Key Lessons from Kakkad & Ors v Treana Holdings Pty Ltd & Ors

By Elias Farah & Jennifer Novak

The District Court of South Australia’s recent decision in Kakkad & Ors v Treana Holdings Pty Ltd & Ors [2024] SADC 161 (“Kakkad”) handed down on 11 December 2024 offers crucial insights into the interpretation and enforcement of “reasonable endeavours” obligations in off-the-plan contracts. This recent ruling provides valuable guidance for developers and buyers navigating the complexities of sunset clauses in construction contracts.

Case Summary: Kakkad & Ors v Treana Holdings Pty Ltd & Ors

In Kakkad, the purchasers—Mrs. Tejal Kakkad and Mr. Arun and Mrs. Rita Vashishta (“Purchasers”)—entered into contracts in September 2020 to purchase units off-the-plan from Treana Holdings Pty Ltd and Ameronix Pty Ltd (“Vendors”). A key provision of these contracts stated that if practical completion was not achieved by 29 December 2022, either party could terminate the agreement.

The Vendors failed to complete the project on time, citing material shortages, labour challenges, and disruptions caused by the COVID-19 pandemic. In January 2023, the Vendors terminated the contracts under the sunset clause.

In response, the Purchasers took legal action, arguing that the Vendors had lost their right to terminate. One of their key claims was that the Vendors lost rights of termination for breaching special condition requiring they use “reasonable endeavours” to achieve practical completion before the sunset date.

The Court ruled in favour of the Purchasers, ordering specific performance of the contracts and denying the Vendors the right to terminate.

The Court’s decision hinged on the following key findings:

• Failure to Use Reasonable Endeavours: The Vendors did not take sufficient steps to ensure the timely completion of the project. They overly relied on the builders without exercising adequate oversight or proactive management.
• Insufficient Justification for Delays: While the COVID-19 pandemic contributed to delays, the Court concluded that it was not the primary cause. Expert evidence demonstrated that other developments of similar scale were successfully completed within the same timeframe, indicating that timely completion was achievable.

Key Takeaways for Developers

Although the Kakkad ruling comes from the District Court, it highlights valuable considerations for South Australian developers to keep in mind.

1. Obligations to Use Reasonable Endeavours

Developers should actively and diligently work to meet project deadlines, particularly in off-the-plan contracts. Reliance on external factors, such as a builder’s performance, or invoking a sunset clause without demonstrating reasonable efforts is, on face value of this case, insufficient. Personal responsibility for project oversight and progress is critical.

2. Impact of External Delays

While external disruptions, such as the COVID-19 pandemic, may contribute to delays, they cannot be presumed to justify missed deadlines. Developers must demonstrate that delays were unavoidable and could not have been mitigated with reasonable efforts. The Court’s reliance on expert testimony and comparative evidence of other successful projects underscores the importance of context and preparedness.

3. Proactive Project Management

Developers should document their efforts, monitor progress regularly, and address challenges promptly. A lack of proactive management may result in the loss of termination rights under a sunset clause, as highlighted in the Kakkad decision.

Concluding Comments

It’s important to note that the Kakkad decision is based on the specific contract terms and circumstances of that development. Its relevance to other cases will ultimately depend on the contract wording, facts, and supporting expert evidence. The ruling does, however, underscore that sunset clauses are not a simple escape mechanism for developers. Instead, they can be subject to rigorous judicial scrutiny.

If you have any questions or would like to discuss the implications of this case further, please do not hesitate to contact one of our experienced property lawyers and/or conveyancers at Commercial & Legal on (08) 8206 8444.

At Commercial & Legal, we specialise in safeguarding our clients’ interests in off-the-plan contracts. Our tailored approach ensures that contracts are meticulously drafted to protect developers while maintaining fair and balanced provisions for all parties. By incorporating clear timelines, precise obligations, and effective dispute resolution strategies, we help developers navigate challenges and achieve successful outcomes.

If you have any questions or would like to discuss the implications of this case further, please do not hesitate to contact one of our experienced property lawyers and/or conveyancers at Commercial and Legal on (08) 8206 8444.

The content of this article is intended for general informational purposes only and does not constitute legal or professional advice from Commercial and Legal.