Default Notices When There is Repudiation of Contract: Sam Gayed v Nardine Elzahaby [2024] VSCA 85

The recent case of Sam Gayed v Nardine Elzahaby [2024] VSCA 85 has brought to the forefront an intriguing aspect of contract law: the necessity (or lack thereof) of issuing a default notice when a contract faces repudiation.

The Context

The background facts in the case are as follows:

1. Contract for Property Purchase:

   • In June 2019, Sam Gayed and Nardine Elzahaby entered into a contract to purchase a residential property in Balwyn, Victoria, from Ming Yuan.

   • The agreed purchase price was $3,190,000, with the applicants paying a 10% deposit.

2. Failure to Complete Purchase:

   • The applicants were unable to complete the purchase due to their inability to obtain the necessary finance.

3. Repudiation and Resale:

   • Ming Yuan accepted the applicants’ repudiation of the contract and subsequently leased the property out for some time before selling it again in October 2021 for $3,500,000.

4. Legal Proceedings:

   • In July 2022, the applicants commenced a proceeding in the County Court against Ming Yuan, seeking the return of $309,000, which was part of the deposit paid.

   • The case was tried over four days in October 2023.

5. Trial Judge’s Decision:

   • In December 2023, the trial judge dismissed the applicants’ claim, entered judgment for the respondent, and ordered the applicants to pay the respondent’s costs on the standard basis up to and including 6 October 2023, and thereafter on the indemnity basis.

6. Appeal:

   • The applicants applied for leave to appeal from the judge’s orders and a stay of the order for costs, relying on four proposed grounds of appeal.

The case centered around the legal implications of the applicants’ failure to complete the purchase and the subsequent actions taken by both parties in relation to the property contract.

the Court of Appeal provided a detailed analysis regarding the requirement of a default notice in the event of contract repudiation. The court’s decision was informed by several key considerations:

1. Nature of Repudiation:

   • The court recognized that the applicants’ inability to complete the purchase was a clear act of repudiation. This was evidenced by their failure to secure necessary finance and fulfill the contractual terms.

2. Acceptance of Repudiation:

   • The respondent’s actions, such as leasing and later selling the property, were seen as an acceptance of the repudiation. This acceptance effectively rescinded the contract.

3. Default Notice Redundancy:

   • The court found that in this instance, where repudiation was evident and accepted, issuing a default notice was redundant. The rationale is that a default notice serves to inform and provide an opportunity to remedy the breach, which is unnecessary when repudiation is unequivocal.

4. Contractual Terms:

   • The court examined the terms of the contract and determined that the respondent’s termination of the contract and forfeiture of the deposit did not require a default notice under the specific circumstances.

5. Legal Precedent:

   • The decision aligns with previous decisions that suggest a default notice is not mandatory in every instance of contract termination, particularly when repudiation is clear and accepted.

In cases of clear repudiation, the requirement for a default notice may be bypassed, as the primary purpose of such a notice is to alert the defaulting party of the breach and provide them with an opportunity to rectify it.

In summary, the Court of Appeal’s decision in Sam Gayed v Nardine Elzahaby [2024] VSCA 85 underscores the principle that a default notice is not an absolute requirement in the face of clear contract repudiation. This decision provides clarity on the application of default notices in property law and offers guidance for future cases where contract terms are breached.

Disclaimer: This article provides general information and does not constitute legal advice. Consult legal professionals for specific guidance related to your circumstances.