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Date: Fri, 14 Dec 2007 03:01

From: Neil Foster

Subject: High Court of Australia on "Intermediate terms"


Dear Colleagues

Since we have been reminded recently that this is an "Obligations" list, not just a "Torts" list, it seems a good time to mention yesterday's decision on contract law by the High Court of Australia, in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61.

Despite sounding like a native title case, in fact the decision raises the orthodox contract question as to when a breach of a contractual obligation entitles the party not in breach to regard the contract as at an end. All members of the Court hold that persistent and serious breaches of the obligation of one party in the land development joint venture, to provide promised financial statements and maintain a separate bank account, entitled the other party to terminate the contract.

The majority of the Court (Gleeson CJ, Gummow, Heydon & Crennan JJ) upheld the approach of the trial judge, who had applied the categorisation of contractual terms offered in Hong Kong Fir Shipping [1962] 2 QB 26, into "conditions" (essential terms breach of which would justify termination), and "warranties" (non-essential terms), but this second category including "intermediate" terms, breach of which if "significantly serious" would justify termination - see [49] for overview. Accepting that there was no direct decision of the High Court previously accepting the Hong Kong Fir analysis, the majority said that it had been assumed correct many times, and implied that it should now be accepted as authoritative.

Kirby J dissented on this point. His Honour rejected the need for a class of "intermediate" terms, and argued that instead the question should simply be, where what was breached was not a condition, it was a breach that "substantially deprived the other party of the benefit of the contract", adopting the language of the latest Australian edition of Seddon and Ellinghaus' Cheshire and Fifoot - see para [113].

On both analyses the breach by Sanpine entitled Koompahtoo to terminate the contract.


Neil Foster

Neil Foster
Newcastle Law School
Faculty of Business & Law
MC159c, McMullin Building
University of Newcastle
Callaghan NSW 2308
ph 02 4921 7430
fax 02 4921 6931



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