Australian contract law

Australian contract law is based on the inherited English common law regarding contract, with specific statutory modifications of principles in some areas. Australian law has developed through the decisions of Australian courts, especially since the 1980s, and various pieces of legislation passed by the Parliament of Australia and by the various states and territories. See contract law for very general doctrines relating to contract law. In Australia, the law of equity has also played an increasing part in changing the laws regarding contracts, and what occurs when they are breached.

Formation

It is generally accepted that four essential elements are necessary for contract formation: (1) an agreement; (2) consideration (generally, the supply of money, property or services); (3) certainty in what the contract requires to be done, or restricts from being done; and (4) intention by the parties to enter into legal relations (private non-commercial agreements between family members may not constitute a contract).

The foundation of the legal relations called contract is the agreement of the parties. In order for an agreement to be a contract (or a variation to an existing contract) it must be supported by consideration. The agreement must also be sufficiently certain and complete to be enforced in the courts and the parties must have intended their agreement to be a contract. 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.

Agreement

The existence of an agreement between the parties is usually analysed through the rules of offer and acceptance. [For a High Court case illustrating the adoption of the offer and acceptance approach to formation see, for example, "R v Clarke" (1927) 40 CLR 227; [1928] ALR 97; (1927) 1 ALJ 287.] This may be expressed as a clear indication ("offer") by one party (the "offeror") of a willingness to be bound on certain terms [See "Australian Woollen Mills Pty Ltd v Commonwealth" (1954) 92 CLR 424 at 457 per the Full High Court; [1954] ALR 453; (1954) 28 ALJ 94.] accompanied by a communication by the other party (the "offeree") to the offeror of an unqualified assent to that offer ("acceptance").

An offer indicates an intention by the offeror to be bound without further discussion or negotiation, on acceptance of the terms set out. It's distinguished from an "invitation to treat", which is a request to others to make offers to engage in negotiations with a contract in mind. [Retailers have sometimes taken advantage of this distinction to engage in bait advertising (advertising goods at attractive prices but not in fact intending to sell in more than minimal quantities, if at all), but the Trade Practices Act 1974 s 56, and each State's Fair Trading Act now makes this a criminal offence.] 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; [See for example "North-West Co-op Freezing and Canning Co Ltd v Easton" (1915) 11 Tas LR 65 (application for shares directed to provisional directors of company about to be formed held to be offer to company when formed).] or on the other hand be made to anyone who, before it is withdrawn, accepts the offer, [ See "Carlill v Carbolic Smoke Ball Co" [1893] 1 QB 256 at 258; [1891-94] All ER Rep 127; (1892) 67 LT per Bowen LJ, CA (defendant’s newspaper advertisement to public that £100 reward would be paid by the defendant to any person who contracted influenza, after having used preparation according to printed directions, held to be an offer to public).] including unascertained persons, [See for example "Westminster Estates Pty Ltd v Calleja" [1970] 1 NSWR 526; (1970) 91 WN (NSW) 222 (offer to "A or his nominee" is effective and may be accepted by nominee once appointed, even though nominee’s identity not ascertainable at time when offer made)] or to the public at large. [See "Carlill v Carbolic Smoke Ball Co" [1893] 1 QB 256; [1891-94] All ER Rep 127; (1892) 67 LT 837, CA.] However, an offer is ineffective until it has been communicated, [See, for example, "Henthorn v Fraser" [1892] 2 Ch 27 at 37 per Kay LJ (an offer to sell is nothing until it is actually received).] either by the offeror or a third person acting with the offeror's authority. [See for example "Banks v Williams" (1912) 12 SR (NSW) 382 (decision of government Minister approving purchase of certain goods not offer capable of acceptance when communicated without authority by member of Minister’s department).]

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. Although acceptance need not be express and may be implied from conduct, it must correspond with the offer; [See for example "Tonitto v Bassal" (1992) 28 NSWLR 564; NSW ConvR ¶55-644, CA(NSW) (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).] be unequivocal; [See, for example, Appleby v Johnson (1874) LR 9 CP 158; Spencer’s Pictures Ltd v Cosens (1918) 18 SR (NSW) 102] and in general, be communicated to the offeror. 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. [See "Ex parte Fealey" (1897) 18 LR (NSW) L 282, SC(NSW), Full Court (defendant’s order for insertion of half inch advertisement in the plaintiff’s newspaper accepted by inserting one inch advertisement the rate for which was the same as for half inch advertisement).] 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.

It should be noted, however, that the rules of offer and acceprance are merely "an aid to analysis", [Greig and Davis, "The Law of Contract" (1987) at 246.] and may sometimes prove inconclusive or artificial. A contract can be made without an identifiable offer and acceptance, provided the parties have manifested their mutual assent. The "acid test" in a case where offer and acceptance cannot be identified, according to 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." [ [1983] NZLR 308, 377.]

Consideration

The second element necessary for contract formation is consideration. A promise will be enforceable at common law only if it is supported by consideration or made under seal.

Intention

The third element is that the parties must manifest 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, while parties to social or domestic agreements are presumed not to intend legal consequences. Such presumptions determine who bears the onus of proof.

Certainty

The fourth requirement of contract formation is that the agreement must be sufficiently certain and sufficiently complete that the parties' rights and obligations can be identified and enforced. The topic of certainty encompasses three related and often overlapping problems: [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" [1941] AC 251; [1941] 1 All ER 14.] :1. 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.:2. The agreement may be "uncertain" because the terms are too vague or ambiguous for a meaning to be attributed by a court.:3. A particular promise may be "illusory" because the contract effectively gives the promisor an unfettered discretion as to whether to perform the promise.

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 sunta 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, [Compare "Biotechnology Australia Pty Ltd v Pace" (1988) 15 NSWLR 130 and "Hall v Busst" (1960) 104 CLR 206.] in general the courts give primacy to the need to uphold agreements, [See "Meehan v Jones" (1982) 149 CLR 571 at 589; 42 ALR 463 at 473 per Mason J (traditional doctrine that courts should adopt a construction which will preserve the validity of the contract).] particularly executed agreements [See "F & G Sykes (Wessex) Ltd v Fine Fare Ltd" [1967] 1 Lloyd’s Rep 53 at 57 per Lord Denning MR.] and commercial arrangements. [See generally "Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd" [1968] 3 NSWR 761 at 765-6.]

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).

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 either or both of the parties or to qualify the terms of their bargain. Although some statements made before the contract was entered into may be intended to operate as terms, not all such statements operate as terms.

Illegality

A contract may be illegal because it is prohibited by statute or because it infringes a rule of public policy.

Australian legislation affecting contracts

Most States have effected statutes relating to the sale of goods, such as the "Sale of Goods Act 1896" (Qld), which imply conditions and warranties in relation to fitness and merchantibility. 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.

There are similar implied terms under the Trade Practices Act 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.

The Trade Practices Act, 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.

Australian case law

A number of decisions from Australian courts have also affected the circumstances where legal action can be taken regarding contracts.

A number of Australian cases have introduced the concept of acting "unconscionably" as a reason for overturning the validity of a contract: "Commonwealth v Verwayen", or where one party is at a "special disadvantage": "Commercial Bank of Australia Ltd v Amadio".

References

External links

[http://www.australiancontractlaw.com Australian Contract Law]
* [http://www.lawwa.org LawWA.org - online Law resource for Western Australia]