to perform or an anticipatory breach (in essence, a failure to perform or a contractual obligation that is foreshadowed by a party's actions or inaction). The burden of proof lies with the party alleging the breach of contract,31 whether this is by way of failure to perform or anticipatory breach.32

i Failure to perform

A failure to perform arises when the promising party fails to perform its obligations under the contract. This may occur by way of non-performance,33 defective performance,34 late performance (where time is of the essence),35 or breach of any contractual warranties.

Where a breach of contract occurs, the non-breaching party will generally accrue a right to claim damages, but will not always be entitled to an automatic right of termination.36 The question of whether a breach gives rise to a right to terminate the contract will depend upon the agreement between the parties and any relevant legislation. But generally, a right to terminate does not arise unless the breach strikes at the 'root of the contract' (such as a breach of a condition as opposed to a mere warranty) or amounts to a sufficiently serious breach of a non-essential term which indicates a refusal by the party to be bound by the contract.37 Importantly, where a breach has occurred, the non-breaching party may elect to affirm the contract and continue with its performance, but in doing so will relinquish their right to terminate the contract in reliance upon the breach.38

ii Anticipatory breach or repudiation

An anticipatory breach occurs where the promising party repudiates their obligations under the contract, for example by indicating that they are unable or unwilling to perform the terms of the contract,39 and the other party consequently terminates the contract prior to performance.

The time of occurrence of the anticipatory breach is the time that the non-breaching party terminates the contract.40 Unlike a failure to perform, if a party repudiates their obligations of a contract, the non-breaching party has an automatic right to termination.41 If the non-breaching party does not terminate the contract there will be no anticipatory breach and breach will instead occur at the time of failure to perform.42

The test for repudiation in Australia involves a high threshold. The courts have made clear that it is 'is not to be lightly found'43 and will determine whether repudiation has occurred objectively by inquiring into '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.'44

VI DEFENCES TO ENFORCEMENT

There are myriad of arguments that parties to a contract may raise in defending a claim for breach of contract. These range from straightforward arguments (such as pleading a statute of limitation which precludes the plaintiff from bringing a claim), to the complex and fact-sensitive (such as pleading that a contract has already been repudiated by the party bringing a claim). This section of the chapter describes a number of the most common defences to enforcement raised in Australia.

i Statutes of limitation

In Australia there are strict time limits within which a party must commence proceedings to bring a claim for breach of contract, and most other causes of action. A party is precluded from commencing proceedings if it files after the time limit expressed by statute. In Australian contract law the general rule is that a cause of action arises immediately upon the breach of contract occurring, even if the breach is unknown to the prospective plaintiff until later.45 Pleading that a claim is time-barred by a statute of limitations is perhaps the simplest means by which a party can, granted the conditions are met, resist a breach of contract claim.

Each Australian state and territory has its own regime, which differ in certain respects and a party must be careful to ensure there action is not barred. For breach of contract in NSW, Victoria, Western Australia, South Australia and Queensland a party must commence proceedings within six years of the breach occurring,46 For breach of a deed they must commence proceedings within 12 years of the breach occurring.47

ii Force majeure and frustration

Australian contract law is very familiar with the doctrines of force majeure and frustration. Commonly issues around whether a force majeure event has arisen

Force majeure is generally dealt with in Australian contracts by way of a specific contractual term addressing the consequences of an extreme or unexpected event that renders the performance of a contract different from what was agreed by the parties, or altogether impossible. Depending upon the particular terms of the contract, a force majeure event will commonly entitle the affected parties to additional cost or an extension of time for performance, provide a right which excuses non-performance of a contractual obligation, or even serve to discharge the contract as a whole.

The doctrine of frustration is governed by the common law in Australia. It will be applicable when, without default of either counterparty, a contractual obligation becomes incapable of being performed because the circumstances called for in the performance of the contract have become radically different from that which was contemplated by the parties when entering into the agreement.48 Frustration operates in the absence of an express reference to the concept in the contract. This means that parties to an agreement in Australia which does not make provision for force majeure may still avail themselves of relief via the (similar) doctrine in frustration.

iii Duress, undue influence and unconscionable conduct

Where a contract was entered into by a party under duress or induced by undue influence or unconscionable conduct, Australian law provides that the contract may be voidable by the counterparty subject to the impugned conduct. In the event that the innocent party is later subject to a breach of contract claim in respect of the contract, that party is entitled to seek to have the contract 'rescinded' on equitable principles, and possibly also counterclaim for damages. 'Rescission', an equitable remedy that is also known to other common law jurisdictions, means the contract is treated as if it never existed.

iv Mistake

Where both parties to a contract have entered into it on the basis of a shared misapprehension of the facts or of their rights under it (a 'common mistake'), Australian law holds that contract void or voidable.49 Common mistake between all parties to a contract rarely occurs in practice, and thus, more typically is the situation where a mistake infects only one party's entry into a contract. In the circumstances of a 'unilateral' mistake, Australian Courts will treat the contract as effective and enforceable unless that party's entry into the contract was induced by misrepresentation or affected by unconscionable conduct by the counterparty. These concepts are discussed in Section VII below.

VII FRAUD, MISREPRESENTATION AND OTHER CLAIMS

i Fraud, misrepresentation, and misleading or deceptive conduct

In Australia, the ACL has largely simplified the elements that have to be proved in actions for misrepresentation. While other similar legislation in other common law systems is directed towards 'consumer' protection, the ACL operates broadly and is usually invoked by one party against another in a large commercial dispute. Section 18 of the ACL provides a general prohibition on engaging in conduct, in trade or commerce, that is misleading or deceptive or is likely to mislead or deceive. In general, the elements to be provide include the existence of a representation that is misleading or deceptive (or likely to mislead or deceive), reliance on the representation and damage.

In addition to the ACL, parties to a contract may pursue a common law claim for negligent misrepresentation. This alternative cause of action requires a greater number of elements to be satisfied to prove negligence. In general, the common law action will only be argued in circumstances where Section 18 of the ACL does not apply (i.e, in a non-commercial context).

The tort of deceit is also applicable in Australia and provides a common law action for fraud (often referred to as fraudulent misrepresentation). Fraudulent misrepresentation requires proof of two additional elements: namely, knowledge that a false representation has been made either without belief in its truth or reckless carelessness as to whether it is true; and an intention that the representation should be acted upon.50 Rescission for fraud may also be available in equity. Establishing fraud in equity does not require an actual intention to cheat to be proved.51

ii Unconscionable conduct

Section 21 of the ACL imposes a general duty to trade fairly by establishing a broad contractual norm prohibiting unconscionable conduct in commercial dealings.

In the recent decision of ACCC v. Get Qualified Australia Pty Ltd, Beach J provided a helpful summary of the approach which the Courts will generally adopt in applying Section 21.52 The Court held that the term 'unconscionable' in the context of the ACL refers to conduct that is not done in good conscience, or is against good conscience, by reference to the norms of society. The determination of whether conduct is unconscionable must also result from an assessment of the conduct within its context as a whole, and generally speaking, a high degree of 'moral obloquy' must be established.53 Section 22 of the ACL provides a non-exhaustive list for the Court to have regard to in order to assist in its assessing whether particular conduct is, at law, unconscionable.

iv Good faith

While this area of the law is evolving, there is presently no general implied contractual obligation of good faith which applies to the negotiation or performance of contracts in Australia. A number of intermediary appellate courts in Australia have sought to define the concept of good faith as being 'an implication or feature of Australian contract law attending the performance of the bargain and its construction and implied content'54, but the question of its broader application is yet to be determined by the High Court.55 Australian law will therefore only recognise such an obligation where express terms are included to that effect, or where the factual matrix of a particular contract is such that a term of good faith should be implied. However, it should be noted that concepts of unconscionable conduct (discussed above) do come close to the application of an overarching principle of good faith, while not being based on the same principles per se.

Where a contract is found to include an obligation of good faith, the term will generally be interpreted as requiring that that the relevant parties:

  1. cooperate in achieving the objects of the contract (loyalty to the promise itself);
  2. comply with recognised standards of honesty; and
  3. comply with standards of conduct that area reasonable having regard to the respective interests of the parties to the contract.56

iii Promissory estoppel

The doctrine of promissory estoppel is applicable in Australia.57 This equitable remedy may arise in circumstances involving any non-contractual promise with respect to a future contractual relationship, or some future relationship or course of conduct between the parties. If an estoppel is made out, a promise of this nature will become binding in equity, or serve to restrain the promisor from enforcing its strict legal rights where the enforcement of those rights would be contrary to the promise in question.

Promissory estoppel typically (but not always) arises in the context of a nascent contract between two or more parties, which has not yet been formalised. The essential elements are:

  1. a promise or representation by one party;
  2. reliance on that promise or representation by the other party to its detriment; and
  3. in all of the circumstances, it would be inequitable or unconscionable for the first party to be permitted to resile from its promise.58

There is some uncertainty in terms of whether promissory estoppel can itself be enforced independently as a source of rights, or cause of action. Until recently, the prevailing view was that promises made with respect to future conduct or a future relationship would give rise to an equitable cause of action in its own right. However, the recent decisions of Saleh v. Romanous and DHJPM v. Blackthorn Resources have cast some doubt on this position, at least in New South Wales.59

v Interference with contractual relations

The tort of interference with contractual relations is good law in Australia. It may arise either where a party induces a breach of a contract to which it is not a party, or otherwise intentionally interferes with the performance of contractual obligations, without justification, resulting in damage.60 In LED Technologies Pty Ltd v. Road Vision Pty Ltd,61 the Full Federal Court held that a person will be considered to have 'knowledge' of a breach where they are 'recklessly indifferent' as to whether a breach of contract would result from their conduct.

VIII REMEDIES

Monetary damages is the most common form of remedy for breach of contract in Australia.62 However, where the subject matter of the contract is particularly unique or there is some other distinctive characteristic of the contract which money cannot make good, the court may, at its discretion, order equitable remedies in the form of specific performance or injunctive relief.

The objective of remedies awarded for breach of contract in Australia is to compensate the non-breaching party, not to punish the breaching party.63 Orders for accounts of profits or restitutionary damages, which can be viewed as more punitive in nature, are not generally available for breach of contract.64

i Available remedies

Damages

Australian law applies orthodox principles of common law with respect to the assessment of damages for breach of contract seek. The fundamental principle is that the non-breaching party should be placed in the same position as if the contract had been performed, to the extent possible, through an order for monetary compensation,.65 If a plaintiff is able to establish that there has been a breach of contract but fails to establish loss or damage, the entitlement will be to nominal damages only.66

Liquidated damages

Where the contract specifies the payment of a fixed amount, such as a debt due, the court may award an amount of damages for the payment of that sum as a 'liquidated' amount. For example, a contractual provision may provide for the payment of a set rate or amount of liquidated damages upon the failure by the other party to perform. Unlike general damages, which are compensatory and require an assessment of the loss caused by the breach of contract, a claim for liquidated damages does not require the non-breaching party to demonstrate that the breaching party's conduct has resulted in any particular loss or damage.67

However, it should be noted that the doctrine of penalties applies in Australia. As such, terms which provide for liquidated damages are susceptible to being struck down (voided) by the court if the amount payable is 'out of all proportion' with the legitimate commercial interests of the party seeking to enforce the payment of liquidated damages.68 It should be noted that following the decision in Paciocco, this argument has been weakened.

Specific performance

If damages would provide an inadequate remedy for breach of contract,69 the court may order the breaching party to perform particular duties or obligations under the contract.70

Injunctions

Injunctive relief is not commonly awarded in contractual cases. However, in certain circumstances the Australian courts will exercise equitable jurisdiction to grant an injunction to enforce, or prevent the enforcement of, contractual obligation. For example, cases involving restraints of trade or attempts at recourse to security interests generally lend themselves to injunctive relief.

Injunctions may be granted on an interim (interlocutory) basis, or by way of final relief. In considering whether to grant an injunction, the courts will look at whether, in all the circumstances, it would be just for a non-breaching party to be 'confined to his remedy in damages'71 or whether damages are seen to be an 'inadequate' remedy having regard to the nature of the loss, or likely loss, suffered by the plaintiff.72

ii Limitations on availability of remedies

There are a number of limitations that apply in Australia in relation to claims for damages for breach of contract. These limitations mainly arise from questions of causation and remoteness. Depending upon the nature of any defenses raised, the court may also inquire into whether a plaintiff has acted reasonably in mitigating its loss. There are also important limitations that need to be considered in relation to extra-contractual causes of action.

Causation

To establish an entitlement to damages a plaintiff must prove a sufficient connection between the loss or damage said to have been suffered and the defendant's breach of contract.73 This can generally be made out by establishing that the loss or damage would not have been suffered 'but for' the breach of contract.74 If the loss or damage was the result of multiple causes, it is sufficient if the defendant's breach of contract was one of those causes.75 If one of those causes contributed more significantly to the loss or damage, it is generally enough to establish that the defendant's breach was the 'dominant', 'decisive' or 'substantial' cause.76

Remoteness

No party will be liable for general damages for breach of contract, or in tort, where the loss claimed is found to be too remote (that is, it is found to be lacking a sufficient connection to the breach). In assessing whether the loss or damage is 'too remote', the Court will typically award damages under two categories of loss in accordance with the principles set out in Hadley v. Baxendale:77

  1. the first category is losses which arise in the usual course of things from the nature of the breach in question. Australian authorities generally accept that a loss or damage arise in the usual course of things if it is 'not unlikely' to have resulted from the breach;78 and
  2. the second category is losses which do not fall within the first category, but may be supposed to have been in the contemplation of the parties as a probable result of the breach. Such an assessment is undertaken with reference at the time at which the parties entered into the contract.

Mitigation

The principle of mitigation is applicable to both contractual and tortious claims in Australia. The law imposes a positive duty on any party that has suffered loss as a result of a breach of contract or negligence to mitigate its loss, failing which, any award of damages will be reduced to the extent that the party has failed to mitigate. Importantly, however, a defendant bears the onus of proving a failure to mitigate.

The courts look unfavourably on pleas which seek to raise purely hypothetical scenarios in which a defendant says that a plaintiff could have reduced its loss. Instead, the courts will look to whether a plaintiff has acted reasonably in the circumstances.79 This is generally not considered to be a high threshold, as the duty to mitigate does not require that a commercial party 'do anything other than what would be in the ordinary course of business'.80

Proportionate liability

At both the federal and state levels, legislation has been introduced in Australia which provides for the apportionment of loss between 'concurrent wrongdoers' with respect to particular causes of action.81 These statutes establish a system of 'proportionate liability' – which replaces the common law system of joint and several liability for certain types of fault based losses. Overall, the various regimes of proportionate liability apply to claims 'arising from a failure to take reasonable care', such as claims involving:

  1. a breach of a duty of care in tort;
  2. a breach of an express or implied contractual obligation to take reasonable care;
  3. a breach of a statutory duty to take reasonable care;
  4. a breach of corporate law obligations which require that directors and office holders act with reasonable care and diligence in discharging their duties in the management of the company; and
  5. a breach of any implied warranty to render services with due skill and care;
  6. claims alleging loss occasioned by misleading or deceptive conduct; and
  7. claims concerning involvement in misleading or deceptive conduct by another party.

The system of proportionate liability broadly operates to apportion a plaintiff's loss between the parties (i.e., to a proceeding) and also other non-parties (known as 'concurrent wrongdoers') that are each liable for the same loss. For example, liability may be apportioned between a solicitor who negligently drafts a mortgage and a fraudster who induces a lender to advance funds on security of the same mortgage.82 Where a party is found to be a concurrent wrongdoer, the Court will determine and apportion the proportion of the damage or loss claimed by the plaintiff which that party should bear, having regard to the extent of the defendant's responsibility for that damage or loss.83

Contributory negligence

In Australia, the doctrine of contributory negligence does not provide a defendant with a complete defence to a plaintiff's claim in contract or in an action for negligence, unless the chain of causation can been shown to have been completely broken. Instead, if a plaintiff is found to have contributed to the loss or damage resulting from the breach of contract or negligence in question, the court may reduce damages to the extent it considers 'just and equitable'.84 This generally involves:

a comparison both of culpability, i.e. of the degree of departure from the standard of care of the reasonable man and of the relative importance of the acts of the parties in causing the damage . . . It is the whole conduct of each [breaching] party in relation to the circumstances of the [breach] which must be subjected to comparative examination.85

IX CONCLUSIONS

Australian contract law is based on a long line of British legal precedents but is highly developed and has been modernised to meet the demands of present-day interactions. Increasingly, in response to the more global nature of commerce, the Australian system provides a pragmatic and flexible approach to the creation, interpretation and enforcement of contracts. The focus on alternate disputes also has resulted in a flexible and wide ranging set of options.


Footnotes

1 Prudence J Smith, Kenneth P Hickman and Annie E Leeks are partners and Douglas Johnson is an associate at Jones Day.

2 A mere request for further information is not considered a counter-offer: Stevenson Jaques & Co v. McLean [1880] 5 QBD 346.

3 Principles of agency are also able operate in these circumstances: Wilson v. Winton [1969] Qd R 536.

4 Bills of Exchange Act 1909 (Cth), Section 32(1); Cheques Act 1986 (Cth), Section 35(1).

5 Ermogenous v. Greek Orthodox Community of SA Inc (2002) 209 CLR 95, at 99.

6 Meehan v. Jones (1982) 149 CLR 571, at 589.

7 For example, timely notice in construction contracts are strictly enforced in Australia when drafted in mandatory terms (absent extraordinary circumstances): CMA Assets Pty Ltd (formerly known as CMA Contracting Pty Ltd) v. John Holland Pty Ltd [2015] WASC 217, [375].

8 Electricity Generation Corporation v. Woodside Energy Ltd (2014) 251 CLR 640 ('Electricity Generation v. Woodside'), [35]; Mount Bruce Mining Pty Ltd v. Wright Prospecting Pty Ltd (2015) 256 CLR 104 ('Mount Bruce Mining v. Wright'), [46] - [47]; Simic v. New South Wales Land and Housing Corporation (2016) 260 CLR 85 ('Simic v. NSWLHC'), [78].

9 Electricity Generation v. Woodside, [35]; Mount Bruce Mining v. Wright, [51]; Simic v. NSWLHC, [78].

10 Electricity Generation v. Woodside, [35].

11 Mount Bruce Mining v. Wright, [46]; Technomin Australia Pty Ltd v. Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261 ('Technomin v. Xstrata'), [45] - [47].

12 Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337 ('Codelfa v. SRANSW'), 352; Mount Bruce Mining v. Wright, [48].

13 Byrnes v. Kendle (2011) 243 CLR 253, [17], [53], [98] - [99]; Simic v. NSWLHC, [18].

14 Technomin Australia Pty Ltd v. Xstrata Nickel Australasia Operations Pty Ltd [2014] WASCA 164, [175].

15 Hancock Prospecting Pty Ltd v. Wright Prospecting Pty Ltd (2012) 45 WAR 29, [78]; Technomin v. Xstrata, [135]; Ryledar Pty Ltd v. Euphoric Pty Ltd (2007) 69 NSWLR 603, [108], [109]; see for example Dimmi v. RestaurantDiary.com [2018] NSWSC 846, [121].

16 Electricity Generation v. Woodside, [35]; Mount Bruce Mining v. Wright, [49], [108]; Simic v. NSWLHC, [78].

17 Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337

18 Mount Bruce Mining v. Wright, [49], [113], [118].

19 Akai Pty Ltd v. People's Insurance Co Ltd (1996) 188 CLR 418 ('Akai v. People's Insurance'), 442; Proactive Building Solutions v. Mackenzie Keck [2013] NSWSC 1500, [14].

20 Re Bulong Nickel Pty Ltd (2002) 42 ACSR 52, [39]; BHP Petroleum Pty Ltd v. Oil Basins Ltd [1985] VR 725, 747–8; John Kaldor Fabricmaker Pty Ltd v. Mitchell Cotts Freight (Australia) Pty Ltd (1989) 18 NSWLR 172, 185.

21 Ace Insurance Ltd v. Moose Enterprise Ltd [2009] NSWSC 724, [15]

22 See Reinsurance Australia Corporation Limited v. HIH [2003] FCA 56, [343]-[346]

23 DIF III – Global Co-Investment Fund LP v. Babcock & Brown International Pty Limited [2019] NSWSC 527, [304]; Merck KGaA v. Merck Sharp Dohme Corp [2019] FCA 1084, [69]; Akai v. People's Insurance, 434.

24 See Commercial Arbitration Act 2010 (NSW); Commercial Arbitration (National Uniform Legislation) Act 2011 (NT); Commercial Arbitration Act 2013 (Qld); Commercial Arbitration Act 2011 (SA); Commercial Arbitration Act 2011 (Tas); Commercial Arbitration Act 2011 (Vic); Commercial Arbitration Act 2012 (WA); Commercial Arbitration Act 2017 (ACT).

25 [2019] HCA 13.

26 Rinehart v. Hancock Prospecting Pty Ltd [2019] HCA 13, [16]-[17].

27 See, e.g., Fiona Trust & Holding Corporation and others v. Privalov [2007] 4 All ER 951; [2007] UKHL 40.

28 UDP Holdings Pty Ltd v. Esposito Holdings Pty Ltd [2018] VSC 316, [8].

29 Shoalhaven City Council v. Firedam Civil Engineering Pty Limited [2011] HCA 38.

30 United Group Rail Services Ltd v. Rail Corporation New South Wales [2009] NSWCA 177, [96]; Downer EDI Mining Pty Ltd v. Wambo Coal Pty Ltd [2012] QSC 290, [31].

31 Hobbs v. Petersham Transport Co Pty Ltd (1971) 124 CLR 220, 230.

32 Total International Ltd v. Addax BV (T/A Addax BV Geneva Branch) [1996] 2 Lloyd's Rep 333, 341.

33 See, e.g., Chanter v. Hopkins (1838) 4 M & W 399, 404.

34 See, e.g., Grant v. Australian Knitting Mills Ltd [1936] AC 85; (1935) 54 CLR 49.

35 See Conveyancing Act 1919 (NSW) Section 13; Civil Law (Property) Act 2005 (ACT), Section 501; Law of Property Act 2000 (NT), Section 65; Property Law Act (Qld), Section 62; Law of Property Act 1936 (SA), Section 16; Supreme Court Civil Procedure Act 1932 (Tas), Section 11(7); Property Law Act 1958 (Vic), Section 41; Property Law Act 1969 (WA), Section 21.

36 See, e.g., Photo Production Ltd v. Securicor Transport Ltd [1980] AC 827.

37 Associated Newspapers Ltd v. Bancks (1951) 83 CLR 322, 339.

38 United Australia Ltd v. Barclays Bank Ltd [1941] AC 1, 30; Sargent v. ASL Developments Ltd (1974) 131 CLR 634.

39 Koompahtoo Local Aboriginal Land Council & Anor v. Sanpine Pty Ltd & Anor (2007) 233 CLR 115, 135 [44].

40 Ogle v. Comboyuro Investments Pty Ltd (1976) 136 CLR 444, 450.

41 See, e.g., Ogle v. Comboyuro Investments Pty Ltd (1976) 136 CLR 444, 450.

42 Foran v. Wight (1989) 168 CLR 385.

43 Shevill v. Builders Licensing Board (1982) 149 CLR 620, 633.

44 Koompahtoo Local Aboriginal Land Council & Anor v. Sanpine Pty Ltd & Anor (2007) 233 CLR 115, 135[44].

45 See, e.g., Hawkins v. Clayton (1988) 164 CLR 539.

46 See, Limitation Act 1969 (NSW) Section 14(1)(a); Limitation of Actions Act 1974 (Qld) Section 10(1)(a); Limitation of Actions Act 1958 (Vic) Section 5(1)(a); Limitation Act 1935 (WA) Section 38(1)(c)(v).

47 See, eg, Limitation Act 1969 (NSW) Section 16.

48 See the classic formulation of the doctrine of frustration in Davis Contractors Ltd v. Fareham Urban District Council [1956] AC 696 at 729 (per Lord Radcliffe), which was embraced by members of the High Court of Australia in Codelfa Construction Pty Ltd v. State Rail Authority of New South Wales (1982) 149 CLR 337 (see Mason J (as his Honour then was) at 356, Brennan J (as his Honour then was) at 408, and Aickin J at 376)).

49 See, e.g., Bell v. Lever Bros Ltd [1932] AC 161; Taylor v. Johnson (1983) 151 CLR 422; Lukacs v. Wood (1978) 19 SASR 520; and also see discussion in McRae v. Commonwealth Disposals Commission (1951) 84 CLR 377.

50 Commercial Banking Co of Sydney Ltd v. Brown & Co (1972) 126 CLR 337.

51 Nocton v. Lord Ashburton [1914] AC 932.

52 ACCC v. Get Qualified Australia Pty Ltd (in liq) (No 2) [2017] FCA 709, at [59]–[66].

53 Attorney-General (New South Wales) v. World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261 at [121].

54 Paciocco v. Australia and New Zealand Banking Group Limited [2015] FCAFC 50, at [287].

55 Commonwealth Bank of Australia v. Barker [2014] HCA 32.

56 See, e.g.,: Burger King Cor v. Hungry Jacks Pty Ltd [2001] NSWCA 187, [171].

57 Legione v. Hateley (1983) 152 CLR 406.

58 Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387, at 428–9.

59 Saleh v. Romanous (2010) 79 NSWLR 453; DHJPM v. Blackthorn Resources (2011) 285 ALR 311.

60 Ryan and Briggs (as executrices of estate of late Donoghue) v. Wikramanayake [2013] NSWSC 115.

61 LED Technologies Pty Ltd v. Road Vision Pty Ltd [2012] FCAC 3.

62 sub nomSST Consulting Services Pty Ltd v. Reison (2006) 225 CLR 516.

63 Ruxley Electronics and Constructions Ltd v. Forsyth [1996] AC 344, 353.

64 Such damages are available in England, See, e.g., Attorney General v. Blake [2001] 1 AC 268 (Blake). However, Australian courts have declined to follow that decision, see, e.g., Biscayne Partners Pty Ltd v. Valance Corp Pty Ltd [2003] NSWSC 1016, [59]; Town and Country Property Management Services Pty Ltd v. Kaltoum [2002] NSWSC 166, [85]. The High Court is the only body likely to be able to adopt a course similar to the one taken in Blake, but aside from Deane J's dissent in Hospital Products Ltd v. United States Surgical Corp 156 CLR 41, 124-125 (which suggested that a constructive trust may be available over unjust gains associated with a breach of contract), little support has been expressed for the idea.

65 Robinson v. Harman (1848) 1 Ex 850, 855; Gray v. Sirtex Medical Ltd (2011) 276 ALR 267, 273.

66 See, e.g., Luna Park (NSW) Ltd v. Tramways Advertising Pty Ltd (1938) 61 CLR 286, 301

67 Jervis v. Harris [1996] Ch 195, 202–3.

68 Paciocco v. Australia and New Zealand Banking Group Ltd [2016] HCA 28.

69 See, e.g., McIntosh v. Dalwood (No 4) (1930) 30 SR (NSW) 415, 419.

70 See, e.g., J C Williamson Ltd v. Lukey (1931) 45 CLR 282, 294 and 297; Hewett v. Court (1983) 149 CLR 639, 665.

71 Evans Marshall & Co Ltd v. Bertola SA [1973] 1 All ER 992, 1005; Sanderson Motors (Sales) Pty Ltd v. Yorkstar Motors Pty Ltd [1983] 1 NSWLR 513, 516.

72 Australian Broadcasting Corporation v. O'Neill [2006] 227 CLR 57.

73 Chappel v. Hart (1998) 195 CLR 232, 270–1.

74 Tabet v. Gett (2010) 240 CLR 537, 578.

75 Henville v. Walker (2001) 206 CLR 459, 482.

76 Monarch SS Co Ltd v. A/B Karlshamns Oljefabriker [1949] AC 196, 227; Fitzgerald v. Penn (1954) 91 CLR 268, 277; Challenge Bank Ltd v. V L Cooper & Associates Pty Ltd [1996] 1 VR 220, 231.

77 [1854] EWHC J 70.

78 See also: Wenham v. Ella (1972) 127 CLR 454, 471–2; Commonwealth of Australia v. Amann Aviation Pty Ltd (1991) 174 CLR 64, 98–9; Burns v. MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653, 667; Flamingo Park Pty Ltd v. Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500, 521–2.

79 Sherson & Associates Pty Ltd v. Bailey [2000] NSWCA 275, [77].

80 Sacher Investments Pty Ltd v. Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5, 9.

81 Federally, certain causes of action under the Competition and Consumer Act 2010 (Cth), Australian Securities and Investments Commission Act 2001 (Cth), and Corporations Act 2001 (Cth) are subject to proportionate liability. At the State level, the regime is established in relation to State based causes of action under the Civil Liability Act 2002 (NSW), Wrongs Act 1958 (Vic), Civil Liability Act 2002 (WA), Civil Liability Act 2003 (Qld), Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA), Civil Liability Act 2002 (Tas), Proportionate Liability Act 2005 (NT), and Civil Law (Wrongs) Act 2002 (ACT). Various State level consumer protection statutes also contain provisions for proportionate liability.

82 Hunt & Hunt Lawyers v. Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10.

83 Hunt & Hunt Lawyers v. Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10, [23].

84 See, e.g., Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9(1).

85 Podrebersek v. Australian Iron and Steel [1985] HCA 34.