Contracts often include conditions which must be satisfied before the contract comes into force or before completion of the contract can occur. These conditions may be for the benefit of one or more parties to the contract.
A recent case highlighted the need for parties to a contract to understand the requirements of the terms of the contract when seeking to rely on them for certain actions. This case involved a due diligence condition which was for the benefit of the purchaser under the contract. The condition was drafted in a manner which provided that the contract was subject to and conditional upon satisfaction of due diligence on or before 40 days from the contract date.
Additionally there was a clause which gave the vendor the right to terminate the contract if the purchaser failed to comply with a term of the contract.
The purchaser did not provide notice:
- that it was satisfied with its due diligence investigations; nor
- waiving the benefit of the condition;
- terminating the contract on the basis that it was not satisfied with the due diligence.
The vendor terminated the contract after 5pm on the due date and the purchaser later sought to give notice that it was satisfied with its due diligence and disputed the vendor’s termination.
The Queensland Supreme Court found in favour of the vendor due to the condition being regarded as being unfulfilled (because the purchase did not give notice that it was satisfied or not satisfied with the due diligence).
This case is a reminder that parties to contracts need to be aware of their respective obligations and requirements and what is required if a party seeks to rely on rights under the contract (such as the right to terminate or the right to rely on the benefit of a special condition) as well as any steps that need to be taken to preserve those rights.
If you are involved with preparation of contracts or advising clients as to terms of contracts, you need to bring to the client’s attention:
- the contract is drafted in a manner which achieves the agreement and understanding between the parties and can be clearly understood by the parties;
- the rights and obligations that the client has under the contract;
- relevant timelines or due dates for actions;
- the actions which must be taken to preserve rights under the contract.
How can we help?
We can assist with:
- drafting of commercial contracts;
- acting for a party to a commercial contract;
- advising on commercial contracts and the rights and obligations of each party to the contracts.