- Week 2 Rescission- page 2
- Week 3 – Common law damages – (TORTS) – page 15
- Week 4 – Common law damages – (Contract ) – page 37
- Week 5 – Equitable compensation and damages – page 46
- Week 6 – Restitution, Specific Restitution and Unjust Enrichment – page 54
- Week 7 – Account of Profits – page 68
- Week 8 – Constructive Trusts – page 86
- Week 10 – Specific Performance – page 96
Delivery Up – page 106
- Week 11 – Injunctions – page 108
- Week 12 –Declarations – page 150
Rectification – page 158
- Week 13 – ACL – page 164
Rescission (week 2) – page 183
Nature of the Remedy (general)
- Rescission is the reversal of a transaction so that each party is restored to its original position. Rescission is a remedy of both the common law and equity. Common law rescission is confined to contracts, but rescission in equity extends to gifts and other transactions.
Rescission and termination (void and voidable contracts)
- ‘Termination’ refers to the position where there has been a breach of a contractual condition, and the promisee has elected to terminate further performance of the contract.
- Contracts that are liable to rescission are described as ‘voidable’ rather than ‘void’.
- Voidable contracts are effective unless and until there is an election to rescind or avoid the contract.
- By contrast, if a contract is void, there is nothing to rescind.
- Because rescission operates ab initio (from the beginning), an election to rescind a voidable contract extinguishes the right to enforce the contract according to its terms, including any accrued right to damages in contract or specific performance.
- Common law must precisely go back to the start, while Equity law substantially from the start.
(Set aside contract get money back = questions wants rescission)
Elements of Rescission – page 184
The remedy of rescission requires three elements to be satisfied:
Must have a contract in place,
- the presence of a vitiating factor in the formation of the contract;
- an election to rescind the contract; and
- restitutio in integrum, the restoration of both parties to their respective pre-contractual positions. i.e the car you sold, comes back to you.
Element 1: Vitiating Factors
- Misrepresentation and Mistake;
- Undue Influence; and
- Unconscionable Dealing
- A contract can be voidable for misrepresentation if the representor has made a misrepresentation of fact that induced the representee to enter into the contract.
‘There must be a representation/statement of fact’
- This may be express or implied; except in contracts, where there is a duty to disclose all relevant matters.
- The traditional rule is that mere silence is not actionable at common law. However, silence in the form of a partial truth may be misleading because ‘concealment of a fact may cause the true representation of another fact to be misleading, and may thus become a substantive misrepresentation’: Curwen v Yan Yean Land Co Ltd (1891).
Types of Statements
- The following three types of statements have been distinguished from ‘statements of fact’:
- Statements of opinion or belief:
- Generally provide no grounds for rescission if the opinion or belief is honestly held.
- Bisset v Wilkinson . Facts: A vendor of a farm made a statement as to the sheep-carrying capacity of a farm. The land in question had never been used as a sheep farm to the knowledge of both the vendor and purchaser.
Held: The statement was held to be a statement of opinion, thereby denying the purchaser rescission of the contract when the statement proved to be untrue.
- Smith v Land and House Property Corp. Facts: Vendors of a property made a statement to the purchaser, stating that the existing tenants were ‘most desirable tenants’. The vendors knew that this was untrue, as the tenant was chronically in arrears of rent.
Held: Bowen LJ: If the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of material fact, for he impliedly states that he knows facts which justify his opinion. Thus, as the vendor’s opinion was an assertion of a particular fact that nothing had occurred between the vendor and tenant which could be considered to make the tenant unsatisfactory, the contract could be set aside for misrepresentation.
- Statements of intention:
- ‘A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for an action of deceit. There must be a misstatement of an existing fact: but the state of man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact’: Edgington v Fitzmaurice (1884).
- Statements of law:
- Have also been treated as statements of opinion.
- Accordingly, an honest stated opinion on a matter of law provides no basis for rescission: Eaglesfield v Marquis of Londonberry (1876).
- But a fraudulently stated opinion on a matter of law is treated as statement of fact because it implies that the representor honestly holds that opinion.
- Rescission is therefore allowed in cases of fraudulently stated opinions on matters of law: West London Commercial Bank Ltd v Litson (1884).
- Statements of foreign law are always treated as statements of fact
- The representation must be false when acted upon
- If there are continuing and changing circumstances the representor is under a duty to correct the representation if aware of such changes; With v O’Flanagan  Ch 575.
- Principles governing inducement (Gould v Vaggelas) per Wilson J:
- Notwithstanding that a representation is both false and fraudulent; if the representee does not rely upon it he has no case.
- If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation.
- The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not reply on the representation.
- The representation need not be the sole inducement. It is sufficient so long as it plays some part.
- Rescission at common law: the concept of fraud
- The common law has only afforded relief for fraudulent misrepresentation, and not for innocent misrepresentation.
- The principal remedies at common law for fraudulent misrepresentation are rescission and damages in tort for deceit.
- The meaning of fraud at common law was settled by the House of Lords in Derry v Peek. Although the case was an action in deceit, it has been accepted by the High Court and elsewhere as the authority defining fraud for the purposes of rescission at common law.
Proof of Fraud (for action of deceit)
‘I think the authorities establish the following propositions:
First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice.
Secondly, fraud is proved when it is shown that a false representation has been
(1) knowingly, or
(2) without belief in its truth, or
careless whether it be true or false.
Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth’: Derry v Peek (1889).
- Rescission in equity for innocent misrepresentation
- Fraud in equity does not require ‘an actual intention to cheat’: Nocton v Lord Ashburton .
- Equity exercises an auxiliary jurisdiction to rescind contracted induced by innocent misrepresentation.
- Redgrave v Hurd (1881): ‘even assuming that moral fraud must be shown in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man ought to seek to take advantage of his own false statements’.
Misrepresentation and Contracts
- Misrepresentations incorporated as contractual terms
- Where a misrepresentation has been incorporated as a term of the contract, the representee may elect between rescission and contractual remedies: Simons v Zartom Investments Pty Ltd .
- Rescission after completion: the rule in Seddan’s Case
- When a contract has been completed in the sense that each party has fully executed its obligations and any property has passed, there is authority that the right to rescind for innocent misrepresentation is lost: Seddan v North East Salt Co Ltd .
- In sale of goods transactions, the rule has also been reversed in NSW; Sale of Goods Act 1923 (NSW) s 4(2A)(b).
Exclusion of liability clauses
- The parties to a contract may, by means of a contractual term, exclude rescission of the contract in equity for any innocent misrepresentation that induced the contract: Life Insurance Co of Australia Ltd v Phillips (1925).
- As a matter of public policy, the right to rescind a contract for fraudulent misrepresentation cannot be excluded by a contractual term of disclaimer: S Pearson & Son Ltd v Dublin Corp .
- The orthodox approach to rescission of contracts for mistake is to consider the law in terms of 3 categories: common mistake, mutual mistake and unilateral mistake.
- Common mistake: refers to the situation where both parties share the same mistake.
- Mutual Mistake: Refers to the situation where both parties are mistaken, but their respective mistakes are not the same.
- Unilateral mistake refers to the situation where only one of the parties is mistaken. Mistake may prevent the formation of a contract.
- Mistake may render a contract void at common law, in which case no question of rescission can arise. Mistake may render a contract voidable in equity.
- Contracts void at law for common mistake
- Bell v Lever Brothers Ltd : ‘Mistake as to the quality of the thing contracted for will not affect the assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be’; decision has been criticized in McRae v Commonwealth Disposals Commission (1951)
- McRae v Commonwealth Disposals Commission (1951). Facts: P purchased from D a submerged oil tanker that, unknown to both parties, had never existed. D argued that the contract was void for common mistake. Held: D’s argument was rejected and damages were awarded to P for breach of contract.
- S. 11 of the Sale of Goods Act 1923 (NSW): Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void’.
- Five Criteria for a contract to be void at law for common mistake (derived from Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd):
- there must be a common assumption as to the existence of a state of affairs;
- there must be no warranty by either party that the state of affairs exists;
- the non-existence of the state of affairs must not be attributable to the fault of either party;
- the non-existence of the state of affairs must render performance of the contract impossible;
- the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.
- Rescission in equity for common mistake
- Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd : The English Court of Appeal declared that there is no jurisdiction in equity to grant rescission of a contract on the ground of common mistake where that contract is valid and enforceable on ordinary principles of contract law.
- The effect of mutual mistake at law
- Where the parties are at such cross-purposes that offer and acceptance do not correspond, no contract comes into existence: Goldsborough Mort & Co LTD V Quinn (1910).
- Rescission in equity for mutual mistake
- Where the common law rules concerning offer and acceptance prevent the formation of a contract, no question of rescission arises. There is no authority to support the existence of an equitable jurisdiction to rescind contracts for mutual mistake: Riverlate Properties Ltd v Paul .
- The effect of unilateral mistake at law
- Solle v Butcher : ‘once a contract is made, that is to say, once the parties, whatever their inmost states of mind, have to all outward appearances agreed with sufficient certainty in the same terms on the same subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of the contract depends, or for fraud, or on some equitable ground. Neither party can rely on his own mistake to say it was a nullity from the beginning no matter that it was a mistake which to his mind was fundamental, and no matter that the other party knew he was under a mistake.
The exceptions to the passage above
- Taylor v Johnson (1983): First, in cases of certain ‘informal contracts’; second, in cases ‘where there is a mistake as to the identity of the other party; and third, in cases ‘where the mistake is as to the nature of the contract’.
- Taylor v Johnson (1983) (relating to the third exception): ‘The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document’.
- Rescission in equity for unilateral mistake
- Taylor v Johnson: In setting aside the contract, their Honours stated the following: ‘A party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension’.
- The HC identified the basis for relief in such cases of unilateral mistake as being the jurisdiction of equity to set aside ‘any instrument or other transaction “in which the court is of the opinion that it is unconscientious for a person to avail himself of the legal advantage which he has obtained”’: Taylor v Johnson
- Duress – page 197
- A transaction is voidable for duress if it was induced by the application of illegitimate pressure. The three categories include:
(1) duress to the person;
(2) duress of goods; and
(3) economic duress.
Overborne will Theory
- Occidental Worldwide Investment Corp v Skibs A/S Avanti (The Siboen and the Sibotre): Kerr J said that the court ‘must be satisfied that the consent of the other party was overborne by compulsion so as to deprive him of any animus contrabendi.’
- Overborne theory will be discredited for two reasons:
- inconsistent with prevailing view that duress renders contract voidable rather than void
- theory was rejected by Privy Council in Barton v Armstrong
Category 1: Duress to the Person
- The oldest category of duress is actual or threatened physical harm to the person, including false imprisonment. Actual or threatened harm to a person’s family will also be sufficient: Williams v Bayley (1866).
- Barton v Armstrong establishes two propositions that apply generally to the law of duress.
- First, there is no requirement for the transaction to be improvident or disadvantageous to the rescinding party.
- Second, there is no requirement that the illegitimate pressure to be the sole or predominant reason for that party entering into the transaction.
- Dimskal Shipping Co SA v International Transport Workers’ Federation (The Evia Luck): Illegitimate pressure must have constituted a significant cause inducing the plaintiff to enter into the relevant contract.
Category 2: Duress of Goods
- Involves an actual or threatened detention, damage or destruction of a person’s goods without a lawful excuse. Payments induced by duress of goods, as distinct from contracts to pay, were always recoverable at the suit of the payer by means of an action in restitution for money had and received: Astley v Reynolds (1731).
Category 3: Economic Duress
- The modern doctrine of economic duress was recognised by the House of Lords in Universe Tankships Inc of Monrovia v International Transport Workers’ Federation (the Universe Sentinel) :
- Facts: A contract was made by the plaintiff ship owner to make a payment into a welfare fund conducted by the defendant trade union. The contract and payment were made under a threat of industrial action; such action would have been tortious and would have caused ‘catastrophic’ economic consequences for the shipowner.
- Held: The House of Lords held that the pressure was illegitimate and that the shipowner was entitled to rescind the contract and recover the payment by an action in restitution for money had and received; ‘the rationale is that his apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind’.
- Australian authority: Crescendo Management Pty Ltd v Westpac Banking Corp (1988) (illegitimate pressure): ‘The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into a contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct’. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic loss.
- In summary, there are two elements of Economic Duress:
- First, the transaction was induced by pressure; and
- Secondly, that the pressure was illegitimate.
Illegitimate pressure, coercion and threats of unlawful action
- As to what constitutes ‘illegitimate pressure’, acts or threats of criminal or tortious conduct are clearly included. A threatened breach of contract can also be illegitimate pressure.
- Spira v Commonwealth Bank of Australia (2003): ‘Where a party threatens to commit a breach of contract to coerce the other party into taking or refraining from taking some action the innocent party has a cause of action for the tort of intimidation’.
- R v Attorney-General for England and Wales: ‘Commencing or threatening to commence legal proceedings can amount to duress where the act or threat is made in support of an unlawful demand’.
- On the meaning of ‘unlawful conduct’, acts or threats of criminal or tortious conduct are clearly included
- Mitchell v Pacific Dawn Pty Ltd: In deciding whether a threatened breach of contract involves illegitimate pressure or merely part of the ‘rough and tumble of the pressures of normal commercial bargaining’ it is necessary also to take into account whether the persons allegedly exerting such pressure have acted in good or bad faith.
- ANZ v Karam: The vagueness in the terms “economic duress” and “illegitimate pressure” can be avoided by treating the concept of “duress” as limited to threatened or actual unlawful conduct. The threat and conduct in question need not be directed to the person or the property of the victim, narrowly defined, but can be to the legitimate commercial and financial interests of the party…if the conduct or threat is not unlawful, the resulting agreement may nevertheless set aside whether the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio.
- Undue Influence
- Undue influence ‘arises out of a relationship between two persons where one has acquired over another a measure of influence or ascendency, of which the ascendant person then takes unfair disadvantage: Royal Bank of Scotland plc v Etridge (No 2) .
- First, there must be a relationship of influence; and second, there must be an abuse or undue exercise of that influence by the stronger party. The effect of undue influence is to render a transaction voidable in equity at the election of the weaker party.
- Relationships of Influence (presumptive and proven relationships of influence)
- Presumptive relationships: Presumes that a relationship of influence exists between the parties.
Presumptive relationships of influence
- The main presumptive relationships are:
- – parent and child;
- – guardian and ward (Kerr v West Australian Trustee Executor & Agency Co Ltd (1937));
- – priest and penitent (Huguenin v Baseley (1807));
- – solicitor and client (Dowsett v Reid (1912));
- – physician and patient (Johnson v Buttress (1936)); and
- – express trustee and beneficiary (Jenyns v Public Curator (Qld) (1953)).
- Proven relationships: Where a relationship of influence is not presumed, the weaker party must prove by evidence that a relationship of influence exists. These are proven relationships of influence.
- Proven relationships of influence
- Watkins v Combes (1922): The High Court set aside a transfer of property by a 69-year old woman to relatives upon whom she depended for advice and assistance. Although the transfer was made in consideration of a promise to maintain her for life, the transaction was shown to be ‘highly disadvantageous’ to her.
- Abuse/undue exercise of influence (also actual & presumed undue influence)
- For the Doctrine of Undue influence to apply, there must be an abuse or undue exercise of influence, whether actual or presumed. There will be an undue exercise of influence if ‘the person in a position of dominance has used that position to obtain unfair advantage for himself, and so to cause injury to the person relying upon his authority or aid’. [Watkins v Combes (1922)].
- Actual Undue influence – ‘In these cases, it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned’; Allcard v Skinner (1887).
- Presumed Undue Influence – ‘In these cases, the complainant only has to show that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused the relationship in procuring the complainant to enter into the impugned transaction. In these cases therefore, there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction impugned: once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely’; Barclays Bank plc v O’Brien.
- Rebutting a presumption of undue influence
- The stronger party must prove that the transaction was the ‘independent and well-understood act of a man in a position to exercise a free judgment based on the information as full as that of the donee: Johnson v Buttress (1936).
- Rebuttal normally involves a consideration of two factors: the presence of independent advice and the adequacy of consideration.
- Independent Advice: Advice should be given by a lawyer; (Allcard v Skinner, Johnson v Buttress and Watkins v Combes are all examples of undue influence as a result of an absence of independent advice). Although the presence of independent advice is an important factor, it is not essential. (Watkins v Combes). The courts also take into account the quality of advice (Bester v Perpetual Trustee Co Ltd).
- Adequacy of consideration: Bester v Perpetual Trustee Co Ltd : ‘If it can be demonstrated that the transaction is, so far as the settlor is concerned, improvident (negligent), then that will be a powerful consideration pointing towards success on the part of a settlor seeking to set aside a settlement upon the ground that it was not thoroughly comprehended, and deliberately and of the settlor’s own free will carried out’.
However, the presence of adequate consideration is not a complete defence in Australian law; ‘An obvious instance of circumstances in which that may be so is the case where the benefit of the consideration does not move to the party under the disability but moves to some third party involved in the transaction’: Commercial Bank of Australia Ltd v Amadio (1983).
- Guarantees: The Yerkey and Garcia Principles
- The position in Australian law of wives who guarantee their Husbands; debts was stated by Dixon J in Yerkey v Jones: ‘Although the relation of husband to wife is not one of influence, yet the opportunities it gives are such that if the husband procures his wife to become surety for his debt, a creditor who accepts her suretyship obtained through her husband has been treated as taking it subject to any invalidating tendency on the part of her husband even if the creditor be not actually privy to such conduct’.
- Garcia v National Australia Bank Ltd: ‘it is unconscionable for a bank to enforce a guarantee given by a volunteer if it has not explained the situation to the guarantor and does not know that an independent person has done so, if the bank knows that there was a relationship of trust and confidence between the guarantor and debtor whose debt has been guaranteed’.
- Yerkey v Jones does not extend to parents and children: Watt v State Bank of New South Wales – ‘parents do not normally leave business decisions to their children or rely unquestioningly on their judgment’.
- Unconscionable Dealing – page 210
- Commercial Bank of Australia Ltd v Amadio: ‘the jurisdiction of courts of equity to relieve against unconscionable dealing is long established as extending generally to circumstances in which: (a) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and; (2) that disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the weaker party’s assent to the impugned transaction. Onus is cast upon the stronger party to show that the transaction was fair, just and reasonable’.
- Special Disadvantage
- The factors that may constitute a special disability for the purposes of the law of unconscionable dealing are not fixed. In Blomley v Ryan, Fullagar J listed as examples: ‘… poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other’.
- Blomley v Ryan: In this case, there was a suit for specific performance of a contract for the sale of land by the purchaser, and a counter-claim for rescission of the contract by the administrator of the deceased vendor’s estate. The negotiations for the sale were conducted over a bottle of rum that was supplied by the purchaser’s agent, and the vendor had not received independent advice. In these circumstances, the High Court set aside the contract.
- ‘Emotional Dependence’ (Louth v Diprose)
Emotional dependence as a basis for special disability was affirmed by the High Court in Bridgewater v Leahy: ‘The position of disadvantage which renders one party subject to exploitation by another such that an improvident disposition by the disadvantaged party may not in good conscience, be retained may stem from a strong emotional dependence or attachment’.
- ‘Inequality of bargaining Power’
(Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd):
‘The High Court emphasized that a person is not subject to a special disadvantage for the purposes of unconscionable dealing simply because of inequality of bargaining power’.
- Adequacy of Consideration
- Blomley v Ryan: ‘It does not appear to be essential in all cases that the party at a disadvantage should suffer loss or detriment by the bargain… but adequacy of consideration, while never of itself a ground for resisting enforcement, will often be a specially important element in cases’.
- Amadio’s Case: A transaction may be rescinded for unconscionable dealing even where there is adequate consideration. Here, the consideration for the plaintiff’s guarantee was the provision of finance by the bank to the company controlled by the plaintiff’s son. However, there was no benefit for the plaintiffs in the transaction.
- Unconscientious Conduct of the defendant
- Hart v O’Connor : ‘It is insufficient to prove that one party was subject to a special disability, unless the other party was sufficiently aware of the disability. In this case, the Privy Council upheld a contract for the sale of land that was made by a vendor ‘of unsound mind’, whose disability was not apparent. Because the purchaser had no knowledge of the vendor’s disability, the purchaser had therefore not taken an unconscientious advantage of the vendor. But actual knowledge of the special disability is not a requirement’.
- Amadio’s Case: ‘It is sufficient that the other contracting party is aware of the possibility that the situation may exist’.
- Distinguishing unconscionable dealing from undue influence
- Louth v Dispose: ‘Undue Influence looks to the quality of consent or assent of the weaker party… unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so’.
Element 2: Election
- An election to affirm a voidable contract extinguishes the right to rescind. Conversely, an election to rescind a voidable contract extinguishes the right to enforce the contract according to its terms including any accrued right to damages or specific performance of the contract.
- Sargent v ASL Developments Ltd: ‘The words of conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other. No question of election can arise before the innocent party at least becomes aware of the facts which entitle that party to rescind’.
Element 3: Restitutio in integrum
- The principle restriction upon the availability of rescission is the requirement of ‘putting the parties in the position they were in before the contract’. This is known as the requirement of restitutio in integrum. Questions of restitution only arise in relation to executed contracts, and not where a contract is wholly executory. Accordingly, equity requires merely substantial restitution to achieve effective rescission.
- State that common law is stricter than equity. Best to go through equity law needs only to put P substantially back to pre-position.
- The problem question:
- B has to pay back the rent, return the store of the title, while M has to pay back $25,000. Therefore, everyone is returned to pervious position.
- State what is in the exam problem question – loss of rep, opportunity.
General Principle of compensation (TORTS) – page 11
- Lord Blackburn in Livingstone v Rawyards Coal Co (1880): … where any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.
- Damages that are awarded in a civil action whether it is in contract or in tort are normally compensatory (Compensatory Damages). However in rare cases damages can be awarded because of the aggravated nature of the defendant’s breach (Aggravated Damages) or to punish the defendant for his or her conduct (Exemplary Damages)
- A plaintiff must plead and establish the necessary elements of a cause of action and then set about pleading and proving a case for the remedy requested. That is not only must the cause of action be proved but the loss and the amount of the loss that flows from that breach must be proved. Proving the cause of action normally only establishes the right to damages.
- The role of damages whether in tort or contract is to place a successful plaintiff in the position it would have occupied had the wrong not been committed. This is so far as a payment of money can achieve this aim (Livingstone v Rawyards Coal Co. (1880) 5 App Cas 25 at 39). In tort this means putting the plaintiff back to the position they would have been in if the tort had not been committed. Assuming that a plaintiff establishes a cause of action in tort then the plaintiff must prove:
- That the loss was caused by the tort.
- That the loss was not too remote.
- The quantum of the loss in terms of both past and future loss.
- In addition the plaintiff must comply with the duty to mitigate the loss. However, the onus of proof rests on the defendant to prove lack of mitigation on the part of the plaintiff (Watts v Rake (1960) 108 CLR 158).
Thus, in order to achieve compensatory damages in tort the courts must find that:
- The plaintiff has a tortious cause of action against the defendant
- The defendants tort has in fact caused the plaintiff’s loss (economic loss or physical injury)
- The plaintiff’s loss is not too remote
- The plaintiff has not breached his or her duty to mitigate unnecessary loss
Failure to establish one of these elements will be fatal to the case
Element 1: Cause of actions
- Abuse of process
- False imprisonment
- Breach of contract
- Trespass to lands/goods
- Invasion of privacy
Element 2: Causation – page 17
In order to obtain damages it must be proved on the balance of probabilities that the loss was caused by the tort. Causation is a question of fact but the legal test that is to be applied is the subject of some controversy. There are two approaches:
- The ‘but for’ or causa sine qua non
- The ‘common sense’ test.
- The ‘but for’ test asks the question but for the defendant’s tortious act would the plaintiff’s loss not have occurred? If the answer is yes then causation is said to have been established.
- The problem with the ‘but for’ test is that it is difficult to apply where the plaintiff’s loss may be the result of multiple causes. The most obvious difficulty is that which arose in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 where the plaintiff’s loss could be said to have occurred through both the negligence of the defendant and the negligence of the plaintiff.
- In light of the decision of the majority in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 the test which is to be applied is that of the ‘common sense’ test. This means that the tribunal of fact must assess all the surrounding circumstances and make a value judgement as to the cause of the plaintiff’s loss.
- However this does not mean to say that there is no role to play for the ‘but for’ test rather it is really a threshold criteria. If the ‘but for’ test produces a negative response then normally there will be no causation but an affirmative answer does not mean that causation is always established.
- The contrary view, that of McHugh J in March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506, is that in light of apportionment legislation for contributory negligence and between multiple tortfeasors (see below) then the ‘but for’ test should be the sole test.
- Another problem that arises in determining causation is where there is an intervening cause or novus actus interveniens. In determining whether there has been an act which removes the operating effect of the initial cause and thereby supplants it as the true cause is one which must be determined according to the ‘common sense’ test (Bennett v Minister of Community Welfare (1992) 176 CLR 408).
- A distinction must be draw between an intervening cause which breaks the ‘chain of causation’ and two or more separate and independent causes of the one loss (Bennett v Minister of Community Welfare (1992) 176 CLR 408 at 429-430).
- In cases where there is a duty to advise then a hypothetical question of fact arises as to whether had the proper advice been given the plaintiff would have relied upon the advice had changed his or her position. If the answer is no then there is no causation as the plaintiff is relying upon his or her own judgement (Chappel v Hart (1998) 195 CLR 232).
- If the damage would have resulted in any event then causation will not normally be established. But this is different from the position where a breach of duty gives rise to a loss of the chance to avoid immediate injury even if the same chance of injury was present at a later time and the same procedure was inevitable (Chappel v Hart (1998) 195 CLR 232).
- Where the question of causation is between the plaintiff’s and the defendant’s negligence the court will have to determine firstly whether the defendant was causally responsible for that loss and secondly whether the plaintiff was also a cause of that loss by way of contributory negligence. Traditionally a finding of contributory negligence was a complete defence barring the plaintiff’s claim. Today a finding of contributory negligence allows the court to apportion damages between the plaintiff and the defendant (see Law Reform (Miscellaneous Provisions) Act 1965, s. 10 and Statutory Duties (Contributory Negligence) Act 1945).
Apportionment is determined by an assessment of what is just and equitable having regard to the respective fault of both parties, this means:
- An assessment of the extent to which each party failed to comply with the standard of care; and
- An assessment of the gravity or causative potency of the failure in each case.
See Talbot-Butt v Holloway (1990) 12 MVR 70, 78 (Clarke JA). Fault in s.10 does not mean moral culpability. See also Wynbergen v Hoyts Corporation Pty Ltd (1997) 72 ALJR 65, 68.
- The actions of a defendant need only be a cause of the plaintiff’s loss. The fact that there are other causes does not absolve the defendant from liability. A plaintiff has always been able to sue for the full loss any or all (subject to rules of court) of those who are responsible for his or her loss.
- At common law the court was not able to apportion loss between joint tortfeasors as such persons where prevented by reasons of public policy from seeking contribution; Merryweather v Nixan (1799) 8 Term Rep 186; 101 ER 1337. This has now been overcome by statute so that the court can now apportion the loss between the respective tortfeasors (Law Reform (Miscellaneous Provisions) Act 1946, s 5(2)).
- The apportionment of loss between tortfeasors is done upon the same principles as those used in cases of contributory negligence (James Hardie & Co Pty Ltd v Roberts (1999) 47 NSWLR 425, 446). Where comparative causal contributions cannot be quantified then the court may have regard to the degree of risk which each defendant exposed the plaintiff in determining the issue of causative potency (James Hardie & Co Pty Ltd v Roberts (1999) 47 NSWLR 425, 446).
2.2 Causation under the Civil Liability Act 2002 (NSW)
- Although the Civil Liability Act makes provisions regarding the law relating to liability in respect of negligence, some provision is made in respect of causation. This is contained in section 5D.
Section 5D Civil Liability Act – General Principles
(1) A determination that negligence caused particular harm comprises the following elements:
(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and
(b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused (scope of liability).
(2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
(3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent:
(a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and
(b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest.
(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
- This section largely restates the common law described above however in cases of negligence reference will now need to be made to section 5D. The emphasis of the section appears to be on the policy implications of finding a causal connection.
Provision is also made in the Civil Liability Act in respect of contributory negligence; section 5R.
Section 5R Civil Liability Act – Standard of contributory negligence
(1) The principles that are applicable in determining whether a person has been negligent also apply in determining whether the person who suffered harm has been contributorily negligent in failing to take precautions against the risk of that harm.
(2) For that purpose:
(a) the standard of care required of the person who suffered harm is that of a reasonable person in the position of that person, and
(b) the matter is to be determined on the basis of what that person knew or ought to have known at the time.
- This section applies the law with respect to liability as altered by the Act to contributory negligence. Section 5S permits a court to reduce damages by 100% so as to defeat the claim provided this is just and equitable.
Element 3: Remoteness – page 41
3.1 Reasonable foreseeability and direct causation
- Even if damage was in fact caused by the D, the damage must not be too remote.
- The damage although caused by the tortious act must not be too remote to be recoverable. This is sometimes called causation in law. Thus the loss must not only be caused by the defendant’s wrongful act as a question of fact, but also must not be too remote as a question of law.
- Historically, a tortfeasor was liable for all loss directly flowing from his or her conduct (Re: Polemis  3 KB 560). This test still applies in cases of deceit (Gould v Vagglas (1985) 157 CLR 215).
- The modern test in cases of negligence focuses on whether the loss is reasonably foreseeable: Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (Wagon Mound) (No.1)  AC 388.
CASE: Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (Wagon Mound) (No.1)
Facts: The charterer of a ship negligently spilled oil into Morts Bay. The oil floated to the surface in Sydney Harbour and drifted under the plaintiff’s wharf. At the time, the plaintiff was carrying out welding operations, and the oil was ignited by a spark from the welder. In the resulting fire, the plaintiff’s wharf and equipment and some nearby ships were destroyed.
Held by the Privy Council, that the charterer was not liable for the damage, since the outcome of the oil spill was not reasonably foreseeable. The charterer neither knew nor could it reasonably know that oil would ignite when floating on the surface of water.
- Thus, reasonable foreseeability became a test of remoteness as well as liability, although in cases of liability the issue of proximity has to some extent overtaken it. Whether something is reasonably foreseeable is determined by whether a reasonable person would foresee that there is a real risk of injury rather than one which is far fetched or fanciful: Overseas Tankship (UK) Ltd v The Miller Steamship Co. (Wagon Mound) (No.2)  AC 617, 641-644.
Case: Overseas Tankship (UK) Ltd v The Miller Steamship Co. (Wagon Mound) (No.2)
Facts: The same as for Wagon Mound No.1, but this time the action was brought in negligence and nuisance by the owner of one of the ships that was damaged in the fire.
Held by the Privy Council, that although the foreseeability test applied in both negligence and nuisance, this time, the court found for the plaintiff on the basis that the risk of fire was reasonably foreseeable of a reasonable man “in the shoes of the ship’s engineer.” The difference in decision between No. 1 and No. 2 is explained by Covell ( at 39) as being the result of evidence as to the combustability of oil on water being adduced in No. 2.
- In order for a loss to be reasonably foreseeable the precise manner of occurrence or the extent of the loss does not have to be predicted. All that is required is that damage of a kind should have been foreseen (Hughes v Lord Advocate  AC 837).
3.2 Egg Shell Rule
- As a general rule a defendant must take the plaintiff as they find him or her. Thus if damage of a kind occurs it does not matter that the plaintiff was susceptible to that kind of loss. This is the “egg shell skull” rule; Smith v Leach Brain & Co  2 QB 405.
- The interaction of the concepts of causation and remoteness can often be seen in cases where unusual injuries result and the plaintiff has a particular susceptibility to injury. In Nader v Urban Transit Authority of NSW (1985) 2 NSWLR 501:
Facts: A 10 year old boy suffered cuts and bruises to his head when he fell from a bus. Two weeks later he started to complain of headaches, began to lose the ability to concentrate and became withdrawn. Although there was no neurological damage, it was discovered that he had developed a psychiatric condition, which would inhibit his emotional development. The condition had been triggered by the over-protective attitude of his parents after the accident. The Transit Authority argued that the development of the psychiatric condition was too remote because it was not foreseeable, and was therefore not compensable.
Held, by the Court of Appeal, that the damage was foreseeable and therefore recoverable.
- Hughes and Nader show that the court allows for a very expansive interpretation of what is reasonably foreseeable.
- “Many of the problems that now beset negligence law and extend the liability of Defendants to unreal levels stem from weakening test of reasonable foreseeability…Given the undemanding nature of the current foreseeability standard, an affirmative answer to the question whether damage was reasonably foreseeable is usually a near certainty” Tame v NSW; Annetts v Australian Stations Pty Ltd (Tame and Annetts) per McHugh J.
3.3 The Scope of the Civil Liability Act
- Under the CLA, a D cannot be held to be negligent for non-foreseeable and insignificant risks – reasonable foreseeability is a requirement.
5B CLA – General principles
(1) A person is not negligent in failing to take precautions against a risk of harm unless:
(a) the risk was foreseeable (that is, it is a risk of which the person knew or ought to have known), and
(b) the risk was not insignificant, and
(c) in the circumstances, a reasonable person in the person’s position would have taken those precautions.
(2) In determining whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things):
(a) the probability that the harm would occur if care were not taken,
(b) the likely seriousness of the harm,
(c) the burden of taking precautions to avoid the risk of harm,
(d) the social utility of the activity that creates the risk of harm.
5D CLA – General principles
(1) A determination that negligence caused particular harm comprises the following elements:
(a) that the negligence was a necessary condition of the occurrence of the harm (“factual causation” ), and
(b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused (“scope of liability” ).
(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.
3.4 Applicability of the remoteness tests
Reasonable foreseeability test is subject to three qualifications.
- The egg-shell skull rule
- This is not effected by the reasonable foreseeability test of remoteness: Smith v Lee Brain & Co
- Havenaar v Havenaar per Glass JA: …it does no more than recognise that the possession by the P of special proclivities capable of enlarging the lesser harm which would be suffered by others is always foreseeable as a possibility notwithstanding that the particular proclivity and the way in which it has worked itself out in producing special harm may not be foreseeable even as possibilities.
- Pure psychiatric harm (pg 47); and
- Pure economic loss (pg 53)
- In these cases, the reasonable foresight test of remoteness is necessary but not sufficient.
- …Just as it would place an unreasonable burden upon human activity to require people to anticipate and guard against all kinds of foreseeable financial harm to others that might be a consequence of their acts or omissions, so also it would be unreasonable to require people to anticipate and guard against all kinds of foreseeable psychiatric injury to others that might be a consequence of their acts or omissions: Gilfford v Strang Patrick Stevedoring Pty Ltd per Gleeson CJ
Element 4: Mitigation – page 41
-fail to mitigate
- The plaintiff has a duty to act reasonably in its own interest and to mitigate its loss and damage. Failure to do so will render the loss, which reasonably could have been avoided, irrecoverable even though it was caused by the wrong and is not too remote.
- While the onus of establishing that the damage is recoverable is on the plaintiff, it is up to the defendant to establish that the plaintiff has failed in its duty to mitigate its loss; see Watts v Rake (1960) 108 CLR 158.
- If the Defendant fails to reasonably mitigate it will only receive an amount to compensate for the damage it would have suffered if it had mitigated.
- The cost and expense of reasonable mitigation is recoverable, probably as a head of damage, and this is so whether the act of mitigation is successful or not. Also if the reasonable attempt at mitigation fails any increase in the damage suffered is recoverable.
- On the other hand, if action taken to mitigate results in the plaintiff receiving a benefit or compensation advantage this must be taken into account in assessing damages; Dimond v Lovell  UKHL 27.
- The above is logical and straight forward and much stems from the famous case of British Westinghouse Electric and Manufacturing Co Ltd v Underground and Electric Railways Co of London Ltd  AC 673.
- What is more difficult is when the road to mitigation is clear but costly and the defendant does not have the resources including money to take advantage of that course of action and limit its damages. Is poverty a justification for not mitigating? How is the test of reasonableness applied? Objectively or subjectively; see Glavonjic v Foster  VR 536.
- In assessing reasonable mitigation, the court considers what a reasonable person in the circumstances of the P would have done.
- In Glavonjic v Foster  VR 536 the P suffered a brain injury in a car accident and refused to have surgery. Gobbo J said:
If the matter is to be judged entirely objectively without regard to the P’s knowledge, circumstances and mental condition, refusal of the operation was not a reasonable one. …I am not constrained to apply such a strict and technical test. It seems to me more appropriate to have regard to the circumstance of the P…. That is not to say that one applies a subject test…It is appropriate to adopt a test that asks whether a reasonable man in the circumstances as they existed for the P and subject to various factors such as difficulty of understanding and the P’s medical history and condition that affected the P, would have refused treatment.
Element 5: Assessment– page 59
5.1 Special and General Damages
- Special damages are those damages which have to be specifically proved and normally relate to past events. In an action for damages for personal injury these include loss of income up to the date of trial and the recovery of money spent on medical services etc. up to the date of trial. Special damages, therefore, can be quantified/computed precisely
- General damages are those damages which are awarded either for past or future losses or both. General damages cannot be quantified. In an action for damages for personal injury these include pain and suffering, future economic loss and future medical expenses.
5.2 Date of Assessment
- The traditional rule at common law is that damages are assessed as at the date the cause of action arose. Over time this has caused difficulties including those arising from:
- Fluctuation of exchange rates
- Subsequent acts of mitigation
- The courts have departed from the hard and fast application of this rule and adopted a flexible approach governed by what is required to achieve the overriding aim of placing the plaintiff in the position they would have been in if the wrong had not been committed.
- The courts will normally assess damages based on the date the cause of action accrues but will depart from this date whenever the interests of justice dictate another date should be used; see Rentokil v Channon (1990) 19 NSWLR 417 and Johnson v Perez (1988) 166 CLR 352.
5.3 Once and for all rule
- Damages at common law are only awarded as a single one off lump sum and after all avenues of appeal have been exhausted the award is final and cannot be revisited. A plaintiff can only recover once in respect of one cause of action and cannot make a further claim even if his or her condition is worse than first thought.
- There is no power at common law for damages to awarded or paid in instalments. However some legislation now permit this to be the case, albeit rarely used; see s.143, Motor Accidents Compensation Act 1999 (NSW) and s.151Q, Workers Compensation Act 1987 (NSW).
- There are some exceptions to the rule including where there are separate injuries of different character arising from the one incident, e.g. property damage and personal injuries arising out of the one accident; Brunsden v Humphrey (1844) 14 QBD 141, or where the tort is a continuing one.
5.4 Property Damage
- The object of awarding compensation for damage to property is This is usually achieved by giving the plaintiff an amount equal to difference in value of the property before as against after the cause of action. There are alternatives such as the cost of repairing the harm and the cost of replacement.
- As a general rule the loss of a chattel is compensated by its value. Where the chattel was income producing then the damages will include this loss. Even if the chattel is not normally income producing damages for loss of use can still be awarded; Dimond v Lovell  UKHL 27, .
- The duty to mitigate means that the most cost effective choice is adopted unless there are special circumstances; Evans v Balog  1 NSWLR 36. The difference in value or cost is determined as the date of the cause of action unless it is reasonable to rely upon a later date; Rentokil.
5.5 Economic loss in general
- Economic loss flowing from physical damage, whether to the person of property is generally recoverable (including those arising out of acts of negligence) subject to the rules of causation, remoteness and mitigation.
- In personal injury cases this includes loss of earning capacity (see below).
- In negligence cases the right to economic loss not consequent on physical damage (pure economic loss) was until relatively recently severely restricted. Such losses are now recoverable however the determining factors in cases such as negligent misstatement often deal with questions of proximity which go to the issue of liability and are beyond the scope of the law of remedies; see Esanda Finance Corporation v Peat Marwick Hungerfords (1997) 188 CLR 241. The High Court’s most recent attempt to deal with this question as failed to reach any substantial consensus on the point but factors such as proximity, reliance and vulnerability play a part; see Perre v Apand Pty Ltd (1999) 164 ALR 606.
- Where economic loss flows from negligent misstatement the court will assess damages by for economic loss by placing the plaintiff in the position it would have been in had the statement not been made. This means that if the plaintiff would not have gone ahead with its proposal if told the truth then the plaintiff will recover only its reliance costs and not the loss profit from the proposal; Kyogle Shire Council v Francis (1989) 13 NSWLR 396.
- Outside of pure economic loss arising from negligence there are a number of torts that deal exclusively with economic loss, these include injurious falsehood, inducement of breach of contract.
5.6 Economic loss – Personal Injuries – Common Law
- The Court has tended to express general damages as satisfying a need created by the wrong or compensation for the loss of a capacity. Some damages do not fit into this model, e.g. pain and suffering.
5.6.1 Pain, Suffering and Loss of Amenity
- Here the court awards damages for the pain suffered and to be suffered by the plaintiff. Such damages are not easily quantifiable in money terms and are not given for something lost but as consolation or solace for the distress felt; Skelton v Collins (1966) 115 CLR 94, 131.
- The court must do its best at putting a money value on such damages but it is not to be concerned with perfect compensation; Sharman v Evans (1976) 138 CLR 563, 585.
- The plaintiff must perceive the pain and suffering. A plaintiff who is rendered permanently unconscious will receive little as they are unable to perceive their loss; Skelton v Collins (1966) 115 CLR 94, 133.
- Damages for pain and suffering will depend on the nature of the injury, its future prognosis and it impact on the future life of the plaintiff. As such the age of the plaintiff is relevant as an elderly plaintiff has less time in which to experience the discomforts of the injury compared to a younger person.
- Loss of amenity of life depends on an examination of what the plaintiff could do pre accident and what they can do post-accident. In other words how lifestyle has been affected.
- A plaintiff is also entitled to an amount for shortened life expectancy where this is proved to be the case as the loss of prospective happiness, however such an amount is to be modest; Sharman v Evans (1976) 138 CLR 563, 584.
- There are two types of economic loss, past economic loss and future economic loss. Economic loss is often spoken of in terms of loss of income but it is not limited to lost wages and can include lost business profits in the case of the self-employed. It is better referred to as loss of earning capacity; Medlin v State Government Insurance Commission (1995) 182 CLR 1.
- In order to establish a claim for economic loss the plaintiff must show that as a result of the defendant’s breach of duty:
- A diminution in the capacity to earn income; and
- That diminution is productive of financial loss; Medlin v State Government Insurance Commission (1995) 182 CLR 1, 3 per Deane, Dawson, Toohey , Gaurdron JJ:
A P in an action in negligence is not entitled to recover damages for loss of earning capacity unless he/she establishes that two distinct but related requirements are satisfied. The first…is that P’s earning capacity has been diminished by reason of the negligence-caused injury. The second requirement is…the diminution of…earning capacity is or may be productive of financial loss.
- Loss of earning capacity is assessed on a net basis. This means that a plaintiff must establish their net earnings once expenses incurred in earning that income are deducted; Sharman v Evans (1976) 138 CLR 563, 586. However no deduction is to be made for the cost of maintaining oneself or ones dependants, unless such maintenance costs are allowed under another head of damage. A court does not concern itself with how a plaintiff expends his or her money.
- No deduction is to be made for costs associated with the opportunity to earn income. Thus the costs of childcare cannot be deducted; Wynn v NSW Insurance Ministerial Corporation (1995) 184 CLR 485. The costs to be deducted are those necessarily incurred as part of the earning of the income not as a prerequisite to earning that income.
- Where loss of earning capacity is assessed during the period by which the plaintiff could have been expected to live but for the accident (‘the lost years’) then the cost expended on the plaintiff’s own maintenance (but not that expended on the maintenance of dependants) may be deducted; Sharman v Evans (1976) 138 CLR 563, 582-583. Thus matters such as rent, food, clothing, fares etc. should be deducted but not money spent on entertainment or indulgence; James Hardie & Co Pty Ltd v Roberts (1999) 47 NSWLR 425, 445-446.
- Compensation is paid for the loss of earning capacity thus it is usually no answer that the plaintiff could still have performed their employment, as they may not have been utilising their full earning capacity; Medlin v State Government Insurance Commission (1995) 182 CLR 1.
- Unless there is evidence proving the contrary the court will not speculate on changes in employment patterns such as marriage etc.; Sharman v Evans (1976) 138 CLR 563, 584.
- Often in assessing damages the court will need to make predictions about the likelihood of the occurrence of future events such as the development of a future medical condition. In such cases the court assess the probability that the event will occur. Thus unlike past events future events do have to be proved on the balance of probabilities; Malec v JC Hutton (1990) 169 CLR 638. The same principle will apply to the likelihood of future commercial opportunities; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332.
- In determining the likelihood of a future event such as the future course of employment then the court may decide whether it is more probable than not that the event would occur; Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473.
- In complex cases where there are numerous possibilities as to the plaintiff’s future earning capacity a weighted average may be made to determine what is the most likely future earnings and adjust this for contingencies either favourable or not to the plaintiff; Norris v Blake (No. 2) (1997) 41 NSWLR 49. In assessing future economic loss a court will normally:
- Calculate how long the plaintiff would have continued working but for the injury;
- Assess the plaintiff’s net loss of earning capacity on a weekly basis;
- Calculate the amount of the lump sum necessary to make up the plaintiff’s lost earning capacity allowing for the appropriate discount rate. This is usually done using a table of multipliers which looks at what the lump sum equates with the present value of a weekly payment over a specified period; and
- Make a deduction for the vicissitudes of life -15% (see three bullet points down)
- In some cases where there is a loss of earning capacity at the date of trial although no actual future loss of earnings can be affirmatively demonstrated but it appears on the facts that there is a chance of a future loss of earnings the court may award a ‘cushion’ by way of lump sum to account for this chance; Geaghan v D’Aubert  NSWCA 260, .
- Vicissitudes of life are matters which might effect the assumptions upon which the court has made its findings as to what would have been the future course of employment but for the injury. For example factors such as ill health, accident, unemployment etc. may have arisen and prevented the plaintiff from being fully employed until retirement. Factors, which are positive, such as promotion, can also be taken into account.
- Vicissitudes of life are not matters that can be the subject of proof and are absent any unusual factors normally assessed as a 15% deduction; Wynn v NSW Insurance Ministerial Corporation (1995) 184 CLR 485, 498.
- What must not be taken into account is the possibility of future tortious injury. If this occurs then it will be subject to separate compensation; Wynn v NSW Insurance Ministerial Corporation (1995) 184 CLR 485, 498. However, the effect of past injuries can be considered.
5.6.3 Costs of Caring for the Plaintiff
- A plaintiff is entitle to recover the cost of having to provide services to care for the plaintiff which but for the defendant’s negligence the plaintiff would have been able to care for themselves; Griffiths v Kerkemeyer (1977) 139 CLR 161. These include past and future care.
- The value of such services is normally assessed as the market value of having to pay another to do the same work.
- The recovery of the value of services provided gratuitously by others including members of the family has been a problem for the courts over many years. It centres around whether they should be treated as special damages for the recovery of actual monetary loss suffered or general damages compensation for the need for those services created by the defendant.
- The leading Australian case is Griffiths v Kerkemeyer (1977) 139 CLR 161. This was followed by many attempts to read down the decision but it seems to be firmly establishes by the majority decision of Van Gervan v Fenton (1992) 175 CLR 327. Therefore, it is necessary to determine two questions:
- What are the services required to satisfy the plaintiff’s need that result from the defendant’s wrong?
- What is the value of those services?
- It is not necessary that the services provided to the plaintiff be provided at cost. A plaintiff may still claim for the value of the lost services even though they are provided gratuitously by family or friends; Griffiths v Kerkemeyer (1977) 139 CLR 161 and Nguyen v Nguyen (1990) 169 CLR 245. Nor does it matter that they are provided by the tortfeasor; Kars v Kars (1996) 187 CLR 354.
- The basis for not requiring the plaintiff to replace the cost of the services is that it is the loss which is produced by the defendant’s negligence which gives rise to the need for the service; Kars v Kars (1996) 187 CLR 354, 380-382. The fact that this loss can be made up by others without monetary payment does not excuse the defendant from having to compensate the plaintiff for the loss; Nguyen v Nguyen (1990) 169 CLR 245, 265-266.
- The principle referred to in the above cases is based on res inter alios acta, in that the court is not concerned with the source of the loss, but is this realistic in view of compulsory insurance? See Hunt v Severs  2 AC 350 and Dimond v Lovell  UKHL 27 where the House of Lords has taken a different view.
- Damages under the principle in Griffiths v Kerkemeyer (1977) 139 CLR 161 are also available for the cost of caring for others to whom the plaintiff has responsibility, such as children. This will include children born after the accident, at least where the birth of such children could be attributable to the defendant’s negligence; Sullivan v Gordon (1999) 47 NSWLR 319. However the principle in Griffiths v Kerkemeyer does not extend to the cost of caring for pets kept by the plaintiff as a hobby; Geaghan v D’Aubert  NSWCA 260, .
5.6.4 Nervous Shock and Distress
- Damages can be awarded for mental injury in the form of nervous shock separate from any physical injury. However this must be more than mere grief and amount to a recognised psychiatric illness; Tame v New South Wales (2002) 191 ALR 449, , .
- Liability for damages for psychiatric injury is not limited to cases where the injury is caused by a sudden shock: Tame v New South Wales (2002) 191 ALR 449, , , , . Liability for damages for psychiatric injury is not limited to cases where a plaintiff has directly perceived a distressing phenomenon or its immediate aftermath: Tame v New South Wales (2002) 191 ALR 449, , , , .
- It is not a precondition to recovery in any action for negligently inflicted psychiatric harm that the plaintiff be a person of “normal” emotional and psychological fortitude: Tame v New South Wales (2002) 191 ALR 449, , , , , . But “normal fortitude” will be a convenient means of determining whether a risk of psychiatric injury is foreseeable. However, it will be otherwise if the defendant has knowledge that the plaintiff is particularly susceptible to injury of that kind or is a member of a class known to be particularly sensitive to the events in question: , .
- No action lies against the bearer of bad news for psychiatric harm caused by the manner in which the news is conveyed or, if the news be true, for psychiatric harm caused by the fact of its conveyance except where there is a deliberate intent to cause harm: Tame v New South Wales (2002) 191 ALR 449, .
- If however mental injury not amounting at law to nervous shock is suffered in connection with physical injury or damage to property then damages for distress, vexation and worry may be available; Campbelltown City Council v Mackay (1989) 15 NSWLR 501.
5.7 Personal Injury – Statutory Modification
In New South Wales significant modification has been made to all assessment of damages with respect to personal injury. These changes modify and in some cases replace the way damages for personal injury are assessed.
5.7.1 Injuries arising from the use of Motor Vehicles
In the case of motor accidents occurring before 1 July 1987 the award of damages was largely unregulated; see Motor Vehicles (Third Party Insurance) Act 1942 (NSW).
Motor accidents occurring between 1 July 1987 and 5 October 1999 are regulated by the Motor Accidents Act 1988 (NSW).
Where the motor accident occured after 5 October 1999 the Motor Accidents Compensation Act 1999 (NSW) applies. The major features of this scheme are:
- Reporting to the police and accident notification to the insurer in the approved form is required.
- The Motor Accidents Authority may issue guidelines relating inter alia to the assessment of permanent impairment called MAA Medical Guidelines.
- Assessment of impairment by medical panel with conclusive findings. See also the Motor Accidents Compensation Amendment (Medical Assessments) Act 2000 (NSW).
- Duties of co-operation on claimants and early settlement on insurers.
- Claimants can be represented by a legal practitioner at an assessment but assessors need not hold formal hearings and can proceed on the papers.
- An assessment is not binding on the claimant but binding on the insurer if liability is accepted.
- Court proceedings cannot be commenced unless there has been an assessment or the claim is exempt from assessment.
- A claim is only exempt from assessment where there is:
- A denial of liability
- An allegation of contributory negligence greater than 25%
- An allegation of a false or misleading claim
- The claimant is an infant or suffers from brain damage
- There is a discretion to exempt a claim from assessment where there is:
- Complex legal or factual issues
- Complex issues of quantum of loss
- Complex issues of causation
- Injuries have not stabilised within 3 years
- Issues of indemnity or insurance
- Claimant or witnesses outside NSW
- Non-CTP parties
- Proceedings may be commenced in any court of competent jurisdiction. The amount of the assessment or any offer of compromise is not to be disclosed to the court.
- Court proceedings must be commenced within 3 years from the date of the accident. Time does not run while the claim is before an assessor. Proceedings outside the 3 year limit can only be commenced with leave of the court and where the claimant can show that there was a full and satisfactory explanation for the delay and that the claimant is likely to receive not less than 25% of the maximum amount for non-economic loss.
- Where a claimant does not commence court proceedings for 6 months but could have done so the insurer may give notice to the claimant requiring the commencement of proceedings. Failure to comply with the notice means the claim is deemed to be withdrawn and can only be reinstated with the leave of the court upon the giving of a full and satisfactory explanation.
5.7.2 Injuries arising from Industrial Accidents
- In the area of industrial accidents there have always been two schemes of compensation.
- In the case where the fault of the employer was established then prior to 1 July 1987 damages at common law could be awarded.
- Where fault cannot be established against the employer then there is a statutory scheme of compensation established by the Workers Compensation Act 1987 (NSW). Provisions relating to the administration of the scheme, the making of claims, rehabilitation, conciliation, and proceedings before the Compensation Court are now governed by the Workplace Injury Management and Workers Compensation Act 1998 (NSW).
- If the worker wants to claim common law damages for an industrial accident then the Workers Compensation Act 1987 (NSW) as amended by the Workers Compensation Legislation Further Amendment Act 2001 (NSW) provides the following thresholds:
- A worker cannot receive any benefits under either the 1987 or 1998 Workers Compensation Acts once common law damages are recovered.
- A worker cannot seek damages until 6 months have elapsed from the date of notice of injury unless liability is denied.
- Proceedings for damages must be commenced within 3 years of the date of injury except with leave of the court. Time does not run while there is a medical dispute concerning the level of the worker’s permanent impairment.
- No common law damages are to be awarded unless the worker’s degree of permanent impairment is 15%.
- The only damages that may be awarded are past economic loss due to loss of earnings and future economic loss due to depravation or impairment of earning capacity.
- In awarding economic loss damages the court is to disregard the so much of the plaintiff’s earnings as exceed the maximum amount payable for weekly compensation ($1,000).
- There is a 5% discount rate for the calculation of future economic loss.
- The payment of interest is restricted to cases where the defendant has not made a reasonable offer of settlement or the plaintiff has bettered that offer by 20%.
- Failure to under take appropriate rehabilitation can amount to a failure to mitigate.
Substantial changes were made to the workers compensation legislation by the Workers Compensation Legislation Amendment Act 2001 (NSW). The principal changes include a new method of assessment of permanent impairment by reference to a new scale, compulsory referral of all of permanent impairment claims to a panel of medical specialists whose findings will be largely binding. Claims for pain and suffering will be restricted only to that pain and suffering that arises from impairment and not from injury. The Compensation Court is abolished with respect to new claims and replaced by the Workers Compensation Commission whose procedures are much more informal. Numerous other changes were made to this area of the law which are designed had the effect of reducing litigation.
5.7.3 Injuries Generally
- Persons injured as a result of a criminal act can claim against a statutory fund for compensation up to $50,000. This compensation is determined administratively under the Victims Rights Act 1996 (NSW). Of course the victim can always sue the perpetrator at common law in tort if this is worth doing in practical terms.
- Another recent development is the Health Care Liability Act 2001 (NSW) which is designed to restrict the level of damages that can be obtained from a medical practitioner, public health organisation or licensee of a licence facility in respect of medical negligence.
- The Health Care Liability Act establishes a regime similar to that which existed under the Motor Accidents Act prior to 1995. There is an upper limit for damages for non-economic loss of $350,000, which represents the most extreme case. There is a threshold of 15 percent of most extreme case below which damages may not be awarded. Between 15 percent of 32 percent there is a deductible that reduces the damages as a percentage of most extreme case. The effect of which is to eliminate or reduce the number of small to medium claims. The provisions of this Act dealing with restrictions on the level of damages payable is now subsumed by the Civil Liability Act.
- There is a limit of $2,603 net weekly earnings for economic loss and similar restrictions apply to interest and gratuitous care as applied under the old Motor Accidents Act. There is also immunity to medical practitioners and nurses who provide care in circumstances of emergency agony the scene of an accident in good faith and on a voluntary basis.
- The Act also contains provisions dealing with professional indemnity insurance for medical practitioners and the focus of the Act is to contain insurance premiums in this area. Those who advise in this area will have to study the legislation carefully.
- The most significant of all recent changes is the Civil Liability Act, which applies to all actions for damages (defined as monetary compensation) and is retrospective to 20 March 2002. All actions commenced after this date whether the injury occurred before this date are covered by the legislation.
- The Civil Liability Act applies to all forms of damages including personal injury irrespective of whether the cause of action might be in contract or even under statute. However the Act does not apply to motor accidents, workplace injuries and dust diseases as these are governed by their own legislation (see above). The Act also does not apply to claims arising out of intentional torts; these exemptions are clearly set out in section 3B. The legislation requires careful study in its application by those practising in the area. Further, the Civil Liability Act makes significant alterations to the law relating to liability which goes beyond the scope of this unit.
5.8 Collateral Benefit
- If the plaintiff receives a benefit related to the cause of action the question arises whether it should be taken into account in the assessment of damages. Not all collateral benefits are deducted from an award of damages.
- The most common deduction is that for weekly workers compensation payments received when there is an award for past economic loss otherwise there would be double compensation. Often these will be expressed as moneys to be refunded to another insurer. Where money is deducted or refunded this will include any tax paid on the benefit. In order that the plaintiff is not penalised for paying the tax twice the court assesses the tax paid as a separate head of damage known as the Fox v Wood component; see Fox v Wood (1981) 148 CLR 438.
- Deductions can also be made from awards where amounts have been allowed for past medical expenses. The refund is to Medicare and insurers can be required withhold certain amounts of the judgement monies pending calculation of the refund; see Health and Other Services (Compensation) Act 1995 (Cth).
- The receipt of compensation particularly that for economic loss can have an effect on the receipt of social security benefits by a plaintiff. The Social Security Act 1991(Cth) makes provisions for refunds of payments such as sickness benefit, preclusionary periods before benefits are payable as well as assets tests.
- Traditionally interest was never awarded as the loss of the use of money from the accrual of the cause of action to the date of trial was seen as too remote. Where the defendant’s act has deprived the plaintiff of the use of money the plaintiff may recover this loss as a head of damage; Hungerfords v Walker (1989) 171 CLR 125.
- Interest is normally calculated in accordance with the rates laid down in the rules of the various courts. These mostly follow that prescribed according to the Supreme Court Act 1970 (NSW) and rules. The rate prescribed is supposed to represent the commercial cost to the plaintiff of being denied his or her money. Interest is awarded both on the judgement until paid and also on the monies comprising the judgement from the date the cause of action accrues until the date of judgement.
- In the case of past economic loss the rate of interest is that prescribed but awarded as half that rate on the amount awarded under this head. The half figure is used as a rule of thumb because the total amount of past economic loss is not due to the plaintiff at the time the cause of action arises but accrues progressively; see Grincelis v House (2000) 201 CLR 321, 331.
- Interest can be awarded on past non-economic loss but not at the commercial rate. An arbitrary figure of 4% has been sanctioned; MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657. This is on the basis that damages for non-economic loss are assessed by reference to the value of money at trial. This will not be the case with respect to amounts representing past gratuitous services if they have been assessed on the market value prevailing from time to time between the cause of action accruing and the date of trial; Grincelis v House (2000) 201 CLR 321, 329.
- If an award is subject to tax then normally it will be awarded as a gross sum and as a net sum where not subject to tax; Cullen v Trappell (1980) 146 CLR 1. Thus future and past economic loss are calculated as net figures as they are lump sum payments for personal injury representing loss of earning capacity and not subject to taxation.
- No evidence is admissible as to likely future rates of inflation or changes in wages or prices. Courts allow for these possibilities and for the effect of taxation on any future investment of a lumps sum for future economic loss by the use of a discount rate. At common law this rate is set at 3%; see Todorovic v Waller (1981) 150 CLR 402, 409.
5.11 Aggravated and Exemplary Damages
- Aggravated damages are awarded where the harm done to the plaintiff was aggravated (made worse) by the manner in which it was done; Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118, 149.
- Exemplary (punitive) damages recognise and punish the fault of the tortfeasor: Gray v Motor Accident Commission (1998) 196 CLR 1, 6.
- Aggravated damages are still compensatory whereas exemplary damages are not related to compensating the plaintiff for his or her loss but punishing and deterring the defendant’s conduct; Gray v Motor Accident Commission (1998) 196 CLR 1, 7.
- In order for exemplary damages to be awarded the conduct of defendant must show a contumelious disregard for the plaintiff’s rights, that is in some way recklessness as to harm or intent to do harm; Gray v Motor Accident Commission (1998) 196 CLR 1, 9.
- If the conduct is sufficiently wrongful, then exemplary damages can be awarded for negligent conduct albeit negligence itself does not require intent. See the facts in Gray v Motor Accident Commission. However the Privy Council on appeal from New Zealand has held by majority that intentional wrongdoing or conscious recklessness was not essential to the award of exemplary damages and so, in exceptional and rare cases, inadvertently negligent conduct which was so outrageous as to call for condemnation and punishment might be enough even though the defendant had not intended to cause the harm or been consciously or subjectively reckless as to the risks involved; A v Bottrill  1 AC 449.
- Where the conduct complained of amounts to a crime for which the perpetrator has been inflicted with substantial punishment, then a court may not award exemplary damages, as firstly the need to punish and deter has been satisfied, and secondly to award exemplary damages would be to inflict double punishment; Gray v Motor Accident Commission (1998) 196 CLR 1, 11.
- The fact that an insurer rather than the actual defendant may be paying the damages is no bar to an award of exemplary damages; Lamb v Cotongo (1987) 164 CLR 1, 9. However in motor accident cases exemplary damages may not be awarded; see Motor Accidents Compensation Act 1999 (NSW), nor may they be awarded in industrial accident cases; see Workers Compensation Act 1987 (NSW). The Civil Liability Act removes these damages from personal injury litigation.
Common law damages (Contract) – page 90
CONTRACT = forward (position if contract had been perform) – TORTS = Backward (position you would have been)
- When a contract is broken the usual remedy at common law is compensatory damages.
“Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed” ; Robinson v Harman – Parke B.
- The equitable remedies of specific performance and injunction may also be available.
- P has a cause of action in contract – namely, a breach of contract;
- D’s breach of contract has in fact injured or caused a loss to the plaintiff – causation;
- The loss suffered by P is not too remote; and
- P has not breached his or her ‘duty’ to mitigate unnecessary loss
- The onus is on the plaintiff to prove the first three elements.
- Generally, the plaintiff’s case or cause of action, including causation must be proven on the balance of probabilities; Sellars v Adelaide Petroleum NL
- The plaintiff is presumed to have taken reasonable steps towards mitigation. The burden is on D to show that P has failed to take reasonable steps towards avoiding unnecessary loss; Banco de Portugal v Waterlow
Element 1: Cause of Action
There is only one cause of action = a breach of contract.
There is an implied common law right to damages in all contracts in the event of breach; Photo Production v Securicor. The breach itself allows the innocent party to claim nominal damages; O’Connor v SP Bray. However, such damages are insignificant.
If P is to receive full compensatory damages then actual loss must be proved; Erie County Natural Gas & Fuel v Samuel S Carroll.
Termination of contract is usually not required for P to claim damages; Luna Park (NSW) v Tramways. There are two exceptions (where it’s required);
- Anticipatory breach; Olge v Comboyuro
- Claims for ‘expectation’ or ‘loss of bargain damages’; Sunbird Plaza v Maloney
In order to claim damages for D’s breach P should be ready and willing to perform their side of the contract; Foran v Wight.
- Where P terminates the contract following an anticipatory breach, P need only show that this intention existed prior to termination; Foran v Wight
Element 2: Causation
- Traditional view of causation: “But for” the defendant’s wrong, would P have suffered the loss or damage complained of?
- If damages would have been suffered anyway or “just the same” then no award of damages beyond nominal can be made.
- Test should only be used as a rule of thumb; Wenham v Ella
E.g Reg Glass v Rivers Locking Systems
Facts: D agreed to supply P with a security door and locking system. D breached by installing a door not reasonably fit for its purpose. Property was subsequently burgled.
Held: “But for” D’s breach, the loss would not have been suffered. If D had proved that burglar’s would have gained entry either way there would have been no liability on D’s part to pay beyond nominal damages. Had a door been installed, the burglary would not have occurred.
- “but for” test is inadequate when considering multiple causes or intervening events and is not the exclusive test; March v E M H Stramare.
- HC accepted common sense based analysis of causation; March v E M Stramare.
- P will not receive the full amount claimed in damages where P is guilty of contributory negligence or where there is a new intervening act (novus actus interveniens [ NAI])
2.1 Contributory negligence (part of ‘but for’)
- The plaintiff’s negligence may sever the chain of causation; Lexmead (Basingtoke) v Lewis
House of Lords held that P’s negligence, in continuing to use the towing hitch in the knowledge that it was unsafe, ‘broke the chain’ of causation between D’s breach and the damage suffered.
- If D breaches a contractual and tortuous duty of care owed to P (as is common in profession negligence cases), and P is guilty of contributory negligence, the court will reduce P’s damages in both tort and contract “to such an extent as the court thinks just and equitable”.
2.2 Intervening Events – (Novus Actus Interveniens) (part of ‘but for’)
The issue of intervening events breaking the chain of causation between the defendant’s breach of contract and the plaintiff’s loss was considered by the NSWCA in Alexander v Cambridge Credit Corp;
- In order to establish a causal connection between a breach of contract and the damage suffered, the plaintiff only needs to show that the breach was a cause of the loss; it need not be the exclusive cause, it need only have ‘causally contributed’ to the loss.
- Where a number of factors combined to produce the loss or damage, the “but for” test is only a guide.
- Ultimate question is whether as a matter of common sense, the relevant act or omission was a cause.
- A later event may be so potent so as to overwhelm the original wrong. In this case the economic change did overwhelm the auditor’s breach.
Element 3: Remoteness
- Damage caused by D’s breach must not be too remote in law. Classic test was stated by Baron Alderson in Hadley v Baxendale;
“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 the contract itself, or such as may be reasonably supposed to have been in the contemplation of both parties, at the time they made the contract, as the probably result of the breach of it”.
- Although treated as a single principle there are two limbs; Jackson v Royal Bank of Scotland
Where loss arises “naturally” in the usual course of things “as the probably result of breach”.
- D is prima facie liable for such loss, often characterized as “direct” losses. The resulting damage is presumed (by fact) to have been within the contemplation of the parties. P need not adduce evidence that D was aware of the risk of damages.
- Defining ‘natural’ losses is not easy – two possible tests arise;
- P is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as likely to result from the breach. In contract the question is addressed to the time when the parties made their contract; Jackson v Royal Bank of Scotland – Lord Hope
- Whether on the information available to D when the contract was made would he or a reasonable man have realized that such loss was sufficiently likely to result from the breach to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation; Jackson – Lord Walker (in contrast)
Where the loss is of an unusual type, or “indirect” losses.
- P must prove that D knew or ought to have known that such loss would be “the probable result of the breach”.
- There is no presumption. Evidence must be adduced showing that the unusual damage or indirect loss was in fact contemplated by both parties at the time the contract was made; Jackson v Royal Bank of Scotland.
- Merely to show knowledge on the part of D is insufficient;
- There must be an undertaking to bear the unusual loss. It need not be a term in the contract; C Czarnikow v Koufos. An oral undertaking may be sufficient; Wright v Langlands Foundary.
- g. International Transport v Densil Underwear
Facts: D made it clear that goods were to arrive in Nigeria in time for Xmas. P delayed in sending goods and did not arrive until 21 Dec. P has held liable for increased losses arising from the fact that the goods could not be sold at higher prices prevailing during Dec.
- Undertaking to bear the extra loss may be implied; Robophone Finance Facilities v Blank.
- Court examines D’s actual knowledge up until the time the contract was made; Kollman v Watts.
- Court will also consider the nature of the contract. E.g. if P received something extra as part of the price for performance it will be easier to draw the inference that D has accepted the risk for unusual losses.
E.g of how both parts of the rule operate – Victoria Laundry v Newman Industries
Facts: D agreed to supply P with a boiler by June to assist P in its laundry business. D delivered boiler 20 weeks late. P sued both for loss of normal business profits and loss of a lucrative dyeing contract.
Held: CA – P was entitled to recover under the first part of the rule for normal business profits arising naturally from the breach. But the claim for the dyeing contract or extra profits was unusual in that it was work not normally undertaken by the laundry and therefore disallowed.
- To succeed, P needed to show that D knew of this potential extra loss and that such loss was likely to occur.
Element 4: Mitigation
P has a duty of taking all reasonable steps to mitigate the loss consequent on the breach and is not entitled to recover from D any damage which the exercise of reasonable care on P would have prevented from arising; British Westinghouse v Underground Electric; Hallell v Bagot.
- Where P does attempt reasonable mitigation and this increases the loss, that loss is recoverable as damages; Simonius Vischer v Holt & Thompson.
- P is not obliged to do what s/he cannot afford to do, especially where the financial difficulty is due to D’s breach; Newmarket Corp v Kee-vee Properties
- Where reasonable steps at mitigation are taken, then irrespective of the success of those steps, the cost of discharging the ‘duty’ is recoverable as damages.
- If P obtains a benefit through mitigation D obtains a credit for this as well; British Westinghouse v Underground Electric
- Facts: D supplied P with electric turbines which in breach of contract were deficient in power. P replaced them with more efficient turbines and sued D for breach in order to recover cost of new machines. P’s claim failed and its mitigation was taken into account.
- Held: P was only able to obtain damages for loss when using D’s machines as the new machines saved cost by reason of the lesser amount of fuel required to run them.
Issue: what is ‘reasonable’?
Is it reasonable to accept an offer of help from D such as alternative performance or another contract?
- g. Pyzu v Saunders (alternative performance)
Facts: D agreed to sell 400 pieces of silk to be delivered in monthly instalments to P for a certain price and upon one month’s credit. Due to a bona fide mistake about P’s solvency, D refused further deliveries unless paid in cash.
Held: English CA held that it would nonetheless have been reasonable for P to have accepted D’s offer to continue to deliver if paid in cash.
- g. TCN Channel 9 v Hayden (another contract)
Facts: D dismissed a television celebrity and offered him a new employment on the condition that he release D from any claims arising out of the dismissal. It was held reasonable for P to reject this offer and in doing so there was no breach of his duty to mitigate.
Principle: P will not be required to accept a new offer of employment from D if the new job is at a lower status, even if at the same pay.
4.1 Anticipatory Breach (special issues)
Where prior to the date set by the contract for its performance, one of the parties makes it clear that its obligations will not be performed.
- This will amount to a repudiation or renunciation of its contractual obligations.
- Anticipatory breach may also be constituted by an ‘inability to perform’ the contract; Sunbird Plaza v Maloney.
Where there is anticipatory breach, the innocent party has to elect between either affirming the contract or accepting the repudiation and terminating the contract.
- Affirming allows the innocent party to ignore the anticipated breach and hold the other part to contract.
- Innocent party may affirm the contract by seeking specific performance. This does not preclude a later termination where there are future breaches of the contract; Ogle v Comboyuro.
- However there are two limitations; White & Carter v McGregor – Lord Reid:
- If D’s cooperation is necessary in order for P to perform the contract, then D’s failure to cooperate will prevent P from earning the contract price.
- P must have a legitimate interest, financial or otherwise in performing the contract, besides just to claim damages. If P has no interest, he cannot claim the remedy.
- There is no duty to mitigate because the contract remains on foot until the time for performance arrives; Huppert v Stock Options of Australia. Therefore P need not consider offers of alternative performance or alternative contracts; Shindler v Northern Raincoat.
- If accepts the repudiation and terminates the contract prior to the time for performance, a duty to mitigate arises immediately.
Element 5: Assessment
The general principles is that damages are assessed at the date of the breach or when the cause of action arises; Johnson v Perez.
- “But the courts will depart from the general rule whenever it is necessary to do so in the interests of justice”.
In cases of anticipatory breach the innocent party has a right to terminate or affirm.
- Damages are to be assessed at the date of performance subject to questions of mitigation; Millet v Van Heck
- Where the damages claim is brought prior to the date for performance, the court must assess the market price “as best as it can”; Melachrino v Nickoll
- However it raises some difficulties/issues: E.g. Golden Strait v Nippon Yusen
- Held: “if a contract for performance over a period has come to an end by reason of a repudiatory breach but might, if it had remained on foot, have terminated early on the occurrence of a particular event, the chance of that event happening must…be taken into account in an assessment of the damages payable for the breach. And if it is certain that the event will happen, the damages must be assessed on that footing”.
5.1 Once and for all rule
An award for damages is an award “once and for all”. It can only be made in a lump sum; periodic payments cannot be given; Todorovic v Walker.
- Three exceptions;
- Where there is more than one cause of action, the rule does not apply. E.g. installment contract.
- Does not apply if there is a “continuing breach”. Depends on contract’s construction, particularly whether it requires the maintenance of a ‘state or condition of affairs’.
- g. – “If his covenant is to maintain a state or condition of affairs, as for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of the time during which the state or condition is not as promised, during which, the building is out of repair, the life uninsured, or the particular support unprovided” ; Larking v Great Western (Nepean) Gravel – Dixon J.
- Statutory exceptions
5.2 Heads of Damage – (Types)
- “Damage for loss and profits” or “the loss of a bargain”
- Even if the contract is not susceptible of specific performance, the other party is legally entitled to expect its performance; Marks v GIO Australia Holdings
- To claim expectation damages, the contract will usually have to be terminated; Sunbird Plaza v Maloney
- Generally not available to a purchaser of real estate if the vendor, without fraud, is incapable of making good title; Bain v Fothergill
- Court will objectively assess what P has lost; Commonwealth v Amann Aviation
- “Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by P in the discharge of contractual obligations and any amount by which gross recipients would have exceeded those expenses (second part is net profit).”
- Even if no net profit would have been generated for P, it can still recover damages for wasted expenditure or reliance damages; Amann
- Represent P’s actual costs or wasted expenditure as a result of relying on D’s contractual promise.
- Awarded to cover such as;
- Payments made by P under contract; McRae v Commonwealth
- The costs of supplying a team of men ready to work; Carr v J A Berriman
- Costs or damages associated with employing a subcontractor; Carr v J A Berriman
Subject to the rule against “double recovery”; T C Industrial Plant v Roberts Queensland; P may claim both expectation and reliance damages; Commonwealth v Amann Aviation
E.g. McRae v Commonwealth Disposals Commission
Facts: P’s major head of damage was reliance damages which represented their large costs thrown away in organizing a salvage expedition searching for a non-existent oil tanker.
- Expectation damages was not available because it was “impossible to value a non-existent” thing.
Commonwealth v Amann Aviation
Facts: Commonwealth invited tenders to perform an aerial surveillance. Amman’s tender was accepted and substantial costs and delays were incurred for equipping specialized aircraft. Amman commenced coast watch flights, but not all of its aircraft were ready. Commonwealth later gave notice and terminated.
Principle: in order to recover reliance damages, P need only prove that the expenditure was incurred and that it was reasonable. The onus then shifts on D who must show that the wasted expenditure would not have been recouped under the contract had it been performed.
Loss of an opportunity or chance
- Damage for the loss of an opportunity or chance raise difficult issues for causation, remoteness and quantum; Norwest Refrigeration Services v Bain Dawes
- If treated entirely as an issue of causation (e.g. Medical negligence cases; Gregg v Scott) then the loss will only be recoverable if on the balance on probabilities the loss was likely to occur
- P must prove that there was a better than 50% chance that the loss would have occurred.
- If treated by the court as an assessable head of damage, then such loss is recoverable even though the calculation of the loss is “not only difficult but incapable of being carried out with certainty or precision”; Chaplin v Hicks
- If treated entirely as an issue of causation (e.g. Medical negligence cases; Gregg v Scott) then the loss will only be recoverable if on the balance on probabilities the loss was likely to occur
Issue: Has there been any assessable loss resulting from the breach of contract complained of?; Chaplin v Hicks – Street CJ
- Test is whether P was possessed of something which had a monetary value, of which he was deprived by D’s breach of contract
- “Assuming that the damages claimed are capable of assessment, damages are not too remote. The determination depends on whether they were within the contemplation of both parties, that is whether both parties were aware of the circumstances”; Howe v Teefy – Street CJ
- P is not entitled to damages for the loss of benefits which D was not bound under the contract to provide; NSW Cancer Council v Sarfaty
- In order to determine what P has lost as a result of D’s breach, the court not only looks to the express terms of the contract but also any implied term; NSW Cancer Council v Sarfaty
E.g. Manubens v Leon
Facts: suit for wrongful dismissal. A hairdresser’s assistant obtained damages not only for lost wages but also for tips that would have been received because the tips were part of an implied promise given by the employer.
Feelings, disappointment and mental distress
- General rule in breach of contract is that no damages can be awarded for mental distress and disappointment; Hobbs v London and South Western Railway
- Unless, they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation; Baltic Shipping Co v Dillon
Damages have been awarded in;
- Where D’s breach of contract injured P both physicals and mentally; Baltic Shipping Co v Dillon
- Where there were contracts to provide a skiing holing; Athens-MacDonald Travel Service v Kazis
- Holiday cruise on a ship; Baltic Shipping v Dillon
- More examples see pg 114 Covel & Lupton
Refused in Johnson v Unisys
Facts: House of Lords refused to award damages to an employee who suffered a “mental breakdown” or psychiatric injuries following a wrongful dismissal.
Principle: An employee could not recover damages for injured feelings, mental distress or damage to his or her reputation caused by the manner of the dismissal; Addis v Gramophone
- However, If such damage is loss flowing from a breach of another implied term of the contract, Addis’s case does not stand in the way; Johnson v Unisys
Loss of Reputation
- Where the breach of contract injures P’s reputation, damages for this loss are recoverable, otherwise “the award of damages will fail to fulfil the objective of compensating P for the harm which he or she has suffered as the result of D’s breach; Baltic Shipping Co v Dillon
E.g. Flamingo Park v Dolly Dolly Careations
Facts: Flamingo controlled one of Australia;s leading fashion designers, Jenny Kee. Textiles agreed to print Kee’s design onto fabric and would not print the design for anyone else. Textiles breached by printing the design onto inferior fabric for third parties without consent.
Held: Wilcox J ordered damages of $30K. “There appears to be no reason why, in other situations, reputation should not be treated in the same manner as mental distress”.
In order to provide fair compensation, interest on damages can be awarded both at common law and under statute. Interest is awarded for the period between the date on which the loss accrued and the “the date when the judgment takes place”.
- Function is to compensate P for their loss caused by being kept out of their money during the relevant period; MBP (SA) v Gogic
Interest will not be awarded on all heads of damage become some of these heads represent loss after the date of judgement.
Exemplary Damages – (Principles)
P cannot be awarded exemplary damages in contract; Addis v Gramophone. This is so even in cases of intentional or malicious breach of contract; Gray v Motor Accident Commission.
However, if the conduct that constitutes the breach of contract also amounts to a tort, where exemplary damages are available then such damages may be awarded for the tortious conduct in both jurisdictions; Vorvis v Insurance Corporation of British Columbia
- “extraordinary remedy” allowed only in “very rare” cases.
- g. HC in Zhu v Treasurer of the State of NSW did uphold an award of exemplary damages where there had been a tortuous interference with a contract by a third party.
Equitable compensation and damages – page 349
- Damages in common law are awarded in respect of common law wrongs, including torts and breaches of contract.
- Equity has an exclusive jurisdiction in respect of purely equitable wrongs through “equitable compensation” – monetary compensation for loss. It also has the concurrent and auxiliary jurisdictions of equity in respect of common law and other wrongs.
- – The Exclusive Jurisdiction of the Court of Equity: Focuses on the restoration of the actual money or thing lost.
- – The Auxiliary Jurisdiction of the Court of Equity: Focuses on the award of damages assessed on a similar basis as the common law but is discretionary
- Exclusive Jurisdiction
- In respect of purely equitable wrongs, including breach of trust and other fiduciary duties, equity has long exercised an inherent jurisdiction to award monetary compensation for the loss.
- …The essence of a fiduciary relationship…is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest [like tort and contract], at its core, and when breach occurs, the balance favours the person wronged: Canson Enterprises Ltd v Boughton & Co.
- Equitable Compensation – In respect of breaches of trust and fiduciary duties (purely equitable wrongs), equity exercises an inherent jurisdiction to award monetary compensation for loss.
- Equitable compensation and damages in tort share the same fundamental purpose of compensation; Target holdings Ltd v Redferns.
- – The plaintiff is to be put “in the same position as he would have been in if he had not suffered the wrong for which he is now getting his compensation or reparation”; Livingstone v Rawyards Coal Co.
- – Aims to restore the plaintiff, as nearly as possible, to the position they would be in had no equitable breach occurred.
- Although there have been cases of equitable compensation where the P’s loss was measured by the D’s gain: McKenzie v McDonald; the appropriate restitutionary remedy in such cases of wrongful gain is account of profits in the exclusive jurisdiction of equity. The P must elect between equitable comp and account for profits because they are alternative and inconsistent remedies: Warman International Ltd v Dwyer (1995)
- Exemplary damages cannot be awarded for breach of fiduciary duty, because equitable compensation has no element of penalty ‘abhors penalty’ – unlike tort; Harris v Digital Pulse Pty Ltd.
- Aggravated damages may be awarded as they are compensatory in nature
- There must be a causal connection between the defendant’s wrongdoing and the plaintiff damage. Causation in equity is not… susceptible to the formulation of a single test. It is necessary to identify the purpose of the particular rule to determine the appropriate approach to issues of causation; O’Halloran v R T Thomas and Family.
- Equitable compensation is fundamentally different from damages in tort or breach of contract as the fiduciary has obligations of trust which apply irrespective of the common law concepts of causation or remoteness: Youyang Pty Ltd v Minter Ellison (2003) 196 ALR 482
- Equity does not ask whether the loss was caused by the breach.
- Equity asks whether the loss would have happened had there been no breach: Re Dawson, 405.
- There is no novus actus interveniens in equitable compensation: Maguire v Makaronis (1997) 188 CLR 449, 470.
Application can be found in three groups of cases:
- Misapplication of trust assets
- Conflicts of duty and interest
- Breaches of equitable duties of care and skill
- Misapplication of trust assets – (Principles)
- [T]he basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensate for such loss…The common law rules of remoteness of damage and causation do not apply: Target Holdings v Redferns  AC 421, 434 (Lord Browne-Wilkinson)
- A trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation of such loss; Target Holdings v Redferns
- If specific restitution of trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed; Caffrey v Darby
- Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred; Re Dawson.
Eg. Target Holdings Ltd V Redferns
- – Target argued successfully in the English Court of Appeal that Redferns were under an immediate duty as trustee to restore the trust funds upon breach, and that subsequent events which diminished the loss in fact suffered were irrelevant, allowing only for the proceeds of the mortgage of sale.
- – However the House of Lords reversed the decision, holding unanimously that Target had “suffered no compensatable loss”
- – Lord Browne – Wilkinson, “Target obtained exactly what it would have obtained had no breach occurred, i.e a valid security for the sum advanced”. The insufficiency of the security was not to the point.
Youyang Pty Ltd v Minter Ellision Morris Fletcher
Facts: $500K was held on trust for Y for purpose of subscribing for shares in new investment company. Breach of trust occurred when Minters released the funds in two installments without obtaining the security of a negotiable bearer deposit certificate that was required under the terms of the trust. Investment company was liquidated and Y lost whole investment.
Held: HC distinguished Target Holdings on the facts. Unlike the security that was provided to Target, albeit belatedly in breach of trust, Y was never provided with any security at all. The HC rejected Minters’ argument that supervening events after the share subscription were the true cause for Y’s loss.
“There is no translation into this field of discourse of the doctrine of novus actus interveniens”; Maguire v Makaronis.
- Undisclosed conflict of duty and Interest – (Principles)
- Compensation may be awarded where a fiduciary has an undisclosed conflict of fiduciary duty and personal interest that is material to the beneficiary’s loss; Nocton v Lord Ashburton:
- Nocton had breached his F duty as a solicitor by failing to disclose his personal interest in the transaction and by advancing his own interest at the expense of his client.
- Viscount Haldane LC confirmed the exclusive jurisdiction of equity to make monetary awards for breach of fiduciary duty “to compensate the plaintiff by putting him in as good as a position pecuniarily as that in which he was before the injury”.
- Question of causation was discussed in OBITER by privy council in Brickenden v London Loan and Savings Co, but has otherwise been accepted as good authority in Australia.
- “Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant”. In other words, D can’t use it as a defence.
- The element of causation resides in the “materiality” of the undisclosed facts; Kirby J – Maguire v Makaronis.
- Known as Brickenden
Issue: Can you reduce liability of D duty through contributory negligence?
- NZ Court of Appeal took a different approach in Day v Mead. It took the unprecedented step of applying, by analogy, the apportionment legislation governing contributory negligence in tort to reduce by half the award of equitable compensation.
- In AUS however, the HC in Pilmer v Duke Group Ltd warned of the conceptual difficulties in the path of acceptance of notions of contributory negligence as applicable to diminish awards of compensation for breach of D duty.
- “contributory negligence focuses on the conduct of the plaintiff, fiduciary law upon the obligation by the defendant to act in the interests of the plaintiff”: Pilmer v Duke Group Ltd
- Breach of equitable duties of care and skill – (Principles)
- It is necessary to bear in mind that the existence of fiduciary relationship does not mean that every duty owed by a fiduciary to the beneficiary is a fiduciary duty. In particular, a trustee’s duty to exercise reasonable care, through equitable, is not specifically a fiduciary duty: Permanent Building Society (in liq) v Wheeler
- …Although the remedy which equity makes available for breach of equitable duty of skill and care is equitable compensation rather than damages (as in common law), that is merely the product of history and in this context is in my opinion a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles the common law damages in that it is awarded by way of compensation to the P for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damage should not be applied by analogy in a such a case: Bristol and West Building Society v Mothew per Millet LJ (English Court of Appeal)
- However in Australia, the persuasive authority of Mothew must be doubted because of obiter in case of Youyang, where HC referring to above quote said:
…There must be a real question whether the unique foundation and goals of equity, which has the institution of the trust at its heart, warrant any assimilation even in this limited way with the measure of compensatory damages in tort and contract. It may be thought strange to decide that trustees are to be kept by the courts of equity up to their duty has an application limited to the observance by trustees of some only of their duty to beneficiaries in dealing with trust funds.
- Auxiliary Jurisdiction
- The Problem: Where equity was dealing with a breach of legal rights there was no jurisdiction to award damages either in addition or in lieu of an injunction to protect a purely legal right.
- Section 68 of the Supreme Court Act 1970 (NSW) remedies this deficiency – previously embodied in Statute 21 & 22 Vic c.27 or “Lord Cairns’ Act 1858”.
- Damages under section 68 of the SCA are referred to as Equitable Damages.
Section 68 SCA – Damages in case for equitable relief
Where the Court has power:
(a) to grant an injunction against the breach of any covenant, contract or agreement, or against the commission or continuance of any wrongful act, or
(b) to order the specific performance of any covenant, contract or agreement,
the Court may award damages to the party injured either in addition to or in substitution for the injunction or specific performance.
- The “Lord Carins’ Act” provides for the modern jurisdiction of equity to award damages in respect of common law and other wrongs. In NSW this by virtue of s 68 of the Supreme Court Act 1970.
- Lord Cairns’ Act 1858 enables the court to award damages in lieu of, or in addition to, an injunction or specific performance even if claim would be defeated by a discretionary defence such as hardship: Wentworth v Woollahra Municipal Council (1982) 149 CLR 672, 676, 679.
- Operation – At the date of institution of the suit, if the court had no jurisdiction to grant an equitable remedy, it was not empowered to award damages under the Act: King v Poggioli (1923) 32 CLR 222.
- The court must have “power” either to grant an injunction or to order specific performance before equitable damages can be awarded; s 68 SC Act.
- Damages are available if the court has jurisdiction to grant specific relief, but declines to do so because of discretionary considerations; Goldsbrough Mort v Quinn.
- The question is whether, at the date of the writ, the court could have granted [specific relief], not whether it would have done; Jaggard v Sawyer.
Should damages be awarded at law or under LCA?
- If a plaintiff has a completed cause of action at law as at the date of the initiating process, the damages should be awarded at law: ASA Constructions Pty Ltd v Iwanov  1 NSWLR 512.
- If at the date of the writ, there was no cause of action at law, damages are awarded under LCA: Oakacre Ltd v Claire Cleaners (Holdings) Ltd  Ch 197.
- Specific relief = Injunction & Specific Performance
E.g .McMahom v Ambrose
Facts: Specific Performance was sought of a contract to assign a lease.
Because the lease had expired before the commencement of proceedings, there was no jurisdiction to award specific performance or equitable damages.
However, if a contract was capable of specific performance when proceedings seeking relief were commenced, the court does not lose its jurisdiction to award damages in substitution for specific performance if performance of the contract becomes impossible during the pendency of litigation. E.g. Johnson v Agnew
E.g. Fritz v Hobson – Prohibitory Injunction
- The nuisance to be enjoined had abated after proceedings were commenced. Equitable damages in substitution for an injunction were awarded.
Discretion to award damages
- Unlike damages at common law, equitable damages are not awarded as a matter of right.
- Damages maybe reduced or denied because of equitable discretionary considerations, such as hardship to the defendant that are irrelevant to common law.
- Under s 68 of SC Act 1970, one of three outcomes is possible;
- Neither damages nor specific relief may be awarded
- – Equitable defences (such as acquiescence (agreement), unclean hands latches) may preclude both the grant of specific relief and an award of damages. E.g Sayers v Collyer.
- Damages awarded in addition to specific relief
- – Where an injunction or specific performance has been made impossible: Johnson v Agnew  AC 367.
- – Governing principle is to avoid duplication of relief
- – g Grant v Dawkins;
- Vendor failed to complete contract because of mortgages that remained outstanding over the land.
- Purchaser sought specific performance on the basis he would discharge mortgages himself
- Court awarded equitable damages in addition to compensate purchaser for mortgage liabilities.
- Damages awarded in substitution for specific relief
- – Damages may be awarded when specific relief has become impossible during the pendency of the litigation; Johnson v Agnew.
- – However damages in substitution are still possible even when specific relief remains possible. AL Smith LJ – Shelfer v City of London Electric – “good working rule”;
(Principle) – If the injury to the plaintiff’s legal rights is small and is one which is capable of being estimated in money and is one which can be adequately compensated by a small money payment and the case is one in which it would be oppressive to the defendant to grant an injunction; then damages in substitution may be given.
Other wrongful acts may give rise to an award of equitable damages.
Breaches of statutory prohibitions
- Wentworth v Woollahra Municipal Council
Facts: P sought a mandatory injunction to demolish neighbour house erected in breach of local planning ordinance. P’s standing was based upon special damage consisting of having the views from her house obscured by the offending structure. NSWCA declined to grant injunction on discretionary grounds so P claimed equitable damages.
(Principle) HC held that s 68 of SC Act is “exclusively preoccupied with private rights’ and that the section was not intended to authorize the award of damages for breach of a statutory prohibition which manifests no intention to create a private cause of action for damages”.
- Matthews v ACP Publishing Pty Ltd
Facts: P photographer had been commission by D to photograph a celebrity to publish on magazine. D then licensed the photograph to another company to publish on another magazine.
Held: case was distinguished from Wentworth . Beaumont J, “s 35(5) of Copyright Act is not concerned with public rights. The section manifests an intention to create a private cause of action in damages in lieu of or in addition to the grant of an injunction where the award of compensation is appropriate”.
- Equitable damages was awarded.
“An incidental object of the [Lord Cairns’] Act was to enable the court to award damages in lieu of an injunction or specific performance, even in the case of a purely equitable claim”; Wentworth v Woollahra Municipal Council.
Equitable damages are available for breach of confidence in cases where the obligation of confidence was purely equitable in nature; Attorney – General v Guardian Newspapers (No 2).
- Facts: D had published extracts from the book Spycatcher in breach of an equitable duty of confidence owed to the Crown.
Talbot v General Television Corp
Facts: D broadcaster made an unauthorized use of a new computer program that P submitted in confidence. The obligation of confidence was purely equitable because there was no contract between the parties. P was awarded an injunction and an inquiry into damages.
- The only question is whether there is jurisdiction to award damages as well as an injunction; per Harris J.
Assessment of Damages
- As a general rule, the amount of equitable compensation is assessed as at the time of the trial with the benefit of hindsight: Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484, 500.
- Common law damages are generally assessed as at the date of breach: Johnson v Perez (1989) 166 CLR 351, 356.
- If court considers it just, it will assess the amount of compensation at a different time: Southern Real Estate Pty Ltd v Dellow (2003) 87 SASR 1
Valued at Point of Restoration (not deprivation)
- Assets must be replaced at their value at the time of restoration and not deprivation.
- Where the market value of the asset between the date of breach and the date of recoupment has increased, the defaulting trustee is likely to be liable for a greater debt than at common law (Re Dawson, 406).
Assessment of damages: Applying the maxim “equity follows the law”, assessment of equitable damages in the concurrent and auxiliary jurisdictions follows the common law principles of assessment; Johnson v Agnew.
- Common law restrictions upon remoteness of damages are applied in the concurrent and auxiliary jurisdictions of equity.
- Issues of causation, remoteness, date of assessment and the compensation principle are all relevant (in contrast to equitable compensation).
- However, equitable damages differ from damages at common law as they may be:
- Reduced or declined on discretionary grounds.
- Awarded in circumstances where no common law damages could have been awarded. This includes cases where purely equitable obligations have been breach, such as a breach of confidence, or an action to enforce an equitable easement: Gas & Fuel Corporation of Victoria v Barba ;
- – when the injunctions was refused on discretionary grounds, the question arose of whether equitable damages in substitution for an injunction could be awarded where the respondent had suffered no actual injury
- – A majority of the House of Lords held that lord Cairns Act enabled an award of equitable damages in substitution for an injunction:
…if damages are given in substitution for an injunction they must necessarily cover not only injury already sustained but also injury that would be inflicted in the future by the commission of the act threatened. If no injury has yet been sustained the damages will be solely in respect of the damage to be sustained in the future by injuries which the injunction, if granted, would have prevented.
- There are NO exemplary damages in equity.
- Assessment of damages is governed by the compensation principle.
- However, Lord Nicholls in Attorney – General v Blake identified the capacity to compensate for future injury as a key advantage of equitable damages over common law damages, particularly in cases of wrongs such as nuisance and trespass.
Restitution – page 131
1. Does the claim come within a recognised category?
2. Was the defendant enriched?
3. Was this enrichment at the expense of the plaintiff?
4. Was this enrichment unjust?
5. Is there any defence to this claim?
While the Common Law requires restitution in specie, equity requires the parties to be returned substantially to the status quo prior to the time of the cause of action arising.
- ‘Practical Justice’ – Alati v Kruger (1955)
- Restitution – Reversing the defendants gain (restitutionary personal claims falling outside of contract, tort and equity) – the law of quasi- contract.
- Founded upon the principle of unjust enrichment.
- Purpose of the law of restitution is the reversal of unjust enrichment. This remains the orthodox view. It encompasses common law and equitable claims as well as personal and proprietary claims. However the chapter focus’ on restitutionary personal claims (quasi- contract)
Quasi – contact:
Consists of four actions referred to as ‘common counts’ or ‘money counts’;
- Money had and received to the use of the plaintiff
Plaintiff seeks restitution of money paid to the defendant on grounds such as mistake, duress or failure of consideration.
- Quantum Meruit
Restitution for the reasonable value of services, supplied by the plaintiff to the defendant’s request
- Quantum Valebat
Restitution of for the reasonable value of goods, supplied by the plaintiff to the defendant’s request
- Money paid to the use of the defendant (not considered in chapter)
Restitution for the payment of the defendant’s debt
Liability in restitution seeks to strip the defendant of an enrichment made at the plaintiff’s expense. Liability in contract seeks to compensate the plaintiff for a loss caused by the defendants breach or repudiation; Baltic Shipping Co v Dillion.
- Full compensatory damages in contract and complete restitution cannot be awarded for the same breach in contract; Attorney-General v Blake
- Unjust enrichment should be ‘seen as a concept rather than a definitive legal principle’: Roxborough v Rothmans of Pall Mall Australia Ltd (2001)
- The true relevance of unjust enrichment was by identified by Dean J as follows:
‘It constitutes a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of the plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case.’: Pavey & Matthews Pty Ltd v Paul (1986) 162 CLR 221, 257 (Deane J).
- For the restitution lawyer, principles of unjust enrichment cannot help a plaintiff who has lost out where the defendant has not been enriched.
- The unjust enrichment principle was considered by Gummow J in Roxborough v Rothmans of Pall Mall Australia Ltd (2001)
- His Honour cited Moses v Macferlan ‘the gist of this kind of action is, that the D, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.’
- Applying Lord Manfield’s dictum, his Honour identified the equitable concept of ‘unconscientious retention’ as the basis for restitution in these cases.
- The shift in the HC’s jurisprudence in Roxborough was apparent in its overruling of the NSWCA in Farah Constructions Pty Ltd v Say-Dee Pty Ltd;
- The joint judgment of the HC vehemently rejected the ‘restitution basis’ adopted by the Court of Appeal saying that:
The restitution basis is unhistorical. There is no sign of it in clear terms in any but the most recent authority…The restitution basis reflects the mentality in which consideration of ideal taxonomy prevail over a pragmatic approach to legal development…the restitution basis was imposed as a supposedly inevitable offshoot of an all-embracing theory. To do that was to bring about an abrupt and violent collision with received principles without any assigned justification
- On the particular facts of the case, HC held that recipient liability did not arise because ‘there was no relevant receipt of property, and no relevant notice’.
Actions for Money Had and Received
- HC explained the role of unjust enrichment principle in action for money had and received in Equuscorp Pty Ltd v Haxton in the following terms:
- recovery depends upon enrichment of the D by reason of one or more recognized classes of ‘qualified or vitiating’ factors.
- the category of case must involve a qualifying or vitiating factor, such as mistake, duress, illegality or failure of consideration, by reason of which the enrichment of the D is treated by the law as unjust;
- unjust enrichment so identified gives rise to a prima facie obligation to make restitution
- the prima facie liability can be displaced by circumstances which the law recognizes would make an order for restitution unjust
- An action to recover money paid by the defendant by the plaintiff will lie in at least each of the following; Moses v Macferlan
a) to recover money paid under mistake;
b) to recover money paid, upon a consideration that has totally failed;
c) to recover the proceeds of a tort; and
d) to recover money paid under duress. (no notes in TB)
Factor 1: Recovery of money paid under mistake
- Money paid under a mistake is prima facie recoverable: ANZ Bank Group Ltd v Westpac (1988) 164 CLR 662, 673.
- The mistake must cause the payment in order that the money can be recovered. If the payment was voluntary then it cannot be recovered notwithstanding the mistake.
- Receipt of a payment which has been made under a mistake gives rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment; ANZ Banking v Westpac Banking.
- Facts: ANZ made an overpayment by clerical error. Because each party conceded that the clerical error was a mistake of fact, ANZ had a prima facie right to recovery.
- Significance: HC recognized unjust enrichment as the true basis for the action of money had and received in circumstances where a payment has been made under a mistake of fact.
Issue: What types of mistake will support a restitutionary claim?
- Based on the maxim “ignorance of the law does not excuse”, the traditional rule which follows the authority of Bilbie v Lumley has precluded restitution based upon mistakes of law.
- However the HC in David Securities v CBA reinterpreted the rule into a more narrow one, “that a voluntary payment made in satisfaction of an honest claim is irrevocable.”
- A payment will be characterized as “voluntary”;
- If P chooses to make the payment even though s/he believes a particular law or contractual provision requiring payment is or may be invalid or is not concerned to query whether the mistake is legally required.
- s/he is prepared to assume the validity of the obligation, or prepared to make the payment irrespective of the validity or invalidity of the obligation, rather than contest the claim for payment.
- Whether the mistake is one of fact or law, the essential criterion for recovery is causation.
- The payer will be entitled prima facie to recover moneys paid under a mistake if it appears that the moneys were paid by the payer in the mistaken belief that s/he was under a legal obligation to pay the moneys or that the payee was legally entitled to payment of the moneys. Such a mistake would be causative of the payment; David Securities v CBA
E.g. Hookway v Racing Victoria
Facts: 1st place horse was disqualified for taking drugs. Prize money was paid to appellant who owned 2nd place horse. Racing Victoria successfully claimed for restitution of the prize money from appellant.
Held: Vic CA identified the relevant mistake of law as that of the Racing Victoria officer who paid the money ‘in ignorance of the first placegetter’s legal rights of appeal and thus in ignorance of the potentiality for a lawful change in the placings for the race.’
- Payment was also not voluntary and not irrevocable because no bargain was involved in the making of the payment nor compromise freely entered into, nor any payment made ‘in satisfaction of an honest claim’.
Provided that the criteria of causation is satisfied, carelessness on the part of the payer is not a bar to restitution; David Securities v CBA.
- The distinction between careless mistaken payments, where restitution is allowed and voluntary payments, where it is not, is that voluntary payments are not caused by the payer’s mistake; Kelly v Solari.
Factor 2: Recovery of money upon a total failure of consideration
- Money paid under a contract terminated for breach where there has been a total failure of consideration passing from the one party to the other is an example of an action for restitution.
- Total failure means total failure of consideration and not a partial failure: Baltic Shipping Co v Dillon (1993) 176 CLR 344.
- Where a plaintiff has paid money under a contract that s/he has elected to terminate for a breach or repudiation, unless the contract provides otherwise, a restitutionary action for money had and received is an alternative remedy to compensatory damages for a breach of contract.
- The same principles apply to contracts that are void; Rover International v Cannon Film Sales; or unenforceable; Goss v Chilcott.
- It is the performance of the defendant’s promise, not the promise itself, which is the relevant consideration; Baltic Shipping Co v Dillon.
- “the money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled”; Vicount Simon LC
- However, failure of consideration is not confined to failure of contractual performance although it may include that; Roxborough v Rothmans.
- Concept embraces payment for a purpose which has failed, for example where a condition has not been fulfilled, or a contemplated state of affairs has disappeared; Muschinski v Dodds.
- Failure of consideration must be total. There is generally no right to restitution where the failure of consideration is partial; Hunt v Silk
- Hunt’s action for money had and received failed because he had received the benefit of intermediate enjoyment of the property.
- Strict nature of theof the traditional rule was affirmed by HC in Baltic Shipping Co v Dillon.
- Ship sank on 8th day of 14 day cruise. Dillion claim to full refund failed because she had received benefit of 8 days cruising.
Issue: Whether the priomisor has performed any pay of the contractual duties in respect of which the payment is due; Stoczina Gdanska S A v Latvian Shipping
If the promisor conferred a benefit that was different in kind from that which the promise contracted for, there may still be a total failure of consideration; Rowland v Divall
- P bought a car from D who had no right to sell it. P had used the car for months before returning it to the true owner. Total failure of consideration was found entitling P to restitution of the purchase price. P had not received any part of that which he contracted to receive – namely property and right to possession.
Doctrine of severability of consideration;
- Where the consideration is severable, complete failure of part may form a ground for recovering a proportionate part of the money paid for it; Roxborough v Rothmans. It may even be so if the whole of the consideration has not failed.
- Majority justices held that the invalid tax was treated by the parties as a ‘distinct and separate element’ of the consideration for each purchase of goods, and so ‘the failure of the tax involved the failure of a severable part of the consideration’.
Recovery of money by defaulting party
- Once the contract has been discharged by the terminating party, the defaulting party may also be entitled to an action for money had and received where the consideration for payments made under the contract has totally failed.
E.g. McDonald v Denny’s Lascelles
- Defaulting purchaser under a contract for the sale of land.
- It is now beyond question that installments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract; Dixon J
- Part payments or installments are generally recoverable by the purchaser upon discharge of the contract, even if the discharge was in response to the purchaser’s own breach.
- This is because the vendor’s title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract; Dixon J
Payments in the nature of deposits are generally forfeited to the vendor at common law if the contract is discharged in response to the purchaser’s breach; Howe v Smith
Factor 3: Recovery of the proceeds of a tort
- A waiver of tort is also referred to as the recovery of money acquired by tort.
- A tortfeasor acquires a benefit from the commission of a tort that exceeds the damage suffered by the innocent party.
- Here the innocent party may recover the value of the benefit received in restitution rather than damages and would therefore sue for money had and received.
- “waiver of tort” is a quasi-contractual doctrine by which the victim of a tort may recover the proceeds of the tort from the tortfeasor.
- It has its most obvious application in cases where the benefit received by the tortfeasor is greater than the loss, if any, suffered by the victim.
- Most commonly been applied in cases where the defendant has tortuously converted the plaintiff’s goods by selling them.
- Originally, the basis of the action was the ratification of the actions of the tortfeasor by the plaintiff resulting in the extinguishment of the tort and in effect making the tortfeasor the agent of the plaintiff who can then claim the proceeds.
- However, this theory of “extinctive ratification” has been rejected in favour of one of “election”: United Australia Ltd v Barclays Bank Ltd  AC 1.
Issue: Which torts can support an action in restitution?
The principle of unjust enrichment is used to identify torts that might support an action in restitution.
The requirement that the defendant be unjustly enriched ‘at the expense of’ the plaintiff can mean that the enrichment is ‘by doing wrong to’ or ‘by subtraction from’ the plaintiff. Hence, a plaintiff can succeed by showing that he or she was the victim of a wrong which enriched the defendant…or that the defendant was enriched by receiving the plaintiff’s money or property” ; Commissioner of State Revenue (VIC) v Royal – Mason CJ in OBITER.
Trespass to land
Restitutionary damages for trespass to land is available; Ministry of Defence v Ashman
Principle: A person entitled to possession of land can make a claim against a person who has been in occupation without his consent on two alternative bases. The first is for the loss which he has suffered in consequence of the defendant’s trespass. This is the normal measure of damages in the law of tort. The second is the value of the benefit which the occupier has received. This is a claim for restitution. The two bases of claim are mutually exclusive and the plaintiff must elect before judgment which of them he wishes to pursue.
- Assessment is the value of the premises to the defendant – “user principle”
- The value of the premises to the tenant would ordinarily have been the equivalent of market rent for the period of trespassing occupation.
- However on the facts, the value was less than the market rate because D was eligible and waiting for subsidized housing.
Principle was similarly applied in LJP Investments v Howard Chia Investments
- Restitutionary damages were awarded for the trespass of the defendant’s scaffolding into the plaintiff’s airspace.
- D had saved money on license fees and increased value of his property by building closer to the boundary.
- Measure of damages was the ‘peculiar value’ of the rights to the defendant, and that was more than the open market value of the airspace.
Wrongful detention of goods.
The “user principle” was applied to wrongful detention of goods by the English CA in Strand Electric & Engineering v Brisford Entertainments.
- D had detained and used P’s switchboards for his own purposes, which P would have otherwise hired out.
- CA held that D was liable to pay the market hiring charge for the whole 43 weeks of detention, without any deduction for the likelihood that the goods would otherwise have been left unhired for part of that time.
The plaintiff is entitled to the value of the benefit to the defendant, without the plaintiff needing to prove any loss; Strand Electric
Restitution and exemplary damages
- A further exception to the compensation principle in tort is exemplary damages, and these may be used to achieve restitution for the plaintiff.
- The purpose of exemplary damages is ‘to punish the D for conduct showing conscious and contumelious disregard for the P’s rights and to deter him from committing like conduct again’: XL Petroleum Pty Ltd v Caltex Oil (Australia) Pty Ltd per Brennan J.
- Exemplary damages are awarded in addition to compensatory damages, but nominal damages can suffice as a basis ‘where the P has a complete cause of action without proof of loss’: Fatimi Pty Ltd v Bryant
- Consistently with their punitive nature, exemplary damages can be awarded for the purpose of stripping the D of a wrongful gain.
- One occasion for awarding exemplary damages in tort is where “the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff”; Rookes v Barnard
- g defamatory publication; Broome v Cassell
- Kuddus v Chief Constable of Leicestershire Constabulary per Lord Scott: Restitutionary damages are available now in many tort actions…The profit made by a wrongdoer can be extracted from him without the need to rely on the anomaly of exemplary damages.
Factor 4: QUANTUM MERUIT AND QUANTUM VALEBAT
- Quantum Meruit;
Lies to recover reasonable remuneration for services supplied by the plaintiff at the defendant’s request, in circumstances where there is no effective contract
- Quantum meruit often arises where the contract is unenforceable (Pavey & Matthews v Paul (1987) 162 CLR 221) or where the contract is terminated for breach.
- Quantum Valebat;
Lies to recover a reasonable price for goods supplied by the plaintiff at the defendant’s request. However this action has been superseded by the sale of goods legislation. Chapter doesn’t concentrate on this action.
- It is necessary for the plaintiff’s acts in seeking to perform the contract has conferred a benefit on the defendant.
- The position of the defaulting party against whom the contract has been terminated, suing for the value of work done, is somewhat different and a question of free acceptance often arises.
- For example, in the case of a partly executed building contract where the owner has terminated for default and the builder sues to recover the value of the work completed to date.
- The owner has no choice, as the work is on the land and thus there is no free acceptance: Sumpter v Hedges  1 QB 673. However, the same is not the case where the building materials may be returned.
- Mere supply of services by the plaintiff to the defendant is not, in itself, sufficient to impose a liability upon the defendant to pay for services; Taylor v Laird
- In general, if the plaintiff’s services were not rendered gratuitously, an obligation to pay for the services only arises if the defendant either requested or accepted the services.
- An act of acceptance by the defendant, or taking the benefit of the plaintiff’s services, is sufficient to create an obligation to pay reasonable remuneration; Stelle v Tardiani; Pavey & Matthews v Paul.
- – Basis of the “free acceptance” principle
“Free acceptance” principle was expressed in W Cooke Builders v Lumbers;
“… More than simple acceptance of a benefit is involved. It is necessary to establish that the defendant acquiesced in the provision of the service, in circumstances where a reasonable person should have realized that a person in the plaintiff’s position would expect to be paid for that service. It is also necessary to establish that the defendant had a reasonable opportunity to reject the provision of the service and did not do so”.
Pavey & Matthews v Paul;
Facts: under oral contract, builder had carried out renovations on the respondent’s cottage. She had agreed to pay a ‘reasonable remuneration’ for the work with reference to prevailing rates. Both parties were ignorant that the contract was unenforceable for lack of writing under Builder’s Licensing Act. Respondent accepted the benefit and occupied on completion but refused to pay whole amount of $62k.
Held: HC upheld builder’s claim
“…if all the plaintiff had to prove was that he had fully executed the contract on his part and that he had not been paid the contract price, there would be some force in the suggestion that the proceeding amounted to an indirect enforcement of the contractual cause of action. However, when the success in a auantum meruit depends, not only on the plaintiff proving that he did the work, but also on the defendant’s acceptance of the work without paying the agreed remuneration, it is evident that the court is enforcing against the defendant an obligation that differs in character from the contractual obligation had it been enforceable”.
Mason and Wilson JJ:
“…an action on quantum meruit…rests, not on implied contract, but on a claim to restitution or one based on unjust enrichment, arising from the respondent’s acceptance of the benefits accruing to the respondent from the appellant’s performance of the unenforceable oral contract.
Contracts discharged for breach
Position of terminating party
The terminating party may elect between an action for breach of contract and an action in restitution; Renard Constructions v Minster for Public Works – Meagher JA.
Facts: Plaintiff construction company agreed to construct two pumping stations for the defendant. Before completion the defendant repudiated the contract. The plaintiff accepted the repudiation, terminated the contract and made a restitutionary claim for quantum meruit for the portion of the work that P had carried out and for which P had remained unpaid.
Issue: If the total contract price should be the upper limit of the plaintiff’s claim in restitution?
Short Answer: No
Held: “… the most one can say is that the amount contractually agreed is evidence of the reasonableness of the remuneration claimed on a quantum meruit; strong evidence perhaps, but certainly not conclusive evidence. On the other hand, it would be extremely anomalous (unusual) if the defaulting party when sued on a quantum meruit could invoke the contract which he has repudiated in order to impose a ceiling on amounts otherwise recoverable”.
- Plaintiff was awarded more than the contract price. It remains controversial but was approved by Queensland CA in Iezzi Constructions v Watkins Pacific.
The ordinary measure of restitution in quantum meruit claims will be the “fair value of the benefit provided” (e.g remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied); Pavey & Matthews v Paul
- Court may award a reasonable commission where it is customary; Way v Latilla
- Terms of the ineffective contract may be used as evidence of fair market value; Pavey & Matthews v Paul.
Date of assessment is “when the benefit was received”; Flett v Deniliquin Publishing
Position of defaulting party
Quantum Meruit is not generally available to the defaulting party in respect of non-monetary benefits conferred under contract, unless there has been free acceptance of those benefits by the terminating party.
An action in restitution is based upon the doctrine of substantial performance by the defaulting party; Hoeing v Isaacs
- g Sumpter v Hedges
Facts: Sumpter contract to build two houses and stables for Hedges in consideration of a lump sum payable upon completion. Sumpter abandoned the contract when the building work was only partially completed. Sumpter claimed quantum meruit in relation to the incomplete building work but was rejected at first instance. Hedges later used the building materials left to complete the buildings.
Held: Sumpter’s obligations under the contract were “entire” in so far as Hedges had only bargained for completed buildings, not for partially completed buildings, as the condition precedent to payment. There was no question of substantial performance on the facts. Accordingly, neither a contractual claim nor restitutionary claim for quantum meruit was available.
- HC approved Sumpter in Steele v Tardiani
Facts: Plaintiff labourers had contracted to cut D’s timber into firewood of a certain width, in consideration of an agreed payment per ton. Plaintiff’s cut 1500 tons, but most were not to the required width.
Distinguished: Unlike Sumpter, the contract was “divisible” in nature. The plaintiff’s were entitled to contractual quantum meruit for “each divisible application” of the contract that been fully or substantially performed.
Held: right to remuneration for the remaining balance was shown for D’s conduct in accepting the defective firewood without protest, and later selling it.
- “it amounted to a taking of the benefit of the work and so, as involving either a dispensation from precise performance or an implication at law of a new obligation to pay the value of the work done”. Accordingly the defendant had freely accepted the benefit of the plaintiff’s work.
Mistakenly rendered services
- First threshold issue is enrichment.
- A defendant may not receive any benefit at all from services that were neither requested nor accepted by the defendant.
- In Ministry of Defence v Ashman, Hoffmann LJ made the point that a benefit “may be worth less to a defendant who has not been free to reject it”.
- Known as “subjective devaluation”.
- If a particular defendant simply does not want or need the service, it is irrelevant to this particular defendant that the service has an objectively determinable market value.
- Accordingly, if there is no enrichment of the defendant, there is no unjust enrichment.
- Second Issue: Relief will be denied where the plaintiff has acted “officiously” (dictatorially) in rendering the service.
- Birks gave the example of someone who cleans another’s car while the other is away.
- Such a plaintiff takes the risk that the defendant will pay him for the benefit which he conferred on him. He has no cause to complain if his hope is disappointed; Geof and Jones
Mistakenly rendered services and the principles of incontrovertible benefit
A plaintiff may succeed in quantum meruit for mistakenly rendered services if the defendant has been “incontrovertibly benefited” (undeniably) by the services; Geoff and Jones
- D will be incontrovertibly benefited by non-monetary benefits in two circumstances:
- If a reasonable person would conclude that he has been saved an expense which he otherwise would have necessarily incurred; or
- where he has made, in consequence of the plaintiff’s acts, a reasonable financial gain
- Where an incontrovertible benefit is established, it defeats any recourse to subjective devaluation; Monks v Poynice
Monks v Poynice
Facts: P’s mistakenly rendered services as the appointed receiver of the defendant company had saved the insolvent company a necessary expense.
Held: Young J – “where, notwithstanding that there has been no acceptance of the service, a company is benefited incontrovertibly by the acts of the claimant, then the claimant has a right against the company to be remunerated”
- It would be unconscionable for the defendant to keep the benefit of the service without paying a reasonable sum therefor.
Mistaken improvements to chattels
- A plaintiff may succeed in quantum meruit for mistakenly rendered improvements to a chattel, if the defendant has been “incontrovertibly benefited” by the plaintiff’s improvements.
- McKeown v Cavalier Yachts
Facts: the second defendant, which unsuccessfully claimed to own the yacht, had made substantial improvements to the yacht during the period of its possession, under the mistaken belief that it owned the yacht.
Held: “the plaintiff must pay compensation as a prerequisite to obtaining an order for specific recovery of the chattel and the measure of that compensation is the amount of the incontrovertible benefit”; Young J.
- Court applied the ‘second limb’ of the incontrovertible benefit principle where the plaintiff had made, at the defendant’s expense, a realizable financial gain.
- Greenwood v Bennett
Facts: claimant was an innocent purchaser of a car from a thief. The true owners of the car were awarded delivery of the car in interpleader proceedings at first instance.
Held: on appeal, the owners were ordered to pay one of the unsuccessful claimants of the car for the cost of necessary repairs made to the car by that claimant during the period of his possession, when he mistakenly believed that he owned the car.
With regards to improvements in land;
- A mistaken improver of land will be denied relief unless, amongst other requirements, the defendant knows of the plaintiff’s mistaken belief and has “encouraged the plaintiff in his expenditure of money or in the other acts which he has done, either directly or by abstaining from asserting his legal right”; Ramsden v Dyson.
DEFENCES – page 175
(a) Change of position
Change of position defence is unique to the law of restitution for unjust enrichment.
It arises where the defendant has received a benefit and “has acted to his/her detriment on the faith of the receipt”; ANZ Banking v Westpac Banking
- Acting in good faith;
- Mere negligence does not suffice to show a lack of good faith; Port of Brisbane Corporation v ANZ Securities
- The defence is not available to a wrongdoer, or where the defendant acted with knowledge of the payer’s mistake; Lipkin Gorman v Karpnale
- In all cases, the question is whether it would be inequitable or unconscionable to deny restitution to the mistaken payer; Niru Battery Manufacturing Co v Milestone Trading– Per Clarke LJ
- D acted in reliance on the payment;
- That D point to expenditure or financial commitment which can be ascribed to the mistaken payment; David Securities
- The change of position is not available where D has “simply spent the money received on ordinary living expenses”; David Securities
- On the faith of the receipt;
A bank which receives a mistaken payment and disburses it can only bring itself within the change of position defence if it shows that at the time of the disbursement it knew or thought it knew more than the fact of receipt standing alone. This must be information, which, if true, would entitle the payee to deal with the receipt as it did and that information must have come from the payer; State Bank of NSW v Swiss Bank Corp.
(b) Good consideration
HC has recognized that an action for money had and received for the restitution of a mistaken payment may be defeated to the extent that the mistaken payer has received “good consideration” for the mistaken payment; ANZ v Westpac; David Securities
A claim based on a total failure for consideration will be defeated completely if P has received any part of the consideration for which P had bargained.
- Consideration means “the performance of the defendant’s promise, and not promise itself”.
E.g. Ovidio Carrideo Nominees v Dog Depot
Tennant’s claim in restitution for all rent paid failed because the tenant had received the consideration for which it had bargained, being the exclusive use and occupation of the landlord’s premises for the duration of the tenancy
Account of Profits – page 220
Summary to follow (from slides)
- It is a gain-stripping remedy. While most monetary remedies are about loss compensation to the plaintiff, an account of profits is about taking away the gain of the wrongdoer: Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 32 (Windeyer J).
- Technical – Making a detailed profit and loss inquiry into financial liability of one party to another to determine the net profit or gain; and
- Restorative – An order, upon the equity of the case, under which the party is stripped of any net gain and must pay it to the other: Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 32 (Windeyer J).
- Breach of Primary Right
- Discretionary Factors
- Breach of Primary Right
- For breach of common law primary right
- For breach of statutory right
- For breach of equitable primary right
Note: Not all primary rights will lead to this remedy (see below)
- For breach of common law primary right
- Equity has consistently refused to say whether it would or would not grant the remedy in aid of legal causes of action.
- Heydon, Leeming & Turner identify 9 (possibly 10) situations where an equitable account was ordered in aid of a legal cause of action:
- Dissolution of Partnership – Where the court orders general administration of a dissolved partnership: Lacey v Hill (1872) LR 8 CL App 441.
- Mutual Accounts – Where there are mutual accounts involving debits and payments on both sides, between disputant parties: Foley v Hill (1848) 2 HLC 28.
- Accounts otherwise too complex to settle at common law – Where the claim for damages at law is so complex, it is not just or safe to award it: O’Connor v Spaight (1804) 1 Sch & Lef 305.
- Fiduciary/Quasi-fiduciary relationships – Where a contract of employment exists which has a confidential nature, a court may order an account where the agency transactions are numerous and the employer cannot ascertain the true position without full discovery: Phillips v Phillips (1852) 9 Hare 471.
- Protection of non-accrued contractual rights – Where a party would have had a right to be paid money by another if the latter had not prevented the right accruing: McIntosh v Great Western Railway Co (1850) 2 Mac & G 74.
- Intellectual Property Infringed – Where a party infringes the industrial property rights of another, by passing off or breach of patent and trade mark: Price’s Patent Candle Co v Bauwen’s Patent Candle Co (1858) 4 K & J 727.
- Waste – Where a tenant for life at law has committed legal waste, an account might be useful if it is unclear what the tenant has done: Duke of Leeds v Earl of Amherst (1846) 2 Ph 117
- Trespass – Where a trespass cannot be satisfactorily remedied by an action for damages at law: Philips v Homfray (1871) LR 6 Ch App 770.
- Royalty Agreements – such that their enforcement may be better done through an accounting than relief – in the form of actions in debt – at common law.
- Treasonable Activities – Breach of contract Attorney General v Blake  1 AC 268 (Nicholls LJ) (with whom Lord Goff, Lord Steyn and Lord Browne-Wilkinson agreed): ‘There seems to be no reason, in principle, why the court must in all circumstances rule out an account of profit as a remedy for breach of contract. I prefer to avoid the unhappy expression “restitutionary damages”.’
- The Honourable Peter Young AO on an order for account for breaches of contract:
‘[P]robably the most suspect development was the decision of the House of Lords in Attorney-General v Blake, where equitable principles of restitutionary compensation were forced into the common law of damages.’: Young, Croft & Smith, On Equity (Thomson Reuters, 2009) 1223.
- House of Lords. ‘[O]nly in exceptional circumstances… No fixed rules can be prescribed… A useful guide, although not exhaustive, is whether a plaintiff had a legitimate interest in preventing the defendant’s profit-making activity and, hence, in depriving him of his profit’ (Blake at 285).
- But not in Australia. ‘It would be inconsistent with the current principles laid down by the High Court to confer a windfall on a plaintiff under the guise of damages for breach of contract’: Hospitality Group Pty Ltd v ARU (2001) 109 FCR 157, 196. – (see below)
- For breach of statutory right
- To a large extent, statute has taken over orders to account for breach of intellectual property rights.
- Yet, the remedy to account for breach of statutory primary rights “retains its equitable characteristics”: Dart Industries Inc v Décor Corp Pty Ltd (1993) 179 CLR 101, 111 (Mason CJ, Deane, Toohey and Dawson JJ).
- see pg 71 for calculation of recoverable amount
- For breach of equitable primary right
- An account of profits is available following:
- Breach of trust;
- Breach of fiduciary duty – Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; or
- Breach of confidence – ABC v Lenah Game Meats (2001) 208 CLR 199, 222 (Gleeson CJ).
- Breaching different primary rights might lead to an account of profits being assessed on differing bases.
- Assessment of Account = Calculation – Allowance
- However, the calculation of allowances is the same for the assessment of account of profits for breaches of all primary right.
- Given to the person in breach of an equitable primary right for their skill and efforts.
- “everything which the Court thinks just and proper”
- “a liberal scale”
- “just allowance”
- He who seeks equity must do equity: Phipps v Boardman  1 WLR 993, 1018.; Warman International Ltd v Dwyer (1995) 182 CLR 544, 562.
- Role of Honesty in assessment
- Except where there is a fiduciary relationship, when the party is not a conscious wrongdoer that party will not be liable for an account of profits for the time of his or her innocence: Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, 34-35 (Windeyer J).
- Calculation – Following breach of statutory primary right
- Dart v Décor per King J and High Court.
- Whether any part of general overhead costs was allowable as a deduction to Décor in the determination of the profits made by it from the infringement of the patent?
- Whether Décor had to account for profits arising from the manufacture and sale of the composite product (body of container plus press button seal) or merely for those profits attributable to the manufacture and sale of the press button seal alone?
- ‘Attributability’ – Apportionment of profits – unjust enrichment.
- Calculation – Following breach of equitable primary right
- Warman International Ltd v Dwyer (1995) 182 CLR 544; Consul Developments v DPC Estates (1975) 132 CLR 373; Boardman v Phipps  2 AC 46.
- An account of profits is not penal.
- A fiduciary who has acted without dishonesty may be allowed an amount from the profit recognising work and skill in exceptional cases.
- If the profit is made by misapplication of trust money, the beneficiaries receive the entire profit
- Where the profit has been made with funds mixed with trust funds then the fiduciary is entitled to a proportionate share.
- If property is purchased with mixed funds the a fiduciary cannot postpone the obligation to account.
- If a business operates in breach of fiduciary duty, an account can be taken from the benefits that flow or can be taken from the entire business less amounts for work, skill and expenses.
- Plaintiff must elect between common law/equitable damages and an account of profits.
- Discretionary Factors
- As an account of profits is an equitable remedy, the traditional discretionary factors apply.
What is an account of profits?
- An account of profits is an order that requires the defendant, under the supervision of the court, to account to the plaintiff for the profits of a wrong.
- Pursuant to an order for account of profits, the defendant is required to account to the plaintiff for any profits he or she may have made as a consequence of a breach of an equitable principle or common law right. The order is complied with under the supervision of the Court.
- Effect: The remedy is, in effect, a restitutionary remedy, since the objective is to force the defendant to disclose and then transfer to the plaintiff any profits made as a result of the wrongful activity. Accordingly, after the account of profits has been complied with, the court will declare that those profits are held by the fiduciary on constructive trust for the beneficiary of the duty. Finally, the court will make the consequential orders to put the declaration into effect.
- The principal applications of the remedy are for breaches of trust and fiduciary duty in the exclusive jurisdiction of equity, and for infringements of intellectual property rights in the auxiliary jurisdiction of equity, where equity acts in aid of the common law rights.
- An account of profits is a restitutionary remedy because it seeks to disgorge the defendant of a profit. The plaintiff need not have suffered any loss: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975).
- Accordingly, damages and accounting for profits are alternative and inconsistent remedies between which the plaintiff must elect: Neilson v Betts (1871).
Difference between Account for Infringement on IP and Fiduciary Duties
- Warman International Ltd v Dwyer (1995): ‘In the context of patent infringement, the purpose of ordering an account of profits is not to punish the defendant, but to prevent the defendant’s unjust enrichment. But the liability of a fiduciary to account for a profit made in breach of the fiduciary duty should be determined by reference to the concept of unjust enrichment, namely, whether the profit is made at the expense of the person to whom the fiduciary duty is owe, and to the honesty and bona fides of the fiduciary; it also depends upon detriment to the plaintiff or the dishonesty and lack of bona fides of the fiduciary’.
Grounds for awarding an Account of Profits
Breaches of trust and fiduciary duty
- A breach of a fiduciary duty is one in which the fiduciary either acts with a conflict of interest or takes advantage of an opportunity derived from his or her position as fiduciary to make a profit; Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, 107.
- Where the defaulting trustee of fiduciary has caused loss, the appropriate remedy is an award for equitable compensation.
- Warman International Ltd v Duyer (1995): ‘A fiduciary must account for a profit or benefit if it was obtained either:
- when there was a conflict or possible conflict between the fiduciary duty and his personal interest, or
- by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position’.
- An account of profits acts to deprive the defendant of the benefit of its wrongdoing. It is not dependent on the plaintiff having sustained any loss, nor is it necessary for the defendant to have acted mala fide. Therefore, a fiduciary who makes a profit by acting in breach of a fiduciary duty must give up that profit, notwithstanding that the other party to the relationship could not have themselves made that profit; Boardman v Phipps  2 AC 46.
- In cases of defaulting trustees and fiduciaries, an account may be secured by the imposition of a constructive trust or an equitable lien over the fund constituting the profit.
- The profit can even be traced in the hands of third parties who are volunteers by operation of the doctrine of tracing or even into mixed funds where the fiduciary has mixed the profit with his or her own funds. As to the balance of any account in which the profit has been so mixed the fiduciary is deemed to have first withdrawn his or her own funds; In re: Hallett’s Estate (1879) 13 Ch D 696, 727.
Breach of confidence
- An account of profits may be awarded for a breach of confidence in the exclusive jurisdiction of equity where the obligation of confidence is purely equitable in nature.
- Elements of an action for breach of confidence: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd :
- ‘first, that the information is confidential,
- secondly, that it was originally imparted in circumstances importing an obligation of confidence and
- thirdly, that there has been, or is threatened, an unauthorised use of the information to the detriment of the party communicating it’.
- Where the obligation of confidence arises from the express or implied terms of a contract, the parties are entitled to their remedies for breach of contract.
Infringement of intellectual property rights
May be awarded in the auxiliary jurisdiction of equity, subject to the following:
- An account will normally be awarded as ancillary relief to an injunction, but not otherwise;
- The account is limited to the profits derived from the defendant’s knowing infringement of the plaintiff’s rights; and
- An account is a discretionary remedy that is subject to equitable defences.
The requirement of an injunction
- An account of profits in the auxiliary jurisdiction will not normally be awarded in intellectual property cases unless the account is ancillary (secondary) to an injunction restraining infringement: Smith v London & South Western Railway Co (1854). Accordingly, where an injunction cannot be awarded, neither can an account of profits be awarded.
- Where the obligation of confidence is purely equitable, an account of profits may be awarded in the exclusive jurisdiction of equity without an injunction: Attorney-General v Guardian Newspapers Ltd (No 2) .
(example taken from Colbeam Palmer Ltd v Stock Affilates Pty Ltd (1968)).
- Trade Marks Act 1995 (Cth); s. 126: ‘The relief which a court may grant in an action or proceeding for infringement of a registered trade mark includes an injunction (subject to such terms, if any, as the court thinks fit) and at the option of the plaintiff, either damages or an account of profits’.
- Colbeam is at least authority that the grant of an injunction is not an absolute pre-requisite for the award of an account of profits in cases of registered trade mark infringement.
- Because an injunction was not, therefore, an absolute pre-requisite for the award of an account of profits in the auxiliary jurisdiction of equity, and because of the similar drafting used in the relevant provisions of the trade marks, copyright, patents, registered designs, circuit layouts and plant breeder’s rights legislation, the availability of an injunction at the commencement of infringement proceedings, but not necessarily at judgment, is arguably sufficient for the award of an account of profits in all of these cases.
Innocent infringement in the auxiliary jurisdiction of equity
- In the auxiliary jurisdiction of equity, an account of profits is limited to the profits made from the defendant’s knowing infringement of the plaintiff’s rights. The defendant is not, therefore, obliged to account for profits made from ‘innocent’ (meaning ignorant) infringement of the plaintiff’s rights: Colbeam Case.
- Because the defence of innocent infringement has not been affected by the trade marks legislation, the same equitable principles apply both in cases of registered trade mark infringement and passing off.
- Definition of ‘innocent’: ‘A lack of diligence in inquiry does not turn ignorance into knowledge. Dishonesty is not to be inferred from lack of care. This is not a case of ‘wilful blindness’, the expression used in another context to describe deliberate abstaining from inquiry from fear of what inquiry might reveal’.
Innocent breach of confidence in the exclusive jurisdiction of equity
- It is unsettled whether ‘innocent’ defendants are liable to account for profits in breach of confidence cases within the exclusive jurisdiction of equity.
- Seager v Copydex Ltd: This case suggests that accounting for profits is confined to cases of ‘knowing’ breach.
- Except for the Trade Marks Act 1995 (Cth), each of the current intellectual property statutes contain provisions which regulate the defence of innocent infringement in actions for an account of profits.
- Some examples include:
- Patents Act 1990 (Cth) (s. 123(1));
- Plant Breeder’s Rights Act 1994 (Cth) (s. 57(1))
* NOTE: With these provisions, the defendant is not only required to prove the absence of ACTUAL notice of the plaintiff’s rights, but is also required to prove the absence of CONSTRUCTIVE notice of the plaintiff’s rights.
- Constructive Notice: S. 123(2) of the Patents Act: ‘If patented produced, marked so as to indicate that they are patented in Australia, were sold or used in the patent area to a substantial extent before the date of the infringement, the defendant is to be taken to have been aware of the existence of the patent unless the contrary is established’. S. 57(2) of the Plant Breeder’s Rights Act is similar.
- The Trade Marks Act makes no provision for constructive notice in cases of registered trade mark infringement.
- The Designs Act 2003 (Cth): Registered Design (s. 75(2)): The court may refuse to award damages, reduce the damages that would otherwise be awarded, or refuse to make an order for an account of profits, if the defendant satisfies the court:
(a) in the case of primary infringement:
(i) that at the time of the infringement, the defendant was not aware that the design was registered; and
(ii) that before that time, the defendant had taken all reasonable steps to ascertain whether the design was registered; or
(b) in the case of secondary infringement—that at the time of the infringement, the defendant was not aware, and could not reasonably have been expected to be aware, that the design was registered.
Discretionary defences: Delay
- In both the exclusive and auxiliary jurisdiction of equity, the award of an account of profits is discretionary, and may be ‘defeated by equitable defences such as estoppel, laches, acquiescence and delay’: Warman International Ltd v Duyer (1995).
- In particular, the plaintiff does not have the option of waiting for a profit to accrue (accumulate) and then claiming the proceeds of the defendant’s efforts. Warman International Ltd v Duyer
Breach of Contract
- Accounting for profits has not traditionally been available as a remedy for breach of contract: Teacher v Calder .
- Attorney-General v Blake : An account of profits can be awarded for breach of contract, but only in exceptional circumstances.
- Attorney-General v Blake : Normally, the remedies of damages, specific performance and injunction coupled with the characterisation of some contractual obligations as fiduciary, will provide an adequate response to a breach of contract. It will be only in exceptional circumstances where those remedies are inadequate, that any question of accounting for profits will arise. The court will have regard to all the circumstances, including the subject-matter of the contract, the purpose of the contractual provision which has been breached, the circumstances in which the breach occurred, the consequences of the breach and the circumstances in which relief is being sought.
Breach of trust and fiduciary duty
- In the exclusive jurisdiction of equity, the general rule is that a trustee or fiduciary must account for the entire profit made ‘by reason of’ the breach of trust or fiduciary duty: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975).
- A trustee of fiduciary will not be required to account for more than he or she has received from the breach of duty: Vyse v Foster (1872). Where a trustee or fiduciary has acted without dishonesty in making a profit, he or she may be granted an equitable allowance from the profit as remuneration for his or her ‘work and skill’: Boardman v Phipps .
- Where a trustee makes a profit entirely by the misapplication of trust money, the beneficiary will be entitled to the entire profit.
- Where property has been purchased entirely or partly by the misapplication of trust money, the trustee’s obligation to account is not postponed until the trustee chooses to sell the property and realise the profit: Scott v Scott (1963).
Infringement of intellectual property rights
Peter Pan Manufacturing Corp v Corsets Silhouette Ltd: A breach of confidence case: ‘what has the plaintiff expended upon manufacturing the goods? What is the price which he has received on their sale? And the difference is profit’.
- Identifying the defendant’s costs attributable to the manufacture and sale of infringing goods, making an apportionment of the resulting profit between that part of the profit that is attributable to the defendant’s infringement, and that part of the profit that the defendant is entitled to keep.
- The onus of proof is on the defendant to establish which costs are attributable to the manufacture and sale of the infringing goods.
- Dart Industries Inc v Décor Corp Pty Ltd: ‘where the infringing goods were a side-line of the defendant’s business, meaning that the making and selling of those goods took up ‘unused capacity’ in the defendant’s business in the form of overheads which would have been incurred whether or not the articles had been sold and delivered’. In these cases of unused capacity, no deduction is allowed because the expense would have been incurred in any event.
- Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968): ‘the defendants are at liberty to show that various categories of overhead are attributable to the obtaining of the relevant profit, and to show how and in what proportion they should be allocated in the taking of the account of profits.
- The principle governing the apportionment of profits between owners and infringers: ‘The true rule, I consider, is that a person who wrongly uses another man’s industrial property – patent, copyright, trade mark is accountable for any profits which he makes which are attributable to his use of the property which was not his’.
- The apportionment of profit is Colbeam was achieved by a two-stage process:
- The first stage was to calculate the entire profit made from sales of goods bearing the mark.
- The second stage was to isolate that part of the profit that was attributable to the infringing use of the mark.
- Infringement consists in the unauthorised use of the mark in the course of trade in relation to goods in respect of which it is registered. The profit for which the infringer of a trade mark must account is thus not the profit he made from selling the article itself but the profit made in selling it under the trade mark.
The chapter on Account of Profits ends at this point. However, Lucy’s notes go on to discuss tracing and the rule in Barnes v Addy. This portion of Lucy’s notes have been attached for your perusal.
Tracing is thus neither a claim nor a remedy. It is merely a process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can be properly regarded as representing his property.’ : Foskett v McKeow  1 AC 102, 128 (Lord Millett).
2.1 Nature of the remedy
- The remedy of tracing is available in equity and at common law. It is a remedy which protects property rights (equitable and legal).
- In order for the remedy to be available at common law, the plaintiff must show that the defendant received the plaintiff’s money. It is not necessary for the defendant to have retained it.
- Because it is receipt which is the basis for liability,
- it is irrelevant whether the defendant acted dishonestly and/or with knowledge of the source of the money: Banque Belge Pour L’Etranger v Hambrouck  1 KB 321.
- The efficacy of the remedy of tracing at common law is of limited use when the plaintiff’s money has been mixed with that of others: Agip (Africa) Ltd v Jackson  4 All ER 451.
- In equity, however, money may be traced in to mixed funds.
- In equity the remedy is a right or claim and is available to both beneficiaries for breach of trust and the beneficiaries of a fiduciary duty which has been breached.
- In regard to trusts: the remedy will be awarded when the trustee has converted trust property for his or her own use.
- In regard to fiduciaries: the remedy is available when the fiduciary has misappropriated funds for his or her own use.
- However, it must be remembered that tracing is a discretionary remedy and the court will order tracing in all circumstances it believes to be appropriate. This is particularly applicable when the wrongdoer is insolvent or the claim would otherwise be barred by virtue of the operation of a Statute of Limitation.
Equitable Ground 1: Trusts
When a trustee intermingles trust funds with his or her own funds, “the remedy of tracing is not excluded” (Evans, 573). In Re Hallett’s Estate (1880) 13 Ch D 696:
Facts: A solicitor wrongfully sold two parcels of bonds and deposited the proceeds into his own bank account, then became insolvent. After his death two parties applied to the court to trace the proceeds of the sale into the account.
Held: The UK Court of Appeal gave both parties a charge over the account to the amount of the proceeds of the sale. Jessel MR set out the requirements for the remedy as follows:
- When a trustee wrongfully invests trust money, the beneficiaries have a right to elect to take the property purchased or hold the property as security for the trust money paid out
- However, when the trustee has mixed the trust funds with his own, the beneficiaries cannot elect to take any property purchased from the account, because the property was purchased with mixed funds. In such a situation, the beneficiary is entitled to a charge over the property to an amount equal to the trust money wrongfully used.
- When the trust money has been deposited into an account with the trustee’s money, and the trustee subsequently withdraws amounts from the account, it will be presumed that the amounts withdrawn are being taken from the trustee’s money and not the trust fund money.
- The remedy is not limited to money, but can also be applied to chattels, provided the chattels can be identified and separated from a group of mixed assets.
- In Borden (UK) Ltd v Scottish Timber Products Ltd (1981) Ch 25, the chattel in question was a resin, which the defendant later mixed with other materials to make chipboard. In this instance the court refused to allow the plaintiff to trace the property (the resin) into the chipboard on the grounds that the resin ceased to exist as resin.
- If a trustee (or fiduciary) purchases something of value with funds obtained in breach of duty, the beneficiary of the duty will be allowed by the court to claim the property. If the property is mixed with other chattels, the onus lies upon the trustee to distinguish between the assets; Re Tilley’s Wills Trusts  1 Ch 1179.
- Where a purchaser purchases trust property (which has been wrongfully alienated from the trust estate) bona fide for good value without notice of the beneficial interest, the purchases takes the property free of any other interest.
- If, however, a third party receives trust property in circumstances where he or she is not bona fide, he or she may be liable as a constructive trustee (see the Rule in Barnes v Addy below).
- Problems will arise, however, when the third party has mixed trust property with their own. For example, in Re Diplock’s Estate  1 Ch 465:
Facts: When the testator died, he left all of his residual estate to charitable institutions or “benevolent objects.” The bequest was held to be invalid because of the inclusion of the term “benevolent objects.” By the time the matter had been decided by the court, the executors had distributed a considerable proportion of the fund amongst 139 charitable institutions. The beneficiaries of the estate sought both to trace the funds paid to the various organisations and orders in personam against each of the organisations.
Held: The Court of Appeal upheld the claims in personam and rejected the claim of the organisations that a third party volunteer who receives trust property alienated in breach of trust is only liable to account for that property if the third party acted unconscientiously. Where a third party volunteer takes trust property without notice and there is no question of mixing, the third party will take the property on trust for the rightful beneficiaries. If, however, money so acquired has been spent in some way so that it becomes mixed and indivisible, it cannot be traced.
Rule in Barnes v Addy
- When a trustee or fiduciary acquires property in breach of their fiduciary duty, a constructive trust is held to be the appropriate remedy. However, what happens in regard to third parties who have dealt with or assisted the trustee or the fiduciary in the commission of the breach?
- As noted above, if a third party has purchased legal title to the property for good value, bona fide and without notice of the interest of the beneficiary or principal, there is no However, when the third party has been involved in some way in the fiduciary’s breach, either through receipt of the property or by assisting the fiduciary, the situation is more complex. A third party does not owe a fiduciary duty to the beneficiary or principal. The third party has not taken on any obligations of the trust, nor has the beneficiary placed any trust/confidence/dependence on the third party. This problem is addressed by the rule in Barnes v Addy (1874) 9 Ch App 244.
Facts: A trustee, acting under a power in the trust deed, appointed K as sole trustee of part of the trust property, which was held on trust for the wife and children of X. Both the trustee’s solicitor and of the solicitor of X had warned him that K was unreliable and untrustworthy. However, the respective solicitors nevertheless prepared the necessary documents. The trust funds entrusted to K were lost.
Held: The solicitors could not be made liable for the loss. No funds had passed through their hands, and there had been nothing fraudulent or dishonest in their actions. Lord Selborne LC stated the basis for the liability of third parties as a constructive trust of the property:
“[The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as agents in transactions within their legal powers, transactions perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”
The two limbs of the rule in Barnes v Addy
When a third party:
- receives property from a fiduciary in the knowledge that it was obtained by the fiduciary in breach of duty; and/or – (knowing receipt)
- assists the fiduciary to breach his or her duty and thereby receives property – (knowing assistance)
the third party is liable to the beneficiary of the duty as constructive trustee of the property. Thus, “knowing receipt” and “knowing assistance” are the two “limbs” of the rule.
The categories of “knowledge”
The issue arises as to what constitutes “knowledge” sufficient to attract liability under the two limbs.
In Baden Delvaux v Societe Generale  4 All ER 161, Gibson J set out five categories of knowledge that are relevant to the decision to impose liability upon a third party:
- “actual” knowledge
- wilfully shutting of eyes to the obvious (“Nelsonian” knowledge)
- wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make
- knowledge of circumstances which would indicate the facts to an honest and reasonable person
- knowledge of circumstances which would put a reasonable person on inquiry
1) and 2) are treated as “actual knowledge” in both common law and equity
3) is treated as equivalent to “actual knowledge”.
4) is a type of “constructive knowledge/notice”: see Gibbs JJ and Stephen J (Barwick CJ agreed) in Consul Development P/L v. DPC Estates P/L (1975) 132 CLR 373, at 398, 412
5) is the traditional formulation of “constructive notice” in equity. It is a purely equitable concept.
There is controversy as to whether all five categories of knowledge in Baden would satisfy the requirement of “knowledge” for the imposition of third party liability in cases of “knowing receipt” and “knowing assistance” or whether just “actual knowledge” (1) should be the criterion.
For example, in Nelson v Larholt  KB 339;  2 All ER 751
Facts: A bookmaker accepted cheques from a punter who was also an executor. The cheques used by the punter to pay his debts were printed with the name of the estate.
Held: The bookmaker was liable as constructive trustee for the estate because of “what a reasonable person would know from the facts.” He should have known that the cheques were not the personal cheques of the punter. This is behaviour amounts to the “wilfully shutting of one’s eyes” or category 2 in Baden
The concepts of “notice” and “knowledge” should not be confused. “Knowledge” involves some want of probity, for example, shutting one’s eyes to the obvious, or wilfully/recklessly failing to make such inquiries as an honest/reasonable person would make. The concept of “notice” on the other hand, involves merely having a suspicion. For example, categories 4) and 5) from Baden.
LIMB 1: Knowing receipt cases
- Strangers who receive some part of trust property become chargeable with that property if it was received with knowledge that the property had been transferred in breach of trust or fiduciary duty.
If this happens, the plaintiff beneficiary must prove that the defendant:
- has received trust property
- knew that it was trust property and
- knew of circumstances which made the transfer of the trust property in breach of trust.
- It has been argued that since the recipient of trust property gets the full advantage of the breach of trust, liability should be strict. Koorootang Nominees P/L v ANZ Banking Group Ltd  3 VR 16.
- This approach is said to be consistent with the underlying rationale for receipt liability being restitution for unjust enrichment. El Ajou v Dollar Land Holdings  3 All ER 717 per Millet J
- In Polly Peck International v Nadir (No. 2)  4 All ER 769 at 777 Scott LJ noted that:
“Liability as constructive trustee in a “knowing receipt case” does not require that the misapplication of the T funds be fraudulent. It does require that the defendant have knowledge that the funds were trust funds and that they were being misapplied. Actual knowledge will obviously suffice. … The various categories of mental state identified in Baden’s case are not rigid categories with clear and precise boundaries. One category may merge imperceptibly into another.”
- In Australia, pursuant to the decisions in Consul Developments, affirmed in Farah Construction Pty Ltd v Say-Dee Pty Ltd  HCA 22; (2007) 81 ALJR 1107 it appears that categories 1) – 4) are required to establish liability for knowing receipt.
Limb 2: Knowing assistance
- The weight of authority is that actual or constructive knowledge (i.e., 1 – 4) will suffice to establish liability for knowing assistance.
The essential elements of the liability are:
- existence of a fiduciary duty (as trustee or otherwise)
- a dishonest and fraudulent design by the fiduciary/trustee
- assistance by third party in that design
- [assistance in the design] with knowledge that a dishonest and fraudulent design is being implemented
- Until recently, there was some confusion in Australia as to the degree of “knowledge” required by a third party to attract liability for knowing assistance. On the one hand there are the English authorities, which apply the 5 categories of knowledge as set out in Baden. Further, the Privy Council case of Royal Brunei Airlines v. Tan  2 AC 378 held that a person who dishonestly procured or assisted in a breach of trust or fiduciary obligation was liable in equity to make good any resulting loss. This added a further element of “dishonesty” to the equation.
- Two cases in Australia served to clarify the position to be taken in Australia (to some degree). These are:
- Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 and
- Farah Construction Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
- Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Facts: A solicitor (Walton) controlled a number of companies engaged in the purchase, development and sale of land, including DPC. Grey was the manager of these companies and was precluded by his service agreement from dealing in real estate on his own account. Grey’s duty was to find suitable properties for purchase by the companies. Walton employed Clewes in his legal practice as a clerk. Clewes ran a family company (Consul) which was also engaged in property development. Grey and Clewes entered into an arrangement that Consul should purchase properties found by Grey and that Grey and Consul should share the profits on sale. Grey had told Clewes that DPC was not interested in the projects for lack of finance.
- that the properties purchased by Consul were held on constructive trust for the Plaintiff (DPC); and
- that constructive notice is sufficient to attract the liability of a third party.
At first instance, Hope J. dismissed the Plaintiff’s claims, but this decision was reversed on Appeal. NSW CA upheld DPC’s appeal. Hutley JA (Hardie JA agreed) that Consul was constructive trustee for the plaintiff of the property acquired and was therefore liable to account for profits. Per Jacobs P (dissenting):
- Receipt cases: actual or constructive knowledge of the existence of the trust is sufficient.
- Assistance cases: something more is required. Actual knowledge of the “fraudulent design” is necessary so that defendant can truly be described as a participant in that fraudulent activity of the trustee.
- Therefore, on the facts Clewes should not be held to be constructively on notice that Grey was in breach of his fiduciary obligation simply because further inquiries could have been made and were not made.
- In cases of receipt, no question of “dishonest or fraudulent design” enters the subject matter.
- Consul Dev. appealed successfully to the High Court.
HELD: (per Barwick CJ, Gibbs and Stephen JJ; McTiernan J dissenting):
The appeal would be allowed because:
Neither his employment as W’s articled clerk nor any other circumstances placed C in a fiduciary relation to the plaintiff/respondent company; a fortiori the appellant company (Consul) owed no fiduciary duty to DPC.
Per Barwick CJ and Stephen J, approving Jacobs P’s dissenting judgment in the NSW Court of Appeal:
- As to whether constructive knowledge of a stranger will suffice, there is a difference between the person receiving trust property and the person who is made liable even though he is not actually a recipient of trust property in that in the first place knowledge actual or constructive of the trust is sufficient, but in the second place something more is required and that something more appears to be the actual knowledge of the fraudulent or dishonest design so that the person concerned can truly be described as a participant in that fraudulent or dishonest activity. If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from inquiry for fear lest he learn of fraud. But to go further is to disregard equity’s concern for the state of conscience of the defendant.
- Clewes’s belief that the Walton group was in financial difficulties and therefore not interested in purchasing the properties, which belief was supported by objective sources independent of Grey, relieved him of any obligation to make further inquiries.
- On the facts, as Clewes knew them to be, Grey’s conduct involved no breach of fiduciary duty.
- The arrangements under which Grey participated with the appellant company did not constitute a “bribe” by the latter, in that
- G was at all times the initiator;
- on the evidence there was no general promise of profit sharing, but three separately negotiated agreements; and
- those arrangements subjected G to important obligations and potential liabilities.
Held also, per Gibbs J: It does not seem to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper
For “knowing assistance” what is required is actual knowledge of the breach of trust, or wilful shutting of one’s eyes to the obvious, not constructive knowledge.
Thus, actively participating in fraudulent conduct, or being actively involved in setting up the machinery attracts liability, but merely failing to stop someone or standing by is not “assistance.”
What constitutes “assistance?” If, without the acts of the third party, the breach of duty by the fiduciary could not have occurred or been implemented
- it may be essential action or simply part of a chain of events
- no need to inevitably lead to loss (from Baden)
- irrelevant if it is done with intention to make a profit, if in fact it involves a breach of duty
This line of reasoning was followed in Farah Construction Pty Ltd v Say-Dee Pty Ltd  HCA 22; (2007) 81 ALJR 1107 and the High Court confirmed that Consul Developments was a correct statement of the principles underlying knowing assistance in Australia.
Constructive trusts have the following attributes;
- Constructive trusts are declared with respect to legal or equitable property.
- Constructive trusts are only imposed judicially; they are not declared expressly or impliedly by the parties.
- A constructive trust, unlike expressly or impliedly created trusts, may be imposed contrary to the intention of the constructive trustee.
- A constructive trust may be imposed where it would be unconscionable (or an equitable fraud) for the owner of property to assert or enjoy beneficial ownership of that property against the person for whose benefit the constructive trust is imposed.
- There are two types of constuctive trusts; remedial and institutional trusts.
‘Intention’ – the High Court in Muschinski v Dodds (1985) stated that constructive trusts may be imposed ‘regardless of actual or presumed agreement or intention’.
- It must be noted it should not be taken to mean that the intentions of the parties are ‘never relevant’ to the judicial decision.
- The decision to impose a constructive trust will never be based solely upon the common intention of the parties, although it may be relevant to the decision whether or not to impose a constructive trust: Gissing v Gissing  AC 886.
There are similarities and differences between a constructive trust and all other types of trusts;
- A constructive trust requires a beneficiary;
- A decision by the court that certain property is held upon trust clothes the property with the characteristics of trust property in respect of which the remedy of tracing is available; and
- Any profits arising from constructive trust property belong to the beneficiaries of such trusts.
- The constructive truestee’s powers are less precisely defined;
- The principles regarding retirement, appointment and removal of constructive trustees are usually absent in the case of constructive trustees;
- A constructive trustee will fail for want of a trustee;
- There may be doubts about the commencement and duration of constructive trusts; and
- The requirement of certainty of subject matter (trust property) is interpreted more liberally in the case of constructive trusts.
- Constructive trusts are a means of relief or a remedy imposed by the court in certain categories of cases or contextual settings. The main categories are:
- Intermeddlers with trust property – recipient and accessorial liability;
- Mutual wills; and
- Domestic relationships.
Remedial and Institutional Trusts
In Westdeutche Landesbank Girozentrale v Islington London Borough Council  AC 669, Lord Browne-Wilkinson attempted to differentiate between institutional constructive trusts and remedial constructive trusts as follows:
Under an institutional constructive trust, the trust arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past. The consequences that flow from such trust having arisen (including the possibly unfair consequences to third parties who in the interim have received the trust property) are also determined by rules of law, not under a discretion. A remedial constructive trust, as I understand it, is different. It is a judicial remedy giving rise to an enforceable equitable obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.
Institutional; Declaration by the court that the trust had arisen in the past. Not discretionary
Remedial; Discretionary judicial remedy which gives rise to an enforceable equitable obligation.
- In Australia, Deane J said in Muschinski v Dodds (1985) 160 CLR 583, “a constructive trust can properly be described as a remedial institution.” This passage appears to suggest that the institutional constructive trust in Australia has evolved into a discretionary remedy and has not merely gained a new sibling. (Lucy’s notes)
- The effect of Deane J’s re-classification has been to allow courts to choose the time from which a constructive trust arises, and in that sense the remedial function of the trust is given effect through the imposition of the institution of trust.
- If a judge has decided to impose a constructive trust retrospectively, equity regards as done what ought to have been done and the trust is considered to have existed as an institution from that time onwards, rather than from the time of the order.
Note: The problem with the exercise of such discretion is the uncertainty it generates for third parties who have an interest in the property in question.
- Property institution: This means that the express and the resulting trust reflect defined relationships between parties that come into existence at a time determined by the conduct of those parties. Once in existence, the relationships are governed by the institution of trust, meaning that rights, powers and duties of trust should be exercised and honoured between the parties.
- A remedy differs from a property institution in the time of its availability and its discretionary nature: Re Polly Peck International plc (in administration) (No 2)  3 All ER 812, 825
- If the constructive trust is an equitable remedy it will exist from the time that an order is made by the court: Re Polly Peck International plc (in administration) (No 2)  3 All ER 812, 825
- Similarly, if constructive trusts are treated as an equitable remedy, they will be discretionary in nature.
- A judge could refuse to order a constructive trust if it was a remedy, whereas if the trust was an institution it would exist independently of the judge’s exercise of discretion.
- The problem with the exercise of such discretion is the uncertainty it generates for third parties who have an interest in the property in question. This is particularly the case in insolvencies where the parties are jostling for priority to access property to satisfy their debts.
- The institutional view of a constructive trust might be significantly unfair to unsecured creditors who were not aware of the existence of a constructive trust, but may nevertheless find their claims cannot be satisfied because the property is held on trust.
- In Parsons v McBain (2001) 109 FCR 120, when discussing the imposition of common intention constructive trusts the Full Federal Court held that the trust was created by the conduct of the parties and arose at that time, even if that had the effect of defeating unsecured creditors.
- In Clout v Markwell  QSC 91, , it was said that creditors should be expected to be aware of constructive trusts which may arise when the debtor is married or in a de facto relationship.
- Receiving trust property
The Two Limbs Rule
Barnes v Addy (1874) LR 9 Ch App 244
- Addy, the trustee of an estate had, in breach of trust, transferred a half (moiety) of the estate to Barnes so as to enable Barnes to act as sole trustee of that half.
- Barnes misappropriated the moiety and then became bankrupt.
- The remainder beneficiaries of the moiety sued Addy’s solicitor and Barne’s solicitor who respectively had prepared and approved a deed appointing Barnes as trustee. Duffield also had prepared a deed whereby Barnes indemnified Addy (However, replacing a trustee does not absolve the original trustee from their trust obligations toward the beneficiaries).
Issue: The main question for decision was whether either of the solicitors were responsible for the breaches of trust which were committed by the substitute trustee, Barnes?
Ratio: Lord Selborne LC (with James and Mellish LJJ agreeing) decided that neither of the solicitors were liable in equity to compensate the beneficiaries.
“What are the principles on which Mr Preston (Barnes’ solicitor) can be held responsible for that? There is not the slightest trace whatever of knowledge or suspicion on his part or an improper or dishonest design in the transaction. There was nothing to lead him to suppose that Mr Barnes, when he had been so appointed a trustee… Intended to sell out the fund and put the money into his own pocket.”
“Strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers.. Unless those agents receive and become chargeable with some part of the trust property, or unless they assist will knowledge in dishonest and fraudulent design on the part of the trustee”.
Outcome: His Honour found that Addys solicitor was in the same boat as Barnes’ solicitor, in regards to their lack of knowledge and apprehension of any dishonest purpose on the part of Addy or Barnes.
Significance: This case outlines the two limbs rule regarding when one becomes a constructive trustee.
First Limb: Applies to persons (“recipients”) who receive “trust property” with actual or constructive notice of the subsisting trusts. In these circumstances the recipient does not take the trust property absolutely (ie, free from equitable rights and obligations in and regarding the trust property) but as constructive trustee for the beneficiaries of the subsisting trusts.
Second Limb: Applies to persons (“accessories”) who do not actually receive “trust property”, but who knowingly assist a trustee’s or other fiduciary’s “dishonest and fraudulent design.” In these circumstances the facilitator or accessory of the breach becomes a constructive trustee, and will therefore owe the duties which are incumbent upon trustees. (SEE TRACING ABOVE FOR FULL INFO ON RULE)
- Consul Development Pty Ltd v DPC Estates Pty Ltd  1 NSWLR 443; (1975) 132 CLR 373
(NSW Court of Appeal, then heard in the HCA) – (SEE ‘TRAICNG’ ABOVE FOR FULL DETAILS)
- Grey (an employee / manager of DPC) had disclosed information about certain properties to Clowes, a clerk employed by Walton who in turn controlled DPC.
- Grey and Clowes agreed to acquire and develop the properties and then share the profits between themselves.
- Clowes arranged for the properties to be acquired by Consul which he controlled.
Issue: The main question was whether in the circumstances Consul held the properties or other property (the information) on constructive trust for DPC?
NSW Court of Appeal: Declared that Consul held the properties were held upon constructive trust.
Jacobs P of the NSW Court of Appeal stated:
The point of difference between the person receiving trust property and the person who is made liable, even though he is not actually a recipient of trust property, is that in the first place knowledge, actual or constructive, of the trust is sufficient, but in the second place something more is required, and that something more appears to me to be the actual knowledge of the fraudulent or dishonest design, so that the person concerned can truly be described as a participant in the fraudulent dishonest activity.
This passage is with regard to the different knowledge thresholds. In relation to the second limb of Barnes v Addy, His Honour adds the need for “actual knowledge of the fraudulent design”
The Court of Appeal ultimately decided that Consul fell within the first limb of Barnes v Addy since it had knowingly received confidential information – which is property impressed with fiduciary obligations. Since Consul had received property impressed with equitable obligations, it was not necessary to prove any fraudulent or dishonest design on its part. Jacobs P said:
Since the defendant in such cases receives the property [ie, confidential information] of the plaintiff, the question is whether [the defendant] had actual or constructive notice of the plaintiff’s rights therein.
High Court Decision
However, the High Court decided that Grey had not breached his fiduciary duties towards his employer and, consequently, it could not be said that Clowes was either aware of the breach of duty or had knowingly participated in any breach.
Rather the High Court needed to be satisfied of an existence of a fiduciary duty owed, dishonest or fraudulent design by the defendant and knowing assistance by C.
Confirms that there are different knowledge thresholds for “recipients” and non-recipient “facilitiators”. It also confirms that the knowledge threshold for recipients may be satisfied by either actual or constructive knowledge, whereas non-recipients must have actual knowledge of the breach which includes calculated abstention from inquiry (ie, “wilful blindness”). The rationale for the different tests is that a higher standard of conduct (ie, inquiry) is expected of persons who receive trust property beneficially or as trustee de son tort (ie, for others rather than beneficially).
- Fiduciary Obligations
A person who obtains property as a result of:
- a) raising or risking a conflict between his fiduciary duty and his self-interest; or
- b) making an unauthorised use of the fiduciary position,
Is under a duty to account for that property to the person to whom the fiduciary duty is owed: Regal (Hastings) Ltd v Gulliver (1942)  2 AC 134.
The Rule in Keech v Sandford
Keech v Sandford (1726) Sel Cas T King 61 established the principle that “a trustee must not use his position as trustee to make a gain for himself.”
Facts: The trustee of a lease had renewed the lease in his own name where the lessee had refused to renew the lease to the trust.
Ratio: Lord King LC. It was a “rule” that “should be strictly pursued, and not in the least relaxed” that a trustee who obtains a renewal of a lease for itself holds that interest in the renewed lease upon trust for the beneficiaries of the trust estate.
Chan v Zacharia (1984) 154 CLR 178
Facts: Dr Chan obtained a renewal of a lease for himself and to the exclusion of his partner after the partnership was dissolved but before it was fully wound up.
Deane J. Prima facie, the rule in Keech v Sandford has a dual operation in the present
case: there is an irrebuttable presumption that any rights in respect of a new lease of [the property] were obtained by Dr Chan by use of his position as a trustee of the previous tenancy and there is a rebuttable presumption of the fact that any such rights were obtained by use of his position as a partner in the dissolved partnership whose assets were under receivership and in the course of realisation.
Outcome: Dr Chan will hold the benefits received as constructive trustee as he was able to obtain the lease because of his position in the prior partnership.
United States Surgical Corp v Hospital Products International  (NSW Court of Appeal)
Note that this is not the HCA where the decision was overturned.
- USSC manufactured and sold surgical stapling instruments and related products in USA
- HPI was the exclusive distributor in Australia for these products
- HPI terminated the contract to distribute, in the meantime, HPI had arranged to manufacture the components of the products in Australia. This was done without the knowledge of USSC.
Decided; regarding constructive trusts
Moffitt P, Hope and Samuels JJA. Their Honours discuss the practical and legal differences between the knowledge requirements set out in the Barnes v Addy limbs. Their Honours look to the cases, Consul and Carl Zeiss to determine which limb this case would fall under.
It was determined that the breach fell under the second limb.
“HPL made no inquiries, and that this omission was deliberate and prompted by the conviction that inquiries would reveal the truth of what USSC alleged”.
- MUTUAL WILLS
Two parties, may make a contract as to the disposal of their property whereby each executes a will containing the same provisions for each other. These are wills made as part of an agreement, whereby parties promise not to revoke wills after one of other parties dies: Albrow v Cunningham 2000 NSWSC; Baird v Smee 2000 NSWCA
Equity protects and enforces rights created under agreement and will impose a constructive trust on property to give effect to agreement should testators breach agreement and revoke wills: Birmingham v Renfrew 1937 HC
Fact that 2 persons make corresponding wills is insufficient to establish binding agreement not to revoke and mutual wills ‘can be established only by clear and satisfactory evidence’: Birmingham v Renfrew 1937 HC
Example of such evidence: written or oral evidence of statements of intention, any substantial consideration offered for promise not to revoke, no. of times statement was made, language used by parties, context in which promise made (formal or informal) and certainty of terms- Albrow v Cunningham 2000 NSWSC
Agreement not to revoke may be implied from all circumstances: Hudson v Gray 1927 HC.
4. Domestic Arrangements
Muschinski v Dodds (1985) HC
- Muschinski and Dodds were in a long term de facto relationship
- Property in bad state. So parties planned to restore it, build a new prefabricated house on land and use land to run arts and crafts business.
- Agreement between parties: Muschinski to provide purchase money from sale of previous house and Dodds would use his earnings and whatever monies obtained from his divorce settlement to pay for prefabricated house.
- Plans never came to fruition yet some work done by Dodds
- Total financial contributions of party at end of relationship: Musch-$25 259.45, Dodds-$2549.77.
- Muschinski claimed she was beneficial owner of land-land held in names of Muschinski and Dodds as tenants in common.
- Muschinski claimed that Dodd’s half interest was held on trust for her.
- Dodds sought sale of land and division of net proceed into equal shares
- Musch had provided entirety of purchase price of $20 000 from sale of her previous home.
High Court of Australia
- Majority found that a constructive trust should be ordered to protect Muschinski’s beneficial interest yet differed in ways they approached Musch’s arguments (Deane J’s reasoning is accepted in later cases)
- Deane J
- Presumption of resulting trust rebutted by constructive trust should be imposed as Dodds’ obligation arising from joint-endeavour of parties-parties’ relationship akin to joint venture and principle that joint venturers are entitled to proportionate repayment of their capital contributions to an abortive joint venture could be applied.
- Above principle reflects wider equitable principle – that where a joint relationship/endeavour fails, equity will NOT permit one party to assert or retain benefit of property if it would be unconscionable for party to do so.
- Test of unconscionability as a legal test
- Application to facts- Dodds behaviour as unconscionable in asserting his legal title in the face of contributions made by Musch= equity required a constructive trust to adjust rights and obligations of parties to compensate for disproportion between parties’ contributions to purchase price. Yet not unconscionable for Dodds to retain his half share in residue of proceeds of sale of property- once each party had been reimbursed for contributions to purchase price and improvements.
ORDER: property held on constructive trust by both parties to repay to each her/his respective contribution and as residue for both in equal shares – any remaining proceeds held equally as tenants in common.
Baumgartner v Baumgartner (1987) (High Court)
- A couple had lived in a de facto relationship for four years.
- The couple moved into a home, which was purchased under the man’s name only. As the building society who loaned the funds, would not lend to unmarried couples.
- The two pooled their salaries to pay living expenses and fixed commitments. Ratio of 55% (man), 45% (woman).
- The couple separated and the woman sought orders declaring that the man held his interest in the property for her.
Mason CJ, Wilson and Deane JJ. Their Honours agreed and applied the principles of Muschinski v Dodds.
“Where parties pool earnings for the purposes of their relationship, and in doing so have made contributions, financial and otherwise… and there is no evidence of any agreement between the parties to the contrary, then it would be inequitable of one to deny that the other was entitled to beneficial interest in the property acquired..”
Basically: Even if no common intention can be found, it may still be unconscionable not to impose a constructive trust.
De facto spouses
- Where parties pool earnings for the purposes of their relationship, but title to the home they built was in one partner’s name, it is unconscionable for that partner to assert that he was beneficially entitled to the property to the exclusion of the other partner.
- Even if no common intention can be found, it may still be unconscionable not to impose a constructive trust.
Specific Performance, Delivery up – PAGE 236
Nature of the Remedy (wide and strict sense)
- Specific performance directs a party to an agreement to perform the agreement. The remedy is usually applied to breaches or threatened (Turner v Bladen) breaches of contract. It owes its development to the fact that damages may be an inadequate remedy for the breach.
- Zhu v Treasurer of the state of NSW – role of specific performance: …subject to the established limits on the grant of specific performance and injunctions, in Australian law each contracting party may be said to have a right to the performance of the contract by the other. It is not true here to say: ‘The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it – and nothing else’
- Where a contract has come to an end, in the sense that all the obligations under it have been performed, or, in the case of a lease, the term of the lease has expired, specific performance of obligations that were to be performed during the term is not available: McMahon v Ambrose ; “…the court did not have jurisdiction to grant specific performance, or equitable damages in lieu thereof, in respect of an oral agreement for lease where the term of the lease had expired at that time when proceedings were commenced.
- While specific performance is usually granted in aid of a legal right it does extend to cases where there is no remedy at common law provided the doctrine of part performance can be satisfied.
Specific Performance in property sense and Wide Sense
- J C Williamson Ltd v Lukey & Mulholland (1931): ‘Specific performance is a remedy to compel the execution in specie of a contract which requires some definite thing to be done before the transaction is complete and the parties’ rights are settled and defined in the manner intended. Moreover, the remedy is not available unless complete relief is given and the contract carried into full and final execution so that the parties are put in the relation contemplated by their agreement’,
- In the strict or ‘proper sense’, specific performance compels a party to execute a final instrument, such as a transfer of land or deed, to give effect to an earlier agreement.
Elements of Specific Performance and general principles
The prerequisites in order for specific performance to be granted are:
- There must be an agreement; So if the contract is uncertain, no contract has been formed or the contract has been rescinded or terminated, the remedy will not be available. Tanwar Enterprises Pty Ltd v Cauchi (2003).
- Must be a breach or threatened breach of the agreement by the defendant;
- common law damages would be an inadequate or denial disentitling relief; and
- there is no discretionary defence or denial disentitling relief.
Who can bring action for specific performance?
Only parties to a contract. However, a third party or a stranger to a contract can be made a defendant in a suit for specific performance where he or she ‘is in possession of the subject matter of the contract with notice of the contract’ [Moonking Gee v Tahos (1963)].
- Generally, the plaintiff has the onus of establishing that it is entitled to an order for specific performance: Perpetual Trustee Company Ltd v Meriton Property Management Pty Ltd .
Element 1: Agreement
- There must be a contract or an agreement
- If the contract is uncertain or if no contract has been formed or the contract has been rescinded or terminated, the remedy will not be available
- Tanwar Enterprise Pty Ltd v Cauchi – Court refused specific performance where the vendor terminated the contracts for the sale of three adjoining parcels of land following purchaser’s breach of “time is of the essence” clause.
- Romanos v Pentagold – Specific performance refused following the purchaser’s breach to pay the deposit in a timely manner for sale of three parcels of land.
- In both above cases there was no ‘unconscionability’: Romanos, ‘fraud, accident, mistake or surprise’: Tanwar accompanying the vendors termination and they had not in any way contributed to the purchaser’s breach.
- Oral contracts that should have been in writing may be specifically enforced if the doctrine of part performance is satisfied.
- The general principle is that only parties to the contract may be the proper parties in a suit for specific performance: Tasker v Small
- HOWEVER, third party or a stranger may be made a D to a suit for specific performance where he/she ‘is in possession of the subject matter of the contract with notice of the contract’: Moonking Gee v Tahos (1963)
Doctrine of Part Performance
- A transaction unenforceable at law or under a statute may be specifically enforced if the equitable doctrine of part performance has been satisfied
- Object of doctrine: ‘always enlarge part performance into complete performance’: J C Williamson Ltd v Lukey & Mulholland (1931)
- The doctrine is usually applied to oral contracts that fail to comply with a statutory requirement that they must be in writing or executed in a formal letter (eg. transferring property page 241 Text).
- The doctrine of part performance permits a court to grant specific performance where there has been a non-compliance with the Statute of Frauds or its modern equivalent. The court does so by salving the defendant’s conscience by ordering him or her to bring into being a formal contract which complies with the Statute and then order specific performance of it. The court does not ignore the Statute but enforces a personal equity against the defendant: Jones v Baker (2002).
- The main application of the doctrine of part performance has been in relation to land, but it is not confined to land: J C Williamson Ltd v Lukey & Mulholland (not is it confined to specific performance)
- In each case, the contract MUST BE otherwise specifically ENFORCEABLE in the sense that the other elements of the remedy must be satisfied and the court must, in its discretion, be in favour of the order.
- If damages would be adequate, the contract requires the constant supervision of the court, or if the court is for personal services, the remedy may be refused: Britain v Rossiter (1879)
- In cases of part performance, damages at law will be totally inadequate because they are not available: McMahon v Ambrose
Two lines of authority (the narrow and broad tests)
- Maddison v Alderson (1883): Alderson orally agreed with his housekeeper Maddison, to leave her a life estate in his farm in return for her unpaid services as a housekeeper. The agreement was embodied in a will, but due to incorrect attestation, was ineffective. The House of Lords found the agreement to be unenforceable for lack of writing under the Statute of Frauds. There Lordships found that merely because Maddison had continued to work for Alderson without payment was not of itself sufficient to prove part performance of the alleged contract:
the acts relied upon as part performance must be unequivocally, and in their own nature referable to some such agreement as that alleged.
HOWEVER, test in Maddison was refused by House of Lords in Steadman v Steadman holding that the appropriate test was to ask whether it was more probable than not that a contract has been entered into:
- In Ogilvie v Ryan, Holland J said that in Steadman v Steadman : The alleged acts of part performance have to be considered in their surrounding circumstances, and, if they pointed on a balance of probabilities to some contract between the parties, and either showed the nature of, or were consistent with, the oral agreement alleged, then there was sufficient part performance of the agreement for the purpose of enforcing the contract’.
- Test: ‘Whether it was more probable than not that a contract has been entered in to’: Steadman v Steadman
AUSTRALIAN COURTS REJECT THE MORE LIBREAL APPROACH IN STEADMAN AND FOLLOW HC AUTHORITY OF GLASS JA IN MILLET V REGENT WHERE IT WAS SAID THAT THE NSWCA IS NOT AT LIBERTY TO APPLY STEADMAN
Acts of Part Performance
- Khoury v Khouri (2006): ‘In the present case, there are no acts of ownership such as taking possession, paying rates or paying for the upkeep or improvement of the property, or receipt of rent or profits, or any other act at all. Acts of part performance have been almost universally closely related to possession and use or tenure of the land itself, such as where a purchaser is put into possession by the vendor, or allowed to take possession by the vendor, or where the purchaser carries out improvements. They have not necessarily been acts which the contract requires to be done. Acts on the land can much more readily be seen as unequivocally referable to the contract than payments of money’.
- The above is a similar approach to case of Australian and NZ Banking Group v Widin (Full Federal Court) which followed Maddison case:
It may be possible to reconcile what is said in Steadman with the Orthodox approach taken by the HC to date and while there is much to be said for the adoption in Australia of Steadman, these are matters for the HC rather than an intermediate Court of Appeal
Alternatives to Part Performance
The difficulties of applying strict part performance test in order to obtain specific performance has to some extent been improved by other remedies and actions ie:
- Equitable estoppel: Walton Stores v Maher
- Restitution: Pavey & Mathews Pty Ltd v Paul
- Constructive trust: Ogilvie v Ryan
Element 2: Non-performance
- ‘The plaintiff must prove that the defendant has not performed the contract according to its terms; there must be a breach of contract or a threatened breach’: Turner v Bladin (1951).
- In cases of anticipated breach, innocent party may seek specific performance instead of accepting the repudiation by terminating the contract. However, the order for specific performance may be postponed until the time for performance arrives: Hasham v Zenab 
- A specific jurisdictional denial that can be raised by the defendant on the issue of breach is to assert that performance is impossible. If that assertion turns out to be true, the court will refuse the remedy: Ferguson v Wilson (1866).
- This is so even if the D caused the impossibility
- Performance may be impossible because of illegality or because the necessary consent of a third person, such as a minister of government, is not forthcoming; ‘the fact that a contract is subject to the consent of a third party does not automatically mean that a contract is impossible to perform. Where the consent of a third party is required, courts have ordered the parties to take all reasonable steps necessary to obtain such consent and, if it obtained, to specifically perform the contract’: Avenue (WA) Pty Ltd v Plazaline Pty ltd per Jenkins J
Element 3: Inadequacy of Damages
- Equity follows the law, so it will not provide a remedy where there is an adequate common law remedy.
Courts of Equity decree the specific performance of a contract, not upon a distinction between realty and personality, but because damages at law may not, in the particular case, afford a complete remedy: Adderley v Dixon per Sir John Leach V-C
- Although there has been change in approach in other Countries, Australia still adopts the ‘adequacy of damages jurisdictional limit’ rather than ‘the discretionary approach as to whether it would be more just to grant specific performance rather than damages’: Waterways authority of NSW v Coal and Allied (Operations)Pty Ltd 
- There are a number of types of contracts where common law damages are clearly inadequate to meet the justice of the case.
- On approach is to determine whether the contract falls in a particular category where specific performance has usually been available, however Windeyer J in dissent in Coulls v Bagot’s Executor and Trustee Co Ltd:
There is no reason today for the particular categories, rather than by general principle, the case in which orders for specific performance will be made
- Accordingly, specific performance has been found to be available in respect of a contract for the sale of a racehorse (Borg v Howlett (SC(NSW), Young J, unreported); a contract to publish an apology (Summertime Holidays Pty Ltd v Environmental Defender’s Office Ltd (1998); and a contract to settle litigation (NSW v Karibian ).
- GENERAL RULE: Damages are inadequate if they cannot satisfy the demands of justice, and that justice to a promisee might well require that a promisor perform the promise: Zhu v Treasurer of the State of NSW
- Damages are obviously inadequate where they are not available, ie. cases of part performance
- Equity has always ordered specific performance of contracts for the sale of land.
- Adderley v Dixon (1824): ‘A court of Equity decrees performance of a contract for land, not because of the real nature of land, but because damages at law, which must be calculated upon the general money value of land, may not be a complete remedy to the purchaser, to whom the land may have a peculiar and special value’.
- Damages are also inadequate where land has been misdescribed: Mortlock v Buller (1804).
- The remedy is mutually available to the purchaser and the vendor, as observed in Turner v Bladin (1951).
- Generally, specific performance of a contract to pay money will not be ordered because damages will be adequate: McIntosh v Dalwood (No 4) (1930).
- EXCEPTIONS: First, if a purchaser can obtain specific performance then the vendor can also obtain specific performance (Iambic Pty Ltd v Northwind Holdings Pty Ltd ); and secondly, consistent with the general principle, specific performance is available if damages will be an inadequate remedy for the breach (Coulls v Bagot’s Executor and Trustee Co Ltd (1967)).
- Examples of exception two: some indemnity contracts: McIntosh v Dalwood, contract to execute a mortgage: Takemura v National Australia Bank Ltd, security contract: Swiss Bank Corp v Lloyds Ltd, and contracts involving both payment of money and land: Loan Investment Corp v Bonner
- Agreements to pay money to a third party create special problems because of the doctrine of privity. This means in most cases that if the defendant refuses performance, the third-party beneficiary cannot obtain a remedy because it is not a contracting party (Tasker v Small (1837)).
Enforcing Contracts to pay money to a third party
- Benswick v Beswick : Considered the issue of specifically enforcing a contract to pay money to a third party. Peter Beswick was a coal merchant who sold his business to his nephew. In return, the nephew was to pay Peter 6 pounds a week for the rest of his life; if Mr. Beswick’s wife survived him, the nephew was also to pay 5 pounds a week to her for the rest of her life. Peter Beswick died and the nephew paid the widow one payment and refused further payments; she sued in her capacity as the administrator of her husband’s estate rather than suing her in a personal capacity as a third party to the contract. The House of Lords held that as an administrator of her husband’s estate, she was entitled to sue on the contract. However, only nominal damages for the breach were available because the injury to the estate was nil since the beneficiary was not the estate but a ‘third’ party.
- Adderley v Dixon (1824): ‘A court of equity will not, generally, decree performance of a contract for the sale of stock or goods, not because of their personal nature, but because damages at law, calculated upon the market price of the stock or goods, are as complete a remedy to the purchaser as the delivery of the stock or goods contracted for’.
- The authorities discussed below also suggest damages will be inadequate where:
- supply of the chattel is severely interrupted; and
- the chattel is necessary for the plaintiff’s business.
- The mere fact that supply is temporarily low will not be sufficient to attract equity’s jurisdiction.
- Cook v Rodgers (1946): ‘Normally, the wrongful detention of goods gives no equity to the person entitled to possession. His remedy will be at common law. Where the goods have a peculiar value and damages at law would not be an adequate remedy, equity will arise. There would be an extraordinary extension of the jurisdiction in equity if it were attracted to cases in which it would otherwise be absent merely by the fact that the goods were temporarily in short supply and difficult to obtain’.
‘Necessary for the plaintiff’s business’
- Dougan v Ley (1945): Dougan agreed to sell his taxi cab and the licence to operate it to Ley for 1850. Dougan later refused to perform his side of the contract. The number of licenced taxi cabs in NSW at that time was severely limited and diminishing. Ley sought specific performance; Roper J granted specific performance at first instance: ‘Because of the limited number of vehicles registered and licenced as taxi-cabs, because of the extent to which the price represents the value of the licence and because of the essentiality to the purchasers’ calling for the chattel and the licence annexed thereto, we should treat the contract as within the scope of the remedy of specific performance.
- Doulton Potteries Ltd v Bronotte : The plaintiffs used a die to manufacture pipes for use in industry. It sent the die to the defendant manufacturer for repairs. The defendant repaired the die but wrongfully refused to return it because of a dispute about the cost of the repairs. Hope J ordered the specific restitution of the die by granting a mandatory injunction; ‘These authorities establish that the jurisdiction of the Court of Equity to intervene in respect of chattels arises, inter alia, where those chattels are of special value to a person in the carrying on of his business and where its jurisdiction is attracted by the nature of the relevant chattels, the court can give whatever relief be appropriate, including an order for the specific return of the particular chattel’.
- Intellectual property rights are unique and thus contracts concerning patents, designs, copyright or trade marks are specifically enforceable if damages are inadequate.
- Turner v Bladin (1951): Concerned a contract for the sale of a patent. The contract was specifically enforceable at the suit of the vendor, although the vendor only required the purchase money.
- Agreements to assign copyright are specifically enforceable: Erskine McDonald Ltd v Eyles .
- But, if the agreement contains unnecessary or oppressive terms, ‘they must be justified before they can be enforced’: A Schroeder Music Publishing Co Ltd v Macaulay . If they are not justified, the contract may be rescinded and thus the first element of specific performance will not have been established.
- Agreements to publish material may also be specifically enforced where there is certainty as to the subject matter to be published: Barrow v Chappell & Co Ltd .
- A contract assigning or licensing the right to use a trade name, trade mark or other indicia is specifically enforceable: Jobuna Pty Ltd v Hartley.
Goodwill and business assets
- Where a chattel is of special value to the plaintiff in carrying on his or her business, then a contract for its sale may be specifically enforced
Personal Services and employment
- Tito v Waddell (No 2) : ‘the real question is whether there is a sufficient definition to what has to be done in order to comply with the order of the court. That definition may be provided by the contract itself, or it may be supplied by the terms of the order, in which case there is the further question whether the court considers that the terms of the contract sufficiently support, by implication or otherwise, the terms of the proposed order’.
- While the courts have been willing to grant injunctions to restrain breaches of ‘special service’ contracts, specific performance is usually refused where the parties are required to maintain obligations of trust and confidence, as is the case with partnership and agency agreements. The courts remain reluctant to order specific performance of personal service contracts ‘save for exceptional cases’: Zhu v Treasurer of the State of New South Wales (2004).
Stocks, shares and securities
- Dougan v Ley: ‘In the case of goods or securities obtainable upon the market, damages at law place the disappointed buyer or seller in as good a position as delivery of the articles or receipt of the price because it enables him to go upon the market’.
- Consistent with the general principles, a contract for the sale of stocks, shares or securities will be specifically enforceable if damages will be an inadequate remedy: Dougan v Ley.
Element 4: The court’s discretion and defences
- The matters discussed below have been treated by the courts as discretionary defences and denials where the defendant, for the most part, bears the onus of proof.
Ready and Willing
- At all material times, including at trial, and at judgment, the party seeking specific performance should be ready and willing to perform the substance of the contract: Mehmet v Benson (1965).
Rebutting ‘ready and willing’
- The usual way of proving the plaintiff is not ready and willing to perform the contract is to show that he or she is in breach of contract; only a breach of an ESSENTIAL TERM will suffice: Mehmet v Benson (1965).
- In Mulkearns, the plaintiff was denied specific performance of a contract for the sale of land because the ‘whole history’ of the purchaser: ‘… did not show a person ready and willing and able to complete. It did not pay the deposit in full. It did not pay the occupation fee until after the proceedings were commenced and it was virtually forced on it as a term of obtaining an interlocutory proceeding’.
- The court is reluctant to order specific performance unless it is available to both parties.
- In saying this, the court has the discretion to grant the P specific performance even though it is not available to the D: Price v Strange 
- Cannavo v FCD (Holdings) Pty Ltd: ‘The real basis of an notion of mutuality is that it points to the weighing up process that a court necessarily carries out in order to determine whether granting specific performance at the behest of the plaintiff would, by reason of the plaintiff being unable to be required to carry out his obligations in specie, produce such hardship to the defendant that to compel specific performance would be inequitable’.
- Specific performance may NOT be available to the defendant where:
- the plaintiff has already performed his or her obligations (Price v Strange ;
- the plaintiff has not performed his or her obligations but the court is satisfied this breach can be adequately compensated for in damages: (Sutton v Sutton ; or
- the defendant is guilty of fraud or unconscionable conduct
- An example is a contract with a minor as it is void and voidable, and thus the minor can’t be asked to specifically perform the contract; nor can the other party: Boyd v ryan
- Mutuality need not exist at the date of making the contract: Macaulay v Greater Paramount Theatres Ltd (1921).
- Therefore in example of minor, specific performance would be allowed if the minor has attained the age of majority and ratified the contract before the suit: Kell vHarris
- The court is reluctant to order specific performance if it will cause undue hardship or unfairness to the defendant. Examples include:
- an unfair or low purchase price for the defendant vendor: Farrell v Bussell ;
- enforce removal of a physically disabled defendant vendor with children from property where she was able to receive help from relatives and friends who lived close by: Patel v Ali ;
- the order would expose the defendant to prosecution: Pottinger v Genge (1967).;
- the defendant would be required to run a business at a loss: Co-operative Insurance Society v Argyll Stores (Holding) Ltd ; and
- the defendant would be required to maintain a joint venture after an ‘irretrievable breakdown of relations’: Cannavo v FCD Holdings Pty Ltd .
- However, the defence is not established if there is merely an increase in the value of land since the date of the contract (Fitzergerald v Masters (1956) OR if the defendant is experiencing financial difficulties (Pasadina Holdings Pty Ltd v Khouri (1977)).
- If P has unclean hands, remedy may be rejected in court’s discretion
- Not all unmeritorious conduct will disentitle the P to relief
- Official Trustee in Bankruptcy v Tooheys Ltd (1993): ‘the unmeritorious conduct which debars relief is not ‘general depravity’; it must be conduct which has an immediate and necessary relation to the equity sued for’.
- BUT, if the plaintiff is merely guilty of sharp practice, not amounting to unconscionability, this will not have an immediate and necessary relation to the equity sued for: ANZ Executors and Trustees Ltd v Humes .
Whole contract should be enforced
- The whole contract should be specifically enforceable: Ryan v Mutual Tontine Westminster Chambers Association .
- Bridge Wholesale Acceptance Corp v Bernard: The distinction between executory and executed contract is important because of the general rule…an order for specific performance is an order that the whole of the contract, not individual obligations under it, be carried into effect…it is an executed contract and therefore the rule does not apply.
- Still, the part to be enforced must be severable or divisible from the whole contract, e.g sale of several lots of land in one contract- it will not be severable and specifically enforceable if the obligations of the parties are ‘interdependent’: Sugar Australia Ltd v Conneq
- Specific performance may be refused if the court is required to continually supervise its order: J C Williamson Ltd v Lukey and Mulholland (1931).
- The Court will not order specific performance if the defendant can terminate the contract at will: Heppingstone v Stewert (1910).
- If the defendant can establish that performance of the contract is impossible, as a matter of jurisdiction the order will be refused.
Delay, acquiescence and laches
- Mere delay will not bar relief unless it amounts to acquiescence or laches (“equity aids the vigilant and not those who slumber on their rights.” – that is delay causing prejudice), that is, where it would result in the defendant or a third being prejudiced.
- Lamshed v Lamshed: ‘The bare fact of delay is enough. Where there is nothing at all in the circumstances to justify either a conclusion that the delay has been to the prejudice of the defendant or of any third party, or a conclusion that the plaintiff ought to be regarded as having abandoned any rights he ever had, specific performance is not ordinarily refused’.
- Fitzgerald v Masters: Specific performance was granted despite a 26-year old delay because laches was absent and because the court was prepared to order that compensation be paid to the defendant for any disadvantage caused by the order.
- Lamshed v Lambshed (1963): An order for specific performance was refused after a 6 year delay because the defendant had agreed to sell the property to an innocent third-party purchaser.
Delivery Up – page 392
Nature of the remedy
It is a remedy by which documents or other goods are delivered up to the custody of the court under oath for the purpose of cancellation or supervised destruction.
Two main areas of practical application: (1) in relation to ineffective legal documents and (2) in relation to good things that infringe, or may be used to infringe, intellectual property rights.
1. Ineffective documents
Delivery up may be ordered where a document that appears to be effective on its face is proven to be void or voidable (Bromley v Holland (1802)) or unenforceable at common law or in equity.
For example- Forged documents- Peake v Highfield (1862)
Includes documents that appear to be effective but are proved to be VOID or VOIDABLE or UNENFORCEABLE in law or equity: Langman v Handover (1929) 43 CLR 334, 352.
Discretionary grounds for refusal
An order for delivery up may be refused or ordered on terms where:-
- The ineffective nature of the document is apparent on its face: Gray v Mathias (1800)
- – Case concerned a bond that was void at common law for stating immoral consideration. Delivery Up was unnecessary for an obviously ineffective document. Such cases were ‘not to be encouraged’
- The document is neither void or voidable, availability of a common law defence to an action based upon the document is insufficient to warrant delivery up in equity.
- The document is only partially void: Ideal Bedding C Ltd v Holland :
- – Insolvent D had executed a settlement of property that void only against D’s creditors
- There is a general equitable defence – presence of latches or acquiescence by the P.
- – HOWEVER, unclean hands on part of P will not necessarily preclude order of delivery up
- – Vauxhall Bridge Co v Earl of Spencer: …it will not be an obstacle to the Ps that they do not come with clean hands, for is settled that if a transaction be objectionable on grounds of public policy, the parties to it may be relieved; the relief not being given for their sake, but for the sake of the public.
- – Another question is whether a person seeking delivery up will be required to ‘DO EQUITY’ as a condition for relief –question arose in case of illegal and unenforceable money lending contracts. Kasumu v Baba-Egbe: ..to impose terms of repayment as a condition of making an order for relief it would be expressing a policy of its own in regard to such transactions which is in direct conflict with the policy of the Acts themselves. In other words, the principle of doing equity as a condition of equitable relief has been displaced by the legislation.
2. Infringing goods
Delivery up and destruction of goods may be ordered where the manufacture or exploitation of the goods constitutes an infringement of a patent a registered design a registered trade mark or a copyright.
The basis for the order is to protect the public from goods made in breach of copyright, trademarks etc.
The order did not deny the defendant’s title to the goods but restrained the defendant from use of the goods by injunction with an order for delivery up to remove the goods from the temptation of the defendant. The plaintiff did not get title to the infringing goods; Vavasseur v Krupp (1878) 9 Ch D 351 at 360 per Cotton LJ.
Normally the order is one giving the defendant the choice of delivery up or destruction.
If goods can be modified so as to remove the infringing part then the court will be reluctant to deprive the owner of the goods of possession by an order for delivery up; Slazenger & Sons v Feltham & Co (No 2) (1889) 6 RPC 531, 538.
In cases of breach of copyright there is a statutory right to an action for conversion or detinue (wrongful taking of personal possession) by the copyright owner in respect of the goods made in breach of copyright as if the copyright owner was the infringing goods; s.116, Copyright Act 1968 (Cth). This is an alternate right to possession than delivery up.
It is a defence to an action under s.116 that the defendant believed on reasonable grounds that the goods did not infringe copyright; Young v Odeon Music House (1976) 10 ALR 153.
Class summary of Delivery up
- Delivery to the court on oath (person delivering the item must make an oath saying that ALL included copies have been delivered or destroyed).
- The idea is that the document can no longer be out there in the public e.g. publications that are banned, illegal copies, infringement of publication laws etc.
- It can also be the delivery of goods e.g. goods that infringe trademarks etc.
- A location is designated and the goods or publications are taken there and there will be a court officer there who will take delivery of them.
- This remedy is used in conjunction with various other principles.
Injunctions – page 263
One of laws most potent and used remedies
Purpose: It orders a person to do an act or not to do an act
Typical injunctions is prohibitory or negative injunction- retrains or forbids D from engaging in wrongful act such as breaching a trust, trespassing on land, etc.
Less common is mandatory or positive injunction – directs D to perform an act, ie performing an agreement etc
While leading definition of injunction is in case of Cardile v LED Builders, this was in fact a case of Mareva order not injunction – such order also known as freezing order, prohibit the D from disposing of their assets. – they require D to take positive steps to preserve assts.
Search orders – known as Anton Pillar Orders. Such orders preserve the evidence the subject matter of the trial and, in common with Mareva Orders, they are both negative and prohibitory in form.
Principles applicable to all Injunctions
- The injunction must enforce a legal or equitable cause of action: Cardile v LED Builders
- Injunctions are always granted in the discretion of the court
- the injunction ‘ought to make clear what it is that the D is required to do or not do’: Currow v Beyond Productions Pty Ltd
NOTE Principle 3:
Last principle is important because D will be guilty of contempt of court and face heavy penalties if the order is breached
In Morris v Redland Bricks Ltd per Lord Upjohn: ‘The court must be careful to see that the D knows exactly in fact what he has to do and this means not as a matter of law but as a matter of fact.
Attorney-general v Punch Ltd: I take as my straight point for an examination of this issue the principle that an injunction must always be expressed with precision and with clarity…if an injunction is to be granted al all, it must be in terms so plain that he who runs may read…this is because of the penal consequences that follow if it breached…the prohibition must extend no further than is necessary to serve the purpose for which the order is to be made.
BUT IT HAS BEEN NOTED THAT ALTHOUGH CLARTIY AND PRECISION IMPORTANT- MUST NOT BE TAKEN BEYOND THE LIMIT TO INJUSTICE:
Giles JA in Orleans Investments Pty Ltd v Minshare Communications Ltd cited Callian J (who in dissent in Maggburry Pty Ltd) ‘that excessively narrow formalism in framing the injunction may wreak its own injustice’…there are limits to the precision and clarity which can be attained…[the P] should not suffer injustice through undue insistence on precise statement of what the A must do or not do.
In Orleans court had to consider the enforcement of a negative contractual promise not to engage in conduct which harm name or reputation of P. Giles JA held that framing of the injunction was a ‘discretionary consideration’ and not ‘a bar to relief if there were less than complete clarity for the A’s future conduct’.
When injunction is granted in exclusive juris. common law remedied such as damages cannot be awarded because court dealing with infringement of purely equitable right
Not important in this jurisdiction to determine whether common law will provide adequate remedy as in Auxiliary jurisdiction
In order to obtain injunction here, P must:
- Have an equitable cause of action
- satisfy the court that in its discretion it should grant the injunction
Onus: P to establish both elements, although in second D bears the burden of establishing equitable defence if any.
Element 1: Equitable Cause of action
Injunctions are issued to retrain infractions or apprehended infractions of purely equitable rights and obligations.
NO OBLIGATION that right has to be proprietary in nature, although property may be incidentally protected
An injunction will lie to retrain a breach of fiduciary obligation or a breach of a trust: Park v Dawson
An injunction may also be issued against third party who deals with the trust property: Cream Holdings Ltd v Banerjee
Two areas which have created controversy as to whether they are equitable or legal rights are confidential information and Persons right to work
- Confidential Information
Subject to defence, an injunction will lie against a person who receives confidential information, such as trade secret, and is threatening to disclose the info.
QUESTION: Confidential info legal or equitable right?
If there is contract or statute prohibiting disclosure it is a legal right and therefore equitable injunction granted under AUXILLIARY JURISIDCTION NOT HERE – hence P must show that damages are inadequate (because in auxiliary)
BUT not all cases concern contract or statutory obligations.
There is also purely equitable obligation of confidence. Lack of common law tort of invasion of privacy has enlivened this are of equity: Campbell v MGN
The inadequacy of damages at common law is irrelevant in this jurisdiction.
- Person’s right to work
Equity developed a doctrine protecting a person’s right to work, irrespective of whether that person was a party to a contract which threatened or curtailed that right.
Nagle v Feildman:…the true ground of jurisdiction in all these cases is a man’s right to work…a man’s right to work at his trade or profession is just as important, if not more important than his rights or property. Just as the courts will intervene to protect his rights to property so they will also intervene to protect his right to work.
In Curro v Beyond Productions, it was observed that a man’s right to work is not a right in the strict sense. it is merely a liberty. ‘to convert the doctrine that there should be no reasonable retrained on employment into a doctrine that every man has the right to work is in my opinion to depart radically from…the common law, it is in the public interest that a man should be able to exercise his capacity to work. The law does not enforce a right to exercise that capacity; it does no more than remoce the unreasonable impediment upon its exercise.
Element 2: Court’ Discretion
If the P has unclean hands, there is delay, acquiescence or if justice will be best served by granting alternative relief, such as an account for profit, the injunction may be refused.
Purpose: protect common law rights and, in some cases, statutory rights
In order to obtain injunction here, P must show:
- cause of action
- Damages would be an inadequate remedy
- the court has discretion to grant injunction
Onus: P to establish both elements, although in second D bears the burden of establishing equitable defence if any.
Element 1: Cause of Action
Threshold is P must have a recognisable cause of action
Curro v beyond Productions: injunctions are granted to enforce existing rights and they are not a mechanism for creating new rights
The existence of a complete cause of action may be excused if the action is likely to crystallise in the near future à this is for application of quia timet injunction (see below)
Associated Newspaper Group plc v Insert Media Ltd: another qualification to the need to show cause of action is where there is an application for an anti suit injunction to restrain proceedings being brought in a foreign country
QUIA TIMET INJUNCTIONS
Lie to retrain threatened or apprehended legal wrongs
Necessary to prove that the common law action has crystallised: Associated Newspaper Group plc v Insert Media Ltd
Section 66(1) Supreme Court Act 1970 (NSW):
the court may at any stage of proceedings, by interlocutory or other injunction, restrain any threatened or apprehended breach of contract or other injury.
In order for an injunction to lie, the P’s right must be in the nature of property à this controversial
Windeyer J observed in relation to common law trade marks in Colbeam Palmer Ltd V Stock Affiliates Pty Ltd:
There is no doubt some circuity in saying that the protection which the court have by injunction to the P who had acquired trade marks by use and reputation made such trade marks a form of property – and then saying that the intervention by the court in such cases was based upon the protection of an equitable proprietary interest
The better view is that a right which constitutes or will constitute a cause of action is sufficient irrespective of whether property is protected: Cardile v LED Builders
Victoria Park Racing v Taylor:
…It is not because the individual has by his efforts put himself in a position to obtain value for what he can give that his right to give becomes protected by law and so assumes the exclusiveness of the property, but because the intangible or incorporeal right he claims falls within a recognised category to which legal and equitable protection attaches.
As was pointed out in above case by Dixon J, not all injuries to property are forbidden by law. in Moorgate Tobacco Co Ltd v Phillip Morris Ltd : HC rejected a new tort of unfair competition even though it would have protected the P’s property. à Example : in defamation is a statement is made which injures reputation of business, even though this will cause damage to recognised form of property in intellectual property law, if the D can prove justification or free speech, the injunction will be refused.
Dixon J’s requirement of a ‘recognised category’ does not prevent the development of new torts.
In Australian Broadcasting Corp v Lenah Game Meats Pty Ltd: HC left the door on the torts development for individuals.
Various causes of action which have supported in junction in auxiliary jurisdiction are listed below:
- Defamation: injunctions, particularly interlocutory injunctions, retraining the publication of defamatory material should only be granted in ‘exceptional’ or ‘very clear cases’: Chappell v TCN Channel Nine Pty Ltd
- Bonnard v Perryman: ..It is obvious that the subject matter of an action for defamation is so special as to require ‘exceptional caution’ in exercising the jurisdiction to interfere by injunction before the trial of an action to prevent an anticipated wrong. The right of free speech is one which tis i for the public interest that an individual should possess, and, indeed , that they should exercise without impediment, so long as no wrongful act is done; and, unless an allege libel is untrue, there is no wrong committed; but, on the contrary, often a very wholesome act is performed in the publication and repetition of an alleged libel. Until it is clear that an alleged libel is untrue, it is unclear that any right at all has been infringed; and the importance of leaving free speech unfettered is a strong reason in cases of libel for dealing most cautiously and warily with the grating of interim injunctions.
- …It is one thing when the law imposes consequences..in cases of an abuse of the right of free speech. It is another matter for a court to interfere with the right of free speech prior to restraint. In working out the consequences of abuse of such freedom, the law strikes a balance between competing interests, which include an individual’s in interest in his reputation. When, however, a court is asked to intervene in advance of publication wider consideration is involved. This is the main reason for the ‘exceptional caustion’ with twhich the power to grant an interlocutory injunction in a case of defamation is approached: Australian Broadcasting v O’Neill.
- Malicious Falsehood:
- In Swimsure (Laboratories) Pty Ltd v McDonald Hunt J granted application to continue an ex parte interlocutory injunction restraining a threatened malicious falsehood.
- Cases of Swimsure, Kaplan, and Beechwood illustrate Kirby’s observation (in dissent) in Australian Broadcasting v O’Neill:
Whilst free speech and the free press are important values in Australian law, they must find their expression and operation in a way that is harmonious with other legal values, including the protection of reputation, individual honour, privacy and the fair trial of legal proceedings.
- There is no reported cases where an injunction has been granted to restrain negligent conduct: observation of lord denning in Miller v Jackson
- In NSW it is clear that such injunctions can be granted under s 66 of SCA, because it empowers the court to retrain the commission of any tort.
- Thus, like injurious falsehood, even if damage is the gist of the action and no damage is actually proven, the injunction may be granted.
- An injunction will lie to restrain threatened or a continued nuisance, such as nuisance caused by noise: Vincent v Peacock; flooding: Bonnici v Ku-ring-gai Municipal Council; vibration: Shelfer v City of London Electric Lighting Co; and smell: Halsey v Esso Petroleum Co Ltd
- Kennaway Thompson: injunction granted restraining the use of speed boats on lake beside P’s property
- Champagne View Pty Ltd v Shearwatre Resort Management: injunction will be issued to restrain nuisance casued by the entry of golf balls on the P’s land
- Miller v Jackson: a majority refused an injunction to restrain the playing of cricket on a field beside the P’s property
- Passing Off:
- An injunction will ie to restrain tort of passing off.
- Injunctions have been granted even though the common law action would fail because of an absence of fraud: Conagra Inc v McCain Foods
- Question: whether in granting an injunction to retrain an innocent passing off, equity is acting in its exclusive juris. instead à Better view: it is acting in auxiliary because in granting injunction, the court effectively gives warning; thus, if the D ignores the notice, this will amount to fraudulent passing off.
- Conversion, detinue and trespass :
- In accordance with general principles an injunction will lie to restrain these torts if the common law remedy, usually damages will be inadequate.
- Burton v Spragg exparte interlocutory injunction was granted restraining further excavation of land adjoining P’s boundaries as subterranean intrusions into the P’s land. There was an imminent threat of the P’s house collapsing. FOUND that there was a prima facie case that the D’s action constituted trespass and an infringement of the P’s common law right to support. A interlocutory mandatory injunction was granted requiring the D to restore support to the P’s land.
- Assault : An injunction will lie to retrain a threatened assault.
- Inducing a breach of contract and interference with contract: An injunction will lie to retrain the economic tort of inducing a breach of contract, but ONLY if the breach is complete: Delphic Wholsalers Pty Ltd v Elco Food
- Injunction will also lie to retrain separate tort of interference with contractual relations: Jaddcal Pty Ltd
- Zhu v Treasurer of NSW: …injunction was available not only to protect “proprietry rights or rights in possession [stricto] sensu” but also to protect “rights created by a concluded contract” which were being tortiously interfered with.
- Contract: An injunction may lie to restrain a breach of contract.
- Dalgety Wine Estate Pty Ltd v Rizzon: His honour concluded that it was ‘impossible to formulate an illuminating statement of principle which is capable of universal application’ because the attitude of the court to enforcing negative contractual terms varies with the nature of the term, the nature of the contract the effect of the injunction on the parties and the character of the order required to enforce the term.
- above case was cited with approval in Cardile v LED Building observing that:
..the view once taken that an injunction should issue to restrain breach of a negative stipulation, without weighing the usual discretionary considerations, has been discounted as an overstatement”
- In Administrative and Clerical Officers’ Association v Cth Mason J refused injunction on the grounds that ACOA was really trying to enforce a positive covenant. His honour stated:
In substance, the injunction claimed is to enforce the affirmative stipulation. The stipulation is not negative in substance because mere inactivity on the part of the Cth would not constitute performance, performance requires deduction and payment to the P.
- There are ways of avoiding the rule against enforcement of positive stipulations. First, a positive stipulation in an executed contract may be enforced by specific performance, and secondly, a mandatory injunction may be available, although the court is reluctant to order this if specific performance is not available.
- Patrick Stevendores case: …A court whose jurisdiction is invoked in a conspiracy case has the power to grant an injunction to prevent the completion or effect of the conspiracy
- Restraining Breach of Statute:
- Injunctions may lie to enforce or prevent breaches of statutory provisions, but this is subject to the wording in the statute and it may also be affected by a consideration whether the right is public or private in nature.
- Australian Broadcasting Corp v Lenah Game Meats: Where interlocutory injunctive relief is sough in some special statutory jurisdiction which uses the term ‘injunction’ to identify a remedy for which it provides, that term takes its colour from the statutory regime in question.
- City of Stirling v Dueschen: Equity is not the ‘hand maid of the criminal law’ (Ramsay v Aberfoyle Manufacturing Co) and is reluctant to grant an injunction to restrain criminal conduct. But in exceptional cases ‘a court of equity may assist…if the likely future conduct at issue is also an infraction against the public right as well as an offence.
- Equity may also assist to retrain those who flout the law, to protect public safety: Australia Securities and Investment Commission v HLP Financial Planning; or if there is en emergence: Gouriet v Union of Post offie Workers
Element 2: Inadequacy of Damages
If common law remedies are inadequate, the injunction will be allowed.
In Irving v Emu & Prospect Gravel & Road Metal Co Ltd per Street J:
..The first principle of injunction law says…that prima facie you do not obtain injunctions to restrain actionable wrongs for which damages are the proper remedy. The equitable remedy by injunction in cases of actionable wrongs was designed to meet the case where there was either no remedy at all at law, or such remedy as there was, was inadequate.
Evans Marshall & Co Ltd v Bertola:
The standard question in relation to the grant of an injunction ‘are damages an adequate remedy?’ might perhaps, in light of authorities of recent year, be rewritten: ‘Is it just, in all circumstances, that the P should be confined to his remedy in damges?’
One way of proving inadequacy of damages is to show that D’s wrong or threatened wrong will cause irreparable harm or injury to the P, or third person, in the sense that it cannot be reversed by an award of damages.
- injunction will not ordinarily lie to retrain a trespass to or conversion of goods because damages will allow P to readily purchase substitution: Cook v Rodgers; UNLESS, goods have peculiar value to the person: Aristoc Industries Pty Ltd v Wenhman
- damages inadequate when:
- – D is impecunious: Franklin International Export v Wattie Exports
- – P has commenced multiple proceedings to obtain compete compensation
- – Passing off cases- rare for damages to be an adequate remedy because fo the need to prove fraud at common law: Totara Vineyards v Villa Maria and difficulty in assessing the loss of distinctiveness in the relevant indicia: Totara Vineyards v Villa Maria
- In contract cases the issue of inadequacy of damages in relation to the grant of an injunction if often distorted by the rule in Doherty v Allman. The effect of the decision is that the court will enforce negative stipulations irrespective of the use of whether damages would be an adequate remedy
- ..A court of equity can enforce by injunction a stipulation which is negative both in form and substance, even if the contract as a whole is not the subject matter of equitable jurisdiction and the breach complained of may be properly satisfied by damages: Ampol Petrolem v Mutton [OLD VIEW]
- Opposite view to above expressed in Wood v Corrigan: ..even an express negative stipulation will not, or should not, found an injunction to restrain breach of contract, if the contract as whole is not the subject matter if equitable jurisdiction, and the breach complained of may be properly satisfied by damages.
- JC Williams Ltd v Lukey and Mulholland (agreed with above): In an injunction suit, it is not sufficient to prove that a contract involves a substantial negative, where damages would be a complete remedy for the threatened breach and where the contract is of such a nature that it cannot be specifically enforced. This seems to be the principle which is gradually being evolved, and the result seems both just and convenient.
Element 3: Court’s discretion
Discretion: The court has absolute discretion in regard to the granting of an injunction. This discretion will only be exercised if:
- it is just and convenient that the injunction be granted
- there are no other remedies available
- all the circumstances of the case have been considered.
The court may refuse a plaintiff relief because of the plaintiff’s conduct has in some way been legally improper provided that conduct has an immediate and necessary relationship to the equity sued for: Official Trustee in Bankruptcy v Tooheys (1993) 29 NSWLR 641, 650 (Gleeson CJ).
The conduct relied upon need not have been intentional: Kettles & Gas Appliances Ltd v Anthony Horden & Sons Ltd (1934) 35 SR (NSW) 108, 130.
A plaintiff may obtain relief if it demonstrates that it has washed its hands of the wrongdoing: Kettles & Gas Appliances Ltd v Anthony Horden & Sons Ltd (1934) 35 SR (NSW) 108, 131.
A court may refuse relief if the plaintiff has delayed bring its claim but the defendant must show prejudice as a result; Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221.
The court must balance whether to grant the relief against:
- The length of the delay; and
- The acts done by either party in the interim that might constitute prejudice to the defendant.
- The plaintiff knowingly accepts an infringement of his or her rights;
- The plaintiff by silence makes a representation which may found an estoppel by conduct;
- The plaintiff has acted so as to waive or release his or her rights;
- The plaintiff has elected to abandon or not enforce his or her rights.
See Orr v Ford (1989) 167 CLR 316, 337 (Deane J).
DISCRETIONARY MATTES IN CONTRACT CASES – SEE PAGE 288
American Cyanamid Co v Ethicon Ltd: The object of the interlocutory injunction is to protect the P against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial
An interlocutory injunction is granted to preserve the status quo pending a hearing. The interlocutory injunction acts in support of the final relief whether it be a final injunction or some other relief if the refusal to grant the interlocutory injunction would render the final relief nugatory.
An interlocutory injunction can be granted ex parte. It can be for a fixed period of time or until further order à There is a strong obligation on a plaintiff in an ex parte application for an injunction to make a full disclosure of all relevant evidence to the court whether favourable or otherwise. Failure to do so will lead to the injunction being dissolved.
They are available in both mandatory and prohibitory form in both exclusive and auxiliary.
Principles governing injunctions apply here:
Principles applicable to all Injunctions
- The injunction must enforce a legal or equitable cause of action: Cardile v LED Builders
- Injunctions are always granted in the discretion of the court
- the injunction ‘ought to make clear what it is that the D is required to do or not do’: Currow v Beyond Productions Pty Ltd
In considering these principles, the court addresses two main inquiries. Beecham Group Ltd v Bristol Laboratories:
The first is whether the P has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the P will be held entitled to relief…
The second inquiry is whether the inconvenience or injury which the P would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the D would suffer if an injunction were granted.
These inquiries assist court with discretion BUT are not to be interpreted as ‘rigid formulae’
Guidelines are derived from principle that court should take whichever course appears ro carry the lower risk of injustice: Films Rover International Ltd v Cannon Film Sales
As the injunction is only interlocutory the court must deal with the issues in a provisional way. Thus:
- Hearsay evidence is always received. Thus the application will often be determined on minimal and substantially unproved facts.
- An agent’s authority is always presumed.
- No findings of credit are made.
- The court, although able to, will not usually embark upon deciding complex issues of fact or law.
The more urgent the application the more likely the court will rely on scant material.
In order to obtain an interlocutory injunction a plaintiff must demonstrate:
- A legal or equitable right at least to a prima facie level or show that there is a serious question to be tried.
- Irreparable injury would result injury would result if the injunction is not granted.
- It is just and convenient that the injunction be granted.
- That the plaintiff is not subject to any equitable defence.
- That the plaintiff is prepared to give an undertaking as to damages.
Element 1: Prima Facie Case
Australian Broadcasting v O’Neill : The P must be able to show ‘a sufficient colour of right to final relief to justify the grant of an interlocutory injunction’.
Beecham – threshold requirement for interlocutory injunction is:
…whether the P has made out the prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the P will be held entitled to relief.
It does not mean that it is more probable than not that the plaintiff would succeed in obtaining final relief but that there was a sufficient likelihood of success to warrant granting the injunction: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618.
Lord Diplock rejected the prima facie test instead preferring that the plaintiff merely show that there is a serious question to be tried, that is, a triable issue. See American Cyanamid Co v Ethicon Ltd  AC 396; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 185 ALR 1.
O’Neill (2006) case which resurrected approach in Beecham (PREFERRED):
By using the phrase prima facie case their honours did not mean that the P must show that it is more probable than not that at trial the P will succeed; it is sufficient that the P show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.
In determining what is likelihood of success Gummow and Hayne JJ approved Beecham:
How strong the probability needs to be depends, no doubt, upon the nature of the rights [the P] asserts and the practical consequences likely to flow from the order he seeks..
Decisions on evidence of law
In considering whether there is a prima facie case at an inter partes hearing, the court will have regard to the evidence and arguments on both sides.
American Cyanamid case:
It is not part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature consideration. These are matter sot be dealt with at the trial.
Determinative Interlocutory Relief
Ordinarily the court will not conduct a preliminary or mini trial of the issues and give or withhold interlocutory relied upon a forecast as to the ultimate result of the case.
BUT if the decision on the interlocutory injunction is likely to determine in a practical sense the substance of the matter in issue, then in deciding the second element (balance of convenience) the court may evaluate the strength of the P’s case and final relief: Kolback securities Ltd v Epoch Mining
Onus on defendant
P does not have to show defence available to the D are so weak that they would be struck out as unarguably bad: Chappell v TCN
Element 2: Balance of Convenience
Beecham: Whether the inconvenience or injury which the P would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the D would suffer if an injunction were granted.
The P bears the onus of establishing that the balance of convenience favours the grant of the injunction: O’Neill case.
Numerous factors are taken into account and vary from case to case.
Recurrent factors are:
- Strength of P’s case:
- strength of Ps case and balance of convenience are separate and independent but must be examined together
- If P has strong case on the merits, then the balance of convenience is likely to favour P
- Hardship to either party or third party
- risk of irreparable harm of injury to P
- If damages in the measure recoverable at common law would be an adequate remedy and the D would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the P’s claim appeared to be at that stage: American Cyanamid
- In exclusive jurisdiction court does not consider adequacy of damage, it will consider whether the P should be confined to an account of profits or equitable compensation.
- Delay itself is not a disentitling factor: Nintendo Co Ltd v Care
- BUT unexplained delay can be fatal to the P’s application for interlocutory injunction
- If delay has cause substantial detriment: Gibson v The Minister for Finance; or has allowed the D to establish a business or enterprise, the balance of convenience will be against the P
- American Cyanamid : …to interrupt him [the D] in the conduct of an established enterprise would case much greater inconvenience to him since he would have to start again to establish it in the event of his succeeding at the trial.
- the sufficiency of the P’s undertakings as to damages – SEE BELOW
Undertaking as to damages
In seeking an equitable remedy, the P is required to do equity
P will be required to give an undertaking to the court that if the interlocutory injunction is later dissolved, the P will compensate the D for any injury or loss caused by the injunction: Beecham
The giving of an undertaking is an essential condition of the grant of an interim injunction… the P can elect to give the undertaking, in which case the injunction will run; or the P can decline to give the undertaking, in which even the injunction will not run…There is a usual form of undertaking as to damages…the court is required to exercise its judgement as to what is appropriate in order to ensure the reality of adequate compensation, and not merely an empty form of compensation to the party who is ultimately successful: First Netcom Pty Ltd v Telstra Corp Ltd
UCPR 25.8 Meaning of “usual undertaking as to damages”
(cf SCR Part 28, rule 7 (2))
The “usual undertaking as to damages”, if given to the court in connection with any interlocutory order or undertaking, is an undertaking to the court to submit to such order (if any) as the court may consider to be just for the payment of compensation (to be assessed by the court or as it may direct) to any person (whether or not a party) affected by the operation of the interlocutory order or undertaking or of any interlocutory continuation (with or without variation) of the interlocutory order or undertaking.
- It must be just and convenient to grant an interlocutory injunction: section 66(4) SCA.
- The Court weighs all the factors relevant to the case – including the hardship that the defendant may experience if the injunction is granted: Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148, 155.
9 Specific types of injunctions
Quia timet Injunctions
An injunction either permanent or interlocutory may be granted to restrain either an apprehended or a continuing breach of a legal or equitable right. Where there has been no breach but the plaintiff can demonstrate that such breach is likely to occur if the injunction is not granted then the court will grant a quia timet injunction. A quia timet injunction is subject to the same principles that apply to an injunction restraining a continuing breach with the exception that in some cases it may be more difficult to prove a threatened breach than to demonstrate that a breach has already occurred.
Mandatory Injunctions – page 303
This type of injunction commands a person to do something rather than prohibiting them from doing something. It is usually only made as a permanent order. A mandatory injunction is granted on the same principles as a prohibitive injunction, although because of its positive nature it is sometimes more difficult to obtain.
A mandatory injunction differs from an order for specific performance in that the former enforces a particular obligation whereas the latter enforces an entire agreement. There are two kinds of mandatory injunctions:
- Restorative à Commands a person to do something rather than prohibiting them from doing something.
- Enforcing à Enforces an obligation (how is it different from an order for specific performance?)
The restorative injunction requires the defendant to make good the consequences of his or her wrongful act; e.g. to remove scaffolding from a building which constitutes a trespass: Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464.
The enforcing mandatory injunction compels a person to take a positive step which he or she has contracted for valuable consideration to do: Burns Philp Trust Co Pty Ltd v Kwikasair Freightlines Ltd (1963) 63 SR (NSW) 492.
To obtain a mandatory injunction in the auxiliary jurisdiction the plaintiff must prove:
- That if what has already occurred had been merely threatened the plaintiff would have been entitled to a quia timet injunction.
- Damages are inadequate.
Where the action is in the exclusive jurisdiction the requirement as to the inadequacy of damages is not required.
In Burns Philp Trust Co Pty Ltd v Kwikasair Freightlines Ltd the court held that if one positive stipulation only is sought to be enforced it is appropriate to look to see if that stipulation standing alone would be specifically performable and whether it is just to enforce it.
In Redland Bricks Ltd v Morris  AC 652, Lord Upjohn expressed the following principles:
- A strong possibility of grave damage in the future if no injunction is granted;
- Damages are inadequate;
- The defendant has behaved wantonly or unreasonably or whether hardship would be occasioned to a defendant who had behaved reasonably but wrongly;
- The injunction must be worded as to bring to the defendant’s notice exactly what it is required to do.
Item one is not necessarily correct when it comes to injunctions to remove a trespass.
Item three is in some way peculiar to mandatory injunctions with respect to wanton behaviour but the issue of hardship is also relevant to prohibitive injunctions.
The defence of hardship is often much easier to establish in the case of a mandatory injunction. However, where a defendant has knowingly acted in an unlawful way the hardship defence will not assist: Redland Bricks Ltd v Morris.
Where the mandatory injunction is of the enforcing kind the same defences apply as would apply to an application for specific performance.
Otherwise the same defences that apply to a prohibitive injunction will apply to a mandatory injunction.
A mandatory injunction will not be granted to enforce a statutory duty in a case where mandamus would lie: Blanch v Stroud Shire Council (1947) 48 SR (NSW) 37. But note the wrongful termination of a service pursuant to a statutory right can be restrained by a prohibitive injunction: see Bradley v Commonwealth (1973) 128 CLR 557.
Super and Anonymised Injunctions – see page 307
Mareva or Freezing Order – page 318
A court order restraining defendant from disposing of assets pending judgment: Mareva Compania Naveria SA v International Bulk Carriers SA  2 Lloyd’s Rep 509.
It is not a remedy in the fashion of an injunction and is not a form of final or interim relief. It is an order in support of final relief: Cardile v LED Builders Pty Ltd (1999) 162 ALR 294, .
Section 23 Supreme Court Act (NSW)
The court shall have all jurisdictions which may be necessary for the administration of justice in NSW.
While the name Mareva order continues to be used the name ‘freezing order’ is used in the Australian Harmonised court rules:
(1) The Court may make an order (a freezing order ), with or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.
Elements for granting Mareva or freezing order may be summarised as follow:
- The P has a judgement in their favour or a good arguable case
- The D has assets subject to the jurisdiction of the court
- There is a danger that a judgement will be unsatisfied due to the disposition or dissipation of the D’s assets
- The court’s discretion and the balance of convenience favours the granting of the remedy; and
- The P has provided undertaking to the court including the usual undertaking as to damages
Element 1: A Judgement or Good Arguable Case
Threshold test: P required a good arguable case or a prima facie cause of action against the D: Patterson v BTR Engineering
A good arguable case is ‘one which is more than barely capable of serious argument, and yet not necessarily one which the judge believes would have a better than 50% chance of success: Ninema Maritime Corp v Trave GmbH & Co KG
While test does not need to be on balance of probabilities, it has been found more difficult to satisfy than the ‘serious question to be tried’ test: Polly Peck International plc v Nadir;
The above is because a Mareva order ‘is a drastic remedy which should not be granted ligthtly: Cardile v LED Building
Fourie v Le Roux: The claimant cannot of course guarantee that he will recover judgement, nor what the terms of the judgement will be. But he must at least point to proceedings already brought, or proceedings about to be brought, so as to show where and on what basis he expects to recover judgement against the D.
The harmonised court rules now have two requirements:
- That the P either has a court judgement in their favour, or
- A goods arguable case on an accrued or prospective case of action
see example of s7.35 on pg 322
Element 2: Assets subject to the Court’s Jurisdiction
The P must establish that the D has assets subject to the jurisdiction of the court.
As the freezing order jurisdiction operated in personam the D’s assets need not be in Australia.
Assets could include:
- real estate
- a bank account
- a secured overdraft: Third Chandris Shipping Corp v Unimarine
- ship’s cargo
- car or
- goodwill: Cardile v LED Building
Court may make ancillary asset disclosure orders requiring D to:
- attend court for oral examination as to his assets
- disclose the ‘nature and location of particular assets: Pathways Employment Services v West
- deliver specified assets
- direct the Ds bank to disclose info to the P
- pay money into court
- appoint a receiver to the Ds assets
- order transferring assets from one foreign jurisdiction to another
ANCILLARY ASSET ORDERS ARE USUALLY MADE AGAINST PERSON WHO IS NOT PARTY TO PROCEEDINGS
Winter v Marac Australia: it was held that orders can be made in respect of assets held by third parties if the D has some right in respect of the asset or has control over or other access to the asset
Cardile v LED Building held that Mareva order could even extend to the shared or concurrent goodwill in a trade mark or trading name if its disposition by the third party is likely to affect the value of the Ds share in the goodwill.
Subject to the other elements being satisfied, the principles that should guide the courts in determining whether to grant an order against the third party are:
- the party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including ‘claims and expectancies’, of the judgement debtor or potential judgement debtor; or
- some process ultimately enforceable by the courts, is or may be available to the judgement creditor as a consequence of a judgement against that actual or potential judgement debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgement debtor to help satisfy the judgement against the judgement debtor.
See page 325 for rule 7.35 of Federal court rules which are equivalent to case above.
Freezing order is in personam and therefore may extend to assets outside Australia à
A freezing or ancillary order may be limited in Australia or in a defined part of Australia, or may extend to assets anywhere in the world, and may cover all assets without limitation, assets of a particular class, or specific assets.
If order extends to assets outside Australia, it should provide for the protection of persons outside Australia and third parties.
Talacko v Talacko: held that Mareva orders in respect of foreign assets are guided by 4 principles: see page 326 for principles in full detail.
- Provided D is subject to court’s jurisdiction, Mareva order can be made by court in respect of foreign assets
- Whether assets were in jurisdiction at time the proceedings were commenced, or have been, does not affect whether court has jurisdiction to make mareva order. However may be relevant to exercise of court discretion
- Jurisdiction should only be exercised in exceptional cases has not been followed in Australia. I do not accept that the discretion can only be exercised in exceptional cases
- The discretion will be exercised more readily after judgement
Additionally, the ‘long arm’ service rule provides that ‘a freezing order or an ancillary order may be served on a person who is outside Australia (whether or not person is domiciled in Aus) if any of the assets to which the order relates are within the jurisdiction of the court: Rule. 7.37 FCR 2011
Element 3: Unsatisfied Judgement Danger
There had to be a ‘real risk’ or danger that the D would frustrate the judgement: Pelechowski v Registrar, Court of Appeal, either before or after the judgement, by absconding’ or dissipating his or her assets: Patterson v BTE Engineering
Rules now provide that there must be a danger that a judgement or prospective judgement will be wholly or partly unsatisfied.
(4) The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur:
(i) removed from Australia or from a place inside or outside Australia; or
(ii) disposed of, dealt with or diminished in value.
The term ‘Judgement’ is defined broadly to extend to ‘order’: r7.31 FCR
P will need to adduce evidence of risk of danger
Not sufficient to have:
- a mere assertion: Third Chandris Shipping Corp v Unimarine SA
- prima facie cause of action: Patterson v BTR Engineering
- an admission in without a prejudiced or privileged correspondence: Frigo v Culhaci
- insolvent D: Hortico Pty Ltd v Energy Equipment Co
- merely establishing that D intends to leave jurisdiction: Brereton v Milstein
BUT the danger may be a matter of inference if there is evidence from which ‘a prudent, sensible commercial’ person could ‘properly infer danger of default’.
If D fraudulent assists in establishing that if assets left in D’s hands they will not be preserved: Patterson v BTR Engineering
Element 4: Balance of Convenience and discretion
In common with all other equitable remedies, freezing order is only available in court’s discretion: Patterson v BTR Engineering
Cardile v LED Builders:
Discretionary considerations generally also should carefully be weighed before an order is made. Has the applicant proceeded diligently and expeditiously? Has a money judgement been recovered in the proceedings? Are proceedings available against third party? Why, if some proceedings are available have they not been taken? Why if proceedings are available again third party and have not been taken and the court is still minded to make a Mareva Order, should not the grant of the relief be conditioned upon an undertaking by the applicant to commence, and ensure so far as is possible the expedition of, such proceedings? It is difficult to conceive of cases where such an undertaking would not be required. Questions of this kind may be just as relevant to the decision to grant Mareva relief as they are to make a decision to dissolve it.
Element 5: Undertakings
The granting of Mareva order is conditional on P providing various undertakings to the court.
Most common is that it ‘should, in general, be supported by undertakings as to damages’ or the ‘usual undertaking as to damages’.
Held in Frigo v Culhaci that it could not conceive of circumstances where an ex parte mareva should be granted otherwise than subject to undertakings as to damages.
Apart from damages, P will usually undertake, as soon as practicable, to file and serve on the D copies of the order, the application for the order, the evidence and written submissions relied on at the hearing and, if available, the court transcript and originating process.
P may also be required to make undertaking to indemnify or pay costs of third party for their costs in complying with order
If order ceases to have effect – because D pays money to court or provides security – the P usually undertakes to promptly notify in writing affected persons that the order has ceased to have effect.
While freezing order should be framed according to the circumstances of the case, there are examples in the harmonised court practice notes for guidance
Typically the order will exclude the D’s legitimate dealings with their assets by allowing them, to pay for ordinary living expenses, reasonable legal expenses, debts and pursue the normal conduct of his or her business.
Dissolution and Variation
A freezing order without notice will usually be for a limited period and automatically terminate or dissolve on the return date of the application, an even or subject to a condition
The return date should be ‘as early as practicable’ and usually not more than a day or two after the order is made.
P and D may agree in writing to vary the exceptions to the freezing order.
A consent order signed by both parties recording the variation should then be filed with the court as soon as practicable and the court ‘may order that the exceptions are varied accordingly’.
An application by D to dissolve or vary order will normally be treated by court as urgent.
A variation will often be required for sale of an asset to proceed.
In order to completely discharge, dissolve or melt the freezing order, the D will ordinarily show that one of the elements was not satisfied, eg, deny the existence of a good arguable case or submit evidence showing that there has never been a real risk or danger of dissipation of Ds assets.
Another ground for dissolution is where the P has failed to make full disclosure of material facts at the ex parte hearing
If order is dissolved on the D’s application to the court then ordinarily the D will be entitled to an inquiry into damages. Cardile v LED Builders: another reason for care in exercising the power to grant a Mareva order is that there may be difficulties associated with the quantification and recovery of damages pursuant to the undertaking if it should turn out that the order should not have been granted…
The court has discretion to refuse to enforce the undertaking as to damages: Redwin Industries Pty Ltd v Feetsafe Pty Ltd or delay its implementation until the result of the principal litigation is known: Fourie v Le Roux
Anton Pillar Orders – page 333
Anton Pillar order or search order directs the D to allow the P’s representative to enter the D’s premise and search for and remove evidence that is in danger of being destroyed or hidden.
Aim of order is to preserve the evidence the subject of the P’s claim
- Orders allowing plaintiff to search the defendant’s premises and seize evidence relating to the plaintiff’s cause of action. It is not a search warrant which allows the Plaintiff to enter by force;
- There must be a real risk the defendant might destroy or suppress such evidence and thereby deprive the plaintiff of discovery;
- If entry is refused the defendant may be guilty of contempt of court which carries criminal sanctions: Anton Piller KG v Manufacturing Process Ltd  1 Ch 55
Usually ex parte which heightens the burden of satisfying the requirements.
The plaintiff must provide plain language description of the Order and permit defendant to get legal advice before order is executed.
The court may instruct a third party Supervising Solicitor to supervise execution.
Most courts have power to issue search orders FCAA s 23:
Court had power, in relation to matters which it has jurisdiction, to make orders of such kind, including interlocutory orders, and to issue or direct the issue of writs of such kind as the court think appropriate
r 7.44 FCR 2011: Nothing in this division diminishes the inherent, implied or statutory jurisdiction of the court to make a search order.
In order to obtain an Anton Pillar Order the P must:
- have an extremely strong prima facie case
- prove the damage, potential or actual, must be very serious
- have convincing proof that the D possesses incriminating documents or goods and there is a likelihood or real possibility that the D will destroy them
- provide various undertakings to the court including an undertaking as to damages; and
- convince the court that in its discretion it should grant the order
Element 1: Strong Prima Facie Case
Anton Piller KG v Manufacturing Process Ltd – because of the draconian nature of the order, there must be an extremely strong prima facie case.
P should establish a strong cause of action against the D
This does not mean that search order should be limited to the orecise casue of action known as this would limit the utility of the order: Aristocrat Technology Australia Pty Ltd v Global Gaming Pty Ltd
Where P can establish that he or she will suffer substantial damage by the D’s criminal act, proof of this will be sufficient: Ex parte Island Records Ltd
Due to obligation to make full and frank disclosure, P should inform the court of any known possible defences
Strong prima facie cases have been found in:
- copyright privacy: EMI Ltd v Pandit
- trade secrets and confidential info: Anton Piller KG v Manufacturing Process Ltd
- patent infringement: International Electronics Ltd v Weigh Data Ltd
- trade mark infringement: Tony Blain Pty Ltd v Jamison
- passing off: Sony Corp v Anand
- Assault: Ex Parte Mashini
- family law: Emanuel v Emanuel
- restitution: Yousif v Salama
- trusts: A v C
Categories are not closed by dominant use of the remedy is in intellectual property
Element 2: Serious Damage
Anton Piller KG v Manufacturing Process Ltdà the damage, potential or actual, must be very serious for the applicant
In cases of intellectual property and counterfeit goods the damage can be readily demonstrated by the potential or actual loss of sales and by the inferior quality of the D’s goods.
Serious damage in trade secret and misuse of confidential info cases, ie Anton Pillar case, by actual or potential disclosure to the P’s trade rivals.
Element 3: Likely Destruction of Incriminating Evidence
Anton Piller KG v Manufacturing Process Ltdà …there must be clear evidence that the D have in their possession incriminating docs or things, and that there is a real possibility that they may destroy such material before any application inter partes can be made..
Rule 7.43 (c) is corresponding. see page 342
If the D does not intend to destroy the evidence but, intends to hide or remove it from the jurisdiction, this is sufficient: Microsoft corporation v Goodview Electronics Pty Ltd
The purpose of the order must not be for a ‘fishing expedition by the P: Hytrac Conveyors v Conveyors international Ltd
In deciding whether there is real possibility of destruction or cause it to be unavailable, the court is entitled to take into account the usual practice of pirates and copyright and the like: Busby v Thorn EMI video Programmes Ltd
Element 4: P’s undertakings and form of the order
P will need to give several undertakings to the court
Whole order should be subject to undertake as to damages: Foga systems international AB v Shop & Display Equipment
Security for its performance, may be required if P has insufficient assets within the jurisdiction
There is a proviso which preserves the privilege against self-incrimination and legal professional privilege of the D: PMSI Group v Wilson; The P should give undertaking that the D will be advised of his her right to obtain prompt legal advice before the order is executed.
To help protect abuse, P will be required to give undertaking to make available and pay the reasonable costs of an independent lawyer to explain the order and provide advice to D: Tony Blain v Jamison
See page 344 for rule 7.45 of FCR 2011 which provide examples of the form of the order.
‘Undertaking as to damages’ – John’s slide:
- In almost all cases the plaintiff will be required to undertake to pay any damage that may be suffered as a result of the order being wrongly given.
- Cannot be compelled but may be refused if not forthcoming.
- Where plaintiff is impecunious and has strong claim, the court will likely exercise its discretion to grant the relief: Donnelly v Amalgamated Television Services Pty Ltd (1998) 45 NSWLR 570.
- The Crown or person suing in ‘the public interest’ may not be required to provide undertaking: Ross v SRA (1987) 70 LGRA 91.
Element 5: Court’s Discretion
P must satisfy court that in its discretion the order should be granted.
The court will weigh in the balance equitable matters such as delay, acquiesce and unclean hands. – see under ‘element 3’ of auxiliary jurisdiction above
This is not search warrant and so P cannot forcefully enter
If D fails to comply with order, this will expose him to proceedings for contempt: Long v Specifier Publications Pty Ltd
Order will usually carry prominent waring that if D or any other person assisting D disobey order they will be liable to imprisonment, sequestration of property or other punishment
Anton Pillar case: the order is on D in personam to permit inspection. It is therefore open to him to refuse to comply with such order, but at his peril either of further proceedings for contempt of court – court will have widest discretion as to how to deal with it- but more important, ofcourse, the refusal to comply may be the most damning evidence against the D at the subsequent trial.
Search party cannot enter premises with D consent
D can only refuse entry until he she has obtained legal advice
D will also be guilty if they destroy docs prior to allowing search party in: Bhimji v Chatwani
Ps rep may be in contempt if they abandon control of seized item: WEA Records Ltd v Vission Channel 4 Ltd or allow unauthorised removal of docs or goods, or use info for purposes other than the proposed or initiated proceedings: VDU Installations Ltd v Integrated Computer Systems and Cybernetics Ltd
Court has power to imprison those in contempt but power is rarely exercised in relation to search orders: Fabrics v Myristis
Privilege against Self Incrimination
In Australia, legislation did not abolish right to privilege against self incrimination by provided process by which witness may claim the privilege but may still be required to give incriminating evidence in return for a certificate granting immunity from direct or indirect use: S 128A Evidence Act 1995 (Cth); EA 1195 (NSW)
Requires P to give an undertaking not to use seized evidence for any other proceedings
…The appellant will not without the leave of the court use any info, docs, or thing obtained as a result of the execution of this order for the purpose of any civil or criminal proceeding, either within or outside Australia, other than this proceeding: Warman International Ltd v Envirotech
Search order may be discharged or dissolved if D shows that one of elements was not satisfied; or if inefficient or inadmissible evidence was relied upon to support the order; of if the P failed to give full and frank disclosure at the ex parte hearing; or if the P failed to comply with the terms of the order
Failure to make full and frank disclosure is most common ground.
Thomas A Edison Ltd v Bullock: it is the obligation of the P in ex parte hearings to bring under the notice of the court all facts material to the determination of his right to the injunction.
The P has a duty to the court to make full and frank disclosure of all material facts including possible defences and inability to meet the undertaking as to damages
Not all omissions lead to dissolution
Dormeuil Freres v Nicolian International Ltd: basic principle, applicable to all ex parte applications, that a P seeking ex parte relief must make full disclosure of all facts which are material to the exercise of the courts discretion whether or not to grant the relief…If disclosure is not made by P the court may discharge the ex parte injunction on that ground alone. But if in the circumstances existing when the matter comes before the court inter partes, justice requires an order either continuing the ex parte injunction or the grant of a fresh injunction, such an order can be made notwithstanding the earlier failure of the P to make such disclosure…there is no absolute right to have an exparte order obtained without due disclosure set aside; there is a discretion in the court whether to do so or not.
It is unlikely that order will be dissolved if non-disclosure was innocent and immaterial, in the sense that the injunction would still have been granted if disclosure was made: Lloyd’s Bowmakers Ltd v Brittania Arrow Holdings plc
If order is dissolved then in accordance with the undertakings as to damages, the P will ordinarily have to pay compensation to the D and third parties who have suffered loss due to the order
Examplary damages may be available where the order was executed oppressively or in excess of the power granted by it: Foga Systems International AB citing Columbia Pictures Industries Ltd v Robinson
Mareva order or injunction:
Mareva Compania Naviera SA v International Bulk Carriers SA  2 Lloyd’s Rep. 509;  1 All ER 213
Summary: Injunction; Mareva injunction; principles
Abstract: If it appears that a debt is due and owing and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment, the court has jurisdiction to grant an interlocutory injunction so as to prevent him disposing of those assets.
Facts: Shipowners let a vessel, the Mareva, to charterers abroad, hire being payable half-monthly in advance. The vessel was then sub-chartered. The sub-charterers paid 90 per cent of the freight some GBP 174,000, in advance under the sub-charter to a bank in London.
The charterers paid the ship-owners two instalments of the half-monthly hire out of that sum, but failed to pay the third. They then repudiated the charter, and the shipowners claimed USUSD 30,800 unpaid hire, plus damages. Because they feared that the money would be transferred from the London bank, they sought an injunction restraining its disposal.
Held, granting the injunction, that the rule under the Supreme Court of Judicature (Consolidation) Act 1925 s.45 that an injunction would be granted in all cases where it would be right or just to do so applied to a creditor who had a right to be paid a debt owing to him, even before he had established that right by getting judgment for it.
Anton Piller order :
Anton Piller KG v Manufacturing Process Ltd  Ch 55;  1 All ER 779
Summary: Confidential documents
Abstract: In exceptional cases where there is a very serious danger of actual or potential damage being caused to a plaintiff by removal or destruction of confidential documents in a defendant’s possession, the court has jurisdiction upon the plaintiff’s ex parte application to order the defendant to allow the plaintiff’s representative to inspect and remove such material from the defendant’s premises. Per curiam.
The plaintiff’s representatives must ensure that such an order is carried out with meticulous care and the fullest respect for the defendant’s rights.
Facts: The plaintiff manufacturers claimed that the defendants, their English agents, were and had been disclosing confidential information about the plaintiffs’ products to the plaintiffs’ competitors.
Upon the plaintiffs’ ex parte application, Brightman J. granted an interim injunction to restrain the defendants from disclosing such information but declined to order that the plaintiffs be entitled to inspect and remove into their solicitors’ custody all such confidential material in the defendants’ possession.
Held, allowing the plaintiffs’ appeal and making the order sought, that such an order could be made under the court’s inherent jurisdiction where as here there was a very strong prima facie case and a real and serious danger of further damage to the plaintiffs unless the documents were urgently removed.
Anti-suit injunctions to restrain the pursuit of proceedings in an overseas court
CSR & CSR America Inc v Cigna Insurance Australia & ors (1996-7) 189 CLR 345
Interlocutory anti-suit injunction to restrain foreign proceedings
Appeal against grant of interlocutory anti-suit injunction to restrain proceedings commenced in United States court.
Where appellant had commenced proceedings in United States seeking declarations as to entitlement to insurance indemnity in respect of United States claim.
Where respondent (applicant for injunction) had commenced proceedings in Australian court seeking negative declarations as to entitlement to indemnity for both United States and Australian claims and permanent anti-suit injunctions.
Appellant sought stay of Australian proceedings on forum non conveniens grounds, while respondent obtained interlocutory anti-suit injunctions prior to hearing of stay application.
Bases of court’s power to grant anti-suit injunctions: inherent power and equitable jurisdiction.
Whether power to stay vexatious or oppressive foreign proceedings derives from equity.
Whether United States proceedings vexatious or oppressive according to equitable principles.
Where damages available to appellant in United States proceedings not available in Australian proceedings.
Whether, according to principles of comity, interlocutory anti-suit injunction should not be granted until applicant moved for stay or dismissal of foreign proceedings.
Whether injunction not able to be granted by court which is itself clearly inappropriate forum.
Held: United States proceedings not vexatious or oppressive according to equitable principles.
Application for anti-suit injunction dismissed.
Different issues in domestic and foreign proceedings
Test to be applied in determining whether local proceedings should be stayed where different issues involved in local and foreign proceedings.
Where different proceedings arising out of same sub-stratum of facts.
Whether clearly inappropriate forum test inapplicable.
Whether proceedings to be stayed where, having regard to controversy as a whole, Australian proceedings are vexatious or oppressive.
Whether Australian proceedings should be stayed.
Where appellant seeking damages in United States court not available in Australian court.
Where respondent brought proceedings in Australian court for dominant purpose of preventing other party from pursuing remedies available in foreign court.
Held: Australian proceedings stayed as vexatious and oppressive.
Adequacy of Damages
Bendal Pty Ltd v Mirvac Project Pty Ltd (1991) 23 NSWLR 464
Building and construction — Construction — Encroachment — Adjacent land
Equity — Injunctions — Trespass — Adjacent land
Tort — Trespass to land — Building site
Held: granting an injunction restraining continued encroachment by the scaffolding screens:
(i) The law places very high value on the rights of owners of freehold land to control the use of that land. He has a legitimate interest to decide who will come on to his land, who will build encroachments there, who will stay off and on what terms he is prepared to give leave and licence whether on payment of money or on no terms whatever. There is no power in the court to impose compulsory licences to encroach on real estate or to set the terms on which licences will be granted.
(ii) The plaintiff’s opportunity to prepare for trial and go to trial on a claim for damages was not adequate in the circumstances.
(iii) There had been no laches or acquiescence by the plaintiff.
Evans Marshall & Co Ltd v Bertola SA  1 All ER 992
Summary: Injunction; interlocutory damages adequate remedy
Abstract: Special cases may arise where it is proper to maintain the status quo by interlocutory injunction, irrespective of whether the relief granted at trial will include a permanent injunction.
Facts: M Co., English wholesale wine merchants, entered into an agreement in 1951 with B Co., Spanish shippers and producers of wine, to the effect that M Co. should become B Co.’s sole agents in the United Kingdom, for five years.
After five years, that agreement was extended until 1986. In 1972, B Co. was taken over by another Spanish company who alleged that M Co.’s carrying out of their obligations was unsatisfactory or obstructive, and purported to appoint I Co. in their place.
M Co. issued two writs, the first claiming injunctions against B Co. and I Co., and damages against I Co., and the second claiming damages against B Co. M Co. sought interlocutory injunctions in the terms of the first writ, restraining B Co. and I Co. from selling sherry in the United Kingdom otherwise than through M Co.’s agency.
Held: In the present case, damages would not be an adequate remedy in any event, and the injunctions would be granted.
Per Sachs L.J.:The standard question in relation to the grant of an injunction, “are damages an adequate remedy?”, might perhaps, in the light of the authorities of recent years, be rewritten:”Is it just, in all the circumstances that a plaintiff should be confined to his remedy in damages?”
Chappell v TCN Channel Nine Pty Ltd (1988) 4 NSWLR 153
Interlocutory injunctions — Defamatory imputations (Public Interest)
Held: (i) The power to grant interlocutory injunctions in defamation cases must be exercised with great caution, and only in very clear cases. There is, however, no inflexible rule that an injunction will be refused when the judge hearing the application is unable to hold that a verdict, that the imputations pleaded were not actionable, would be set aside as unreasonable. The grant of such an injunction should be considered in accordance with the discretionary principles which have always governed the grant of equitable relief.
The considerations set out by Lord Esher in Coulson & Sons Ltd v Coulson & Co (1887) 3 TLR 846, are still relevant, though not in the absolute terms in which they were expressed.
(ii) (a) An injunction will not usually be granted if it will have the effect of restraining discussion in the media of matters of public interest or concern.
(b) Unless a public figure makes his private activity a matter of public interest himself, that private activity can be a matter of public interest only if it has some bearing upon his capacity to perform his public activities.
(c) A reputation, not put forward publicly by a public figure, for possession of high standards of private behaviour, is not a matter of public interest justifying the publication of facts which go to negate that reputation.
(d) The circumstance that the matter complained of is in general terms related to a matter of public interest does not justify the publication in the course of it of imputations which do not themselves relate to a matter of public interest.
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199
Ability of broadcaster to use film obtained by trespasser
Appellant sought order to discharge interlocutory injunction granted by Supreme Court of Tasmania. Injunction prevented appellant (who was public broadcaster) from distributing, copying or broadcasting video tape.
Tape included images and sounds of possums being stunned and killed at respondent’s licensed abattoir.
Tape was obtained by unknown persons who broke into abattoir and installed secret cameras.
Tape was then given to broadcaster.
Respondent alleged it would suffer financial harm if film was broadcast.
Whether it would be unconscionable to allow broadcaster to publish film taken as result of trespass or some other illegal, tortious or improper means.
Whether court of equity has jurisdiction to grant injunction to any person who has received the information, irrespective of whether that person was implicated in trespass or other improper conduct.
Whether court should take into account all circumstances of case (including competing public interest in freedom of speech and interest in protecting private property) when assessing if it would be unconscionable to allow information to be used.
Whether fact that information was improperly obtained should weigh heavily in court’s mind when assessing if broadcaster should be allowed to use information.
Whether broadcaster was bound in conscience not to publish because of circumstances in which film was made, even though broadcaster was not involved in any illegality or impropriety.
Whether information obtained as result of trespass should be treated in same way as confidential information (even though information was not confidential and not imparted in confidence).
Held, allowing the appeal:
(i) It is not unconscientious of a broadcaster to use or publish information that it obtains from someone who tortiously obtains the information in the first place. at 
Need for plaintiff to show basis of entitlement to final relief
Respondent brought action seeking injunction and damages.
Respondent sought final injunctive relief which required appellant to deliver it all copies of video.
Respondent also sought interlocutory injunction which restrained broadcaster from publishing film pending hearing of application for final relief.
Whether there was serious question to be tried.
Whether facts alleged in statement of claim disclosed any legal or equitable basis which entitled respondent to final injunctive relief.
Whether interlocutory injunctive relief could be granted without any underlying cause of action to be tried.
Whether Supreme Court had power to grant injunction restraining broadcaster from using tape simply because Supreme Court believed broadcaster had threatened to behave in manner that it perceived was unconscionable.
Held, allowing the appeal:
(i) The Supreme Court of Tasmania may only grant interlocutory injunctions in order to protect some legal or equitable right which the court may enforce by final judgment. Interlocutory injunctive relief cannot be granted unless there is an underlying cause of action to be tried. at , , , 
Negative Stipulations in Contracts
Administrative & Clerical Officers Association v Cth (1979) 26 ALR 497
Principles governing grant of interlocutory injunction — Onus on applicant to show a probability that at trial he will be held entitled to injunctive relief
Injunction to restrain threatened breach of contract — Whether agreement between the parties a contract or an administrative arrangement.
Facts: By arrangement with the plaintiffs (two public service unions), the Commonwealth deducted union dues from the salaries of the plaintiffs’ members and paid them, less a commission, to the plaintiffs. Following a campaign by the plaintiffs to disrupt the process of government, the Commonwealth gave notice of its intention to discontinue the arrangement.
The plaintiffs sought interlocutory injunctions to restrain what was alleged to be a threatened breach of contract by the Commonwealth.
The character of the arrangement, together with the documents said to contain the substance of the agreement, and the nature and extent of the matters which had been agreed upon, all tended to indicate an administrative arrangement rather than an actual contract. Furthermore, even if the plaintiffs succeeded in establishing the existence of a contract; they admitted that it could be terminated within a short time, so that by the time of the trial the question of injunctive relief was unlikely still to be in issue.
Held: (i) The plaintiffs had not shown that, if the evidence remained the same, there was a probability that at the trial they would be held entitled to relief in the form of the injunction which they sought.
(ii) The injunction would be refused.
The contract would require the court’s supervision
JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282
Contract — Agreements — Part performance — Equitable relief
Oral agreement made in which on party would take over lease of shop and have exclusive right to sell sweet in adjoining public theatre.
Lease of shop made no reference to sweet selling rights.
Licensor repudiated agreement as to sweet selling rights.
Licensee sought declaration of entitlement to rights and seeking specific performance of agreement.
Whether specific performance and declaratory relief appropriate.
Held, allowing the appeal:
The agreement was not to be performed within one year and therefore fell within (CTH) Instruments Act 1928 s 128 that the agreement was not of such a nature that equitable relief was available. The doctrine of part performance was inapplicable and the action should be dismissed.
The contract is for personal services
Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337
Contract — General — Implied terms — Contract for special services
Contract for presentation of television programme.
Implied obligation on employer to provide work if contract is silent.
Trade and commerce — Restraint of trade — Contract for special services — Term preventing employee working for competitor
Whether an unreasonable restraint of trade where employer obliged to provide work for employee and parties in equal bargaining position.
Practice and procedure — Injunctions — Negative promises in contract of employment — Contract for special services
Promise not to take employment with competitor.
Balance of discretionary factors in employee’s favour.
Whether injunction to be granted.
Page One Records v Briton  3 All ER 822
Injunction – Restraining breach of contract for personal services – Management agreement between group of musicians and manager – Professional careers of group to be advanced – Personal and fiduciary character of services to be rendered by manager – Repudiation of agreement by group for alleged breaches – Injunction sought by manager to restrain group until trial from engaging new manager – Grant of interlocutory injunction would compel group to continue to employ manager and thus enforce rendering of personal services by manager – Whether injunction should be refused as tantamount to specific performance of a contract for personal service.
Facts: By written agreements made in 1966 a group of four musicians (“The Troggs”), who were the first four defendants, appointed the first plaintiff, among other things, to manage on their behalf all their affairs relating to their professional careers for five years.
One term of the management agreement was that The Troggs would not engage any other person to act as manager or agent for them and would not act themselves in such capacity.
The Troggs had become an established group, earning as much as about £400 for a night’s engagement.
By letter, received by the first plaintiff in June, 1967, The Troggs notified the plaintiffs that the agreements had been materially breached by the plaintiffs and were determined, and The Troggs claimed return of all moneys received by reason of the agreements.
On the evidence the court found that a prima facie case of breaches justifying The Troggs in repudiating the agreements had not been made out. The court took judicial notice of the fact that such groups as The Troggs, if they were to have any great success, must have managers; they were persons of no business experience and would not survive without the services of a manager. The plaintiffs brought an action and moved for an interlocutory injunction to restrain The Troggs until trial from engaging as their managers for conducting their affairs relating to their professional careers in entertainment anyone other than the first plaintiff. On motion for an interlocutory injunction,
Held – An interlocutory injunction would compel in effect The Troggs to continue to employ the first plaintiff, and thus would amount to enforcing the performance by the first plaintiff of a contract for personal services, that is to say, a contract for rendering management services of a personal and fiduciary character, the totality of obligations under which almost amounted to a partnership or joint venture; accordingly the interlocutory injunction would be refused (see p 827, letters b and i, p 828, letter a, and p 826, letter d, post).
Warren v Mendy  3 All ER 103
Summary: Management contract; injunction to restrain inducement of breach; whether effectively decreeing performance of a contract for personal services; whether should be lifted
Abstract: In January 1988 Nigel Benn, the boxer, entered into an exclusive management contract with P. He subsequently became disillusioned with P’s management and asked D to act as his manager. P obtained an injunction against D restraining him from inducing a breach by Benn of the contract. On an application by D, the injunction was discharged on the grounds that, although there may have been unlawful interference with the contract, the effect of an injunction would be to require Benn to perform the positive obligations of his contract with P. P appealed.
Held, dismissing the appeal, that it was well established that an injunction to restrain a breach of contract for personal services should not be granted where the effect was to decree performance of those personal services. This applied equally to a situation where a servant would be compelled to perform personal services for a third party. Compulsion was a question of fact to be decided in individual circumstances and there was no evidence that the judge at first instance had erred in principle.
Prima Facie / Serious Question for Considerations for granting injunctions
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618
Intellectual property — Patents — Validity and infringement — Injunction
Appeal from decision of single judge of High Court of Australia dismissing application for injunction.
Appellant commenced action against respondent for infringement of certain claims in each of three patents relating to penicillin.
Strong prima facie evidence led in support of validity of patents.
During life of patents appellant had active and undisturbed enjoyment of rights under patents.
Validity of patents not judicially established either in Australia or elsewhere.
Courts elsewhere had granted interlocutory injunctions in appellant’s favour.
Whether issue of validity of patents impacted on right of appellant to obtain interlocutory injunction.
Whether interests of justice required grant of interlocutory injunction.
Held: Appeal allowed (4:0).
Issue of validity ought not to be regarded as standing in way of injunction.
Interests of justice best served by grant of interlocutory injunction pending decision in main proceedings.
American Cyanamid Co v Ethicon Ltd  AC 396
Summary: In applications for interlocutory injunctions, the court should determine the matter on the balance of convenience, and should not try to resolve conflicts of evidence. This case is the basis for the “American Cyanamid test”.
Abstract: The appellant proprietors of a patent (C) appealed against a decision to discharge an interlocutory injunction against the respondent competitor company (E).
Facts: The patent covered artificial absorbable surgical sutures. E intended to launch on the British market a suture which C claimed infringed their patent. A judge granted C’s application for an injunction to restrain the threatened infringement until trial. E challenged the validity of the patent. The Court of Appeal set aside the injunction on the grounds that no prima facie case of patent infringement had been made out.
Appeal allowed. (1) It was no part of the court’s function at the interlocutory stage to try to resolve conflicts of evidence. Those were matters to be dealt with at trial. (2) Unless the material available at the interlocutory stage failed to disclose that the plaintiff had any real prospect of succeeding in his claim for a permanent injunction at trial, the court should go on to consider whether the balance of convenience lay in favour of granting or refusing the interlocutory relief that was sought. (3) The governing principle was that the court should consider whether the plaintiff would be adequately compensated by an award of damages for the loss it would have sustained if the defendant had continued with the conduct sought to be restrained. If damages were adequate, and the defendant would be in a position to pay them, no interlocutory injunction should normally be granted. (4) If damages would not be adequate, the court should then consider whether the defendant would be adequately compensated under the plaintiff’s cross-undertaking in damages for any loss sustained. If damages would be an adequate remedy and the plaintiff was in a position to pay them, there would be no reason to refuse an interlocutory injunction. (5) If there was any doubt as to the adequacy of the respective remedies in damages, the question of the balance of convenience would arise. Where other factors appeared to be evenly balanced it would normally be prudent to preserve the status quo. (6) If the extent of the uncompensatable disadvantage to each party would not differ widely, it might not be improper to take into account the relative strength of each party’s case as revealed by the affidavit evidence. This should only be done when the strength of one party’s case was disproportionate to that of the other party. (7) Special factors would be taken into account in the particular circumstances of individual cases. (8) The factors to be taken into account in this case were that: E’s sutures were not yet on the market; no business would be brought to a stop by the injunction; no factories would be closed; C, even if ultimately successful at trial, would have lost its chance of increasing its share of the market. A special factor in the case was that, once E’s product was in use in the period prior to the full trial, it might be commercially impracticable for C to insist on the permanent injunction since this would have a damaging effect on E’s goodwill in a specialised market. (9) There was no ground for interfering with the judge’s assessment of the balance of convenience.
Murphy v Lush (1986) 60 ALJR 523
Facts: The plaintiff applied for an interlocutory injunction directed to three retired judges, who constituted a parliamentary commission of inquiry to inquire and advise whether any of his conduct amounted to proved misbehaviour within s 72 of the Constitution. He challenged the validity of the Parliamentary Commission of Inquiry Act 1986 (Cth), and the defendants’ authority to conduct investigations to enable them to formulate specific allegations. He also argued that one defendant, Mr Wells, was disqualified by reason of remarks he had made in 1984 on judicial behaviour.
Held, per curiam: (i) The material completely failed to raise the slightest doubt that Mr Wells was able to bring an impartial and unprejudiced mind to the consideration of the matters into which he had to inquire.
Livesey v New South Wales Bar Association (1983) 151 CLR 288 ; 47 ALR 45, applied
(ii) There were serious questions to be determined as to the validity of the Act and whether it authorized the investigations proposed.
(iii) However, the balance of convenience required that the investigations should proceed and that the injunction sought should be refused.
Effect of non-compliance with order
Redland Bricks Ltd v Morris  AC 652
Summary: Injunction; mandatory injunction; cost of compliance
Abstract: A mandatory quia timet injunction ought to be granted in such terms that the defendant knows exactly what he has to do. M were market gardeners farming eight acres of land worth GBP 12,000, which adjoined R’s land which R used to dig for clay. In 1964 1965 and 1966 some of M’s land slipped into R’s, due to lack of support, and further slips were likely. To remedy the slipping would cost GBP 30,000. In October 1966 a county court judge granted M two injunctions, (a) restraining R from withdrawing support, and (b) a mandatory injunction “that R do take all necessary steps to restore the support to M’s land within a period of six months.” On appeal against (b), held, that the appeal be allowed because (1) the terms of the order did not tell R exactly what had to be done and there was no guarantee that expenditure even of the GBP 30,000 would have complied with the order; and (2) as R was only a potential wrongdoer and had not acted unreasonably with regard to M, R ought not to be required to undertake great expenditure, since in the event of further slips M would still have all their rights at law and in equity.
Cardile v LED Builders Pty Ltd (1999) 162 ALR 294
Equity — Mareva injunction — Third parties — Power of court to grant Mareva injunction against third party
Appeal against decision of Federal Court granting Mareva injunction against third party to proceedings for breach of copyright.
Where appellants owned both defendant company and third party company.
Where Federal Court found as matter of fact that there was risk that assets would be disposed of by appellants in order to frustrate court process.
Whether Federal Court erred in granting Mareva order against third party company.
Whether Federal Court has jurisdiction to grant Mareva order against third party against whom there is no cause of action.
Whether grant of Mareva relief against third party should be limited to cases in which the third party holds or is about to hold or dissipate property beneficially owned by the defendant in the substantive proceedings.
Held: Appeal allowed.
Federal Court has discretion to grant Mareva order against third party where that party holds power of disposition over assets of potential judgment debtor, or when process enforceable by courts may be available to judgment creditor pursuant to which third party may be obliged to contribute funds to help satisfy judgment debt.
Patrick Stevedores Operations (No 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1
Practice and procedure — Injunctions — Interlocutory injunction — Balance of convenience
Weight to be given to third party interests.
Where making of mandatory interlocutory injunction against employer companies would adversely affect interests of third party company which had entered into labour supply agreement with group companies.
Where injunctions required group companies to obtain labour from employer companies.
Whether court should not impose interlocutory mandatory injunction requiring company to carry on business.
Whether inappropriate for court to interfere in commercial dealings where enforcement of court orders impracticable; relevance of need for constant supervision.
Whether open to primary judge to order Mareva injunction in relation to finding of conspiracy.
Held: Orders made by primary judge varied by court providing for restoration of labour supply agreements earlier in force between employer companies and employees if administrator decides to resume trading.
Anton Piller orders
Tony Blain Pty Ltd v Jamison (1993) 26 IPR 8
Practice and Procedure — Representative order — Ex parte representative order made granting interlocutory injunction against a named person sued on his own behalf and as representing all persons selling certain merchandise in breach of the applicants’ intellectual property rights.
Facts: The applicants made an ex parte application to the court seeking representative orders pursuant to O 6 r 13 of the Federal Court Rules. They sought orders requiring unnamed persons selling merchandise bearing the unauthorised use of the applicants’ trade marks and other intellectual property to deliver up such merchandise upon service of the order and the making of a demand for compliance with it.
The evidence disclosed that a group of persons not all of whom could easily be named or identified had been selling merchandise involving the unauthorised use of trade marks and other intellectual property of the applicants in the vicinity of a series of concerts.
Held, by the court in making the ex parte representative order:
(i) The orders sought were not Anton Piller orders in the normal sense, as they did not require a defendant to consent to entry upon his real estate. But they had features which made them analogous to Anton Piller orders; they involved orders requiring persons selling the merchandise bearing the applicants’ trademarks to deliver up such merchandise upon service of the order, and the making of a demand for compliance with it.
(ii) The applicants were required to undertake to the court that they would make available the services of independent instructing solicitors, with experience in intellectual property matters, to supply independent advice and assistance to any respondent served with a copy of the orders, at or about the time of service, and arrange for those solicitors to provide a written report to the court concerning the manner and circumstances of service and execution of the order. This undertaking was in addition to the usual undertakings required in matters of this kind.
Effect of non-compliance with order
Witham v Holloway (1995) 183 CLR 525
Contempt — Breach of disclosure order and Mareva injunction — Standard of proof — Whether balance of probabilities or criminal standard.
The respondent as Commissioner for Consumer Affairs brought proceedings to restrain the appellant from carrying on any house removal business and also sought damages on behalf of persons who had suffered loss as a result of his business activities.
The respondent obtained a disclosure order and thereafter a Mareva injunction. Judgment was eventually entered against the appellant in the substantive proceedings and, later, when it appeared that he had no assets to satisfy the judgment debt, the respondent brought proceedings for contempt, alleging breach of the disclosure order and, also, the Mareva injunction.
Hodgson J found that there had been a breach of both orders. In relation to the disclosure order his Honour held that he was “satisfied on the balance of probabilities that the [appellant] showed at least recklessness in swearing the affidavit”. In relation to the findings with respect to the Mareva injunction the High Court held that it was appropriate to proceed on the basis that the finding was made on the balance of probabilities and that the decision might have been different had the criminal standard been applied.
Held, Hodgson J: (i) All charges of contempt must be proved beyond reasonable doubt.
Per Brennan, Deane, Toohey and Gaudron JJ:
(ii) The differences upon which the distinction between civil and criminal contempt was based were, in significant respects, illusory. They certainly did not justify the allocation of different standards of proof for civil and criminal contempt. Rather, the illusory nature of those differences and the fact that the usual outcome of successful proceedings was punishment, no matter whether primarily for the vindication of judicial authority or primarily for the purpose of coercing obedience in the interest of the individual, made it clear that all proceedings for contempt must realistically be seen as criminal in nature.
Hinch v Attorney-General (Vic) (1987) 164 CLR 15 approved
Per McHugh J:
(iii) It was impossible to justify the continued application of the civil standard of proof in proceedings for contempt where the object of the proceedings was punitive and not remedial. However, in proceedings for civil contempt it was necessary to go further than merely to apply the criminal standard of proof to cases where the object of the proceedings was purely punitive. Australian courts should follow the approach of the English and Canadian courts and require that all contempts be proved according to the criminal standard of proof.
Week 12 – Declarations and Rectification
Declaration – page 381
Nature of the Remedy
A declaration of right is an order of the court that declares the respective rights and obligations of the parties in a dispute before the court
In NSW, modern jurisdiction to grant declaration is based upon s 75 of Supreme Court Act 1970 (NSW), which provides:
No proceedings shall be open to the objection on the ground that a merely declaratory judgement or order is sought thereby and the Court may make binding declarations of right whether any consequential relief is or could be claimed or not.
Elements of the Remedy
Declaratory relief may be ordered if the P satisfies three elements:
- that the court has the jurisdiction to grant the declaration
- that the P has locus standi to seek the declaration; and
- there is no discretionary ground for refusing the declaration
Element 1: Jurisdictional Limitations
‘Naked’ declarations are permitted. The only true jurisdictional limitation upon the remedy is exclusion by statute: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421
Declarations may be made in respect of equitable, common law and statutory rights and obligations.
May be granted with or without other forms of equitable, common law or statutory relief
Traditionally, only jurisdictional limitation was exclusion by statute. Forster v Jododex Australia Pty Ltd:
The jurisdiction to make a declaration is a very wide one…However, the jurisdiction may be ousted by statue, although the right of a subject to apply to the court to the court for determination of his rights will not be held to be excluded except by clear words.
Element 2: Locus Standi
Before the court may determine a claim for declaratory relief, the P must establish a sufficient interest in the subject matter of the dispute.
This is known as the requirement of locus standi, which literally means ‘place of standing’
Distinction has been made between determination of private rights and public rights: Boyce v Paddington Borough Council
Rare illustration of locus standi being denied – Meadows Indemnity Co Ltd v Insurance Corp of Ireland: Meadow was denied standing to claim a declaration as to the validity of an insurance contract to which it was not a party.
Question of locus Standi is most controversial in are of public rights.
The attorney general as the principal law enforcement officer of the crown, has been regarded as the proper P to enforce public rights.
Attorney General may act in his own right, or at the relation of a third party: Gouriet v Union of Post office Workers
Subject to statutory and Common law exceptions, the two circumstances in which a private P mat act to enforce public rights without adjoining the attorney general are identified in Boyce v Paddington Borough Council:
A P can sue without joining the Attorney General in two cases: first, where the interference with the public right is such that some private right of his is at the same time interfered with…and, secondly, where no private right is interfered with, but the P, in respect of his public right, suffers special damage peculiar to himself from the interference with the public right.
‘Special damage’ in second part of that test considered in several HC cases:
Australian Conservation Foundation Inc v Cth: equated ‘special damage’ to ‘having a special interest in the subject matter of the action’: An interest for present purposes does not mean a mere intellectual or emotional concern. A person is not interested within the meaning of the rule unless he is likely to gain some advantage, other than the satisfaction of righting a wrong, upholding a principle or winning a contest, if the action succeeds or to suffer some disadvantage, other than a sense of grievance or a debt for cost, if his action fails. A belief, however strongly felt, that the law generally, or a particular law, should be observed, or that conduct of a particular kind should be prevented, does not suffice to give its possessor locus standi. If that were not so, the rule requiring special interest would be meaningless.
Onus v Alcoa of Australia Ltd: A P has no standing to bring an action to prevent violation of a public right if he has no interest in the subject matter beyond that of any other member of the public; if not private right of his is interfered with, he has standing to sue only if he has a special interest in the subject matter of the action
Shop Distributive and Allied Employees Association v Minister for Industiral Affairs: ‘the rule is flexible and the nature and subject matter of litigation will dictate what amounts to a special interest’.
Bateman’s Bay Local Aboriginal Land Council v Aboriginal Community Benefit Fund Pty Ltd: criterion of a special interest ‘is to be construed as an enabling, not a restrictive, procedural stipulation’.
The courts are reluctant to grant a declaration by consent of the parties; Wallersteiner v Moir: ‘A declaration by the court is a judicial act, and ought not to be made on admissions of the parties or on consent, but only if the court was satisfied by evidence.’
Element 3: Discretionary Considerations
- Must be a legal controversy and not an abstract or hypothetical question;
- Person must have a ‘real interest’;
- No relief where declaration will produce no foreseeable consequences for party.
(Ainsworth v Criminal Justice Commission (1992) 175 CLR 564)
Declarations are a discretionary remedy
Factors can be identified which influence court in exercising that discretion
However it is neither possible nor desirable to fetter the broad discretion… by laying down rules as to the manner of its exercise: Forster v Jododex
Johnco Nominees v Albury: Factors and considerations leading to a discretionary refusal are an unsafe guide to marking out a jurisdictional boundary line
In Ainsworth v Criminal Justice Commission, the major discretionary considerations were states in the following passage:
Declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have ‘a real interest’ and relief will not be granted if the question is ‘purely hypothetical’, if relief is ‘claimed in relation to circumstances that [have] not occurred and might never happen’ or if ‘the court’s declaration will produce no foreseeable consequences for the parties’.
- Hypothetical Questions
General refusal by the courts to determine hypothetical questions manifests its self in at least three circumstances:
- There must be a dispute in existence: Re Clay; Clay v Booth – court held that the case was not a proper one for the making of a declaration because the D had made no claim under the deed against the petitioners
- University of NSW v Moorhouse: held that declaratory relief will be refused where it is ‘claimed in relation to circumstances that had not occurred and might never happen.
- However, claim is not hypothetical just because it involves future rights and obligations; Cth v Sterling Nicholas Duty Free Pty Ltd: The respondent undoubtedly desired and intended to do as he asked the court to declare he lawfully could do. The matter, in my opinion, was in no sense hypothetical, but in any case not hypothetical in a sense relevant to the exercise of this jurisdiction. Of its nature, the jurisdiction includes the power to declare that conduct which has not yet taken place will not be in breach of a contract or a law.
- The dispute must not be ‘divorced from the facts’.
- Example: Australian Boot Trade Employees’ Federation v Cth : P claimed declaration that certain amendment to an act were beyond the power of the Cth. Although the amendments created new offence, no prosecutions were pending or threatened. Court held hypothetical
- Bass v Permanent Trustee Co Ltd: ‘where the dispute is divorced from the facts, it is considered hypothetical and not suitable for judicial resolution by way of declaration or otherwise.
- HC in Croome v Tasmania refused to strike out appellants claim for declaration that Criminalisation of homosexuality under criminal code was against human rights. Although A’s had undertaken such acts and stated intention to continue to do so they had not been prosecuted under the code. In the absence of pending/threatened prosecution, respondent argued hypothetical. Court held:
State …has not prosecuted…but, even if it were opened to do so, it has not disabled itself from prosecuting hereafter. The DPP does not take the position that no offences have been committed nor that the offences do not continue.
- Non- justiciable Issues
The issues in the dispute must be about legal right and liabilities.
Egan Willis: ‘declaratory relief should be directed to the determination of legal controversies concerning rights, liabilities and interests of a kind which are protected or enforced in courts.
- Lack of utility
A declaration will be refused where ‘the court’s declaration will produce no foreseeable consequences for the parties’: Ainsworth v Criminal Justice Commission
A priori, there can be no utility where the dispute is hypothetical or non-justiciable
Church of Scientology Inc v Woodward: It is inconceivable that the court would exercise its discretion so as to grant declaratory relief in respect of past acts long since completed under a statute which has since been repealed. The manifest utility of making such a declaration makes the claim for relief academic.
Less obvious inutility is where the declaration will not conclude the dispute between the parties. Neeta (Epping) Pty Ltd v Phillips: Unless the parties agreed on the consequences which flow form a declaration that such a contract has or has not been validly rescinded it is generally undesirable that a court should so declare without any orders of consequential relief.
Consider unclean hands and to ‘do equity’
Mayfair Trading Co Pty Ltd v Dreyer: Dixon J distinguished ‘declaratory relief from true equitable relief and held that borrowers were entitled to the declaration without being required to pay the loan à P does not have to ‘do equity’ to be entitled to claim declaration.
Distinction between declaratory relief and ‘true equitable relief’ was considered more recently in H Stanke & Sons Pty Ltd v Meara. One of the issues was whether P’s unclean hands could be pleaded by the Ds as a defence to the whole of the Ps claim. D’s case drew no distinction between declaration and the equitable subject matter of declaration. …Whether or not this results in the declarations themselves being properly regarded as equitable, there is little doubt that the Ps are seeking the aid of equity. Accordingly, there is no reason to exclude from the court’s consideration other equitable principles such as the requirement as to clean hands à P must have clean hands to come to equity and claim declaration
Declarations in Criminal Law
Courts reluctant to grant declaration in criminal case.
HOWEVER, Sankey v Whitlam HC confirmed that statutory jurisdiction to make declaration under s 75 of SCA and equivalent provisions ‘is not excluded because the matter as to which a declaration is sought may fall for decision in criminal proceedings. As a matter of discretion, the jurisdiction should be exercised sparingly though:
Once criminal proceedings have begun they should be allowed to follow their ordinary course unless it appears that for some special reason it is necessary in the interest of justice to make a declaration order.
Gedeon v Commission of the NSW Crime Commission: the fragmentation of the criminal process is to be actively discouraged.
Exceptional case of declaration as to criminality of future conduct was granted in Airedale NHS Trust v Bland . The P health authority was proposing to withdraw life-sustaining treatment from a patient in a vegetative state. It was observed that ‘in general the court sets its face against making declarations as to the criminality of proposed future actions’ however, the particular facts of the case made it ‘absolutely necessary’ to do so.
Step 4- element 3- courts discretion
Does anything apply?
If yes- NO declaration
If NO- MOVE ON
- Criminal Proceedings
As a declaration is only available in civil matters it will not be granted in the matter between <party 1> and <party 2> as it is a criminal proceeding (Imperial Tobacco Ltd v Attorney General ).
- Hypothetical Questions
Pick what applies to you and discuss it:
- As <plaintiff> does not have a real interest in the matter to be decided as <why do they have no interest>. Thus, the court will not grant declaratory relief as per Ainsworth v Criminal Justice Commission (1992).
- As the circumstances of <what is the issue> have not occurred (or are unlikely to happen> because <why have they not occurred? Or why won’t they happen?> relief cannot be granted as the court does not answer hypothetical questions Ainsworth v Criminal Justice Commission (1992).
- It is evident that if a declaration was imposed it will not produce foreseeable consequences for the parties as <why wont the declarations change anything?>. Thus relief cannot be granted as per Ainsworth v Criminal Justice Commission (1992).
- Courts are likely to refuse a declaration where there is no dispute in existence: Oil Basin Ltd v Commonwealth (1993)
- Courts are likely to refuse a declaration where there is a dispute in existence but the dispute is not attached to particular facts: Australian Boot Trade Employees Federation v Commonwealth (1954)
- Where the issue in dispute is not justiciable (where the dispute does not involve legal rights and responsibilities): Johnco Nominees Pty Ltd v Albury Wodonga (NSW) Corp .
- Declaratory Relief should be directed to the determination of legal controversies concerning rights, liabilities and interests of a kind which are protected or enforced in the courts.- Egan v Willis (1998).
In this situation the granting of a declaration will the issue between the <party 1> and <party 2> unsettled as <why won’t it resolve the issue??>. As a result this may lead to further litigation. In accordance with Neeta (Epping) Pty Ltd v Phillips (1974) a declaration will not be granted.
Rectification – page 367
At common law, a written contract is effective according to its terms, the assumption being that it reflects the agreement of the parties
What if written terms fail to reflect the agreement that was actually reached by the parties? à The equitable remedy of rectification is designed to provide relief in such cases.
Eg in Bosaid v Andry both seller and buyer intended sale of property known as “no 75” but document said “no 15”. The court rectified the document.
Rectification available where both parties are agreed at time of execution, but the written doc recording the agreement fails to reflect this.
Maralinga Pty Ltd v Major Enterprise Pty Ltd: the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express the agreement accurately. And there has been insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral, except in cases of a special class to which I shall later refer.
Franklins Pty Ltd v Metcash Trading Ltd: In considering whether to grant rectification of a written contract…equity focuses on what is unconscientious for a party to assert about a contract. The rationale is that it is unconscientious for a party to a contract to seek to apply the contract inconsistently with what he or she knows to be the common intention of the parties at the time that the written contract was entered.
For the court to grant rectification in cases of common mistake, the P must ‘clearly and convincingly’ prove that:
- There is a written instrument
- there was a mistake by the parties as to its contents or its effect;
- The parties intention as to what the instrument should have contained was common or concurrent at the time of execution; and
- the court’s discretion should be exercised in favour of granting the relief
A UNILATERAL mistake will be sufficient where the D unconscientiously takes advantage of the mistake and there was a consensus as to what the doc should have contained prior to the mistake: Leibler v Air NZ
Element 1: Written Instrument
Main area is contract in writing but applies to most docs except constitution of companies, and wills
Includes deeds, conveyances, leases, options to purchase, life insurance policies, bonds, trusts and docs conveying gifts.
Element 2: Mistake
Construction and Rectification
Not all mistakes required rectification
Difficulties and ambiguities on the face of the doc, such as obvious typographical errors, spelling mistakes, deletions and insertions, can often be corrected simply as a matter of interpretation and construction.
Fitzgerald v Masters: words may generally be supplied, omitted, corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency
National Australia Bank Ltd v Budget Stationary Supplies: Whereas interpretation is concerned with the meaning of the language on the face if the contract and its ambiguity, rectification may be ordered when the meaning of the doc is clear, but it fails to express the real intention of the parties.
Décor Blinds Gold Coast Pty Ltd v Décor Blinds Australia Pty Ltd: The question of rectification can safely be left until after the determination of the true meaning of the contract. The resolution of ambiguity may mean that it becomes unnecessary to consider rectification to the contract.
Equity will now correct many mistakes including common mistakes about the effect of the doc.
Re Butlin’s Settlement Trusts: rectification is available …not only in a case where particular words have been added, omitted or wrongly written as a result of careless copying or the like. It is also available where the words of the doc were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction. In such a case, which is the present case, the court will rectify the wording of the doc so it expresses the true intention.
Commission of Stamp Duties (NSW) v Carlenka Pty Ltd: for a court to rectify a mistake about the effect of the doc it must be able to determine clearly ‘both the substance and the detail of the precise variation which needs to be made to the wording of the instrument’: Bush v National Australia Bank Ltd
Club Cape Schank Resort Co Ltd v Cape Country Club Pty Ltd:
Here they had agreed to resolve issues that arise under contract at tribunal and it turned out that the tribunal lacked the necessary jurisdiction. Parties sought to rectify doc by changing tribunal to arbitrator.
It is true enough that the clause failed to achieve the parties’ expectation but that was not by reason of words that were used or omitted: there were indeed, no words that could have been used to achieve the expectation, for the tribunal could not have jurisdiction conferred upon it by agreement…It has never been the office of the decree of rectification to offer, as a kind of simulacrum, the nearest alternative e to the thing which the parties actually agreed….
Authorities have come to recognise a ‘special class’ of rectification where one party is guilty of equitable fraud or unconscientiously taking advantage of a mistake in written agreement: Stormriders Pty Ltd v Copperart Pty Ltd
Maralinga per Mason J: …if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he will be precluded from asserting that the mistake is unilateral and not common…
In this circumstances the court may rectify the written agreement to relieve the P of the unilateral mistake.
TWO QUALIFICATIONS FOR THIS:
- D must have actual rather than constructive knowledge of the P’s mistake.
- Mason J above was referring to actual knowledge
- Kenny JA stated principles governing rectification of contracts for unilateral mistake in the following terms:
If (1) one party, A, makes an agreement under a misapprehension that the agreement contains a particular provision which the agreement does not in fact contain; and (2) the other party, B, knows of the omission and that it is due to a mistake on A’s part; and (3) lets A remain under the misapprehension and concludes the agreement on the mistaken basis in circumstances where equity would require B to take some step or steps, depending on those circumstances, to being the mistake to A’s attention; then (4) B will be precluded from relying upon A’s execution of the agreement to resist A’s claim for rectification to give effect to A’s intention: Leibler v Air NZ
- International Advisor Systems Pty Ltd v XYYX Pty Ltd: An actual knowledge of the mistake is not required; it is sufficient that the other party ‘must have known’ or ‘strongly suspect’ that the first party is making a mistake
- Restricting rectification in cases of unilateral mistake was described in Terceiro v First Mitmac Pty Ltd:
…unconscionable conduct sufficient to found a remedy of rescission is not necessarily sufficient to found a remedy by way of rectification. Furthermore, the element of unconscionable conduct which would justify rectification for unilateral mistake must be proved to the same clear and convincing standard as the element which would justify rectification for common mistake.
- HOWEVER, it has not been accepted that unconscionable conduct sufficient to found a remedy of rescission is also sufficient for rectification.
- Real Question in both rescission and rectification for unilateral mistake is whether it is ‘unconscionable for one party knowingly to take advantage of another party’s mistake: Tutt v Doyle
- Held in Tutt v Doyle and Medsara Pty Ltd v Sande that rectification of unilateral mistake is based upon doctrine in Taylor v Johnson which is leading HC authority on rescission for unilateral mistake.
Element 3: Intention
Continuing Concurrent Intention
In cases of common mistake, it must be shown that the written instrument does not reflect the true concurrent intention of both parties at the time of the execution of the doc or at the time the doc came into force: Slee v Warke
…We can find no concurrent intention of the parties existing at the date of the contract…At the date of the contract that intention was at most only the intention of the appellant. The respondent never had such an intention. She had at most an intention at an early stage of the negotiations…but even that intention was not her intention at the time of the contract. Her intention then was in accordance with the contract. à This was unilateral mistake
HOWEVER, even in unilateral mistake, the element of concurrent intention cannot be entirely absent. Leibler v Air NZ:
If…a P establishes, by convincing proof, that the executed doc does not conform with the intention shared by the parties prior to the mistake coming to the attention of the non-mistaken party and that intention is sufficiently precise and specific to be the subject of an order for rectification, then, rectification may, in appropriate circumstances, be granted.
Antecedent contract unnecessary
Under modern law of rectification, an effective antecedent contract is no longer required
In NSW the authority is Montgomery v Beeby
The more liberal approach also found favour with HC in Slee v Warke, Maralinga, and Pukallus v Cameron
Joscelyne v Nissan quoted with approval Simonds J’s judgement in Crane v Hegeman-Harris Co Inc:
…in order that the court may exercise its jurisdiction to rectify a written instrument, it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify …it is sufficient to find a common continuing intention in regards to a particular provision or aspect of the agreement.
CA added another qualification in above case: ‘There must be some outward expression of accord’
Above Qualification of accord was doubted in later case. Pukallus v Cameron:
So long as there is a continuing common intention of the parties, it may not be necessary to show the accord found outward expression, notwithstanding views expressed to the contrary in Joscelyn and Maralinga
NSWCA rejected need to prove ‘outward expression of accord’ in Ryledar Pty Ltd v Euphoric Pty Ltd.
Held that evidence of ‘intention may be ascertained not only from the external or outward expression of parties manifested by their objective words or conduct but also from evident of their subjective state of mind’
Rectification and Implied terms
Rectification seeks to give effect to parties’ actual intention, and not the parties’ presumed intention.
…The difference is that with rectification, the term which has been omitted and should have been included was actually agreed upon; with implication, the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it – it is not a term they have actually agreed upon. Thus, in the case of implied term, the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties’ actual intention; the implication of a term is designed to give effect to the parties’ presumed intention: Codelfa Construction Pty Ltd v State Rail Authority of NSW
The P must ‘displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties: Maralinga
There must be ‘convincing proof’ that the written agreement fails to give effect to the parties’ intention: Bacchus Marsh Concentrated Milk Co Ltd v Joseph
Stormriders Pty Ltd v Copperart Pty Ltd:
Although the standard of proof of such common intention remains the civil standard of the balance of probabilities, the authorities are replete with references to the need for a convincing proof, or clear and satisfactory proof, of that intent…such evidence may include direct evidence that the parties’ intention was not reflected in the written agreement, and it may also consist of facts occurring both before and after the contract was made from which interferences can be drawn as to the particular intention of the parties at the time the contract was entered into.
Standard applies to both rectifications of common and unilateral mistakes: Terceiro v First Mitmac Pty Ltd
Rationale for standard: Fox Entertainment Precinct Pty Ltd v Centennial Park and Moore Park Trust:
First, ..perons who take the trouble to record their agreement in writing must generally be presumed to intend their written bargain to prevail over what they have not written, and
Second, that it is easy for one such party, upon becoming dissatisfied after the event with some element of the written compact, to seek to bran it as inaccurate.
Extrinsic evidence of the parties’ subject state of mind ia admissible as an exception to the parol evidence rule as rectification seeks to reform the written agreement to conform with parties’ true intention.
Element 4: Court’s Discretion and Defences
Rectification may be refused in the court’s discretion but only in ‘exceptional cases’ as observed by Crispin J in Misner v Australian Capital Territory:
..rectification is an equitable remedy subject to the discretion of the court which must, of course, be exercised according to the general equitable principles…However, the discretion must commonly be exercised in a somewhat different contract from those that attend other equitable remedies such as specific performance as damages or other forms of alternative relief are not normally available if rectification is refused. As a result, an unsuccessful P may suffer significant hardship. Accordingly, it has been said that when the basis of a right to rectification has been established, relief will be refused on discretionary grounds only in exceptional cases.
Relief may be refused if there has been:
- delay amounting to laches: Beale v Kyte
- unclean hands
- estoppel : Fredensen v Rothschild
Relief also refused if:
- notice obtained under legal or equitable right for value and without contract: Garrard v Frankel
- contract fully performed: Caird v Moss
- contract is incapable of performance: Borrowman v Rossel
- parties’ intention is illegal
Note: for illegal contracts, there is a separate equitable remedy of delivery up and cancelation of the doc, in order to prevent it ‘continuing in existence as a source of confusion and possible fraud’: Money v Money
If P also has right to rescission and prefers rescission, court will follow P’s election: Taylor v Johnson
Effect of rectified document
Once court orders rectification, it ‘related back so that the rights of the parties are treated as having always been in accordance with the contract as so rectified: Re-Jay-O-Bees; Rousseau v Jay-O-Bees
A rectified contract will support an action for damages: Bosaid v Andry; or equitable compensation: Medsara Pty Ltd v Sande
Subject to principles governing specific performance, a rectified contract may be specifically enforced and both remedies may be obtain in the one action: USA v Motor Trucks Ltd
ACL and contracts
The ACL gives the claimant a right of action to recover loss or damage suffered because of contravention of its provisions. S 236(1) provides:
- person (the claimant) suffers loss or damage because of the conduct of another person; and
- the conduct contravened a provision of chapter 2 or 3; the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.
The aim of this provision is to compensate the individual.
The individual (plaintiff) is to be placed, so far as money can, in the position that would have been occupied had the wrong not been committed (brown v Jam Factory Pty Ltd (1981)). Section 236(1) provides a right to complete recovery of loss or damage (Mayne Nickless Ltd v Multigroup Distribution Services Pty ltd (2001).
To succeed in a compensation claim the plaintiff must show that he or she is “worse off” as a result of the contravention (Marks v GIO Australia Holdings Pty ltd (1998)).
In this case Marks entered into an agreement with GIO that the loan with charge interest at a base rate but the contract stated that it was variable rate. In accordance with the contract GIO increased the interest margin by 2.25%. GIO won the case because the GIO loan was the best one around, Marks could not prove that they were worse off as a result of the contravention.
(1) A court may:
(a) on application of a person (the injured person ) who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that:
(i) was engaged in a contravention of a provision of Chapter 2, 3 or 4; or
(ii) constitutes applying or relying on, or purporting to apply or rely on, a term of a consumer contract that has been declared under section 250 to be an unfair term; or
(b) on the application of the regulator made on behalf of one or more such injured persons;
make such order or orders as the court thinks appropriate against the person who engaged in the conduct, or a person involved in that conduct.
Note 1: For applications for an order or orders under this subsection, see section 242.
Note 2: The orders that the court may make include all or any of the orders set out in section 243.
(2) The order must be an order that the court considers will:
(a) compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or
(b) prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person or any such injured persons.
(3) An application under subsection (1) may be made at any time within 6 years after the day on which:
(a) if subsection (1)(a)(i) applies–the cause of action that relates to the conduct referred to in that subsection accrued; or
(b) if subsection (1)(a)(ii) applies–the declaration referred to in that subsection is made.
238 Compensation orders etc. arising out of other proceedings
(1) If a court finds, in a proceeding instituted under a provision of Chapter 4 or this Chapter (other than this section), that a person (the injured person ) who is a party to the proceeding has suffered, or is likely to suffer, loss or damage because of the conduct of another person that:
(a) was engaged in a contravention of a provision of Chapter 2, 3 or 4; or
(b) constitutes applying or relying on, or purporting to apply or rely on, a term of a consumer contract that has been declared under section 250 to be an unfair term;
the court may make such order or orders as it thinks appropriate against the person who engaged in the conduct, or a person involved in that conduct.
Note: The orders that the court may make include all or any of the orders set out in section 243.
(2) The order must be an order that the court considers will:
(a) compensate the injured person in whole or in part for the loss or damage; or
(b) prevent or reduce the loss or damage.
The remedies under these (above) sections are discretionary.
Since they are discretionary remedies this means that courts are now enabled to make an order that could not be made at common law or equity (I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002)).
The court is also empowered to make orders for the loss suffered and likely to be suffered.
The plaintiff may be compensate for only part of their loss or damage (Mayne Nickless Ltd v Multigroup Distribution Services Pty ltd (2001).
You do not need proof of actual loss under s 237 and 238.
The elements which apply are those which apply to common law damages (Munchies management Pty Ltd v Belperio (1988)).
The elements are:
- cause of action
- the damage suffered must not be too remote
- the plaintiff should take reasonable steps to mitigate the damage
Elements explained (for s 236)
Element 1: Cause of Action
Under 236 you can claim for:
- misleading and deceptive conduct
- unconscionable conduct
- unfair contract terms
- bait advertising
- unsolicited supplies
- pyramid schemes
- product safety
Element 2: Causation
The use of the phrase “suffers loss or damage by conduct of another person” in s 236 emphasises the need for a causal connection between the breach and the loss or damage for which the plaintiff is seeking compensation (Henville v Walker (2001)).
Where a plaintiff has entered into a contract because of a misrepresentation that breached the misleading and deceptive conduct provision (ACL s 18), the plaintiff has to show reliance on the misrepresentation in order to recover damages (Gould v Vaggelas (1985)).
The contravention does not need to be the sole cause of the plaintiffs loss (Gould v Vaggelas (1985)).
The contravention only needs to be the cause (Marks v GIO Australia Holdings Pty ltd (1998)). or play a minor role in contributing to the formation of the contract (Gould v Vaggelas (1985)).
If the plaintiff did not rely upon the defendants breach then they cannot bring a claim for damages (I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002)).
Under s 236(1) ACL, if the plaintiff fails to take reasonable care of his own interest this may break the chain of causation and bar relief of damages (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982)).
In order to break the chain you need to have:
- Grossly unreasonable conduct -(I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002)).
- gross negligence- (Taco co of Australia Inc v Taco Bell Pty Ltd (1982))
- extraordinary stupidity -(Taco co of Australia Inc v Taco Bell Pty Ltd (1982))
** failing to check a representation is not enough to break the chain of causation (Henville v Walker (2001)).
Argy v Blunts and Lane Cove real Estate (1990)- where the applicant is so negligent in protecting his or her own interest there will be a finding that the inducement into entering the contract was not the representation complained of. Thus, severing the causation by the intervention of the negligence of the applicant.
Negligence, which is not gross negligence, will lead to an apportionment of damages- s 137B of the ACL. (This section only applies if s 18 of the ACL has been contravened). It will be reduced to the extent that the court thinks is just and equitable. However, if the defendant intentionally or fraudulently caused the loss or damage and if the plaintiff suffered personal injury, this is because s 137b only covers economic loss and damage to property.
Element 3: Remoteness
Henville v Walker: Given the long history of the common law’s recognition of the concept of remoteness in assessing damages in contract and tort and its relationship with the issue of causation, it seems proper to read the term ‘by’ in s82 as including the concept of remoteness. By remoteness, I mean that the loss or damage was not reasonably foreseeable even in a general way by the contravener.
Element 4: Mitigation
The plaintiff must take reasonable steps to mitigate loss flowing from the contravention of the Act (Murphy v Overton investments pty ltd (2004)). It is the defendants duty to prove that the plaintiff did not take steps to mitigate this loss, plaintiff has to show that they took reasonable steps to mitigate the loss.
If there was an attempt to mitigate the loss but this actually made the loss worse then the plaintiff is able to recover the extra loss- Hellyer drilling co v Macdonald hamilton & co pty ltd (1983))
Where there is a breach of contract there may be a duty to mitigate loss even though the plaintiff has affirmed the contract. As in crystal Auburn pty ltd v I L Wollermann Pty Ltd – Crystal was purchasing a theme park from Wollermann before the sale of the park Wollermann misleadingly inflated the parks attendance figures. Even though crystal knew it could rescind the contract it went ahead and affirmed the contract and out the park up for sale. This showed that crystal had ownership of the park and the ownership will be passed to a buyer. Crystal was under a duty to mitigate its losses and it did so by placing the business up for sale thus, it was entitled to recover the difference between the amount paid for the business and its true value at the purchase date from Wollermann.
Element 5: Assessment of Damages
The individual (plaintiff) is to be placed, so far as money can, in the position that would have been occupied had the wrong not been committed (brown v Jam Factory Pty Ltd (1981)). Section 236(1) provides a right to complete recovery of loss or damage (Mayne Nickless Ltd v Multigroup Distribution Services Pty ltd (2001).
Date of Assessment
Damages will not be assessed at the date of the breach because the cause of action does not accrue until actual loss or damage is suffered (Wardley Australia Ltd v Western Australia (1992)). Therefore, it should be assessed at the date of some loss or damage has been suffered (HTW Valuers)
The court may take into account all matters when the assessment is being carried out (Kizbeau pty Ltd v WG & B Pty Ltd).
- proper measure of damage is the difference between the real value of the thing acquired at the date of acquisition and the price paid for it.
- you can also look at subsequent events
Expectation loss are not available (Henville v Walker (2001)).
Loss of opportunity
- Loss of opportunity can be recovered under s 236, s 237 and 238.
- Gates v city mutual Assurance Society ltd (1986)- if there was reliance on the contravention which deprived the plaintiff of a different contract where a profit would have been made, then that lost profit or benefit is recoverable.
- Onus is only the plaintiff.
- An opportunity which only has 40% of success is still recoverable – Sellars v Adekaide Petroleum NL (1994)
- In order to claim the person must be a natural person – T N lucas pty Ltd v Centrepoint freeholds pty ltd (1984).
- Personal injury claims can be made for recognized psychiatric illness or disease. – s 4CCA personal injury definition
- Damages are awarded for mental stress and emotional suffering – Zoneff v Elcom credit union ltd (1990)
If there is defamation (Nixon v Slater &Gordon (2000) or passing off (Flamingo park Pty Ltd v Dolly Dolly Creations Pty Ltd (1986)) then the court will grant damages for injury to reputation.
Passing off (prince manufacturing Inc v ABAC Corp Australia Pty Ltd (1984):
- may be awarded damages for loss of business profit
- can be awarded general damages which are damages which are not capable of precise proof and calculation but are expected to result in the normal course of things from a particular type of conduct
Exemplary and aggravated damages
These are damages aim to penalize the defendant.
Section 87ZB(1) CCA- prohibits exemplary and aggravated damages for death and personal injury claims
Section 87ZB(2)(a) contemplates that the court has power to award exemplary and aggravated damages.
Section 87ZB(2)(b) states that exemplary and aggravated damages are available BUT not in proceedings of:
As stated in s 87E(1):
- unconscionable conduct (pt 2-2)
- safety of consumer goods and product related services (Pt 3-3)
- information standards (Pt 3-4)
- Liability of manufacturers for goods with safety defects (Pt 3-5)
- Actions for damages against manufacturers of goods (Div 2 of Pt 5-4)
- Damages for personal injury
- Personal injury to a person smoking or tobacco products.
Therefore, it is evident that there is no express provision in the ACL which allows for exemplary and aggravated damages to be awarded, this can be seen from the reasoning that the aim of s 236 is to compensate the plaintiff not to penalize the defendant.
- s 236(2) ACL- provides that an action can be commenced under s 236 within 6 years after the day on which the cause of action accrued.
- Remember- The cause of action does not actually accrue until the loss or damage has been actually suffered.- (Wardley Australia Ltd v Western Australia (1992)).
- If you are dealing with s 237 the limitation period is also 6 years as stated under s 237(3) but the difference is that the action may accrue as soon as the loss or damage is LIKELY to be suffered (Western Australia v Wardely Australia Ltd (1991)). Thus, it has a different operation to section 236.
Sections 237 and 238 allow for remedial orders. These orders can be granted for causes of action such as:
- criminal offences (chapter 4)
- applying, relying on or purporting to apply or rely on a term of a consumer contract which has been declared under s 250 ACL to be an unfair term.
The court is able to combine damages with other remedial orders for example the court can grant an injunction along with damages, or rescind or alter a contract whilst giving the plaintiff damages. The court is free is give any combination it sees fit.
Rescission – the ACL does not use the word rescission
- S 243(c) the court may refuse to enforce a contract or any of its provisions. (this is basically rescission).
- Section 243(d) the court can order a refund of money or return of property
Specific performance in not mention in the ACL, BUT a mandatory injunction may be granted under s 232.
Also ss 237-239 provide that where a person has suffered or is likely to suffer, loss or damage, the remedial orders a court may make include a person to repair, or supply parts for, supply goods (s 243(f)) or supply specified services (s 243(g)).
The power to grant an injunction is found in s 232 ACL. Section 232 provides:
- that court may grant an injunction, where the court considers it is appropriate, if the court is satisfied that a person has engaged or is proposing to enagage in conduct that constitutes or would constitutes:
- a contravention of chapter 2,3 or 4, or
- attempting to contravene such a provision or
- aiding, abetting, counseling or procuring a person to contravene such a provision or
- inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision or
- being in any way, directly or indirectly, knowingly concerned in or party to, the contravention by a person of such a provision; or
- conspiring with others to contravene such a provision
- the court may grant an injunction on application by the regulator or any other person.
Basically you can get an injunction for:
- misleading or deceptive conduct
- unconscionable conduct
- unfair contract terms
- specific protections e.g. bait advertising, unsolicited supplies, pyramid schemes
- product safety
- where conduct or proposed conduct amounts to a criminal offence (chapter 4)
- s 232(3)- an injunction will also be granted where there someone is relying or applying or proposing to apply or rely on a term in a standard form consumer contract which is declared to be unfair.
S 232(2) of the ACL provides that the regulator or any other person can apply for an injunction
This means any person whatsoever can apply for an injunction (Phelps v Western Mining corporation (1978)). This means that even a person who has no special interest in the matter can seek an injunction as per Truth About motorways pty ltd v Macquarie infrastructure investment management Ltd (2000).
- When granting an injunction under the ACL the court is concerned with the interest/protection of the public (Truth About motorways pty ltd v Macquarie infrastructure investment management Ltd (2000)).
- thus, an injunction may be granted where the plaintiff has suffered NO damage – World series cricket pty ltd v parish (1977)
- the relevant damage which is considered is “possible damage to consumers”- World series cricket pty ltd v parish (1977)
- also consider public interest- Truth About motorways pty ltd v Macquarie infrastructure investment management Ltd (2000).
- Injunctions can also be granted whether or not damages would be an adequate remedy- World series cricket pty ltd v parish (1977)
- There MUST be a connection between the contravention and the injunction sought- Blackman v Gant .
Types of Injunction
- Prohibitory injunction
- s 232(4) provides that when a court is going to grant an injunction it should look at:
- whether the person will engage in the conduct again, or continue to engage in the conduct
- whether the person previously engaged in conduct of that kind
- whether there is an imminent danger of substantial damage to any other person if the person engages in conduct of that kind.
- the court is not limited to these factors, if they are not present it must ask its self what is the purpose or need to grant the injunction- trade practices commission v Mobil Oil Australia Ltd (1984)
- Mandatory injunction
- s 232 (6)- allows the court to grant a mandatory injunction requiring a person to:
- refund money
- transfer property
- honour a promise
- destroy or dispose of goods
- s 232 (7)- a court can exercise this when:
- whether or not the person intends to refuse or fail again or continues to refuse or fail, to do that act or thing again and
- whether or not the person has preiously refused or failed to do that act or thing and
- whether or not there is an imminent danger of substantial damage to any other person if the person refuses or fails to do that act or thing.
- many of these are ordered on an interlocutory basis
- court can order:
- a defendant to publish corrective advertisement (Janssen pharmaceutical pty ltd v Pfizer Pty Ltd (1986).
- Under s 243(g) the court can compel specific performance under a contract- this is like a mandatory injunction.
- Interlocutory and interim injunctions
- s 234(1) allows the court to grant an interim injunction pending the determination of an application.
- You have to look at how the injunction is going to affect the public interest, main concern is to protect the publics interest (CBA v Insurance Broker’s Association (1977)).
- Courts will grant them where they believe it is appropriate
- Aerospatiale Societe Nationale industrielle v Aeropatiale Helicopters Pty Ltd (1986) a mandatory interlocutory injunction was granted directing the defendant to change its name where the use of its name would have amounted to passing off and a contravention of the prohibition against misleading or deceptive conduct.
- Therefore it can be seen that you also need a serious question to be tried-Q promotions pty ltd v Queensland bloodstock breeders and sales pty ltd (1993).
- You also need to give an undertaking to the court if bringing an injunction under s 232. However if the injunction is brought by the minister or the ACCC no undertaking is required.- ACL s 243(2) and (3).
- It is in the courts discretion whether or not to grant an injunction, it will be granted where it is desirable to do so (World series cricket pty ltd v parish (1977))
Note- rather than granting the interlocutory injunction the court may take an undertaking from the defendant not to engage in certain conduct – Thomas Australian Holding Pty Ltd v trade practices commission (1981).
- Injunctions by consent
S 233 of the ACL allows the court to grant an injunction where all parties agree to the injunction being granted even if it would not satisfy the elements required for an injunction under s 232(1).
However, the court will need to be satisfied that the facts disclose a sufficient connection (nexus) between the conduct alleged and the orders sought and that the proposed injunction is sufficiently clearly and precisely stated to be capable of being complied with and would NOT require the courts supervision (ACCC v Wilson Parking 1992 Pty Ltd .
- Mareva Order
- s 137F of CCA allows the minister of the ACCC to apply for a mareva like order.
- Jackson v sterling industries ltd (1987)- a private litigant can also apply for a mareva order, this is not in the Act rather it is in the statutory or inherent power of the court.
- Varying or discharging injunctions
- s 235 of the ACL provides the power to vary or discharge the injunction.
- The plaintiff or defendant can apply
- Caltex Petroleum Pty Ltd v Australian Competition And Consumer Commission (2001)- the court allowed the defendants application to set aside an injunction granted 27 years earlier.
- S 243 (b), (c) and (h) allow the court to rectify or vary contracts, arrangements and instruments referring to the transfer of land.
- Unlike equitable compensation, an order varying a contract can only be made if the court considers that it will achieve the objects of ss327 -239, namely to compensate, prevent, reduce or redress the loss or damage- Marks v GIO Australia Holdings Pty ltd (1998)
A person can seek declaratory relief under s 163A of the CCA except if the issue relates to division 1 pt 3-2 or pt 5-4 of ACL as per s 163A(1)(aaa).
S 243 of ACL allows the court to grant a declaration. S 243(a) provides a court can make a declaration where the whole or any part of the contract or a collateral arrangement is void, void ab initio or void on and after a certain date. The declaration will need to satisfy ss 237-239, that is that the order must either compensate, prevent, reduce or in the case of s 239, redress the loss or damage.
S 250 ACL a court can make a declaration where unfair contract terms are present in standard form contracts which are discussed in ss 23-28.
A declaration under s 250 ACL may enliven an application for a compensation or other remedial order, or for an injunction BUT NOT an action for damages.
Remedies Relating to consumer Guarantees
There are a variety of remedies available to a consumer against suppliers of goods and services and manufacturers – ss 259-277 ACL.
Supply of goods
Section 259 ACL- provides that action can be brought against suppliers of goods. S 259(1) A consumer can take action if:
- A person (the supplier) supplies, goods in trade or commerce, goods to the consumer; and
- A guarantee that applies to supply under Subdivision A of Division 1 of pt 3-2 is not complied with.
259(2)- If it is not a major failure and can be remedied then:
- Supplier may remedy within a reasonable time
- If the consumer does not remedy within a reasonable time or refuses to do so, the consumer may:
- Bring action against the supplier and recover all reasonable costs incurred by the consumer
- Notify the supplier that the consumer has rejected the goods and why
- If the failure cannot be remedied or is a major failure, the consumer may:
- Notify the supplier they have rejected the goods and why
- Recover compensation for any reduction in the value of the goods below price paid or payable by the consumer for the goods
- Bring action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such failure.
- The above point does not apply if the failure occurred because of independent human control that occurred after the goods left the control of the supplier.
- Consumer can take action under this section whether or not the goods are in their original packaging.
Consumer guarantees are found in ss 51-57 ACL. These include guarantees as to title, undisturbed possession, undisclosed securities, acceptable quality, fitness for any disclosed purpose, supply of goods by description or sample and demonstration models.
What is a major failure?
Section 260 When a failure to comply with a guarantee is a major failure
A failure to comply with a guarantee referred to in section 259(1)(b) that applies to a supply of goods is a major failure if:
(a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or
(b) the goods depart in one or more significant respects:
(i) if they were supplied by description—from that description; or
(ii) if they were supplied by reference to a sample or demonstration model—from that sample or demonstration model; or
(c) the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or
(d) the goods are unfit for a disclosed purpose that was made known to:
(i) the supplier of the goods; or
(ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of the goods were conducted or made;
and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or
(e) the goods are not of acceptable quality because they are unsafe.
If your failure does not fit into this category then it means you have a minor failure.
Although a consumer can reject the goods under s 259(2) and 259(3), this right may be lost where a reasonable time within which the failure should have become apparent has lapsed, or the goods have been destroyed, lost, disposed of or damages AFTER delivery or the goods have been so attached to the property and cannot be detached without damaging them- s 262 ACL.
Supply of services
The relevant consumer guarantees in the ACL are under ss 60-63. They include guarantees that the services will be provided with:
- Due care and skill
- Fit for their purpose
- Supplied within a reasonable time
The remedy sought depends on whether it is a major or minor failure to comply with the guarantees.
Section 267(2) if the failure can be guaranteed and it can be remedied and is not a major failure:
- Consumer may require the supplier to remedy the failure within a reasonable time
- If the supplier refuses or does not comply, the consumer may
- Have the failure remedied and by action have the supplier recover all reasonable costs incurred by the consumer having the failure remedied, or
- Terminate the contract for the supply of services
Section 267(3) if the failure cannot be remedied or is a major failure, the consumer may:
- Terminate the contract for the supply of services
- Recover compensation for any reduction in the value of services below price paid.
S 267(4) by action against the supplier consumer may recover damages for any loss suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foresseable that the consumer would suffer such a loss.
Major failure is described the same as above under s 268.
Consumers will bring an action against suppliers for defective goods or goods that do not match their description.
S 274 ACL- supplier has indemnification against the manufacturer of the goods.
Consumer can recover money directly from the manufacturer if the supplier is insolvent or out of business- s 271(1).
The action can include recovery of the price paid for the goods and any loss reasonably foreseeable as a result of the failure- s 272(1)
Damages can be sought where a manufacturer fails to make spare parts and repairs reasonably available- s 271(5) ACL.