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Legal Services Commission And Termination

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Question:

Discuss about the Legal Services Commission and Termination.
 
 

Answer:

Introduction:

Whether notice served by QLD Health to Centra-system can be considered as repudiation of contract by QLD Health. What are the liability issues that may be arise in this context?

Whether QLD Health can terminate the contract on the basis of time stipulation mention in the contract?

In Australia, contract can be discharged by many ways. Usually contract is discharged by the performance of the parties, but there are some other ways also such as discharge of contract for breach of contract (ACL, n.d.). Here we discus he discharge of contract for breach:

Contract can be terminated by non breaching party if:

  • Contract contains such term which allowed the party to terminate the contract for breach in specific conditions. For example- provision of the contract state that if goods are not delivered on specific date then other party have right to terminate the contract.
  • The breach conducted by other party is serious in nature.
  • Other party repudiates the contract that means they are not performing their obligations under the contract (ACL, n.d.).
 

Common law give right to terminate the contract in three circumstances:

Party breaches the essential term of the contract- Essential terms are those terms which are considered as conditions of the contract, but they are different from warranties. The test of essential term is conducted by the common intention of the parties which is mention in the contract as essential term, and breach of term would lead to termination of the contract.

The test for essential term is stated in case Tramways Advertising v Luna Park. In this case court held “condition is essential if promise is important for promisee and he would enter into contract only because promisor gives strict assurance to fulfill the promise”.

Serious breach of intermediate term- intermediate term is not falling under the category of essential term o non essential term. A party can terminate the contract on the breach of intermediate term if:

Breach conducted by party is of serious nature, and will touch the root of the contract.

Substantial benefit available to the party is deprived (K&L Gates, n.d.).

We can understand this with the help of case law Koompahtoo Local Aboriginal Land Council v

Sanpine. In this case, court held that because of breach Koompahtoo is not able to assess the financial position and failed to take informed decision. Therefore, termination is justified.

Repudiation of contract- it occurs when party to the contract is either unable or unwilling to perform the obligations stated in the contract. The intention of the party is clear that he needs no longer to bind with the contract. We can understand this with the help of case law that is Shevill v Builders Licensing Board (1982).

If repudiation is accepted by the innocent party then only contract is terminated, and it is necessary that innocent party must be willing to perform the contract (Chapple, n.d.).

Court held in some cases that contract is repudiated by party if it:

  • Terminate the contract, but party has no right to terminate the contract.
  • Party terminates the contract, but it makes mistake in termination procedure or

Party suspends the performance of its obligations in the contract, but it has no right to suspend the performance.

Party clearly state that it will not going to perform the contract (Ellison, n.d.).

 

Remedies for breach of contract:

There are two types of remedies available in breach of contract one is damages and other is equitable remedy. In case of damages party who breach the contract will pay damages to the other party as compensation.

Equitable remedy consist two types of remedy that is specific performance and injunction. In specific performance court order the breaching party to perform the contract in such way as specified by the court, and in injunction court order the   party not to do something (ACL, n.d.).

There is one more remedy available to the parties that are remedy to terminate the contract. In some cases provision of the contract clearly states that party can terminate the contract if other party breach the particular term of the contract or any other specific type of breach.

If contract does not expressed any such provision, then general is applicable which state that in case of serious breach of non essential term parties to the contract has right to choose whether or not to terminate the contract. To determine the seriousness of breach following conditions must be fulfilled:

It is necessary that breach has serious effect on the innocent party that means innocent party must be subsequently deprive from the benefit for which it entered into contract.

Breach must be of vital term that means at the time of signing the contract the words and conduct of party must show that it is essential for party that other party strictly with the term.

In case breach conducted by other party is serious then party can decided to end the contract or they can choose not to end the contract. If party choose not to end the contract then in such situation they still have right to claim the damages. In case party chooses to end the contract then they must immediately inform the other party (Legal Services Commission of SA, n.d.).

 

No waiver clause in agreement:

The main purpose of non waiver clause is to protect the rights and remedies of the party if such party fails to enforce its right or remedy in case of breach of contract whether intentionally or not. Usually, such clauses provide:

  • In case if one party fails to enforce its right or remedy than that does not consider as waiver of that right or remedy.
  • In case if one party waive breach of any term than that does not consider as waiver of breach of any other term.
  • If in any circumstances party waives the particular obligation then this act does not prevent the party in fulfilling the other obligation in any other circumstances.
  • Any kind of affirmation related to repudiatory breaches (Purslowe, n.d.; Bartley, 2009).

We can understand this with the help of case law Tele2 International Card Company SA and others v Post Office Limited [2009] EWCA Civ 9. In this case court held, whether election which exists is a question of fact. In this case continuance performance of the contract by POL without doing any protest was considered as confirmation of contract, which means that POL forgone the right to terminate the contract.

Court also held that non waiver clause in an agreement does not remove the obligation of the party to take step against breach, and this clause only helps in making the step clear and equal. It must be noted that the decision of this court is not binding on the Australian courts (Wilson & Shum, 2013; Lexology, 2009).

QLD Health entered into contract with Centra-systems, contract is cost of $ 18 million. In contract there is no provision which state that time is the essence of contract but at the time of signing the contract Centra-systems told QLD Health that time which is stated in contract is met by centra-systems. Contract also contain non waiver clause which specifies “In no circumstances shall any delay, omission or forebearance by any party in enforcing (in whole or in part) any part of this agreement be or be deemed to be a waiver thereof or a waiver of any other provision or shall in any way prejudice any right of that party under this agreement.” 

Centra systems have to deliver programs in 4 milestones to the QLD Health, and according to the provisions of the contract the milestones must be delivered within 3 monthly tranches. Milestone 1 and 2 was not delivered on time and they are approximately delivered after 8 weeks fro due date. These products are accepted by QLD Health without any comment or penalty. After missing delivery date of milestone 3 QLD Health send notice to Centra-Systems and state that unless the Milestone 4 deliverable is available within 10 days you will take the work out of the hands of Centra Systems and award the remainder of the contract to a new contractor.   In response Centra-systems state that by the previous conduct QLD Health waived its right to rely any of the time frames stipulated in the contract and if QLD Health does not immediately withdraw the notice, then this will be considered as a repudiation of the contract. 

 


In this case, QLD health has right to terminate the contract because breach of time frame by Centra systems is not the breach of essential term, but it is the breach of intermediate term and it has  serious consequence on the QLD Health. At the time of signing the contract QLD Health take assurance from centra system that they will complete the contract within time frame. Therefore they have right to terminate the contract.

Centra Systems argues that QLD Health waive its right by not taking action on time and accepting the late deliveries of product, but QLD health want to rely on the non waiver clause of the agreement. As stated in case Tele2 International Card Company SA and others v Post Office Limited [2009] EWCA Civ 9, non waiver clause in an agreement does not remove the obligation of the party to take step against breach, and this clause only helps in making the step clear and equal. Therefore QLD Health has no right to terminate the contract because they continued to perform the contract even after late deliveries of the product. In this QLD Health has no right to terminate the contract.

Centra Systems has right to considered the termination of contract as repudiation of contract because as we stated above if any party terminate the contract but it has no  right to terminate the contract then this will considered as repudiation of contract. Therefore, Centra Systems can take action against QLD health for repudiation of contract.

Conclusion:

In the present case Qld Health has no right to terminate the contract on the basis of non-waiver clause in the agreement, and if QLD Health still terminates the contract then this will be considered as repudiation of contract by QLD Health.

 

References:

ACL, Discharge by Breach, Retrieved on 14th December 2016 from: https://www.australiancontractlaw.com/law/termination-breach.html.

ACL, Performance and termination. Retrieved on 14th December 2016 from: https://www.australiancontractlaw.com/law/termination.html.

Koompahtoo Local Aboriginal Land Council v Sanpine.

Tramways Advertising v Luna Park.

K&L Gates, A Practical Guide to the Termination of Contracts. Retrieved on 14th December 2016 from: https://acla.acc.com/documents/item/1287.

Chapple, S. Termination of Contract: A practical guide on when and how to terminate a contract and common mistakes. Retrieved on 14th December 2016 from: https://13stjames.net.au/wp-content/uploads/2010/10/Termination-of-Contract-v2.pdf.

Elison, M. Common law right of termination. Retrieved on 14th December 2016 from: https://www.constructionlawmadeeasy.com/Commonlawrightoftermination.

ACL, Remedies. Retrieved on 14th December 2016 from: https://www.australiancontractlaw.com/law/remedies.html.

Legal Services Commission of SA. Right to terminate the contract. Retrieved on 14th December 2016 from: https://www.lawhandbook.sa.gov.au/ch10s02s11s01.php.

Purslowe, R. Waiver of Contractual Rights – An Analysis of Agricultural and Rural Finance Pty Limited v Gardiner. Retrieved on 14th December 2016 from: https://www.austlii.edu.au/au/journals/UNDAULawRw/2009/6.pdf.

Bartley, J. (2009). Beware the Non-waiver Clause. Retrieved on 14th December 2016 from: https://www.worldservicesgroup.com/publications.asp?action=article&artid=2995.

Wilson, M. & Shum, K. (2013). The doctrine of election and non-waiver clauses: implications for lenders. Retrieved on 14th December 2016 from: https://www.claytonutz.com/knowledge/2013/january/the-doctrine-of-election-and-non-waiver-clauses-implications-for-lenders.

Lexology, (2009). Waiving goodbye to a 'no-waiver clause'. Retrieved on 14th December 2016 from: https://www.lexology.com/library/detail.aspx?g=4ff447c6-ffdb-44a0-bbc7-316fff89bf40.

Tele2 International Card Company SA and others v Post Office Limited [2009] EWCA Civ 9.

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