Contract law – problem question example

Martina entered into a contract with Stars & Extras (S & E) providing that she would, in a period of five years, obtain all of her singing work through S & E and would not sing for any other agency other than S & E until the contract expired. She was invited to sing at an oligarch’s party in Russia for a weekend and she had accepted it but the invitation was delivered direct to her and not trough her agency, S & E. S & E found out about the singing invitation and claim for commission for her work in Russia. To go to Russia to sing at the oligarch’s party, she had to decline a job in Australia offered by S & E. So, S & E wanted to sue her for their loss of commission in Australia but the company had made no attempt in searching for her replacement when she found out that she was not available for the job. To reach a conclusion regarding this case, and advise Martina, it is necessary to examine the following legal questions:

1. Whether there is a breach of contract between Martina and S & E?

2. Whether S & E had mitigated damages for their loss of commission on the job in Australia?

The First Legal Issue:

Background: How is breach of contract determined? And what is the remedy?

From legal perspective, there are a few legal principles that have to be considered to determine whether there is a breach of contract between two parties. Under the breach of contract, the injured party first has to establish a ground that there has been a breach of contract. It may be a breach of a condition, or warranty by the other party. The plaintiff must also prove causation, that the loss or damage that the plaintiff suffered was caused by the defendant’s breach of contract. The causation must prove that the loss or damage would not have been suffered if not because of the defendant’s breach. As with negligence, if there are multiple causes for the plaintiff’s loss or damage, then the plaintiff may not be able to recover if an additional factor unconnected with the defendant’s breach breaks the casual chain between the defendant’s action and the plaintiff’s loss or damage.

There are two main terms that need to be considered which are condition or warranty to determine whether the contract has been breached or not. In determining whether the term is a condition or a warranty the intention of the parties as what it appears in the contract must first be considered.

A condition is an important term to the contract which goes to the root of the contract. The non-performance of a condition may be regarded as grounds to terminate the contract or suing for damages or both. A warranty is a minor term of a contract which are not central to the existence of the contract. The non-performance of a warranty may result in the suing for damages but the injured parties must still perform their part of the contract.

There are two main equitable remedies for the breach of contract which are specific performance and injunctions. Specific performance is an order directing the party who breached the contract to perform the contract in the way specified by the court. It will only be ordered if the compensation is not adequate and it will not be awarded in relation to contracts of personal service while injunctions are orders directing the breaching party not to do something that will result in the breaching of the contract.

a) Whether there is a breach of contract between Martina and S & E?

In order to determine whether there is a breach of contract between Martina and S & E, S & E must establish that there is a breach of contract by Martina. This has been established by S & E by proving that Martina had breached the condition of the contract by declining to perform her work in Australia and accepting the invitation to go to Russia to sing at the oligarch’s party, without their consent. Based on the decision made by the court in the case of Poussard v Spiers (1876) 1 QBD 410, it can be concluded that Martina had breached the condition of the contract because of two reasons which were rather than obtaining her work through S & E, she dealt directly with the Russian company and she accepted to sing for another agency which was the Russian Company.

Following Associated Newspapers Ltd v Bancks [1951] HCA 24, Martina’s undertaking to only obtain her singing work through S & E and not to perform for any other agency were the condition of the contract. S & E would not have entered into the contract unless Martina had assured them that she would at least substantially perform the condition of the contract.

S & E had proved causation that they loss their commission in Australia because of Martina’s refusal to perform in Australia. The loss would not have been suffered if Martina agreed to perform her singing work in Australia under S & E. As a result, there was a breach of contract made by Martina by not performing the condition of the contract thus S & E can either terminate the contract with Martina or claim for damages or both.

The court may also grant an equitable remedy for the breach done by Martina. While the court may not grant a decree of specific performance to compel Martina to sing under S & E, it may enforce the negative promise to ‘not sing for any other agency’ by granting an injunction to abstain Martina from singing elsewhere.

The Second Legal Issue:

Background: What is duty of mitigation? And what is the remedy?

The duty of mitigation is a duty imposed on the person who is claiming damages to take all immediate reasonable steps to reduce or minimise their loss. If the person claiming the damages fail to take the steps, the amount of the damages that they can claim may be reduced by court.

The main remedy under contract law is damages. It is not awarded to punish the wrongdoer but rather to put back the injured party back in the position that they would have occupied if the contract had been performed as originally intended. Therefore, damages are calculated on the basis of looking at what the position should have been if the contract had been properly performed. There are a few types of damages that can be awarded but the most suitable damages that can be related to this case is the ordinary damages. Ordinary damages are the remedies awarded by court for the party suffering from losses resulting from the breach of contract.

Based on the decision that has been expressed or confirmed in the Queensland Court of Appeal, a plaintiff does not necessarily have to mitigate his losses unless the plaintiff wants to claim those losses against the other party, in which case the plaintiff has to try and do everything that is reasonable to mitigate those losses which means the duty only apply if the plaintiff wants to claim the damages from the other party.

b) Whether S & E had mitigated damages for their loss of commission on the job in Australia?

So, in this case, S & E wanted to claim damages for their loss of commission in Australia, but before they can claim the damages, they have to first mitigate their losses by trying to search for Martina’s replacement for the job in Australia, if they had searched for the replacement and could not find one, then they could claim for all the losses. But in this case, they failed to at least attempt to find another singer to replace Martina resulting in the loss of the commission so the court may reduce the amount of damages they may receive which means that they could not claim all the losses from Martina due to the non-performance of their duty to mitigate their loss.

Based on the principal of ordinary damages, initially S & E is entitled to be awarded the damages because they suffered loss when Martina abandoned her job in Australia to sing in Russia at the oligarch’s party. This is because if Martina did not go to Russia, they would have received a commission for the job in Australia. With that being the case, Martina will be held responsible for the loss that they incurred.

Following Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653

, S & E did not perform their duty of mitigation therefore is not entitled to claim the full amount of damages from Martina because when they found out that Martina was not available to perform in Australia they did not make any attempt to search for a replacement for Martina. Had they made an attempt to search for a replacement and found one, they would not have suffered the loss they suffered. But if they had tried to search for the replacement but still could not find one, then they are entitled to claim for full damages because they had performed their duty of mitigation. As a result, due to the non-performance of the duty of mitigation by S & E, they may not claim for the full amount of damages from Martina but they may claim for the damages due to the negligence made by Martina when she breached the contract.

The burden of proof lies with the defendant to proof that the plaintiff fail to mitigate the losses. In the case between Martina and S & E, the burden of proof lies with Martina to show that S & did not make any attempt to replace her for the Australia job. If she can prove that, S & E will not be able to recover any part of the loss that is attributable to their failure to try to find another singer to replace Martina.

Tentative Conclusion.

As a conclusion, Martina may be held liable for her negligence in breaching the contract with S & E by accepting the invitation from the Russian Company. Therefore, the company may terminate the contract with Martina or claim for damages or both. The court may also order an injunction to restrain Martina from singing for any other agency until the period of the contract ended. However, S & E did not perform their mitigation duty and for that reason they could not sue and claim from Martina the full damages for their loss of commission in Australia.

Source: Essay UK - http://lecloschateldon.com/essays/law/contract-law-problem-question-example/


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