19 September 2016

The importance of properly drafted special conditions

A recent case before the Supreme Court of Queensland reminds us about the importance of properly drafted special conditions in contracts, particularly those for sale and purchase of land in Queensland.  In International Palace Pty Ltd v Novaheat Pty Ltd [2016] QSC 75 a contract was entered into for the purchase of vacant industrial land.  The contract was a standard form contract for Commercial Land and Buildings.

The contract included a due diligence clause, that was not clearly drafted, stating “This contract is subject to and conditional upon due diligence period to be satisfied on or before 40 days from contract date.”  When the purchaser did not provide notice satisfying, waiving or terminating the contract at the end of the due diligence period the vendor gave notice terminating the contract.

The purchaser disputed the validity of the termination and went on to satisfy the due diligence condition a few days later.  The issue before the Supreme Court was whether the vendor was able to validly terminate the contract under a condition that was solely for the benefit of the purchaser based on the construction of the condition.

Even though the condition was for the sole benefit of the purchaser, by failing to give notice of satisfaction or otherwise of the condition by the due date, the contract was voidable by either party.

This decision highlights the importance of critical dates as well as good drafting.  It may be that if the special condition to the contract was more clearly drafted the parties could have avoided this costly litigation.

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