The Facts
Vendor and purchaser enter land development contract
On 12 November 1973, a vendor and purchaser signed a contract for sale of land near Sydney, described in the contract as “being Lots 1 to 9 inclusive in the Vendors Plan of Sub-division a copy of which is annexed hereto⦔.
The purchaser paid a ten percent deposit upon signing the contract.Β
Special condition 4 requires registration of plan of subdivision
Special condition 4 of the contractΒ provided that:Β
β¦the Plan of sub-division, a copy of which is annexed hereto, has been lodged with theβ¦Β Council. The Vendor willβ¦Β have the relevant plan of sub-division lodged for registrationΒ as a deposited plan, provided however that if the said planΒ has not been lodged for registration as a deposited planΒ within a period of 12 months from the date hereofβ¦Β eitherΒ the Purchaser or the Vendor mayβ¦Β rescind this contract whereupon all moneysΒ paid to the Vendor hereunder shall be refunded to theΒ Purchaser….βΒ
Vendor applies for subdivision in two stages
There were thirty-five lots in the plan of subdivision annexed to the contract.Β
AtΒ the time the contract was signed, the vendor had not lodged that plan of subdivision.Β Β
TheΒ vendorΒ insteadΒ sought to subdivide the land in two stages.Β
A month before the contract was signed, the vendor obtained council approval forΒ the stage 1 subdivision ofΒ 11 lots, beingΒ the nine lots it later contracted to sell the purchaser, and two other lots comprising the balance of the land.Β Β
A coupleΒ ofΒ weeks before the contract date, the vendor applied for council approvalΒ for the stage 2 subdivision ofΒ theΒ balance of the land.Β Β
Vendor seeks completion of contract after stage 1 plan registered
Under the contract, completion was to take place within fourteen days of written notification being sent to the vendorΒ by council,Β that the plan for subdivision had been registered.Β Β
The stage 1 plan of subdivision was registeredΒ on 7 June 1974.Β Β
On 14 June, the vendor confirmed registration of the planΒ with the purchaser andΒ sought payment of the balance of the purchase price and completion of the sale.Β
Purchaser and vendor each purport to cancel contract
Seeing thatΒ the registered planΒ was differentΒ fromΒ the plan annexed to the contract, the purchaserΒ tookΒ this to mean that the vendor had repudiated the contractΒ (ieΒ indicated that it did notΒ intend to perform its contractual obligations).Β Β
TheΒ purchaser, therefore,Β notifiedΒ theΒ vendorΒ that it wasΒ rescindingΒ (ieΒ cancelling) the contractΒ and soughtΒ damagesΒ for failure of the vendor to comply with its contractual obligations.Β Β
The vendor responded that the purchaserβsΒ rescissionΒ was a wrongful repudiation of the contract, that it accepted thisΒ repudiation, and that it was itself now rescinding the contract,Β keeping theΒ deposit,Β and reserving its right to claim damages.Β Β
Dispute goes all the way to High Court
The purchaser applied to the Supreme Court of New South Wales for a declaration thatΒ itΒ had validly rescinded the contract.Β
The vendor, for its part,Β cross-claimed for a declaration that it had validly rescinded.Β Β
The primary judge ruled inΒ favourΒ of the vendor and the purchaser appealed.Β Β
The NSWΒ Court of Appeal reversed theΒ Supreme CourtβsΒ decision, ruling that the purchaserβs rescission was valid.Β Β
The vendor appealed to the High Court of Australia.Β
Expert commentary on the court's decision
Court rules neither party entitled to rescind
InΒ DTR Nominees Pty Ltd v Mona Homes Pty LtdΒ (1978) 138 CLR 423, the High Court of AustraliaΒ concluded that neitherΒ the purchaser,Β MonaΒ Homes, norΒ the vendor, DTRΒ Nominees,Β wasΒ entitled to rescind the contract.Β Β
However,Β the court found thatΒ by the timeΒ the proceedings were commenced,Β both parties had abandoned the contract, and soΒ itΒ allowedΒ to stand the Court of Appealβs order requiring thatΒ DTR Nominees return Mona Homesβ deposit.Β Β
Vendor not entitled to subdivide in two stages
The court interpreted special condition 4 as requiringΒ DTR Nominees to lodge for registration the contract plan of subdivision providing for subdivision into the thirty-five lots.Β Special condition 4Β did not provide for DTR Nominees to subdivide the land in two stages.Β
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, thatΒ 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.Β
Repudiation is clear when a party states expressly that it is unwilling to perform its contractual obligations.Β However, a party to a contract must also ensure that its actions do not imply an unwillingness to comply with contractual obligations.Β Β
While this caseΒ dates back toΒ the 1970s, the principles ofΒ repudiationΒ are just asΒ applicable in modern times.
Purchaser not entitled to rescind contract
The question the court had to decide was whether it could inferΒ from theΒ events in evidence that DTR Nominees, by taking aΒ two-stageΒ approach,Β intended to repudiate or renounce the contract.Β
In addressing thisΒ question,Β the courtΒ said:Β
In the courtβs view,Β DTR NomineesΒ acted inΒ accordance with a bona fide belief as to the correctness of itsΒ interpretationΒ of the contract,Β withoutΒ realisingΒ that Mona Homes had a different view,Β right upΒ until such time as Mona Homes purported to rescind.Β Β
Further, Mona HomesΒ made no attemptΒ to persuade DTR Nominees of the error of its ways or to give it any opportunity to reconsider its position.Β It wasnβt a situation in which DTR NomineesΒ was βpersisting in its interpretation willyΒ nillyΒ in the face of a clear enunciation of the true agreementβ.Β Β
TheΒ courtΒ concluded that itΒ could not inferΒ that DTR Nominees intended not toΒ performΒ the contract according to its terms.Β Accordingly, DTRΒ NomineesΒ did not repudiate the contractΒ and Mona Homes wasΒ not entitled to rescindΒ it.Β Β
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.Β Β
Mona Homesβ purportedΒ rescission onlyΒ evinced an intention not to proceed with the contractΒ because ofΒ DTRβs incorrect interpretation.Β It did not evince an intention not to proceed with the contract correctlyΒ interpreted.Β Β
In the courtβs view, this could not be regarded as a repudiationΒ entitlingΒ DTR Nominees toΒ rescindΒ the contract when it was itself the party inΒ error.Β Β
Further, according to the court, a party is only entitled to rescindΒ after aΒ repudiation, if at the time of the rescission, it is,Β itself, willingΒ to perform the contract on its proper interpretation.Β Β
Otherwise,Β that party isΒ βnot 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, asΒ [DTR Nominees]Β seeks to do in this case when it claims forfeiture of the deposit and damagesβ.Β Β
Contract has been abandoned and deposit must be returned
As neither party was entitled toΒ rescind, the contract was still on foot on and after 25 July 1974, the date DTR Nominees purported to rescind the contract.Β Β
However, the courtΒ concludedΒ that by the date these proceedings commenced, there could be noΒ doubtΒ that neither party regarded the contract as still on foot.Β The partiesΒ hadΒ abandoned the contract.Β Β
In these circumstances, the court held thatΒ the depositΒ paid by Mona Homes to DTR NomineesΒ should be returned.Β Β
Advisable to give other party chance to reconsider incorrect interpretation of contract
Generally,Β ifΒ oneΒ 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, orΒ toΒ accept the repudiation and elect toΒ rescindΒ the contract, therebyΒ dissolving all obligations.Β Β
However, as this case highlights, before electing to rescind a contractΒ due to theΒ other partyβs incorrect view of the contractβs construction, itΒ is advisableΒ to point outΒ theΒ incorrect view and give theΒ party an opportunity to reconsider their position.Β
IfΒ a party does rescind the contract, theyΒ should consider whether they have reasonableΒ grounds to obtain damages against the repudiating party. This will require an in-depth review and analysis of the terms and βspecial conditionsβ of a contract.Β