When contracts end: The perils of miscommunication and misunderstanding

From a practical perspective, the most critical thing for any party to a contract to appreciate is the importance of prompt, clear and consistent communication with the other parties involved. Don’t underestimate the impact of a miscommunication or misunderstanding.

Parties who remain silent, who are ambiguous as to their position, or who allow another party to continue under a misunderstanding are at real risk of compromising their rights or creating unintended liabilities. This is particularly so if a contract is being brought to an end.

In contract law, there are a number of ways that a contract may end:

1. if it is for an specific duration, it might expire;
2. it may be expressly terminated pursuant to its terms;
3. one party might repudiate (ie. by evincing an intention to no longer be bound) and as a consequence the other may choose to accept that repudiation and terminate the contract at general law;
4. it might be frustrated if it was based upon a common assumption shared by the parties and that common assumption then fails or proves inaccurate; or
5. if it can be inferred from the conduct of the parties that neither intends the contract to be further performed, another way that a contract may end is by abandonment.

A lesson from Tonner v Delaporte

The miscommunication and misunderstanding that underpinned the Western Australian case of Tonner v Delaporte [2018] WASCA 115 (25 July 2018) provide a useful illustration of how easily things can go wrong. This was an appeal case where the Court found that the trial judge had erred in finding that a contract of sale had been repudiated and instead held that it had been mutually abandoned:

The Facts

• The Tonners were purchasers under a contract of sale containing a 9 month settlement period and a right to lease the property until settlement under a standard residential lease.
• A week before settlement, the Vendor’s estate agents issued a generic notice to vacate on the Tonners. The letter provided one month’s notice, attached standard guides for final inspections and returning keys, and referred to the reletting the premises to a new tenant. However, there was no mention in the letter of the contract of sale or the impending settlement. (Vacate Letter).
• The Tonners interpreted the Vacate Letter to mean that the Vendor did not want to settle on the sale. The Tonners responded by email that, although disappointed, they would “accept” the request and had instructed their accountants and financiers to stop working on the purchase (Response Email).
• The Vendor’s estate agent telephoned the Tonners regarding the Response Email, with Mr Tonner alleging at trial that he was told “it’s what the owners want to do and its their prerogative”.
• Following the call, Mr Tonner confirmed the position in the Response Email and stated that the Tonners had now committed to a new property and expected a refund of their deposit (Alleged Repudiation email).
• The estate agent responded by email clarifying that “the previous advice [Vacate Letter] was a tenancy issue and has no bearing on your purchase of the home” and urging them to “think very seriously about this termination of the purchase and get legal advice before defaulting on the transaction” (Agent’s Email).
• Within 48 hours of the Agent’s Email, the Vendor (via her solicitors) purported to accept the Tonners’ repudiation, elected to terminate the contract and claimed forfeiture of the deposit and damages for breach of contract (Notice of Termination).
• Following the Notice of Termination, neither party attempted to perform the contract. The Vendor placed the property back on the market and the Tonners took no steps to enforce the contract.
• When the property was resold at $500,000 less than the original price some 20 months later, the Vendor successfully sued the Tonners for the price difference plus marketing costs (minus the deposit).

The Decision

In overturning the trial judge’s decision, the Court held that:

• the Alleged Repudiation Email was not a repudiation because it “did not evince a refusal to perform the contract [but rather] the overall impression conveyed to an objective reasonable person was of a genuine misunderstanding ”;
• although the Vacate Letter was accepted as governing what would occur under the lease if settlement did not proceed (and not a repudiation of the contract by the Vendor), its terms in the circumstances left such “room for confusion or misunderstanding ” that the Tonners interpretation could not be objectively dismissed as disingenuous;
• at the time of sending the email, the Vendor’s true position had not been clarified and accordingly it had to be read in that context;
• to the extent that the Agent’s Email invited the Tonners to reconsider, the Vendor did not allow sufficient time for them to actually do so before issuing the Notice of Termination;
• the parties’ subsequent conduct meant that the contract had now been abandoned:

“When the conduct of parties reveals that neither intends that the contract be further performed, the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract. The inference of abandonment may be drawn when an ‘inordinate’ length of time has been allowed to elapse during which neither party has attempted to perform, or called upon the other to perform, the contract between them. Thus, ‘each party [is] entitled to assume from the long-continued ignoring of the contract on both sides that the matter is off altogether'”;

• the Vendor’s award for damages was set aside and orders were made for return of the deposit to the Tonners, the contract having ended without fault by either party.

Reflections

It is not difficult see how the above case might have been resolved differently had the parties been more clear in their communications and prompt in clarifying misunderstandings. However, it should also serve as a sharp lesson for all on the need for considered legal advice prior to terminating a contract, both parties having separately and inadvertently placed themselves at risk of unintended consequences though poorly executed steps to bring the contract to an end.

The Tisher Liner FC Law Commercial Team have extensive experience in advising upon contractual rights. If you require advice or assistance with a contractual matter, please contact a member of our Commercial Team.

Disclaimer
The material contained in this publication is meant to be informational only and is not to be construed as legal advice. Tisher Liner FC Law will not be held liable or responsible for any claim, which is made as a result of any person relying upon the information contained in this publication.