Introduction
Under Australian law, contracts may be discharged in various ways, the most common being through performance by parties of contractual obligations (Kelly, 2010). Generally, it is assumed that a contract is discharged by contractual obligations performance. It is assumed that the contractual obligations must be fully and precisely performed. Substantial performance of a contract is therefore insufficient. The rule of exact performance is however subject to several exceptions. This requirement may be modified through an express or implicit provision making exact performance non-mandatory (Austen-Baker, 2002: 33). Determination of appropriate performance level is therefore dependent on the proper construction of the involved contract (Atiyah, 1986: 42). Based on the provisions of the Australian law, the contract may therefore be discharged by agreement, for breach, or by frustration in addition to performance (Simpson, 1975). This paper discusses a case at hand within the Australian law context.
Case facts
A contract was drawn between Adams and Belinda. Under the contract, Adams agreed to construct an extension to Belinda’s house. The completion date for the building works was 31st July 2011, and this timing is stated as being of the essence because Belinda has a wedding there the next day (1st August 2011). Several case scenarios arose from this agreement.
- In case 1, Adam realizes that he cannot commence work as scheduled due to a labor shortage and a rise in raw material prices. Additionally, he had underestimated the cost commensurate to the construction work. A new and more valuable contract arises. However, its performance would mean not performing the earlier one.
- In case 2, a new development arises. Belinda’s house is subject to a compulsory acquisition order by the ACT government although the same has never been communicated to Belinda. The site for the house is needed for a road expansion project.
- In case 3, Adams informs Belinda that he is unable to perform the contract due to machinery limitation whereby one machine has been destroyed by fire whose cause remains unknown while the second one is committed to the performance of another contract.
Discussion of Contract Legislation in the Australian context
The presented case revolves around the important elements required for contract performance. The elements include agreement, consideration, capacity to perform, object legality, performance possibility and genuine consent (Kelly, 2010). According to the Australian jurisdiction, there is a basic rule that contracting parties must perform the contract as per specifications unless they agree to alter the terms of performance, on party’s actions of deviation from the contract are implicitly accepted by the action/inaction of the other contracting party (Priestley, 2007).
Contract breaches render the non-performing party or the deviating party liable for damages claim from the other party. Based on this, the non-performing party is relieved of her stipulated obligations as per the contract (Byrne and Frew v. Australian Airlines Ltd, 1995). Supporting such claim would require that the aggrieved contract party had performed all duties due of him by the contract. Additionally, the party ought not to have done anything make it impossible or unreasonably tough for the deviating party to perform his share of responsibility. Various ways of performing contracts often force courts to analyze arising dissatisfactions in terms, beyond mere breach and non-breaches (Merrit v Merrit, 1970). Ways of contract performance that may affect courts interpretation include Breaches, frustration, performance, law operations, and agreement.
As mentioned earlier, breach occurs in instances where a party fails to honor his/her obligations as stipulated by the contract. Frustration on the other hand is a result of where the subject of contract ceases to exist prior to performance of the contract (Tina, 2003). Performance yields the ideal end of the contract as perceived by both parties at signing. Law operations are said to occur where legal provisions prevent performance of contracts prior to its implementation Administration of the (Territory of Papua New Guinea v Leahy, 1961). Agreement is said to have occurred when both parties have consented to the changes in contractual agreement leading to its termination out of the involved parties consent (Hans, 2009: 14).
Australians legal institutions provides various remedies to cases where contract implementation fail to meet the reasonably thresholds of its ideal implementation. Ordinarily, monetary damage is awarded for contractual breaches. While contracts should always foresee non-performance whether intentionally or internationally and hence spell out remedies, some fail to do this and hence the needs for a legal remedy (Kleinwort Benson Ltd v Malaysia Mining Corp BHD, 1989). Damages are normally intended to restore the aggrieved party to as much as possible the same position he/she was before the contracts formation. It is founded on the principle that one party should not suffer loss as a result of failure by the other party to implement his part of the contract to the latter. The legal provisions are generally non-punitive and hence do not punish parties for breach either as a result of dishonesty or bad character (Stern v McArthur, 1988). Punitive damages can however be paid if the involved party proves that the action of the deviating party further resulted into a case fraud.
Despite the obligations that a contract ties to an individual, consideration is taken of the possibility of performance. Contracts cannot legally bind a party to perform an impossible act due to unavoidable circumstances. However, it is stressed that for impossibility to arise, the must be absolutely no way for the contract to be implemented (Simpson, 1975). It should be noted that when a contract’s implementation becomes impossible, such contract is considered frustrated and hence terminated.
Analysis
Case 1
In case 1, it is important to note that at entry of the contract, Adams ought to have been well aware of its requirements. He ought to have known where to source for both labor and raw materials within the appropriate time and hence be able to commence the contract at the appropriate time. Failure due to such a reason would amount to a breach of contractual agreement. However, concerning the costs underestimation, Adams could request for renegotiation of the contract with Belinda. If an agreement is reached then performance by agreement would have occurred. It is important to further note that failure to commence the contract on time would leave Belinda behind schedule given the fixed time and to cater for this she may have to incur additional costs. Belinda may therefore claim for damages equivalent to the extra costs to be incurred in order to ensure the project is completed on schedule. Another possible court remedy would be an order compelling Adams to perform the contact as had been agreed within the contract. This would amount to an order for specific performance.
Case 2
In case 2, the new development of a planned acquisition of the land in which the house rests renders the contract frustrated. Without a hose to extend, then no contract can be said to exist. Neither Adams nor Belinda can insist on contract’s ideal performance in the light of the new development which arose after the contract had been signed. None of the parties can seek legal redress on basis of the new development given that none of them anticipated a planned government takes over. Adams would have been able to seek legal redress if he had enough reasons to believe that Belinda was well aware of the planned acquisition prior to signing of the contract.
Case 3
Case 3 raises the issue of impossibility of performance. Given that the earth mover is vital to performance of the contract, its sudden unavailability renders the contract impossible to perform. Fire is an unexpected hazard which neither of the parties had anticipated. Based on the legal interpretation of contract performance impossibility, the contract is concluded as being frustrated and hence terminated. However, Belinda may successfully claim anticipatory breach by Adams. This is in consideration of the fact that both parties involved in a contract have an obligation to act within appropriate time and avoid repudiation from performance of the promised obligation. Impossibility of performance claim by Adams may not be successful given that he could possibly hire other earth movers for the same purpose. He decision before his performance his due not to perform the contract and consequent communication to Belinda may render him liable for anticipatory breach of contract before the due date of implementation.
Conclusion
In conclusion, it is important to note that while performance of contracts must be precise and exact as stipulated within its provisions (Bolton v Mahadeva (1972). As depicted in case one, one of the parties feels un-favored by the contract by its formation. Though legally compelled to stick to terms of the contract, the affected party has an option of seeking a new agreement as long as the contracts’ implementation has not commenced. What must be highlighted though is the fact that the party intends to enter into a newer more beneficial contract at the expense of the already commenced contract. This allows Belinda to seek legal redress. The second case illustrates a case of frustrated contract whereby the emerging situations render performance of the contract impossible and hence it stands terminated. The third case on the other hand bears a two pronged approach. On one side, Adams could claim impossibility of performance as a result of the fire that gutted down his earth mover while Belinda could claim anticipatory breach citing that other alternatives are available which could facilitate performance of the contract by Adams. In general the presented case presents a variety of view points from a contacts implementation may fail to materialize. Additionally, it highlights the available legal alternatives which each of the arties may seek as deemed appropriate.
References
Administration of the Territory of Papua New Guinea v Leahy (1961) 105 CLR 6.
Atiyah, P. S. (1986). Consideration: A Restatement’ in Essays on Contract. Oxford: Oxford University Press.
Austen-Baker, R. (2002). Gilmore and the Strange Case of the Failure of Contract to Die After All. Journal of Contract Law, 1, pp. 34-36.
Byrne and Frew v. Australian Airlines Ltd (1995) 185 CLR 410.
Hans, W. (2009). Contracts performance. The American Journal of International Law, 53 (4), p.775.
Kelly, A. (2010). Australia: Construction contracts and the Queensland floods.
Kleinwort Benson Ltd v Malaysia Mining Corporation Bhd [1989] 1 All ER 785 Merritt v. Merritt [1970] 2 All ER 760; [1970] 1 WLR 1211; CA.
Priestley, J. L. (2007). Unconscionability as a Restriction on the Exercise of Contractual Rights in Carter, ed., Rights and Remedies for Breach of Contract, New York: McGraw Hill, pp 80-81.
Simpson, W. B. (1975). A History of the Common Law of Contract. Oxford: Oxford University Press Stern v McArthur (1988) 165 CLR 489.
Tina, L. (2003). Negotiating and Drafting Contract. Melbourne: ALM Publishing, pp.5-7.