In this case, Ball J held that a notice of termination served on Copuss by Mr and Mrs Nix (Nix), gave rise to wrongful repudiation of a JV agreement between the parties (JV Deed). This entitled Copuss to recover amounts paid under the agreement in a claim for damages or a claim in debt and restitution.
The case sheds light on the contractual term “material breach”, indicating that a breach will not be material unless the innocent party can demonstrate that it resulted in lost opportunity or negative consequences. Typically, substantial inconvenience to the innocent party is unlikely to be sufficient.
The case is also a reminder that a party must make an election between alternative claims for compensation (such as a claim for damages for breach of contract and a claim in debt and restitution). Ball J’s decision highlights that damages may be assessed on the basis of costs incurred by the injured party or profits that would have been earned had the contract been performed, which may allow broader recovery than a claim in debt or restitution.
Nix owned a property on which two houses were constructed (5A and 5B). Pursuant to the JV Deed between Nix and Copuss, the property was to be developed and sold for profit (Project).
Broadly, the JV Deed stipulated that Copuss would be responsible for: (i) partial repayment of the loan advanced to Nix by Macquarie Bank (MB Loan), (ii) providing loan facilities to Nix (Loans); and (iii) taking steps towards the commencement of the Project. The JV Deed provided that only a “material breach” by Copuss could give rise to valid termination of the contract.
Nix served a notice of breach on Copuss, alleging the following breaches of its obligations under the JV Deed:
- that Copuss had breached its obligations by failing to lodge development applications and apply their best efforts to obtain approvals for the commencement of Project works;
- that Copuss had failed to use best endeavours to refinance the MB Loan on more favourable terms; and
- that Copuss had failed to provide Nix with complete information about the progress of the Project. Copuss denied these allegations. Nix subsequently served a notice of termination on Copuss.
Ball J addressed each of the alleged breaches. Firstly, his Honour held that because Nix had entered into a lease of 5A and 5B, preventing Copuss from commencing works, Nix could not terminate the contract on this ground.
Secondly, Ball J held that although an informal pitch to one or two potential lenders was insufficient to amount to the use of best endeavours, Copuss’ breach was not a “material breach”, as there was little prospect of securing refinancing on more favourable terms.
Finally, Copuss’ failure to attend meetings did not amount to a “material breach”. Beyond substantial inconvenience, Nix could not demonstrate negative consequences of the breach.
Ball J concluded that Nix’s termination of the JV Deed was wrongful. Copuss was entitled to accept Nix’s termination as a wrongful repudiation, terminate the contract itself and sue Nix for damages.
Referring to Amann Aviation, Ball J confirmed that damages may be calculated by reference to the expenses reasonably incurred in performing the contract. Copuss could recover damages for breach of contract and interest incurred by reference to: (i) outstanding balances on its Loans, plus interest at the contractual rate; (ii) amounts paid under the MB Loan; and (iii) a 15% builders’ margin agreed to under the JV Deed.
As an alternative to seeking damages for breach of contract, Copuss could claim the outstanding balance of its Loans, with interest, in an action for debt. In addition, Copuss could claim amounts paid under the MB Loan in a claim for restitution. However, the builders’ margin was not recoverable in a restitution claim, since the right to the margin was a contractual right.
Copuss could make an election between a claim for damages for breach of contract and a claim in debt and restitution. However, only by bringing the claim for damages could Copuss recover the builder’s margin.
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