Publication

Make that Term Essential

by Chris Drayton
08 June 2016
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In a recent decision (Fuentes v Bondi Beachside Pty Ltd [2016] NSWSC 531), the Supreme Court of New South Wales confirmed the principle that a breach of a non-essential term of a contract will not give a right to terminate a contract, if the breach of the contract is not in an essential respect. A plaintiff may be entitled to damages but these may only be nominal, depending on the circumstances.

In this conveyancing matter, the contract for sale contained a special condition which provided that the vendor's consent was required prior to a purchaser assigning, novating or otherwise disposing of its interest in the contract or the property. A sub-sale contract was entered into by the purchaser without the consent of the vendor. Accordingly, the purchaser was in breach of a term of the contract.

The vendor purported to terminate the contract as a result of the breach. The court determined that there was no provision in the contract to the effect that the relevant clause was an essential term. It was also necessary to consider whether despite the fact the term was not expressly an essential term under the contract, the breach was of such seriousness that it was depriving the vendor of substantially the whole benefit it was intended the vendor should obtain from the contract. If this was the position then the clause would still be essential despite the fact it was not nominated as such.

However, in this matter the purchaser was ready to settle the purchase and the vendor's interest in the contract was to receive the purchase price for the unit. Because the sub-sale was at a higher price than the purchase price specified in the contract between the vendor and the purchaser, the breach of the contract did not affect that interest and accordingly the vendor was not substantially deprived of the benefit of the contract. The court ruled that the vendor was not entitled to terminate the contract and any entitlement to damages was nominal.

It is important to consider what contract conditions should in fact be nominated as essential and make those conditions an essential part of the contract terms, so if breached, you are able to terminate the contract.

Please contact us for assistance in relation to the drafting of your sale contract, or interpretation of it.