Steps/Elements to determining cancellation

Issue: has there been a breach of contract and can [defendant] cancel the contract?

Was there repudiation or breach of conduct?

e.g. repudiation is a refusal (or the expression of intent not) to perform the contract. [repudiating
party] said [statement] or did [conduct] which shows intent not to perform the contract

Was the term in the contract essential?

Agreed Essential, s7(4)(a)
The term was agreed upon explicitly or impliedly
e.g. time is of the essence
answer: In the contract, the parties had agreed that the term around [payment, time, information] was
essential and a breach of that term would allow the vendor to cancel
answer: The parties did not agree (explicitly or impliedly) that the turnover figures were essential
NZ Tenancy Bonds v Mooney (1986) [payment for deposit was strictly of the essence of the
contract]
Rick Dees Ltd v Larson (2007) [time being of the essence]
Young v Hunt [turnover figures were not essential]

If not essential, was the breach substantial?

Consequences Substantial, s7(4)(b)
A breach of contract that has serious consequences for the innocent party
burden must be substantially increased or benefit substantially decreased
Pearson v Wynn (1986), faulty irrigation on farm case
Sharplin v Henderson (1990) neighbours citrus trees case
e.g. the breach has substantially reduced the benefits for the purchaser explain why

If there is grounds for cancellation, did the purchaser elect to affirm or cancel?
Affirmation = party wants to continue with contract despite breach
Must have full knowledge of misrep or breach
Jolly v Palmer (1985)

How to cancel?
The cancellation of a contract shall not take effect:
before cancellation is made known to other party
before the cancelling party overtly makes known the cancellation (if cannot contact other party or it is
not reasonable to do so)
e.g. sending letter to last known address of vendor or agent
Innocent party does not have to give reason for cancellation,
if the innocent party does give reason for cancellation and it turns out this reason is incorrect, but
there are other grounds for cancellation, then cancellation is still valid
Kumar v Station Properties Ltd [2016]

What happens after cancellation?

S8(3) When a contract is cancelled:
(a) no party shall be obliged or entitled to perform it further
(b) if money or property changed hands before cancellation, it remains where it is upon cancellation
(protects accrued rights)
In a case where there is obligations (e.g. payment of a deposit) due before cancellation, the plaintiff
can sue for performance of these obligations (e.g. pay the deposit)
Garret v Ideka (2002)

Wrongful cancellation?
A wrongful cancellation usually amounts to a repudiation and will therefore entitle other party to
cancel the contract
Remedies Available

Remedies within contract (s5 CRA)

Liquidated Damages
Genuine estimate of potential loss, enforceable
e.g. The clause states should [breach] occur, damages of [$$$] will be required to be paid to
the innocent party. This is a genuine estimate of potential loss {because}. Therefore the
damages laid out in the contract will be enforceable
Dunlop Guidelines (d)
Penalty
Unreasonable sum to deter breach, unenforceable
e.g. The clause states should [breach] occur, damages of [$$$] will be required to be paid to
the innocent party. This is not a genuine estimate of potential loss {because}. The clause is
a penalty in the eyes of the courts and therefore is not enforceable. The innocent party may
still seek damages through s 6 CRA
Dunlop guidelines (a)
Cancellation
Damages (s6 CRA)
for misrep, purpose is to put innocent party in same position as if misrep were true
for breach, purpose is to put innocent party in the same as if the contract had been performed
but for test, would loss have still occurred but for the breach? If yes, no causation (no damages)
e.g. The innocent party is not able to claim damages because the loss would still have
occurred but for the breach
Loss must be reasonably foreseeable
Hadley v Baxendale (1854), broken crankshaft case
e.g. [the defendant] is not liable for the loss of profits when [reason for loss of profits]
because the loss would not follow naturally from the breach. And so it was a special
circumstance, [the plaintiff] did not tell [the defendant] about this special circumstance so [the
defendant] did not have loss or special circumstance in his contemplation
Diamond v Campbell Jones (1961)
e.g. [the defendant] would not liable for the loss of profits when [reason for loss of profits]
because the loss would not follow naturally from the breach. However it was a special
circumstance of which was communicated to [the defendant], so [the defendant] had the
special circumstance in his contemplation. [defendant] is liable.
Pecuniary Losses
e.g. Pecuniary losses are not usually awarded for loss which is unable to be measured in
monetary terms that are caused by breach of conduct
Duty to Mitigate losses by innocent party
Specific Performance