Developer prevented from terminating contract – lessons

On 1 July 2024, buyers of off-the-plan units requested that a valuer inspect the units as a requirement for obtaining finance to complete the purchase. The developer failed to respond to the request and instead provided notice that settlement was to occur in 14 days, on 16 July 2024. A week later, the buyers repeated their request, but the developer still failed to respond. Because of the fast-approaching settlement date, this meant that the buyers were unlikely to obtain finance and meet their fundamental obligation to pay the purchase price. To prevent the developer from terminating the contract, the buyers commenced proceedings seeking to restrain the developer.

A central issue before the Supreme Court was the scope of the implied contractual duty to co-operate.

The buyers’ case was that because the contract provided a 14-day period between the developer giving written notice and settlement, that this period was intended to give the buyer time to prepare for settlement, including securing necessary financing. On this basis, the buyers claimed that the developer had an implied duty to respond promptly during this period to assist the buyers in obtaining finance, by allowing a valuer to inspect the property.

The developer contended that it had no duty to assist the buyers in securing finance as the contract did not include a specific clause making it conditional upon obtaining finance. 

The court was not persuaded by the developer’s argument and held as follows:

• It is a general rule of contract law that each party holds an implied duty to cooperate, which requires each party to do all that is reasonably necessary to ensure performance of the contract.[1] 
• Although the contract was not subject to finance, the court found that it should have been within the contemplation of the parties at the time of entering the contract that most, if not all, buyers would require financing to pay the purchase price. This was evident from the commercial reality of most transactions and the fact that the contract itself referenced the buyer's ‘financier’, further indicating that financing was anticipated by both parties.
• The duty to co-operate arises in connection with benefits promised under the contract and what is necessary to allow a party to perform its obligations and secure those benefits. In this case, the necessity for the buyer to obtain finance to fulfill its obligation to pay the purchase price gave rise to the developer's duty to cooperate.
• The developer’s failure to promptly permit a valuer to inspect the property was in breach of this implied duty. This failure to accommodate resulted in the buyers being hindered from fulfilling their contractual obligations. 
• The developer’s breach engaged the ‘Prevention Principle’. The principle asserts that a party cannot take advantage of a situation caused by its own breach of contract. By allowing the developer to terminate the contract due to the buyers’ breach, this would be adverse to the prevention principal.

Ultimately, the court made a declaration in favour of the buyers, restraining the developer from terminating the contract until reasonable time had been allowed for the buyers to obtain finance.

The developer sought an appeal in the Court of Appeal. The appeal was dismissed, with the court describing the developer’s claims as ‘most unmeritorious’.

This article was written with the assistance of Mon Moring, Law Graduate.

[1] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 (‘Secured Income’); Butt v M’Donald (1896) 7 QLJ 68 at 70-71.