The Law Handbook

YOUR PRACTICAL GUIDE TO THE LAW IN NEW SOUTH WALES

14th EDITION

REDFERN LEGAL CENTRE PUBLISHING

Published in Sydney
by Thomson Reuters (Professional) Australia Limited
ABN 64 058 914 668

19 Harris Street, Pyrmont NSW 2009

First edition published by Redfern Legal Centre as The Legal Resources Book (NSW) in 1978.
First published as The Law Handbook in 1983
Second edition 1986
Third edition 1988
Fourth edition 1991
Fifth edition 1995
Sixth edition 1997
Seventh edition 1999
Eighth edition 2002
Ninth edition 2004
Tenth edition 2007
Eleventh edition 2009
Twelfth edition 2012
Thirteenth edition 2014
Fourteenth edition 2016

Note to readers: While every effort has been made to ensure the information in this book is as up to date and as
accurate as possible, the law is complex and constantly changing and readers are advised to seek expert advice
when faced with specific problems. The Law Handbook is intended as a guide to the law and should not be used as
a substitute for legal advice.

National Library of Australia

Cataloguing-in-Publication entry

The Law Handbook : Your practical guide to the law in NSW / Redfern Legal Centre.
14th edition.
Includes index
ISBN: 9780455238180
Law – New South Wales – Handbooks, manuals, etc
Legislation – New South Wales
Jurisprudence – New South Wales – Handbooks, manuals, etc
Civil rights – New South Wales – Handbooks, manuals, etc

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This edition is up to date as of 1 October 2016.

The Law Handbook is part of a family of legal resource books published in other states:
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 11
Contracts
Michael Quilter Faculty of Business and Economics, Macquarie University

Contents
[11.20] The development of contract [11.140] The terms of a contract
law
[11.200] Ending a contract
[11.50] Essentials of a valid contract
398 The Law Handbook

[11.10] The basic principles of contract services for personal or household use).
Contract law provides a framework to help
law are discussed in this chapter. These
resolve disputes and enforce rights and
apply to purely commercial transactions
(such as between a manufacturing business obligations. It supports economic growth by
and its supplier), as well as transactions giving individuals and businesses the pre­
where one of the parties is a consumer (a dictability and confidence to trade, associate
consumer is a person who acquires goods or and invest.

The development of contract law

[11.20] Contracts under Limited bargaining opportunity
In practice there is usually little opportunity
common law for bargaining – goods and services are
Contract law is largely a product of the typically offered to the consumer on a “take
common law – it has been developed by the it or leave it” basis, under a standard form
courts rather than by parliament passing contract (where the contract is in writing).
laws.
A basic common law principle is the [11.40] Consumer legislation
assumption that a contract is a bargain made To some extent, the common law of contract
freely between equal parties (freedom of has evolved to take account of these market­
contract). Because of this, courts have been place developments.
unwilling to set aside or alter contracts The major force for change, however, has
except in limited circumstances. In the com­ come not from the courts but from state and
mon law, even where there has been unfair­ federal parliaments. Particularly since the
ness or sharp practice, the principle of 1970s, parliaments have introduced a wide
sanctity of contract has generally prevailed, range of laws designed to protect consumers
and contracts have been upheld. and enhance the rights and remedies avail­
able to them.
[11.30] Modern consumer
The most important general consumer protection laws,
issues such as the Australian Consumer Law, as well as more
These days the assumption that contracts specific consumer protection legislation (such as the
Motor Dealers and Repairers Act 2013 (NSW)), are
are freely made by equal parties no longer discussed in Chapter 10, Consumers.
applies in the consumer context and here
parliament has intervened to protect
consumers.
The careful consumer
Avoiding problems is better than trying to
Unequal bargaining power fix them. Problems in contracts can often be
In the modern marketplace most consumer avoided by taking a few practical steps:
goods and services are manufactured, mar­
• thinking about what you want the prod­
keted and sold by large businesses with
uct to do, or if you are entering a contract
access to expertise and resources far greater for the provision of a service, the outcome
than those available to the ordinary you expect at completion of the work
consumer. There is usually a marked in­
• seeking advice or having an expert check
equality of bargaining power between the the product, or with the provision of a
parties, not the equality that contract law service, getting a second opinion
has traditionally assumed.
• shopping around for the best deal, com­
paring quality and price
 11 Contracts 399

• inspecting goods carefully, or with the contracts, offer forms, order forms, authori­
provision of a service checking references sations or whatever) without reading them
or viewing previous jobs. and, if in doubt, get advice about them.
A good source of information is CHOICE, an Although consumer protection laws can
information body for Australian consumers assist unfairly treated consumers in certain
(www.choice.com.au). circumstances (see Chapter 10, Consumers),
Read before you sign in many cases once a contract is signed it is
Consumers should also be careful about very difficult to avoid its consequences.
signing documents (whether described as

Essentials of a valid contract

[11.50] A contract is a legally binding These elements are considered in detail
below.
agreement – that is, the law will enforce it.
For a contract to be valid (and thus
enforceable), a number of requirements must [11.60] Agreement between
be satisfied: the parties
• there must be a concluded agreement be­
tween the parties; this usually involves Offer and acceptance
the acceptance of an offer There is a concluded agreement between
• the parties must have the intention that parties when one party has made an offer to
their agreement be legally binding do (or not do) something and the other
• some benefit or value (consideration) must party has:
be given by each party in exchange for • unconditionally accepted that offer, and
the other party’s promise to do, or not do,
whatever the agreement requires • communicated acceptance to the first
party.
• the terms of the agreement must be
Most consumer contracts are formed in this
certain, so that it is possible to work out
what the parties intended their words to way. The agreement does not have to be in
mean writing, or even stated; the parties can
satisfy the conditions by their actions. For
• the parties must have the legal capacity to
example, when a person buys goods from a
enter into the contract
shop, handing over money constitutes the
• some types of contracts must meet certain offer by the consumer to buy particular
formal requirements; for example, a con­ goods, while taking the money constitutes
tract for the sale of land must be in
acceptance of the offer by the shop.
writing
• each party’s consent to the agreement Offer and counter-offer
must be genuine. The contract’s validity
may be affected by one or more factors If A makes an offer and B, instead of
that the courts regard as vitiating (remov­ accepting it, responds with a counter-offer,
ing any real consent between the parties) there is no agreement as yet. If A accepts B’s
counter-offer, there is an agreement.
• the person seeking to enforce the contract
Consumer contracts are often formed in
must be a party to it (there must be privity
of contract between the parties) this way. For example, when someone buys
a car, the price (and possibly other terms) is
• to the extent that the objects or purposes
usually agreed after a number of counter­
of the contract are contrary to law, the
offers have gone back and forth between the
court will not enforce it (legality of
contract). parties.
400 The Law Handbook

Revoking an offer Unilateral contracts

Before an offer is accepted there is no legal Generally, contracts are bilateral; each party
obligation on either party, and each is free to promises to do or not do something.
decide not to go ahead with the deal. However, there is also a class of contracts
Therefore, an offer can be withdrawn (re­ under which only one party promises to do
voked) at any time before it is accepted, as something. These are known as unilateral
long as the withdrawal is communicated to contracts.
the other party.
The offer, if it is in writing, often specifies Offering a reward
how the withdrawal must be communi­ The reward situation demonstrates a unilat­
cated; for example, that the offer may only eral contract. For example, if A offers a
be revoked by notice in writing (communi­ reward for the return of a lost dog, B is
cating withdrawal of an offer in writing is unlikely to promise to find and return the
sensible anyway). dog. However if, in response to the offer,
Rejecting an offer and before the offer is revoked, B does find
and return the dog, the contract is now
An offer may be rejected by words or
actions. Once rejected, it terminates complete. B has accepted the offer by per­
automatically, and the person who made it forming the very act which A requested, and
is under no obligation to go ahead if the A is now bound to pay the reward.
other party changes their mind and decides
to accept. A counter-offer acts as a rejection. Are advertisements offers?
The general rule about things such as advertisements,
How offers are made and accepted catalogues and shop displays is that they are not offers
by the seller but “invitations to treat” - an indication
There are a number of technical rules about offer and
that the seller is willing to consider offers to purchase
acceptance but, generally, an offer is made if the person
making it is prepared to be bound without further the goods at the advertised price. The contract is
negotiation on terms. A person to whom an offer is formed not when the consumer offers the advertised
made accepts it if, in response to the offer, they price, but when the seller accepts the money. This
unconditionally promise to do what the terms of the means that the seller can refuse the buyer's money
offer require, and communicate this acceptance to the without being in breach of contract if, for example:
person who made the offer.
• the price has gone up since the advertisement
• the goods are no longer in stock
• the price was wrongly stated
Conditional contracts • the seller simply no longer wants to sell the goods.
The parties may reach an agreement but
Although the consumer has no remedy against the
make it subject to a certain event occurring,
advertiser in contract law, there may be other remedies
and until it does there is no contract and no available under consumer protection laws. See Chap­
obligation on the parties. If the event does ter 10, Consumers.
not occur, the parties do not have to go
ahead with the contract.
A common example of a conditional
contract is an agreement to purchase goods [11.70] Intention to be legally
“subject to finance”. If the buyer cannot
obtain finance, they do not have to purchase bound
the goods. The second element necessary for a valid
Note, however, that conditional contracts and enforceable agreement is that the parties
often contain terms requiring one or both intend that the agreement should be legally
parties to take reasonable steps to do what is binding. This intention is rarely stated, but
required to allow the contract to be com­ can be inferred from the circumstances. The
pleted (for example, take reasonable steps to intention is present in commercial transac­
obtain finance). tions and in ordinary consumer transactions.
 11 Contracts 401

token or “peppercorn” consideration, if that

Agreements between relatives or friends
is what has been agreed, is enough.
The law does not generally assume that relatives or
friends intend their agreements to be contracts. For
example, if A agrees to lend her car to her niece for a What is not valid consideration
week in exchange for the niece helping her paint her There is no valid consideration where the
house, then changes her mind, it is unlikely that the “consideration” is:
court would find that the parties intended their agree­ • so vague as to be meaningless
ment to be legally binding and enforceable by the court.
• merely the performance of an existing
However, if it can be established that they did intend legal duty – something A is legally
their agreement to be legally enforceable, the law will obliged to do anyway, or
treat it as such. In some circumstances the court may be
convinced that even related parties did intend to create • a promise to compensate for something
legal relations; for example, where an agreement is already done without expectation of pay­
made between a divorcing husband and wife, or be­ ment - a promise made after the perfor­
tween a father and daughter who do business with one mance of an act (past consideration).
another. Instances where a person has forgone a finan­
cial opportunity, or incurred expense as the result of an
offer by a relative or friend, may also result in a court Contracts under seal or deed
finding the requisite commercial intention. If there is no consideration (that is, one party agrees to
give something but receives nothing in return), the
agreement can still be made legally binding if it is in the
form of a contract under seal or deed. In most cases (not
[11.80] Consideration all) a deed is enforceable like an ordinary contract.

Generally, the law of contract does not

enforce promises made without the expecta­
tion of any return. Unless the contract is a [11.90] Legal capacity to
contract under seal or deed (see Contracts
under seal or deed below), to be enforced it enter contracts
requires that B gives consideration – some­ Some people’s capacity to enter into valid,
thing of value – in exchange for A’s promise enforceable contracts is limited by law.
to perform the contract.
For an ordinary consumer transaction, the Intellectual disability or mental illness
consideration is simply the price the pur­ A person with an intellectual disability or
chaser agrees to pay for the product or mental illness is legally capable of entering
service. into a binding contractual arrangement.
However, the person can have the contract
Who must receive the consideration? set aside if they can show:
While the agreed consideration must be • that they were incapable of understand­
given by the person receiving the benefit of ing the nature of what they were agreeing
the promise, it need not necessarily be given to when the contract was made, and
to the promise-maker. For instance, an agree­ • that the other party knew or ought to
ment whereby A promises to pay B a sum of have known of their disability or
money if B renovates C’s house will be condition.
regarded as being supported by consider­ The required level of understanding varies
ation and will be enforceable by both A and according to the nature and complexity of
B (assuming the other elements of a valid the contract. For example, a person may
contract are present), but not by C. have the capacity to understand a contract
to buy goods from a supermarket, but not to
What is valid consideration? understand a mortgage.
As long as the agreed consideration is given The ability to have a contract set aside on
for A’s promise, it does not matter whether the basis of disability or mental illness may
it reflects the usual or market value of what be lost if, at a time when the person has
A has promised to do, or not do; even a recovered their mental capacity, they show
402 The Law Handbook

by words or conduct that they intend to actions that they wish to continue with it)
continue with the contract. (s 30), and
• the repudiation occurs before the minor
Requirement to pay for necessaries
turns 19 (s 31).
Even where the contract is set aside, the The critical period is the year after the
person is still liable to pay a reasonable price minor’s 18th birthday. The right to repudiate
for any goods or services provided if they is lost once:
can fairly be regarded as “necessaries” (both
• the contract is affirmed, or
at common law and under s 7 of the Sale of
Goods Act 1923 (NSW)). • the person turns 19.
Goods are necessaries if they are suitable Settling disputes
to the “condition in life” of the person
If there is a dispute about the effectiveness
ordering them and to the person’s actual of the repudiation, or about money paid or
requirements at the time of sale and delivery. goods or services received before
repudiation, either party can apply to the
Intoxication
court (the Local, District or Supreme Court,
Considerations similar to those applying to depending on the amount in dispute – see
a person with intellectual disability or men­ Chapter 1, About the Legal System and
tal illness apply to a person who was Chapter 14, Criminal Law).
intoxicated by alcohol or drugs at the time The court can:
of entering into the contract.
• confirm the contract (decide that the
Minors repudiation has no effect), or
In NSW, a person has full capacity to enter • order each party to compensate the other
into a contract when they reach 18 (the age of for goods or services received so that, as
majority). far as possible, they are in the same
People under 18 are minors. Contracts position as they were before the contract
entered into by minors are covered by the was made (Minors (Property and Contracts)
Minors (Property and Contracts) Act 1970 Act, s 37).
(NSW). In general, a contract made by a A party will rarely be entitled to the return
minor will be binding from the outset if: of property previously transferred under the
• it was for the minor’s benefit when it was contract.
entered into (s 19), and
• the minor knew they were making a Bankrupts
legally binding agreement (s 18). The Bankruptcy Act 1966 (Cth) restricts bank­
If these two conditions are met, the minor rupt persons obtaining credit or entering
will not be able to get out of the contract into contracts for goods or services involv­
simply because they were under 18 when it ing an obligation to pay more than a certain
was made. amount (ss 269, 304A) without informing
the other party of the bankruptcy. However,
Repudiating a contract the person’s general capacity to enter con­
Repudiation is also covered by the Minors tracts is not lost because of bankruptcy.
(Property and Contracts) Act. If the contract
was not for the minor’s benefit when it was [11.100] Formal requirements
entered into, or the minor did not under­ There is no general requirement that a
stand what was done, the minor can end the contract be in writing, and oral agreements,
contract (repudiate it) by serving a signed that meet the requirements for a valid
written notice on the other party (s 33), if: contract, will be enforced by the courts
• the contract is not for the minor’s benefit (although where the terms of a contract are
at the time of repudiation (s 31) in writing they will be more easily identified
• the minor did not affirm the contract after and provable). However, some contracts are
turning 18 (that is, show by words or not legally binding unless they meet certain
 11 Contracts 403

formal requirements. For example, some This defence is only available where:
must be in writing, including: • the person had no ability to understand
• agreements for the sale and purchase of what they were doing, and
land (see Buying a home in Chapter 27, • allowing the defence would not be unjust
Housing) to the other party.
• credit contracts (see Chapter 13, Credit). Successful non est factum claims are very
rare.
[11.110] Genuine consent
Sometimes a contract will not be upheld Rectification of a written contract
because there was a lack of genuine consent Rectification of a written contract is allowed where an
on the part of one (or more) of the parties. obvious mistake or “slip” has been made when a
previously complete agreement is put into writing.
Mistake
Generally, a person must fulfil their obliga­
tions under a contract even if they made a
mistake (about, perhaps, the quality of Misrepresentation
goods bought under the contract). The common law doctrine of misrepresenta­
However, if the person makes a mistake of tion applies to statements that induce a
fact of a particular kind, the contract may be person to enter into a contract (in contrast to
void (in effect, there is no contract), or statements forming part of the contract
voidable. The types of mistake that have this itself). Common law misrepresentation is
effect are discussed below. established where the statement:
• relates to a matter of fact (not law, future
Common mistake
intention or opinion), and
In the common mistake situation, both parties • is false, and
are under the same misapprehension (for • is made with the intention of persuading
example, A sells goods to B which have been the other party to act on it, and
destroyed, but neither A nor B is aware of • is one of the circumstances inducing the
this). other party to enter into the contract.
Mutual mistake If misrepresentation is established, the per­
In the mutual mistake situation, the parties son may be able to rescind (get out of) the
are at cross-purposes about the subject contract. They may also have a right to
matter of the transaction (for example, A claim damages (financial compensation) for
thinks he is buying a particular table while B any loss suffered as a result, but only if the
thinks she is selling him a quite different other party acted either fraudulently or
table). negligently.

Unilateral mistake Fraudulent misrepresentation

In the unilateral mistake situation, one party The conduct of the person making the
is mistaken about the terms of the contract statement may have been fraudulent if:
or the identity of the other party and the • they knew it was false when it was made,
other party knows this, or ought to know it. or
• they didn’t care whether it was true or
Non est factum not (it was made “with reckless
In the non est factum (“it is not my deed”) indifference”).
situation, a person signs a document funda­ Fraudulent misrepresentation requires a
mentally different in character from what high degree of proof, and is difficult to
they thought they were signing (for example, establish without strong evidence.
A signs a document giving B an option to Negligent misrepresentation
buy A’s property, under the impression that If the person making the statement was in a
it is an authority to enter and inspect the special relationship with the other party
property). which meant that they had a duty to ensure
404 The Law Handbook

that the statement was true, their conduct Duress

may have been negligent. Such a duty arises Undue influence applies where a person’s
when: will is overcome. Duress applies in the more
• the person making the statement could extreme situation where someone enters a
reasonably be expected to foresee that the contract against their will in response to
other party would rely on it, and such things as actual or threatened violence
• it was reasonable for the other party to or unlawful imprisonment. The threats or
rely on it in the circumstances. violence may be directed against the person
signing, a family member or someone else
Innocent misrepresentation with whom they are closely connected. In
The misrepresentation is innocent, and no some cases duress may take the form of
damages can be claimed, if the person illegitimate economic pressure upon a per­
making the statement: son in business to enter a contract against
• did not know it was false their wishes.
• was not careless about its truth, and Duress is hardly ever relevant to con­
• was under no duty to ensure its truth. sumer transactions. It is often appropriate to
refer a situation involving duress to the
Consumer protection legislation police.
The common law doctrine of misrepresenta­
tion has been largely replaced as far as Unconscionable dealing
consumer contracts are concerned by con­ According to case law in this area, the
sumer protection legislation (the Australian unconscionable dealing doctrine applies where:
Consumer Law) in both federal and NSW
jurisdictions (see Chapter 10, Consumers). • one party is at a “special disadvantage”
The common law doctrine is still relevant or under a “special disability”, and
however, but only where the legislation does • the stronger party knew about it, or
not apply to the particular transaction in ought to have known about it, and
question. • the stronger party takes advantage of the
weaker party’s special disadvantage in a
Undue influence way which is not consistent with good
The doctrine of undue influence is relevant if conscience.
someone enters into an agreement, but their
decision to enter into that agreement was Special disadvantage or special disability
not a free and independent decision due to A person may be at a special disadvantage
the undue influence of another person. or special disability because of age, illness,
This doctrine can generally be relied on inexperience, ignorance, impaired faculties,
only when someone has entered into an drunkenness, illiteracy, or other circum­
agreement that is clearly not in their stances or combination of circumstances.
interests. The disadvantage must be special, not just
the disadvantage of unequal bargaining
Onus of proof power. It must seriously affect the person’s
In certain relationships (such as parent and ability to look after their own interests.
dependent child, trustee and trust
beneficiary, solicitor and client, religious Evidence of unconscionable dealing
adviser and follower, doctor and patient) the The focus is on whether the circumstances of
onus of proof rests with the dominant party the negotiations were unconscionable (proce­
to show that the transaction was not the dural unconscionability), rather than whether
result of undue influence. the terms of the contract are unconscionable
In other relationships (such as husband (substantive unconscionability). Harsh or un­
and wife) the onus of proving the claim rests reasonable terms (from the weaker party’s
with the party claiming to have been unduly point of view) may, however, suggest that
influenced. unconscionable dealing has occurred.
 11 Contracts 405

Consumer protection legislation – a fraud on a third person

The doctrine has been extended, in the case • contracts to fraudulently avoid paying
of consumer contracts, by legislation prohib­ government taxes and charges
iting unjust contracts and unconscionable • contracts harmful to:
conduct (see Chapter 10, Consumers).
– public safety
[11.120] Privity of contract – the administration of justice
Only a party to a contract can enforce it or – public life generally
have it enforced against them. This is called • contracts for a sexually immoral purpose.
the doctrine of privity. The courts will also refuse to enforce a
A person who did not directly participate contract to do anything prohibited by statute.
in dealings leading to a contract may still be
a party to it if the person who negotiated it The effect of entering a contract
acted on their behalf as an agent or through A contract is formed when an offer is accepted (when
a power of attorney. the essentials of a valid contract exist - see Essentials of
a valid contract at [11.50]), and from that moment the
[11.130] Illegal contracts parties are legally bound to perform their obligations.
The terms of the contract can be changed only if all
As a matter of public policy, the courts will parties agree to the changes. If a party fails to carry out
not enforce contracts that are illegal. Ex­ their obligations, they will be “in breach of contract”,
amples are: and the other party may be entitled to end the contract
• contracts to commit: and/or be compensated for the breach.
– a crime
– a civil wrong

The terms of a contract

[11.140] A contract basically consists of Implied terms
Apart from the express terms in a contract
various promises made by the parties; for
certain other terms may be implied or
example, A promises to deliver certain goods
included into the contract by:
to B and B promises to pay A a certain sum
of money. These promises are known as the • a court (such as the need to imply terms
terms of the contract. that make sense of or give effect to the
parties intentions — “business efficacy”)
[11.150] Express and implied • custom or trade usage
terms • legislation.
The terms of a contract may have been Terms implied by legislation
expressly agreed to by the parties, or they The most important implied terms for con­
may be implied. sumers are those in consumer protection
legislation, which may imply conditions
Express terms
about quality, fitness for purpose, and the
If the contract is oral then the express terms
exercise of due care and skill into various
will be those actually used by the parties at
types of consumer contracts (see Chapter 10,
the time of formation of the contract. If the
Consumers).
contract is in writing the express terms will
be those set out in the written document.
406 The Law Handbook

[11.160] Written and oral In a signed document

If a document containing an exclusion clause
terms is signed, the clause becomes part of the
The terms of a contract may be in a contract.
document (signed or unsigned), or in oral
statements, or may be partly written and In an unsigned document
partly oral. If there is no signed document the person
seeking to rely on the exclusion (in con­
Documents that are not signed sumer transactions this will be the trader)
When the terms of a contract are in writing must show that the other party was aware
but not signed (for example, the terms on of the clause, or that steps were taken to
the back of a ticket or on a sign in a store), draw the exclusion clause to the other
they are considered to be part of the contract party’s attention before the contract was
if the party wishing to enforce them can made – that is, before the offer was accepted
show that either: (see Written and oral terms at [11.160]).
• the other person knew they were there, or
• reasonable steps were taken to draw the A common exclusion clause
terms to the person’s attention before the
A person drives into a parking station and takes a ticket
contract was made.
from a machine. There is a contract; an offer has been
made by the parking company and accepted by the
[11.170] Conditions and driver. If there is a clause on the ticket excluding any
responsibility for damage to the car while it is parked
warranties however, it will probably only be effective if the com­
At common law a term of a contract may be pany took reasonable steps to draw attention to it
before the driver completed the contract by taking the
either: ticket (for example, by a sign at the entrance).
• a condition, or
• a warranty.
A condition is a term without which there
would be no contract. It goes to the heart of What cannot be in an exclusion clause
the contract. A warranty is a term dealing The Australian Consumer Law implies a
with a less important aspect of the contract. number of “guarantees” - such as fitness for
purpose and acceptable quality - into all
Why it matters
consumer contracts. Terms in consumer con­
Whether a term is a condition or a warranty
can be important if there is a breach of tracts which purport to exclude these guar­
contract. The breach of a condition entitles antees are void. However, terms may “limit”
the party not at fault to terminate the liability for breach of such guarantees, so
contract, whereas a breach of warranty only long as the limits are fair and reasonable
gives a right to sue for loss or damages (see (Australian Consumer Law, s 64A).
Ending a contract by breach at [11.250]).
[11.190] Cooling-off periods
[11.180] Exclusion clauses A cooling-off period is a time after a contract is
It is quite common for traders to put an made in which a party can decide not to go
exclusion (or exemption) clause in a contract ahead with the contract, without penalty or
that excludes or limits their liability for with a minimal penalty only.
defects in goods or for damage done to the
consumer or their property by, or as the Right to a cooling-off period
result of the use of, the goods. These clauses There is no general legal right to a cooling-
are almost always contained in a written off period, and only a few areas where the
document, which may or may not be signed. right is conferred by statute.
 11 Contracts 407

Statutory cooling-off periods

Statutes that provide for cooling-off periods include the: can be excluded, or extended, if the parties agree. A
• Conveyancing Act 1919 (NSW) (a five business day decision to terminate must be in writing, and the
cooling-off period in contracts for land purchase purchaser must pay $250 or 2% of the price (s 85)
(s 66S), which can be excluded if the parties agree • Corporations Act 2001 (Cth) (a 14-day cooling-off
and the purchaser has received legal advice (s 66W)) period in relation to “financial products” (defined in
• Motor Dealers and Repairers Act 2013 (NSW) (a s 763A), including investment and insurance
one-day cooling-off period for car purchases where (s 1019B)).
a dealer has provided or arranged credit (s 80), which

A cooling-off period as a term in a period as a term of the contract. In standard

contract consumer transactions this is very rare.
The parties can agree to include a cooling-off

Ending a contract
[11.200] A contract may be discharged Consideration in the new contract
Where both parties still have obligations
or terminated in a number of ways.
under the old contract, the new contract will
consist of promises by each party not to
[11.210] By performance enforce the promises made under the old
The contract ends automatically when the contract, so each receives something of
parties have carried out all their obligations. value.
If one party has already performed their
[11.220] By agreement obligations but the other has not, there may
not be enough “consideration” to make the
Termination specified in the contract agreement legally binding. The other party
The contract itself can specify that it will must give something of value; or alterna­
end: tively the agreement could be documented
• at a particular time (for example, a as a deed (see Chapter 1, About the Legal
contract to rent a fridge for six months), System).
or
• because of the occurrence (or otherwise) [11.230] By frustration
of a specified event (for example, an Sometimes, after the parties have entered
agreement to buy a car may include a into the contract, an unforeseen event occurs
provision that the contract terminates if that results in a situation fundamentally
the buyer cannot obtain finance). different from that which the parties had in
mind when the contract was made; for
New contract of termination example, the contract is for a personal
The parties can agree to end the contract at service and the person who was to perform
any time after it has been made. This it dies.
agreement is also a contract, and all the In such cases the law regards the agree­
elements listed in Essentials of a valid ment between the parties as having been
contract at [11.50] must be present, including frustrated, and at an end. In NSW, such
consideration. agreements come under the Frustrated Con­
tracts Act 1978 (NSW).
408 The Law Handbook

In some cases a party might be able to Where the right is contained in the contract
claim compensation for an obligation that Some contracts contain a term giving one
was supposed to be performed before the party the right to terminate following a
contract was frustrated but was not per­ particular kind of breach (or any breach) by
formed (s 7). the other party. Any clear provision to this
Where one party has fulfilled their part of effect is decisive.
the contract and has not received any benefit Where the breach is serious
from the other – for example, by paying for
Where the contract has no term giving a
something that was then destroyed – the
party the right to terminate the contract
other party may be required to return the
following a breach, only a serious breach
money (ss 10, 11).
will give the other party a right to terminate.
A serious breach is:
[11.240] By repudiation • a breach of a condition or fundamental
Where one party by word or act indicates, term (a term is fundamental if the other
either before or during performance of their party would not have entered the con­
obligations under the contract, that they are tract unless they believed it would be
not willing to perform or continue perform­ fulfilled)
ing those obligations, that party is said to • a breach that substantially deprives the
repudiate the contract. other party of what they intended to
Repudiation by one party gives the other obtain under the contract.
the right to terminate the contract and sue A party who decides to terminate a contract
for damages. For example, if A agrees to sell for breach should notify the other party
a car to B, then sells it to C who has made a immediately. The right to terminate can be
better offer, A has repudiated the agreement lost by delay, leaving the innocent party
with B who can immediately terminate the with only a right to damages.
contract and sue A for any loss suffered as a Effect of the termination
result of the repudiation. Termination of the contract means that both
parties are released from their future
[11.250] By breach obligations, but any rights which either
The contract may come to an end if one party already had (such as the right to be
party commits a serious breach of contract. paid compensation for the breach) remain.
A party who fails to carry out an obliga­
tion under a contract is in breach of contract. Has a breach occurred?
This may happen in various ways (for It can sometimes be hard to decide whether
example, when a retailer supplies defective a breach has occurred and whether it gives
goods or a borrower makes a late payment). rise to a right to terminate (either at law or
The consequences depend on the serious­ under the contract). A person should not
ness of the breach and the terms of the attempt to terminate a contract unless they
contract. are certain that:
Certain breaches give the innocent party • the other party has committed a breach,
the right to terminate the contract and
immediately, and to sue for damages suf­ • this breach gives them the right to
fered as a result of the breach. In other cases, terminate.
the innocent party has no right to terminate, Termination without legal entitlement
but can claim damages. Someone who attempts to terminate a con­
tract when they are not legally entitled to do
Right to terminate the contract so commits a serious breach, and could be
If one party breaches a contract, the other liable to pay damages to the other party.
party does not automatically have a right to
terminate it. This right is only available if: Damages
• it is provided for in the contract, or The innocent party is generally entitled to
• the breach is sufficiently serious. compensation for losses suffered due to a
 11 Contracts 409

breach of contract. However, not every loss damages must show the actual amount of
caused by a breach will be compensated. the loss caused by the breach.
If it can be shown that the party in breach
should have realised when they entered the The duty to mitigate
contract that the sort of loss suffered (if not When there is a breach of contract, the
its extent) was reasonably likely to result innocent party has a duty to take all
from the breach, compensation will be reasonable steps to minimise their losses
payable. Unusual losses will only be com­ (mitigation). If the party in breach can show
pensated if it was clear at the time of that the innocent party suffered a loss that
contracting that a special loss might occur in they could reasonably have avoided, the
the circumstances of the case. loss will not be compensated.
Damages are awarded for breach of con­
tract with the general aim of putting the For example …
innocent party in the position they would A homeowner employs a plumber to fix a pipe, but the
have been in if the contract had been next day the pipe springs a major leak. The homeowner
properly performed. tries to contact the plumber without success for three
days. By the time the plumber is informed of the
Damages clauses in the contract problem, major water damage has occurred.
The contract may indicate the damages to be The plumber will be able to argue that the homeowner
paid, or how damages should be calculated, should have employed another plumber to fix the pipe in
if there is a breach. the meantime, which would have greatly reduced the
damage caused by the leak. If this argument succeeds,
Pre-estimates of loss the homeowner will only be entitled to compensation
An agreed amount of damages for a breach for the initial damage, not for the damage occurring as a
result of the delay in having the work repaired.
must be a genuine pre-estimate of the likely
loss that would result from the breach. This
is then the amount to be paid if there is a
breach, regardless of the actual loss. Where Compelling performance
the agreed damages are not really a pre­ Under general contract law, it is rare for a
estimate of loss, and are in fact a penalty for court to make an order requiring the party
breaching the contract, the amount of dam­ in breach to perform the contract, as dam­
ages is limited to the actual loss suffered ages are usually considered adequate
rather than the agreed amount. compensation. Contracts for the sale of land
Where payment is by an initial deposit, are an exception. In such contracts, the court
followed later by the balance, the contract may order the party in breach to carry out
may provide that the damages will amount the contract and complete the sale.
to the loss of the deposit. In contrast to the position under the
general law, specific performance type rem­
Where there is no provision for edies are available under various statutory
damages consumer protection laws (see Chapter 10,
If there is nothing in the contract about the Consumers).
amount to be paid, the party claiming
410 The Law Handbook

Contact points
[11.260] If you have a hearing or speech impairment and/or you use a TTY, you can
ring any number through the National Relay Service by phoning 133 677 (TTY users,
chargeable calls) or 1800 555 677 (TTY users, to call an 1800 number) or 1300 555 727 (Speak
and Listen, chargeable calls) or 1800 555 727 (Speak and Listen, to call an 1800 number). For
more information, see www.relayservice.gov.au.
Non-English speakers can contact the Translating and Interpreting Service (TIS National)
on 131 450 to use an interpreter over the telephone to ring any number. For more information
or to book an interpreter online see www.tisnational.gov.au.

Australasian Legal Information ph: 9577 3399 or 1800 069 552 NSW Civil and Administrative
Institute (AustLII) Department of Justice (NSW) Tribunal (NCAT)
www.austlii.edu.au www.ncat.nsw.gov.au
www.justice.nsw.gov.au/
Australian Competition and ph: 1300 006 228
Financial Rights Legal Centre
Consumer Commission (ACCC)
www.financialrights.org.au NSW Fair Trading
www.accc.gov.au
www.fairtrading.nsw.gov.au
ph: 9230 9133 Formerly the Consumer Credit
Legal Centre. It offers advice and ph: 13 32 20 or 9895 0111
Infoline: 1300 302 502 advocacy for consumers in Financial Ombudsman Service
Association for Data-Driven financial stress. Australia
Marketing and Advertising
ph: 9212 4216 www.fos.org.au
(ADMA)
www.adma.com.au Credit & Debt hotline: 1800 007 ph: 1800 367 287
007
ph: 9277 5400 Public Interest Advocacy Centre
Law and Justice Foundation of www.piac.asn.au
Australian Retailers’ Association NSW
www.retail.org.au ph: 8898 6500
www.lawfoundation.net.au
ph: 1300 368 041 Standards Australia
Legal Aid NSW
Australian Securities and www.standards.org.au
www.legalaid.nsw.gov.au
Investments Commission (ASIC) ph: 9237 6000
www.asic.gov.au Legislative and Governance
Forum on Consumer Affairs Telecommunications Industry
ph: 1300 300 630 Ombudsman (TIO)
(CAF) (formerly the Ministerial
CHOICE Council on Consumer Affairs) www.tio.com.au
www.choice.com.au www.consumerlaw.gov.au ph: 1800 062 058