If you have entered into a con­tract, you or the oth­er par­ty have draft­ed with­out legal assis­tance, you should con­sid­er some of the unin­tend­ed seri­ous con­se­quences that can arise, includ­ing where a con­tract or a term in a con­tract is void, void­able or unen­force­able. There are dif­fer­ences between valid­i­ty, void­abil­i­ty and unen­force­abil­i­ty. This arti­cle explores some of those differences. 

Valid­i­ty

A term in a con­tract that is invalid is referred to as void. It has no legal effect. Where a term is void, no rights or oblig­a­tions pro­vid­ed by the term are legal­ly cre­at­ed between the par­ties to the con­tract. The term will be treat­ed as if it nev­er exist­ed, and it will not bind the par­ties. One of the most com­mon rea­sons a term in a con­tract is void is where it is, in a legal sense, uncer­tain. A court will endeav­our to dis­cov­er the inten­tion of the par­ties from words used in the con­tract and as long as a term is capa­ble of a mean­ing, it will ulti­mate­ly be giv­en that mean­ing. How­ev­er, it is not always pos­si­ble for a court to dis­cov­er any inten­tion of the par­ties. One exam­ple of an uncer­tain term is where there is an agree­ment to agree on con­trac­tu­al terms: Unit­ed Group Rail Ser­vices Ltd v Rail Cor­po­ra­tion NSW [2008] NSWSC 1364 at [13].

An entire con­tract can be void where there is uncer­tain­ty in a term so essen­tial to the nature of the con­tract that the non-per­for­mance of the promise in the term may fair­ly be con­sid­ered a fail­ure to per­form the con­tract at all. Uncer­tain­ty in a non-essen­tial term can result in the uncer­tain term being sev­ered. How­ev­er, if the term is essen­tial and a Court finds it is uncer­tain, the con­tract itself is void for uncer­tain­ty. One exam­ple of this is where there is legal uncer­tain­ty as to price: Aus­tralian Secu­ri­ties and Invest­ments Com­mis­sion v Fortes­cue Met­als Group Ltd (No 5) [2009] FCA 1586; 264 ALR 201 at [298] and [311].

On the oth­er hand, a court will treat a sev­er­able, non-essen­tial term in an oth­er­wise valid and enforce­able con­tract as severed. 

Void­abil­i­ty

A void­able con­tract is one which is valid until a par­ty whose right it is to avoid the con­tract exer­cis­es that right. A par­ty’s elec­tion to avoid or affirm a con­tract aris­es where there is a viti­at­ing fac­tor’. Viti­at­ing fac­tors often arise where the con­tract is entered in cir­cum­stances of:

  • duress
  • undue influ­ence
  • uncon­scionable con­duct and
  • uni­lat­er­al mis­take as to a fun­da­men­tal term of the con­tract where a court con­cludes it would be uncon­scionable to uphold the bargain.

Once a par­ty exer­cis­es their right to avoid the con­tract, it is treat­ed as void and the par­ties are no longer bound by it.

Unen­force­abil­i­ty

Con­trac­tu­al pro­vi­sions may be valid or void­able but nev­er­the­less unen­force­able. Exam­ples of when a term or con­tract is unen­force­able include where a statu­to­ry pro­vi­sion states a term or a con­tract is unen­force­able or the term or con­tract is con­trary to pub­lic policy.

Con­clu­sion

Com­mer­cial lit­i­ga­tion often involves dis­putes about con­tracts and their terms. It is essen­tial to ensure that a con­tract is draft­ed cor­rect­ly and in accor­dance with the law so that the par­ties can be con­fi­dent that its terms are valid and enforce­able. If you have doubts about a con­tract, or its terms, you should seek legal advice.

If you would like to repub­lish this arti­cle, it is gen­er­al­ly approved, but pri­or to doing so please con­tact the Mar­ket­ing team at marketing@​swaab.​com.​au. This arti­cle is not legal advice and the views and com­ments are of a gen­er­al nature only. This arti­cle is not to be relied upon in sub­sti­tu­tion for detailed legal advice.

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