November 21, 2022
The second article in this series will look at termination of a contract through repudiation.
Repudiation of a contract occurs when one party demonstrates that they no longer intend, or are unable to perform, its obligations under the contract. If the other party repudiates a contract, you may have an avenue to terminate.
Determining whether a party has repudiated a contract can be complex and difficult, and if not done correctly, could result in the innocent party incorrectly terminating the contract and repudiating the contract themselves. In order to establish repudiation of a building and construction contract, you will need to show that the other party:
- intends to no longer be bound by the contract; or
- performs the contract in a way that is substantially inconsistent with its contractual obligations.
Evidence of Repudiation – Case Examples
Repudiation through words
In the recent Queensland case of Addinos Pty Ltd v OJ Pippin Homes Pty Ltd [2022] QDC 205, the Court found that the builder, OJ Pippin Homes Pty Ltd, repudiated the contract with property developer, Addinos Pty Ltd.
The parties entered into a contract for the construction of six three-storey townhouses with the builder commencing works on site in late October 2015. On 17 March 2016, the builder sent an email to the property developer advising that it was terminating the contract due to an increase in construction costs. The builder then sent a further text message saying that they were unable to build the project with costs “going through the roof.”
On 23 June 2016, the property developer accepted the builder’s email as repudiation of the contract. The Court held that the builder had no basis to lawfully terminate the contract and that the email and text message demonstrated the builder’s intention to no longer be bound by the contact.
This case highlights the importance of understanding your contractual and legal rights when faced with rising costs of building and construction materials especially considering the current market.
Repudiation through conduct
As well as through words, repudiation of a contract can also be established through the other party’s conduct. For example, in the case Mousa & Anor v Vukobratich Enterprises Pty Ltd & Anor [2019] QSC 49, there were a number of serious defects identified in the construction. The Court held that the builder, MV Designer Homes, had repudiated the contract as the builder’s standard of work showed that it intended to perform the contract in a way that was substantially inconsistent with its contractual obligations.
Although the mere existence of defects will not amount to repudiation of a contract, if the defects are serious, unable to be simply rectified and show that the builder did not intend to perform the contract as per the terms, it may amount to repudiation.
Terminating Contract
If you have established that the other party has repudiated the contract, you can either:
- accept the repudiation and terminate the contract; or
- insist the other party continues with the contract.
If you elect to accept the repudiation and terminate the contract, you should send the other party a notice of termination which states that the contract is terminated and details the party’s repudiation.
In this instance, there is no opportunity for the other party to remedy the repudiation, unlike terminating a contract due to substantial breach.
Following the termination of the contract, you may be entitled to seek damages from the other party.
Wrongful Repudiation
As mentioned in Part 1 of this article series, wrongful repudiation will occur when a party invalidly terminates a contract. Terminating a contract with no legal basis may demonstrate to the other party that you no longer intend to be bound by the contract. This can have serious ramifications and as such, you should always ensure you take the appropriate steps prior to attempting to terminate a contract.
Lamont Project and Construction Lawyers have the industry knowledge and experience to assist both Principals and Contractors in the construction industry. If you would like to discuss any of the matters raised in the above article as it relates to your specific circumstance, please contact Lamont Project & Construction Lawyers.
The content of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Vanessa George
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