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Baltic Shipping v Dillon High Court of Australia (1993) 176 CLR 344 Facts

Mrs Dillon contacted to was a passenger on a cruise ship, 'Mikhail Lermontov', owned and operated by Baltic Shipping. Nine days into a 14 day cruise the ship sank and Mrs Dillon lost her belongings and suffered injuries. She sued to recover the cost of the cruise and damages. Held

Appeal succeeded in relation to the fare. Mrs Dillon could recover damages for distress, but not restitution for the fare. On the issue of the fare The fare could not be recovered because there was not a total failure of consideration. In addition:  Baltic Shipping's right to retain the fare was not conditional upon complete performance (per Mason CJ, Toohey, Gaudron and McHugh JJ)  If Mrs Dillon had had a right to recover the fare she would not have been entitled to full damages for breach of contract (per Mason CJ, Brennan, Deane, Dawson, Toohey and Gaudron JJ) On the issue of damages for distress Damages for disappointment and distress can be recovered only if they result from physical inconvenience caused by the breach or if the object of the contract is to provide enjoyment or relaxation or to prevent 'molestation'.  Mason CJ (at para 44) held that 'damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach or unless the contract is one the object of which is to provide enjoyment, relaxation or freedom from molestation.' Justices Toohey and Gaudron agreed.

 Justice Brennan held that if 'a contract contains a promise, express or implied, that the promisor will not cause the promisee, or will protect the promisee from, disappointment of mind, it cannot be said that disappointment of mind resulting from breach of the promise is too remote' and therefore damages are available (para 7)  In their joint judgment Justices Deane and Dawson accepted the general rule that a plaintiff is not entitled to recover damages for disappointment and distress for breach of contract, but held it did not apply to cases 'where the disappointment and distress have been caused by breach of a contract under which the party allegedly in breach is shown expressly or impliedly to have agreed to provide pleasure, entertainment or relaxation or to prevent molestation or vexation' (para 17). This was such a case.  Justice McHugh held that damages are available where the distress or disappointment 'arises from breach of an express or implied term that the promisor will provide the promisee with pleasure, enjoyment or personal protection or ... the distress or disappointment is consequent upon the suffering of physical injury or physical inconvenience.' (para 18). In the present case it was 'an implied term of the contract that the fourteen day cruise in the South Pacific would be an enjoyable experience'. (para 18) Key points

Damages for disappointment and distress following breach of contract are not available unless (para 44):  they proceed from physical inconvenience caused by the breach; or  the object of the contract is to 'provide enjoyment, relaxation or freedom from molestation'

Consideration - in Acceptance of Contract Woolworths Ltd v Kelly (1991) 22 NSWLR 189 Kirby Plaintiff suggested that whilst certain things given as consideration might seem inadequate to the court, they may in fact be valued as consideration for idiosyncratic or sentimental reasons by the promisor. I throw away my telephone cards but others place great value on them and there is a brisk collectors market for them. A book may only be of certain value on its own, but if you have all the other books in that series, apart from that one, then you may well be willing to pay more for it. If there is no unfair advantage, then the courts will not look at the ADEQUACY of the consideration. There might be extreme cases where a deal is such an obviously bad deal that the courts will infer that there was in fact some unfair advantage present. See CBA v Amadio (1983) for an example of this.

Wigan v Edwards (1974) 1 ALR 497

Facts Edwards purchased a new house from Wigan. The contract did not contain any

promise that the house was in a good condition etc. The house was defective in certain ways and E said that they would not finalise the contract unless these were attended to. As a result of this pressure, Wigan promised: (a) to remedy minor defects set out within one week of finance being approved. (b) to correct an major defects occurring within five years. Wigan did none of these things. E sought to recover the cost of the work. Mason J 1. First question is – was there consideration for the promise made by Wigan? General rule: a promise to perform an existing contractual duty is not consideration. 2. But this is qualified - when the promise to do what the promisor is contractually bound to do is given by way of a benefit / compromise of a legal claim, the promisor having asserted that he is not obliged to perform his side of the pre existing contract or that he has a cause of action under it. 3. But the claim must be honestly made. This prevents unfair advantage being obtained by unscrupulous threats to withhold performance under a contract. 4. However, it does not matter that the court considers that the promisor’s claim would have failed had it been litigated. Here Edwards honestly belied that they did not have to complete the contract and although they may have been wrong regarding this, their claim cannot be described as frivolous or vexatious. Point If one party has a bona fide belief (which is not frivolous) that he is excused from performing a pre existing contractual obligation, then performing or promising to perform this obligation will be good consideration for a new promise by the other party.

Todd v Nicol [1957] S.A.S.R. 72, Supreme Court of SA In April 1947, D wrote to the Ps (sister and niece of her deceased husband) to say how happy she would be if they would come to live with her in Australia: "I must have company at my age - it is not good to live alone... The house is big enough, I will do all I can to make it comfortable for you, and we could change it around when you arrive... I will help with emigration and jobs... You would share my home... and no rent at all." The Ps replied that they would accept her invitation. They gave up the tenancy of their house, sold their furniture and belongings, Gracie gave up her job, and they bought tickets to Australia. When she heard that they would be coming, D wrote to say that she had that morning visited her solicitor to add a codicil to her will to the effect that if anything were to happen to her, "when I sign it the house is yours for life Margaret without expense, also you Gracie (unless you marry)" and then in the following letter she said that she was "doing her darndest to think things out for their protection - just in case." Shortly after the Ps arrived in Australia they had a dispute with D. D sought to remove them from her house, and the Ps brought this action claiming a contract had been formed, giving the right to live in the house rent free for life, or until marriage in Gracie's case. HELD Mayo J I do not suppose that it came into the conscious thoughts of any of them that legal sanctions would be called for. This however does not solve the problem. Wherever there is mutual trust there is unlikely to be reference to the agreement breaking down. A prerequisite for the formation of a contract is consideration. There must be some right interest profit or benefit provided for, or some forbearance, detriment loss or responsibility given suffered or undertaken. Consideration must move from both sides. However, the adequacy of the balance of equality does not come up for investigation. Another prerequisite is certainty of the fundamental terms of the contract. This is not to say that the parties must cover every contingency. The prerequisite giving the greatest difficulty here is the intention to create legal relations. If the arrangement is merely to take place as an honourable pledge then it

will not be legally enforceable. Where business arrangements are involved, the presumption of enforceability will be readily presumed. The possibilities here are that there was: 1. the grant of an interest in land GRANT 2. a licence to occupy which is enforceable CONTRACT 3. an equity - in favour of the licensees. ESTOPPEL Here, there is no explicit reference to intention - so what inference can be drawn? Consider the expense and trouble the parties have been to in selling up and moving to Australia. Consider also the "testamentary adjunct" as the judge called it. Now this could all have been based on goodwill, but I incline to think that the arrangement was intended to be binding during D's lifetime. Otherwise the Ps would have been subject to the whim of D in such an important aspect of their lives. The intention of the parties was to enter into a legally binding arrangement. [NB While the court found a binding contract had been created, it also found that the behaviour of the Ps had been so unreasonable that they were in breach of the contract and had lost their rights].

Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Facts Pace entered into an employment contract with Biotechnology which provided that he would have ‘the option to participate in the company's senior staff equity sharing scheme.’ There was no such scheme in existence at the time of contract or at any time during Pace’s employment. Pace sued for breach of contract. Held (Kirby P) Noted the distinction between illusory terms and uncertain terms was described by the High Court in Placer as follows: “… a promise to pay an unspecified amount of money is not enforceable where it expressly appears that the amount to be paid is to rest in the discretion of the promisor and the deficiency is not remedied by a subsequent provision that the promisor will, in this discretion, fix the amount of the payment. Promises of this character are treated … not as vague and uncertain promises - for their meaning is only too clear - but as illusory promises ….” His Honour noted that where a third person is given power to (and does) resolve any ambiguities in an agreement then the agreement will not be too uncertain but that was not the case here and the term was far too uncertain to be enforced. It depended entirely on the decision of one of the parties (Biotech) to provide an equity scheme and there was no 'external standard' the court could use to try and resolve the ambiguity. Even if the term was not illusory it was uncertain – how many shares, what class of shares, what options would exist, what rights would attach?. The term was, therefore, unenforceable. Held (McHugh JA) On the issue of whether the consideration was illusory, it will be ‘illusory if its payment or fulfillment depends upon an unfettered discretion vested in the promisor. Thus a promise by the Commonwealth that it will pay a subsidy “of an amount or at a rate determined by the Commonwealth from time to time” is an illusory consideration’. Similarly, the promise of an employer to pay such sum of money as they deem right in exchange for work performed will be illusory. In employment contracts, however, where there is a promise to remunerate normally the court will apply a ‘reasonable remuneration’ standard based on market criteria, subject to terms specified by the parties. In addition, even if the ‘promisor retains a discretion, the consideration will not be illusory if the discretion must be exercised within specified parameters.’ In this case, however, consideration was illusory, as it was solely within Biotech’s discretion and there were no objective standards.

Hartley v Ponsonby [1857] 7 EL BL 872; 119 ER 1471 When performance of an existing duty can be consideration.

Facts: The defendant, Ponsonby, was captain of a ship on which the plaintiff was a sailor. The sailors contracted to serve on board the ship for a maximum of three years to any ports required until her return to the UK. While at sea, seventeen out of the total 37 crew deserted. The ship was left in a much more dangerous condition by the reduced crew. The captain, in order to persuade the remaining crew to man the vessel, promised them extra wages. When the vessel returned to the UK he refused to pay them. The plaintiff sued for breach of contract. Issues: The defendant argued that the sailors had provided no consideration and that, therefore, the contract was void. He claimed the sailors were only doing what they were already obliged to do under the ship’s articles, which they had signed. They argued that according to Harris v Watson (1791) Peak Cas 72 in which it was held that a sailor was not owed extra wages in such a situation. Held: Lord Campbell CJ said that Harris v Weston was authority that a sailor is expected to complete a voyage if there is an emergency, such as a large part of the crew being washed overboard. However, there was no such emergency here. The ship was in port and was only unseaworthy due to the lack of sufficient crewmembers. Therefore, the plaintiff was within his rights to refuse to put to sea. Consequently, by agreeing to do the work, the plaintiff supplied fresh consideration. Therefore, the contract was valid.

Lampleigh v Braithwaite (1615) Hob 105 When past consideration may be good consideration. Facts: The defendant, Braithwaite, killed a man. He asked the plaintiff, Lampleigh to secure him a pardon from the king. The plaintiff spent many days doing this, riding and journeying at his own cost across the country to where the King was and back again. Afterwards, the defendant promised to pay the plaintiff £100 in gratitude. He later failed to pay the money. The plaintiff sued. Issues: The defendant argued that the plaintiff had acted before any promise to pay was given by the defendant. Therefore, he had only provided past consideration for a promise given in the future. The court considered whether this past consideration was sufficient to create a valid contract. Held: The court found in favour of the plaintiff. The promise was indeed given after the plaintiff had acted. However, the plaintiff had acted upon a request made by the defendant. The court considered that the original request by the defendant contained an implied promise to pay the plaintiff for his efforts. Bowen LJ said: ‘A mere voluntary courtesie will not have a consideration to uphold an assumpsit. But if that courtiesie were moved by a suit or request of the party that gives the assumpsit, it will bind’. Consequently, the court held that if A does something for B at their request and afterward B promises to pay A for their trouble, then that promise is good consideration. The later promise was considered to be part of the same single transaction and was, therefore, enforceable

Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 WLR Intention to create legal relations and consideration for a contract of sale in the formation of contracts. Facts Esso, a petrol company, by which customers would receive one free World Cup coin for every four gallons of petrol purchased. The World Cup coins were manufactured coins with the head of a 1970 World Cup English footballer on one side and the word ‘Esso’ on another for a sales promotion. Esso ran advertisements The Customs and Excise Commissioners claimed that the coins were liable to purchase tax as goods “produced in quantity for general sale,” under the Purchase Tax Act 1963, Sch 1, Group 25. Esso claimed that the coins were free gifts and, thus, there was no sale with the intention to create legal relations and produce a legal effect. Issue The question arose as to whether, the distribution of the coins were goods “for general sale,” and thus sold per a legal obligation by Esso to supply the coins under a contractual relationship with customers. Held Firstly, the Court held that there was an intention to create a legal obligation by Esso to supply the coins. The transaction took place in a business setting, and was itself a legal offer beyond a mere ‘puff’ (p 5) that rendered Esso commercial advantages, and was accepted by the customers. Secondly, the Court held that, for a contract of sale, there must be a transfer of the goods for monetary consideration. The Court held that, despite the intention to create a legal obligation, there was no consideration for the transfer of the coins as the coins were transferred under the separate contract for sale of the petrol. Accordingly, the Court held that there was no contract of sale by Esso, there was a contract to produce the coins as goods “for general sale.”

Hall v Busst (1960) 104 CLR 206 The grant of an option for the purchase of land being a small island off the coast of Queensland. (clause 5) the purchase price will be £3,157 to which will be added all additions and improvements to the property purchased by the grantor and a reasonable sum to cover depreciation of buildings and property. HELD Fullagar J The option was not enforceable. It is not that the deed as a whole is void for uncertainty. The word "value" is not meaningless, nor is the expression "a reasonable sum to cover depreciation". Value can of course refer to market value or replacement value or cost less depreciation. Giving meaning to such a word is what the courts do every day. The question of the value of the land is a matter of objective fact to be decided on the evidence and the courts cannot refuse to decide it on the grounds that it is too difficult. The real argument is that if the notice were given and the option exercised, no enforceable contract would result. For a contract for the sale of land there cannot be a binding contract without 3 essential elements which are the subject of a concluded agreement - the parties the subject matter and the price. If these are fixed with certainty, the courts will supply the rest. A certain price is not a specific figure – it would be sufficient if the price were to be that fixed by a named or described person. If the parties are silent as to price, there can be no implication that a reasonable price is to be paid, even if the agreement is expressed to be "for a reasonable price". In such a case the price can only be fixed by the agreement of the parties or without that by the court - but in that case, there can be no breach antecedent to the litigation. HELD Windeyer J (dissenting) He said that as in Joyce v Swann (1864) the price not being named it must be assumed that they meant a reasonable price. When parties agree to sell for a reasonable price the agreement is complete. They have fixed the price by a measure and if they disagree what that is, the court will determine it.

Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221 FACT S         

Fenner (plaintiff) was engaged as a manager for Braithwaite (defendant), a pop star The fee agreed upon was 15% but it was never decided how exactly that would be calculated Later, Braithwaite entered into a contract with First Artists’ Management (FAM) which was set up by investors to manage the pop star The first plaintiff, Brenner, then joined the management agreement between Braithwaite and Fenner. Braithwaite then requested Fenner and Brenner to become directors of FAM, in anticipation of the finalisation of the contract The contract never materialised. Later, Braithwaite gave notice he (and FAM) were suing Braithwaite and Fenner commenced proceedings seeking remuneration. FAM dissolved, so they pursued it against Braithwaite.

HELD 1. 2. 3.

4.

5.

Byrne J: There was no contract between the parties, and as such they cannot sue under the contract However, he did allow the claim in restitution. In order for the claim to succeed, the defendant needed to accept constructively or expressly a benefit from the plaintiff, in unjust circumstances, where they did not adequately pay for it. His Honour was concerned that unlike building contracts (where there is a clear and measurable benefit) it can be difficult to measure the benefit of personal services Quote: “It seems to me unlikely that the law would introdu...