Which case won?

casea
The case for the vendor
  • Under the contract for sale, we were entitled to subdivide the land in two stages.
  • In the first stage we subdivided the land into the nine lots the subject of the sale and in the second stage we subdivided the balance of the land, so as to provide the remaining lots in the plan annexed to the contract.
  • This is consistent with special condition 4, which requires us to lodge “the relevant plan of subdivision”, here being the plan of subdivision relevant to the nine lots in the contract.
  • Therefore, the purchaser was not entitled to rescind the contract, and when it purported to do so, it repudiated the contract.
  • We were entitled to accept that repudiation, rescind the contract and keep the deposit, and the purchaser has no right to claim damages against us.
caseb
The case for the purchaser
  • Special condition 4 requires the vendor to lodge the plan of subdivision annexed to the contract within 12 months of the date of the contract.
  • The plan annexed to the contract requires the vendor to develop the land by one subdivision into thirty-five lots, not in two stages as the vendor incorrectly argues.
  • By obtaining registration of a plan embodying only the limited subdivision of the 9 lots, the vendor insisted on adhering to an incorrect interpretation of the contract.
  • This was a repudiation of the contract by the vendor, entitling us to rescind the contract and to claim damages for the vendor’s failure to comply with its contractual obligations.

So, which case won?

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Case B won. You were right!

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a32%
b68%

Expert commentary on the court's decision

Tom WilliamsParalegal
“Generally, if one party to a contract believes that the other party to the contract has repudiated it, the options available are to either continue with the contract as it was formed, or to accept the repudiation and elect to rescind the contract, thereby dissolving all obligations.”
Court rules neither party entitled to rescind

In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, the High Court of Australia concluded that neither the purchaser, Mona Homes, nor the vendor, DTR Nominees, was entitled to rescind the contract.  

However, the court found that by the time the proceedings were commenced, both parties had abandoned the contract, and so it allowed to stand the Court of Appeal’s order requiring that DTR Nominees return Mona Homes’ deposit.  

Vendor not entitled to subdivide in two stages

The court interpreted special condition 4 as requiring DTR Nominees to lodge for registration the contract plan of subdivision providing for subdivision into the thirty-five lotsSpecial condition 4 did not provide for DTR Nominees to subdivide the land in two stages

Test for determining repudiation of contract

The test for whether a party has repudiated the contract is whether the party’s conduct would convey to a reasonable person, in the position of the other contracting party, that it does not further intend to be bound by the whole contract; or alternatively, that it only intends to undertake the contractual requirements in a manner different to certain terms and conditions. 

Repudiation is clear when a party states expressly that it is unwilling to perform its contractual obligations. However, a party to a contract must also ensure that its actions do not imply an unwillingness to comply with contractual obligations.  

While this case dates back to the 1970s, the principles of repudiation are just as applicable in modern times.

Purchaser not entitled to rescind contract

The question the court had to decide was whether it could infer from the events in evidence that DTR Nominees, by taking a two-stage approach, intended to repudiate or renounce the contract. 

In addressing this question, the court said: 

No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor… 

In the court’s view, DTR Nominees acted in accordance with a bona fide belief as to the correctness of its interpretation of the contract, without realising that Mona Homes had a different view, right up until such time as Mona Homes purported to rescind.  

Further, Mona Homes made no attempt to persuade DTR Nominees of the error of its ways or to give it any opportunity to reconsider its position. It wasn’t a situation in which DTR Nominees was “persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement”.  

The court concluded that it could not infer that DTR Nominees intended not to perform the contract according to its terms. Accordingly, DTR Nominees did not repudiate the contract and Mona Homes was not entitled to rescind it.  

Vendor not entitled to rescind contract

Although Mona Homes was in error in regarding itself as entitled to rescind when it purported to do so, it was not in error in its interpretation of the contract.  

Mona Homes’ purported rescission only evinced an intention not to proceed with the contract because of DTR’s incorrect interpretation. It did not evince an intention not to proceed with the contract correctly interpreted.  

In the court’s view, this could not be regarded as a repudiation entitling DTR Nominees to rescind the contract when it was itself the party in error.  

Further, according to the court, a party is only entitled to rescind after a repudiation, if at the time of the rescission, it is, itself, willing to perform the contract on its proper interpretation.  

Otherwise, that party is “not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract, as [DTR Nominees] seeks to do in this case when it claims forfeiture of the deposit and damages”.  

Contract has been abandoned and deposit must be returned

As neither party was entitled to rescind, the contract was still on foot on and after 25 July 1974, the date DTR Nominees purported to rescind the contract.  

However, the court concluded that by the date these proceedings commenced, there could be no doubt that neither party regarded the contract as still on foot. The parties had abandoned the contract.  

In these circumstances, the court held that the deposit paid by Mona Homes to DTR Nominees should be returned.  

Advisable to give other party chance to reconsider incorrect interpretation of contract

Generally, if one party to a contract believes that the other party to the contract has repudiated it, the options available are to either continue with the contract as it was formed, or to accept the repudiation and elect to rescind the contract, thereby dissolving all obligations.  

However, as this case highlights, before electing to rescind a contract due to the other party’s incorrect view of the contract’s construction, it is advisable to point out the incorrect view and give the party an opportunity to reconsider their position. 

If a party does rescind the contract, they should consider whether they have reasonable grounds to obtain damages against the repudiating party. This will require an in-depth review and analysis of the terms and “special conditions” of a contract. 

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.
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