Category Archives: Contract

Equity – Guarantee – Mortgage – Guarantor under disability – Unconscionable bargain – Misrepresentation

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 (12 May 1983).

http://www.austlii.edu.au/au/cases/cth/HCA/1983/14.html

“Equity – Mortgage and guarantee – Right to set aside – Unusual transactions between bank and customer – Bank’s failure to disclose to mortgagor guarantor – Misrepresentation.
Guarantee – Guarantor under disability – Dealing with bank – Bank knowing of disability – Unconscionable bargain – Onus of proof – Whether transaction should be set aside unconditionally.”

An elderly Italian migrant couple had mortgaged land they owned as a guarantee for a loan from the bank to their son’s business. The business then went into liquidation and the bank demanded payment of the guarantee and then attempted to exercise a power of sale over the land.”

The Amadios argued that the guarantee and mortgage should set aside as:

  • they spoke limited English;
  • they did not receive independent advice and were not advised to do so;
  • they were not aware of their son’s financial situation, although the bank was; and
  • they mistakenly believed that the liability was limited to $50,000.

The court held that the mortgage and guarantee must be set aside as it was unconscionable for the bank to enter into those transactions in circumstances where the bank through it’s superior bargaining power had gained an unconscientious advantage to the detriment of the Amadios who suffered a special disability.

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Commercial Bank of Australia Ltd v Amadio [1983] HCA 14 | 12 May 1983

ON THIS DAY in 1983, the High Court of Australia delivered Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 (12 May 1983).

http://www.austlii.edu.au/au/cases/cth/HCA/1983/14.html

“Equity – Mortgage and guarantee – Right to set aside – Unusual transactions between bank and customer – Bank’s failure to disclose to mortgagor guarantor – Misrepresentation.
Guarantee – Guarantor under disability – Dealing with bank – Bank knowing of disability – Unconscionable bargain – Onus of proof – Whether transaction should be set aside unconditionally.

An elderly Italian migrant couple had mortgaged land they owned as a guarantee for a loan from the bank to their son’s business. The business then went into liquidation and the bank demanded payment of the guarantee and then attempted to exercise a power of sale over the land.”

The Amadios argued that the guarantee and mortgage should set aside as:

  • they spoke limited English;
  • they did not receive independent advice and were not advised to do so;
  • they were not aware of their son’s financial situation, although the bank was; and
  • they mistakenly believed that the liability was limited to $50,000.

The court held that the mortgage and guarantee must be set aside as it was unconscionable for the bank to enter into those transactions in circumstances where the bank through it’s superior bargaining power had gained an unconscientious advantage to the detriment of the Amadios who suffered a special disability.

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Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24 | 11 May 1982

ON THIS DAY in 1982, the High Court of Australia delivered Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 (11 May 1982).

http://www.austlii.edu.au/au/cases/cth/HCA/1982/24.html

“Contract – Construction – Implied terms – Frustration – Contract to carry out excavations for rail authority – Completion required by certain date – Contractor working three shifts seven days per week – Injunction granted to third party restraining contractor from working at certain times – Whether implied term of contract that authority would grant reasonable extension of time and indemnify contractor against additional costs occasioned by grant of injunction – Whether injunction frustrated contract – Extrinsic evidence of intention.
Arbitration – Jurisdiction to entertain claim that contract frustrated – Power to award interest on award – Compound interest – Supreme Court Act 1970 (N.S.W.), s. 94(1).”

Codelfa contracted with the State Rail Authority’s predecessor, the NSW Commissioner for Railways, to perform the excavations on Sydney’s Eastern Suburbs railway. It was agreed that Codelfa would perform three shifts per day over a fixed period, but they were unable to meet this requirement because of injunctions brought by local residents.

Codelfa sought damages from the SRA on two grounds: (1) that there was an implied term that if they were restrained by injunctions the SRA would extend time for completion or would indemnify Codelfa for any losses caused by the injunctions; in the alternative, (2) that the contract was frustrated by the injunctions.

Mason J at 352 observed that the “true rule” regarding the admission of evidence of the surrounding circumstances is that such evidence is admissible if the language of the contract is ambiguous or capable of more than one meaning but is not admissible to contradict the language which has a plain meaning.

The court held that there was no implied term. Even if a term needed to be implied to give efficacy to the contract, the was not a term “so obvious it goes without saying”. The court referred with approval to its earlier decision in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596.

Codelfa was nevertheless successful with the court holding that the contract was frustrated because “the performance of the contract in the events which have occurred is radically different from performance of the contract in the circumstances which it, construed in the light of surrounding circumstances, contemplated”.

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Statute of Frauds 1677 | 16 April 1677

ON THIS DAY in 1677, the English Parliament enacted the Statute of Frauds 1677.

This Act required certain dealings with real property, sale of goods, estates, trusts and marriage be reduced to writing and signed in order to avoid fraud or perjury.

The provisions of the Act have since been incorporated into many pieces of legislation around the common law world.

 

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Sydney, Australia

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Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50

ON 8 APRIL 2015, the Full Court of the Federal Court of Australia delivered Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 (8 April 2015).

http://www.austlii.edu.au/au/cases/cth/FCAFC/2015/50.html

BANKING AND FINANCIAL INSTITUTIONS – CONSUMER PROTECTION – whether various stipulations for fees are penalties at law or equity, or genuine pre-estimate of damage or compensation – whether the relevant stipulations were for breach of term of contract, collateral or accessory in the nature of security for, and in terrorem of the primary stipulations, or for a further contractual right or accommodation – the relevance of the “tests” in Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1914] UKHL 1; [1915] AC 79 to the construction and characterisation of the provisions – whether the fees were extravagant or unconscionable – whether the charging of the fees constituted unconscionable conduct, unjust transactions or unfair contract terms under Australian Securities and Investments Commission Act 2001 (Cth), National Consumer Credit Protection Act 2009 (Cth), and Fair Trading Act 1999 (Vic)

LIMITATION OF ACTIONS – whether recovery statute-barred – construction of s 27(c) of the Limitation of Actions Act 1958 (Vic) – whether it applied to a mistake of law

The Full Court:

1.Dismissed an appeal by Paciocco against the decision of Gordon J of the Federal Court in Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35.
2.Allowed an appeal by Australia and New Zealand Banking Group Limited against the decision of Gordon J of the Federal Court in Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35.

The Full Court held that the bank fees in dispute were not penalties as it had not been proven that they were extravagant or unconscionable.

The Full Court also held that the fees were not unconscionable or unfair under the Commonwealth and State legislation concerning unconscionability, unjustness and unfairness.

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tralia and New Zealand Banking Group Limited [2015] FCAFC 50 (8 April 2015).

http://www.austlii.edu.au/au/cases/cth/FCAFC/2015/50.html

BANKING AND FINANCIAL INSTITUTIONS – CONSUMER PROTECTION – whether various stipulations for fees are penalties at law or equity, or genuine pre-estimate of damage or compensation – whether the relevant stipulations were for breach of term of contract, collateral or accessory in the nature of security for, and in terrorem of the primary stipulations, or for a further contractual right or accommodation – the relevance of the “tests” in Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1914] UKHL 1; [1915] AC 79 to the construction and characterisation of the provisions – whether the fees were extravagant or unconscionable – whether the charging of the fees constituted unconscionable conduct, unjust transactions or unfair contract terms under Australian Securities and Investments Commission Act 2001 (Cth), National Consumer Credit Protection Act 2009 (Cth), and Fair Trading Act 1999 (Vic)

LIMITATION OF ACTIONS – whether recovery statute-barred – construction of s 27(c) of the Limitation of Actions Act 1958 (Vic) – whether it applied to a mistake of law

The Full Court:

1.Dismissed an appeal by Paciocco against the decision of Gordon J of the Federal Court in Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35.
2.Allowed an appeal by Australia and New Zealand Banking Group Limited against the decision of Gordon J of the Federal Court in Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35.

The Full Court held that the bank fees in dispute were not penalties as it had not been proven that they were extravagant or unconscionable.

The Full Court also held that the fees were not unconscionable or unfair under the Commonwealth and State legislation concerning unconscionability, unjustness and unfairness.

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Yerkey v Jones [1939] HCA 3

ON THIS DAY IN 1939, the High Court of Australia delivered Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649 (6 March 1939).

http://www.austlii.edu.au/au/cases/cth/HCA/1939/3.html

Yerkey v Jones provides that: (1) a wife may have a guarantee set aside if the consent was obtained by undue influence, unless she received independent advice (at 649, per Dixon J); and (2) a wife has a prima facie right to have a guarantee set aside if she failed to understand the effect of the guarantee or its significance, unless steps were taken by the lender to inform the wife of such matters (at 683, per Dixon J).

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Pavey & Matthews Pty Ltd v Paul [1987] HCA 5 | 4 March 1987

ON THIS DAY IN 1987, the High Court of Australia delivered Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 (4 March 1987).

http://www.austlii.edu.au/au/cases/cth/HCA/1987/5.html A builder was entitled to recover remuneration for building work done despite there being no written enforceable contract because the client had accepted the benefit and therefore was obliged under the doctrine of unjust enrichment or restitution to pay fair and just compensation for the benefit accrued.

Section 45 of the Builders Licensing Act 1971 (NSW) (which provided that a building contract is not enforceable unless in writing and signed) did not prevent a builder from bringing an action in quantum merit (“as much as he has earned”) for the work done and materials supplied.

A claim based upon quantum merit does not require there to be an implied contract. A claim in quantum meruit is based upon restitution or unjust enrichment.

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Hadley v Baxendale [1854] EWHC Exch J70 | 23 February 1854

ON THIS DAY IN 1854, the Court of Exchequer Chamber delivered Hadley v Baxendale [1854] EWHC Exch J70
(1854) 9 Ex Ch 341; 156 ER 145 (23 February 1854).

http://www.bailii.org/ew/cases/EWHC/Exch/1854/J70.html

The decision lays down the rule for assessing damages for breach of contract. There are two limbs: (1) losses which “may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself”; or (2) losses which “may reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract, as the probable result of the breach of it”.

Per Alderson B:

“Now we think the proper rule is such as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made where communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants. The Judge ought, therefore, to have told the jury, that, upon the fats then before them, they ought not to take the loss of profits into consideration at all in estimating the damages. There must therefore be a new trial in this case.”

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Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 | 19 February 1988

ON THIS DAY IN 1988, the High Court of Australia delivered Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 (19 February 1988).

http://www.austlii.edu.au/au/cases/cth/HCA/1988/7.html

Maher owned a commercial property at Nowra. Waltons was a national department store. Waltons and Maher entered into negotiations regarding the lease of Maher’s property conditional upon Maher demolishing the existing building and constructing a new one in accordance with Waltons’ requriements.

Waltons provided Maher with a draft lease contract. Maher suggested amendments and indicated they needed to complete the agreement in the next day or so in order to arrange building supplies before Christmas. Maher indicated that he did not want to demolish the building until he knew there was no problem with the lease. The solicitor for Waltons said to Maher that Waltons had informed him that the amendments were acceptable but would obtain formal instructions and inform him by the next day if they did not agree with any of the amendments. The solicitor for Waltons then sent Maher’s solicitor a redrafted lease with the suggested amendments and did not object to the amendments the next day, or at all. Maher then sent Waltons an executed lease by way of exchange and then proceeded with the demolition. A week later, Waltons had concerns about the transaction and, not having exchanged their counterpart of the lease, instructed their solicitor to go slow. Waltons then became aware that the building had been demolished and when the new building was 40% completed advised Maher that they did not wish to proceed with the transaction.

Maher sued Waltons in the Supreme Court of NSW, obtaining an order for specific performance or damages in lieu. An appeal to the NSW Court of Appeal was dismissed, as was an appeal to the High Court of Australia.

Per Mason CJ, Wilson, Brennan and Deane JJJ, Waltons was bound to enter into a lease agreement and estopped from denying an implied promise to complete the contract as it would be unconscionable for Waltons to take a course of inaction that exposed Maher to detriment by acting on a false assumption.

The High Court brought together proprietary and promissory estoppel under the broader principle of equitable estoppel. When a person makes a non-contractual or voluntary promise and knowingly induces the other party to act to his or her detriment in reliance on that promise, that person is precluded from resiling from the promise without avoiding the detriment. The person who makes the promise is liable to either honour the promise or avoid detriment to the other party.

Per Brennan J at 428-9:

“In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff’s reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.”

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Baltic Shipping Company v Dillon [1993] HCA 4 | 10 February 1993

ON THIS DAY IN 1993, the High Court of Australia delivered Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344; (1993) 111 ALR 289; (1993) 67 ALJR 228 (10 February 1993).

http://www.austlii.edu.au/au/cases/cth/HCA/1993/4.html

As an exception to the rule that damages are not available for mental distress and disappointment arising from a breach of contract, such damages may be awarded if the contract in question contemplated the delivery of enjoyment, relaxation or peace of mind.

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