The recent Supreme Court decision of Melco Property Holdings (NZ) 2012 Ltd v Hall[1] has provided helpful guidance on the circumstances in which a party may cancel[2] a contract for non-fulfilment of a condition.
Mr Hall agreed to sell Melco Property Holdings (NZ) 2012 Limited (Melco) a commercial property in Lower Hutt (the Property). The Sale and Purchase Agreement included a due diligence condition for the benefit of Melco which was due for confirmation by 9 January 2020.
Melco wanted to obtain a seismic assessment for the Property and arranged with Mr Hall to access the property on 8 January 2020 for that purpose. However, at the last-minute Mr Hall advised that he was unavailable to facilitate access that day.
Melco then asked Mr Hall for an extension of time to the due diligence condition. Mr Hall advised that he would discuss the request with his lawyer after the New Year.
Mr Hall ignored further requests by Melco for an extension and by the due date for fulfilment Melco had neither confirmed nor waived the due diligence condition. Mr Hall purported to cancel the agreement on the basis of Melco’s failure to confirm the due diligence condition.
Melco did not accept Mr Hall’s cancellation and contended that it was invalid as he had failed to facilitate access to the Property.
Melco lodged a caveat against the title to the Property to protect its claimed interest under the agreement. Melco then applied to the High Court to sustain it. The critical question before the courts was the validity of Mr Hall’s cancellation.
The High Court held that it was reasonably arguable that Mr Hall had a duty to facilitate access to the property so that Melco’s engineer could inspect the Property.
However, the Court ultimately determined that there was no link between Mr Hall’s failure to facilitate access to the Property and Melco’s failure to satisfy the due diligence condition because:
The Court of Appeal agreed with the High Court’s analysis and dismissed Melco’s appeal.
The Supreme Court analysed the leading Australian and New Zealand case law on the extent to which a party can cancel a contract for non-performance of a condition when that party contributed to the non-fulfilment.
The Court concluded that while both parties had contributed to the non-fulfilment in this instance, the applicable test was whether Mr Hall had “materially contributed” to the non-fulfilment.
The Court considered that Mr Hall’s failure to provide access to the Property on 8 January 2020 did materially contribute to the failure to fulfil the due diligence condition. The Court ordered that the caveat should not lapse and that the case is to proceed to a full trial.
Melco highlights the risks of seeking to cancel a contract for non-fulfilment of a condition where the cancelling party may have contributed to the situation which is the basis for its cancelation.
For example, where a sale and purchase agreement is conditional upon the purchaser obtained a building report, it would now appear unlikely that a vendor could cancel a
Disclaimer: This article is general in nature and is not to be used as a substitute for legal advice. No liability is assumed by Gallaway Cook Allan or individual solicitors at Gallaway Cook Allan regarding any person or organisation relying directly or indirectly on information published on this website. If you need help in relation to any legal matter, we recommend you see a qualified legal professional.
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