Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115
Contract; breach of contract; remedies for breach; the right to terminate performance.
Facts: The Koompahtoo Council and Sanpine entered into a joint venture agreement to develop an area of land owned by the Council, with the objective of then reselling that land for residential purposes. Sanpine was to manage the project. The council and Sanpine each had a 50% interest in the venture. The Council's contribution to the venture consisted only of the land: the costs of the development were to be funded by borrowings. The joint venture agreement contained numerous other provisions, for example, requiring Sanpine to seek funding, apply for approvals, provide progress reports and so on. In particular, clause 16.5 of the contract required Sanpine to keep proper books of account sufficient to allow the affairs of the joint venture to be assessed from time to time. In fact, Sanpine failed to keep proper books of account, or to provide progress reports, or to arrange adequate funding. The Council, relying on these breaches, terminated the joint venture agreement.
Issue: Had there been a breach of the joint venture contract sufficient to justify the Council's decision to terminate further performance of the agreement?
Decision: Termination of the joint venture was justified because the consequences of Sanpine's breaches, particularly of clause 16.5, went to the root of the contract and deprived the Council of a substantial part of the benefit for which it had contracted.
Reason: The majority of the court held that, on the evidence, clause 16.5 could well have been treated as an essential term (condition) of the contract, but in fact decided the case on the basis that the term was 'intermediate' rather than being either a condition or warranty. Accordingly, the right to terminate arose from the seriousness of the effects of the breach. The court reviewed the approach of Australian law to deciding when termination is justified and said [at para 68]:
"The focus of attention should be the contract, and the nature and seriousness of the breaches… the intention that is relevant is the common intention of the parties, at the time of the contract, as to the importance of the relevant terms and as to the consequences of failure to comply with those terms. This is a question of construction of the contract to be decided in the light of its commercial purpose and the business relationship it established."