Default, breach, or (mere) repudiation? Making some sense of the contractual buzzwords
I have written previously about the doctrine of repudiation in contract law and also of the concept of being ‘ready, willing and able’ to perform a contract.
Recently, the Court of Appeal has addressed such issues in the context of a contract for the sale of land, more particularly a standard form contract commonly used by parties in conveyancing matters. The Court in Willis v Crosland[1] construed what it means to be ‘in default’ under such a contract in a particular capacity, and has set out clearly the interaction between the doctrines of repudiation on the one hand and termination for breach on the other. These are principles of relevance not only to conveyancing matters but also to contractual disputes generally.
The facts
The applicant and respondent were parties to a contract for the sale of land. The contract was in the Law Institute of Victoria’s standard form. It contained a provision which allowed the applicant (as purchaser) to terminate the contract and recover any money paid provided that, among other things, she:
obtained a written report from a registered building practitioner or architect disclosing a major building defect, and gave a copy to the respondent (as vendor); and
was, at the time of seeking to terminate, ‘not then in default’.
The purchaser engaged a registered building practitioner to inspect the property and prepare a report. The report identified a number of matters it described as ‘major defects’.
On the due date for payment of the deposit, the purchaser’s solicitor sent an email to the vendor’s solicitor attaching a copy of the building report and asking for a reduction in the purchase price. The vendor declined. Later that day — at 7:51pm, and only hours before the midnight deadline for payment of the deposit — the purchaser’s solicitor sent a further email giving notice of termination.
The vendor refused to return the deposit — a majority of which the purchaser had by that time already paid — and issued a notice of default to the purchaser. The purchaser commenced proceedings seeking a return of the deposit.
The judge dismissed the purchaser’s claim. The judge found that because the purchaser had failed to establish that payment of the entire deposit could actually have occurred before midnight on the due date she had not been ‘ready, willing and able’ to perform. It followed that she was ‘then in default’ for the purposes of the contract when she sought to terminate.[2]
On appeal, the purchaser challenged the trial judge’s decision in two respects. She:
challenged the judge’s finding that she had not been entitled to terminate the contract on the basis she had failed to establish she was ‘not then in default’ when she gave notice; and
argued that the judge had erred in finding it was a precondition to her right to terminate that she have been ‘ready, willing and able’ to perform — in this case, to pay the balance of the deposit by the deadline.
The vendor, for her part, argued that the purchaser had repudiated the contract and therefore could not be regarded as having been ‘not then in default’. The vendor also argued that the building report upon which the purchaser had sought to rely when giving her notice of termination fell short of what the contract required. It followed, the vendor reasoned, that the purchaser’s purported termination was invalid and ineffective.
On appeal
The matter was heard before Sifris, Walker JJA and Macaulay AJA. In a joint judgment, their Honours allowed the appeal on both grounds raised by the purchaser. A summary of their Honours’ reasons are as follows.
Had the purchaser been ‘then in default’ when she sought to terminate?
Their Honours held that the requirement that the purchaser be ‘not then in default’ meant simply that the purchaser not be in breach of the contract. The Court held:
In our opinion, the requirement that the purchaser be ‘not then in default’ at the time that she served the notice of termination under [the provision in question] required that the purchaser be not then in breach of the Contract. That is a common sense approach to a standard form contract for the sale of property in Victoria that is in common use by many persons, with varying experiences in business and real estate transactions.[3]
The Court held that ‘[i]t is plain that the purchaser was not in actual breach of her obligation to pay the deposit at the time of termination, the time for performance not having arrived’.[4]
So far as any allegation of repudiation was concerned — and the Court noted that, in this case, there had been none — ‘[c]onduct evincing an intention not to be bound by a contract is not a breach of the contract’.[5] The Court noted:
[F]ollowing repudiatory conduct, the other contracting party has an election available to them. The other party need not wait for an actual breach to occur. The other party can either accept the repudiation and terminate the contract, in which event further performance is unnecessary, or seek to enforce the contract. The critical point is that, unless and until an election is made, there is no alteration in the rights and obligations of the parties. Those rights and obligations remain on foot.[6]
The Court noted that, in this case, the vendor had never sought to accept any alleged repudiation by the purchaser; the vendor had, instead, issued a notice of default. In other words, the vendor had acted as if the contract was still on foot.
The Court’s above comment reflects, in my view, an important reminder to a party seeking to sue upon a contract — namely, to act quickly and decisively if it has properly assessed there to have been repudiation by the other party.
There having been no repudiation in this case, and repudiation not constituting a breach (or ‘default’, as the contract expressed it) in any event, the Court upheld the purchaser’s termination in this respect.
Had the purchaser been ‘ready, willing and able’ to pay the deposit?
Whereas the vendor contended that the purchaser had not been able to perform the contract — as a subset, it seems, of the trinity of ‘ready, willing and able’ — the Court held that such matter was largely irrelevant to the question of validity of termination. The Court stated:
The enquiry as to whether the purchaser was ‘ready, willing and able’ to pay the balance of the deposit was not a relevant enquiry. … [A] state of readiness is irrelevant if [a party] is entitled, by an express contractual provision, to terminate a contract for breach and does not wish to perform or seek performance by [the other party].[7]
The Court, in quoting from a leading textbook on contract law, stated:
[I]t is not an element of proof of valid termination that the promisee [be] ready and willing to perform the contract at the time of termination. So much is obvious where the promisee terminates prior to the time for its performance.[8]
Was the purchaser’s building report valid?
The building report used the language of ‘major defect’ rather than, as the contract expressed it, ‘major building defect’. The vendor contended that this was enough to render the report invalid as a basis for the purchaser’s purported termination.
The Court disagreed. Their Honours held that the precise form of wording need not have been included in the building report and that the existence of a major building defect could be gleaned from the substance of the report when read as a whole; ‘[w]hile the language actually used by the building practitioner deserves close attention, the requisite designation may be discerned from the terms of the whole report’.[9]
Comment
The decision in Willis v Crosland is notable in that, with respect to the issues raised before the Court, it:
illustrates the interaction between the contractual concepts of repudiation and termination;
gives meaning to the word ‘default’ in certain contexts; and
demonstrates, so far as concerns reliance on the opinion of a registered building practitioner as to major building defects when seeking to avoid a contract, the precedence of substance over form.
[1]: [2021] VSCA 320.
[2]: Before orders were authenticated, the purchaser applied to reopen the trial in respect of the question of her ability to pay the balance of the deposit by the deadline. The judge dismissed the application: Willis v Crosland (No 2) [2021] VCC 39. A discussion of this decision and its implications on appeal — largely to do with appellate procedure and, in particular, the difficulties in seeking in an appeal to rely upon matters which were not argued or pleaded in the trial below — is beyond the scope of this case note.
[3]: Willis v Crosland [2021] VSCA 320, [76].
[4]: Ibid [61].
[5]: Ibid [77].
[6]: Ibid [78].
[7]: Ibid [58].
[8]: Ibid [60], quoting J W Carter, Carter’s Breach of Contract (LexisNexis Butterworths, 2nd ed, 2018) [7-28].
[9]: Willis v Crosland [2021] VSCA 320, [86].