Case: Foran v Wight [1989] HCA 51 ; (1989) 168 CLR 385
Outcome: considered
party here referred to the somewhat problematic (in this context) decision in Foran v Wight [1989] HCA 51 ; (1989) 168 CLR 385 to support its case. There, the time for completion of a contract for the sale of land had been made of the essence. Two days before the contractual date for completion, the vendors' solicitor told the purchasers' solicitor that the vendors would not be in a position to complete on the appointed day. Neither party attempted to settle on the due date, but two days afterwards, the purchasers gave a notice of rescission. Brennan, Deane, Dawson and Gaudron JJ, in separate judgments, held that the purchasers could rescind and were entitled to the return of the deposit. Mason CJ dissented. A number of the justices discussed, in obiter dicta, the position where there was an actual breach of contract entitling the other party to treat that breach as a repudiation. Mason CJ said that the principle established by the earlier decisions was that ( Foran 168 CLR at 408): '[I]n relation to termination for actual breach ... the plaintiff is required to show that he was ready and willing to perform the contract if it had not been repudiated by the plaintiff. In other words, the requirement is that the plaintiff be ready and willing to perform except to the extent that the defendant dispensed with his performance. ... [I]n the case of actual breach the requirement of readiness and willingness is more stringent; it continues through to the time of performance. That is because the termination of the contract does not antedate the time for performance.' Mason CJ applied what Dixon CJ had said in Rawson v Hobbs [1961] HCA 72 ; (1961) 107 CLR 466 at 481 (see Foran 168 CLR at 405-406). Dixon CJ had said in Rawson 107 CLR at 481 (Windeyer J agreed at 107 CLR at 492): 'One must be very careful to see that nothing but a substantial incapacity or definitive resolve or decision against doing in the future what the contract requires is counted as an absence of readiness and willingness. On the other hand it is absurd to treat one party as tied to the performance of an executory contract although the other has neither the means nor intention of performing his part when his turn comes, simply because his incapacity to do so is not necessarily final or logically complete.' Mason CJ said that Dixon CJ's reasoning applied to the entitlement of a party to terminate a contract for breach. Mason CJ continued ( Foran 168 CLR at 406-407): 'A party who is disabled from suing for damages because he is not ready and willing to perform in the sense discussed above cannot exercise a right to treat himself as discharged from the contract on the ground that the other party is in breach of an essential term or is otherwise in fundamental breach of the contract.' Brennan J ( Foran 168 CLR at 424) said: 'Where a party claims to be entitled to rescind an executory contract on account of the other party's repudiation (whether by way of anticipatory breach or incapacity), the first party must show not only the other's repudiation but his own readiness and willingness up to the time of rescission to perform his essential obligations under the contract: [ Rawson 107 CLR at 480-481] ... Since a party's right to rescind an executory contract for the other party's repudiation is limited to cases where the first party is ready and willing to perform, neither party is treated as without fault where both would be at fault were the contract to continue until the time for performance arrives .' (emphasis added) He too applied what Dixon CJ had said in Rawson 107 CLR at 481, see Foran 168 CLR at 425. When Brennan J referred to an entitlement to rescind, he used 'rescind' in the sense of one party electing to terminate for breach or repudiation by the other, as explained in Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22 at [2] per Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ. Brennan J identified the principle to be applicable in the case of an anticipatory breach of mutually dependent and concurrent obligations, occasioned by one party informing the other that he would not be able to perform at the time for performance. His Honour said that, unless the other party were ready and willing at the time when that intimation was given, the first party's failure to perform was not a breach of contract. Thus, where the party to whom the intimation had been given was itself substantially incapable of future performance of its obligation, or had already definitively resolved or decided not to perform it, that party was also not ready and willing. Thus, he could not treat as a breach the other's intimation that performance would not be given on the future day for performance. If that be so, it must follow that neither party could have terminated for the failure of the other on the appointed date to offer performance (see Foran 168 CLR at 427). Brennan J said ( Foran 168 CLR at 246-427): 'Of course, it is possible that a party who is not disposed to perform or capable of performing in any event may not be dispensed from his obligation by receipt of an intimation of non-performance: he may not have acted in reliance on the intimation at all. But, whether or not he placed some reliance on the intimation in abstaining from performance of his own obligation, a disposition not to perform or an incapacity to perform when the intimation was given denies the character of breach to a failure to perform by the party giving the intimation .' (emphasis added) Deane J decided the case on the basis of an estoppel being created by the intimation that a party would not be in a position to complete on the appointed day. He then expressed the obiter view that, while the absence of the other party being able to show that it was ready and willing would preclude it from seeking an order for damages or specific performance, that other party could terminate based on the intimated repudiation: Foran 168 CLR at 437-438. He said that if the position were otherwise, the law would require useless and futile expenditure by innocent parties of whatever time, effort or money was necessary to place themselves in a position where they could positively demonstrate actual or potential ability to perform a contract in order to be able to bring it to an end on the ground that it had already been repudiated by the other party. He said ( Foran 168 CLR at 438): '... it is difficult to see why the law should insist that, even though both parties to a contract have repudiated it, the contract must hang like an albatross around their necks unless and until they can reach a new agreement about its termination.' Dawson J said that readiness and willingness included capacity ( Foran 168 CLR at 451). He cautioned against carrying too far the principle that repudiation of a contract by one party could absolve the other party from the obligation of tendering useless performance. He said that when the principle applied, it could reduce the extent or alter the nature of the readiness and willingness which a plaintiff was required to show, but there was no reason why it should be eliminated as a requirement entirely. His Honour continued ( Foran 168 CLR at 452): 'A party should not be able to sue for breach if he is unable or unwilling to carry out his part of the bargain; where, in other words, he is not the innocent party. Even where a party has been absolved by the repudiating party from performing his future obligations under the contract he must show that at the time of the repudiation he was ready and willing to complete the contract had it not been repudiated. But in proving his readiness and willingness where he has been absolved from tendering performance he may not have to prove a great deal.' But nonetheless, in order to be able to terminate, Dawson J held ( Foran 168 CLR at 454): 'All that the purchasers were required to show was that at the time of the repudiation, that is, at the time they were absolved from future performance, there was not a "substantial incapacity" on their part or a "definitive resolve or decision" against the performance of their obligations.' Gaudron J analysed the position as being one in which the contract had come to an end because neither party performed on the day made essential for performance, and that was confirmed by the notice of rescission ( Foran 168 CLR at 459). In Highmist Pty Ltd v Tricare Ltd [2005] QCA 357 at [61] - [62] , Keane JA (with whom Jerrard JA at [1] and Cullinane J at [66] agreed) expressed the obiter view that it did not make much commercial sense to say that where both parties had expressed a firm resolve not to perform the contract, the contract continues 'in existence in some legal limbo' for the reason that neither party is ready, willing and able to perform. His view is similar to that of Deane J in Foran 168 CLR at 438. Keane JA said that in such circumstances, the case could be characterised as one of termination by mutual consent, although he recognised that his was a tentative view and that the issue did not need to be resolved in order for him to decide the case: Highmist [2005] QCA 357 at [62] . Keane JA did not examine the authorities. In Paal Wilson [1983] 1 AC at 915C-916D Lord Diplock discussed the entry of both parties to an executory contract into a 'new contract' which he styled 'the contract of abandonment'. He explained that in such a case, each party promises by words or conduct to release the other from further performances of obligations on its part which remain to be performed, including the obligation to pay damages. And in Australian law the parties to a contract can so conduct themselves that they can be seen to have mutually abandoned or abrogated the contract; for example where neither takes any steps to perform over a period: see Summers v The Commonwealth [1918] HCA 33 ; (1918) 25 CLR 144 at 151-152 per Isaacs J; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12 ; (1978) 138 CLR 423 at 434 per Stephen Mason and Jacobs JJ; Foran 168 CLR at 422-423 per Brennan J. Gleeson CJ, Handley JA and Brownie AJA also referred to what Ipp J had said in Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40 at 50-51 (Pidgeon ACJ and Franklyn J agreeing). The Full Court there was dealing with an appeal from the entry of summary judgment. Ipp J noted that the argument concerning the question whether a party in breach was entitled to terminate was faintly argued and had not been canvassed fully by counsel. He distinguished Foran [1989] HCA 51 ; 168 CLR 385 and Lombok Pty Ltd v Supetina Pty Ltd (1987) 14 FCR 226 from the facts of case before the Full Court saying that the terminating party's rights to payment of money were independent of, and not concurrent with, the obligations alleged to have been breached by it. He said that there was nothing in the principles in those cases to prevent the party allegedly in breach from relying on non-payment of progress claims to terminate the contract. While the dicta of the Court of Appeal in Roadshow Entertainment 42 NSWLR at 481B-C are of great weight, I am of opinion that on analysis, they are inconsistent with the considered, albeit equally obiter dicta views of three of the justices: Foran 168 CLR at 405-408 per Mason CJ, 424, 427 per Brennan J and 452, 454 per Dawson J. I am of opinion that in the contractual position which I have found, where each party was in default and acted dishonestly in respect of its financial accountability to the other, neither party was able to rely upon its contractual or common law rights to terminate the franchise agreement in late August 2006. While that may create a situation which Deane J described in Foran 168 CLR at 438 of making the franchise agreement 'hang like an albatross around their necks', I prefer the views of Mason CJ, Brennan and Dawson JJ that a party who wishes to terminate must be ready and willing to perform at the time at which the right is sought to be exercised. Each party was in breach of the franchise agreement in a way which, had the other known of or appreciated that breach prior to late August 2006, would have entitled it to terminate, subject to it not being in any relevant breach itself. That is, Hoy Mobile was in breach of cl 9.3(viii), because it it had been fraudulent in connection with the operation of the franchised business through the unlocking and sale of mobile phones and its failure to account for the illicit profits that it had made from that activity. Likewise, Allphones was evincing an intention not to be bound by its obligation to pay the MTSC in the various manners in which I have found. Each party's conduct amounted to an assertion by it of the freedom to act as and when it pleased in respect of fundamental obligations to the other. Each party was behaving quite dishonestly towards the other in relation to the performance of its obligations under the franchise agreement. Although Hoy Mobile did not plead that Allphones had committed fraud, Allphones' behaviour, in misrepresenting what carriers were paying as MTSC and keeping the difference, was every bit as dishonest as Hoy Mobile's fraud. In my opinion, for the reasons given by Mason CJ in Foran 168 CLR at 408, Allphones was not entitled to exercise its rights under cl 9.3(viii). In August 2006, Allphones was not ready or willing to perform the franchise agreement. Nor has it proved that it is now ready or willing, so its cross-claim must fail. Hoy Mobile argued that Allphones acted in a fiduciary capacity in collecting commission for franchisees and that it had to account in respect of the MTSC. Allphones contended that their relationship was entirely contractual, and that Allphones did not hold or receive money in a fiduciary relationship, but rather pursuant to the terms of the franchise agreement.