Your options when someone breaks their contract with you are not always straightforward. Usually there is a right to damages and in some cases you can cancel the contract. Cancelling a contract on the grounds the other party breached the agreement can be a difficult decision with significant legal consequences if you get it wrong, and you should seek legal advice before committing. This is illustrated by a recent Court case, Yu v Bradley1.
Cancelling a contract: An example in property law
The Bradleys sold their substantial 2.4ha property on the Whitford-Maraetai Rd to Mr Yu. Unfortunately, the sale did not settle. A few days before settlement, Mr Yu claimed that he had been mislead about ownership of a lawn that actually belonged to a neighbouring property, and that the misrepresentation entitled him to cancel the contract. The Bradleys denied misrepresenting the ownership of the lawn. Both parties issued settlement notices under the agreement on the basis that each was entitled to cancel the contract and the other was in default. Both also claimed the other was not entitled to cancel. Ultimately Mr Yu took the step of cancelling the contract and claiming interest as damages under the agreement. The Bradleys disputed Mr Yu’s entitlement to cancel and treated that purported cancellation as a repudiation of the contract and sought to cancel themselves. Mr Yu sued for the return of his $230,000 deposit and the Bradleys counter-claimed for their losses when the property was re-sold to a third party, together with other damages as a result of Mr Yu’s failure to settle.
Only one side could ultimately be right about who was in breach, who had repudiated the agreement and who was entitled to cancel. Although the High Court did find the Bradleys in breach of some aspects, it importantly found that Mr Yu was not entitled to cancel and that his actions in purporting to do so were in fact repudiating the agreement and giving the Bradleys grounds to cancel themselves, quite apart from any other grounds they may have had. The High Court found in favour of the Bradleys and awarded damages of $575,000, less the $230,000 deposit. Mr Yu tried to argue that damages should not include the Bradley’s bridging finance costs however the court awarded such damages as being within the reasonable contemplation of the parties.
The moral to the story is that you must be very careful when purporting to cancel a contract based on a breach by the other party because if a court ultimately takes a different view, your attempted cancellation will have repudiated the contract and given the other party the right to cancel. It is critical that legal advice is taken.
- Yu v Bradley [2020] NZHC 1822; Yu v Bradley [2022] NZCA 378