Esanda Finance Corp v Plessing

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Citation: Esanda Finance Corporation Ltd v Plessnig (1989) 166 CLR 131

This information can be found in the Casebook: Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 705-711 [28.25-28.35] or here

Contents

Background facts

  • A hire-purchase agreement between Esanda (owner) and Plessnig (hirer) for Plessnig to buy a prime mover.
  • The agreement's clause 6 said that if the hirer fails to pay for over 7 days, the owner may take immediate possession of goods, terminate and recover as liquidated damages the recoverable amount as defined in Clause 5 (all monies owed, value of the goods, rebate of charges).
  • Plessnig had to pay back Esanda in 36 payments. It failed to pay 3 payments. Esanda terminated agreement and repossessed vehicle under clause 6 (thus terminating and demanding a liquidated sum).

Legal issues

Judgement

Wilson and Toohey JJ:

  • The question here is whether the formula in clause 5 is a penalty or a liquidated sum. In order to be a liquidated sum, it 'must be out of all proportion' disproportionate (or 'extravagant, exorbitant or unconscionable') to the loss the suffered.
  • Because in this case the breaches resulted in the termination of the contract, the relevant loss is not just the loss from actual breach of contract (ie, the failure to pay an installment) - it includes the loss of the benefit of the entire contract.
  • Clause 5 involves the aggregating of several sums in order to determine the amount of the liquidated sum. Whilst it is possible that in some cases this aggregation might end up exceeding the loss suffered by the owner, that possibility is unlikely and it is not enough to render the clause a penalty.
    • It is emphasised that a clause is not a penalty merely because it exceeds the loss a bit - it needs to be 'out of all proportion' or 'extravagant, exorbitant or unconscionable'.


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