Galafassi v Kelly

The case of *Galafassi v Kelly* involved a dispute between purchasers and a vendor concerning a contract for the sale of land. The purchasers had evinced an intention not to be bound by the contract, declaring themselves unwilling and unable to perform their contractual obligations due to ongoing financial incapacity. The vendor subsequently sought to terminate the contract. The appeal was heard by Bathurst CJ, Ward and Gleeson JJA of the Court of Appeal of New South Wales.

The central legal issues before the court were whether the purchasers' conduct constituted a continuing repudiation of the contract, thereby entitling the vendor to terminate, and whether the vendor's commencement of proceedings for specific performance constituted an election to affirm the contract, precluding subsequent termination. The court also considered the measure of damages available to the vendor upon resale, including the applicability of liquidated damages, special condition interest, land tax, and the vendor's duty to mitigate loss. Furthermore, the necessity of a notice to complete in circumstances of repudiation was examined, as was the admissibility of communications made in connection with settlement negotiations under the *Evidence Act 1995*.

The Court of Appeal held that the purchasers' unretracted declarations of inability and unwillingness to perform, coupled with their continued inactivity, amounted to a continuing repudiation of the contract. This conduct, demonstrating a wholly and finally disabled intention to perform essential terms, entitled the vendor to terminate without issuing a notice to complete. The court found that the vendor's initiation of specific performance proceedings did not preclude termination, as the purchasers' repudiation persisted. Regarding damages, the court clarified that a claim under clause 9.3.1 of the standard contract was for liquidated damages, and that payments contingent upon completion could not be included in the assessment of damages based on the original contract price. The court also addressed the vendor's duty to mitigate loss on resale and the application of section 131 of the *Evidence Act 1995* to settlement communications.

The appeal was allowed in part. The order of the primary judge was set aside, and judgment was entered for the plaintiff (vendor) against the defendants (purchasers) in the sum of $602,500.82, with liberty to apply regarding the calculation of this sum. Directions were given for the parties to file proposed short minutes of order and submissions concerning costs and any further orders.