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Terminating Contracts for Non-Essential Breaches

In a recent article I discussed the case of Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd, a case in which there was some discussion about the difference between ‘essential’ and ‘non-essential’ terms in contracts for the sale of land.  A slighter later case picks up similar issues relating to essential and non-essential terms.

Briefly, Mr Fuentes sought an order for specific performance, requiring Bondi Beachside Pty Ltd to complete a contract to sell him an “off the plan” apartment under a contract that had been entered on 8 September 2012 for a price of $1,420,000.00.  The contract included a clause (clause 63) to the effect that the purchaser could not assign, novate or otherwise dispose of its interest in the property prior to settlement, except with the vendor’s written consent.

After the strata plan for the development was registered and an Occupation Certificate issued, Mr Fuentes entered a contract to “on-sell” the unit for $1,550,000.00.  He did not obtain the written consent of Bondi Beachside before doing so.  In January 2016 Bondi Beachside terminated the contract with Mr Fuentes.  It relied on a breach of the clause relating to failure to obtain written consent to on-sell.  Mr Fuentes then sued for specific performance (and Bondi Beachside cross claimed for damages for breach of contract).

The Supreme Court concluded Mr Fuentes had breached the clause requiring consent to on-sell.  However, it also determined that breach was not ‘essential’ and did not amount to Mr Fuentes’ repudiating his contractual obligation to purchase from Bondi Beachside. It held he should therefore be granted an order for specific performance. In broad summary, the Court found that:

  1. Clause 63 had not specifically been declared an ‘essential’ term;
  2. On the facts, a breach of a non-essential term did not substantially deprive Bondi Beachside of a substantial part of the benefit of the contract; and
  3. Had Mr Fuentes asked for consent to on-sell, Bondi Beachside would have been bound to give it. 

Had those ramifications been fully appreciated from the outset, the litigation may never have occurred.

It is worth noting this outcome was reached despite the Court also accepting that Bondi Beachside was entitled to nominal damages for Mr Fuentes’ breach of contract. However as there was no evidence it had suffered actual loss, so no award of substantial damages was made (the formal order was that Bondi Beachside be paid $20.00 as damages).

The case shows the importance of considering contracts as a whole and of understanding whether particular clauses are essential or not.  Fuentes v Bondi Beachside Pty Ltd [2016] NSWSC 531

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