Parties who fail to clearly assert their rights can often face unexpected consequences. Our Commercial Team advises on the importance of being clear and consistent in contractual dealings, particularly when a contract is being brought to an end.

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.

Related Articles

View All
Commercial Law / Commercial Contracts & Agreements / Employment Law

Payroll Tax – Medical Centres and Contracted Practitioners

  The recent SRO Ruling (PTA-041) on 11 August 2023, confirms the SRO’s stance on the payroll tax obligations of...
Read More
Commercial Contracts & Agreements / Employment Law / Litigation & Dispute Resolution

New Limitations On Fixed Term Employment Contracts – Employers need to know what they don’t know!

As of today (6 December 2023), there will be new rules that impact the use of fixed term employment contracts These are...
Read More
Commercial Contracts & Agreements / Small to Medium Enterprises

Know your consumer rights and obligations ahead of the holiday season!

Just before our office closes to celebrate the holiday season, we sign off with a little gift from TLFC Whether you are...
Read More
Commercial Contracts & Agreements / Leasing & Lease Disputes / Property & Development

Exercising Options

If a lease is a retail lease, the provisions of the Retail Leases Act (Vic) (2003) will govern the exercise of option...
Read More
Employment Law / Litigation & Dispute Resolution / Commercial Contracts & Agreements

Real Estate Agent Commission Victory shakes up Fair Entitlements Guarantee (FEG) Scheme

Tisher Liner FC Law has been acting on behalf of one such ‘eligible employee’ over the past three (3) years Our...
Read More
Commercial Contracts & Agreements / Construction / Construction

My builder has gone into liquidation. What do I do?

In recent times it seems like a week doesn’t go by without another building company becoming insolvent as...
Read More
Commercial Law / Employment Law / Litigation & Dispute Resolution

International Women’s Day 2023: Embrace Equity

Have you ever wondered why the hallmark colours of International Women’s Day are vibrant purple, bold green and stark...
Read More
Property & Development / Commercial Contracts & Agreements

Market rent reviews under the Retail Leases Act 2003: Applying to the VSBC for the appointment of a Specialist Retail Valuer under the Act

In Part 1 of our blog series, we explored market rent reviews generally This is Part 2 of our 2 part blog series, in...
Read More
Commercial Law / Commercial Contracts & Agreements / Litigation & Dispute Resolution

Recording | TLFC Law Lunchtime Briefing | Commercial Matrimony – Marry/Battle/Kill

The slides are also available Please click here to view the PowerPoint Slides   Facilitated by Ron Cohen...
Read More
Commercial Law / Commercial Contracts & Agreements / Start-ups & Emerging Enterprises

Frustration, Force Majeure & Risk: Lessons for Business in Uncertain Times

Why is a force majeure clause so important A “force majeure” clause is a provision addressing the parties’ rights...
Read More
Commercial Contracts & Agreements / Commercial Law / Leasing & Lease Disputes

The 2022 Commercial Tenancy Relief Scheme Regulations are now in effect

The 2022 Regulations were foreshadowed in a press release issued by the Victorian Government on 15 January 2022 Click...
Read More
Commercial Contracts & Agreements / Franchising & Licensing / Start-ups & Emerging Enterprises

Recording: TLFC Law Lunchtime Briefing: Internal Business Disputes

Chaired By Michael Fetter, Principal, and presented by Rob Oxley, Principal, Felicity Simpson, Special Counsel and...
Read More