NZ Law of Contract - 2020 Final PDF

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Privity (on or after 1 April 1983)Purpose of CCLA subpart 1 is to permit a person who is not a party to a deed/contract to enforce a promise made in it for the benefit of that person s10. This overrides the CL doctrine of privity: (1) a person who is given a benefit under a K to which he is not a pa...

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Privity

(on or after 1 April 1983)

Purpose of CCLA subpart 1 is to permit a person who is not a party to a deed/contract to enforce a promise made in it for the benefit of that person s10. This overrides the CL doctrine of privity: (1) a person who is given a benefit under a K to which he is not a party cannot sue for that benefit; (2) person cannot be liable for obligations sought to be imposed on that person by a K made between others. -

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S11 provides broad definitions: o a benefit includes any advantage, immunity, limitation or qualification of (a) an obligations or (b) a right and any extension or improvement of a right. o a contract may be made by deed, or in writing, orally or party in writing and orally or implied by law o a beneficiary is, with reference to s12(1), a promise contained in a deed or contract that confers benefit on a person, designated by name, description or reference to a class, who is not party to the deed.  the designation of the purchaser “and/or nominee” was sufficient to bring the nominee of the purchaser within the scope of a beneficiary (Laidlaw v Parsonage) o A promisor is a party to the deed or contract to whom the promise is given o A promisee is a party to the deed or contract by whom the promise is made S12 the promisor is under an obligation, enforceable by the beneficiary, to perform the promise S13 however, s12 does not apply if there is no intention to create an obligation enforceable by the beneficiary. The onus is on the beneficiary to prove that the promise confers a benefit to the beneficiary. Then the onus is on the promisor to prove lack of intention that the beneficiary was to have any right to enforce the promise. S14 if the beneficiary has made any change in position due to the promise (relying on it, obtaining a judgement or arbitral award based on it), the parties cannot make a change to the contract that affects the promise without the beneficiary’s consent. S15 if the deed or contract contained an express provision, at the time the promise was made, allowing the promise to be varied or discharged at any time and this provision is known to the beneficiary, the promise may be altered or discharged. S16 if the beneficiary had a change in position (i.e. reliance on the promise), court may override s14 and authorise variation or discharge by ordering promisor to compensate beneficiary a sum the court thinks is just. S17 the beneficiary may enforce obligation under s12 as if the beneficiary were a party. S18 gives promisor the same defences, counterclaims or set-offs as if the beneficiary were a party to the contract.

Law of Mistake The law governing mistake is found under ss21-32 of the CCLA for commercial contracts. It must be shown that the mistake is an operative mistake, or one that influence the decision to enter into the contract s26. The elements to mistake are found under s24: o The mistake is o unilateral and known 24(2)(a)(i) – one party made a mistake and the other party was aware and took advantage of it. Constructive knowledge of the other party’s mistake is not enough, actual knowledge was necessary (Tri-Star) o common 24(2)(a)(ii) – both parties made the same mistake or o mutual 24(2)(a)(iii) – each party made a different mistake about the same aspect of the contract, o There is an inequality of consideration related to the mistake s24(1)(b), and o The party seeking relief was not obliged by the contract to bear the burden of any risk to the mistake s24(1)(c). Sections 22(1)(b) and 29 allow persons may claim under or through the contracting parties. The mistake does not include a mistake in the interpretation of the contract s25. Section 27 notes that the extent to which the part seeking relief cause the mistake will be taken into consideration by the court in deciding whether to grant s28 relief. Relief under Section 28 allows the court to: o Make any order that the court thinks just o Declare a contract to be valid o Cancel a contract o Grant relief by way of variation o Grant relief by way of restitution or compensation o Vest property o Direct a party to transfer or assign property o Direct a party to deliver possession of property. Property may be real or personal property. Under s31, a third party who has acquired the property in question in good faith (no knowledge of mistake) and for consideration will not be invalidated by relief under s28. The contract should be legal under ss70-84 and the contracting parties should have capacity to enter into the contract (are not minors s42).

Contractual Remedies The purpose of damages is to put the injured party in the position he would have been in had the contract been performed (difference between value as is and value had the misrepresentation been true). Section 35 codifies the common law allowance for damages arising from misrepresentation. Misrepresentation is defined in common law as follows: - A representation that is false or misleading. It is irrelevant whether the statement was intended to be false or misleading. - The representation is about an existing fact or past event, not a future one. - A statement of intention that is untrue is a misrepresentation as to what that person’s intention was. - A statement of opinion is not a statement of fact and if untrue, is not a misrepresentation (unless the speaker did not hold the opinion or was in a better position to know the facts than the other party). - A mere puffery is not a statement of fact and has no legal effect (unless it falls under the FTA) - A statement of law that is wrong is not a misrepresentation (unless the statement is an opinion of what the law is and the speaker knew it was wrong). - Silence is not misrepresentation (caveat emptor) unless the statement is a partial truth that distorts the position or the statement was true when it was made, but is no longer true at the time the contract is made and the speaker does not advise the other party of the change, or it is silent conduct that positively affirms the other party’s misconception. s40(1) - common law does not apply to questions related to CCLA s34 - parties may explicitly opt out of contractual remedies outlined in CCLA

Cancellation under s36-37 -

Party cancelling bears the burden of proof - but is not under the obligation to specify the ground of cancellation at time of cancellation. An objective evaluation is undertaking to determine whether a ground under s36 or 37 exists. Party cancels on unjustifiable grounds => Effective provided proper grounds existed, Donnelly v Westpac Banking Cancelling party unaware of/did not specify justifiable grounds/did not specify => Effective if later or by the time of the trial can demonstrate it was entitled to cancel Thompson v Vincent

A) Repudiation s36 s36(1) A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to— perform or complete the performance of B’s obligations under the contract The contract is to be read objectively from the point of view of a reasonable person (Tri-Star). (1) A contractual term is broken if:  At completion: The work does not conform with the contract  Before completion: The work is such that it cannot be made to conform with the contract  Before completion + any defects can be remedied: B has made clear that he does not intend to rectify  *if there is a rectification period contemplated, consider whether K may be rectified within such time Mana Property (2) Anticipatory repudiation (“does not intend to perform”)- party has not even tried to fulfil the contract  s 37(2) CCLA does not apply to s 36(1)(a) CCLA  anticipatory repudiation usually must relate to non-compliance with a term that is essential to the cancelling party (Jack v Guy) OR have a seriousness of consequence (Betham v Margetts) (3) Explicit anticipatory reputation (“by words”)- distinguish between (3) and (4) in exam  One party informs the other that the contract will not be performed Hochster v De la Tour (4) Implicit anticipatory repudiation (“by conduct”)  One party acts in a way calculated to or having the effect of precluding the possibility of the contract being performed  i.e. sale to a third person, Lovelock v Franklyn B) Misrepresentation, s 37(1)(a) + is substantial/essential s37(2) A party may cancel the contract if the 4 essential requirements for misrepresentation are satisfied: 1. misrepresentation, fraudulent or innocent, of a past or present fact 2. made by or on behalf of another party to the contract 3. to the plaintiff 4. to induce the plaintiff to enter the contract

The party alleging misrepresentation must, under s35(1), be induced to enter into the contract by the misrepresentation. Inducement, defined in common law: o It is only actionable when reliance on the representation is reasonable and o It includes misrepresentation that induces a party to make a conditional contract unconditional. o need not be the sole reason for making the contract when misrepresentation may be one of the inducing causes o There is no inducement when P: o did not know a misrepresentation was made. o knew or discovered that the misrepresentation was not true before the contract was made. o The misrepresentation must be made with intention to induce, or at least wilfully used language must be used to induce a normal person. o The misrepresentation must be material, as inducement would be difficult to prove otherwise. C) Actual s37(1)(b) or Anticipatory s37(1)(c) Breach of Contract + term is essential or breach is substantial s37(2)

A party may cancel the contract if: s37(1)(b) a term in the contract is breached by another party to the contract; or s37(1)(c) it is clear that a term in the contract will be breached by another party to the contract

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s37(1), a party (A) may cancel the contract on the grounds that (a) A was induced into entering the contract by misrepresentation from B; (b) A term of the contract is breached by B; or (c) It is clear that a term of the contract will be breached by B.

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S37(2) codifies substantial breach, where a party may cancel the contract if (a) The parties have expressly or impliedly agreed that the truth of the representation or the performance of the term is essential to the cancelling party (b) The effect of the misrepresentation or breach will (i) substantially reduce the benefit of the contract on the cancelling party, (ii) substantially increase the burden of the cancelling party, (iii) make the benefit or the burden substantially different from that represented or contracted for.

Under s37(2)(a), whether parties have expressly or impliedly agrees depend on the intention of the parties at the time of the contract, not on the consequences of the breach A breach of an essential term will justify immediate cancellation of the contract. Whether a term is essential may be different for each party, as parties to a contract may have different objectives. Essentiality test ascertains the intention of the parties by asking whether the cancelling party would more probably than not have declined to enter into the contract unless the term in question was agreed at the time of contracting to be essential, (for example, requiring strict performance). This requires an objective contextual appraisal. Time to perform an essential term is not itself essential unless expressly or impliedly agreed. Absent this, party has reasonable time rectify (Mana Property) Under s37(2)(b), the essentiality only depends on the severity of the consequences of breach. party will have to show does a breach of any term, even a minor term, if it has a serious effect, Mana Property Substantial = More than trivial, Jolly v Palmer Depends on the individual case; the courts take subjective and objective factors (money) into account willingness/ ability to perform- There is a right to cancel contract if all the requirements are met under s36 & s37, however the court has discretion to make orders  One party breaches, the other party cancels; the cancelling party is unwilling or unable to perform the contract  A party could be seen as benefiting from its own wrong where it is unable or unwilling to perform the contract and seeks to avoid liability for its own breach by cancelling the contract on the basis of the other party’s breach, Noble Investments v Keenan, Ingram and Knee v Patcroft Properties  A party who accepts that the contract is at an end, and who only seeks damages, does not need to show that it was willing and able to perform the contract in order to be able to validly cancel a contract, Nicholls v Tamarik No affirmation, s 38 CCLA there is no cancellation if the contract is affirmed  To cancel is only one option: the entitled party can complete performance (and thus affirm the contract) and then demand the consideration, White and Carter v McGregor  Affirmation precludes subsequent cancellation in respect of the same breach => Cancellation after having affirmed the contract (e.g. by resale) amounts to a repudiation of the contract, Jolly v Palmer  Affirmation does not remove the right to damages for misrepresentation under s 35 CCLA, Hughes v Huppert  The continuation of the repudiation gives the innocent party a continuing right to cancel, Oxborough v North Harbour Builders  A further breach after affirmation revives the right to cancel, Oxborough v North Harbour Builders 

“With full knowledge of the repudiation or misrepresentation or breach” => Must the affirming party have full knowledge of his/her legal rights (apart from full knowledge of the factual circumstances)?  The rights arise from the terms of the contract => Parties are presumed to know the terms of their own contract, Nectar v SPHC Operations  full knowledge concerns, the ground of cancellation, concerns misery as factual evidence. doesn’t concern full knowledge of the legal implication through affirming the contract  Nectar v SPHC Operations does not distinguish between cases where the contract expressly confers a right to cancel for a particular breach and where that right arises from the application of the CCLA

Notice of cancellation, s 41 CCLA cancellation under s36 and 37 will only take effect by notice to the breaching party  The other party needs to know where the contract stands  However: notification not always possible - Where one party prevents the other from communicating cancellation by wrongfully absconding, neither he nor those who acquire a title through him can insist on actual notification, Car & Universal Finance Legal consequence: terminates the contract in the future, s 42 CCLA cancellation discharges the parties’ future duties only and does not treat the contract as if it never existed. Parties need not divest any property transferred or monies paid, however, the court may order a refund under s43. -

According to s 42(1)(a) no party is obliged to perform [the cancelled contract] further: concerned with “further” performance and does not take away accrued rights An obligation unconditionally accrued before cancellation can still be enforced after cancellation Unconditionally = o No impediment (e.g. by unfulfilled condition) to the enforcement of the right at the point of cancellation and

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Enforcement must not have been subject to any reciprocal obligation on the part of the enforcing party

1. Deposit - Is there an obligation to pay the deposit after cancellation? Yes, if the deposit has been accrued unconditionally before cancellation, Brown v Langwoods Problem: amount of the deposit o Parties can expressly provide their own remedies (and respective periods of notice, Soccer Nelson v Soccer NZ) instead of those regulated in S 34 prevents the court from exercising any discretion under s 43 o If the deposit is the normal 10% of the purchase price, relief under s 43 will be precluded by s 34 o If the amount exceeds 10%, s 34 will not prevent the application of s 43 to provide a remedy for the purchaser 2. Secondary obligations (e.g. arbitration clauses, restraints of trade) after cancellation? These clauses survive by virtue of s 34, because the contract overrules the Act Broadcasting Corp of NZ v Nielsen

Relief – sections 44-47, s59 savings, and contractually agreed remedies may limit the court’s discretionary power to grant relief under s43. s43, the court has discretion to grant relief if it is just and practicable to do so: Pay a sum Do or refrain from doing an act Vest the whole or part of a property Transfer or assign the whole or part of a property Deliver the whole or part of the possession of a property -

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s44 order for relief may be subject to terms and conditions s45 when considering relief under s43, the court must consider: Terms of the contract Performance in whole or in part Expenditures incurred Value of work or service Benefit or advantage obtained Any other matter the court thinks proper. s46 a 3rd party purchaser of property in good faith for valuable consideration cannot be deprived by an order under for relief under s43. s47 the court cannot make an under s43, if a party to the contract has so altered the party’s position in relation to the property that it would be inequitable to do so. s48 people may claim through or under a party, or if it is material for him to know whether relief will be granted s49 a party to a cancelled contract is not precluded from claiming s43 damages, although the value of relief will take this into account when assessing damages. s50 courts will not be prevented by terms of a contract to limit inquiries into pre-contractual matters under s50(1) and will consider circumstances under s50(3). s51 courts will not be prevented by the terms of a contract to limit inquires into the authority of a person making a statement. Contractual liabilities may be assignable unless it is to a non-consenting assignee (ss54-57). Some liabilities can be assignable by statute s57.

Law of Frustration Frustrated contracts occur when unforeseen events prevent the contract from being fulfilled/performed (ss60-69 CCLA, which is applicable before or after the commencement of this Act). To determine whether a contract has been frustrated, the Supreme Court in Planet Kids outline the following factors for consideration: o Terms of the contract o Matrix or content of the contract o Parties’ knowledge, expectations, assumptions and contemplations, especially as to risk at the time of the contract, at least to the extent that these can be ascribed mutually and objectively o Nature of the supervening event o Parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. There is a high threshold and it is not enough that future performance has become more expensive, onerous or difficult. The unforeseen event must render the performance of the contract “radically different” (Planet Kids). Examples of events leading to frustrated contracts include destruction, death/incapacitation, unreasonable delay, non-occurrence of an event and government intervention. Under common law, parties are generally discharged from further performance after the date of frustration and any obligations incurred prior to that date are not affected. However, the CCLA permits the following: o o

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S61: Money paid to another party is recoverable and money payable ceases to be owed. S62: If a party incurred expenses before the time of discharge for the purpose of performing the contract, the court has discretion to allow that party to retain or recover part or all of the money that it considers just (considering all circumstances). S63: If party A has obtained a valuable benefit before the time of discharge as a result of B’s doing, the court has discretion to grant a sum of money to B that it considers just (considering all circumstances). S64: The court has discretion to treat benefit conferred to C third party as benefit obtained by A. S65: The court has discretion to estimate expenses to be an amount reasonable for overhead e...