This case serves as a useful reminder that a contractual right of rescission can be lost if the party seeking to rescind caused or materially contributed to the event triggering the right of rescission or where such party waives that right. Prior to exercising a right of rescission, a contracting party should be confident that their hands are clean and that their subsequent conduct does not amount to a waiver of that right, to avoid a claim for wrongful termination by the counterparty.
Mr Saab entered into a contract for the purchase of a pharmacy from Earlwood Animal Pharm Pty Limited (Earlwood) (Contract) which included the following provisions:
- a condition precedent that Mr Saab obtain the approval of the Pharmacy Council of NSW and Medicare Australia to conduct the business (Clause 33);
- both parties must diligently process all necessary applications and satisfy the requirements of any party whose consent/approval is required (Clause 34); and
- either party is entitled to rescind the Contract if all approvals and/or consents have not been obtained within 90 days (Clause 41).
Mr Saab failed to obtain the approval of Medicare before the expiry of the 90 day period in Clause 41 due to a delay in the landlord consenting to the assignment of the lease (which Medicare required in order to give its approval). Mr Saab then sought a declaration that the Contract had been rescinded and Earlwood filed a cross-claim seeking a declaration that the Contract be terminated and for damages for wrongful termination.
In dismissing Earlwood’s cross claim, Young AJA in the Supreme Court of New South Wales found that:
- the fair reading of Clause 41 was that time was of the essence (it would be meaningless if that was not so);
- Mr Saab had a right of rescission under Clause 41 provided that he had not waived this right and had not caused or materially contributed to (or had brought about by his own act or omission) the failure to obtain the approval of Medicare in time;
- there was no evidence that Mr Saab waived his right to rescind and on the facts, Mr Saab did not prevent or materially inhibit the fulfilment of the condition in Clause 33.
See the case.