Thousand Hills, represented by Moray & Agnew, commenced proceedings against LBA Capital, alleging that LBA Capital repudiated a contract for the sale and purchase of real estate (Contract). Thousand Hills alleged that it accepted the repudiation and sought to retain a deposit of approximately $900,000 paid to it by LBA Capital. The Victorian Supreme Court of Appeal determined that LBA Capital repudiated the Contract, and Thousand Hills accepted that repudiation.

The matter was subsequently remitted to the trial judge who determined Thousand Hills was entitled to retain the deposit. Thousand Hills was also entitled to its costs.

Key Takeaways

• Explicit admissions of financial inability to settle on an agreement will often amount to repudiation, even when performance is not yet due
• Context matters, but it does not prevail over the plain meaning of communications, and parties must exercise extreme caution in all correspondence
• Repudiation alone is not enough. In addition to accepting a repudiation, an innocent party must also show that it was ready, willing and able to perform its obligations before it can retain any monies paid
• For vendors and developers: formal notices are critical, a properly issued notice of default or termination can protect your contractual rights and prevent substantial financial loss, including legal costs
• For purchasers: financial inability to settle on a contract does not automatically trigger a vendor obligation to return a deposit.

Background

In July 2019, Thousand Hills, as vendor and developer, entered into the Contract with LBA Capital, for the sale and purchase of 14 off-the-plan apartments in Burwood, Victoria. The Contract required Thousand Hills to construct the apartments in accordance with an annexed plan that included a special condition requiring compliance with the National Disability Insurance Scheme (NDIS) standards. LBA paid a deposit of approximately $900,000.

Following execution of the Contract, several difficulties arose:

• In August 2019, LBA Capital’s assets were subject to a freezing order arising from unrelated fraud allegations
• In 2020, disputes emerged concerning the National Construction Code building classification required to meet NDIS requirements
• LBA Capital proposed substituting the Burwood apartments with alternative developments.

The dispute crystallised on 7 October 2020 when LBA Capital’s director sent an email to Thousand Hills stating:

Unfortunately, our company is in the process of winding down, as we are unable to continue operating. As such the company will not be in a position to settle on the contract. My suggestion is that we rescind the contracts and reach an agreement on how the deposit monies are used to settle the matter. Looking forward to your thoughts on this matter.

Whilst there were ongoing discussions, in March 2021, Thousand Hills purported to accept this communication as a repudiation, terminate the Contract and retain the deposit. However, LBA Capital then denied it had repudiated the Contract and sought the return of the deposit with interest.

Decision at first instance

At first instance, the trial judge held that LBA Capital’s email did not amount to a repudiation of the Contract. Accordingly, an order was made that Thousand Hills repay the deposit.

Issues on appeal

Objective assessment of repudiation

The central issues before the Court of Appeal were:

• Whether the 7 October 2020 email objectively amounted to a repudiation or renunciation of the Contract; and
• If so, whether Thousand Hills had validly accepted the repudiation, or whether other matters (such as election, ready, willing and ableness or unjust enrichment) prevented it from retaining the deposit.

The Court of Appeal’s reasoning

The Court of Appeal emphasised that a repudiation is to be assessed objectively, by reference to what the words and conduct would convey to a reasonable person in the position of the innocent party.

The Court held that the plain meaning of LBA Capital’s email was decisive. The statements that the company was winding down, unable to continue operating and will not be in a position to settle, particularly in circumstances when the contents of the email were not withdrawn, objectively conveyed an inability and unwillingness of LBA Capital to perform the Contract when settlement fell due. That communication amounted to a repudiation of LBA Capital’s contractual obligations, notwithstanding that settlement was some time away.

Limitations of context

Whilst context is relevant, the Court warned against using surrounding circumstances to dilute or contradict clear and unqualified language. If words are unequivocal, commercial background and prior negotiations do not neutralise their effect. The Court rejected the primary judge’s emphasis on ongoing discussions as inconsistent with the objective meaning of the email.

Consequences of the findings

The appeal was allowed, and the Court found that LBA Capital had repudiated the Contract. The matter was remitted to the trial judge to determine outstanding issues.

The trial judge found that Thousand Hills:

• Was ready, willing and able to perform the Contract when it accepted LBA Capital’s repudiation
• Had not elected to affirm the Contract
• Was not estopped from relying on LBA Capital’s repudiation
• Retention of the deposit did not result in unjust enrichment.

The trial judge ordered the deposit be released to Thousand Hills.

Summary

This case reinforces the orthodox principles of repudiation and offers a timely reminder of the power of words in commercial correspondence.

The Court of Appeal’s insistence of objective interpretation provides greater certainty but also heightens the stakes for parties navigating financial difficulty or strategic negotiations in long-terms contracts.

Should you wish to discuss this decision please do not hesitate to contact us. Further information / assistance regarding the issues raised in this article is available from the author, Bill Fragos, Special Counsel, Christina Segaan, Senior Associate, or your usual contact at Moray & Agnew.