High Court boost for contracting parties

The High Court has found that the “conduct of an innocent party is a relevant factor in considering whether a contract has been repudiated”. The decision is good news for small businesses in their relying on other parties to fulfil contractual obligations.

A joint venture was entered into between “Koompahtoo Local Aboriginal Land Council” and “Sanpine Pty Ltd” to develop a parcel of land which came to be in the Council’s possession as a result of claims made under the Aboriginal Land Rights Act 1983 (NSW). Each party held a 50 per cent interest in the joint venture with Koompahtoo contributing its land and Sanpine contributing its services as development manager.

The project was blocked by environmental issues, was controversial within the Koompahtoo community, and had difficulty securing financing. Despite $2 million in accruing costs, the project did not proceed to the rezoning stage.

An administrator was appointed to the Council in 2002 who found that Sanpine, by its conduct, had repudiated the joint venture agreement and as a result the administrator terminated the agreement.

In the Supreme Court of NSW, Sanpine argued that the joint venture agreement was valid and continuing. Campbell J identified nine distinct breaches of the joint venture agreement, including obligations for:

* banking and spending of money;
* document production and maintenance;
* obtaining rezoning approval, and
* maintaining proper books.

Proper accounts and financial records were never kept, and documentation failed to explain or justify significant amounts it claimed to be expenses chargeable to the joint venture; included therein was a payment of more than $183,000 to the wife of a Sanpine controller. The Judge found that the breaches amounted to repudiatory conduct entitling Koompahtoo to terminate the agreement.

Sanpine appealed. The majority of the NSW Court of Appeal held that some breaches were excused by waiver or estoppel and that even if the breaches were proved they were not sufficient to repudiate the agreement.

Despite failing to strictly comply with the agreement in some aspects, the Court held that the parties’ method of communication and informal provision of information meant that lack of formal adherence to the agreement was not repudiatory. In particular, the Court found that Sanpine was working to achieve the central objective of the joint venture and that Koompahtoo had already consented to several departures from the contract.

Koompahtoo appealed. The High Court considered the benefit which the injured party is entitled and the consequences of their failure to comply with the contract. Because the land was provided by Koompahtoo, it was therefore entitled to evaluate the affairs of the joint venture. However the administrator was unable to examine the affairs of the joint venture due to sub-standard accounting and neither could Sanpine explain its expenses.

 

Reference Article: http://www.hcourt.gov.au/assets/registry/case-summaries/2007/28-08-07sp.pdf