Issues: Could the plaintiffs recover for:
- loss of profit the laundry would have made had the boiler been delivered on time; and
- loss of profit from the dyeing contracts ?
Decision: The court held that the laundry profits were recoverable, as the defendants must have contemplated that there would be a loss if there was a delay. However the loss on the dyeing contracts was not recoverable. The defendants were not in a position to know of the highly profitable nature of such contracts for which the plaintiff was negotiating. As a result this was not foreseeable.
iii. Measure of damages
Once the court has decided the question of remoteness, the next question to be considered is how much the plaintiff should recover in compensation. This generally is the amount that should place the plaintiff as close to the position they would have enjoyed had the breach never occurred.
The injured party must be able to show that they have suffered some loss if they are to recover ordinary damages. If this cannot be shown, then at best, the injured party will be entitled to recover nominal damages by proving that the other party did breach the contract.
Courts will generally not grant damages for anything other than provable losses. However, in certain instances, for example in , the courts will allow claims for anxiety, disappointment, discomfort, inconvenience, frustration and mental distress.
Case Study
Jarvis v Swan Tours (1972) 3 WLR 954:
Facts: Jarvis arranged a holiday in Switzerland through Swan Tours' office based on information contained in one of its brochures. However, the statements contained in the brochures proved to be inaccurate and the holiday was a disaster.
Issue: Could Jarvis sue for breach of contract based on anxiety, distress, disappointment and frustration?
Decision: The court held that Jarvis was entitled to damages caused by the breach.
iv. Mitigation of damages
A plaintiff is expected to take all to reduce the damage. If they don't, the amount of damages they can expect to recover will be reduced.
It only remains to say that reference is often made to damages being liquidated, unliquidated or being a penalty. Liquidated damages means that the injured party has been able to precisely estimate the amount of their loss. Unliquidated damages means that the injured party has left it to the court to decide on the amount of damages. A penalty is a threat to ensure performance. Unlike liquidated damages, a penalty is not a genuine pre-estimate of the injured party's likely loss. As a result, it is not enforceable in court.
Specific Performance
Specific performance is an equitable remedy granted at the discretion of the courts and usually only when damages prove to be .
Injunction
An injunction is also an equitable remedy and discretionary. It is a court order restraining a party from breaking their contract or from committing a wrongful act. It aims at enforcing a negative promise in an agreement and can be used to enforce even contracts of personal service , eg., see .
Case Study
Lumley v Wagner (1852) 42 ER 687:
Facts: Wagner contracted to sing at Lumley's theatre for a fixed period of time during which she was not to sing elsewhere. She broke this promise.
Issue: Could Lumley stop her from singing for another employer, ie., obtain an injunction ?
Decision: While it could not grant a decree of specific performance to compel Wagner to sing at Lumley's theatre, the court would enforce the negative promise 'not to sing elsewhere' by granting an injunction against Lumley. This prevented her from singing anywhere else during the term of the contract.
Quantum meruit
Quantum meruit means 'as much as he has earned' and only arises in cases of part performance. Where the contract is one of service of goods, there is a new implied contract by the party taking the benefit that they will pay a reasonable amount for the quantum or portion given.
Extinction of remedies
The Limitation of Actions Act determines the within which an injured party must act if they are to maintain an action. The aim of such legislation is to prevent the possibility of legal actions remaining open indefinitely though the courts have the power to waive the time limit in appropriate cases.
Step 6 - Are the objects of the contract legal ?
The object or purpose of a contract must be 'legal' if it is to be enforceable in a court of law. The courts presume that a contract is not against public policy or the law.
If the agreement is void, each party is released from performing any further obligations. Where a contract is held to be illegal at its inception it is totally void. Neither party has any rights or remedies.
i. Void contracts
While many statutes declare the whole agreement null and void - for example, gaming or wagering contracts - there are also a lot of statutes which declare that only part of the agreement is void, and the remainder valid. For example, hire purchase legislation.
If the contract is rendered void, but not illegal, any money paid under the contract is irrecoverable irrespective of whether the party who has paid it can prove a total failure of consideration or not.
ii. Contracts illegal by statute
Little difficulty arises where a statute expressly prohibits the making of a particular type of agreement, eg., , or provides that a contract must be performed in a certain way eg. or aims at protecting the public, eg., . However, where the statute can be regarded as primarily intended to raise revenue, imposing a fine upon the offending party, the contract may not be void, eg., .
Case Study
Re Mahmoud v Ispahani (1921) 2 KB 716
Facts: An Order made under a statute provided that no one could buy, sell or otherwise deal in linseed oil without being licensed. The defendant told the plaintiff that he had the necessary licence when in fact he didn't. He entered into an agreement with him for the supply of linseed oil.
Issue: Could the defendant refuse to take delivery?
Decision: As the contract was with an unlicensed purchaser, and this was expressly prohibited by statute, the contract was illegal as formed, and thus void.
Case Study
Anderson Ltd v Daniel (1924) 1 KB 138
Facts: A statute required that the seller of artificial fertiliser had to provide the purchaser with an invoice stating the percentages of certain chemicals contained in fertiliser sold. A sale was made but the plaintiff's invoice which did not comply with the statutory requirements.
Issue: Could the plaintiffs recover the contract price?
Decision: The plaintiffs could not recover the contract price as the effect of the non-compliance was to render the contract illegal as performed.
Case Study
Cope v Rowlands (1836)ER 707:
Facts: A statute provided that any person who acted as a broker had to be licensed. An unlicensed broker could be fined $50 for each offence. The plaintiff, who was unlicensed, had performed certain brokerage duties for the defendant.
Issue: Was the contract with the broker enforceable ?
Decision: The statute was intended to protect the public by only allowing licensed brokers to act. Unlicensed brokers were prohibited by the statute. Thus, any contracts they entered into were illegal and unenforceable.
Case Study
St John Shipping Corporation v Joseph Rank Ltd (1957) 1 QB 267:
Facts: During the course of a voyage the ship's captain had to put into port to load more fuel. As a result the ship was overloaded and in breach of the Merchant Shipping Act 1932. When the ship arrived in England the captain was fined under the Act.
Issue: Can the defendants refuse to pay part of the freight costs on the grounds that the plaintiffs had performed the contract in an illegal manner?
Decision: The illegal loading was incidental to, rather than central to, the performance of the contract so the contract was enforceable.
iii. The common law position
a. Contracts illegal at common law
- Contracts to commit a crime, a tort or a fraud against a third party
- Contracts that are sexually immoral or which prejudice the status of marriage
- Contracts which are to the prejudice of public safety or of good relations with friendly countries
- Contracts prejudicial to the administration of justice
- Contracts which tend to promote corruption in public life
- Contracts to defraud public authorities of revenue
- Contracts that involve a breach of duty
b. Contracts void at common law
There are three types of contract which the courts treat as void, but not illegal, at common law of which the most relevant for our purposes is:
Contracts in restraint of trade
c. Clauses in contracts in restraint of trade
The position today seems to be that all clauses in contracts in restraint of trade are prima facie void in that they are contrary to public policy. However, if it can be shown that a , the presumption of invalidity can be rebutted.
These principles with regard to contracts in restraint of trade have been applied in the following situations.
Contracts of employment
In employment contracts, there is often a type of restraint clause in which the employer restricts the rights of employees to undertake activities which can be seen as being against the interests of the employer if the contract is ever terminated. However, before deciding on the validity of such a clause, the courts will look closely at the relative bargaining power of the parties and whether the clause is intended to limit competition. See, for example, .
The restraint clause can take the form of:
-
restraints on confidential information or trade secrets learnt during employment, eg., ;
- protection of trade connections, such as customer lists.
Case Study
Forster & Sons Ltd v Suggett (1918) 35 TLR 87:
Facts: Suggett was employed as the works manager of a firm engaged in glass and glass bottle manufacturing. He was instructed in certain confidential techniques of glass making and he agreed that during the five years following the termination of his employment he would not engage in glass bottle manufacturing, or any other business connected with glassmaking, anywhere in the United Kingdom.
Issue: Was the clause enforceable ?
Decision: The restraint was reasonable. The employer was entitled to protect and safeguard the confidential techniques he had developed. He could therefore legally restrain a former employee from using this information while employed by a rival firm.
Case Study
Atwood v Lamont (1920)3 KB 571:
Facts: Atwood carried on business in Melbourne as a draper, tailor and general outfitter. He entered into a contract of employment with Lamont, which contained a clause providing that in the event of termination of the contract, Lamont would not carry on business as a tailor at any place within a 15 kilometre radius of Melbourne. Lamont subsequently set up business in Geelong, outside the 15 kilometre radius, but he nevertheless executed tailoring orders in Melbourne.
Issue: Was the clause enforceable?
Decision: The clause was invalid because it was directed only to the prevention of competition.
Restraints imposed on the vendor of a business
In cases involving the sale of a business and goodwill (such as a restaurant, food outlet, motel, hotel etc), it is reasonable to expect the purchaser to attempt to restrain the seller from opening a similar business to the one just sold, within a certain area and time period. In this situation the parties are dealing on a more equal basis than in a contract of employment situation. As a result, the courts are generally prepared to . However, in each case it will be a question of fact as to whether the restraint is reasonable in its protection of the purchaser's interest and not unreasonable in preventing the vendor from carrying on normal business activities. The size of the area and the length of time will vary with the nature of the business. See, for example, .
Case Study
Amoco Australia Pty Ltd v Rocca Brothers Motor Engineering Co Pty Ltd (1973) 1 ALR 385:
Facts: Rocca brothers owned some land in South Australia, and wished to build a service station on it. The family company leased its land to Amoco and subleased it back. A term in the sublease stated that they agreed only to sell Amoco products from that site for a period of 15 years, and that they would buy a minimum amount of petrol from Amoco each month during that period.
Issue: Was the agreement reasonable or a restraint of trade ?
Decision: The agreement went beyond what was reasonable to protect Amoco's interest, for it obliged the family company to carry on business on the site for a period of 15 years, notwithstanding that the business may lose its profitability.
Trade Practices legislation
The commonwealth Trade Practices Act 1974, in addition to its consumer protection provisions, also incorporates restrictive trade practices provisions in . The Act does not replace common law rules; rather it operates in conjunction with them.
