High Court recognises new grounds for terminating a contract
In the recent High Court decision of Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd the High Court of Australia has, for the first time, formally recognized a party’s right to terminate a contract at common law for "sufficiently serious breaches of intermediate terms".
What does this mean? It means that Australian lower courts now have a High Court precedent they can rely on to conclude that an aggrieved party to a contract can validly terminate a contract where there has not been a breach of an essential term (generally referred to as a "Condition", the breach of which entitles the innocent party to terminate the contract and claim for damages), or a repudiation of the contract by the other party.
The facts in Koompahtoo are that Koompahtoo entered a joint venture agreement with Sanpine for a land development project. Koompahtoo contributed the land and Sanpine was to contribute management and finance expertise. The development did no go well and never even made it to the first stage of obtaining rezoning permits for the development. Koompahtoo eventually appointed an administrator, who subsequently purported to terminate the contract. Sanpine sought, and was denied, a declaration in the NSW Supreme Court that the termination of the contract was invalid. The NSW Court of Appeal allowed Sanpine’s appeal to the High Court.
The High Court found that Sanpine was in breach of various obligations under the contract. These obligations included the obligation to produce and maintain budgets, monthly reports and development programs, to bank, spend and manage money appropriately, and to maintain proper books of accounts. These breaches were determined to be breaches of "intermediate terms" and not breaches of essential terms.
Prior to Koompahtoo, the only circumstances that gave a contracting party the common law right to terminate the contract was where the other party repudiated the contract – either could not or would not render substantial performance of the contract – or was in breach of an essential term of the contract. Both of these circumstances would allow the other party to terminate the contract and claim for damages.
Where there was a breach of a non-essential term or an “intermediate term”, the aggrieved party’s only remedy was to claim for damages. The contract remained on foot.
Koompahtoo is authority for the doctrine that some sufficiently serious breaches of an intermediate term of a contract will entitle the innocent party to terminate the agreement.
So when is a breach of an intermediate term serious enough to entitle the innocent party to terminate the contract? This is a very difficult question to answer in the short space available here. However, suffice it to say that an innocent party will be entitled to terminate when the breach goes to the "root of the contract". There are many factors to consider in determining if a breach goes to the "root of the contract". However, a breach may be considered to go to the root of the contract if that breach deprives the innocent party of a substantial part of the benefit to which they are entitled under the contract.
Obviously, there are other factors which might affect a party’s right to terminate a contract. This article deals with common law rights to terminate a contract. There may be contractual rights which can augment the common law rights or even exclude them entirely. In addition the conduct of the "innocent" party prior to, at the time of, or after the breach may also impact on that party’s right to terminate.
If you are a party to a contract and it has been terminated - or you want to terminate it - and you would like to know more about your rights, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 and ask to speak to one of our commercial lawyers.
Qualifying as a Special Purpose Company for your SMSF
If you are thinking of setting up a SMSF, you may be bewildered by the question of whether to have an individual or corporate trustee for your SMSF.
The suitability of different trustee structures will depend on each case and it is hard to say definitively which trustee structure is better than the other.
Speaking on a more general note, however, the corporate structure may have just won the battle and one word pretty much sums it up – flexibility.
Apart from the more obvious reason that a corporate trustee has a separate legal entity thereby limiting the liability you may face in case of certain unexpected disputes, adding or removing members can be effected by changing directors of the corporate trustee by the mere minuting of company paper work and notifying the ATO of the change rather than having a lawyer draft a Deed of Change of Trustee which may prove to be more costly in the long run.
There’s also the added benefit of having to do less time-consuming paper work when a member dies as, unlike in the case of individual trustee structure, the directors of corporate trustee’s don’t need to notify all registries and entities of the death or change of one of the members.
Of course, you can’t ignore the fees in incorporating a company and the annual review fee associated with having a corporate trustee. However, if your intention is to have the company solely for the purpose of acting as a trustee of your SMSF, your company may qualify as a special purpose company.
Special purpose companies qualify for reduced annual fees of $40 rather than the usual fee of $212 for normal proprietary companies.
To qualify as a Superannuation Trustee Company under special purpose company, the company’s constitution must satisfy the appropriate requirements under Regulation 3, Corporations (Review Fees) Regulations 2003. You will also need to notify ASIC with Form 484 along with a declaration to support the claim that the company is a special purpose company made by a company officer. No fees apply to lodging a special purpose company declaration and it is a relatively simple procedure.
To find out whether your company can qualify as a special purpose company or to ensure that your company constitution satisfy’s the legal requirements please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.
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