Tropical traders case

Tropical traders case

If a contract is affirmed, it cannot subsequently be terminated in respect of the same breach leading to the affirmation, although some breaches may be, by their nature, continuing breaches giving rise to a subsequent right to terminate.

Tropical Traders Ltd v Goonan (1964) 111 CLR 41 | La Trobe

On termination of a contract, the obligation of the parties to further performance is discharged, while any rights which have accrued prior to termination remain. The innocent party will have a right to damages and one or both parties may have a right to restitution. While accrued rights arising from partial performance prior to termination are not eliminated (for example, amounts due prior to termination must be paid), specific perfor­mance even of accrued obligations will not be available following termination. [68]

Tropical Traders v Goonan 1964 111 CLR 41 High Court of

Having regard to the risk in purporting to terminate when there is no right to terminate and the possibility that if there is a right to terminate, it is lost by affirmation, in many cases parties will attempt to hedge their bets and reserve their rights. A party will not necessarily affirm a contract if they give the party in breach an opportunity to perform in suitably qualified and conditional terms or otherwise continue perfor­mance subject to an express right to terminate. [68] An election cannot, however, be delayed unreasonably. [69]

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A party may not be obliged to accept a repudiation and terminate the contract even if it might be said that to do otherwise would be unreasonable. For example, in White and Carter (Councils) Ltd v McGregor, [65] adver­tising contractors agreed with a representative of a garage proprietor to display advertisements for the garage for three years. On the same day, the garage proprietor wrote to the contractors saying that there had been a misunderstanding and purported to cancel the contract. The advertising contractors refused. The House of Lords held that they were entitled to refuse, carry out the contract and claim the full contract price.

This information can be found in the Casebook: Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 66th ed, 7559), pp. 596-9 []

An election to affirm will be inferred from conduct which is consistent only with the continued existence of the contract, such as continued performance. [67]

The decision of the High Court in Koompahtoo affords a good example. In that case, the Koompahtoo local Aboriginal land council (land council) entered into a joint venture with a property developer, Sanpine Pty Ltd (Sanpine), for the development of a large area of land. The land council contributed the land and Sanpine was to manage the development. Sanpine caused liabili­ties of $7 million to be incurred, secured by mortgages over the land. The land was nevertheless not developed. The mortgagee went into possession of the land and the land council was placed into administration. The central issue was whether the administrator of the land council was entitled to terminate the joint venture agreement on the basis that Sanpine had breached its obligation to maintain books of account and financial records of the joint venture.

Vendor and Purchaser Power of vendor to rescind agreement for sale of land Time of essence of contract Purchaser in possession Failure of purchaser to pay balance of purchase money on due date or on extended date Previous acceptance of instalments and interest after due dates Acceptance of interest to due date Whether election not to rescind Provision requiring notice before re-entry for breach of covenant in lease Application to right or option to purchase land when purchaser in possession Landlord and Tenant Act, 6967 (.) s. 8*.

To terminate a contract at common law, there must have been a breach of an essential term, a sufficiently serious breach of a non-essential term or a repudiation of the contract by the other party.

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Breaches of non-essential terms, if sufficiently seri­ous, may also give rise to a right to terminate a contract at common law. In this context, non-essential terms are also referred to as “intermediate” or “innominate” terms and a sufficiently serious breach is described as a breach “going to the root of the contract” or a breach which “substantially deprives the innocent party of the benefit of the contract”. [8]

Rescission, on the other hand, is an equitable remedy that applies where the contract is void or voidable (because, for example, it is vitiated by misrepresentation or mistake or is contrary to public policy) so as to restore the parties to the position they were in prior to the entry into the contract.

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Termination requires unequivocal words or conduct evincing an intention to terminate. [65] While the terminat­ing party is required to justify termination on the basis that they have a legal right to terminate, they are subsequently entitled to rely on any valid ground exist­ing at the time of election whether or not they were aware of it at the time. [66]

It is important to note that, unless a contract expressly confers a right of rescission, such a right does not arise where there is a right to terminate for breach. [69]

In the absence of an express provision, an innocent party may rescind the whole, but not a part of, a contract, although certain secondary or procedural obligations, such as exclusion clauses and arbitration clauses, may survive. [66] For example, a right of partial termination may be conferred by a contract in circumstances where a party is given a right to terminate a purchase order “in whole or in part”. [67]

Essential terms are also described as “conditions” (as distinct from “warranties”) or “fundamental” terms. The classification of a term as “essential” is a question of construction. The test of “essentiality” depends on whether it was the common intention of the parties, expressed in the language of their contract, that the term be so “essential” that any breach of it would justify termination. [7] A well accepted example of an essential term is where time is expressed to be of the essence.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.

Whether to termi­nate a contract at common law or whether to terminate pursuant to a particular provision of a contract is a matter of strategy and will depend on, among other things, the degree of certainty as to the right to terminate and a comparison of the value of a claim for loss of bargain damages, on the one hand, and any remedy which the contract may confer if the contractual right is exercised (such as a right to liquidated damages), on the other hand.

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