The High Court has found that the conduct of an innocent party is a relevant factor in considering whether a contract has been repudiated. The decision is good news for small businesses who rely on other parties to fulfil substantial contractual obligations.
Koompahtoo Local Aboriginal Land Council entered into a joint venture with Sanpine Pty Ltd to develop a parcel of land which came to be in the Council's possession as a result of claims made under the Aboriginal Land Rights Act 1983 (NSW). Each party held a 50 per cent interest in the joint venture, Koompahtoo contributing its land and Sanpine as development manager contributing its services. That agreement was amended by a supplemental agreement.
But despite accruing costs of more than $2 million, the project did not proceed to rezoning. It involved sensitive environmental issues, was controversial within the Koompahtoo community, and had difficulty attracting finance. In 2002 an administrator was appointed to the Council.
The administrator asserted that Sanpine, by its conduct, had repudiated the joint venture agreement and as such the administrator terminated the agreement.
In the Supreme Court of NSW, Sanpine argued that the joint venture agreement was valid and subsisting. Campbell J identified nine distinct breaches of the joint venture agreement, including obligations for:
- document production and maintenance;
- banking and spending of money;
- maintaining proper books; and
- obtaining rezoning approval.
His Honour found that the breaches amounted to repudiatory conduct entitling Koompahtoo to terminate the agreement. Proper accounts and financial records were never kept, and documentation was lacking to explain or justify significant amounts it claimed to be expenses chargeable to the joint venture, including a payment of more than $183,000 to the wife of a Sanpine controller.
But Sanpine appealed. The majority of the NSW Court of Appeal held that some breaches were excused by waiver or estoppel and that even if the breaches were made out, they were not sufficient to repudiate the agreement.
In particular, the Court found that Sanpine was working to achieve the central objective of the joint venture and that Koompahtoo had already consented to several departures from the contract. Despite failing to strictly comply with the agreement in some aspects, the Court held that the parties' method of communication and informal provision of information meant that lack of formal adherence to the agreement was not repudiatory.
Koompahtoo appealed. The High Court considered the benefit to which the injured party is entitled and the consequences of failure to comply with the contract. Because the land was provided by Koompahtoo, it was therefore entitled to assess the affairs of the joint venture. However the administrator was unable to assess the affairs of the joint venture, nor could Sanpine explain its expenses.