Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd

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Citation:

  • Full Court of NSW: (1938) 38 SR (NSW) 632;
  • High Court: (1938) 61 CLR 286

This information can be found in the Casebook: Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 521-525 [21.25-25.30].

Contents

Background facts

  • Plaintiff [Tramways] entered into an agreement with the Defendant [Luna Park] to advertise for it for 3 seasons.
    • An express term of the agreement provided that the advertisements will be on for at least 8 hours a day every season.
  • The Defendant found out, during the second season, that the ads were not displayed a minimum of 8 hours a day.
  • The Plaintiff admitted this, but argued that they were being displayed on an average of 8 hours a day.
  • Regardless, the Defendant considered this a breach of condition and regarded himself as no longer bound by the contract.
  • Against the protestations of the Defendant, the Plaintiff continued to display the ads.
  • When the Defendant did not pay, the Plaintiff sued. The Defendant argued breach of a contract and therefore the termination.

Legal issues

Judgment

Full Court:

  • There are some relevant factors to whether a breach of a term justifies termination:
    • The extent of the breach.
    • The type of promise breached (i.e. the classification).
    • The seriousness of the breach.
    • The timing of the breach.
    • The rights and remedies available to the parties.
  • The most important factor is the type (or nature) of the promise breached. If it is a condition, the breach will justify termination. If it is a warranty, it will not.
    • "If it is a condition that is broken....the innocent party...has ordinarily the right at his option either to treat himself as discharged from the contract and recover damages for loss of the contract[1]."

Testing for a condition

  • To be a condition, a term must be essential. How do we test for an essential term?
    • "The test of essentially is whether it appears form the general nature of the contract...or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and this ought to have been apparent to the promisor[2]."
    • "If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight[3]."

Forfeiting the right to terminate

  • The Aggrieved (innocent) party does not have to terminate the agreement upon a breach of a condition.
    • "A party by committing a breach of an essential promise cannot thereby compel the innocent party to put an end to the contract; the latter may go on with the performance of the contract if he chooses[4]."
  • The entitlement to terminate the contract upon a breach may be forfeited. This occurs if the Aggrieved party becomes aware of the breach but decides to ignore it or keep the contract going.
    • "If a party who becomes entitled to put an end to a contract by reason of a breach of an essential promise does not exercise the right when he becomes aware of the breach, he loses his right, and is remitted to his remedy by way of damages only[5]". This applies if the Aggrieved party:
      • Conducts itself in a way which indicates that it considers the contract as still ongoing.
      • Gives permission (express or implied) to the defaulting party to proceed with the contract).
  • However, the Aggrieved party can acknowledge the breach and merely insist on a remedy. As long as he gives reasonable notice, and as long as the defaulting party didn't obtain a right to be excused from the breach/performance, the Aggrieved party will be seen as preserving his right to terminate.
  • In addition, even if the Aggrieved party overlooks a breach, he can still choose to terminate if a second breach of a condition is committed.

Terminating wrongfully

  • If a party terminates the contract without justification (i.e., there was no breach of a condition), it will be treated as repudiating the contract. Thus, the other party will be entitled to terminate and seek damages.
    • “a party who without lawful justification purports to treat himself as discharged from the obligation of the contract for a supposed essential breach by the party is himself guilty of repudiating the contract and thereby vests in the other party a right lawfully to put an end to the contract... repudiation may be express...or implied[6]."

Conclusion

  • In this case, there the 'condition' in question is about the 8 hours a day. Whilst this is a condition, the displaying the ads for an average of 8 hours a day satisfies the condition. The Defendant's claim that it must be minimum 8 hours a day is rejected.
  • This means that the condition was not breached.
  • Thus, the Full Court rules that the Defendant was not entitled to terminate the contract.

High Court:

  • The High Court accepted the Full Court's rulings about the test of essentially, terminating wrongfully etc.
  • However, decided that the minimum of 8 hours was a condition of the contract. This is understood because of the wording and the circumstances.
    • Wording: "the words 'we guarantee' are particularly suited...to emphasise the importance of the clause which the introduce[7]". This means the term was a condition.
    • Circumstances: Paying was only to begin after every single ad board goes up etc. This provision shows "that the parties regarded the completeness of the display contracted for as an essential element in the contract[8]". This means that the term placed special significance on how the ads are placed. Therefore, the minimum of 8 hours approach should be understood and not the average one.
  • Thus, a condition was breached, and the Defendant was entitled to terminate.

Repudiation

  • The court also found that there was repudiation here.
  • The Plaintiff announced his intention to continue displaying the ads on the 'average' of 8 hour a day basis and not as specified by the contract.
  • The Defendant is entitled to view the Plaintiff as repudiating the contract, and therefore has the right to terminate.

References

  1. (1938) 38 SR (NSW) 632, 641
  2. (1938) 38 SR (NSW) 632, 641-2
  3. (1938) 38 SR (NSW) 632, 642
  4. (1938) 38 SR (NSW) 632, 644
  5. (1938) 38 SR (NSW) 632, 644
  6. (1938) 38 SR (NSW) 632, 646
  7. (1938) 61 CLR 286, 302-3
  8. (1938) 61 CLR 286, 303
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