Beware – consider circumstances before terminating contract of sale for repudiation

If a party to a contract demonstrates a clear intention to no longer be bound by the terms of the contract (also known as a “repudiation” of the contract), the innocent party to the contract has the option to either:

1. continue on with the contract; or
2. accept the other party’s repudiation and terminate the contract, whilst reserving the right to seek compensation/damages.

Option 2 above, allows the innocent party to terminate the contract and seek damages before the breach of the contract actually occurs.

Due to the potential significant consequences for the parties, it is a high threshold to prove that a party has repudiated a contract, and it will involve consideration of the party’s conduct and the overall circumstances.   In other words, the conduct of the party (in the context of the overall circumstances) must be serious, and clear in their meaning.   The recent case of Thousand Hills Property Pty Ltd v LBA Capital Pty Ltd [2024] VSC 597 (LBA case) is reminder of this and stresses the importance of carefully considering the overall circumstances before attempting to terminate a contract of sale based on repudiation.

What happened in that case?

By way of brief background of the facts in the LBA case:

• LBA Capital Pty Ltd (LBA) signed a contract (Contract) with Thousand Hills Property Pty Ltd (Thousand Hills) for the purchase of 14 lots of land in Burwood. The lots of land were undeveloped, and under the Contract, Thousand Hills agreed to construct apartments in accordance with annexed plans which were to be updated (as some later time) to comply with NDIS requirements.
• LBA paid a deposit of $883,200 to Thousand Hills.
• On 7 October 2020, the director of LBA emailed Thousand Hills’ agent the following:

“Unfortunately our company is in the process of winding down, as we are unable to continue operating. As such the company will not be in a position to settle on the contract.  My suggestion is that we rescind the contracts, and reach an agreement on how the deposit moneys are used to settle the matter.”

(the Email).

• Less than 24 hours later, on 8 October 2020, the director of LBA Capital sent a further email clarifying that:

“Irrespective of LBA’s circumstances the contract of sale for the apartments cannot be satisfied by the vendor. We need to arrive by mutual consent by both parties agree to terminate the contract and determine how the deposit is to [be] dealt with.”

• On 10 March 2021, Thousand Hills’ solicitors wrote to LBA Capital’s solicitors stating that:
  • they had received a copy of the Email;
  • the Email informs them that LBA Capital “will not be in a position to settle”; and
  • Thousand Hills “now formally accept the repudiation of the contract”.
• LBA Capital disputed that it repudiated the Contract.  The question in dispute then became who should get the deposit.

In the LBA case, the Court found that the Email did not objectively convey repudiation when the context and overall circumstances were considered.   In reaching the decision, the Court considered that:

• the parties anticipated further agreement on modifying the plans and associated costs at the time the Contract was entered into;
• both parties were dissatisfied with the wording of the Contract, and Thousand Hills’ representative had invited termination; and
• the Email indicated wanting to escape the contract by agreement, rather than an inability or renunciation of obligations, which was reinforced by the email sent a day later clarifying the parties needing mutual consent to terminate and to determine the deposit’s treatment.

Ultimately, the Court determined that the deposit was not forfeited and said that the deposit ought to be repaid to LBA.

What does this mean for me?

An expression of a desire to not comply a contractual obligation or a request to be relieved from that obligation, is not the same as the expression of an intention to not comply with that obligation.

If you believe that another party cannot comply with a contract for the sale of property, it is important that you seek tailored legal advice before seeking to terminate the contract.   Otherwise, you may:

• lose your right to recover damages from the other party; and
• expose yourself to a damages claim from the other party.

Require assistance?

If you require advice regarding options for or implications of ending a contract for the sale of property, contact the team at Coulter Legal today.