Artboard 1Icon/UI/CalendarIcons/Ionic/Social/social-pinterestIcon/UI/Video-outline

Residential Focus

23 February 2022

#Property, Planning & Development, #Construction, Infrastructure & Projects

Published by:

Nicholas Achurch, Stephanie Tan

Residential Focus

Dispute resolution clause did not disturb a right to terminate at general law

In Salakis v Silvabuilt Pty Ltd; Silvabuilt Pty Ltd v Salakis [2022] NSWCATAP 40, the Appeal Panel confirmed that a party’s accrued right to terminate a contract at general law is not extinguished or restricted by the terms of a contract, unless expressly provided for.

This serves as a reminder to owners to be mindful that the right to terminate at general law is separate and distinct from a right to terminate in contract. One may arise without the other and unless expressly provided for in the contract, the right to terminate at general law is not be excluded.

Background

In December 2016, the owners entered into a cost-plus Master Builders Association standard form Building Contract (Contract) with the builder for residential building works at its property in Earlwood NSW (Property).

In December 2017, the parties fell into dispute and the builder ceased works at the Property after 23 December 2017. The parties disagreed as to the circumstances in which the builder ceased work. The owners asserted that the Contract was terminated by mutual agreement on 23 December 2017 and sent an email to the builder on that same date to that effect.  

On 24 December 2017, the builder replied, denying that the Contract had come to an end by mutual agreement. Correspondence followed in relation to the final amounts owed to the builder under the Contract. On 19 January 2018, the parties attended a meeting.

On 24 January 2018, the owners sent, by email, a Notice of Dispute “pursuant to clause 24 of the Building Contract” (dispute resolution clause) to the builder, which asserted numerous breaches of the Contract by the builder.

On 28 January 2018, the builder wrote to the owners, denying that they had breached the Contract, and stating that it was the owners that had “broken the contract”.

The owners then engaged solicitors and, on 12 February 2018, sent to the builder a "Notice of Default" under the Contract which, among other things, required that the builder transfer an amount of money for losses alleged to have been caused by the builder’s breaches of the Contract, to the owners.

The builder also engaged solicitors and, on 13 February 2018, issued a notice of suspension under the Contract and denied that the builder was in breach. The letter sought payment of outstanding invoices. The letter also stated that the owners had repudiated the Contract by their conduct on 23 December 2017.

On 16 March 2018, the builder’s solicitors issued a Notice of Termination under the Contract, which stated that:

  • the owners had repudiated the Contract on 23 December 2017, by making clear to the builder that the owners were not ready, willing and able to perform their obligations under the Contract
  • the builder accepted the owners’ repudiation, and was entitled to terminate the Contract
  • alternatively, the builder was entitled to terminate under clauses 27(a) (iii) and (iv) of the Contract as the owners had:
    • failed to pay the builder’s invoices
    • failed to provide the builder with a proper direction in relation to “the design and otherwise” as required by the Contract
    • failed to provide evidence of capacity to pay for the works subject of the Contract.

The builder then commenced proceedings against the owners. The owners reciprocated.

In those proceedings the Tribunal found that:

  • the owners had “clearly and unequivocally told the Builder that they did not intend to proceed”
  • the owners had repudiated the Contract on 23 December 2017 and the Notice of Dispute issued by the owners on 12 February 2018 had no proper legal basis as a foundation for terminating the Contract
  • the builder had validly terminated the Contract on 16 March 2018
  • the builder’s failure to provide monthly budget reports in compliance with the Contract was not sufficient grounds to entitle the owners to terminate the Contract
  • the builder was entitled to certain damages and the owners were entitled to a lesser amount for defective works.

Appeal Panel

The owners filed a Notice of Appeal on the basis that the substantive decision was not fair and equitable and that it was against the weight of the evidence.

Among the grounds asserted was that the Tribunal had erred at law in its finding that the builder was entitled to terminate, as the builder had not complied with the dispute resolution requirements set out in clause 24 of the Contract.

The Appeal Panel noted that clause 24 of the Contract did not contain a provision that excluded the remedy of termination at general law and that the parties’ rights to terminate in contract are separate from those at general law. Rights to terminate at general law should not be regarded as excluded unless the contract manifests an explicit intention to do so.

Clause 24 of the Contract required that in the event of a dispute that the parties meet “at least once to attempt to resolve the dispute or agree on a method of resolving the dispute by other means”. This did not exclude the parties’ rights to terminate the Contract at general law and did not limit the right to terminate to that in clause 27 of the Contract. Rather, the Contract provided a requirement to be met before the right to terminate at general law (or in contract) could be exercised. The Appeal Panel found that:

“Once the obstacle to termination imposed by clause 24 had been removed, the Builder was entitled to accept the homeowners’ repudiation and terminate under the general law without compliance with the requirements of clause 27.”

The Tribunal dismissed the owners’ appeal.

Takeaway

Rights to terminate at general law remain available to parties unless expressly and unequivocally excluded in the contract.

Termination at general law and under contract are separate and distinct. Parties to construction contracts must be aware of the dichotomy of termination rights under contract and at general law to not confuse their rights, remedies and options. Whilst a contract may provide requirements to be met before proceeding with termination, such requirements will not generally exclude the right to terminate at general law.

Termination of a contract is a significant and technical step that should not be taken lightly. The consequences of a misstep are a finding of repudiation and exposure to damages.

Authors: Christine Jones, Nicholas Achurch & Stephanie Tan

In the media

PM’s $86m investment in forestry to secure nation’s timber supply
Mr Morrison will announce $86 million for a cash-grant scheme to help foresters and farmers in 11 declared regional forest hubs – including the whole of Tasmania – establish new softwood and hardwood plantations (21 February 2022).  More...

Home building in for a soft landing as rates rise, HIA says
Rising borrowing costs are predicted to hit spending power and confidence, cutting new housing starts and putting further pressure on a detached house-building sector that will shrink by almost one-third from the 2021 peak of 141,000. (18 February 2022).  More...

Home builder LP Warren Homes goes into administration
“Already at a minimum, our frames were costing $30,000 more, not to mention concrete, plaster, heating and cooling. All of these things had gone up” stated Melissa Gardner, General Manager of LP Warren Homes (18 February 2022).  More...

ATO’s ticking time bomb of unpaid construction tax bills – The Australian Financial Review
“We all know one of the first places we’re going to see a return of insolvency activity is in building and construction,” stated John Winter, Chief Executive of the Australian Restructuring Insolvency & Turnaround Association (16 February 2022).  More...

NSW drives strong demand for new housing 2022
“Sales of new detached homes recorded an exceptionally strong quarter, led by Australia’s largest state,” stated HIA Economist Tom Devitt (10 February 2022).  More...

Multi-million-dollar expansion for Timberlink, but builders say it won't make a difference to backlog
“If it's two months until they [Timberlink] start churning out [additional timber] I wouldn't think the ripple effect will hit here for another six or eight months” stated Shane Dycer, Mount Gambier builder and developer (10 February 2022).  More...

Construction costs rising at the fastest annual pace since 2005
CoreLogic’s Cordell Construction Cost Index (CCCI) for Q4 2021 showed that despite an easing in the quarterly rate of growth, national construction costs increased 7.3 per cent over the 2021 calendar year, the highest annual growth rate since March 2005 (9 February 2022).  More...

Published – articles, papers, reports

Australian Building and Construction Commission Industry Update - February 2022 edition
It's essential union officials and site occupiers understand their rights and responsibilities in relation to right of entry which is why the February edition of Industry Update highlights this important issue, court summaries and more (17 February 2022). Read more here.

Uniclass: A class above the rest
It [Uniclass] is used as a way of identifying and managing the vast amount of information that’s involved in a construction project. Uniclass is also a requirement for BIM projects, as set by the BS EN ISO19650 series of standards (17 February 2022). Read more here.

Hawkesbury-Nepean River March 2021 flood review released
The Review details the causes, nature and impacts of the March 2021 flood, which was the largest flood in the Hawkesbury-Nepean Valley in 30 years (16 February 2022). Read more here.

Practice and Courts

Advice for plumbing practitioners on the new lead requirements
The 2022 edition of the National Construction Code (NCC) will introduce a new limit for the allowable level of lead in plumbing products used for drinking water. This requirement will come into effect on 1 September 2025 (14 February 2022). Read more here.

Cases

Salakis v Silvabuilt Pty Ltd; Silvabuilt Pty Ltd v Salakis [2022] NSWCATAP 40
BUILDING AND CONSTRUCTION – contract – termination – repudiation – whether dispute resolution clause excluded possibility of acceptance of repudiation if requirements not complied with
BUILDING AND CONSTRUCTION – contract – damages – damages for loss of profits assessed by reference to contractual clause governing payment in the event of reduction in the scope of work – whether party seeking damages had led sufficient evidence to establish loss of profits – whether such evidence is necessary where damages are assessed on the basis of a contractual clause.
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Home Building Act 1989 (NSW).

Shivanbodhiselvan v Norwest Gateway Pty Ltd [2022] NSWCATAP 27
BULIDING AND CONSTRUCTION – failure to provide procedural fairness – Anshun estoppel – non question of principle - leave to appeal – decision not fair and equitable – decision against the weight of the evidence – no question of principle.
Civil and Administrative Tribunal Act 2013 (NSW) – s 80(2)(b)); Home Building Act 1989 (NSW).

Legislation

Environmental Planning Instruments
Environmental Planning and Assessment Amendment (Moree Activation Precinct) Regulation 2022 

Environmental Planning and Assessment Amendment Regulation 2022 

Regulations and other miscellaneous instruments
Water Management (Application of Act to Certain Water Sources) Proclamation 2022 

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Nicholas Achurch, Stephanie Tan

Share this