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[2023] QSC 129
In this significant case, Brown J considered two important questions of contract law. First, her Honour considered the requirements for a party to waive its rights under a contract. Second, her Honour addressed whether the respondent’s non-compliance with the conditions precedent meant the respondent should be allowed to take advantage of its own default and the contract was automatically terminated, or if the applicant was required to accept its termination.
Brown J
14 June 2023
The applicant and respondent entered into a contract for the construction of residential townhouses on the Gold Coast. [1]. Under cl 6.1, the parties’ rights and obligations were subject to the satisfaction or waiver of the conditions precedent set out in cl 6.2 of the contract. [1], [3]. Clause 6.1(b) relevantly provided: “The satisfaction of each of the conditions precedent identified in clause 6.2 can only be waived by written notice from the Principal (on such conditions (if any) as the Principal may stipulate)”. [1], [3]. Under cl 6.1(d), the respondent “must not commence carrying out work on the Site unless and until each of the conditions precedent identified in clause 6.2 have been satisfied or waived under clause 6.1(b)”. [3].
Although two of the conditions precedent were satisfied by the date agreed between the parties, 31 July 2022 (“Nominated Date”), two conditions for which the respondent was responsible were not. [4]. Prior to the Nominated Date, on 29 July 2022, the building superintendent sent a notice to the respondent (“29 July Notice”), which relevantly stated: [8]:
“I write in my capacity as Superintendent… This is a notice to proceed with contract works as clause 6.2 under the contract has been satisfied as per the below:
- Formal financial approval from ANZ has been received and therefore preconditions per clause 6.2 have been satisfied.
- The building contract tie in deed will be submitting within 14 days in accordance with clause 47.”
The applicant contended that this notice was sufficient to comply with the requirements of cl 6.1(b), such that all conditions precedent were either satisfied or waived. [1]. The applicant pressed for the contract to continue on foot. [1].
Waiver of conditions precedent
Against this background, the first question for Brown J was whether the 29 July Notice complied with the waiver requirements set out in cl 6.1(b). [2]. Her Honour started consideration of this issue by observing that, although the 29 July Notice did not expressly mention that the requirements for compliance with two of the conditions precedent was waived, that was not “fatal” to the applicant’s case. [26]. Rather, her Honour relied on Prospect Resources Ltd v Molyneux [2015] NSWSC 171, [68] that the notice must “communicate unequivocally that compliance with relevant conditions was no longer required or was taken as having been satisfied”. [27]. In that case, Ward JA found that a notice signed by the respondents which confirmed their current belief that the conditions precedent had been satisfied did not constitute a waiver. [27]–[30].
Justice Brown considered that the second bullet point in the 29 July Notice could rise to the level of a waiver of one of the conditions precedent by the Nominated Date because it extended time for compliance past that date. [33]. However, the 29 July Notice referred to “the conditions that were satisfied, not that those conditions that had not been satisfied were either being treated as satisfied or otherwise as having been waived”. [34]. In her Honour’s view, the statement that the contract works were to proceed was not sufficient to constitute an implicit waiver, as “cl 6.1(d) clearly requires that a condition be waived under cl 6.1(b), rather than a notice to proceed being a substitute for it”. [35]. The 29 July Notice was therefore silent on the question of whether the conditions not mentioned were waived; as such, it was not a “clear, unequivocal notice”. [35]–[36].
Further and in any event, the 29 July Notice was expressly given by the superintendent in his capacity as superintendent. [37]. Although a superintendent is capable of being the principal’s agent notwithstanding their role as superintendent, and the superintendent had authority to send the 29 July Notice, that authority was not communicated to the respondent. [38]. In circumstances where the 29 July Notice was expressly stated to have been sent in the superintendent’s capacity as superintendent, and the superintendent’s powers under the contract did not extend to being able to waive the conditions precedent, the 29 July Notice was not a notice given by the principal in compliance with cl 6.1(b). [40]–[42].
Justice Brown also held that the conditions were not waived under the general law. [43]. Further, and in any event, her Honour found that waiver under general law was excluded under a proper construction of cl 6.1, which embodies agreement between the parties that the conditions precedent can only be waived in certain circumstances. [43]–[44].
Automatic termination for non-compliance with conditions precedent
The applicant also contended that it had affirmed the contract, such that the contract could not be automatically terminated under cl 6.1(c) for non-compliance with the conditions precedent, but rather the decision to terminate rested with the applicant alone. [45]. It further submitted that given responsibility for non-compliance with the relevant conditions precedent lay with the respondent, it was precluded from taking advantage of this failure. [45]. In considering this argument, Brown J observed that, while there was some tension in the authorities “as to how provisions providing for a contract to be void or to come to an end when a condition precedent or a contingent condition has not been satisfied or waived should be construed”, ultimately the parties’ intention “is sovereign”. [47]–[48]. Accordingly, the Court should look to the terms of the contract in context and construe them according to what a reasonable businessperson would understand them to mean. [49].
Justice Brown reviewed the relevant authorities. [50]–[66]. Notably, these authorities give voice to the principle that “a party should be denied the opportunity to take advantage of that party’s own default”, which underpins the law’s recognition that where a party does not comply with conditions precedent, the contract becomes voidable rather than void. [54]–[58]. Her Honour further distilled the authorities into the following key points: [50]–[66]:
(a)the question of whether the Contract “automatically terminated” upon the Conditions Precedent not being satisfied or waived is a question of construction of the relevant clause having regard to the principles of contractual interpretation in relation to commercial contracts as stated by the High Court;
(b)the fact that satisfaction of conditions precedent may depend on action being taken by the parties and the conditions precedent may not be satisfied due to the default of a party, may indicate that the parties intend that the contract is voidable rather than void or, in the present case, that it will terminate upon the election of a party rather than automatically, but this remains a question of construction; and
(c)even if construction would generally favour automatic termination upon the occurrence of an event, the party in default will be prevented from taking advantage of its own default giving rise to the event by application of the principle a party cannot take advantage of its own wrong.
Her Honour found that the proper interpretation of cl 6.1(c) was that the contract would automatically be terminated without the need for election by either party if the conditions precedent were not satisfied or waived. [67]–[71]. However, Brown J also found that the respondent was responsible for its own failure to comply with the relevant conditions precedent. [72]–[76]. Accordingly, it was seeking to take advantage of its own default in asserting that the contract was terminated under cl 6.1(c). [76].
In the event, Brown J made the declarations sought by the applicant, holding that the contract remained on foot and was binding between the parties. [83].
M Paterson