When enforcing a contract, what does it mean to be ‘ready, willing and able’ to perform your side of the bargain?
Where a party seeks to rely on another’s repudiation of a contract as a basis for suing, that party must show it has been ready, willing and able to comply with the contract. Matters can be complicated where the parties clearly disagree about how to interpret and comply with the contract, and even more so where the contract expressly requires the parties to use their best endeavours to see the contract fulfilled. The Court of Appeal in its recent decision in Bisognin v Hera Project Pty Ltd[1] has tackled these kinds of issues.
The facts
The dispute surrounded a contract for sale of land. Hera Project Pty Ltd (Hera), the respondent on appeal, was to be purchaser. The land was owned by the Bisognins, the appellants. When registration of the subdivision did not occur by the contract’s deadline, the Bisognins sought to terminate the contract.
At trial, Hera sought and obtained orders prohibiting the Bisognins from bringing the contract to an end and requiring specific performance of the contract. (Previously, Hera had sought specific performance via an application for an injunction rather than at trial. The Supreme Court dismissed this attempt. I have written about the Court’s decision previously in my blog here.) One of the key issues on appeal was whether, in asking for specific performance, Hera could properly be said to have been ‘reading, willing and able’ to perform its own obligations under the contract. The trial judge found that Hera had been.
The Court’s analysis
In dismissing the Bisognins’ appeal and finding that the trial judge had not erred, Tate JA, with whom Kyrou and Coghlan JJA agreed, gave the Court of Appeal’s decision.
On the question of whether the trial judge had erred in finding that Hera had been reading, willing and able to complete the contract, Tate JA recited the general principles relating to the doctrine of specific performance, stating:
‘Where a party seeks specific performance, the general equitable maxims apply that “he who comes to equity must come with clean hands” and that “he who seeks equity must do equity”. It is therefore well established that the readiness and willingness of a party who seeks specific performance to perform the contract is relevant to the court’s decision whether to exercise its discretion to grant relief. It is for that party to aver and prove its readiness’. [2]
The contract for sale of the land contained a number of ‘best endeavours’ clauses. The Bisognins, in resisting specific performance, argued that Hera should have stepped in to perform certain of their obligations under the contract so as to use its best endeavours to have the contract fulfilled.
One of the obligations in question was the requirement that the ‘owner’ of the land enter into agreements with, and pay necessary fees to, ‘referral authorities’ (being the authorities responsible for water supply, electricity, gas, etc). Hera initially did not consider that this obligation applied to itself. However, in a separate decision of the Court of Appeal given prior to the present appeal, the Court clarified that it was Hera as purchaser, and not the Bisognins as vendors, that was obliged to pay the fees. It was only after this ruling that Hera sought to pay the referral fees under the contract. For the vendors, this was too little, too late; they were of the view that the purchaser’s payment of the referral fees after the Court had clarified the obligation showed that Hera had not been ready, willing and able to comply with the contract.
Tate JA disagreed with this proposition. Her Honour noted that a best endeavours obligation does not extend to remedying a breach by another party in default. Her Honour then stated:
‘I do not consider that a party to a contract is obliged, as part of its duty to “leave no stone unturned”, to entertain an alternative construction of the term of a contract, different from that supported by a judicial determination, and to be in a position to perform an obligation it understands lies with the other party’.[3]
Tate JA held that this proposition applies whether or not the party was mistaken in its interpretation of the contract.
In contending that Hera’s original refusal to pay the referral fees prior to the Court of Appeal’s ruling on the matter was inconsistent with Hera being ready, willing and able to carry out the contract, the Bisognins relied on the High Court authority of DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 (Mona Homes). In that case, the High Court held that in some instances a party adopting an incorrect construction of a contract may in effect repudiate that contract.
Tate JA considered the application of the decision in Mona Homes and, in doing so, clarified its scope. Her Honour first quoted the following from the High Court’s decision:
‘[Where there] is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear … the Court is not justified in drawing an inference that the [party with the erroneous interpretation] intended not to perform the contract according to its terms or that it repudiated the contract’.[4]
In other words, a party’s adherence to a mistaken interpretation does not necessarily constitute repudiation of the contract. Things can change where, as the High Court stated, a party is found to have been ‘persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement’.[5] In the present appeal, though, Tate JA found that Hera had not been so.
Her Honour went on to state:
‘Mona Homes does not stand for the proposition that a party to a contract is obliged to contemplate alternative constructions of the obligations the contract imposes. Nor does it stand for the proposition that a party whose construction ultimately turns out to be incorrect is thereby necessarily to be held to have repudiated or renounced the contract by failing to have conducted itself in accordance with the true tenor of the contract; quite the opposite … In my view, Mona Homes provides no support for the approach that a party who refuses to perform the obligations it understands to fall on the other party (albeit incorrectly) is thereby necessarily to be held to be unready, unwilling, or unable to complete the contract’.[6]
Comment
Viewed in the light of the discretionary nature of specific performance as a form of equitable relief, the Court of Appeal’s decision makes clear that when determining whether to grant such relief the task of ascertaining what a party must have done to have been ready, willing and able to comply with the contract is a complex exercise. The Court’s interpretation of the decision in Mona Homes arguably limits the extent to which a party following an erroneous interpretation of a contract can later be precluded from seeking equitable relief on the basis it was supposedly not reading, willing or able to comply with the contract.
[1]: [2018] VSCA 93.
[2]: Ibid [156].
[3]: Ibid [160].
[4]: Mona Homes (1978) 138 CLR 423, 432–3.
[5]: Ibid 432.
[6]: Bisognin v Hera Project Pty Ltd [2018] VSCA 93, [165].