LegalNovember 17, 2020

Contracts: No loss of bargain damages without termination

When a condition of a contract has been breached or repudiated by one of the parties, the “innocent” party must elect between two alternatives: either to terminate further performance of the contract and seek any damages that may be available for breach; or to affirm the contract and waive any accrued right to damages. Once the election is made, it cannot be retracted. These are principles which apply generally in contract law.

This was the situation in Scott v Ennis-Oakes (2020) Aust Contract Reports ¶90-481, [2020] NSWCA 239. In this case, the purchasers made a contract with the vendor for the sale of an allotment “off-the-plan” in the proposed subdivision of the vendor’s property situated in Terrigal. The contract included a common “sunset clause”, which provided that the vendor “must do anything reasonable to have the plan registered” within 12 months after the contract date. If the plan was not registered within that time, the purchasers or the vendor could elect to “rescind” (meaning “terminate” in the general law).

As matters eventuated, the subdivision plan was not registered within 12 months and the vendor purported to rescind the contract in accordance with the sunset clause. The purchasers replied to the notice of proposed rescission that they did “not consent to the proposed rescission” and stated that the contract was “still on foot”. The purchasers commenced proceedings seeking orders for specific performance of the contract, including orders to compel the vendor to bring about the registration of the subdivision plan. This amounted to an election by the purchasers to affirm the contract.

Sometime later, the purchasers’ decided to abandon their claim for specific performance, and accepted that the vendor had validly rescinded the contract. The only relief sought by the purchasers in this appeal was damages for breach of contract, being loss of bargain damages, based upon the repudiation of the contract by the vendor. “Loss of bargain damages” reflect the difference between the position that the purchasers would have been in if the contract had been performed by the vendor, and the actual position of the purchasers. These could be valuable rights to the purchasers in a rising market.

The primary judge dismissed the purchasers’ claim for loss of bargain damages, which was upheld on appeal. The New South Wales Court of Appeal held that:

  • In order for a party to claim loss of bargain damages, there must first be a termination of the contract for repudiation or breach.
  • As the purchasers had elected to affirm the contract and commence proceedings for specific performance, the purchasers’ right to terminate the contract for breach or repudiation was lost, including any loss of bargain damages which flowed. [1 October 2020]
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