In Koompahtoo Local Aboriginal Land Council v Sanpine
Pty Limited  HCA 61
("Koompahtoo"), the High Court has confirmed the
ability of a party to a contract to terminate, where the other
party has breached a non-essential term of the contract.
Koompahtoo entered into a joint venture agreement with
Sanpine Pty Limited ("Sanpine"). Koompahtoo
contributed the land, and Sanpine managed its development.
The joint venture failed to obtain approval for the land to
be rezoned for commercial use. An administrator, subsequently
appointed to Koompahtoo, terminated the joint venture
agreement, as Sanpine had failed to keep proper accounts or
financial records for the duration of the joint venture. The
administrator asserted that Sanpine had, by its conduct,
repudiated the agreement, by breaching its obligations under
There were no express provisions in the joint venture
agreement setting out the circumstances in which any of the
parties could unilaterally terminate the agreement. Sanpine
commenced proceedings in the Supreme Court of NSW for wrongful
termination and sought a declaration that the joint venture
agreement was still on foot.
Whether a breach of a non-essential term gives rise to a
right to terminate.
The High Court of Australia
The High Court dismissed Sanpine's claim, holding
that Koompahtoo had validly terminated the joint venture
The majority classified contractual terms into three (3)
A "condition", which is a term agreed between
the parties to be essential, a breach of which gives the
innocent party a right to terminate the agreement;
A "warranty", which is a term (or promise)
agreed between the parties to be nonessential, a breach of
which does not give either party a right to terminate the
An "intermediate term", which is a term agreed
between the parties to be nonessential, a breach of which may
give the innocent party a right to terminate the agreement,
depending on the "seriousness" of the
The majority held that there are three (3) circumstances in
which the right to terminate an agreement arises:
Breach of an "essential" term of the
Breach of a "non-essential" term or
"intermediate" term" of the agreement,
is "sufficiently serious" to justify
"goes to the root of the contract"
(which takes into account the nature of the agreement and
the consequences of a breach for either party); or
Deprives the innocent party of "a substantial
part of the benefit for which it contracted" or
causes "a substantial loss of
Where one's party's conduct shows an
unwillingness or inability to perform its obligations under
the agreement (that is, repudiation).
The majority held that Sanpine's contractual
obligations under the agreement were nonessential or
"intermediate terms", and that Sanpine had committed
"sufficiently serious" breaches of these
obligations, entitling Koompahtoo to successfully terminate the
The majority held that the repeated breaches by Sanpine of
its obligations under the agreement went "to the root
of the contract" and deprived Koompahtoo "of
a substantial part of the benefit for which it
contracted", by preventing Koompahtoo from assessing
the financial position of the joint venture and from making
informed decisions about the joint venture.
The Koompahtoo case highlights the importance of expressly
setting out in an agreement the circumstances under which the
agreement may be terminated. Parties must be alive to the
circumstances in which a right to terminate may occur, when
negotiating, which will minimise the risk about the validity of
any purported termination and it will also reduce the
likelihood of parities incurring costs litigating the
It is imperative that solicitors be instructed when a
contract is being drafted, and when a decision is being made to
terminate an agreement to ensure there is a proper legal basis
for the termination.
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.
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