Contract Law: Material Adverse Change, Time of Essence and Discharge of Frustration - Assignment Example

1. (a) Do (either or both of) the two February 2007 changes in NSW law permit - under general contract law principles - either party to avoid, rescind or terminate the contract? For example, is it feasible to assert (i) ‘no adverse change in the law’ as a condition subsequent/ implied term? or alternately (ii) contractual frustration? Material Adverse Change Mallesons Stephen Jaques,2002 ,states that Material Adverse Change clauses are used mainly in project financing. The lenders will be given specific rights. Lenders will be given right to exercise remedy if any default occurs that can be termed as Material Adverse Change. Material Adverse Change clauses are really used in US courts while Australian courts interpret in a different manner. Mallesons Stephen Jaques,2002 ,states that the case laws on Material Adverse clauses are extremely language specific, making the interpretation of the court difficult to predict. Material Adverse Clause may not provide the protection the buyer or lender is seeking.Moreover if the lender is seeking protection from specific event, then it is better to install condition as a separate clause. Dorasett Shire Council has to pay additional money of $1million under the amended stamp act. In this case,Dorasett should work with MidCoast Development Pty in making arrangements for revision of price. Discharge of frustration In article, ‘Discharge of frustration’ written on 2002 it is stated that a contract that is formed can be bought to end by Discharge of the Contract. Discharge of contract by frustration can occurs if performance of contract is made impossible and the parties are not fault as per article, ‘Discharge of frustration’ written on 2002 . The event should occur after the contract is signed. The event in that case the contract is ‘frustrated’ and discharged. There should be a provision in the contract to state that contact will be terminated after unforeseen event has occurred. The Frustrated Contracts Act 1988 as per article, ‘Discharge of frustration’ written on 2002 states that partial frustration of the contract may not result in the failure of the contract. If a part of the contract is frustrated by a change in event only that part remains frustrated. In this contract, the part of speedy completion of the work in 6 months stand frustrated due to change in event of amendment of Local Government Act in Feb 1 2007, in retrospective effect from 1 January 2007.The frustration here is partial frustrated .It is feasible to imply this term in the contract but that does not mean the contract is completely frustrated. (b).Is time of the essence in relation to Dorasett’s promise to pay $10 million to MidCoast Development Pty within two months of signing the agreement? Also, could MidCoast Development Pty have obtained the discretionary remedy of specific performance against Dorasett to enforce payment of the overdue amount? Time of Essence Michael Tilbury, Michael Noone & Bruce Kercher,2004 states that the Time of essence clause should be included in the contract. By this clause ,what is meant is that a reasonable amount of time should be given for performing a thing. The contract signed between Dorasett and MidCoast Development Pty does imply a time of essence of two months and since that has been breached by Dorasett,remedy measures could have been taken. Discretionary remedy of specific performance James M. Fischer ,2008 states that Discretionary remedy of specific performance means that the court has the power to compel the party to perform the contractual obligations under agreed terms.. The contract entered should be enforceable under the law and the essential terms of agreement has to be well settled. There was a specific contract entered between Dorasett Shire Council and MidCoast Development Pty Development Pty.There was a breach of contract by Dorasett when they failed to perform obligations of paying the stipulated money within two months. All these were enough for MidCoast Development Pty Development Pty to be awarded remedy of specific performance. (c) Are MidCoast Development Pty’s failures to keep separate books of account for Riverview plus unauthorised appropriation of the $10 million advanced for its combined business, a breach of contractual conditions, warranties or innominate terms? A breach of Contractual conditions Carter,  (1984) states that the breach may occur when the party concerned may be not interested in fulfilling the obligations as stated in the contract. The party may fail to perform and the party may by his own act may make it impossible to fulfill the contract. Here in this case the party MidCoast Development Pty has failed to perform the act of depositing the money in Riverview as promised. A working definition of breach was given in an American case,Associated Cinemas of America,Inc V.World Amusement co.(Supreme Court f Minnesota)[(1937)]201 Minn,94],”A breach of contract occurs when a party thereto renounces his liability under it, or by his own act makes it impossible that he should perform his obligations under it or totally or partially fails to perform obligations”. The question here in this case is whether the contract is entire contract. Carter,  (1984) states that by this term what is implied is that the liability of MidCoast Development Pty to open a Riverview account should be fulfilled only if the amount has been given on time.Dorasett has broken the promise of giving the money on the said time of two months. Carter,  (1984) ,has stated that under the common law of Australia, a breach of warranty will justify termination of contract if the promisor has broken the contract by ‘anticipatory breach’. This principle does not apply to the ‘actual breach’ which has happened here. (d) What damages (if any) could Dorasett have obtained against MidCoast Development Pty in relation to (i) misapplication of the $10 million advanced and (ii) the third party penalty that Dorasett sustained for incomplete, late submission of annual accounts to the NSW Audit Office? Carter,1984 states that the best solution to both these problems will be to sort out the complaint by negotiation.Dorasett Shire Council should ask themselves whether they had performed their obligations under the contract, the highlight being the inability of Dorasett Shire Council to pay the amount to MidCoast Development Pty in time?MidCoast Development Pty did the correct thing by taking money from bank which is a reasonable solution to a problem which they could have avoided. But that does not mean that MidCoast Development Pty did the correct thing when they failed to submit the financial papers on time. The issue of damage should be stated in the contract and if it is not stated, then both parties should agree to the damage claims. Only if it fails, then the issue of court should be proceeded. The damage has been suffered by both parties by not following the contract. Dorasett Shire Council by failing to pay the money on time has meant that MidCoast Development Pty has incurred a loss of $25,000 and Dorasett Shire Council had incurred a loss of $50,000 when MidCoast Development Pty failed to give the account statements on time. If the issue is taken to court by Dorasett,it is the duty of Dorasett to prove that a breach has been done by MidCoast Development Pty.The court has also to decide whether the party in breach, in this case namely MidCoast Development Pty, was aware of the loss that would have caused to Dorasett Shire Council if MidCoast Development Pty did not give the documents in time. Dorasett Shire Council should also be sure that the loss could have been reasonably be prevented. (e) In the event the two parties jointly decided on 14 January 2008 - due to mutual dissatisfaction – to end the contract, what sort of further agreement would be necessary? Termination of Contract Andrew Tettenborn,2008 states that most contracts will come to an end ,the moment obligations are performed. The contracts can come to an end when the parties come to agreement. The contract can be terminated by breach of contract by one party and a frustrating event that may be preventing the parties to perform to the optimal level. Performance Dorasett Shire Council and MidCoast Development Pty Development Pty can end the contract by fulfilling the obligations.  Agreement to end  Dorasett Shire Council and MidCoast Development Pty Development Pty can end the contract by mutually agreeing. Here in this case by dissatisfaction. Frustration Dorasett Shire Council and MidCoast Development Pty Development Pty feel the change of acts after signing the contract is frustrated and the contract can be terminated.  Breach of contract The failure of Dorasett to pay the money o time and the failure of MidCoast Development Pty to give the financial statements on time. The parties are free to terminate the contracts by mutual agreement. The contract can be provided with termination provision or a separate new contract can be written to terminate the contract . (f) Finally as a variation of the above, conveniently assume that (i) until the JV contract was declared void under NSW statute on 1 November 2008, both parties had in fact fully performed their respective contractual obligations and (ii) there were no prior, February 2007 changes in the law.In these circumstances, could MidCoast Development Pty subsequently make a claim again Dorasett under quasicontract,restitution or unjust enrichment for any amount - e.g. 25% of the subdivision site’s $80 million market value - as reasonable compensation for its project work? Unjust enrichment was part of Australian law in the year 1987.the case that leads to it was Pavey & Mathews Pty Ltd v Paul(1986),162,CLR 221. Unjust enrichment or quasicontract should include action for ‘money had and received ‘ and action for ‘Quantum Merut’ The basis of unjust enrichment in Australia is benefit,injustice,at the plantiff’s expense. Jack Beatson, in ‘Restitution and Contract: Non-Cumul?’ (2000) states that “while it now clear that restitution is independent of contract and there is an overlap between the two, where money is paid or work done under a valid contract there can be no restitutionary claim until the contract is discharged. Deane J, in Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221, 256, stated that there is “neither occasion nor legal justification for the law to superimpose or impute an obligation or promise to pay a reasonable remuneration” where there is a valid and enforceable agreement governing the plaintiff’s right to payment. Again, in The Evia Luck, Lord Goff stated that before any right to recover money paid under a contract could be established, the relevant contract first had to be avoidable: ‘until this was done, the money in question was paid under a binding contract and so was irrecoverable in restitution’: [1992] 2 AC 152, 165 (emphasis added). Once the contract is discharged, however, a restitutionary claim may be brought, in cases of breach of contract as an alternative to a claim for damages, and in principle a person may recover more by such a claim than would be recovered as damages for breach of contract”. The claim can be made by MidCoast Development Pty once the contract has been met. 2)Advise Jamie Cook as to what (if any) remedies under common law and equity he may have against Kaye Konstruct Ltd in relation to the erroneous representations of its agent Yarra Properties Pty Ltd, in the above described circumstances. RP Meagher, WMC Gummow and JRF Lehane, Equity: Doctrines and Remedies (1992, 3rd edition, Butterworths, Sydney), at 10-16 states that The issues are two fold 1.Whether Yarra Properties has an duty to act in good faith and would have inserted the clause that was said through the phone in contract? 2.Is there an scope for award of damage? The first finding that Yarra properties did owe a duty to Jamie Cook should not be overruled.But the negligence on the part of Jamie Cook of not transferring the agreement by phone into sale and purchase documentation. It has been said in Citicorp Australia Ltd v McLoughney (1994) 35 SASR 374 at 381case that there is basic flaw in equating common law negligence with reasonable steps taken by the builder to get maximum price or best possible price. Another case that highlights this issue can be seen in the Parker-Tweedale v Dunbar Bank PlC[1991] ch 12.The case highlighted the fact that whether damage should be paid and the verdict was that breach of an equitable duty attracted equitable remedy.But as there was no statement in the contract and the statement was given by phone, what can be inferred is that James made a mistake in not converting it into a sales and purchase document. What has to be inferred is also that there was a breach of duty from the employee to the employer and James. The obligation does not fully transfer to the employee as they are looking for sales and they were not aware of the statement given by the employee. That was a part of negligence on the part of James and the case stands nullified. 3) With reference to general Australian tort law rules - and the Civil Liability Act 2003 (Qld) if relevant -advise Organix Pty Ltd of its potential tort law liability to RooChew Pty Ltd in the above described circumstances. The Civil Liability Bill of 2003 gives insights into the case. The issues that should be highlighted here are The link between breach of duty and the damage suffered. The lack of international practice in preventing the damage by Organix Pty Ltd.The lack of the organization to foresee the damage.The extend to which the party’s own negligence contributed to the loss.The law states that the damage should be given if the harm caused is because of fault of the company and that should include the scope of the liability.The law also states that the risk causing factors should be informed by the company and it is the duty of the company in giving risk factors. The company’s actions are unreasonable and in the circumstances given, it can be termed as wrong by the act and it can be also termed as a failure to act. That can be decided by the public authority. (http://www.legislation.qld.gov.au/Bills/50PDF/2003/CivilLiabB03Exp.pdf) The company should pay the damage and take steps to ensure that acts are not repeated in future. References Andrew Tettenborn, 2008,’The Poor Relation?’, Consequential Damages in Contract,pp.17. Associated Cinemas of America,Inc V.World Amusement co.(Supreme Court f Minnesota)[(1937)]201 Minn,94],” Citicorp Australia Ltd v McLoughney (1994) (35 SASR 374 at 381). The Civil Liability Bill , 2003, http://www.legislation.qld.gov.au/Bills/50PDF/2003/CivilLiabB03Exp.pdf Mallesons Stephen Jaques,2002,’Material Adverse Change’,Asian projects and Construction Update. Michael Tilbury, Michael Noone & Bruce Kercher,4th ed. 2004,Remedies: Commentary and Materials, pp.403–40 . Jack Beatson,2000, ‘Restitution and Contract: Non-Cumul?’ Theoretical Inquiries in Law, Vol.3(1) James M. Fischer, The Puzzle of the “Actual Injury” Requirement for Damages, 42Carter,  (1984) Pavey & Mathews Pty Ltd v Paul(1986),162,CLR 221. RP Meagher, WMC Gummow and JRF Lehane, 1992,Equity: Doctrines and Remedies ,pp. 10-16 Read More