Termination of Contract

Termination of ContractThe High Court’s decision in Koompahtoo v Sanpine spelled out the circumstances which can give you a right, under the common law, to terminate a contract. You’ll have a right to seek termination of a contract if:

  1. an essential term of the contract was breached; or
  2. a non-essential term of the contract, causing substantial loss, was breached; or
  3. repudiation of the contract took place.

What Is An Essential Term Of A Contract?

Essential terms are also known as conditions; they are distinct from warranties. A term is said to be essential when it is of such importance to the party receiving a contractual promise “that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise” and the other party knows or ought know of this.

A breach of an essential term will give the innocent party a right to terminate a contract and seek to recover damages for the loss of contract.

A breach of a warranty, on the other hand, will not give you a right to terminate a contract. The available remedy is to seek recovery of damages caused by a breach of warranty (Sale of Goods Act 1896 (Qld)).

It should be noted that even though most contracts use specific language to differentiate between essential and non–essential terms, for example, by using words like ‘conditions’ and ‘warranties’, such usage is not compulsory and the meaning of terms will be determined by the Court, including the meaning of ‘conditions’ if such words were used (Wickman Machine Tool Sales Ltd. v L. Schuler A.G. [1974] AC 235, [1973] 2 All ER 39).

What is a non-essential term of a contract?

A non-essential term is a term occupying a place somewhere between a condition and a warranty (Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15 at 561-2), which is why it’s often referred to as an intermediate term in common law. An intermediate, or non-essential term is classified as a term of lesser importance than an essential term because its breach doesn’t give you a right to terminate a contract but its legal value is higher than that of a warranty—a breach of warranty only gives you a right to damages caused by a warranty breach (Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council & Ors [2006] NSWCA 291 at 176).

A contract can be terminated, however, if a breach of an intermediate term is sufficiently serious. To determine if a sufficiently serious breach of an intermediate term took place, the courts will consider:

  1. if the whole of the contract was affected by the breach so that its fulfilment is seen substantially different from that originally intended by the parties, as a result of the breach;
  2. the seriousness of the breach will depend on the consequences of the breach, both actual and foreseeable, for the innocent party;
  3. the onus of proof is on the innocent party to show the seriousness of the consequences of the breach which will be assessed by the court.

What is a repudiation of a contract?

In common law, repudiation may refer to conduct which indicates an unwillingness or an inability of a party to perform a substantial part of the contract. It can demonstrate itself in a form of an intention to no longer be bound by the contract or “to fulfil it only in a manner substantially inconsistent with the party’s obligations.”

In Freeth v Burr ((1874), L.R. 9 C.P. 208 at p. 214), Justice Keating said : “It is not a mere refusal or omission of one of the contracting parties to do something which he ought to do, that will justify the other in repudiating the contract; but there must be an absolute refusal to perform his part of the contract.”

This is an important point to keep in mind—a party does not necessarily repudiates a contract when it acts on misinterpreted terms of it (although repudiation may arise if the party persists on wrongful interpretation after the terms have been clarified and brought to their attention). If a party to a contract misinterprets its terms but the other party, instead of trying to clarify the terms, attempts to terminate the contract for repudiation, it may find itself being a repudiating party, giving the party that was acting wrongfully in the first place an opportunity to terminate the contract.

Unexpected twists like that highlight the importance of professional legal advice in the area of commercial law.

A team of experienced solicitors at Hollingworth & Spencer is available to assist your business in matters of commercial law should you require any advice.

Employment Agreement Fundamentals

Employment Agreement Fundamentals: an Employee or an Independent Contractor?

Imagine, as an employer, you enter into an employment agreement with what you think are independent contractors. You lay down the terms and the conditions of the employment relationship including a specific stipulation that the workers are contractors and not employees; the workers you want to employ agree to these terms and the work gets under way. Time passes by, all is going well until one day several workers attempt to claim entitlements which are usually associated with employees and not contractors such as annual and long service leave. You point out to the employment agreement you have with the workers and refuse to pay. Next thing you know you’re looking for a law firm to represent you in court. employment agreementsAnd here is the bad news – you lose all the way to the Full Court of the Federal Court. Sounds unreal? Maybe, but this is exactly what happened in ACE Insurance Ltd v Trifunovski in January 2013 when the judge Buchanan J found, among other things, “no adequate foundation for a conclusion that the relationship [between ACE Insurance and its agents] was anything other than one of employment.”

Distinguishing factors

The distinction between an employee and an independent contractor is like that now proverbial “elephant test” – hard to describe in precise terms but instantly recognizable when spotted. It doesn’t help that the Fair Work Act 2009, fails to define what an “employee” is.

Over the years, the courts have developed the so called “multi-factorial” test to determine the employment status of a worker. Regardless of what side of an employment relationship you’re on, you’ll do well to familiarise yourself with some of the main factors used by the courts in disputes related to employment agreements:

  • Control – the ultimate control by the business over the performance of work by the worker will indicate an employer-employee relationship. If this test determines such a relationship exists, it’s unlikely other tests will be considered.
  • Representation – a worker is presented to the community as a representative of a business by means of, for example, special uniform, giving out business cards with a trade logo on it or signing off emails with a business signature. The court will likely see such a worker as an employee of a business they represent.
  • Tax – deducting income tax from the worker’s payment will generally indicate a worker is an employee.
  • Equipment – employees are usually supplied with equipment and its maintenance is the business’ responsibility.
  • Remuneration – employees are paid wages based, for example, on time spent on performing work, per item of work performed or commission. By contrast, contractors are usually paid for the completion of tasks which are invoiced by the worker with GST added to it.
  • Employment relationship – an employee can be lawfully dismissed or suspended.
  • Insurance – workers compensation insurance is generally associated with employees while contractors are free to arrange their own insurance cover.
  • Delegation – unlike contractors, employees are not able to delegate or sub-contract their work.
  • Choice of work – generally, contractors are free to work for whoever and whenever they choose while employees are not.
  • Tools and Repairs – generally contractors provide their own tools and are responsible for fixing defective work at their own cost.

Vicarious Liability

An employer is also generally vicariously liable for the negligent acts of an employee and will require insurances to cover such events. A principal engaging a contractor on the other hand is generally not liable for negligence of the contractor and will not require such insurances. However, the status of a contractor can be challenged after an incident has occurred, potentially leaving a principal liable for the negligence of the worker who they thought was a contractor. This can provide serious detriment to a principal with inadequate insurance coverage, particularly where the negligence results in personal injury, disability or death.  We can provide advice on the risk of your arrangements with contractors, and advice on how best to proceed in protecting your interests.


It’s important to realise that what might look like a straightforward, easy to understand employment agreement expressed in clear terms may turn against you if challenged in court. To that end, whether you employ people in your business or are employed, make sure you’re aware of these important points:

  • Australian legislation does not provide a clear distinction between employees and independent contractors.
  • It’s up to the courts to decide what the relationship between a business and a worker is.
  • The courts will look beyond contractual agreements and examine a number of factors to determine the employment relationship.
  • Employers should make sure the employment agreements are not only carefully drafted, but the day-to-day employment relationship is consistent with the employment status agreed upon between an employer and a worker.

Due to the impact of specific facts on any given case please treat this information as a general guide and not as legal advice. If you require advice on how to adequately protect your security rights please contact Adam Robinson on 07 3123 5700.