Understanding the principles of Australian Business Law

To determine whether Kent Institute Australia (KIA) can terminate professor Berlin’s contract.

In certain cases, agreements ended or rescinded due to reasons, which are beyond the control of the parties. This is known as discharge of contract by frustration. The principle of frustration is applied to cases under limited range of circumstances, usually where the performance of the agreement could not be anticipated by the parties and hence faces a defeat of purpose (Butler et al. 2013). In case of termination buy frustration, none of the parties is at fault due to the recession of the contract for the reason of recession is beyond their foreseeability and control (Lawhandbook.sa.gov.au 2019). In cases where the principle of frustration is established, the agreement is automatically terminated; the parties have no control over the performance or discharge of such contract under common law. The courts are usually quite unsympathetic towards the party from whom frustration arises, if it is convinced that such party could have anticipated the cause of the frustration yet did not take any measures to prevent it.  However, usually the courts discharge the parties of their obligations, pertaining to the particular contract in case of frustration.

In the case of Taylor v Caldwell (1863) 3 B & S 826 the doctrine of frustration in context to contract law was discussed in depth. It was held that the principle of frustration arises due to the prevalence of absolute or strict obligation rule (MacMillan 2014). The court held that its decision on the principle of frustration would primarily depend upon the performance of a contract which itself depends on the continuity of a specific person or thing, perish of which would affect the performance of the contract, hence giving rise to frustration.

In the given case, Kent Institute Australia (KIA) appointed Chris Berlin as their new Vice-Chancellor and Chief Executive. The agreement was signed with between on 1 August 2018 that mentioned her joining date as 1 January 2019 and confirmed her tenure to hold the position of a period of three years for $200,000 per year along with performance incentive. This agreement between the parties, that is KIA and Professor Berlin, makes them legally bound to perform their part of the agreed duty. The factors of a valid offer, acceptance, matching of common intention and a valid consideration that are necessary to make a contract valid is present here. This makes it a valid and legally binding contract. When on 1 September 2018, Professor Berlin met with an accident and as per her medical team’s advice she would not be able to join KIA before 25 April 2019, the agree terms of the contract falls apart. As this is an accident, which was clearly unforeseeable from both the parties’ end, this would lead to the discharge of the contract by frustration.

Discharge of contract by frustration in context of KIA’s case

The given case match with the elements of discharge of contract by frustration, as the parties to the contract did not anticipate and it was not in a position that could have been prevented. Therefore, it gives effect to the principle of discharge of agreement by frustration making the parties eligible to terminate the contract without being liable to pay damages, as it is not her fault that she met with an accident and became unavailable until 25 April. It was an accident, which was so remote that it could not be foreseen by Professor Berlin, therefore, not making her liable for the breach of contract.

Therefore, Kent Institute Australia (KIA) would be able to terminate professor Berlin’s contract.

The issue is to determine whether Repairer Pty Ltd would be liable for the financial loss of Kent Institute Australia (KIA) and the probable damages that are payable to KIA.

When it is agreed between the parties that there will be delivery of goods within a stipulated period, the failure to meet the requirement would lead to breach of contract. The breaching party would be liable to compensate the aggrieved party for his loss, whether physical injury, damage to property or pure economic loss (Bunn and Douglas 2014). The aggrieved party deserves the compensation as he suffers some kind of loss or injury, sometimes substantial, due to the other party’s failure to execute the contract. A contract requires both the party to carry out their agreed responsibility towards the contract which is known as the performance, however, a breach of such performance would lead to a breach of contract when at least one of the parties fail to carry out his duty. It is to be noted that sometimes the performance of a party may depend on the approach of a third party who may not be even related to the original contract, yet his conduct and performance has a direct effect on the performance of one or both the parties.

Where a party has contravened the provisions of the agreement, which has led to the breach of contract, the other party can assert to claim damages for such breach. As soon as the breach is anticipated or acknowledged by either one of the parties, it should be intimated and shared with the other for coming up with a remedy. The breaching party might cite several excuses for such breach, one of which would be the fault of the third party and certain unavoidable circumstances. In such cases, the court are in the opinion that the negligence to carry out the duty of care should be shared by the party from whose side the breach has been effected, along with the third party that he has involved in the agreement. The court would treat the matter as a contributory negligence shared by the breaching party and the third party, under the common law (Barnett and Harder 2014).

Liability of Repairer Pty Ltd in context of KIA’s case

The pure economic loss that arise out of the breach of contract is although recognized by the court and by the common law; however, the courts have been unsympathetic towards it in context to award damages. Such approach of the court is based on the theory of ‘Floodgate’ or limitless liability that is said to be giving effect to unfathomable liability for a loss and the practice of such theory would give rise to uncountable unnecessary litigations that would burden the already over-burdened court (Marsh v Baxter [2015] WASCA 169). In Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ [1976] HCA 65, the court had awarded damages for pure economic loss suffered by the plaintiff. However, the principle was changed in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. In this case, the court held that damages for pure economic loss could only be awarded in case such loss was reasonably foreseeable, for it was not too remote to be foreseen and could be anticipated that it would cause such injury or loss to the defendant (Khalid 2015).

In the given case, KIA entered into an agreement with Repairer Pty Ltd to repair three of its ovens and it was mutually agreed that the work would be completed with a stipulated time for KIA had training curse planned involving 1000 students who would pay $1000 each for the course. Repairer Pty Ltd completed the work within the stipulated time; however, the second oven out of the three was damaged during transit for the fault of the third party independent carrier. While the third oven could not be delivered to KIA for the worker’s strike at Repairer Pty Ltd. This resulted to an economic loss of KIA who could only host some of the students out of the 100. This not only amounts to pure economic loss, but a loss of commitment and goodwill for KIA as well.

In this circumstance, the court would direct Repairer Pty Ltd to pay damages to KIA for the third oven, which was not carried out and sent to KIA on time due to its worker’s strike.  Repairer Pty Ltd would be the sole responsible party in this matter; while for the one which got damaged during transit would include the independent carrier for being liable for the loss sustained by KIA. The court would direct Repairer Pty Ltd and the independent carrier to pay damages to KIA, for not arranging the delivery of the third oven and for damaging the second oven during transit, respectively.

Conclusion

Therefore, it could be concluded that Repairer Pty Ltd would be held liable for the financial loss of Kent Institute Australia (KIA) sustained. Repairer Pty Ltd and the independent carrier would be made to pay damages for effect the loss sustained by KIA

References 

Barnett, K. and Harder, S., 2014. Remedies in Australian private law. Cambridge University Press.

Bunn, A. and Douglas, M., 2014. Breaking new ground? Nuisance, negligence and pure economic loss in Marsh v Baxter. Torts Law Journal, 22(1), pp.160-182.

Butler, D., Christensen, S., Willmott, L. and Dixon, B., 2013. Contract Law Case Book.

Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ [1976] HCA 65

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465

Khalid, S., 2015. Development of the Voluntary Assumption of Responsibility in Economic Loss: A Critical.

Lawhandbook.sa.gov.au. (2019). Discharge by frustration. [online] Available at: https://lawhandbook.sa.gov.au/ch10s02s13s03.php [Accessed 17 Jan. 2019].

MacMillan, C., 2014. English Contract Law and the Great War: The Development of a Doctrine of Frustration. Comparative Legal History, 2(2), pp.278-302.

Marsh v Baxter [2015] WASCA 169

Taylor v Caldwell (1863) 3 B & S 826