View source for Australian contract law

{{Use Australian English|date=April 2018}}
{{Use dmy dates|date=April 2018}}
{{Contract law}}
The '''law of contract in Australia''' is similar to the [[contract law]] of other [[Anglo-American common law]] jurisdictions, but differences from other jurisdictions have arisen over time because of [[statute law]] and divergent development of common law in the [[High Court of Australia|High Court]], particularly since the 1980s.<ref>To the point where, in 2014 the High Court said that "Judicial decisions about employment contracts in other common law jurisdictions, including the United Kingdom, attract the cautionary observation that Australian judges must 'subject [foreign rules] to inspection at the border to determine their adaptability to native soil'." {{cite AustLII|litigants=[[Commonwealth Bank of Australia v Barker]]|year=2014|court=HCA|num=32|parallelcite=(2014) 253 [[Commonwealth Law Reports|CLR]] 169|courtname=[[High Court of Australia|High Court]]}}.</ref>

{{TOC limit|3}}

==A brief history==
Australian courts take the view that contract law arose in the actions of [[assumpsit]],<ref name="David">{{cite AustLII|NSWSC|393|2015|litigants=David v Baker|courtname=[[Supreme Court of NSW|Supreme Court]] (NSW)}}.</ref> and concepts of motive and reliance.<ref name="Beaton v McDivitt"/>

Bargain theory is an important part of how contract law is understood; ''[[quid pro quo]]'', is understood to be an essential element.<ref name="Beaton v McDivitt" /><ref name="Woollen" />

The law of [[Equity (law)|equity]] plays an important role in Australian contracts, and will affect which remedies may be available when a contractual promise is breached.

Doctrines of importance to contract law practitioners include negligent mis-statement,<ref>{{cite AustLII|litigants=Shaddock & Associates Pty Ltd v Parramatta City Council (No 1)|year=1981|court=HCA|num=59|parallelcite=(1981) 150 [[Commonwealth Law Reports|CLR]] 225|courtname=[[High Court of Australia|High Court]]}}.</ref> [[Estoppel#Promissory estoppel 2|promissory estoppel]],<ref name="Waltons" /> and [[misleading or deceptive conduct]].<ref name="ACL" />

== Formation ==
There are five essential elements necessary for legally binding contract formation:
# '''Agreement''' between the parties. There cannot be a unilateral contract.<ref>A [[deed poll]] is a form of legally enforceable promise where there is only one party.</ref>
# '''Consideration''' (a bargain requirement: generally, the supply of money, property or services or a promise to undertake, or not undertake a particular act in exchange for something of value);
# '''Capacity''' to enter legal relations (e.g. of sound mind and legal age);
# '''Intention''' by the parties to enter into legal relations (private non-commercial agreements between family members may not indicate intention to enter a legally binding contract and therefore may not be enforceable); and
# '''Certainty''' (the contract has to be complete, certain, clear and binding).<ref name=Carbolic>{{Cite BAILII |litigants=[[Carlill v Carbolic Smoke Ball Company]] |year=1892 |court=EWCA |num=1 |parallelcite=[1893] 1 [[Queens Bench Law Reports|QB]] 256 |courtname=auto}} where the defendant's newspaper advertisement to the public that a £100 reward would be paid by the defendant to any person who contracted [[influenza]], after having used preparation according to printed directions, was held to be an offer to public.</ref>

The absence of any of these elements will signify either that there is in law no agreement or that the agreement is not enforceable as a contract.

In most jurisdictions contracts do not need to be represented in writing and oral contract are as enforceable as written contracts. However, there are a number of exceptions that have been created by statute follow from the ''[[Statute of Frauds 1677]]'' (UK) and were principally designed to reduce [[fraud]].<ref>{{cite web |url=http://www.austlii.edu.au/au/journals/AdelLawRw/1983/20.html |title=Seventeenth Century Evidentiary Concerns and the Statute of Frauds |author=Teeven, K}} (1983) 9(2) Adelaide Law Review 252.</ref> Examples are marine insurance which is not enforceable unless it is documented in writing.<ref>[https://www.legislation.gov.au/Details/C2008C00419/Html/Text#_Toc204686815 Section 28] ''Marine Insurance Act'' 1909 (Cth).</ref><ref>{{cite web |url=http://www.austlii.edu.au/au/other/lawreform/ALRC/2001/91.html#ch4Heading6 |title=Review of the Marine Insurance Act 1909 (Cth) |publisher=[[Australian Law Reform Commission]] |at=at 4.21 |year=2001}}</ref> Also consumer credit must be documented in written form with a copy provided to the consumer.<ref>[https://www.legislation.gov.au/Details/C2014C00411/Html/Text#_Toc393444833 Section 14] ''National Consumer Credit Code'', Schedule 1 to the ''National Consumer Credit Protection Act'' 2009 (Cth).</ref> Similar formalities are required for the sale of land.<ref>for example sections [http://www.legislation.nsw.gov.au/#/view/act/1919/6/part2/div3/sec23c 23C (leases etc)] and [http://www.legislation.nsw.gov.au/#/view/act/1919/6/part4/div1/sec54a 54A (sale of land)] ''Conveyancing Act'' 1919 (NSW)</ref> The courts however will intervene so that the ''Statute of Frauds'' is not made an instrument of fraud.<ref name="Ogilvie v Ryan">''Ogilvie v Ryan''  [1976] 2 [[NSW Law Reports|NSWLR]] 504 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=2%20NSWLR%20504 LawCite].</ref>

=== Agreement ===
{{See also|offer and acceptance}}
The existence of an agreement between the parties is usually analysed through the rules of offer and acceptance.<ref name=Carbolic /><ref name="R v Clarke">{{cite AustLII |litigants=[[R v Clarke]] |year=1927 |court=HCA |num=47 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1927/47.pdf (1927) 40 {{abbr|CLR|Commonwealth Law Reports}} 227] |courtname=[[High Court of Australia|High Court]]}}.</ref> This may be expressed as a clear indication ("offer") by one party (the "offeror") of a willingness to be bound on certain terms.<ref name=Woollen>{{cite AustLII |litigants=[[Australian Woollen Mills Pty Ltd v The Commonwealth]] |year=1954 |court=HCA |num=20 |parallelcite=(1954) 92 [[Commonwealth Law Reports|CLR]] 424 |courtname=[[High Court of Australia|High Court]]}}.</ref> accompanied by a communication by the other party (the "offeree") to the offeror of an unqualified assent to that offer ("acceptance").<ref name="R v Clarke" />

An offer indicates an intention by the offeror to be bound without further discussion or negotiation, on acceptance of the terms set out. The court will determine the offeror's intention objectively.<ref name="R v Clarke" /><ref name=Brambles>{{cite AustLII |litigants=Brambles Holdings Limited v Bathurst City Council |year=2001 |court=NSWCA |num=61 |courtname=[[New South Wales Court of Appeal|Court of Appeal]] (NSW)}}.</ref><ref name=Empirnall>''Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd'' [http://www.thomsonreuters.com.au/product/AU/files/720502512/empirnall_holdings_v_machon_paull_partners.pdf (1988) 14 NSWLR 52]{{Dead link|date=May 2019 |bot=InternetArchiveBot |fix-attempted=yes }}.</ref> It is distinguished from an "[[invitation to treat]]", which is a request to others to make offers to engage in negotiations with a contract in mind.<ref>Retailers have sometimes taken advantage of this distinction to engage in [[False advertising#Bait-and-switch|bait advertising]] (advertising goods at attractive prices but not in fact intending to sell in more than minimal quantities, if at all), but this is prohibited under [https://www.legislation.gov.au/Details/C2016C00740/Html/Volume_3#_Toc448153221 section 35 of the Australian Consumer Law].</ref> Items displayed for sale are invitations to treat.<ref name=Pharma>{{cite BAILII |litigants=[[Pharmaceutical Society of GB v Boots Cash Chemists (Southern) Ltd]] |year=1956 |court=EWCA |num=6 |parallelcite=[1953] 1 [[Queens Bench Law Reports|QB]] 401 |courtname=auto}}.</ref> An offer is also distinguished from "mere puff".<ref name=Carbolic /> An offer may be made to become liable to anyone who, before it is withdrawn, accepts the offer. It may be restricted to certain classes of people;<ref name="NW Coop">{{cite AustLII|TASLawRp|21|1915|litigants=North-West Co-op Freezing and Canning Co Ltd v Easton |parallelcite=(1915) 11 [[Tasmanian Law Reports|Tas LR]] 65}} where an application for shares directed to provisional directors of company about to be formed was held to be offer to company when formed.</ref> or on the other hand be made to anyone who, before it is withdrawn, accepts the offer,<ref name=Carbolic /> including unascertained persons,<ref name=Westminster>''Westminster Estates Pty Ltd v Calleja''  [1970] 1 [[NSW Reports|NSWR]] 526; (1970) 91 [[Weekly Notes (New South Wales)|WN (NSW)]] 222 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1970%201%20NSWR%20526 LawCite] in which an offer to "A or his nominee" was effective and may be accepted by the nominee once appointed, even though nominee's identity was not ascertainable at time when offer made.</ref> or to the public at large.<ref name=Carbolic /> However, an offer is ineffective until it has been communicated,<ref>''[[Henthorn v Fraser]]'' &#91;1892&#93; 2 Ch 27] at 37 per Kay LJ [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1892%202%20Ch%2027 LawCite] (an offer to sell is nothing until it is actually received).</ref> either by the offeror or a third person acting with the offeror's authority. In some circumstances, the difference between an offer and an invitation to treat can be hard to recognise. For example, in property auction cases the auctioneers language should generally be constructed to be inviting bids, as opposed to offering the house.<ref>''[[Payne v Cave]]'' (1789) 3 TR 148; [http://www.worldlii.org/int/cases/EngR/1789/2443.pdf <nowiki>[1789]</nowiki> EngR 2443], (1789) 100 ER 502.</ref> According to the New South Wales Supreme Court case of ''AGC (Advances) Ltd v McWhirter'', withdrawing a properties reserve price during an auction does not obligate the sale.<ref>AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454 [[Supreme Court of New South Wales|Supreme Court]] (NSW) [http://www.australiancontractlaw.com/cases/agc.html Summary at australiancontractlaw.com].</ref> This is different to the British case, ''[[Barry v Davies]]'' which found that if an auctioneer removes the reserve, they are bound to sell to a bona fide purchaser.<ref>{{cite BAILII|litigants=[[Barry v Davies]] |year=2000 |court=EWCA |div=Civ |num=235 |parallelcite=[2000] 1 [[Weekly Law Reports|WLR]] 1962 |courtname=auto}}.</ref>

An acceptance of the offer resulting in a binding contract must take place with knowledge of the offer and an intention to accept the offer.<ref name="R v Clarke" /><ref name="Taylor v Johnson">{{cite AustLII |litigants=Taylor v Johnson |year=1983 |court=HCA |num=5 |parallelcite=(1983) 151 [[Commonwealth Law Reports|CLR]] 422 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII|NSWStRp|55|1912|litigants=Banks v Williams |parallelcite=(1912) 12 [[State Reports New South Wales|SR (NSW)]] 382}}.</ref> Although acceptance need not be express and may be implied from conduct, it must correspond with the offer;<ref name=Tonitto>''Tonitto v Bassal'' (1992) 28 [[NSW Law Reports|NSWLR]] 564 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1992%2028%20NSWLR%20564 LawCite] (option to purchase land not validly exercised where three documents were required to be sent and one was sent for another purpose at an earlier time)</ref><ref name="Clarke v The Crown">{{cite AustLII|WALawRp|12|1927|litigants=Clarke v The Crown |parallelcite=(1927) 29 [[Western Australian Law Reports|WALR]] 102}} (Act must be done on faith or by reliance on the offer to constitute acceptance).</ref> be unequivocal;<ref name="Appleby v Johnson">''Appleby v Johnson'' (1874) LR 9 CP 158 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1874%20LR%209%20CP%20158 LawCite].</ref><ref>{{cite AustLII|NSWStRp|1|1918|litigants=Spencer's Pictures Ltd v Cosens |parallelcite=(1918) 18 [[State Reports New South Wales|SR (NSW)]] 102 |courtname=auto}}.</ref> and in general, be communicated to the offeror.<ref name=Carbolic /><ref name="Felthouse v Bindley">{{cite BAILII |litigants=[[Felthouse v Bindley]] |year=1862 |court=EWHC |num=J35 |parallelcite=[1862] 142 ER 1037 |courtname=auto}}.</ref> Silence cannot be requested by the offeror to be, or used by the offeree as a method of communication for acceptance.<ref name="Felthouse v Bindley" /> Rather, if after a reasonable period has lapsed, silence will be seen as a rejection to the offer, unless the offeree's actions objectively show otherwise.<ref name=Empirnall /> Where a purported acceptance proposes one or more additional or different terms it is ineffective as an acceptance, unless the variation is solely in favour of the offeror.<ref>{{cite AustLII|NSWLawRp|65|1897|litigants=Ex parte Fealey |parallelcite=(1897) 18 [[Law Reports (NSW)|LR (NSW)]] 282}} where the defendant's order for insertion of half inch advertisement in the plaintiff's newspaper was accepted by inserting one inch advertisement the rate for which was the same as for half inch advertisement.</ref> A purported acceptance will also be ineffective if made at a time when the offer has lapsed by virtue of time; if it is made subject to a contingency and that contingency ceases to exist; if the offeror dies and the offeree has notice of this fact; by the revocation of the offeror or the rejection by the offeree.<ref>{{cite AustLII |litigants=Goldsbrough, Mort & Co Ltd v Quinn |year=1910 |court=HCA |num=20 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1910/20.pdf (1910) 10 {{abbr|CLR|Commonwealth Law Reports}} 674] |courtname=[[High Court of Australia|High Court]]}}.</ref>

Furthermore, it is important to note that the postal rule is an exception to the general rule that acceptance of an offer takes place when communicated to the offeror. Under the rule, acceptance of an offer is effective as soon as it is posted, notwithstanding it may be lost in the delivery process and not received by the offerer.<ref name=Tallerman>{{cite AustLII |litigants=Tallerman & Co Ltd v Nathan's Merchandise (Vic) Pty Ltd |year=1957 |court=HCA |num=10 |parallelcite=(1957) 98 [[Commonwealth Law Reports|CLR]] 93 |courtname=[[High Court of Australia|High Court]]}}.</ref> However, the postal acceptance rule does not extend to instantaneous telecommunication methods, such as telephone, facsimile, and, presumably, emails.<ref>''Reese Bros Plastics Ltd v Hamon-Sobelco Australia Pty Ltd'' [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1988)%205%20BPR%2011,106 (1988) 5 BPR 11,106].</ref><ref name=Olivaylle>{{cite AustLII |litigants=Olivaylle Pty Ltd v Flottweg AG (No 4) |year=2009 |court=FCA |num=522 |parallelcite=(2009) 255 ALR 632 |pinpoint=[25]}}, an appeal from this decision on unrelated grounds was dismissed in {{cite AustLII|FCAFC|+3|2010|litigants=Olivaylle Pty Ltd v Flottweg AG}}.</ref> This means that, where acceptance is communicated electronically, contract is formed when and where acceptance is received, rather than at the moment it is posted. Transactions via electronic communications are now governed by statute.<ref>See, for example, {{cite web |url=https://www.legislation.gov.au/Details/C2011C00445 |title= ''Electronic Transactions Act'' 1999 (Cth) |publisher=Commonwealth of Australia |date=22 June 2011}}; {{cite web |title=''Electronic Transactions Act'' 2000 (NSW) |url=http://www.legislation.nsw.gov.au/#/view/act/2000/8 |publisher=NSW Parliamentary Counsel's Office |date=1 July 2015}}.</ref>

However, the rules of offer and acceptance are merely "an aid to analysis",<ref>{{cite book |author1=Greig, DW |author2=Davis, JLR |name-list-style=amp |title=The Law of Contract |year=1987 |ISBN=0455206201 |location=Sydney |publisher=Law Book Co |page=246}}.</ref> and may sometimes prove inconclusive or artificial.<ref name=Meates>''Meates v Attorney General'' [http://www.nzlii.org/cgi-bin/LawCite?cit=1983%20NZLR%20308 &#91;1983&#93; NZLR 308].</ref> A contract can be made without an identifiable offer and acceptance, provided the parties have manifested their mutual assent.<ref name=Brambles /> The "[[wikt:acid test|acid test]]" in a case where offer and acceptance cannot be identified, according to [[Robin Cooke, Baron Cooke of Thorndon|Justice Cooke]] in ''Meates v Attorney-General'', "is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain."<ref name=Meates />

=== Consideration===
{{See also|consideration}}
The second element necessary for contract formation is consideration. A promise will be enforceable as a contract only if it is supported by consideration,<ref name=Woollen /><ref name="Beaton v McDivitt">''Beaton v McDivitt'' (1987) 13 [[NSW Law Reports|NSWLR]] 162 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=13+NSWLR+162 LawCite].</ref> Consideration can be anything from money to a promise to undertake or not undertake a particular act, even a mere peppercorn could suffice.<ref>For the definition of Consideration in English Law, see ''[[Currie v Misa]]''  (1875) LR 10 Ex 153 ; (1875-76) LR 1 [[Appeal Cases Law Reports|App Cas]] 554 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=%281875%29+LR+10+Ex+153 LawCite].</ref><ref name="Woolworths v Kelly">''Woolworths Ltd v Kelly '' (1991) 22 [[NSW Law Reports|NSWLR]] 189 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1991)%2022%20NSWLR%20189 LawCite].</ref> In Australian law, the question of sufficiency of consideration does not refer to 'adequacy' as it is not the role of the judge to determine and value whether something is adequate or valuable or not.<ref name="Woolworths v Kelly" /> This accounts for the fact that different things mean differently to different parties. Sufficient consideration may also include abstract exchanges such as 'love and affection'.<ref>{{cite AustLII |litigants=Director of Public Prosecutions for Victoria v Le |year=2007 |court=HCA |num=52 |parallelcite=(2007) 232 [[Commonwealth Law Reports|CLR]] 562 |courtname=[[High Court of Australia|High Court]]}}.</ref>

"Consideration" in this context means that a promise is given in return for a promise received.  The usage of the word derives from expressions such as: "I will give you ten pounds in consideration of the apples you are delivering to me."<ref name=Woollen />

Joint promisees: Consideration given in return for a promise must move from the promisee; where there are joint promisees in a contract, consideration may be provided by one on behalf of both of them, or consideration may be provided by both promisees.<ref>{{cite AustLII |litigants=Coulls v Bagot's Executor & Trustee Co Ltd |year=1967 |court=HCA |num=3 |parallelcite=(1967) 119 [[Commonwealth Law Reports|CLR]] 460 |courtname=[[High Court of Australia|High Court]]}}.</ref>

Generally past consideration is not sufficient consideration<ref>{{cite BAILII |litigants=[[Roscorla v Thomas]] |year=1842 |court=EWHC |num=J74 |parallelcite=(1842) 3 [[Queens Bench Law Reports|QB]] 234 |courtname=auto}}.</ref><ref>
{{cite BAILII |litigants=[[Williams v Roffey Bros & Nicholls (Contractors) Ltd]] |year=1989 |court=EWCA |num=5 |parallelcite=[1991] 1 [[Queens Bench Law Reports|QB]] 1; [1990] 1 All ER 512 |courtname=auto}}.</ref><ref>{{cite BAILII |litigants=[[Pao On v Lau Yiu Long]] |year=1979 |court=UKPC |num=17 |parallelcite=[1980] [[Appeal Cases Law Reports|AC]] 614 |courtname=auto}}.</ref><ref>''Musumeci v Winadell Pty Ltd'' [http://www.thomsonreuters.com.au/product/AU/files/720502512/musumeci_and_another_v_winadell.pdf (1994) 34 NSWLR 723] {{Webarchive|url=https://web.archive.org/web/20141210102155/http://www.thomsonreuters.com.au/product/AU/files/720502512/musumeci_and_another_v_winadell.pdf |date=10 December 2014 }}.</ref> but a past service performed at the request of the promisor with an implication they will be paid for is sufficient consideration for a subsequent promise to pay for them.<ref>''Stewart v Casey'' [http://www.thomsonreuters.com.au/product/AU/files/720502512/contract_p4_in_re_casey's_patents_stewart_v_casey.pdf  &#91;1892&#93; 1 Ch 104]{{Dead link|date=October 2019 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>

Illusory Consideration: An agreement may be held as void if a vital provision is deemed to be illusory.<ref name=Placer>{{cite AustLII |litigants=Placer Development Ltd v Commonwealth |year=1969 |court=HCA |num=29 |parallelcite=(1969) 121 [[Commonwealth Law Reports|CLR]] 353 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref name=Godecke>{{cite AustLII |litigants=Godecke v Kirwan |year=1973 |court=HCA |num=38 |parallelcite=(1973) 129 [[Commonwealth Law Reports|CLR]] 629 |courtname=[[High Court of Australia|High Court]]}}</ref><ref name="Biotechnology v Pace">''Biotechnology Australia Pty Ltd v Pace''  (1988) 15 [[NSW Law Reports|NSWLR]] 130 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1988)%2015%20NSWLR%20130 LawCite].</ref> That is, that one part has a discretion either to the performance or to the content of that provision.<ref name=Placer/><ref name="Thorby v Goldberg">{{cite AustLII |litigants=Thorby v Goldberg |year=1964 |court=HCA |num=41 |parallelcite=(1964) 112 [[Commonwealth Law Reports|CLR]] 597 |courtname=[[High Court of Australia|High Court]]}}</ref><ref name="Foakes v Beer">{{cite BAILII |litigants=[[Foakes v Beer]] |year=1884 |court=UKHL |num=1 |parallelcite=(1884) 9 [[Appeal Cases Law Reports|App Cas]] 605 |courtname=auto}}.</ref> Note, if one party has some latitude or discretion as to the manner in which certain agreed provisions will be effected, but that discretion is limited, then the provisions are not illusory.<ref name="Thorby v Goldberg"/>

Further, a contract will not be illusory where an essential term is left to the discretion of a third party.<ref name=Godecke/>

=== Capacity ===
{{See also|capacity (law)|label 1=capacity}}
Contractual capacity refers to the ability of a party to enter into a legally binding contract. Minors,<ref>[http://www.legislation.nsw.gov.au/#/view/act/1970/60/part3/sec17 ''Minors (Property and Contracts) Act'' 1970 (NSW)].</ref> drunks,<ref name="Blomley v Ryan">{{cite AustLII |litigants=Blomley v Ryan |year=1956 |court=HCA |num=81 |parallelcite=(1956) 99 [[Commonwealth Law Reports|CLR]] 362 |courtname=[[High Court of Australia|High Court]]}}.</ref> and the mentally impaired<ref name="Gibbons v Wright">{{cite AustLII |litigants=Gibbons v Wright |year=1954 |court=HCA |num=17 |parallelcite=(1954) 91 [[Commonwealth Law Reports|CLR]] 423 |courtname=[[High Court of Australia|High Court]]}}.</ref> may not possess adequate capacity however the ordinary reasonable person is presumed by default to have contractual capacity.<ref name="Hart v O'Connor">{{cite BAILII |litigants=[[Hart v O'Connor]] |year=1985 |court=UKPC |num=1 |parallelcite=[1985] [[Appeal Cases Law Reports|AC]] 1000 at 1018–1019 |courtname=auto}}.</ref><ref name="Johnson v Buttress">{{cite AustLII|litigants=[[Johnson v Buttress]]|year=1936|court=HCA|num=41|parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1936/41.pdf (1936) 56 {{abbr|CLR|Commonwealth Law Reports}} 113] |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII|VicRp|16|1980|litigants=Westmelton (Vic) Pty Ltd v Archer and Schulman |parallelcite=[1982] [[Victorian Reports|VR]] 305}}.</ref><ref>{{cite web |title=section 9 ''Contracts Review Act'' 1980 (NSW) |url=http://www.legislation.nsw.gov.au/#/view/act/1980/16/part2/sec9 |publisher=NSW Parliamentary Counsel's Office |date=4 July 2014 }}.</ref> Where there is a lack of capacity to contract, an agreement may be rendered void.<ref name="Blomley v Ryan"/>

=== Intention ===
{{see also|Intention to be legally bound|label 1=intention to create legal relations}}
The fourth element is that the parties must create an intention to create legal relations. The intention requirement has often been approached on the basis that parties to commercial arrangements are presumed to intend legal consequences,<ref name="Helmos v Jaylor">{{cite AustLII|NSWCA|235|2005|litigants=Helmos Enterprises Pty Ltd v Jaylor Pty Ltd|courtname=[[New South Wales Court of Appeal|Court of Appeal]] (NSW)}}.</ref> while parties to social or domestic agreements are presumed not to intend legal consequences.<ref name=Ermogenous>{{cite AustLII |litigants=Ermogenous v Greek Orthodox Community of SA Inc |year=2002 |court=HCA |num=8 |parallelcite=(2002) 209 [[Commonwealth Law Reports|CLR]] 95 |courtname=[[High Court of Australia|High Court]]}}.</ref> Such presumptions determine who bears the [[Legal burden of proof|onus of proof]].<ref name="Helmos v Jaylor"/> In ''Ermogenous v Greek Orthodox Community of SA'', a case relating to the engagement of a minister of religion, the [[High Court of Australia|High Court]] was, however, critical of the utility of a language of presumptions in this context.<ref name=Ermogenous/><ref>{{cite AustLII|NSWSC|980|2013|litigants=Nowland v Maiolla; Casbee Properties Pty Ltd v Eastwood Air Conditioning Pty Ltd  |courtname=[[Supreme Court of NSW|Supreme Court]] (NSW)}}.</ref>

Preliminary agreements become apparent when parties enter into an agreement, however that is yet to have been formalised in a more intricate agreement which will be signed by both parties. Where one party later refuses to continue with the agreement, the question thus arises whether the first agreement was intended to be enforceable.
In ''[[Masters v Cameron]]'' the High Court held three possibilities to be available;<ref name="Masters v Cameron">{{cite AustLII |litigants=[[Masters v Cameron]] |year=1954 |court=HCA |num=72 |parallelcite=(1954) 91 [[Commonwealth Law Reports|CLR]] 353 |courtname=[[High Court of Australia|High Court]]}}.</ref> 
# The parties are immediately bound to the bargain, but they intend to restate the deal in a more formalized contract that will not have a different effect; or,
# Parties intended to be immediately bound, however their performance of terms is suspended until their intention is formalised through conclusion of legal documentation; or,
# Parties do not intend to be immediately bound, instead they intend to be bound only when a properly drawn contract has been signed.
There is a prima facie presumption that this third category is evident where the phrase 'subject to contract' has been utilised.<ref name="Masters v Cameron"/>
Subsequent authorities have been willing to recognise a fourth category in addition to those stated in ''Masters v Cameron''.<ref name="Baulkham Hills Private Hospital">''Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd'' (1986) 40 [[NSW Law Reports|NSWLR]] 622 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1986)%2040%20NSWLR%20622 LawCite].</ref>

#<li value="4">The parties intend to immediately bound by the terms agreed upon and expect to create a further contract as a replacement for the initial contract which will contain additional terms (if agreed upon).</li>
Although the fourth category may seem similar to the first ''Masters v Cameron'' category, the distinction is the formal contract may differ in effect from the initial agreement.<ref name="Baulkham Hills Private Hospital"/>

=== Certainty ===

For contract formation the agreement must be sufficiently certain and sufficiently complete that the parties' rights and obligations can be identified and enforced.<ref>{{cite AustLII |litigants=Whitlock v Brew |year=1968 |court=HCA |num=71 |parallelcite=(1968) 118 [[Commonwealth Law Reports|CLR]] 445 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd |year=1968 |court=HCA |num=8 |parallelcite=(1968) 118 [[Commonwealth Law Reports|CLR]] 429 |courtname=[[High Court of Australia|High Court]]}}.</ref> The topic of certainty encompasses three related and often overlapping problems:<ref>The categories of uncertainty, incompleteness and illusory promises are not always clearly distinguished and often overlap. See for example ''G Scammell & Nephew Ltd v Ouston''  &#91;1941&#93; [[Appeal Cases Law Reports|AC]] 251; [1941] 1 All ER 14 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1941%20AC%20251 LawCite].</ref>
# The agreement may be ''incomplete'' because the parties have failed to reach agreement on all of the essential elements or have decided that an essential matter should be determined by future agreement;<ref name="Thorby v Goldberg"/><ref>{{cite AustLII |litigants=Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd |year=1982 |court=HCA |num=53 |parallelcite=(1982) 149 [[Commonwealth Law Reports|CLR]] 600 at p. 604 |courtname=[[High Court of Australia|High Court]]}}.</ref>
# The agreement may be ''uncertain'' because the terms are too vague or ambiguous for a meaning to be attributed by a court;<ref>{{cite AustLII |litigants=Whitlock v Brew |year=1968 |court=HCA |num=71|parallelcite=(1968) 118 [[Commonwealth Law Reports|CLR]] 445  |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII|NSWCA|177|2009|litigants=United Group Rail Services Limited v Rail Corporation New South Wales |parallelcite=(2009) 74 [[NSW Law Reports|NSWLR]] 618|courtname=[[New South Wales Court of Appeal|Court of Appeal]] (NSW)}}.</ref>
# A particular promise may be ''illusory'' because the contract effectively gives the promisor an unfettered discretion as to whether to perform the promise.<ref name=Placer/><ref name=Godecke/><ref name="Meehan v Jones">{{cite AustLII |litigants=[[Meehan v Jones]] |year=1982 |court=HCA |num=52 |parallelcite= (1982) 149 [[Commonwealth Law Reports|CLR]] 571 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) |year=1975 |court=HCA |num=55 |parallelcite=(1975) 133 [[Commonwealth Law Reports|CLR]] 125 |courtname=[[High Court of Australia|High Court]]}}.</ref>

The case law reflect the tension between, on the one hand, the desire to hold parties to their bargains in accordance with the principle ''[[pacta sunt servanda]]'' and, on the other hand, the courts' reluctance to make a bargain for the parties. Although there have been differences in Australian judicial opinion as to the role of the court in giving effect to a contract,<ref>Compare ''Biotechnology Australia Pty Ltd v Pace'' (1988) 15 [[NSW Law Reports|NSWLR]] 130 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1988)%2015%20NSWLR%20130 LawCite]  and {{cite AustLII |litigants=Hall v Busst |year=1960 |court=HCA |num=84 |parallelcite=(1960) 104 [[Commonwealth Law Reports|CLR]] 206 |courtname=[[High Court of Australia|High Court]]}}.</ref> in general the courts give primacy to the need to uphold agreements,<ref name="Meehan v Jones"/><ref>{{cite AustLII |litigants=Milne v Attorney-General (Tas) |year=1956 |court=HCA |num=48 |parallelcite=(1956) 95 [[Commonwealth Law Reports|CLR]] 460 |courtname=[[High Court of Australia|High Court]]}}.</ref> particularly executed agreements<ref>''F & G Sykes (Wessex) Ltd v Fine Fare Ltd'' [1967] 1 Lloyd's Rep 5 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1967%201%20Lloyd%27s%20Rep%2053 LawCite] at 57 per [[Alfred Denning, Baron Denning|Lord Denning]] [[Master of the Rolls|MR]].</ref> and commercial arrangements.<ref>''Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd'' [1968] 3 [[NSW Reports|NSWR]] 761 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1968%203%20NSWR%20761 LawCite] at 765-6.</ref>

== Terms ==
A term is any clause or provision in a contract. The two main issues which arise in relation to contractual terms are: what are the terms of the contract (identification) and what are their legal effects (construction).{{Cn|date=January 2021}}

=== Express terms ===
An express term is an enforceable, promissory statement, written or oral, that makes up part of a contract.{{Cn|date=January 2021}}

Only terms made reasonably available to each party before a contract is made can be incorporated into the contract.<ref name=Oceanic>{{cite AustLII |litigants=Oceanic Sun Line Shipping Company Inc v Fay |year=1988 |court=HCA |num=32 |parallelcite=(1988) 165 [[Commonwealth Law Reports|CLR]] 197 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite BAILII |litigants=[[Thornton v Shoe Lane Parking Ltd]] |year=1970 |court=EWCA |num=2 |parallelcite=[1971] 2 [[Queens Bench Law Reports|QB]] 163 |courtname=auto}}</ref><ref name=Baltic>{{cite AustLII |litigants=[[Baltic Shipping Company v Dillon]] |year=1993 |court=HCA |num=4 |parallelcite=(1993) 176 [[Commonwealth Law Reports|CLR]] 34 |courtname=[[High Court of Australia|High Court]]}}.</ref> For example, a party can incorporate terms when the other party knows, before or at the time the contract was made, that a delivered document or a displayed sign on premises contained the contractual terms in question.<ref name=Oceanic/><ref name="Balmain New Ferry">{{cite AustLII|HCA|83|1906|litigants=[[Balmain New Ferry Co Ltd v Robertson]] |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1906/83.pdf (1906) 4 {{abbr|CLR|Commonwealth Law Reports}} 379] |courtname=[[High Court of Australia|High Court]] |date=18 December 1906}}.</ref> However, for tickets with unusual and obscure terms, the passenger must be given reasonable notice and time to read the provisions, especially if they refer to terms found elsewhere.<ref name=Baltic/>

If parties have had a history of dealings, the contractual terms introduced in earlier contracts may be incorporated into a subsequent contract, as being known by the parties.<ref name="Balmain New Ferry"/> For these terms to be incorporated into the present contract, the course of dealings between the parties needs to have been regular and uniform, contractual in nature, consistent, and sufficiently long.<ref>{{cite BAILII |litigants=[[J Spurling Ltd v Bradshaw]] |year=1956 |court=EWCA |num=3 |parallelcite= [1956] 1 WLR 461 |courtname=auto}}.</ref><ref>{{cite BAILII |litigants=[[McCutcheon v David MacBrayne Ltd]] |year=1964 |court=UKHL |num=4 |parallelcite=[1964] 1 WLR 165 |courtname=auto}}.</ref><ref>{{cite BAILII |litigants=[[Henry Kendall Ltd v William Lillico Ltd]] |year=1968 |court=UKHL |num=3 |parallelcite=[1969] 2 [[Appeal Cases Law Reports|AC]] 31 |courtname=auto}}.</ref>

Although some statements made before the contract was entered into may have been intended to operate as terms, not all such statements will in fact operate as terms. Whether or not a statement made during negotiations is an enforceable term depends on whether or not the contract is one that is fully in writing, or one that contains an oral agreement. If a contract is fully in writing, then no statements made outside of the contractual document will be enforceable.<ref>{{cite AustLII |litigants=Hoyt's Pty Ltd v Spencer |year=1919 |court=HCA |num=64 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1919/64.pdf (1919) 27 {{abbr|CLR|Commonwealth Law Reports}} 133] at p. 143}}.</ref> This is known as the [[Parol evidence rule]]. This is sometimes made even more explicit by the inclusion of an entire agreement clause, which clarifies that no other statements or extrinsic materials may have any bearing on the terms.<ref name="Franklins v Metcash">{{cite AustLII|NSWCA|407|2009|litigants=Franklins Pty Ltd v Metcash Trading Ltd |pinpoint=[342] |parallelcite=(2009) 76 [[NSW Law Reports|NSWLR]] 603|courtname=[[New South Wales Court of Appeal|Court of Appeal]] (NSW)}}.</ref> In the absence of an entire agreement or merger clause, the parties' intention for the whole of the agreement to be in the written contract must be considered. By the flexible approach, extrinsic evidence may be admitted in the determination of whether the agreement is wholly in writing. That is, the prima facie appearance of the contract to be a complete contract provides no more than an evidentiary basis for inferring that the document was wholly written.<ref name="SRA v Heath">''State Rail Authority of New South Wales v Heath Outdoor Pty Ltd'' (1986) 7 [[NSW Law Reports|NSWLR]] 170] at p. 191 per McHugh JA [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1986%207%20NSWLR%20170 LawCite records].</ref> The presence of a written document creates a presumption that all the terms are contained in that document, but courts have recently been willing to allow this presumption to be rebutted.<ref name="SRA v Heath"/><ref>{{cite AustLII|NSWCA|234|2009|litigants=Masterton Homes v Palm Assets |pinpoint=[90] |courtname=[[New South Wales Court of Appeal|Court of Appeal]] (NSW)}}.</ref> If the extrinsic evidence was promissory in nature <ref name="JJ Savage">{{cite AustLII |litigants=JJ Savage & Sons Pty Ltd v Blakney |year=1970 |court=HCA |num=6 |parallelcite=(1970) 119 [[Commonwealth Law Reports|CLR]] 435 |pinpoint=[11] |courtname=[[High Court of Australia|High Court]]}}.</ref> and viewed objectively was intended by the parties to supplement the written document and form part of the contract,<ref name="Equuscorp">{{cite AustLII |litigants=Equuscorp Pty Ltd v Glengallan Investments Pty Ltd |year=2004 |court=HCA |num=55 |parallelcite=(2005) 218 [[Commonwealth Law Reports|CLR]] 471 |pinpoint=[36] |courtname=[[High Court of Australia|High Court]]}}.</ref> the existence of the evidence may support the view that the document was not wholly in writing and thus could be incorporated into the contract.<ref name="SRA v Heath"/>  Such a contract would be considered to be partly written and partly oral.<ref name="Equuscorp"/> For contracts that are made entirely by oral agreement, a statement will be an express term if it is promissory in nature.<ref name="JJ Savage"/>

=== Implied terms ===
Apart from the terms expressly agreed, by reason of what the parties have written or said, implied terms may also exist to impose obligations on the parties or to qualify the terms of their bargain. Implied terms are not necessarily excluded by entire contract clauses.<ref name="JJ Savage"/><ref>{{cite AustLII |litigants=Bae Systems Australia Ltd v Cubic Defence New Zealand Ltd |year=2011 |court=FCA |num=1434}}.</ref>

==== Terms implied in fact ====
A term may be implied ‘in fact’ into a contract, to give full effect to the presumed intentions of the contracting parties.<ref name=Moorcock/><ref name=Codelfa/>{{rp|p 345}} Terms implied in fact are terms that are ‘tailored’, and therefore unique, to the particular contract in question. Terms implied in fact are traditionally said to be based on the ‘presumed’ intentions of the parties concerned.<ref name=Codelfa/><ref name="BP Refinery"/><ref name=Byrne>{{cite AustLII|HCA|24|1995|litigants=[[Byrne v Australian Airlines Ltd]] |parallelcite=(1995) 185 [[Commonwealth Law Reports|CLR]] 410 |courtname=[[High Court of Australia|High Court]] |date=11 October 1995}}.</ref>

In formal contracts, in ascertaining a party's presumed intentions, reliance is placed on the rule handed down in [[BP Refinery (Westernport) Pty Ltd v Shire of Hastings]] (1977)<ref name="BP Refinery">{{cite BAILII |litigants=[[BP Refinery (Westernport) Pty Ltd v Shire of Hastings]] |year=1977 |court=UKPC |num=13 |format=1 |parallelcite=(1977) 180 [[Commonwealth Law Reports|CLR]] 266 |courtname=auto |juris=Australia}}.</ref><ref name=Byrne/> where, for a term to be implied, the following conditions must be satisfied:
# Reasonable and Equitable: it must be reasonable and equitable.<ref name="BP Refinery"/> Reasonableness alone is not a sufficient reason for implying a term.<ref name=Codelfa>{{cite AustLII|HCA|24|1982|litigants=[[Codelfa Construction Pty Ltd v State Rail Authority of NSW]] |parallelcite=(1982) 149 [[Commonwealth Law Reports|CLR]] 337 |courtname=[[High Court of Australia|High Court]] |date=11 May 1982}}.</ref>
# Business Efficacy: it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it.<ref name=Moorcock>''[[The Moorcock]]'' (1889) 14 PD 64 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1889%2014%20PD%2064 LawCite]</ref><ref name=Codelfa/><ref name="BP Refinery"/><ref name=Byrne/><ref>{{cite BAILII |litigants=[[Attorney General of Belize v Belize Telecom Ltd]] |year=2009 |court=UKPC |num=10 |parallelcite= [2009] 1 WLR 1988 |courtname=auto}}.</ref> This question may be interpreted as being whether or not reasonable persons would consider that the proposed term was necessary to enable the contract to operate in a businesslike manner.<ref name="Breen v Williams">{{cite AustLII|HCA|57|1996|litigants=[[Breen v Williams]] ("Medical Records Access case") |parallelcite=(1996) 186 [[Commonwealth Law Reports|CLR]] 71|date=6 September 1996 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref name=Hawkins>{{cite AustLII |litigants=Hawkins v Clayton |year=1988 |court=HCA |num=15 |parallelcite=(1988) 164 [[Commonwealth Law Reports|CLR]] 539 |courtname=[[High Court of Australia|High Court]]}}</ref>
# Obviousness: it must be so obvious that "it goes without saying".<ref name=Codelfa/><ref>''Southern Foundries (1926) Ltd v Shirlaw''  [1940] [[Appeal Cases Law Reports|AC]] 701 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1940%20AC%20701 LawCite].</ref><ref>{{cite AustLII |litigants=Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd |year=2010 |court=SASC |num=37}}.</ref> Prima facie, that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’.<ref name=Moorcock/><ref name=Codelfa/>
# Clarity: it must be capable of clear and precise expression.<ref>{{cite AustLII |litigants=Ansett Transport Industries (Operations) Pty Ltd v  Commonwealth |year=1977 |court=HCA |num=71 |parallelcite=(1977) 139 [[Commonwealth Law Reports|CLR]] 54 |courtname=[[High Court of Australia|High Court]]}}.</ref>
# Consistency: it must not contradict any express term of the contract.<ref name="BP Refinery"/>
These criteria have been approved by the High Court on numerous occasions.<ref name=Codelfa/><ref name=Byrne/><ref name="Hospital Products">{{Cite AustLII|HCA|64|1984|litigants=[[Hospital Products Ltd v United States Surgical Corporation]] |parallelcite=(1984) 156 [[Commonwealth Law Reports|CLR]] 41 |date=25 October 1984 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd |year=1979 |court=HCA |num=51 |parallelcite=(1979) 144 [[Commonwealth Law Reports|CLR]] 596 |courtname=[[High Court of Australia|High Court]]}}.</ref>

In the case of an informal contract, where the parties have not attempted to stipulate the full terms, the courts should imply a term upon referring to the imputed intention of the parties, provided that the particular term is necessary for the effective operation of the contract.<ref name=Byrne/><ref name=Hawkins/> In implying terms in an informal contract, the High Court has suggested that a flexible approach is required.<ref name=Byrne/><ref name=Hawkins/><ref name="Hospital Products"/> In a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, the court should imply a term by reference to the imputed intentions of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case.<ref name=Hawkins/> Obviousness also remains an important element in implying a term in an informal contract.<ref name=Byrne/>

==== Terms implied in law ====
Terms implied in law are terms automatically implied in contracts of a particular class or description deriving from legal principles rather than the intentions of the parties to the contract.<ref name=Byrne/><ref name="BP Refinery"/><ref name="UWA v Gray">{{cite AustLII|FCAFC|116|2009|litigants=University of Western Australia v Gray |courtname=auto}}.</ref><ref name=Irwin>{{Cite BAILII |litigants=[[Liverpool City Council v Irwin]] |year=1976 |court=UKHL |num=1 |parallelcite=[1977] [[Appeal Cases Law Reports|AC]] 239 |pinpoint= |courtname=auto}}</ref><ref>{{cite AustLII |litigants=Bostik v Gorgevski |year=1992 |court=FCA |num=209 |parallelcite=(1992) 36 [[Federal Court Reports|FCR]] 20}}.</ref><ref>{{cite AustLII |litigants=Wheeler v Philip Morris Ltd |year=1989 |court=FCA |num=230 |parallelcite=(1989) 97 [[Australian Law Reports|ALR]] 282}}.</ref><ref>''Lane v Arrowcrest Group Pty Ltd'' [https://jade.io/article/325005 <nowiki>[1990]</nowiki> FCA 693]; (1990) 27 [[Federal Court Reports|FCR]] 427]; 99 [[Australian Law Reports|ALR]] 45 (6 December 1990) [[Federal Court of Australia|Federal Court]].</ref>
For a term to be implied in law, the relevant test is whether the omission of the term would significantly diminish the rights of the parties under contract.<ref name=Byrne/><ref name=Irwin/> 
This has been referred to as the test of necessity,<ref name="UWA v Gray"/> which has been differentiated from the business efficacy test conducted in the implication of terms in fact, due to the former test taking into regard considerations of policy,<ref name="UWA v Gray"/> and among other things such as the nature of the contract, and justice and policy.<ref name="UWA v Gray"/>

==== Terms implied by custom ====
A term can also be implied by customs.<ref name=Byrne/><ref name="Con-Stan">{{cite AustLII|HCA|14|1986|litigants=[[Con-stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd]] |parallelcite=(1986) 160 [[Commonwealth Law Reports|CLR]] 226 |courtname=[[High Court of Australia|High Court]] |date=11 April 1986}}.</ref> The existence of a custom or usage that will justify the implication of a term into a contract is a question of facts.<ref name="Con-Stan"/><ref>''Dahl v Nelson'' (1881) 6 [[Appeal Cases Law Reports|App Cas]] 38 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1881%206%20App%20Cas%2038 LawCite].</ref><ref>{{cite AustLII |litigants=University of Western Australia v Gray (No 25) |year=2009 |court=FCA |num=1227}}.</ref> There must be evidence that the custom relied on is so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract.<ref name="Con-Stan"/><ref>{{cite AustLII |litigants=Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd |year=1973 |court=HCA |num=22 |parallelcite=(1973) 129 [[Commonwealth Law Reports|CLR]] 48 |courtname=[[High Court of Australia|High Court]]}} at p. 61</ref><ref>{{cite AustLII |litigants=Thornley v Tilley |year=1925 |court=HCA |num=13 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1925/13.pdf (1925) 36 {{abbr|CLR|Commonwealth Law Reports}} 1] at p. 8 |courtname=[[High Court of Australia|High Court]]}}.</ref> The custom is only to be inferred from a large number of individual acts which shows an established understanding of a course of business.<ref>{{cite AustLII|NSWSC|704|2004|litigants=Goodman Fielder v Cospak International |pinpoint=[64] |courtname=[[Supreme Court of New South Wales|Supreme Court]] (NSW)}}.</ref> The implied term cannot contradict an existing express term.<ref name="Con-Stan"/> However, a person may still be bound by a custom notwithstanding the fact that he had no knowledge of it.<ref name="Con-Stan"/>

=== Construction of terms ===
Where the terms of the contract are ambiguous or susceptible to more than one meaning, evidence of surrounding circumstances and context may be admissible to assist in its interpretation.<ref name=Codelfa/> The High Court has recently reiterated the ''Codelfa'' ruling regarding the use of existence evidence in the interpretation of contacts.<ref name="Mount Bruce">{{cite AustLII |litigants=Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd |year=2015 |court=HCA |num=37 |parallelcite=(1973) 129 [[Commonwealth Law Reports|CLR]] 48 |courtname=[[High Court of Australia|High Court]]}}.</ref>  For example, this would commonly invite one to examine the commercial purpose of the transaction, its background and context, common practices etc.<ref name="Botanic Gardens">{{cite AustLII |litigants=Royal Botanic Gardens and Domain Trust v South Sydney Council |year=2002 |court=HCA |num=5 |parallelcite=(2002) 240 [[Commonwealth Law Reports|CLR]] 45 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=International Air Transport Association v Ansett Australia Holdings Ltd |year=2008 |court=HCA |num=3 |parallelcite=(2008) 234 [[Commonwealth Law Reports|CLR]] 151 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=Electricity Generation Corporation v Woodside Energy Ltd |year=2014 |court=HCA |num=7 |parallelcite=(2014) 251 [[Commonwealth Law Reports|CLR]] 640 |courtname=[[High Court of Australia|High Court]]}}.</ref>  Moreover, courts tend to favour an interpretation that produces a reasonable commercially accepted result and avoids unjust or inconvenient consequences to both parties.<ref>{{cite AustLII |litigants=ABC v Australasian Performing Right Association Ltd |year=1973 |court=HCA |num=36 |parallelcite=(1973) 129 [[Commonwealth Law Reports|CLR]] 99 at p. 108 |courtname=[[High Court of Australia|High Court]]}}.</ref> It is also important to note that the subjective intention of the parties is irrelevant. The construction of contractual documents is determined by what a reasonable person in the position of the party would have understood the words to mean.<ref name="Mount Bruce"/><ref>{{cite AustLII |litigants=Pacific Carriers Ltd v BNP Paribas |year=2008 |court=HCA |num=35 |parallelcite=(2014) 218 [[Commonwealth Law Reports|CLR]] 451 |courtname=[[High Court of Australia|High Court]]}}.</ref> With regard to a recent judgment made by the High Court in ''Western Export Services Inc v Jireh International Pty Ltd'', Justices [[William Gummow|Gummow]], [[Dyson Heydon|Heydon]] and [[Virginia Bell (judge)|Bell]] agree the position of the Australian courts: where ''a court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted.''<ref>{{cite AustLII |litigants=Western Export Services Inc v Jireh International Pty Ltd |year=2011 |court=HCA |num=45 |parallelcite=}}.</ref> This High Court decision defends the original NSW Court of Appeal judgment and ultimately upholds the rule observed in ''Codelfa''<ref name=Codelfa/> and ''Royal Botanic Gardens and Domain Trust v South Sydney City Council''.<ref name="Botanic Gardens"/>

=== Effect of a signature ===
The ''[[L'Estrange v F Graucob Ltd|L'Estrange Rule]]'' <ref name="L'Estrange">''[[L'Estrange v F Graucob Ltd]]'' [1934] 2 [[Kings Bench Law Reports|KB]] 294 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1934%202%20KB%20394 LawCite records].</ref> governs the effect of a signature in contracts law, which states that a party is bound by the terms of a contractual document once it is signed regardless of whether or not the party has read or understood the terms in a contract. ''[[Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd]]'' affirms this objective approach as it upholds that a person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by the content.<ref name="Toll v Alphapharm"/> To undermine that assumption would cause serious mischief.<ref name="Franklins v Metcash"/><ref name="L'Estrange"/><ref name="Toll v Alphapharm">{{cite AustLII|HCA|52|2004|litigants=[[Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd]] |parallelcite=(2004) 219 [[Commonwealth Law Reports|CLR]] 165 |courtname=[[High Court of Australia|High Court]] |date=11 November 2004}}.</ref><ref>{{cite web|author1=Clarke, B |author2=Kapnoullas, S |name-list-style=amp |title=When is a Signed Document Contractual? |url=http://www.austlii.edu.au/au/journals/QUTLJJ/2001/4.html}} (2001) 1(1) Queensland University of Technology Law and Justice Journal 39.</ref><ref name="Curtis v Chemical Cleaning">''Curtis v Chemical Cleaning & Dyeing Co'' &#91;1951&#93; 1 [[Kings Bench Law Reports|KB]] 80] at p. 808 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1951%201%20KB%20805 LawCite].</ref><ref>{{cite web|author1=Sharp, P |title=Revisiting the Rule in L'Estrange v F Graucob Ltd |url=http://www.austlii.edu.au/au/journals/BondLawRw/2005/17.html}} (2005) 17 Bond Law Review 204.</ref> This is on the basis that it provides an objective criteria as to whether a party has agreed to the terms of a contract. However, this rule is subject to exceptions. A signature will not be binding where the signature was obtained by a fraud or misrepresentation, or where document was not known to be a contract by the party signing it.<ref name="Curtis v Chemical Cleaning"/><ref>{{cite AustLII|VicRp|92|1971|litigants=D J Hill Co Pty Ltd v Walter H Wright Pty Ltd |parallelcite=[1971] [[Victorian Reports|VR]] 749.}}</ref><ref name="Petelin v Cullen">{{cite AustLII |litigants=Petelin v Cullen |year=1975 |court=HCA |num=24 |parallelcite=(1975) 132 [[Commonwealth Law Reports|CLR]] 355 |courtname=[[High Court of Australia|High Court]]}}.</ref> The signature will not be binding if the document signed cannot be reasonably considered a contractual document, this includes receipts, vouchers, timesheet etc.<ref name="Curtis v Chemical Cleaning"/> The act of signature or executive enables third parties to assume the legal efficacy of the contract.<ref name="Toll v Alphapharm"/>

== Illegality ==

A contract may be illegal because it is prohibited by [[statute]] or because it infringes a rule of [[public policy]].<ref name=Yango>{{cite AustLII |litigants=Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd |year=1978 |court=HCA |num=42 |parallelcite=(1978) 139 [[Commonwealth Law Reports|CLR]] 410 |courtname=[[High Court of Australia|High Court]]}}</ref><ref>{{cite AustLII |litigants=Fitzgerald v F J Leonhardt Pty Ltd |year=1997 |court=HCA |num=17 |parallelcite=(1997) 189 [[Commonwealth Law Reports|CLR]] 215 |courtname=[[High Court of Australia|High Court]]}}.</ref> Where a contract is not expressly or implicitly prohibited by statute, the court must discern from the scope and purpose of the relevant statute "'''whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable'''".<ref name="Haxton"/>

There are a range of consequences of illegality:
# '''Unenforceable contract''': Where a contract is found to be unenforceable, it continues to be valid if both parties perform the agreement, but the court will not enforce it.<ref name=Yango/> However, there is some support for the view that a plaintiff who was innocent should be able to enforce the contract.<ref>''Abdurahman v Field'' [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1987)%208%20NSWLR%20158 (1987) 8 NSWLR 158].</ref>
#'''Non-Retrieval''': Another consequence of illegality is that neither party may recover money or property transferred under the affected contract.<ref name="Haxton">{{cite AustLII |litigants=Equuscorp Pty Ltd v Haxton |year=2012 |court=HCA |num=7 |parallelcite=(2012) 246 [[Commonwealth Law Reports|CLR]] 498 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref name="Yerkey v Jones">
{{cite AustLII |litigants=Yerkey v Jones |year=1939 |court=HCA |num=3 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1939/3.pdf (1939) 63 {{abbr|CLR|Commonwealth Law Reports}} 649] |courtname=[[High Court of Australia|High Court]]}}.</ref> However, there are exceptions where the plaintiff is a victim of the contract, or where the plaintiff repents and repudiates the contract before the illegal purpose is carried out.<ref>
{{cite AustLII |litigants=David Securities Pty Ltd v Commonwealth Bank of Australia |year=1992 |court=HCA |num=48 |parallelcite=(1992) 175 [[Commonwealth Law Reports|CLR]] 353 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII|NSWStRp|6|1932|litigants=Clegg v Wilson |parallelcite=(1932) 32 [[State Reports New South Wales|SR (NSW)]] 109}}.</ref>
# '''Estoppel''': A party may be prevented from avoiding his or her contractual obligations under the doctrine of estoppel, where there are notions of unconscionability, despite the illegality.<ref>{{cite AustLII |litigants=Equuscorp Pty Ltd v Wilmoth Field Warne |year=2007 |court=VSCA |num=280}}.</ref><ref>{{cite AustLII |litigants=Legione v Hateley |year=1983 |court=HCA |num=11 |parallelcite=(1983) 152 [[Commonwealth Law Reports|CLR]] 406 |courtname=[[High Court of Australia|High Court]]}}.</ref>
# '''Rescission''': Puts party in positions before the formation of the contract. E.g., any deposits held previously by a vendor in a sale shall be returned. Parties in rescission cannot be awarded compensation for collateral loss.<ref>{{cite AustLII |litigants=Brown v Smitt |year=1924 |court=HCA |num=11 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1924/11.pdf (1924) 34 {{abbr|CLR|Commonwealth Law Reports}} 160] |courtname=[[High Court of Australia|High Court]]}}.</ref>
#'''Statutory penalty''' if a statutory penalty has been provided for an offence, this may diminish the effect of the common law in determining the legal consequences.<ref name="Byrne"/><ref name="Yango"/> Thus where the statute provides for an authority to have a supervisory role, the court should not pre-empt the effect of the exercise of those regulatory powers.<ref>{{cite AustLII |litigants=Gnych v Polish Club Limited |year=2015 |court=HCA |num=23 |parallelcite=(2015) 255 [[Commonwealth Law Reports|CLR]] 414 |courtname=[[High Court of Australia|High Court]]}}.</ref>

== Termination ==

The [[common law]] [[rule against perpetuities]] means that every contract must come to an end in one way or an other.<ref>''In re Ridley; Buckton v Hay'' (1879) 11 Ch 645 at p. 648.</ref> The contract may be completed,<ref>for example the sale of goods REF</ref> it may be for a fixed period of time, in which case the contract automatically comes to an end once that time expires.<ref>{{cite AustLII|NSWSC|1309|2009|litigants=Battery World Pty Limited v Heavenly Bound Pty Limited |courtname=[[Supreme Court of NSW|Supreme Court]] (NSW)}}.</ref>

===Express right to terminate===
A contract may include an express term grant an express right for either or both parties to terminate.<ref>{{cite AustLII |litigants=Pan Foods Company Importers & Distributors Pty Ltd v ANZ Banking Group Ltd |year=2000 |court=HCA |num=20}}.</ref> Such a clause may provide for the termination of the contract in 3 ways, 'at will' (granting a right to terminate at any time), with notice (granting a right to terminate in compliance with a notice termination procedure), or when triggered by specified events (such as a breach of contractual condition or non-fulfilment of a contingent condition).{{Cn|date=January 2021}}

===Implied right to terminate===
Where a contract does not contain an express right to terminate, courts may find that the contract includes an implied right for one or both of the parties to terminate the contract. An implied termination clause usually requires the giving of reasonable notice of termination. What constitutes 'reasonable notice' is a question of fact, and will depend on the circumstances of the individual case.<ref>''Crawford Fitting Co v Sydney Valve & Fitting Pty Ltd'' [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1988)%2014%20NSWLR%20438 (1988) 14 NSWLR 438]</ref><ref>{{cite AustLII|NSWSC|144|2008|litigants=Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd |courtname=[[Supreme Court of NSW|Supreme Court]] (NSW)}}.</ref>

===Termination by subsequent agreement===
Parties may terminate a contract by making a subsequent agreement under which they both agree to release the other party from their obligations under the original contract. This subsequent contract must comply with the ordinary rules of contract formation, including consideration. Where both parties still have obligations to perform under the contract, each party will provide consideration in agreeing to release the other part from his or her remaining obligations.<ref name=Tallerman/> In cases where contracts have been partly performed (where one party has fully performed their obligations under the contract), the non-performing party can also provide fresh consideration by an ''accord and satisfaction.''<ref>{{cite AustLII |litigants=McDermott v Black  |year=1940 |court=HCA |num=4 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1940/4.pdf (1940) 63 {{abbr|CLR|Commonwealth Law Reports}} 161] |courtname=[[High Court of Australia|High Court]]}}.</ref> This is the purchase of a release from an obligation by giving any valuable consideration that is not the actual performance of the original obligation. The need for consideration can be avoided by executing a deed.{{Cn|date=January 2021}}

Where parties make no express statement of how the subsequent agreement interacts with the original, it can be inferred from the circumstances whether the original contract has been terminated. The parties may have intended the subsequent agreement to replace the original contract,<ref>{{cite AustLII |litigants=Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd |year=2005 |court=FCAFC |num=49 |parallelcite=(2005) 218 ALR 1}}.</ref> or they may have intended it to vary the terms of the original contract.<ref name=Tallerman/> Whether the agreement was intended to replace or vary the original is a 'matter of degree'.<ref name=Tallerman/> Dependent upon the circumstances in each case different aspects may be considered by a court. ''Concut v Worrell'' <ref>{{cite AustLII |litigants=Concut v Worrell |year=2000 |court=HCA |num=64}}.</ref> illustrates some factors that may be assessed in employment relationships.{{Cn|date=January 2021}}

===Termination for breach===
In the absence of an express term for the termination of a contract, whether a breach of the contract gives rise to a right for the innocent party to terminate the contract depends on the classification of the term as a:

# '''Condition:''' An aggrieved party will be entitled to terminate for any breach of that term by the other party regardless of the gravity or consequences of that breach. The appropriate test is the test of essentiality.<ref name="Tramways" /> The promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise and this ought to have been apparent to the promisor. This is an objective test of the parties' intention at the time of formation of the contract.
# '''Warranty:''' Warranties arise if, in the absence of a clear expression to the contrary, there is no possibility that a breach of a particular term would deprive the aggrieved party of all or part of their expected benefit from the contract as a whole.<ref name="Hong Kong Fir">{{Cite BAILII |litigants=[[Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd]] |year=1961 |court=EWCA |num=7 |parallelcite=[1962] 1 All ER 474 |pinpoint= |courtname=auto}}</ref> Therefore, the aggrieved party will not be entitled to terminate merely by reason of a breach of the term by the other party.
# '''Intermediate or innominate term:''' the aggrieved party's right to terminate will depend on the severity of the breach and its consequence. The seriousness of the breach will determine whether termination is allowed or the party can sue for damages.<ref name=Tramways>{{cite AustLII|NSWStRp|37|1938|litigants=Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd |parallelcite=(1938) 38 [[State Reports New South Wales|SR (NSW)]] 632}} at p. 641-2.</ref> If the breach is likely to have serious consequences for further performance then they will be entitled to terminate.<ref name="Koompahtoo">{{cite AustLII|litigants=Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited|year=2007|court=HCA|num=61|parallelcite=(2007) 233 [[Commonwealth Law Reports|CLR]] 115 |courtname=[[High Court of Australia|High Court]]}};see also {{cite AustLII|litigants=Commonwealth v Amann Aviation Pty Ltd |year=1991 |court=HCA |num=54 |parallelcite=(1992) 174 [[Commonwealth Law Reports|CLR]] 64 |courtname=[[High Court of Australia|High Court]]}}.</ref> The test for serious innominate terms is whether the breach would deprive the aggrieved party of substantially the whole benefit intended under the contract.<ref name="Hong Kong Fir"/>

The test for whether the term is essential and therefore gives rise to the right to terminate is:<ref name=Tramways/><ref>{{cite AustLII |litigants=Associated Newspapers Ltd v Bancks |year=1951 |court=HCA |num=24 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1951/24.pdf (1951) 83 {{abbr|CLR|Commonwealth Law Reports}} 322] |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=Ankar v National Westminster Finance |year=1987 |court=HCA |num=15 |parallelcite=(1987) 162 [[Commonwealth Law Reports|CLR]] 549 |courtname=[[High Court of Australia|High Court]]}}.</ref>

#whether it appears from the general nature of the contract, or from some particular term or terms,
#that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise{{Cn|date=January 2021}}
#and that this was apparent to the promisor.{{Cn|date=January 2021}}

===Termination for failure of contingent condition===
Parties may make the formation and performance of their contract conditional upon the occurrence of a specified event that neither party promises to ensure will occur.<ref>{{cite AustLII|VicRp|46|1992|litigants=McTier v Haupt |parallelcite=[1992] 1 [[Victorian Reports|VR]] 653}}.</ref> If the event does not occur, then one or both parties will be entitled to terminate the contract.<ref name="Meehan v Jones"/><ref name="Perri">{{cite AustLII |litigants=Perri v Coolangatta Investments Proprietary Limited |year=1982 |court=HCA |num=29 |parallelcite=(1982) 149 [[Commonwealth Law Reports|CLR]] 537 |courtname=[[High Court of Australia|High Court]]}}.</ref> The parties must do everything reasonably in their power to see that the contingent condition is fulfilled.<ref>{{cite AustLII |litigants=Butts v O'Dwyer |year=1952 |court=HCA |num=74 |parallelcite=(1952) 87 [[Commonwealth Law Reports|CLR]] 267 |courtname=[[High Court of Australia|High Court]]}}.</ref>

The time for fulfilment of a contingent condition may be expressly specified in the condition. If no time is specified, the courts will construe the contract as requiring the condition be fulfilled within a reasonable period of time, having regard to the circumstances of the case.<ref name="Perri"/>

In certain contracts, it may be unclear if non-fulfilment of a contingent condition has occurred where there is a subjective requirement in the contract, such as whether one party has achieved "''satisfactory'' finance." If the contingent condition is a subjective fact, parties must act "honestly" or genuinely believe the condition to be true.<ref name="Meehan v Jones"/>

Both parties may act together to agree to waive a contingent condition, meaning that they would be bound by that agreement and many not terminate the contract for non-fulfillment of the condition. A party can waive the contingent condition if the contingent condition was for the benefit of that party.<ref>{{cite AustLII |litigants=Gange v Sullivan |year=1966 |court=HCA |num=55 |parallelcite=(1966) 116 [[Commonwealth Law Reports|CLR]] 418 |courtname=[[High Court of Australia|High Court]]}}.</ref>

===Termination for repudiation===
Where one party manifests an unwillingness/inability to perform his/her contractual obligations, the other party has the right to terminate.<ref name="Koompahtoo"/> This does not depend upon the subjective intention of that party.<ref>''Universal Cargo v Citati'' [1957] 2 [[Queens Bench Law Reports|QB]] 401 [http://legal.thomsonreuters.com.au/product/AU/files/720502512/contract_p4_universal_cargo_v_citati.pdf via ThomsonReuters] {{Webarchive|url=https://web.archive.org/web/20160817234452/http://legal.thomsonreuters.com.au/product/AU/files/720502512/contract_p4_universal_cargo_v_citati.pdf |date=17 August 2016 }}.</ref> An intention to repudiate may be evinced through either express or implied conduct, or may be ascertained from a combination of smaller breaches.<ref name=Progressive>{{cite AustLII |litigants=Progressive Mailing House Pty Ltd v Tabali Pty Ltd |year=1985 |court=HCA |num=14 |parallelcite=(1985) 157 [[Commonwealth Law Reports|CLR]] 17 |courtname=[[High Court of Australia|High Court]]}}.</ref>

The unwillingness/inability to perform must relate to whole of the contract, to a condition of the contract or be "fundamental". This may be evidenced by a single act or by an accumulation of conduct.<ref name="Shevill">{{cite AustLII |litigants=Shevill v Builders Licensing Board |year=1982 |court=HCA |num=47 |parallelcite=(1982) 149 [[Commonwealth Law Reports|CLR]] 620 |courtname=[[High Court of Australia|High Court]]}}.</ref> It has been laid down by the High Court in ''Shevill v Builders Licensing Board''<ref name="Shevill"/> ('''Shevill''') that the lessor cannot claim for loss of damages but is entitled to receive arrears in rent because the lessor could only rely on a contractual right to terminate, and not on a common law right. It is noteworthy that the said anti-''Shevill'' clauses have been commonly included in the leasing agreements since ''Shevill'', which provide that specified terms are essential terms or conditions, that any breach of such terms will be fundamental and the landlord has the rights to claim for damages on termination on the ground of a breach of essential terms. The High Court confirmed that the anti-''Shevill'' clauses are effective in ''Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited''.<ref>{{cite AustLII |litigants=Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited |year=2008 |court=HCA |num=10 |parallelcite=(2008) 234 [[Commonwealth Law Reports|CLR]] 237 |courtname=[[High Court of Australia|High Court]]}}.</ref>

A party may also repudiate a contract through a lack of willingness or ability to perform some particular obligations. That will be the case where the particular obligations is "fundamental", and it would deprive the aggrieved part of substantially the whole of the benefit of the obligations remaining to be performed under the contract.<ref name=Progressive/>

'''Anticipatory Breach''' is an important aspect of the doctrine of repudiation. Anticipatory Breach occurs where one party repudiates their obligations under the contract prior to the time set to perform obligations. In response, an aggrieved party may, by accepting the repudiation, elect to terminate the contract and claim damages. However, in an instance where an aggrieved party chooses not to accept the repudiation occurring before the time set for performance, the contract will continue on food and the aggrieved party will have  no right to damages unless and until an actual breach occurs.<ref>Paterson, Robertson & Duke, Principles of Contract Law (Thomson Reuters Professional) Australia Limited, 5th ed, 2016), 458-59 [22.15].</ref>

A party that acts on a genuine but erroneous view of its obligations under the contract will not for that reason alone have repudiated it. That party may still be willing to perform the contract according to its tenor; to recognise its heresy; or to accept an authoritative exposition of the contract <ref>{{cite AustLII |litigants=DTR Nominees Pty Ltd v Mona Homes Pty Ltd |year=1978 |court=HCA |num=12 |parallelcite=(1978) 138 [[Commonwealth Law Reports|CLR]] 423 |courtname=[[High Court of Australia|High Court]]}}.</ref>

'''Renunciation''' is an alternate term where the conduct of a party is no longer willing or able to perform see ''Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited.''<ref name="Koompahtoo"/>

===Termination by frustration===
Frustration occurs whenever the law recognises that without fault of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.<ref name=Codelfa/><ref name="Davis">{{cite BAILII |litigants=[[Davis Contractors Ltd v Fareham UDC]] |year=1956 |court=UKHL |num=3 |parallelcite=[[Appeal Cases Law Reports|AC]] 696 |courtname=auto}}.</ref> The elements of frustration are:

# The event occurring after the contract was made, must make it physically or legally impossible to perform what was originally promised (i.e. it is not enough that it makes it more difficult or more expensive)
# The party seeking to rely on the frustration is not at fault for the frustrating event;<ref>{{cite BAILII |litigants=Bank Line Ltd v Arthur Capel & Co |year=1918 |court=UKHL |num=1 |parallelcite=[1919] [[Appeal Cases Law Reports|AC]] 435 at p. 452 |courtname=auto}}.</ref>
# The contract must not have exhibited an intent that one or other was to bear the risk of occurrence of events of this kind;<ref>''Joseph Constantine Steamship Line Ltd v Imperial Smelting Corp Ltd'' [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1942)%20648%20AC%20154 (1942) 648 AC 154].</ref>
# Frustration is seldom found in unexpected (and unprovided for) circumstances that could reasonably have been foreseen at the time of contracting.<ref name="Davis"/>

A contract may be frustrated by events which cause, or are likely to cause, an inordinate delay in the performance of the contract. The delay must be such as to seriously affect the intended performance of the contract.<ref>{{cite AustLII |litigants=Ringstad v Gollin & Company Pty Ltd |year=1924 |court=HCA |num=57 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1924/57.pdf (1924) 35 {{abbr|CLR|Commonwealth Law Reports}} 303] |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=Canning v Temby |year=1905 |court=HCA |num=45 |parallelcite=
[http://www.austlii.edu.au/au/cases/cth/HCA/1905/45.pdf (1905) 3 {{abbr|CLR|Commonwealth Law Reports}} 419] |courtname=[[High Court of Australia|High Court]]}}.</ref><ref name="BCC v Group">{{cite AustLII |litigants=Brisbane City Council v Group Projects Pty Ltd |year=1979 |court=HCA |num=54 |parallelcite=(1979) 145 [[Commonwealth Law Reports|CLR]] 143 |courtname=[[High Court of Australia|High Court]]}}.</ref>  Examples of frustration include:

*where as a result of a change in the law, performance of a contract is rendered illegal;<ref>''Exposito v Bowden'' [http://www.worldlii.org/int/cases/EngR/1855/399.html &#91;1855&#93; EngR 399]; (1855) 119 [[English Reports|ER]] 359.</ref>
*where a particular thing which forms the subject matter of a contract, and whose continued existence of which is essential to the performance of that contract, ceases to exist;<ref>{{cite BAILII |litigants=[[Taylor v Caldwell]] |year=1863 |court=EWCA |num=J1 |parallelcite=[1863] 122 [[English Reports|ER]] 309 |courtname=auto}}.</ref><ref>''[[Krell v Henry]]'' [1903] 2 [[Kings Bench Law Reports|KB]] 140 {{cite web |url=http://www3.uninsubria.it/uninsubria/allegati/pagine/1438/priv_comp2.pdf |title=Text of decision |archive-url=https://web.archive.org/web/20070203064942/http://www3.uninsubria.it/uninsubria/allegati/pagine/1438/priv_comp2.pdf |archive-date=3 February 2007 |url-status=dead |df=dmy-all }}</ref>
*where the basis of the contract is dependent on the continued existence of a particular set of circumstances which cease to exist;<ref name=Codelfa/><ref name="BCC v Group"/><ref name="Horlock">''Horlock v Beal'' [http://www.bailii.org/uk/cases/UKHL/1916/53SLR0795.html <nowiki>[1916]</nowiki> UKHL 795]; (1916) 1 [[Appeal Cases Law Reports|AC]] 486, [[Judicial functions of the House of Lords|House of Lords]] (UK).</ref>
*Where the decisions of government interferes to render a contract something entirely different from the one the parties originally made.<ref>{{cite BAILII |litigants=[[Metropolitan Water Board v Dick, Kerr & Co Ltd]] |year=1917 |court=UKHL |num=2 |parallelcite=[1918] [[Appeal Cases Law Reports|AC]] 119 |courtname=auto}}.</ref>

===Termination by delay===

Whether delay gives rise to a right to terminate will depend on the terms of the contract.  Where the contract stipulates a time for performance, the issue is whether the time stipulation can be regarded as being a condition of the contract, that is the time is considered to be "essential" and time is "of the essence".  If time is of the essence and there is a failure by one party to perform their obligations under the contract by the appropriate time, the innocent party will have a right to elect to terminate the contract.<ref>{{cite AustLII |litigants=Carr v JA Berriman |year=1953 |court=HCA |num=31 |parallelcite=(1953) 89 [[Commonwealth Law Reports|CLR]] 327 |courtname=[[High Court of Australia|High Court]]}}.</ref>

Where the contract stipulates a time for performance, however time is not of the essence and there is a failure by one party to perform their obligations under the contract by the appropriate time, the innocent party may still gain a right to terminate for the delay through use of the notice procedure. Either the delay must be shown to be unreasonable, after which a party can issue a notice with regards to termination, or the offending party must already be in actual breach of the time stipulated in the contract.<ref name="Louinder">{{cite AustLII |litigants=Louinder v Leis |year=1982 |court=HCA |num=28 |parallelcite=(1982) 149 [[Commonwealth Law Reports|CLR]] 509 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref name="Laurinda">{{cite AustLII |litigants=Laurinda v Capalaba Park Shopping Centre |year=1989 |court=HCA |num=23 |parallelcite=(1989) 166 [[Commonwealth Law Reports|CLR]] 623 |courtname=[[High Court of Australia|High Court]]}}.</ref> The notice must specify a reasonable time for completion,  indicate that time is of the essence and that failure to adhere to the conditions will result in termination of the contract. Additionally, the non-offending party must be ready, willing and able to perform their contractual obligations at the time the notice is issued.<ref name="Louinder"/><ref name="Laurinda"/><ref>{{cite AustLII |litigants=Foran v Wight |year=1989 |court=HCA |num=51 |parallelcite=(1989) 168 [[Commonwealth Law Reports|CLR]] 385 |courtname=[[High Court of Australia|High Court]]}}.</ref>

Where there is no time is specified for performance, the law implies an obligation to perform within a reasonable time.<ref>{{cite AustLII |litigants=Reid v Moreland Timber Co Pty Ltd |year=1946 |court=HCA |num=48 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1946/48.pdf (1946) 73 {{abbr|CLR|Commonwealth Law Reports}} 1] |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII|NSWCA|113|2008|litigants=Handley v Gunner|courtname=[[New South Wales Court of Appeal|Court of Appeal]] (NSW)}}.</ref> In such circumstances, it is highly unlikely that time will be viewed as being "of the essence",<ref name="Laurinda"/> unless failure to perform within a reasonable time will have serious consequences for the aggrieved party.<ref name="Douglas">{{cite AustLII |litigants=Douglas v Cicirello |year=2006 |court=WASCA |num=226.html}}.</ref>

== Restrictions on termination ==

=== Restrictions on the right to terminate for non-fulfilment of a contingent condition ===

A party may lose the right to terminate for non-fulfilment of contingent condition if the party has prevented the condition's performance or has intimated that they do not intend to perform the contract.<ref name=Paterson>{{cite book |author1=Paterson, JM |author2=Robertson, A |author3=Duke, A |name-list-style=amp |title=Principles of Contract Law |publisher=Lawbook Co |edition=3rd |year=2009 |pages=320–1 |ISBN=9780455225760}}.</ref> Furthermore, a party who waives the right to rely on non-fulfilment of contingent condition will be bound by this decision once it has been communicated to other party.<ref name=Paterson/>

The right to terminate for non-fulfilment of a contingent condition can also be restricted by doctrines of estoppel, [[good faith]],<ref name="Renard">''Renard Constructions (ME) Pty Ltd v Minister for Public Works'' (1992) 26 [[NSW Law Reports|NSWLR]] 234 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=(1992)%2026%20NSWLR%20234 LawCite].</ref> where one party falsely leads other party into believing they will not exercise their right to terminate contract on the basis of non fulfilment of contingent condition, [[misleading or deceptive conduct]]<ref>{{cite AustLII |litigants=Hughes Aircraft Systems International v Airservices Australia |year=1997 |court=FCA |num=558}}.</ref> or [[Unconscionability|unconscionable conduct]]<ref>{{cite AustLII |litigants=Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd |year=1999 |court=FCA |num=903}}.</ref> in breach of the [[Australian Consumer Law]].<ref name=ACL>[https://www.legislation.gov.au/Details/C2016C00740/Html/Volume_3#_Toc448153177 Schedule 2] of the ''Competition and Consumer Act'' 2010 (Cth).</ref>

=== Election and affirmation ===
When the aggrieved party gains the right to terminate (whether by breach, repudiation or other causes), they must make a decision whether to terminate or not. This decision is referred to as 'election'. The Aggrieved party must elect whether to terminate the contract, or to affirm it (and thus continue it). Once a decision is made, it cannot be reversed. For there to be an election the aggrieved party must be aware that they have the right to terminate and must display unequivocal conduct that is only consistent with the performance of the contract.<ref name="Immer 1993">{{cite AustLII |litigants=Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust |year=1993 |court=HCA |num=27 |parallelcite=(1993) 182 [[Commonwealth Law Reports|CLR]] 26 |courtname=[[High Court of Australia|High Court]]}}.</ref>

==== Election ====
If the aggrieved party elects to terminate, both parties are discharged from future obligations and the aggrieved party can receive damages. In order for this to occur, the aggrieved party must be ready and willing to perform the contract at the time of breach.{{Cn|date=January 2021}}

==== Affirmation ====
In order to affirm a contract, the aggrieved party must have
# Knowledge of facts giving rise to right to terminate.<ref name="Immer 1993"/>
# Act in a way that is unequivocally consistent with choice to continue contract <ref>{{cite AustLII |litigants=Tropical Traders Ltd v Goonan |year=1964 |court=HCA |num=20 |parallelcite=(1964) 111 [[Commonwealth Law Reports|CLR]] 41 |courtname=[[High Court of Australia|High Court]]}}.</ref>

Because the Aggrieved Party has affirmed the contract, they do not have the right to terminate any longer. The non-performing party is thereby absolved and is treated as a normal party. They are henceforth entitled to rely on subsequent events e.g. frustration or breach of term by the Aggrieved party to their own advantage.<ref>{{cite AustLII |litigants=Bowes v Chaleyer |year=1923 |court=HCA |num=15 |parallelcite=(1923) 32 [[Commonwealth Law Reports|CLR]] 159 |courtname=[[High Court of Australia|High Court]]}}.</ref>

== Australian legislation affecting contracts ==

Most States have effected statutes relating to the sale of goods, such as the ''Sale of Goods Act 1896'', (Qld)<ref>{{Cite Legislation AU|Qld|act|soga1896128|Sale of Goods Act 1896}}.</ref> which imply conditions and warranties in relation to fitness and merchantability.<ref>{{Cite Legislation AU|Qld|act|soga1896128|Sale of Goods Act 1896|17}} Implied conditions as to quality or fitness.</ref> However, in many instances such implied terms can be displaced by the contrary intention appearing in the contract between the parties. This has meant that, in practice, in many sale of goods contracts these provisions are displaced.{{citation needed|date=September 2016}}

There are similar implied terms under the Australian Consumer Law relating to fitness and duty to take reasonable care in some classes of contract, and these particular terms are unable to be displaced by contrary intention: that is, the term will be implied into a contract of that kind irrespective of the parties' intention.<ref name=ACL/>

The Australian Consumer Law, together with Fair Trading legislation in all states, also allows a corporation or person to be sued where they have engaged in misleading or deceptive conduct regarding commercial or trade matters.<ref>For an explanation of what is considered to be within trade or commerce for the purposes of the Australian Consumer Law see {{cite AustLII |litigants=[[Concrete Constructions (NSW) Pty Ltd v Nelson]] |year=1990 |court=HCA |num=17 |parallelcite=(1990) 169 [[Commonwealth Law Reports|CLR]] 594 |courtname=[[High Court of Australia|High Court]]}}.</ref>

*[https://www.legislation.gov.au/Details/C2016C00818 ''Independent Contractors Act'' 2006 (Cth)]
*[http://www.legislation.nsw.gov.au/#/view/act/1978/105 ''Frustrated Contracts Act'' 1978 (NSW)]
*[http://www.legislation.nsw.gov.au/#/view/act/1980/16 ''Contracts Review Act'' 1980 (NSW)]

==When Equity may intervene==
The common law will hold a contract to be binding as long the essential elements for a contract are present (i.e. agreement, consideration, certainty etc.). However, in certain situations equity may intervene and make the contract either voidable or void.<ref name=Alati>{{cite AustLII |litigants=Alati v Kruger |year=1955 |court=HCA |num=64 |parallelcite=(1955) 94 [[Commonwealth Law Reports|CLR]] 216 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref name=Amadio>{{cite AustLII |litigants=Commercial Bank of Australia Ltd v Amadio |year=1983 |court=HCA |num=14 |parallelcite=(1988) 151 [[Commonwealth Law Reports|CLR]] 447 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref name=Waltons>{{cite AustLII |litigants=[[Waltons Stores (Interstate) Ltd v Maher]] |year=1988 |court=HCA |num=7 |parallelcite=(1988) 164 [[Commonwealth Law Reports|CLR]] 387 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII|NSWCA|39|2005|litigants=MK & JA Roche v Metro Edgley Pty Ltd|courtname=[[New South Wales Court of Appeal|Court of Appeal]] (NSW)}}.</ref> The rule in ''Yerkey v Jones''<ref name="Yerkey v Jones"/> and the principles of [[Non est factum|''non-est factum'']],<ref name="Petelin v Cullen"/> misrepresentation,<ref name="Taylor v Johnson" /><ref name="Franklins v Metcash"/><ref>{{cite AustLII|NSWStRp|19|1928|litigants=Fitzpatrick v Michel |parallelcite=(1928) 28 [[State Reports New South Wales|SR (NSW)]] 285}} at p.288-9.</ref><ref>{{cite AustLII|VicRp|31|1978|litigants=Public Trustee v Taylor}}.</ref><ref>{{cite AustLII|VicRp|19|1927|litigants=McKenzie v McDonald}}.</ref><ref name=McRae>{{cite AustLII |litigants=[[McRae v Commonwealth Disposals Commission]] |year=1951 |court=HCA |num=79 |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1951/79.pdf (1951) 84 {{abbr|CLR|Commonwealth Law Reports}} 377] |courtname=[[High Court of Australia|High Court]]}}.</ref> and special disadvantage.<ref name="Blomley v Ryan"/><ref>{{cite AustLII |litigants=Louth v Diprose |year=1992 |court=HCA |num=61 |parallelcite=(1992) 175 [[Commonwealth Law Reports|CLR]] 621 |courtname=[[High Court of Australia|High Court]]}}.</ref> are some of the situations in which equity may intervene and make the contract voidable or void.<ref name="Taylor v Johnson" /><ref>{{cite BAILII |litigants=[[Dillwyn v Llewelyn]] |year=1862 |court=EWHC |num=J67 |parallelcite=45 ER 1284; (1862) 4 De GF & J 517 |courtname=auto}}.</ref><ref name=McRae/><ref>{{cite AustLII |litigants=Garcia v National Australia Bank Ltd |year=1998 |court=HCA |num=48 |parallelcite=(1998) 194 [[Commonwealth Law Reports|CLR]] 395 |courtname=[[High Court of Australia|High Court]]}}.</ref><ref>{{cite AustLII |litigants=Giumelli v Giumelli |year=1999 |court=HCA |num=10 |parallelcite=(1999) 196 [[Commonwealth Law Reports|CLR]] 101 |courtname=[[High Court of Australia|High Court]]}}.</ref> To note, a defence to the principle in ''Yerkey v Jones'',<ref name="Yerkey v Jones"/> is that the "wives guarantee" will not apply if the lender can show that they took reasonable steps to ensure they had reasonable grounds for believing that the consent was fairly obtained.<ref name="Yerkey v Jones"/>

Furthermore, equitable relief seeks to remedy unconscionability and not to punish the wrongdoer.<ref>{{cite AustLII |litigants=Nelson v Nelson |year=1995 |court=HCA |num=25 |parallelcite=(1995) 184 [[Commonwealth Law Reports|CLR]] 538 |courtname=[[High Court of Australia|High Court]]}}.</ref> An important equitable remedy is the order of equitable rescission where the advantage over its common law counterpart is that the parties need not be restored precisely to their position before the contract.<ref name=Alati/>

== Vitiating factors ==

A number of decisions from Australian courts have also affected the circumstances where legal action can be taken regarding contracts, recognising factors that change contractual obligations.
These include situations involving "unconscionable dealings",<ref>{{cite AustLII |litigants=[[Commonwealth v Verwayen]] |year=1990 |court=HCA |num=39 |parallelcite=(1990) 170 [[Commonwealth Law Reports|CLR]] 394 |courtname=[[High Court of Australia|High Court]]}}.</ref> where one party is at a "special disadvantage",<ref name="Blomley v Ryan"/><ref name=Amadio/> or where a party exercises "undue influence",<ref name="Johnson v Buttress"/> and will commonly result in the contract being declared void or voidable by the court. Other vitiating factors may include "misrepresentation" if it amounts to a false statement of a material fact made by the representor to the represent in order to induce the represent to enter into the contract and which has this effect,<ref>''[[Smith v Land and House Property Corp]]'' (1884) 28 Ch D 7 [http://www.austlii.edu.au/cgi-bin/LawCite?cit=1884%2028%20Ch%20D%207 LawCite].</ref> "misleading and deceptive conduct",<ref name=ACL/> "mistake",<ref name=McRae/> "duress",<ref>{{cite BAILII |litigants=[[Universe Tankships Inc of Monrovia v International Transport Workers' Federation]] |year=1981 |court=UKHL |num=9 |parallelcite=[1983] 1 [[Appeal Cases Law Reports|AC]] 366; [1982] 2 All ER 67 |courtname=auto}}.</ref> and "unconscionable conduct".<ref name=ACL/> In general law, the remedy for vitiating factors is rescission and full restoration, even in cases of third party impropriety.<ref name="Yerkey v Jones"/>

==References==
{{Reflist|30em}}

== External links ==
The Law Handbook series published in each state
:* NSW  {{Cite web |url=http://www.legalanswers.sl.nsw.gov.au/guides/law_handbook/pdf/Ch12_contracts.pdf |title=The Law Handbook |year=2014 |publisher=[[Redfern Legal Centre]]}} Chapter 12
:* NT: {{Cite web |url=http://austlii.community/foswiki/NTLawHbk/NTLawHandbook |title=The Law Handbook |publisher=Northern Territory Legal Aid Commission and Darwin Community Legal Services}}
:* Qld: {{Cite web |url=https://caxton.org.au/queensland_law_handbook.php |title=The Law Handbook |publisher=Caxton Legal Centre |access-date=2 October 2016 |archive-url=https://web.archive.org/web/20161002104411/https://caxton.org.au/queensland_law_handbook.php |archive-date=2 October 2016 |url-status=dead }}
:* SA: {{Cite web |url=http://www.lawhandbook.sa.gov.au/ch10.php |title=The Law Handbook |publisher=Legal Services Commission of SA}}
:* Tas: {{Cite web |url=http://www.hobartlegal.org.au/tasmanian-law-handbook/consumers-money-and-debts/contracts |title=The Tasmanian Law Handbook |publisher=Hobart Community Legal Service |access-date=2 October 2016 |archive-url=https://web.archive.org/web/20160827103321/http://www.hobartlegal.org.au/tasmanian-law-handbook/consumers-money-and-debts/contracts |archive-date=27 August 2016 |url-status=dead }}
:* Vic: {{Cite web |url=http://www.lawhandbook.org.au/2016_07_00_00_consumers_contracts_the_internet_and_copyright/ |title=The Law Handbook |publisher=Fitzroy Legal Service}}

* [http://www.australiancontractlaw.com Australian Contract Law] {{Webarchive|url=https://web.archive.org/web/20190523211939/http://www.australiancontractlaw.com/ |date=23 May 2019 }}

{{Law of Australia|state=collapsed}}
{{DEFAULTSORT:Australian Contract Law}}
[[Category:Australian contract law| ]]