Consider the context before terminating for repudiation

Repudiation

An innocent party is entitled to terminate a contract where the defaulting party renounces or abandons its contractual obligations by acting in a way that suggests it no longer intends to be bound by the contractor will not fulfil its obligations in accordance with the contract.

If a defaulting party repudiates, an innocent party may elect to accept the repudiation and terminate the contract. Given the consequence that the contract could be terminated before the time by which the defaulting party was to perform its obligations, the innocent party must be able to prove a serious suggestion or intention of the defaulting party not to perform their contractual obligations.

Termination by repudiation will entitle the innocent party to a claim for damages caused by the defaulting party’s repudiation without having to wait for and prove the breach of contract.

Thousand Hills Property Pty Ltd v LBA Capital Pty Ltd [2024] VSC 597

LBA Capital Pty Ltd (LBA) contracted to buy 14lots of land from Thousand Hills Property Pty Ltd (Thousand Hills) in Burwood. LBA paid a deposit of nearly $900,000. As at the contract date, the property was undeveloped, but Thousand Hills agreed to construct apartments in accordance with annexed plans which were to be updated to comply with unspecified NDIS requirements.

Later in the process, but before the apartments were completed, LBA notified Thousand Hills that they were winding down and would not be able to settle the contract. 5 months later, Thousand Hills formally accepted the repudiation.

The issue was whether LBA’s email stating that they were winding down and would not be in a position to settle constituted a repudiation justifying Thousand Hills’ retention of the deposit. The Court considered what LBA’s words and actions, in the circumstances, would convey to a reasonable person in the Thousand Hills’ position.

Without context, LBA’s words would likely have caused the reasonable person to assume that LBA would not fulfill its contractual obligations to purchase the property. However, the context persuaded the Court otherwise. That context included facts that:

• The parties had reached an impasse as to the requirements of the contract in relation to the extent of the NDIS modifications required;

• Both parties were dissatisfied with the terms of the contract;

• Thousand Hills invited LBA to commence the process for a replacement deal in another development;

• LBA sent a second email prior to the acceptance of the alleged repudiation clarifying that irrespective of LBA’s circumstances, the contract of sale for the apartments could not be satisfied by the vendor (due to NDIS requirements) and suggested that the parties should agree a mutual termination; and

• Thousand Hills sent an email 6 weeks after the alleged repudiation which suggested that Thousand Hills was unsure as to whether LBA were proceeding with the contract; and

• LBA gave evidence that despite whirling rumours of fraud, LBA could still have been able to complete the purchase.

In context, the Court did not find that the words conveyed that LBA considered itself not to be bound by the contract, nor did the Court find that the words conveyed that LBA was unable to complete the contract. Instead, the Court found that LBA wanted to escape the contract by agreement in accordance with suggestions to that effect made by Thousand Hills.

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Take away

Parties to a contract should not be too quick to assume a party has repudiated – context is crucial– to avoid losing your right to recover damages where another party is not willing, able or ready to complete their obligations, seek legal advice.

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This article includes general information only and is not specific to your situation. If you require assistance in relation to anything contained within this article, please contact us.

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