Two recent decisions by Courts in WA (Fuel Tank and Pipe Pty Ltd v Integrated Fuel Services Pty Ltd [2012] WASC 71 and Downing v Newsflash Nominees Pty Ltd [2012] WADC 26) contain timely reminders about:

  1. the need to exercise caution before terminating a contract on the basis that the other party has breached their obligations under it; and
  2. the importance of letting the other party know why full performance of the contract is important and what you stand to lose if the contract is breached.

On the first point, the Fuel Tank and Pipe case reminds us that terminating a contract is a serious step to take, even if you think it is justified because of the seriousness of the other party's breach. Where there is disagreement as to whether a particular act or failure to act constitutes a breach of contract, courts generally expect that the party alleging the breach will not terminate the contract until they have:

  1. identified in writing to the other party precisely what they are alleged to have done, or not done, to breach the contract;
  2. say what part of the contract is said to have been breached and how the conduct in question breaches it;
  3. try and find a way to remedy a breach and then propose it; and
  4. give the breaching party reasonable time to acknowledge and remedy the breach.

In addition, contracting parties are reminded that certain statutes (laws made by Parliament) require certain things to be done before certain contracts may lawfully be terminated. In this case, the discussion was about section 6 of the Sale of Land Act 1970 which requires parties to give notice before terminating contracts for the sale of land on grounds of certain breaches. But this is not the only statute of its kind, so again, terminating parties are advised to tread carefully.

The other interesting finding in Downing was based on a recent decision by the New South Wales Court of Appeal (Palasty v Parlby [207] NSWCA 345). In that case:

  1. a vendor and a purchaser entered into a contract for the sale of land;
  2. before the contract was signed, the vendor had told the purchaser about how the vendor intended to invest the proceeds of the sale of the land which the purchaser agreed to buy; and
  3. as a result of the vendor's breach of the contract to buy that land, the vendor lost the opportunity to invest the proceeds of sale as intended.

Having been told of this intention on the vendor's part, it was held to have been in the contemplation of (that is, in the conscious mind of) the purchaser at the time of entering into the contract that the loss of this investment opportunity would probably arise out of the purchaser's failure to follow through with the purchase. Based on this finding, the vendor was compensated for the loss of this investment opportunity.

On the flip side, the purchaser in Downing, who was not so informed about the purchaser's intentions, did not have to compensate the vendor for losses arising in a similar way.

It pays, then, to take legal advice about what information you should give to people that you intend to do business with, and how and when you should give it, before you close the deal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.