Shevill v Builders Licensing Board

Shevill v Builders Licensing Board - [1982] HCA 47 - HCA 1976 case summary — Zoe

[12]

As Lord Wright pointed out in Heyman v. Darwins Ltd. [2] , repudiation is an ambiguous word and is used in various senses. We are of course concerned only with a case in which it is admitted that there was a valid and binding contract. Such a contract may be repudiated if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract (Freeth v. Burr [3] ) or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way (Ross T. Smyth & Co. Ltd. v. T. D. Bailey, Son & Co. [4] ; Carr v. J. A. Berriman Pty. Ltd. [5] ). In such a case the innocent party is entitled to accept the repudiation, thereby discharging himself from further performance, and sue for damages: Heyman v. Darwins Ltd. [6] . It is convenient to say that the injured party in these circumstances rescinds the contract, although there is, of course, no rescission ab initio: Johnson v. Agnew [7] . The present case was not one of this kind. There is nothing to suggest that the lessee had any intention other than to fulfil the contract, according to its terms, to the best of its ability. However, if one party, although wishing to perform the contract, proves himself unable to do so, his default in performance will give the other party a right to rescind the contract, if the breach goes "so much to the root of the contract that it makes further commercial performance of the contract impossible": Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. [8] . There is high authority for treating such cases as a form of repudiation of the contract: Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [9] ; Federal Commerce v. Molena Alpha [10] . In Honner v. Ashton [11] , Mahoney J.A. said that he thought that the right to terminate for fundamental breach should be seen as, in principle, distinct from the right to terminate for repudiation. For present purposes, it is immaterial whether repudiation and fundamental breach are treated as separate categories, for in either case the innocent party can rescind the contract and recover damages to compensate him for the failure to perform the contractual obligations. Counsel for the respondent, in their alternative argument, sought to bring the case within this principle. A third situation in which a right to rescission arises is where there has been a breach of a fundamental or essential term of the contract. In Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [12] , Lord Upjohn said:

[16]

In my opinion it does not follow from the fact that the contract gave the respondent the right to terminate the contract that it conferred on it the further right to recover damages as compensation for the loss it will sustain as a result of the failure of the lessee to pay the rent and observe the covenants for the rest of the term. Clause 9(a) specifies a number of circumstances in which the rights conferred by that clause will arise. The first of those circumstances - where the rent is unpaid for fourteen days - is not described by reference to any breach, although it necessarily involves a default. The second case - that in which the lessee commits or suffers to occur any breach or default in the observance of any of the covenants of the lease - does depend entirely upon the lessee causing or suffering a breach to occur. The other conditions on which re-entry is available do not necessarily involve a breach of any covenant or condition of the lease. In some cases, whether or not there has been a breach, the right of re-entry given by cl. 9(a) may become available although the circumstances would not suggest that the position of the lessor under the lease has been substantially affected or threatened. For example, a lessee, who usually makes prompt payment of the rent, may allow a small amount of rent to fall in arrears for fourteen days. He may commit a minor breach of covenant, such as an insignificant failure to paint or repair or keep the premises clean. He may make an arrangement with his creditors the effect of which will nevertheless be that he can continue to pay the rent fully and on time. In all these circumstances the lessor is given the right to re-enter. However it would require very clear words to bring about the result, which in some circumstances would be quite unjust, that whenever a lessor could exercise the right given by the clause to re-enter, he could also recover damages for the loss resulting from the failure of the lessee to carry out all the covenants of the lease - covenants which, in some cases, the lessee might have been both willing and able to perform had it not been for the re-entry.

[20]

Thus, if the breach is of such a kind, or takes place in such circumstances as reasonably to lead to the inference that similar breaches will be committed in relation to subsequent deliveries, the whole contract may there and then be regarded as repudiated and may be rescinded. If, for instance, a buyer fails to pay for one delivery in such circumstances as to lead to the inference that he will not be able to pay for subsequent deliveries the other contracting party will be under no obligation to wait to see what may happen; he can at once cancel the contract and rid himself of the difficulty. Those words however must be read as applicable to the facts of the case in relation to which they were spoken, and they cannot be understood as laying down the proposition that if one party to a contract commits any breach, however slight, and the inference is that he would probably commit similar breaches in the future, this in law amounts to repudiation: see Decro-Wall S.A. v. Marketing Ltd. [18] . The evidence in the present case made it possible to infer that the lessee would have continued to find it difficult to make prompt payments of rent, but it did not show how long the difficulties of the lessee were likely to last or whether its financial position was likely to improve or to deteriorate. They did not show that the rent would not be paid - in fact, in the past, the rent had rarely been more than two months in arrears. Little evidence was given on this issue, and the learned trial judge did not make any finding of fact with regard to it; it was not necessary for him to do so, because of the effect which he attributed to cl. 9(a). It is in my opinion not possible to conclude that there was a fundamental breach of the contract which would have entitled the respondent to rescind it under the general law, and to recover damages for total breach. 1. [1934] 1 K.B. 148, at p. 156. 2. (1908) 14 Com. Cas. 25, at p. 29. 3. [1971] 1 W.L.R. 361, at p. 369; [1971] 2 All E.R. 216, at p. 223.

[42]

The test of essentiality is whether it appears from the general nature of the contract considered as a whole, 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 that this ought to have been apparent to the promisor: 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. In D.T.R. Nominees Pty. Ltd. v. Mona Homes Pty. Ltd. [28] in the course of a joint judgment, Stephen, Mason and Jacobs JJ. emphasized - that the quality of essentiality depends for its existence on a judgment which is made of the general nature of the contract and its particular provisions, a judgment which takes close account of the importance which the parties have attached to the provision as evidenced by the contract itself as applied to the surrounding circumstances. Clause 9(a) does not achieve the effect for which the Board contends. It does not categorize the covenant to pay rent as an essential term. On the contrary, it treats the due payment of rent in the same way as it deals with the "due and punctual observance and performance of any of the covenants obligations and provisions of this lease". Some of those covenants cover matters of comparatively minor importance such as the maintenance of the lawns or the painting of the premises. It is understandable that the parties should agree that the lessor should have a right to re-enter and forfeit the lease if the rent is not paid or the covenants not observed, but the intrinsic nature of the obligations in question lend no support to an inference of essentiality carrying in the event of default and termination a right to damages for the loss of the contract. It is one thing to be able to rid oneself of an unsatisfactory tenant; but it is quite another, requiring a clear expression of intention, to be able to hold the evicted tenant liable for whatever damages might be suffered as a result of the premature termination of the tenancy. The Board points to the express reference in the clause to "damages as a result of any such event" as indicating the extent of the remedy available to the lessor following the exercise of the power to re-enter conferred by the clause. It may be that the scope and operation of this clause is obscure, but I find it impossible to give to it the effect for which Mr. Hodgson contends. The words "such event" must refer to the non-payment of rent or breach of covenant, and the damages must bear the necessary relation to that event. Damages do not usually flow from a failure to pay money, the proper recourse being an action for the debt: see McGregor on Damages, 14th ed. (1980), pars. 844-848. 1. (1938) 38 S.R. (N.S.W.) 632, at pp. 641-642. 2. (1951) 83 C.L.R. 322, at p. 337. 3. (1978) 138 C.L.R. 423, at p. 431.

At a glance

Court

Decision date

Before

Source

Judgment (47 paragraphs)

Parties