Khóa luận tốt nghiệp: Remedies for breach of contract in Australian and Vietnamese law: A comparative perspective

Bui Thi Thanh Hang 2016, “Remedies for breach of contract in comparative perspective” refers to measures to force continued contract performance, contract cancellation and compensation f

MINISTRY OF JUSTICE MINISTRY OF EDUCATION AND TRAINING

NGUYEN QUYNH TRANG

453416

REMEDIES FOR BREACH OF CONTRACT IN

AUSTRALIAN AND VIETNAMESE LAW:

A COMPARATIVE PERSPECTIVE

BACHELOR’S THESIS

Hanoi — 2024

MINISTRY OF JUSTICE MINISTRY OF EDUCATION AND TRAINING

HANOI LAW UNIVERSITY

NGUYEN QUYNH TRANG

453416

REMEDIES FOR BREACH OF CONTRACT IN

AUSTRALIAN AND VIETNAMESE LAW:

A COMPARATIVE PERSPECTIVE

BACHELOR’S THESIS

SUPERVISOR: PHD DO THI ANH HONG

Hanoi - 2024

STATUTORY DECLARATION

I herewith formally declare that I myself have written thesubmitted Bachelor 's Thesis independently, the conclusionsand data in the Bachelor's Thesis are tridhfid and reliable./

Confirmation of supervisor Author of Bachelor's Thesis

Dr Do Thi Anh Hong Nguyen Quynh Trang

I would like to take this opporhmity to express my gratitude to those who hasbeen stgporting me throughout the process of drafting this study Without such

affection and assistance, tins graduation thesis would have not been completed

First and foremost, I would like to extend my deepest gratitude to mysupervisor, Dr Do Thi Anh Hong Her unfaltering sipport and valuable advice alongthe way have served as the foundation to the success of this study I am deeply gratefilfor her continuous patience and encouragement during the process of conducting thisresearch

This gratitude of mine also extends to the staff and lechưers and facultymember's of Hanoi Law University Their commitment and support in order to instructand pave the way for under graduates to venture further into their academic pathwayshave been remarkable

I am also immensely gratefid to those hailing from the Comparative LawInstitute at Hanoi Law University, for promptly supplying crucial resources thatsignificantly contributed to inspiring and assisting in the timely completion of mythesis

Last but not least I would extend an honorable mention my family and friends,especially my beloved friend - Due Minh - whose sincere support and affection havebeen vital to the formation of this study

Author of Bachelor 's Thesis

Nguyen Qnyuh Trang

LIST OF ABBREVIATIONS

eg exempli gratia (for example)

etc et cetera (and so forth)

Le id est (that is)

p (pp) page (pages)

UNCITRAL United Nations Commission on

International Trade Law

International Institute for the Unification

UNIDOROIT of Private Law

”— Vienna Convention on Contracts for the

International Sale of Goods

UPICC Code of Conduct on International

Commercial ContractsPECL

1.Rationale of the Thesis

2.Literature review of previous studies related to the Thesis

3.Scientific and practical significance of the Thesis

4.Research objectives of the Thesis

S.Research objects and research scope of the Thesis

6.Methodology and research methods

7 Thesis structure

CONTRACT

ll The concept of contract lw and breach of contract

111 The definition of contract

1.12 The significance of coutract law

1.13 The definition of breach of coutraci

1.14 Classification of breach of contrac

1.2 Remedies for breach of contract

1.2.1 The definition of remedies for breach of contract

1.2.2 Classification of remedies for breach of contract

1.3 Significance of remedies for breach of contract

Conclusion of Chapter 1

CHAPTER 2 REMEDIES FOR BREACH OF CONTRACT IN AUSTRALIAN

2.1.1 Classificatious of breach of coutract in Australian law

2.1.2 Remedies for breach of contract in Australia law

2.2 Remedies for breach of contract in Vietnamese law

2.2.1 Breach of contract in Vietnamese law

2.2.2 Remedies for breach of contract in Vieftamese law 342.3 Remedies for breach of contract in Australian and Vietnamese lawfrom a comparative perspective

2.3.1 Concept of contractual breach remedies in Australian and Vietnamese

law from a comparative perspective

2.3.2 Classificatious of contractual breach in Australian and Vietnamese

law from a comparative perspective

2.3.3 Remedies for breach of contract in Australian and Vietnamese law

Srom a comparative perspective

Conclusion of Chap ter 2

CHAPTER 3 IMPLICATIONS TO IMPROVE PROVISIONS ONREMEDIES FOR BREACH OF CONTRACT IN VIETNAMESE LAW 543.1.Guiding principles for the proposals te improve provisions on remediesfor breach of contract in Vietnamese hw

3.2.Specific proposals to improve provisions on remedies for breach ofcontract in Vietnamese contract laW ceeiieeriieriieiierieriiii 553.2.1 Specific proposals to improve provisions on compensation for damages

in Vietnamese contract law

1 Rationale of the Thesis

In an ever-changing era symbolized by intensive global trade and cross-bordercollaborations, understanding the similarities and differences in contractual remediesbecomes imperative for legal practitioners, businesses, and policymakers operating

in these jurisdictions As businesses expand internationally, the need for acomprehensive understanding of legal frameworks governing contractual

relationships becomes paramount This introduces the need to delve into the intricate

details of how breach of contract is addressed in both jurisdictions, examining theremedies available to all parties and the underlying principles governing suchremedies

On March 9th, 2024, Vietnam and Australia elevated their relations to acomprehensive strategic partnership This occasion has opened up numerousopportunities for trade and commercial activities, leaving room for researchers,economists and especially lawmakers to be engaged in the process Australiancontract law, deeply rooted in the common law tradition, emphasizes the sanctity ofcontracts and the expectation that parties will adhere to their agreed terms.Contrastingly, Vietnam, operating under a civil law system, prioritizes social justiceand collective interests This difference offers an intriguing dichotomy in legaltraditions As both countries continue to play pivotal roles in regional andinternational trade, a comparative analysis of their contract lav remedies becomespertinent for fostering legal certainty and facilitating smoother business transactions

Regardless of this complexity and comprehensiveness of both legal systems, athorough insight into the remedies for breach of contract in Australia and Vietnamhas emerged as a novel aspect to be further explored Such an aspect shall seek toidentify areas of convergence or divergence, potential challenges faced byinternational stakeholders, and opportunities for legal harmonization Understandingthe nuances of each system can assist in drafting contracts, negotiating terms, andformulating strategies for dispute resolution

This has served as the cornerstone that has led to the formation of this study: itsgoals are to foster cross-cultural understanding in contractual relations, and catalyze

1

discussions on the development of a more cohesive global legal framework Bydelving into the legal doctrines and legislative provisions governing contractualbreaches, the underlying principles shaping the remedies available for breach ofcontract in each country are expected to be revealed Additionally, the importance ofconsidering cultural, historical, and philosophical factors in shaping contractualremedies is underscored, providing valuable insights for legal practitionersnavigating the complexities of international business transactions Therefore, thesefactors collectively justify the selection of the topic “Remedies for breach of contract

in Australian aud Vietnamese law: A comparative perspective” for this Bachelor'sThesis

2 Literature review of previous studies related to the Thesis

2.1 Foreign researches

Solene Rowan (2012), “Remedies for Breach of Contract - A Comparative

Analysis of the Protection of Performance” published by Oxford University Press,

aims to bring the advantages of comparative study to bear on remedies for breach of

contract By drawing comparisons with French law, it seeks to shed light on the

remedial regime for breach of contract in England It endeavors to achieve a new

understanding of the protection afforded by English law remedies to contractual

performance

Peter Radan, John Gooley, Ilija Vickovich (2018), “Principles of Australian

Contract Law - Case and Materials” published by LexisNexis Butterworths in

Australia provides the fundamental knowledge about Australian contract law and

practical situations to illustrate, including breach of contract cases

Max Young (2010), “Understanding Contract Law” from Routledge Cavendish in London and New Y ork offers a clear introduction to the basic concepts

-of contract law in England built around familiar real-world examples that illustratethe concepts, principles and key cases upon which English contract law is structured,

covers the necessary topics in contract law, including breach of contract

The aforementioned studies have contributed numerous legal principles and

provided a broader perspective on the regulation of remedies for breach of contract

in Common Law and in Australian law Nonetheless, the research’s scope remains

restricted, and no comparative analyses of remedies for breach of contract inAustralian contract law with Vietnamese law have been conducted.

2.2 Domestic researches

Nguyen Hien Phuong (2022) discusses the “Law on contracts from the

perspective of comparative law” provides a comparative analysis of contract law,

potentially shedding light on similarities, differences and practices in contract

regulation from a global perspective in different branches of law Thisis valuable forunderstanding how Vietnam’s contract law aligns with or diverges from legalframeworks in other jurisdictions

Truong Nhat Quang (2021), “Legal regulations on Contracts - Basis legalissues” offers an in-depth exploration of fundamental legal issues concerningcontracts This resource addresses key concepts and regulations related to contractlaw, offering comprehensive insights into contract formation, performance andliabilities

Nguyen Thi Minh, “Differences in the regulations of liability for breach ofcontract between Vietnamese law and Australian la ”Ì provides foundationalinsights into basic comparative liability for breach of contract in two different

countries.

Bui Thi Thanh Hang (2016), “Remedies for breach of contract in comparative

perspective” refers to measures to force continued contract performance, contract

cancellation and compensation for damages in the civil law system and common lawlegal system, some international legal documents on contracts and contract lawVietnam to point out similarities and differences

Le Hang Phuong (2022), “Measure of damages under Vietnamese Civil law Graduation Thesis” reseerches theoretical and practical issues of the provisions ofVietnamese law on compensation for damage caused due to breach of contract inVietnam, on the basis of comparison to provisions on compensation for breach of

-contract of some countries and a number of international legal docum ents in order to

contribute to clarifying and enriching the theoretical, practical and legal basis of the

compensation for damage caused due to breach of contract

' Jurisprudence joumal, No.2, 1999

It can be concluded that the majority of research about remedies for breach ofcontract in Vietnamese contract law have not given a comparison view with Australiayet, or only have spare information and knowledge Hence, the study “Remedies forbreach of contract in Australian and Vietmamese law: A comparative perspective”

does not coincide with these previous studies This is a completely new study that

focuses on the Vietnamese law of remedies for breach of contract in comparison withAustralia’s

3 Scientific and practical significance of the Thesis

4 Research objectives of the Thesis

Firstly, it endeavors to conduct a comprehensive comparative analysis of the

statutory remedies for breach of contract in Australian and Vietnamese contract law

Moreover, the exploration of historical, cultural and institutional contexts within both

legal systems is an essential component The Thesis also seeks to critically assess the

practical implications of these remedies within Australian and Vietnamese legal

landscapes Finally, the formulation of policy recommendations to enhance the

utilization and effectiveness of remedies for breach of contract in two countries’ law

stands as a significant objective

5 Research objects and research scope of the Thesis

5.1 Research objects of the Thesis

The research object of the Thesis is the assessment and comparison of remediesfor breach of contract within the legal regulations of Australian and Vietnamese contractlaw This involves the theoretical issues, regulations of law and the application ofremedies, aiming to provide a comprehensive understanding of how these remedies areutilized to resolve the contractual disputes in both legal systems The research delvesinto

the practical implications, including enforceability and judicial support, and aims to

identify potential areas for cross-jurisdictional learning and improvement Additionally,

the Thesis studies related regulations such as the Vietnamese Civil Code 2015, the

Commercial Law 2005 end Australien contract lav to give recommendations forVietnam

5.2 Research scope of the Thesis

The Thesis focuses on the legal system on remedies for breach of contract

including specific performance, termination, compensation and penalty Besides,

On the rules in the text clearly state the theory, research focuses and clarify thefollowing issues:

Firstly, on the basis of the law on remedies for non-performance of contract, thethesis will focus on researching and clarifying the rationale for these remedies

Secondly, the thesis focuses on clarifying the provisions of the Civil Code 2015,the Commercial Law 2005 and same relevant legal documents on remedies for breach

of the contract The thesis studies the contract law of Australia on the basis of comparison.with regulations provisions of the law of Vietnam, through which it aims to determinethe compatibility and limitations in the Vietnamese law on remedies for breach of

contract.

Finally, on the basis of studying the issues, implementing the law and performingthe work on the application of the law, the thesis will give the evaluation opinions and

propose to improve the legal provisions on this issue.

6 Methodology and research methods

61 Methodology

In the Thesis, the writer utilizes the methodology of dialectical materialism andhistorical materialism rooted in Marxist-Leninist philosophy Furthermore, in order tocarry out the set research tasks, the Thesis applies Ho Chi Minh's thoughts on the Stateand Law, viewpoints of the Communist Party and State of Vietnam regarding the

establishm ent of arule of law state, judicial reform, and intemational integration These

methodologies aim to provide comprehensive insights into the comparative analysis of

remedies for non-performance of contract, considering legal, cultural, and policy factors

within both legal systems

Third, a systematic method is used to sequence and find consistency amongcommon issues of remedies for breach of contract legislation

Fourth, comparative legal analysis involves a detailed examination and

comparison of the legal frameworks, statutes, and judicial precedents related to remedies

for breach of contract in Australian and Vietnamese contract law It aims to identify

similarities, differences, and potential areas for cross-jurisdictional leaming and

improvement

7 Thesis structure

In addition to the preface; literature review of previous researches related to thetopic; conclusion and references, the contents and results of the Thesis include threechapters:

Chap ter 1 Theoretical issues of remedies for breach of contract,Chap ter 2 Remedies for breach of contract in Australian and Vietnamese law,Chap ter 3 Implications to improve the lew on remedies for breach of contract inVietnam

CHAPTER I: THEORETICAL ISSUES OF REMEDIES FOR BREACH OF

CONTRACT1.1 The concept of contract lw and breach of contract

1.1.1 The definition of contract

Depending on the context, contracts have different names Some equivalentterms are often used interchangeably with “contract” such as: “agreement”, “deed”,

“commitment”, The definition of a contract does not always appear in internationallegal documents or national contract laws In the national legal system, only a fewcountries provide the definition of contract in their Civil Code or the C ontract law Inthe world today, there are generally two approaches to contracts 2

The first approach (the subjective approach): A contract is a meeting of thewill of the parties to result in certain legal consequences Typical for this approach isFrench contract law doctrine, on the other hand, “attaches the binding force to thesubjective will.” That is, French law inclines more toward the pure subjective

“meeting of the minds" approach in theory, "though sometimes with a correctiveapproach which yields much the same practical result as the objective approach’?Stated differently, a “subjective ‘internalization’ of contractual obligations-themeeting of minds or concurrence of two or more independent wills-though evidentlysupported by external, objective elements became the comerstone of the Frenchnatural law theory of contract."* This subjective approach emphasizes the notion ofconsent and the legal consequence of the contract is to “create an obligation to do ornot to do a particular thing” A contract is considered to be concluded by means of anabstract process of the “meeting of the wills”

The second approach (the objective approach), the contract is presumed as thevoluntary attention of a party to be bound, and the conduct of the party intending to

be bound is a consequence of that intention The objective theory of contractsprovides that mutual assent to a contract is determined by reference to external acts

2 Nguyen Hien Phuong (2022), ‘Leow on contacts from the perspective of comparative kon” , People’s Police

Publishing House , Ha Noi,p 33-38.

3 Wayne Bames (2008), “The French Subjective Theory of Contract: Separating Rhetoric from Reality”,

p367

+ Martin J Doris (2005), “The Late Scholastic Contribution To the Common Law of Contracts”,p 372-73

and manifestations, not by evidence of subjective, internal intention Stated moresimply, contract formation depends on what is communicated, not on what is merelythought 5 As Holmes stated in The Common Law, "The making of a contract does

not depend on the state of the parties' minds, it depends on their overt acts’.®

However, modern approaches to objective theory have become more flexible bytaking into account the superior knowledge of the person to whom the manifestationsare made Thus, one modern formulation of objective theory is that “a party'sintention will be held to be what a reasonable person in the position of the other partywould conclude the manifestation to mean.”

Although there are differences in terms of approaches, legal systems allrecognize the characteristic element of a contract as the unity of will to create legalconsequences that bind the parties to establish a contractual relationship From theabove analysis, a contract can be defined as: “4 contract is an agreement wherebyone or more entities bond themselves to one or more other entities in order to transferproperty, do or not do a certain job”

1.1.2 The significance of contract law

Firstly, consistency and certainty.” Consistency and certainty in the law are not

merely an indulgence for the benefit of lawyers and law students: they are essential

to confident planning for the future by all But what must be acknowledged issomething which the lawyer, steeped in doctrine, has not always been prepared torecognise, namely that doctrine is formed not in a vacuum but in response to

particular problems in time and space Similarly, the future viability of legal doctrine

depends on considerations extrinsic to the system of doctrine itself, in general itscapacity to provide just and efficient solutions to contemporary disputes

Secondly, dispute resolution ŸThe role of contract law in determining theresolution of contractual disputes can be overestimated The cost and delay involved

in litigation are considerable, notlrvithstanding persistent attempts to reduce both

Š Duncan Kemmedy (2000), “From the Will Theory to the Principle Of Private Autonomy: Lon Piller's

"Consideration and Form," 100 COLUM L REV 94,p.129-30

Ế oliver Wendell Hohnes, , “The Common Law”,p 309 (Dover Pablns, Inc 1991).

` CE Tretel (1981), “Docerine and Discretion ra the Law af Contract”

* IW Carter (1989), “Contract, Restitution and Promissory Estoppel”

Arbitration, as an alternative, has often proved to be even more expensive and timeconsuming Both also involve considerable indirect and non-financial costs, forexample, expenditure of the parties own time and energy in preparing for trial, andthe worry and mental strain imposed on the litigants and their witnesses ° Contractlaw may helps the parties to tackle those problems by the agreements between them,

which stipulate detailed regulations to prevent dispute

Practising and academic lawyers must see contract law for what itis one means

of resolving questions and disputes arising from broken agreements Its content is notinevitable and immutable, and its future depends on its economic and socialenvironment aswell as on factors intrinsic to the legal system and its personel.” AsProfessor Coote states:

“Contract remains alive at common law and its retention can be justified so long asthe balance of advantage to society remains with providing a facility by which parties

are able to take legal contractual obligations ton themselves “11

1.1.3 The definition of breach of contract

According to A Dictionary of Law - Oxford Dictionary, breach of contractmeans “An actual faite by a party to a contract to perform his obligations underthat contract or an indication of his intention not to do so “!? A breach of contractconsists of a failure, without law excuse, to perform a contractual obligation Thefailure may take many different forms, including: (3) an express refusal to performthe contract or a particular term of the contract; (1) defective performance; and (iii)incapacitating oneself from performing the contract

According to the Vietnamese dictionary, “breach” is “failtze to comply with

or violate the provisions." Accordingly, it can be seen that when a party fails tocomply or do differently from what the parties specified in the contract is called abreach of contract From a legal perspective, breach of contract can be understood as

"an act of one party that has acted contrary to the provisions of law or contrary to

? Brian Coote (1989), “The Essence of Contact — Part II’,p 201

© Adams and Brovmsword (1987), “Understanding Contract Law”.

'! Brian Coote (1989), “The Fssence of Contract - Part II”.

1 Phzbethh A Martin, “44 Dictioneay of Ten”,p 98

the committed content” For example, breach of payment obligation, violation ofterms of quality, technical requirements of goods, time of delivery,

According to traditional theory, breach of contract is an omission in theperformance of contractual obligations British professor Treitel defines: “A breach

of contract occt0s when one party fails to provide a legal reason for the lack ofperformance of the contract, refusal to perform the contract incomplete performance

or inability to perform the contract"? Accordingly, omissions in contract

performance and refusal to perform the contract are considered a breach of contractwhen there is no legal reason to justify it In such cases, both CommonLaw andCivilLaw stipulate that the party violating the contract must bear certain legalresponsibilities Basic legal liability arising from breach of contract as stipulated indifferent legislations includes the responsibility to compensate for damages and theresponsibility to enforce penalties for violations

Duong Anh Son supposes: “Contract breach is objective manifestation in theform of actions or inactions contrary to the contents agreed upon by the parties.”

Thus, from the concepts of CommonLaw and Civil Law and definitions in thedictionary from a legal perspective, “a breach of contract is the failure by a party to

a contractual relationship to perform, or to fail to perform obligations arising fromthe contract 7ˆ

1.1.4, Classification of breach of coutract

There are four main types of breaches in relation to contracts More so, a

‘breach of contract generally falls under one of two categories: an “actual breach"when one party refuses to fully perform the terms of the contract, or an “anticipatorybreach" when a party states in advance that they will not be delivering on the terms

of the contract

Mirstly, a minor breach of contract occurs when a party fails to perform a part

of the contract, but does not violate the whole contract To be considered a minorbreach, the infraction must be so nonessential that all parties involved can otherwisefulfill any remaining contractual obligations A minor breach is sometimes referred

to as an impartial breach For example, a person hires a contractor to renovate her

3B ucKendrick, E., (1997), Breach of Contract”, London, p 341

kitchen by a specific date However, the contractor does not finish the work on time

or leaves it incomplete This is an actual breach of contract, as the contractor did notfulfill their obligation

Secondly, a material breach of contract is a failure to perform an important or

contractual obligation, where the purpose, value or benefit is frustrated or lost.!* Itis

a breach that is so substantial, it seriously impairs the contract as a whole;

additionally, the purpose of the agreement must be rendered completely defeated by

the breach It is sometimes referred to as a total breach A breach of contract willlikely constitute a material breach if the term of the contract that has been breached

is a condition of the contract For example, a firm contracts with a vendor to deliver

400 copies of a bound manual for an auto industry conference But when the boxesarrive at the conference site, they contain gardening brochures instead

Thirdly, a fundamental breach of contract is similer to a material breach, inthat the non-breaching party is allowed to terminate the contract and seek damages inthe event of a breach But, it is considered to be much more severe in nature Forexample, if one party fails to perform the main obligation of the contract, this would

be a fundamental breach of contract, evenif the party upheld more minor obligations

Finally, an anticipatory breach is an unequivocal indication that the party will

not perform when performance falls due, or a situation in which future

non-performance isinevitable An anticipatory breach occurs when one party lets the other

party know, either verbally or in writing that they will not be able to fulfill the terms

of the contract If the party required to perform does not perform when required bythe contract, the innocent party can terminate then Anticipatory breach may also bereferred to as anticipatory repudiation Where an anticipatory breach occurs, the otherparty can sue for breach right away and it is not necessary to wait until performancefalls due

1 the Law Dictionary & Blacks Lav Dictionary 2 Ea.

12 Remedies for breach of contract

1.2.1 The definition of remedies for breach of coutract

Terms used to refer to legal solutions for non-performance of contractualobligations include: "remedies for breach of contract/non-performance", abbreviated

as “remedies”, “les sanctions contractuelle civiles” (sanctions for violations ofcontract), abbreviated as “sanctions”, “moyens ouverts đen cas dinexécution ”

(cemedies for non-performance of contract), abbreviated as “moyens” l6

Countries in the Civil Law system such as France, Belgium, and Switzerland

use the term “sanctions”, or “sanction contractuelle civile", or “les sanctions de

l'inexécution des obligations contractuelle", sometimes “les remédes”!®, refers tolegal solutions for the situation brought about by acts of not performing contractualobligations, in other words, refers to legal forms to remedy the failure to performcontractual obligations In particular, new Article 1217 of the French Civil Codeissued under Ordinance No 2016-131 on February 10, 2016 on reform of contractlaw, general provisions and evidence of formal obligations use the term "sanctions"

to refer to legal solutions for the situation of non-performance of contractualobligations, including Suspension of contract performance; Continue to perform thecontract; Ask for a discount; Contract cancellation, Compensation for damages Ì”

Common law countries do not use the term “sanctions”, but use the term

“remedies for breach of contract/non-performance”, abbreviated as “remedies” torefer to legal solutions to remedy the situation of non-fulfillment of contractualobligations The term “remedies” is also a term used in the 1980 Vienna Convention

on Contracts for the International Sale of Goods (CISG), the UNIDROIT Code ofConduct on International Commercial Contracts (UPICC), the Code of ConductEuropean contract law (PECL) In the French version of these international legaldocuments, the term “moyens” or in full “moyens ouverts đen cas đinexécution” isused instead of the term “sanctions”, andis the French equivalent of the English term

“remedies”

1S Bui Thi Thanh Hang (2017), ““Civil Liability”, “Sanctions, “Remedies” for breach of contract” ,

Legislation Jounal

16 yy Fontame et G Viney (2002), “Les scomtions de lnexécution des obligations contractuelles - Etudes de

ahoit compené Revue internationale de droit comparé.” , Vol 4 N*1 2003.p.216

"French Civil Code 2016

The term “remedies” is derived from the Latin term: “remedium”’ Initially,this term in L atin or English only had purely medical meanings such as "cure", “treat",and "cure" Until around 1300 AD, the term “remedy” started to be used figuratively

as the underlying meaning According to Black's Law Dictionary, "remedy" is

understood as a legal measure or equitable measure to enforce rights or prevent or

solve the consequences caused by wrongdoing Thus, remedies according to Black's

Law are different measures to ensure the enforcement of rights or prevent and

overcome the consequences caused by wrongful acts not only in the field of contract

‘but also in the non-contractual sector.

Based on the above analysis and comparison, the concept of remedies forbreach of contract can be proposed as follows:

Remedies for breach of contract are legal measures applied to ensue that civilliability is carried out with the purpose of restoring repairing and compensating forthe consequences caused by breach of contract and protects the balance of legalbenefits of the parties in the contractual relationship

1.2.2 Classification of remedies for breach of coutract

Depending on each legal system, the remedies for breach of contract may becifferent but in general are very diverse Although there are differences in remedies

in legal systems, they have an important role in overcoming the consequences ofbreach of contract Among the number of remedies for breach of contract, specificperformance, termination for breach and compensation for damages are three mainremedies which are recognized by different legal systems However, each system hasits own method to apply these remedies, as follows:

1.2.2.1 Specific performanceSpecific performance is a type of remedy used by courts when there is no otherremedy, including equitable relief which adequately compensates the other party If

a legal remedy will put the injured party in the position they would have enjoyed had

the contract been fully performed, then the court will use that option The most

common reason courts grant specific performance is that the subject of the contract

is unique For instance, when a contract is for the sale of a property, mere monetarydamages may not remedy the purchaser's situation

Before the 70’s, specific performance was not recognised or provided forunder common law Litigants rights were confined to being awarded damages for theloss caused to them However, courts of equity recognized that cases involvingimmovable property distinguished themselves since damages were not always an

adequate remedy As a result, the doctrine of specific performance was established to

entitle, protect or restore a party’s right to possession of the land in which they holdatitle The development of this doctrine was shaped by British common law, and itwas formally established through the enactment of the Specific Relief Act in 1963 1

1.2.2.2 Termination for breachThe right to terminate a contract for breach appears in Article 9:301 of thePrinciples of European C ontract Law, stating that there is a right to terminate where

“the other party`s non-performance is fundamental" Article 1:301 defines ‘nonperformance’ to include delayed or defective per- formance and ‘a failure to

cooperate in order to give full effect to the contract’ Non-performance becomes

‘fundamental’ if it falls within one of the three situations specified in Art 8:103,

namely, if:

(8) strict compliance with the obligation is of the essence of the contract; or(0) the non-performance substantially deprives the aggrieved party of what itwas entitled to expect under the contract, unless the other party did not

foresee and could not reasonably have foreseen that result, or

(©) the non-performance is intentional and gives the aggrieved party reason

to believe that it cannot rely on the other party’s performance 4

There is also a right to terminate under the Principles where there has been

delay in relation to a performance where the delay itself is not fundamental, but the

aggrieved party has given notice that, following an additional period, the con- tractwill be terminated if the other party has not performed

1.2.2.3 Compensation for damages

'* anthony Mason (1994), “The Place of equity and equitable remedies in the contemporaay Common Leow

World”

1° prmciples of European Contract Law, Article 9:103

It can be concluded that the most commonly applied remedy in the CommonLaw system is “compensation for damages”, in which, the non-breaching party shall

be entitled to claim for damages if a breach occurs and to demonstrate a cause - effectrelationship between the breach and the actual damage (causation) 7° To receivecompensatory damages, the plaintiff has to prove that a loss occurred and that it wasattributable to the defendant The plaintiff must also be able to quantify the amount

of loss in the eyes of the jury or judge

Initially, English and American contract law set out that the breaching partyshall only compensate for damages of the property (pecuniary loss) but not the non-pecuniary loss to the innocent party (for example, including but not limited to, metal,reputational, emotional damage) This stands as one of the features that distinguishescontractual liability from tort (tortious liability) However, inrecent legal precedents,the aforementioned principle has been expanded, in addition to claiming damages forpecuniary loss, the non-breaching party is also entitled to request the breaching party

to pay compensation for the mental loss

Furthermore, liquidated damages The contract law of Common law countriessuch as the UK and America also pays great attention to the development of remediesupon the agreement of the parties; in which, the remedy of Liquidated damages is a

typical one Liquidated damages is a fixed amount agreed upon by the parties in a

contract where damage occurs and a cause - effect relationship between the conduct

and the actual damages is demonstrated Thus, the principle difference between the

claiming damages remedy as agreed upon and the claiming damages remedy underthe Common law system is that: this remedy is only applied where the partiesmutually agree this clause to appear in the contract in the form of an express term;whilst, the compensation for damages clause can be divided into two forms: anapplied term - stipulated in the governing law/applicable law (implied term by law)

or implied term in fact; or in the form of an express term - set out by the parties in thecontract On the other hand, concerning the application of the Liquidated damages,where a breach and actual damage occur, the court shall award the aggrieved partythe liquidated amount regardless of the fact that the actual damage is greater or less

» Robert W Emerson, Jolm W Hardwick (1997), Business Law, Buron’s Educational series Ine, USA,

p.l22

than the aforementioned amount While, for the application of the remedy forclaiming damages pursuant to the clauses of the Common law, the court shall orderthe defaulting party to compensate for all actual damage caused by conduct of breach

to the innocent party

There are also many other remedies depending on the functions and

characteristics of each legal system

1.3 Significance of remedies for breach of contract

Although there are differences in remedies for breach of contract in different

legal systems, these remedies have an important place in all legal systems This is

cleatly shown by the opinion of Tracy A Thomas: "Remedies are an indispensable

part of each right and above all are an important factor for legal provisions to beenforced” because without remedial measures, rights are simply concepts anddeclarations of will that parties can choose to perform or not Therefore, therecognition of remedies has made rights from being merely concepts and declarations

of will into rights that are enforceable 4

In the contemporary world, there are many different views on the significance

of remedies for breach of contract due to differences in approaches to the concept ofcontract For example, according to the views of Y ehuda Adar and Gabriela Shalev,

in the Common law system, the remedy for breach of contract is basically understood

as a legal response to “acts of wrongdoing in the performance of the contract"?Therefore, the purpose of recognizing these legal measures is to accurately determine

the application of measures (single or combined) to against wrongful acts (breach of

contract) Unlike Common law, these remedies in the Civil law system are basicallyunderstood as a part of obligations, or "rights arising from contractual violations andexpressed in the form of a legal burden on violators”

Although there are different views on the essence of remedies for breach ofcontract, in general, all legal systems recognize remedies for breach of contract are

21 Tracy A Thomas (2004), “Ubi Jus, Ibi Remechitan : The floxkenental right to cremedy woxier de process”,

Sam Diego Lave Review, Vohmae 41

> Yeimda Adar, Gabriela Shalev (2008),“The Leow of Remedies in aMixed Jiotsciction: The Iraeii

Experience”, Tulane Exropean and Civil Law Forum, Vohme 23

33 Bui Thi Thanh Hing (2018), “Compensation for damages die to breach of contract: doctoral thesis”,

Hanoi Law University Library.

methods of protecting rights arising from contracts based on the Roman legal maxim

“Ubi jus ibi remedium” meaning “where there is a right, there is aremedy” In otherwords, when rights are violated, they will be protected or restored Therefore, theremedies for breach of contract have the following implications:

First, contingency The contingency function of remedies for violations ofcontract is recognized through legal regulations or provisions of the contract that the

parties have voluntarily committed to The contingency significance of these

remedies is shown in that on the one hand they are applied when there is a breach ofcontract, on the other hand, the application of these measures ensures the legal rights

of the violated party is accomplished through the violation being resolved Becausethey are only applied when violations occur, these measures are considered passivelegal measures, only when violations "activate", does the application of theseremedies can be applied Therefore, these measures have a contingency implicationfor the rights of the parties entering the contract so that when a violation occurs, the

measures will be applied at any time.

The second significance of remedies for breach of contract is prevention Therecognition of remedial measures for contract violations in legal regulations or in thecontent of the contract as voluntarily committed by the parties is a warning element.This raises awareness for the parties about the legal consequences they may suffer ifthey do not properly perform their contractual obligations, thereby preventing

violations of the contract by the parties This meaning is expressed in that when there

is a breach of contract, the violated party has the right to apply remedies according tothe provisions of law or according to the legal agreement of the parties to remedy thissituation, thereby ensuring that legal rights are enforced and ensuring the balance ofinterests of the parties in the contractual relationship

Thus, with the above significance, it can be seen that the nature of remediesfor consequences caused by breach of contract are methods of protecting rightsarising from the contract

Conclusion of Chapter 1

In the exploration of the theoretical issues surrounding remedies forcontractual breach in the context of contract law, it becomes evident that althoughthere are different views on the concept of remedies for breach of contract, in general,

all legal systems recognize remedies for breach of contract as methods of protectingrights arising from contracts Furthermore, this chapter has delved into three mainremedies which are recognized by different legal systems: the specific performance,termination for breach and compensation for damages.

The theoretical issuesin Chapter 1 of this Thesisform the basis for the analysis

of current regulations in Vietnam and Australia contract law in Chapter 2 and the

recommendation for improvement on remedies for contractual breach in Chapter 3

CHAPTER 2 REMEDIES FOR BREACH OF CONTRACTIN

AUSTRALIAN AND VIETNAMESE LAW

2.1 Remedies for breach of contract in Australian hw

2.1.1 Classifications of breach of contract in Australian law

Australian contract law is based on the Common law, specifically English law,rather than on any codified or statute law The basic principle of Australian contractlaw is freedom of contract, under which parties are at liberty to strike whateverbargain they choose

These broad statements of principle are affected by some importent legislation,notably, the Competition and Consumer Act 2010, which cannot be contracted out

of and may result in legislative rights which override contractual rights in certaincircumstances There are some form of contractual breach recognized in Australian.contract law, as follows:

2.1.1.1 Failure to perform

The most common form of breach of contract is a ‘failure to perform’*, This

will occur if the promisor does not discharge its performance obligation in accordancewith the applicable standard of duty Breach may take various forms:

@) Non-performance: Superficially, the most straightforward type of failure toperform is nonperformance A promisor who makes no attempt to perform is guilty

of nonperformance But a case of nonperformance may also arise even though thepromisor has attempted to perform The time-honored example of this is the sellerwho sends beans when the contract requires the delivery of peas 5 The supply of adifferent article is a clear example of nonperformance

A case of nonperformance may also arise as the result of the termination of the

performance of a contract For example, assume that a seller agrees to sell a specificmotor vehicle to a buyer, but the buyer retums the vehicle, because it is not fit for thebuyer's purposes, and announces that the contract is terminated because of the seller’sbreach If the buyer's termination is justified, because property in the goods has notpassed to the buyer and the seller has breached an express or implied condition, the

> Carter (1991), “Breach of Contract”, 2th Edition p 646.

35 Chanter v Hopkins (1838)

effect of termination is to render the seller guilty of nonperformance, and liable indam ages for non-delivery.

(ii) Defective performance: A party's performance is defective where it is not

of the quality or quantity required by the contract, or not fit for the purpose required

For example, if a builder agrees to build a house but does the work badly, so that

repair work is needed to make the work done conform with the requirements of thecontract, the breach arises from defective performance of the contract

In order to find a true case of defective performance, the promisee must receive

the performance The seller in the example given above” is guilty of nonperformance

because the buyer rejected the performance when tendered On the other hand, if thebuyer ‘accepts the vehicle, the seller's breach amounts to a detective performance

(ii) Late performance: performance whichis othenvise in accordance with thecontract is accepted by the promisee after expiry of the time allowed for performance

Late performance is a breach even if time is not ‘of the essence’ 27

The general rule in equity was that time was not essential Therefore, apromisor's failure to perform at the appointed time was not usually a bar to theenforcement of the contract in the equity court, although the promisor remained liable

to pay damages

2.1.1.2 Anticipatory breach

The other form of breach is termed ‘anticipatory breach’ An anticipatorybreach arises where, prior to the time appointed for performance by the promisor, thepromisee justifiably terminates the performance of the contract The promisee’stermination will be justified if the words or conduct of the promisor, or the promisor’sactual position, give rise to a repudiation of obligation or indicate that the promisorwas wholly and finally disabled from performing the contract

The basic distinction between the two forms of breach is the time ofoccurrence A failure to perform can only occur after the time for performance hasexpired, whereas an anticipatory breach precedes the time of performance A breach

% see @of 2.1.11.

2? Carter, “Carter’s Guide to Australim Contract Law”, 3rd Edition, p 230-232.

may, however, be of a hybrid kind, for example, where the promisor not only fails toperform but also repudiates future contractual obligations *Ê

2.1.2 Remedies for breach of coutract in Australia law

There is a distinction between a right, such as to receive performance of acontract, and the remedy which may be awarded if a right is infringed Remedies areawarded in formal dispute resolution procedures, that is, by a court, tribunal orarbitrator Expressed in terms of what the plaintiff receives, the relevant remedies

shall be applied Remedies for breach of contract in Australian law include equitable

remedies (specific performance, injunction) and legal remedies

2.1.2.1 Equitable remedies in Australian law

a Specific Performance

The remedy of specific performance ensures that the parties perform theirobligations as the contract actually requires Expressed in technical terms, it is aremedy to compel the execution in specie of a contract which requires some definite

thing to be done before the transaction is complete and the parties’ rights are settledand defined in the manner intended.”

InCommon lay, there are three essential requirements for a decree of specificperformance The contract must have been made for valuable consideration, it must

be enforceable and damages must, in the circumstances, be inadequate Specificperformance is a discretionary remedy, and the court will take a wide range of factorsinto account in exercising its discretion These include the likelihood that thecontinued supervision of the court will be required to enforce the decree, whether thecontract involves the performance of personal services, whether the plaintiff hasdelayed in seeking relief, whether the plaintiff is in breach of the contract, whetherthe plaintiff is ready and willing to perform, whether the decree would cause hardship

to the defendant and whether the decree is likely to be futile To illustrate specificperformance in Australian law, the author would like to analyze a case law in 1946

of the High C ourt of Australia

> Carter (1991), Breach af Contract, 2nd Edition, p.708-709

> Carter, ‘Carter's Guide to Australian Contract Latv”, 3rd Edition, p 441

Dougan v Ley (1946) 71 CLR 142 High Cout of Australia On Appeal from

the Supreme C out of New South Wales 3Ö was a case law in which the court applied

specific performance

[Facts: Dougan (the appellant) verbally agreed to sell a taxi-cab, together with

the benefit of registration and an operating license, to Ley and Nash (the respondents)

for the sum of £1 850 The applicable legislation provided that the registration and

license could only be transferred to a person who satisfied the C ommissioner for Road

Transport and Tramways that he was a fit and proper person to hold such registrationand license The appellant refused to complete the transaction, and the respondentssought specific performance

The reason that the appellant claimed is an award of damages at common lawwould adequately compensate the respondents Witnesses gave evidence that thenumber of licenses to operate taxi-cabs in Sydney was limited to 950, that there wererelatively few sales and that it was difficult to purchase a taxi-cab One witnesssuggested that there were six persons desirous of purchasing a taxi-cab for everywilling seller A few days before the hearing, Ley and Nash bought another taxi-cabfor £1 900 The trial judge, Roper J, decree specific performance Dougan appealed

to the High Court of Australia]

Roper J, who heard the suit, declared that the agreement should be specifically

performed and decreed the appellant to do all things and execute all documents which

are proper and necessary in order to enable the plaintiffs to present a proper

application to the Commissioner for Road Transport and Tramways for the granting

of a transfer of the registration and license of the taxi-cab, and further decreed that inthe event of such an application being granted the respondents should pay to theappellant the balance of purchase money due from them and that the appellant should

thereupon deliver the taxi-cab to them 3!

It follows that the appellant is bound to take certain formal steps and therespondents, on their part, must satisfy the Commissioner of their fitness and that theywill have the use, control and managem ent of the vehicle There is nothing in this, in

30 andrevs Robertson, Jearmit Marie Paterson, Arlen Duke (2016), ‘Contract cases and materials”, Thomson

Reuters (Professional) Australia Ltad,p 898.

31 (1945) 63 WN QNSW) 224

respect of either side, calling for the continued supervision of the Court The appeal

is based primarily upon the contention that the contract is not one appropriate for theequitable remedy of specific performance

In this case, the sale of a taxi-cab was at issue The High C ourt said it was not

simply a contract for the sale of a motor car The license to use it as a taxi was a

privilege which, when attached to the vehicle, made it unique or at least difficult to

obtain Specific performance was ordered, the judge said: “In the present case I think

that we should have no difficulty in concluding that, because of the limited manber ofvehicles registered and licensed as taxi-cabs, because of the extent to which the pricerepresents the value of the license, and because of the essentiality to the purchasers’calling of the chattel and the license annexed thereto, we should treat the contract as

within the scope of the remedy of specific performance “3?

Another characteristic of specific performance in Australian law is that thecourt has ‘jurisdiction’ to order specific performance if an avard of damages forbreach of contract would not adequately protect the plaintiff In the context of a sale

of land contract Specific performance has been justified by saying that landis unique,because no two parcels of land are exactly the same, damages - as a substitute forperformance - would be inadequate Therefore, even though the purchaser may be

able to purchase similar land as a replacement, and could be awarded damages if it

has to pay a higher price, damages do not truly (adequately) compensate the purchaser

for the loss of something unique

By contrast, the remedy in damages is adequate if a contract relates to goods

or shares which are the same as those available on the market The buyer can go intothe market and obtain the same thing and be awarded damages if the price is higherthan the contract price There is then no jurisdiction to order specific performance

Thus, based on the above case law and the characteristics of this remedy inAustralian law, it can be seen that specific performance is a type of remedy appliedwhen the subject matter of the contract cannot be compensated by other means whenthe contract is breached In other words, the contractual obligations must still beperformed even if the contract shows signs of being breached at the request of anon-

32 Dougany Ley (1946) 71 CLR 142 High Cot of Australia.

breaching party or at the request of a court This remedy is often applied to real estateobjects, because of the nature of the contract object and its uniqueness Specificperformance is therefore ordered if damages would be an inadequate remedy andit isappropriate to make the order

b Injunction

Injunctions take various forms Relevantly, the purpose is to prevent the

breach of a negative contractual promise made by the defendant to the plaintiff Aninjunction is an order of the court forbidding or commanding the performance of anact 3Š Injunctions are normally grented to ensure compliance with individual terms(as compared with specific performance, which typically involves enforcement of theentity of the contract)

Injunctions in respect of positive obligations are only granted in ‘exceptionalcircumstances’ The damages that the plaintiff would have obtained for breach must

not provide sufficient remedy Courts are reluctant to issue mandatory injunctions

requiring compliance with a positive duty because this effectively imposes specificperformance

Injunctions to enforce a negative duty (ie, a duty not to do X) restrain a party

from doing something (ie, X) The granting of an injunction in respect of a negative

duty may be contrasted with specific performance, which compels a party to dosomething

The party seeking an injunction will seek to characterize the term as one

imposing a negative duty In determining whether a term imposes a positive or

negative duty, courts have regard to the substance of the obligation, rather than theform of its expression A term will be said to impose a negative duty wherecompliance demands inactivity of the party

The technical definition of this form of injunction was stated by Dixon J in J

C Williamson Ltd v Lukey

33 730.202 Contracts, “Printed Materials”, The University of Melboume ,2004

JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 High Court of

Australia — Appeal from the Supreme Court of Victoria *

[Facts: JC Williamson Ltd (the defendant/appellant), who was the lessee of atheater, entered into an oral agreement with Lukey and Mulholland (theplaintif's/respondents) It was agreed that the respondents would take over the lease

of a shop near the theater and during the term of the lease would, in return for a fee

paid to the appellant, have the exclusive right to sell “confectionary, ice-cream and

non-intoxicating drinks” in the theater The other conditions were not expresslyagreed, but the parties understood from their experience that:

© the appellants were required to employ a sufficient mumber of staff to carry

around confectionery and drinks,

® the dress, deportment and conduct of the staff would be under the control of

the theater manager;

@ the appellants would be obliged to maintain an adequate supply of

confectionary of the kind and quality usually sold in the theater, and

® In compliance with these conditions, the appellants would admit the

respondents and their staff into the theater from the time it opened until a

reasonable time after the last interval.

The appellant terminated the agreement before the term expired and grantedexclusive “sweet rights” to another party The respondents sought:

@® specific performance of the agreement;

Gi) an injunction to restrain the appellant from preventing the plaintiffs from

exercising the right to sell sweets,

(aii) an injunction to prevent the appellant from granting exclusive rights to the

other party, or

(1v) damages

The trial judge, Lowe J, found that the contract was “an agreement that is not

to be performed within the space of one year” which was unenforceable under s 128

of the Instrranents Act 1928 (Vic) in the absence of a note or memorandum in writing

3+ Andrew Robertson, Jeanie Marie Paterson, Arlen Duke (2016), “Contract cases and materials”, Thomson

Reuters (Professional) Australia Ltd,p 913

Since there was part performance of the agreement, however, Lowe J awardeddamages in lieu of an injunction under s 62(4) of the Sipreme Court Act 1928 (theapplicable Lord Cairns’ Act provision) An appeal to the High C ourt was successful.The question upon this appeal is whether an injunction might have been granted to

enforce the agreement upon the ground of part performance An injunction is a

remedy appropriate to restrain the violation of a provision or term of a contract which

is the final expression of the parties’ legal relations But, in granting an injunction for

this purpose, the Courts of equity acted in aid of a legal right For these reasons I am

of the opinion that the case was not one in which the Court would entertain an

application for an injunction, and that the judgment should be reversed.3

Restitution has long been recognized as an optional remedy for breach ofcontract As a remedy for breach, "restitution" means either the restoration of aspecific thing or the payment in money of the value of a contractual performancerendered by the plaintiff ©

There is considerable confusion as to the purpose of the restitutionary rem edy

It is sometimes said that the purpose is to restore both parties to their pre- contract

positions This purpose is unattainable if the defendant's gain from plaintiff's

performance is greater than or less than plaintiff's loss, and plaintiff s performance is

restored not in specie, but inmoney Many authorities state that the chief purpose of

the restitutionary rem edy is to restore the plaintiff to his pre-contract position Other

authorities state that the purpose of restitution as a remedy for breach of contract is

to prevent the defendant's unjust enrichment The two restitutionary claims that mostcommonly arise in connection with contracts are the claim to recover money paid toanother party (sometimes called an action for money had and received) and the claim

to recover reasonable remuneration for services performed (sometimes called anaction for a quaniwn mertat — the amount earned)

35 TC Willimmuson Led v Lukey,, access on 23rd, March 2024

[1931] HCA 15; 45 CLR 282; [1915] 1 KB 1; [1931] ALR 157; [1845] 13 M& W838; 153 ER351

3 Pestatement (Second) of Contracts

Illustrated by the case of Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR

221 High C oust — Appeal from the New South Wales Court of Appeal 3?

A builder did building work for Ms Paul under an oral contract by which shepromised to pay a reasonable sum However, the contract was required by statute to

be in writing The statute said that the contract could not be enforced by the builder

When the building work was completed, Paul refused to pay The builder argued thateven though it could not enforce the contract, it was entitled to restitution (reasonableremuneration) for the work done Paul argued that claim was also covered by thestatute The additional ‘circumstance’ was that Paul had accepted the builder’sservices Because the work was completed in accordance with the contract, the HighCourt held that Paul could be treated as having constructively accepted the benefit

of the work She had received what was requested under the unenforceable contract

Paul was liable to pay reasonable remuneration because she was unjustlyenriched at the builder’s expense The concept of constructive acceptance neatlyavoided the problem that, because the work was done on her land, Paul could not help

‘but enjoy the benefit of it

So, to the restitution remedy, it is not about the damages, the concept is alsoabout unjust enrichment, that a party received the benefits but breach contract by

refusing fulfilling the obligations This is the outstanding characteristic of remedies

from equity law, which is distinctive from damages remedies, that other legalsystems do not have

2.1.2.2 Legal remedies in Australian law

Breach of a non-monetary contractual obligation, for example, to provideservices, does not give rise to an obligation to pay a debt Instead, the plaintiffsremedy is damages Although a money sum must be taken in substitution for dueperformance, the perspective for the award is compensation for loss (or damage)suffered by reason of the service provider’s breach of contract The objective of anaward of damages for breach of contract is to put the plaintiff in the financial position

which would have been occupied had the contract been performed 3Š

3? andrevs Robertson, Jearmit Marie Paterson, Arlen Duke (2016), “Contract cases and materials”, Thomson

Reuters (Professional) Australia Ltd

8 Carter, ““Carter’s Guide to Australian Contract Law”, 3rd Edition, p 613.

a Liquidated damages in Australian law

This term, in contract law more properly called “agreed damages” The partiesagree on a fixed sum in the event of a breach If the court accepts the amount as agenuine pre- estimate of losses that would be caused by the breach, then this amount

is paid on breach of contract If not, the court may treat the agreed damages as a

penalty clause and strike it from the contract and proceed to decide the amount of

damages in the usual way

Liquidated damages are an appropriate pre-estimation by the contractingparties, of the loss that may occur in future due to the breach of contract The breach

of contract can be due to the failure of one party to perform the contract So, itis the

maximum limit of loss This limit is pre-determined which is to be paid ascompensation by the party responsible for the breach to the aggrieved party Theseare not punishments and are rather awards of pre-agreed damages The purpose is tocompensate the innocent party for its anticipated loss suffered due to the breachwithout the need to go to court, not to penalize the breaching party These are muchfairer towards the breaching party

For example, Maria borrowed 3000€ from Dominica and agreed to pay 3400€

as damages if she fails to pay the entire sum on the due date Maria defaults in thepayment of the money In this case, Dominica is entitled to recover from Maria suchcompensation, as the court may decide as reasonable But that would not be morethan 3400€

This remedy is usually misled with the penalty remedy, although these twohave some distinction To liquidated damages, where the parties have assessed andagreed on the amount of damages to be paid in the event of a breach The contractnormally has provision for the payment of a specified amount and provided it is agenuine pre- estimate of loss and not a penalty, it may be enforceable

b Penalty remedy in Australian law

To penalize is to punish The penalty has nothing to do with estimation A

penalty obliges the breaching party to pay a pre-agreed amount of money to theinnocent party The amount of money must not be excessive and disproportionate to

the actual expected loss of the innocent party Instead of simply finding a remedy to

the innocent party, the penalty clause punishes the breaching party”

For example, suppose Antonio agrees to pay 40000€ to Paulo on or before 02,May of 2022 However, he fails to make payment of the sum at the stipulated time

And he agrees to pay 55000€ as liquidated damages So, the additional 15000€ is a

penalty because it is extravagant

c Distinction between liquidated damages and penalty in Australian lawWhether such clauses are enforceable as lignadated or agreed damages, ratherthan invalid as imposing a penalty, depends on the relationship between the sumspecified in the clause and the damage likely to be suffered by the party affected onbreach of contract As seen in the cases below, in assessing whether a liquidateddamages clause is a gemuine pre-estimate of loss or an invalid penalty, theconsiderations identified in Dimlop Pneumatic Tyre Co Ltd v New Garage & Motor

Co Ltd [1915] AC 79, 86-7 have proved highly influential:

(1) Though the parties to a contract who use the words “penalty” or

“liquidated damages” may prima facie be supposed to mean what they say, yet theexpression used is not conclusive The court must find out whether the paymentstipulated is in truth a penalty or liquidated damages

(2) The essence of a penalty is a payment of money stipulated as in terrorem

of the offending party, the essence of liquidated damages is a genuine covenant

pre-estimate of damage

(3) The question whether a sum stipulated is penalty or liquidated damages is

a question of construction to be decided upon the terms and inherent circumstances

of each particular contract, judged as at the time of the making of the contract, not as

at the time of the breach

(4 To assist this task of construction various tests have been suggested, which

if applicable to the case under consideration may prove helpful, or even conclusive

a Termination for breach in Australian law

» Six Athony Monson (1988), “Austraticn Contract Lew”