Home Page | Cases | Luna Park v Tramways Advertising

Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd

High Court of Australia (1938) 61 CLR 286; [1938] HCA 66

Overview

Trams

Tramways Advertising agreed with Luna Park that it would display 53 boards on roofs of tram-cars for three seasons (October - March). The contract provided a guarantee that the boards would be on the tracks at least eight hours per day. Elsewhere in the contract reference was made the the average time each car was on the track (eight hours per day).

After the second season Luna Park complained that the boards were not displayed as agreed; in particular that each board was not on the tracks for at least eight hours per day. This was admitted by Tramways who argued that the obligation required only that each board be displayed for an average of eight hours per day. It was admitted that the boards had been displayed for an average of eight hours per day.

Luna Park subsequently purported to cancel the contract on the basis of the alleged breach; Tramways continued to display the advertisements and claimed for payment under the contract. When Luna Park refused Tramways brought action for default and Luna Park cross claimed for damages, alleging breach of a condition to display each board for eight hours per day.

The plaintiff succeeded at first instance and on appeal to the Full Court of the Supreme Court of New South Wales.

In the course of his judgment, Jordan CJ in the Full Court set out the principles relating to termination of contract for breach.

 

Facts

Tramways Advertising agreed with Luna Park that it would display 53 boards on roofs of tram-cars for three seasons (October - March).

A letter accompanying the contract (the 7 December letter from Tramways to Luna Park) and which was admitted to be part of the contract included the following statement:

'The average time that each car is on the track is eight hours per day ...'

[and further in an addendum]

'We guarantee that these boards will be on the tracks at least eight hours per day throughout your season."'

After the second season Luna Park complained that the boards were not displayed as agreed; in particular that each board was not on the tracks for at least eight hours per day. This was admitted by Tramways who argued that the obligation required only that each board be displayed for an average of eight hours per day. It was admitted that the boards had been displayed for an average of eight hours per day.

Luna Park wrote to Tramways stating that as a result of a failure to place the boards on display for at least eight hours per day 'we do not consider ourselves bound by [the contract] any further'.

Around two months later Tramways wrote to Luna Park informing it that the boards had been displayed and payment was required. Luna Park responded that the boards were being displayed 'without our authority and notwithstanding the cancellation of the contract' and advised that the information on the boards was incorrect.

Tramways then sued Luna Park for default of payment and in its notice of defence Luna Park alleged it was a condition of the contract that each board be displayed for eight hours each day and cross claimed for damages.

 

Trial judge (Curlewis DCJ) (District Court of NSW)

Agreed with Luna Park, dismissed Tramways' claim and awarded damages of £300.

 

Supreme Court of NSW (Full Court)

By majority the Full Court allowed the appeal.

Chief Justice Jordan

Accepted plaintiff's construction - as a matter of construction the plaintiff was bound to have all 53 trams display the Luna Park boards for an average of eight hours per day and this was an essential promise such that a substantial breach (not a technical or trivial one) would justify termination for breach (p 651). This condition had not been breached (evidence suggested that each had run 8.2 hours per day on 'gross average').

His Honour reached this conclusion after considering the relationship of the 7 December letter (referencing an 'average' of eight hours per day) and the subsequent contract document referencing a 'guarantee' of eight hours a day. The matter, he concluded, was not free from doubt, but on the whole his Honour was of the view that the 'addendum must be construed with and as an amplification of the letter which is incorporated into the contract' and that assumed that the boards would be on the track for an 'average time of at least 8 hours per day'.

Before turning to the facts of this case, his Honour set out some general principles surrounding whether or not breach will allow for termination of contract (emphasis added throughout):

[641] In considering the legal consequences flowing from a breach of contract ... The nature of the promise broken is one of the most important matters. If it is a condition that is broken, ie, an essential promise, the innocent party, when he becomes aware of the breach, has ordinarily the right at his option either to treat himself as discharged from the contract and to recover damages for loss of the contract, or else to keep the contract on foot and recover damages for the particular breach. If it is a warranty that is broken, ie, a non-essential promise, only the latter alternative is available to the innocent party: in that case he cannot of course obtain damages for loss of the contract ...

[641] The question whether a term in a contract is a condition or warranty, ie, an essential or non-essential promise, depends upon the intention of the parties as appearing in or from the contract. 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 substantial performance of the promise, as the case may be, and that this ought to have been apparent [642] 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. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge. In some cases it is expressly provided that a particular promise is essential to the contract, e.g., by a stipulation that it is the basis or of the essence of the contract: ... but in the absence of express provision the question is one of construction for the Court ... effect must be given to the apparent intention of the parties as disclosed in the contract: ...

[643] In considering the exact measure of relief that can be obtained in any particular case for breach of an essential promise, it is necessary to have regard to a number of factors. The breach may, for example, not occur or not be discovered until the contract has been wholly or partly performed; or the innocent party may by his conduct after the breach has come to his notice debar himself from relying on it as a ground for putting an end to the contract.

[643] If an essential breach is committed when nothing has yet been done to perform the contract on either side, the innocent party if he chooses may by notice to the defaulting party exercise his right of treating himself as discharged from the obligations of the contract and may also sue for damages for loss of the contract. A communicated election to avoid the contract, if made by a party having a right to avoid it, is at once operative and is final and irrevocable: ... And a party who has purported to avoid a contract upon an untenable ground is entitled to rely upon any valid ground which in fact then existed and has not been waived: ...

[643] If, on the other hand, when the breach is discovered, the position is that the defaulting party has wholly (though defectively) performed the contract, and the innocent party has accepted performance in such a way that he can no longer reject it, he is remitted to his remedy by way of damages or set-off for the breach: ... If, however, he is still in the position to reject performance, he may determine the contract, refuse to perform it further, recover any payments made as on a total failure of consideration ..., and also recover damages for loss of the contract. In the intermediate case, where the contract has been partly performed by the defaulting party, the questions arise (1) whether the innocent party who, after such part-[644]-performance, becomes aware of an essential breach committed in the course of performance, can rely on the breach as a ground for putting an end to the contract as a source of future obligations, and obtaining damages for loss of contract; and (2) whether, if he has and exercises this right, he is bound to accept and (upon a quantum meruit or otherwise) give consideration for, the defective part-performance, subject to a right to compensation for the defect, or whether he may reject the defective part-performance, obtain damages as on a total loss of contract, and also, in respect of any consideration already given by him, obtain relief as on a total failure of consideration.

[644] ... 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 this right when he becomes aware of the breach, he loses his right, and is remitted to his remedy by way of damages only, in the following events: (1) if, notwithstanding knowledge of the breach, he proceeds to do some act, referable to the contract, which could only be properly done by him by virtue of the contract treated as a subsisting contract: ...; or (2) if the party in default proceeds to carry on with the performance of the contract at the request or with the permission, express or tacit, of the innocent party, made or given with knowledge of the breach: ...

[644] Subject to what has just been stated, the innocent party does not lose his right of putting an end to the contract merely by insisting that the breach shall be remedied; but if he takes this course, then (a) as a general rule, he cannot afterwards exercise the right without giving reasonable notice of his intention to do so: ...; and (b) he loses his right if, before he exercises it, the defaulting party acquires and exercises a right to be relieved from the performance of the contract: ... [645] ... The fact, however, that the innocent party has condoned one breach of an essential promise does not prevent him from terminating the contract if a second breach of an essential promise is committed.

[645] In cases where, notwithstanding a breach of an essential promise the innocent party by choice refrains, or through force of circumstances is prevented, from putting an end to the contract, so that it remains on foot, the contract continues to be binding on both parties. In such cases it is sometimes said that the condition is reduced to a warranty. In truth it continues to be a condition, but no higher relief can be obtained in respect of the particular breach than if it were a breach of warranty: ...

[645] 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: ... If, however, the terms or nature of the contract are such that the participation of the defaulting party is necessary to enable the innocent party to perform the contract on his part, and this participation is withheld, the innocent party is necessarily prevented and absolved from performance so long as the participation is withheld. And, if the innocent party insists on upholding the contract, he must in any action brought by him on the contract as a subsisting contract prove performance on his own part or readiness and willingness to perform, as the case may be, unless of course upon the pleadings he is not put to such proof: ...

[646] One essential promise which is implied in every contract is that neither party will without just cause repudiate his obligations under the contract, whether the time for performance has arrived or not: ... ie that he will not expressly or impliedly intimate that he refuses to be bound by the contract in whole or in part: ... A breach of this implied promise not to repudiate ordinarily entitles the other party to put an end to the contract; and a party who without lawful justification purports to treat himself as discharged from the obligations of the contract for a supposed essential breach by the other 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, as where a party expressly intimates that he refuses to perform the contract or to perform some part of it whether essential or not, or implied, as where he so conducts himself, whether in committing breaches or otherwise, as to show that he is refusing to perform the contract ...

[646] In the case of a contract which is to be, or in fact is, performed in instalments, a breach of contract committed in relation to one or more of the instalments, may amount (1) to a breach of a non-essential promise sounding only in damages, or (2) to a breach of an essential promise a breach of which justifies avoidance of the contract, or (3) to an implied repudiation of the obligations of the contract, i.e., to a 'breach of the implied essential promise not to repudiate. ... it has been held that the test of whether a breach amounts to an implied repudiation is whether it is of such a kind or takes place in such circum-[647]-stances as to lead to the inference that similar breaches will be committed with respect to subsequent instalments: ... But, apart from special circumstances, a vital breach of any essential promise is a good ground for avoiding the contract notwithstanding that no intention to repudiate can be established. Thus, if it was expressed to be of the essence of the contract that at least one ton should be delivered every week, failure to deliver a complete ton in any week would justify avoidance notwithstanding that the supplier was evidently straining every nerve to perform the contract and that there was no reason to suppose that the breach would be repeated: ...

Justice Davidson

Concurred with Davidson CJ

Justice Nicholas

Considered the plaintiff's claim should be dismissed but there should be a new trial on the cross-claim in relation to the measure of damages.

First considered the question of construction and helpfully set out key elements of the contract:

[659] The contract consists of two documents. The first is a letter addressed by the plaintiff to the defendant with an addendum evidently added by the plaintiff. The letter is an offer to contract with the defendant for the display of roof-boards on trams. It specifies certain of the conditions under which the display is to be made and the length of time for which the contract is to be in force. After setting out three conditions the writer concludes with a paragraph which contains a statement of fact and a recommendation in the following terms: -

"The average time that each car is on the track is eight hours per day and we would recommend all routes serving the industrial suburbs."

[660] Below the signature there is the following addendum:-

"We guarantee that these boards will be on the tracks at least eight hours per day throughout your season."

At the side is written "this letter is part and parcel of the contract."

[660] The second document is a printed form and is headed "Contract Note." It contains references to posters and to roof-boards, but as the earlier document referred only to roof-boards it is only the clauses which refer to roof-boards either alone or in conjunction with posters in the contract note which bear directly on the construction of the contract as a whole. The first paragraph is a request to be supplied with the services of the Company and specifies the total period of the contract. The second paragraph refers to the number of roof-boards and to the suburbs through which the cars carrying them are to travel.

[660] The contract consisting of the two documents is informal and is to be construed according to rules laid down by the Courts for contracts drawn up by business men without expert legal assistance

Constructed the contracts as requiring that the 'roof-boards would be displayed for at least eight hours during each day of each season', but noted he did not express is 'opinion with confidence' (p 661). His Honour focussed on the reference to guarantee:

[661] I rely on the addendum to the letter beginning with the words" We guarantee." The addendum was introduced by the company which was endeavouring to do business with the advertiser and was offering an inducement to the advertiser to enter into the contract. That inducement was, I think, a promise that the advertiser would receive some advantage which it would not get merely from the average running of the trams. It was an assurance to the advertiser that, whatever might be the ordinary practice of the Tramway Department, the boards advertising Luna Park would be on the track not only for an average period of eight hours but for eight hours on every day, and that by this means a proclamation of the allurements of Luna Park would continuously be thrust upon the attention of residents of the industrial suburbs.

[661] This appears to me to be the correct inference from the fact that an addendum to the letter was thought necessary, that it begins with the words" We guarantee," that it refers to "boards" and not to "cars," that the word "average" is omitted and that the words " at least'" are used before the words" eight hours per day."

 

High Court

Chief Justice Latham

Held that as a matter of construction the contract required that the boards be displayed for at least 8 hours per day (not just an average of this) and that this had been breached. The guarantee was a condition with the result that Luna Park could terminate for breach.

Construction issue

Chief Justice Latham expressly agreed with Justice Nicholas that the guarantee was an assurance that the boards would be on the track for eight hours every day (not just an average of eight hours).

What is called the guarantee is a guarantee as to each and every board. It is an undertaking that each board will be on the tracks for at least eight hours on every day all through each season. The statement in the body of the letter is a statement which indicates the nature of the service which the normal running of the cars would be expected to provide. It is clear, however, that the Luna Park company was not satisfied with a mere statement that the average time that each car was on the track was eight hours per day. It required something more definite. The guarantee is an undertaking which is not in any way inconsistent with the statement of fact contained in the letter. The effect of the undertaking, read with the statement in the letter, is that, whatever might be the average time that cars were on the track, the roof boards were to be displayed for at least eight hours on every day. The guarantee contains no reference to averages, and it is apparent that there may be business reasons why the defendant required regular and continuous publicity.

He did, however, construe 'at least' eight hours a day as meaning 'substantially eight hours' per day, so that a trivial breach would not permit termination.

... The clause used the words "at least eight hours," but, in my opinion, such a phrase should not be interpreted with absolute mathematical exactitude in a commercial contract of this class. In some contracts it may be proper to construe references to time with absolute and precise accuracy down to minutes and seconds, but in a contract dealing with the display of roof boards on trams for at least eight hours per day the words "eight hours per day" should be understood as meaning substantially eight hours per day. The clause would not, in my opinion, be broken by small occasional deficiencies. ... I take the admission that each board was not exhibited for at least eight hours a day as an admission that it was not the case that each board was exhibited for substantially eight hours each day. I am accordingly of opinion that the defendant was entitled to determine the contract by reason of the past breaches of the plaintiff.

Essentiality - was it a condition?

This was irrelevant in respect of the first two seasons for which only damages were sought.

In respect of the third season Latham CJ agreed with the Supreme Court that the guarantee clause in the contract was a condition and not a mere warranty:

I agree with the Full Court that the guarantee clause was a condition and not a warranty … It was a term of the contract which went so directly to the substance of the contract or was so "essential to its very nature that its non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all." The breach of such a term by one party entitles the other party not only to obtain damages but also to refuse to perform any of the obligations resting upon him.

Repudiation

In addition to breaching a condition of the contract, Tramways had repudiated their contract by evidencing an intention 'to continue to perform the contract in the future in the same manner as in the past'.

... apart from any right of the defendant to determine the contract on account of breach of a condition in the past, the defendant was entitled to determine the contract on another ground. The plaintiff was prepared to continue the performance of the contract only upon the basis of the plaintiff's construction of the contract, that is, by giving an average daily eight hours' display of the roof boards. Probably this was the only way in which the plaintiff could perform the contract, because the plaintiff did not control the running of the trams. The position, therefore, was that the plaintiff had given the defendant the right to believe that the contract would not be performed according to its true construction. The circumstances were such as to justify the inference that breaches such as those which had already been committed would be committed in the future. The plaintiff, therefore, must be regarded as renouncing the contract which it had in fact made, even though it was contended by the plaintiff that the contract would be properly performed: ... The defendant can justify the repudiation of the contract upon any ground which in fact existed whether or not such a ground was previously relied upon by him ...

Damages

In respect of the first two seasons Tramways had performed (defectively) and Luna Park was entitled to damages for breach of contract. However, it was not possible to ascertain the level of defective performance (number of hours/days not displayed): 'The extent of the failure is unascertained' and it was not possible to 'reach any estimate of damages suffered' so that only nominal damages were recoverable.

The defendant, having rightfully terminated the contract, was also entitled to damages for the third season. That depended on an estimate of the difference between what they were bound to pay and the benefit they would have obtained through proper performance. Again, however, there was no evidence about this loss and therefore 'no basis upon which other than nominal damages can be estimated in respect of the third season'. One shilling was awarded as damages.

Appeal allowed, but damages reduced to one shilling.

Justice Rich

Agreed with the construction that boards were to be displayed for at least eight hours per day:

... to my mind the natural meaning of their language is that the advertising company took the responsibility of guaranteeing that each and every board would be exhibited to the public gaze upon the tramways of Sydney for an aggregate of eight hours upon each and every day of the amusement proprietor's season.

Appeal allowed, but damages reduced (the amount of 300 pounds not being supported by evidence of loss)

Justice Dixon (dissenting)

Agreed with interpretation that required boards to be displayed for an average of eight hours per day.

My own choice may be the result of giving greater weight to context and subject matter than to the exact grammatical construction which the language of the clause, isolated from other considerations, might seem presumptively to bear. But we are not dealing with phrases or expressions of a fixed prima-facie import. ... The actual intention of the parties and the implications which are involved must be discovered from the entirety of the writings. The verbal skin in which the particular meaning has been encased does not appear to me incapable of containing either of the two rival intentions which respectively commended themselves to Jordan C.J. and Davidson J., on the one hand, and to Nicholas J. on the other. That is to say ... I think that, as a matter of ordinary English, the language of the memorandum or note added to the letter is susceptible of the construction which the majority of the Supreme Court have placed upon it and the weight of probability favours that construction as the true meaning of the parties.

Would have dismissed the appeal.

Justice McTiernan

Contract required at least eight hours per day:

In my opinion the correct construction of the contract is that the respondent undertook that the roof boards would be displayed for at least eight hours during each day of each season. ... evidence shows that the respondent repudiated its obligation under the contract to display the roof boards for at least eight hours during each day of the season. I agree with the Chief Justice that this was an essential condition of the contract. Its repudiation justified the appellant in terminating the contract. The termination of the contract effectively barred the respondent from claiming any payment for any advertising which did not fulfil the above-mentioned conditions of the contract. It follows that the respondent's action should fail.

On the cross-claim there was no evidence as to the extent of the breach so that loss could not be determined. Nominal damages only are available in those circumstances.

Appeal allowed; damages verdict set aside and replaced with nominal damages of one shilling