Take Care When Crashing Contracts

[Author – Tim ODwyer]

Three recent Court decisions highlight the need for conveyancing solicitors to take great care if a client wants to cancel a contract on the ground of the other party’s “repudiation” or “anticipatory breach”. Anyone wanting to back out of a contract on this basis must ensure firstly, that the other party’s conduct actually amounts to repudiation or anticipatory breach and, secondly, that you have met your own contractual obligations.

‘Repudiation’, by the way, occurs when someone is not ready or willing to settle a contract, while an ‘anticipatory breach’ is a form of repudiation where someone signals unreadiness or unwillingness some time before settlement.

Because sellers as well as buyers occasionally suffer “buyers’ remorse”, solicitors must always be prepared to give prompt and sound advice to clients who might be keen to crash a contract if a “repudiatory opportunity” – to coin a phrase – should present itself.

The basic rule (of repudiation) is that you can cancel (or terminate) a contract only when the other party’s words or conduct constitute an express or implied refusal to settle on time. But, if you get it wrong (or your solicitor gets it wrong), you might find yourself sued for wrongful termination.

Courts have generally allowed parties to terminate contracts for anticipatory breach when the other partys’ ultimate breach of contract was a certainty.

Conveyancing solicitors (and their clients) will often find it difficult to decide whether particular conduct amounts to repudiation, as well as what conduct on their clients’ part could remove an apparent right to terminate. Solicitors often have to make decisions on such issues quickly while settlement deadlines are looming large. An error of judgment may later prove costly if the matter winds up in court.

In the case of Highmist Pty Ltd v Tricare Ltd [205] QCA 357 a seller had cancelled a contract for the sale of Gold Coast land on the basis that the buyer’s refusal to settle was a repudiation. The buyer had in fact said that it would settle, but only on terms determined by a court. The Queensland Court of Appeal ruled that this could not be treated as a repudiation of the contract. On the other hand there would be an “actionable” repudiation if a party to a contract asserted an incorrect interpretation of it and said they would perform only in accordance with that interpretation. Getting heavy? Keep reading.

In the case of Jeppesons Road Pty Ltd v Di Domenico [205] QCA 391 a buyer had arrived five minutes late for settlement. Queensland’s Court of Appeal ruled that the sellers’ termination for this clear breach of contract was invalid because they themselves had not been ready and willing at the time to perform their contractual obligations (assigning tenancy agreements). The court ordered the sellers to go ahead with the sale.

The final case is Park v Brothers [205] HCA 73. By the time this matter reached the High Court, there was no doubt that the seller had wrongfully terminated. What the court had to determine was the amount to the buyer’s damages.

In September 2000 the parties entered into a contract for the sale of a rural property in New South Wales. The buyers would get pre-settlement access to parts of the property to work it up for crops, but the buyers had to get the seller’s approval for each location. When litigation occurred the buyers were ejected. As a result settlement (originally set for December 2000) did not take place until March 2001. The buyers missed out on their access for January and February of 2001, could not prepare for the next crop and consequently suffered significant financial losses. The High Court held that this case was covered by a well-established principle: where A’s promise to B is subject to a condition to be fulfilled by B, and A not only repudiates its promise but also tells B it would be useless to fulfill its condition, B is relieved from performing that condition. Thus the failure of the buyers here to seek the seller’s approval for access did not deprive them of their right to damages.

Three general rules come from these decisions:

1. Insisting on an incorrect interpretation of contractual obligations will not, of itself, amount to repudiation. But if you want out, you should make it clear you intend to abide by a court’s interpretation of the contract.

2. You cannot validly terminate a contract because of the other party’s unreadiness and unwillingness if you are not ready and willing to perform your own obligations.

3. In assessing damages for wrongful termination, courts will absolve plaintiffs from compliance of their obligations where the defendants’ wrongful termination indicated such compliance would not be necessary.

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