Contract law update 2019

Consequences of non-compliance

Contracts often contain detailed provisions prescribing how parties must perform their obligations or exercise their rights under it. Frequently, such provisions are not strictly complied with. There will often then be a dispute about the consequences of that non-compliance.

In JPA Finance Pty Ltd v Gordon Nominees Pty Ltd¹, the Victorian Court of Appeal considered the consequences of a notice not strictly complying with the contract's requirements. The case concerned a notice purporting to terminate a contract. The 'notices' provision in the relevant contract provided that a notice 'must be addressed and delivered to the intended recipient at the address or fax number below'. The following paragraphs required notices to be addressed to the parties, care of their lawyers.

The notice of termination was addressed to the relevant party's lawyers, rather than to the party, care of its lawyers. The trial judge agreed that the notice was therefore invalid; and held that strict compliance with the contract's terms was required, applying authorities developed in the context of notices that trigger guarantor obligations. For example, in Bond² (one of the authorities the trial judge relied on), the relevant clause required notices to be delivered to a company's specified address. A party, knowing that the company had changed its address, sent a notice to the new address. The New South Wales Court of Appeal held that the party had failed to comply with the contract's terms by not sending the notice to the old address.

The Victorian Court of Appeal took a different approach. The court held that the notice clause's evident commercial purpose was to ensure that notices were directed to the parties' attention through their lawyers. There was no commercial purpose in requiring that the relevant party be formally named as the addressee, when it was otherwise apparent from the notice that they were its intended recipient. The court therefore held that the notice was validly served. However, the fact that the trial judge took a different view, and the seemingly absurd outcome of cases such as Bond, are important reminders of the importance of strict compliance with notice provisions in contracts.

In Advanced National Services Pty Ltd v Daintree Contractors Pty Ltd³, the New South Wales Court of Appeal considered a slightly different issue: did a party's failure to perform its obligations in the prescribed manner negate its entitlement to be paid? In that case, a contract prohibited a company from using subcontractors to perform cleaning services. Notwithstanding this clause, the company performed the services through a subcontractor. There was no suggestion that this method of performance caused any loss to the other party. Nevertheless, the New South Wales Court of Appeal held that the breach of this contractual requirement entitled the other party to refuse payment. This surprising result again confirms the importance of parties carefully reading, and complying with, their contracts.