Header Articles

Breach Of Contract And The Right To Cancel – What Is An Essential Term?

December 2020

There has been recent High Court consideration of Section 37 Contract and Commercial Law Act regarding a party’s entitlement to cancel a contract “if induced into it by a misrepresentation” or “if a term of the contract is or will be breached”.


D sought recovery of a deposit paid for a purchase of an early childhood education centre (ECE) after cancellation by D of an agreement for sale and purchase.  The Developer agreed to build the ECE on a property and agreed that the ECE would be leased to KNZ.  Subsequently the Developer assigned the lease to an operator other than KNZ, without D’s consent.  D cancelled the agreement. 


The Court found that the threshold found in Section 37 had been reached in this case as the Court was satisfied that for D, KNZ was the intended Lessee (not another operator) and that the parties had agreed that the named Lessee was an essential term.  This view was supported by email exchanges between the parties even though the Agreement did not specify the provision to be an essential term. 


The Court was satisfied that D would probably have declined to enter into the Agreement unless it had been agreed that the lease clause and the identification of KNZ as the Lessee were essential. The Court held that D was entitled to cancel the contract and have a refund of the $466,000.00 deposit paid plus interest