The Complex Commercial Litigation Law Review: Australia

Overview

Australia is a common law jurisdiction with highly developed courts and arbitral institutions. The country's economy is dominated by large financial services, energy, resources and construction industries, which have given rise to some of the world's most complex mega-disputes.

Litigation remains the primary method for resolving commercial disputes in Australia. Almost all of the country's superior courts have adopted streamlined processes and specialised lists to actively manage complex cases. Increasingly, class actions and representative proceedings have also become a prevalent feature of the litigation landscape in Australia, particularly with respect to continuous disclosure obligations (market announcements by listed companies) and mass tort litigation. Many Australian courts utilise specialist docket judges to manage these multi-claimant proceedings.

Methods of alternative dispute resolution continue to remain a common feature of Australian commercial contracts. For example, contracts on major projects involving offshore parties frequently provide for the resolution of disputes by way of international arbitration. Federal legislation establishes a framework for international arbitration proceedings with a connection to Australia through the modified adoption of the UNCITRAL Model Law.

The emergence of the global covid-19 pandemic has dramatically altered the way that complex commercial cases are heard in Australia, at least temporarily. All major Australian courts have adopted procedures for conducting hearings and taking evidence remotely through the use of 'virtual court rooms'. While these procedures generally existed previously, in one form or another, the pandemic has placed a particular emphasis on remote case management. This had led to the adoption of flexible rules aimed at ensuring the quick resolution of disputes in a way that does not compromise due process. For example, some specialised lists in the Supreme Court of NSW have introduced new processes to triage interlocutory motions through the exchange of short position papers before any hearing is ordered. While these specific measures are temporary, increased flexibility around the use of technology is likely to remain a permanent fixture of the Australian court system going forward.

Contract formation

Australian contract law consists of a combination of common law and statutory principles. While written contracts are the norm for complex commercial arrangements in Australia, there is no general requirement that all contracts be in writing.2 They may also be formed orally or by conduct. A legally enforceable contract in Australia simply requires that the following elements be satisfied:

  1. the existence of an offer;
  2. acceptance of the offer;
  3. consideration; and
  4. intention to create legal relations.

i Offer and acceptance

For a binding contract to exist there must be a meeting of the minds (agreement) between the parties. This requires that one party make an offer that is been accepted by the other party.

An offer may be made in writing, orally, or implied through conduct, provided it is sufficiently clear and brought to the notice of the other party. In addition, an offer must be distinguished from a mere 'invitation to treat' or statement of price.

Acceptance can be express or implied through conduct. However, it is only effective where it is unequivocal, communicated to the offering party,3 made with knowledge, and the accepting party holds a clear intention to accept the offer.

ii Consideration

Consideration is an essential requirement for a binding and enforceable contract except in circumstances where the parties have entered into a formal agreement under seal, such as a deed.

Consideration must be sufficient but it need not be adequate. It does not need to be proven that the degree of consideration given forms a proportionate or fair exchange for the promises made under the contract. Valuable consideration may consist of any 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 party.

iii Intention to create legal relations

Australian law requires that the parties to a contract hold an intention to create legal relations. In the context of commercial agreements, this is typically a non-issue, as the parties will be presumed to have intended to create legal relations. This is not the case for agreements in a family, social, or domestic context where there is a presumption against intention. If the element of intention is in issue, it 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.4

iv Certainty and completeness of terms

The core terms of a contract (such as identification of the parties and the subject matter and price of their agreement) must generally be agreed upon and sufficiently certain for the contract to be enforceable. The contract must also be substantially complete; that is, it must involve an agreement that is capable of performance. However, Australian courts tend to seek to uphold agreements, and as such, can be inclined to imply reasonable terms to preserve the validity of the contract and give effect to intention of the parties.5 Australian courts will readily do so for commercial agreements by seeking to give commercial efficacy to their terms.

v Conditional contracts

Contractual terms may be conditional under Australian law. 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-related stipulations in commercial contracts, are presumed to have been given essentiality by the parties.6

Agreements made 'subject to contract' have received considerable judicial consideration in Australia. The existence of a binding contract and whether the parties are immediately bound to some or all of its terms, is subject to the courts' characterisation of the factual circumstances.

vi Forms of pre-contractual liability

If the legal requirements for the formation of a contract are not strictly satisfied, pre-contractual negotiations and representations may still give rise to enforceable rights or obligations under Australian law. Pre-contractual liability can arise in a number of ways, including:

  1. through an implied contract;
  2. in tort (such as negligence or fraud);
  3. under the law of equity (such as promissory estoppel); and
  4. by restitution or under statute (such as liability for misleading or deceptive conduct during pre-contractual negotiations under Section 18 of the Australian Consumer Law).

Contract interpretation

i Interpretation of commercial contracts

Australian courts adopt a common-sense approach to the interpretation of commercial contracts. The terms of a contract will be construed objectively to determine 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.7 The courts undertake the task of contractual interpretation pragmatically on the basis that the parties intended to produce a commercial result, and will, therefore, construe a contract's terms so as to avoid a commercially nonsensical or inconvenient interpretation.8

To appreciate the commercial purpose of a contract, Australian courts look to understand of the origin and background of the transaction and the context and market in which the parties are operating.9 The context of a contract is derived from its entire text as well as any contract, document, or statutory provision referred to in the contract.10 These factors are not considered to be 'extrinsic' to the contract, and may 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' material such as evidence of the parties' prior negotiations, is generally inadmissible for the purpose of contradicting the plain meaning of a contractual provision.11 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.12 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, as observed by the Court of Appeal of Western Australia:

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.13

However, there are a number of exceptions to this general prohibition against the admissibility of extrinsic evidence. 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,14 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.15 Extrinsic evidence may also be admissible to assist in the interpretation of a contract where the language is ambiguous,16 or in determining the proper construction of a contractual term where there exists a 'constructional choice' (that is, a choice between two interpretations that are reasonably open on the plain wording of the contract).17

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 as a superior court of record reposed with general and unlimited jurisdiction within its state or territory. Each has also created various intermediate and lower courts with jurisdiction over either a specified subject matter or general jurisdiction in civil claims up to a monetary jurisdictional limit.

Federal jurisdiction is primarily exercised by the Federal Court of Australia and the supreme courts of the states and territories. The High Court of Australia is the final appellate court for both federal and state matters. The High Court is also vested with original jurisdiction in relation to certain matters, such as those arising under treaty, cases to which the Commonwealth of Australia is a party and matters as between states, and generally hears matters that involve questions relating to the application and interpretation of the Australian constitution.

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.

Australian courts will typically give effect to an express choice of law and jurisdiction used by parties to a contract18 even where the contract has no factual connection with the chosen legal system.19 A clause submitting 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;20 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.21

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. If no express choice of law is made 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'.22

ii Alternative dispute resolution

Methods of ADR (alternative dispute resolution) such as arbitration, mediation, conciliation, and expert determination, are frequently employed by commercial parties in Australia. Parties may also agree upon mandatory contractual dispute resolution processes, which can comprise any number and combination of these forms of dispute resolution.

Arbitration

Australia is considered to be a pro-arbitration jurisdiction with established mechanisms to support the conduct of arbitration proceedings and the enforcement of arbitral awards.23 As with other common law jurisdictions, arbitration in Australia is typically viewed as a flexible process in which parties are free to agree upon the rules of evidence and procedure that will apply to the resolution of their dispute.

At a federal level, the International Arbitration Act 1974 (Cth) (IAA) provides the legal framework for international commercial arbitrations with a connection to Australia. Domestic arbitrations are governed by separate legislation within each state and territory based upon a uniform framework.24 Both of these levels of legislation adopt a modified version of the United Nations Commission on International Trade Law (UNCITRAL) Model Law, and as a result, Australia's arbitration framework is generally consistent with the framework applicable in other Model Law states. These 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 a 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.

The High Court recently confirmed Australia's pro-arbitration approach in a decision concerning the construction of arbitration agreements.25 The court held 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 can, therefore, expect Australian courts to generally look unfavourably 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

There are, however, areas where Australian courts have restricted the latitude for parties to gather evidence in Australia to support arbitral proceedings seated in foreign jurisdictions, such as by way of subpoena.28 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 in international arbitration 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.29

Mediation

Mediation in Australia usually entails a structured process in which an independent mediator assists the parties to negotiate the resolution of their dispute. Unlike litigation or arbitration, a decision determining the merits of the dispute is not made at mediation. Instead, 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 case-management procedures that require parties in complex commercial cases to submit their dispute to mediation at an early stage. These procedures are designed to encourage the early resolution of disputes before parties become entrenched in the litigation process.

Australia is yet to adopt the recent United Nations Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention on Mediation), which came into force on 12 September 2020. However, the convention is still likely to play a role in simplifying the direct enforcement of cross-border settlement agreements resulting from mediations that take place in Australia. It provides an avenue for parties to pursue the offshore enforcement of a mediated outcome concluded in Australia in any jurisdiction that has ratified the convention.

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.30

Parties entering into complex or long term contractual relationships may also adopt mechanisms that enable disputes to be resolved by reference to a standing board of experts. These boards are generally known as dispute avoidance boards (DABs) (but can also be referred to as dispute resolution boards, dispute review boards or dispute adjudication boards). DABs typically remain established throughout the life of a contract, and the specific powers of a DAB to resolve a dispute is provided for by the parties' agreement. In a typical example, either party will usually be provided with a right to refer a dispute to the DAB, which is then 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 that require them to participate in specific dispute resolution procedures before commencing formal legal proceedings. Those procedures can include negotiations, senior representative meetings, or other forms of alternative dispute resolution. For example, parties to a contract may agree upon a multi-tiered dispute resolution clause providing for the following process:

  1. first, the parties' senior, or authorised, representatives negotiate in good faith with a view to resolving the dispute;
  2. second, if those senior representative negotiations are unsuccessful, refer the matter to a mediator for mediation with a specified period; and
  3. third, if the mediation is unsuccessful, refer the matter to the courts or to arbitration.

Dispute resolution clauses will be strictly enforced where they provide for a mechanism that is sufficiently certain and identifiable, and drafted so as to reflect a mandatory process rather than one that is optional or discretionary.31

The need for parties to draft multi-tiered dispute resolution clauses in precise terms, to ensure clarity between disputes that fall inside and outside of the regime, was recently reinforced in the appellate decision of Inghams Enterprises Pty Limited.32 While the court construed the dispute resolution provisions broadly, it was held that a particular claim did not attract the operation of the clause because it was not (as required under the contract) a claim for an 'amount payable and/or owed under the agreement'. Thus, if parties intend for all or a specific species of dispute to be captured by a contractual dispute resolution process in Australia, clear drafting should be included to that effect.

Breach of contract claims

A cause of action for breach of contract in Australia 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 that is foreshadowed by a party's actions or inaction). The burden of proof lies with the party alleging the breach of contract,33 regardless of whether the breach is said to have constituted a failure to perform or an anticipatory breach.34 

i Failure to perform

A failure to perform can occur by non-performance,35 defective performance,36 late performance (where time is of the essence)37  and by a breach of a contractual warranty.

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.38 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.39 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.40 

ii Anticipatory breach or repudiation

An anticipatory breach occurs where a party repudiates one or more of its obligations under the contract. This can arise where a party indicates that it is either unwilling or unable to perform the terms of the contract,41 and the other party consequently terminates the contract prior to performance.

An anticipatory breach arises at law at the time the non-breaching party terminates the contract based on an anticipated non-performance.42 Unlike a failure to perform, if a party repudiates its obligations under a contract, the non-breaching party has an automatic right to termination.43 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 the failure to perform.44 

The test for repudiation in Australia involves a very high threshold. The courts have made clear that it is 'is not to be lightly found' 45 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.'46 

Defences to enforcement

There are a number 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 limitations, 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 common defences to enforcement raised in Australia.

i Statutes of limitation

Strict time limits apply in Australia for the commencement of proceedings for breach of contract, and most other causes of action. A party is precluded from raising a cause of action that is filed after the expiration of the statutory limitation period.

In Australia, the general rule is that a cause of action in contract arises immediately upon the breach of contract occurring, even if the breach is unknown to the prospective plaintiff until a later point in time.47 Pleading that a claim is validly time-barred by a statute of limitations is perhaps the simplest means by which a party can resist a breach of contract claim.

The limitation periods applicable in Australia can vary from state to state. 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,48 For breach of a deed proceedings must be commenced within 12 years of the breach occurring.49

ii Force majeure and frustration

Australian contract law is very familiar with the doctrines of force majeure and frustration, particularly in the context of supply and energy agreements.

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. Contracts can differ on the rights and liabilities arising from a force majeure event, but the affected party is often entitled to additional compensation or time for performance, excused from non-performance or even entitled 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.50 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

If it is established that a contract was entered into by a party under duress, undue influence or unconscionable conduct, Australian law provides that the contract may be voidable by the party subjected to this 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 can potentially also counterclaim for damages. A successful claim for 'rescission' results in the contract being treated as if it never existed.

iv Mistake

Where both parties have entered into a contract on the basis of a shared misapprehension of the facts or of their rights under the contract (a 'common mistake'), Australian law holds that contract void or voidable.51 A common mistake between all parties to a contract rarely occurs in practice, and thus, the more typical situation is 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.

Fraud, misrepresentation and other claims

i Fraud, misrepresentation, and misleading or deceptive conduct

In Australia, the Australian Consumer Law (ACL) has largely simplified the elements that have to be proved in most actions for misrepresentation. While similar legislation in other common law jurisdictions is directed towards 'consumer' protection, the ACL in Australia operates more broadly and can also be invoked in a large commercial disputes. 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. Contravention of this prohibition can give rise to a right to damages and other remedies under the ACL, such as injunctive relief.

In addition to claims under the ACL, parties to a contract may pursue a common law claim for negligent misrepresentation. This alternative cause of action requires that the court be satisfied that a false representation is made with the requisite element of negligence. The difficulty associated with establishing this element has meant that the common law action is generally only argued in circumstances where Section 18 of the ACL is not applicable (such as a non-commercial context).

The tort of deceit also forms part of the law in Australia and provides a common law action for fraud, often referred to as fraudulent misrepresentation. Such an action requires proof of two additional elements that, again, can be difficult to establish; 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.52 Rescission for fraud may also be available in equity. Establishing fraud in equity does not require an actual intention to defraud to be proven.53

ii Unconscionable conduct

Section 21 of the ACL imposes a broad contractual standard of behaviour by prohibiting unconscionable conduct in commercial dealings.

The recent decision of ACCC v Get Qualified Australia Pty Ltd provides a helpful summary of the approach the courts will generally adopt in applying Section 21.54 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 whether the conduct within its context as a whole, and generally speaking, involves a high degree of 'moral obloquy'.55

iii Good faith

The concept of good faith in Australia is an area of law that continues to develop. There is currently no general implied contractual obligation of good faith that applies to the negotiation or performance of contracts in Australia. Australian law will generally only recognise an obligation of good faith where it rises on the express terms of a contract, or if 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 found to require that that the 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

iv Promissory estoppel

The equitable doctrine of promissory estoppel applies in Australia.57 This equitable remedy may arise in circumstances involving a future contractual relationship, or some future relationship or course of conduct between the parties. If an estoppel is established on the facts, equity may intervene to enforce a promise, or restrain a party from enforcing its strict legal rights where the enforcement of those rights would be contrary to its promise.

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 cause of action (that is, whether an estoppel is actionable in its own right as opposed to operating defensively). 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 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.

Remedies

Monetary damages are 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

Liquidated damages

It is permissible in Australia for parties to seek to codify the payment of a fixed amount, such as a debt due, as part of their contract by way of liquidated damages. 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 a certain obligation, such as delivery by a specified date. 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.66

It should be noted that provisions of this nature are subject to the doctrine of penalties. As such, terms that 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.67 However, following the decision in Paciocco v. Australia and New Zealand Banking Group Ltd, it is difficult to prove that liquidated damages are out of all proportion to a party's legitimate commercial interests where there is at least some basis in fact for the amount sought to be levied under the contract.

Specific performance

If damages would provide an inadequate remedy for breach of contract,68 the court may order the breaching party to perform particular duties or obligations under the contract.69

Injunction

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'70 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.71

Quantum meruit

Under Australian law, if a party provides goods or services in circumstances where a right of payment is either not provided for in the contract, or no contract is on foot (either because it was not formed or termination has occurred), the remedy of quantum meruit can be available to provide a means of compensation. A successful claim in quantum meruit entitles the party to a 'reasonable amount' for those goods or services. This remedy is often raised in complex construction cases where a contractor claims to have undertaken additional works outside the scope of the construction contract.

Until recently, it was thought that, if a construction contract was terminated due to repudiation by the project owner, the contractor would be entitled to elect between pursuing damages for breach of contract or a claim in quantum meruit. However, the availability of this relief has been narrowed significantly by the High Court in Mann v. Paterson Constructions Pty Ltd.72 The ruling, in effect, means that a claim for quantum meruit only arises for construction work carried out prior to termination to the extent that the contractor has not accrued a right to payment for that work under the contract at the time of termination. If a right to payment has accrued, only a claim for damages will be available.

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 defences 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. Baxendale77 as follows:

  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'.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 proportionate liability regimes 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;
  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.

Proportionate liability broadly operates to apportion a plaintiff's loss between any 'concurrent wrongdoers' that are each liable for the same loss. This extends to both parties joined to the proceedings, and non-parties. 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, statutory principles applicable in all states and territories require that the court reduce any award of damages to the plaintiff to the extent that it is 'just and equitable' to do so.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

Conclusions

As discussed above, Australia offers a sophisticated legal system and remains a strong choice of law or forum for the resolution of complex international disputes. All major Australian courts have adopted specialised methods of case management to meet the increasing complexity of modern commercial disputes, and the remedies available under Australian law are both robust and founded in the nation's English common law lineage. Australia has also established a familiar and well recognised framework for international arbitration.

Footnotes

Footnotes

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

2 There are some exceptions to this general rule, such as contracts for the sale of land, which must be reduced to writing.

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

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

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

6 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].

7 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].

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

9 Electricity Generation v. Woodside, [35].

10 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].

11 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].

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

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

14 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].

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

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

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

18 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].

19 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.

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

21 Reinsurance Australia Corporation Limited v. HIH [2003] FCA 56, [343]–[346].

22 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.

23 For example, Australia has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

24 See the 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); and 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 Samsung C&T Corporation, in the matter of Samsung C&T Corporation [2017] FCA 1169.

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

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

31 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].

32 Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82.

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

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

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

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

37 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.

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

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

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

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

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

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

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

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

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

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

48 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).

49 See, e.g., Limitation Act 1969 (NSW) Section 16.

50 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)).

51 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.

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

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

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

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

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

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

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

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

70 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.

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

72 Mann v Paterson Constructions Pty Ltd [2019] HCA 32.

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., the Law Reform (Miscellaneous Provisions) Act 1965 (NSW), Section 9(1).

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

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