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Top-tier firm breaks down key learnings from court cases

In a key learnings report of cases from the last 12 months, a top-tier law firm broke down what to expect of courts in major contractual decisions.

user iconNaomi Neilson 30 August 2019 Big Law
King & Wood Mallesons
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King & Wood Mallesons found parties can find themselves in trouble as much for what they have left unsaid in a contract as for the express commitments they have made. It can also apply to compromised positions if terms of the contract are not discussed.

“Disputes are far less likely to arise if the parties confront and deal expressly with key commercial features of their relationship at the time of entering a written contract,” one of the key takeaways in KWMs “Looking Back” report noted.

KWM said that while there may be a reluctance to take an overly legislative approach to relationship management, some level of formality and commitment to follow agreed processes is justified if a party wishes to maximise protection of a written contract.

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For example, in Plankton Australia v Rainstorm Dust Control, the courts examined the circumstances around whether parties entered into an enforceable contract. Analysis of the case found conduct must always be “clear and unequivocal”.

KWM said: “Courts will not treat conduct that can be explained on other grounds, such as trying to facilitate negotiations rather than the performance of alleged contract, as evidence that the parties had the consensus to enter into legally binding relations.”

In a separate case, KWM found where a promise is contingent on another event which may be discretionary, the promise may still constitute good consideration as it may be enforceable if a contingency comes to pass in the courts.

“Despite this low threshold, before entering into a transaction it is important to consider whether the requirements for a valid contract have been satisfied,” KWM said.

“Should you ever need to enforce the commitments made by the counterparty, this will clearly be undesirable to become entangled in arguments as to whether or not those commitments are, in fact, contractually binding due to lack of consideration.”

The absence of a written agreement and the need to look into objective considerations was considered in the Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd case. KWM said it is important for parties to ensure conduct corresponds with terms of a contract and, if a party wishes to disagree with changes, must communicate this clearly.

Similarly, while courts generally seek to take a pragmatic approach to contracts which have been written, “this does not enable them to ignore plain meaning of words”.

In Mal Owen Consulting Pty Ltd v Ashcroft, the case illustrated the remedies that may be available to a party when a breach of contract results in lost opportunity. It was held that a plaintiff can recover damages where it can establish the opportunity had a “real value” to the plaintiff, and more than just theoretical or negligible value.

“The process for quantifying damages will require an assessment of the probabilities of different potential outcomes being realised and so may be considered an inexact science, but nonetheless one the courts will engage in,” KWM said.

KWM also analysed the doctrine of frustration and how it can be applied to practice as seen in the Chinatex (Australia) Pty Ltd v Bindaree Beef Pty Ltd case. It said contracts may be frustrated if a contractual obligation becomes incapable of being performed due to an unforeseen event that renders obligation performance radically different.

“When determining whether or not a contractual agreement has been frustrated, the courts will look for evidence of a common assumption that a particular state of affairs was a necessary element of their bargain,” KWM said.

In each case, KWM took away that both parties must be clear and concise in contract agreements and must not leave anything unsaid or risk losing out.

“To the extent that one party considers such arrangements are critical to performance of the upstream agreement, this should be written into relevant contract rather than left unsaid,” KWM said.

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