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Terminating a contract without being "ready, willing and able to complete", may render the termination invalid

Caseflash 13 April 2016

On 12 February 2016, the New South Wales Supreme Court of Appeal handed down its decision in Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd [2016] NSWCA 32 which found that the Vendor’s Notice of Termination was invalid as the Vendor themselves were not ready, willing and able to complete the contract at settlement.

Material Facts

Barrak Corporations Pty Limited (Vendor) and Jaswil Properties Pty Limited (Purchaser) entered into a contract for sale of land at Parramatta on 23 October 2014. The contractually agreed date for completion of the contract was 30 January 2015.

On 2 February 2015, the date of completion having passed, the Vendor issued a notice to complete, requiring completion “on or before 3 pm on Tuesday 17 February 2015”. The notice indicated that time was of the essence, and that if the Purchaser breached the time stipulation they had the option to terminate the contract. Settlement was scheduled for 16 February 2015, however at the settlement, while the Purchaser had all the necessary documents and cheques required, they rejected the Transfer as it was incorrectly executed by the Vendor as it did not bear the form of words necessary for execution by a company pursuant to the Corporations Act, s127.

The Purchaser requested that settlement be rebooked for 17 February 2015, however this did not occur.

The Purchaser sought an acknowledgement from the Vendor that they were not able to terminate the contract pursuant to the Notice to Complete, as the Purchaser was ready, willing and able to complete, however the Vendor indicated that the Notice to Complete remained valid. On 20 February 2015, the Purchaser served a further Notice to Complete. On 26 February 2015, the Vendor served a Notice of Termination on the Purchaser. On March 2015, the Purchaser commenced proceedings against the Vendor for relief against termination of the Contract.

Initial Findings

The primary judge, Chief Justice Bergin, assessed the obligations of the Purchaser, and found that it was the Purchaser’s obligation to include in the form of transfer provided to the Vendor the proper clause for execution as a corporation. Her Honour concluded, that settlement could have been effected on 16 February 2015 had the Purchaser included the appropriate execution clause on the transfer, and was critical of the Purchaser for not having arranged a time for settlement earlier.

Subsequently, Her Honour concluded that the Vendor was entitled to serve the Notice of Termination however the Purchaser was entitled to equitable relief in all the circumstances and order the parties to complete in April 2015.

Current Appeal

In this appeal, the Vendor wanted the deposit so the Court of Appeal reassessed whether the Vendor was entitled to issue a Notice of Termination on 26 February 2015. The Court overturned the primary judge’s findings, and considered the Vendor’s responsibilities in contrast to the Purchaser’s obligations.

The Court reaffirmed that “it is a fundamental principle of land law that the party who seeks to terminate a contract for breach of an essential stipulation, must itself be ready, willing and able to complete” and carry out the agreement. This principle is well established and is supported by both McNally v Waitzer [1981] 1 NSWLR 294 and Malouf v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920.

The Court looked to Malouf v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920 as a precedent to the current case. In that case Chief Justice Young stated that:

“If a vendor wishes to issue a notice to complete, it will only be able to do so, (a) if it is free from any relevant breach of contract which may have provided the purchaser a good excuse not to complete by the due date; and (b) it is able to proceed to completion and deliver to the purchaser all the purchaser is entitled to under the contract no later than the expiry of the notice to complete.”

Thus, it was the Vendor’s obligation to ensure that they were ready, willing and able to carry out the contract; the Court held that they had failed to do so, and hence the Vendor was not entitled to serve a Notice of Termination to the Purchaser. The Purchaser had the option to terminate the contract due to repudiation, or to go ahead with the agreement. In this case the Purchaser elected to go ahead with the agreement and was granted equitable relief by the primary judge that the parties settle the contract on a later date (30 April 2015) than what was previously agreed. The Court of Appeal confirmed that the Vendor was not entitled to terminate and was not entitled to the deposit or any other damages.

Importance

It is critical to note that a vendor relying on a Notice to Complete to terminate a contract must have the documents of title available in order to be ready, willing and able to pass legal title to the purchaser. Therefore, the onus is on the party seeking to terminate the contract to ensure that they are ready, willing and able to complete. If the party is unable to complete and wrongfully terminates, that may amount to an act of repudiation. The other party will have the option to either terminate the contract and sue for damages, or elect to enforce the contract and proceed.


Gary Newton, Partner
Sydney

Henry Yuan, Paralegal
Sydney

Caseflash 13 April 2016
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