Think Nicholsons

Jan 08

When does an agreement to extend become an instalment Contract??

When does an agreement to extend become an instalment Contract?

Amnico Holdings Ltd v Griese [2014] QSC 247 is an interesting decision. Payment of a fee in consideration of an extension will generally be regarded as forming a collateral contract (and not a variation of the existing contract) particularly where the other terms and conditions of the contract remain except for the extension of time granted (Kaneko v Crawford [1999] 2 Qd R 514). That view is supported in this case also, however because of the way the interest payments were structured (4 sequential payments of interest calculated on the unpaid balance purchase price), the court found that the extension agreement operated as a variation of the original contract and not as an agreement “completely outside the contract”. It was therefore held that the extension agreement rendered the contract an instalment contract.

In Kaneko, it was held that an arrangement “properly construed as one under which the seller is not bound to an agreed extension of time until payment is made of the agreed sum of money to be paid as consideration for the extension, does not render the contract an instalment contract.” [40]. If the variation only came into effect upon the payment being made then it was not a payment “the purchaser is bound to make” under the contract and within the meaning of s 71 and thus did not render the contract an instalment contract. [41].

As a side note, the release of the deposit to the seller did not render the contract an instalment contract as the court considered that the funds released still operated as a deposit and the buyer would still have had a claim to the sum “founded in the notions of fair dealing and good conscience” because it represented part of the consideration paid by the buyer for the seller’s performance of the contract. [31].

If you would like to discuss any of the above, please telephone Stephen Robertson on (07) 3226 3944.

Stephen Robertson

Stephen is a commercial lawyer with extensive experience in advising businesses in areas of acquisitions and divestments, commercial agreements, structuring, legal risk and revenue issues. He also advises on property law, with a focus on commercial and industrial property.

Article written by David Nematalla.