Terminating building contracts
Legal9/06/2021 12:00:00 AM

The Danger in Terminating Building Contracts for Delay

By Jonathan Nathan, Barrister, University Chambers.

A recent decision of the Appeal Panel in the NSW Civil and Administrative Tribunal, Patel v Redmyre Group Limited [2021] NSWCATAP 132, has demonstrated the grave consequences of invalidly attempting to terminate a building contract for delay.

In the above case in which the writer appeared as Counsel for the Builder at first instance and on appeal, the Owners purported to terminate a building contract for the Builder’s failure to progress the works with due diligence.

At first instance, the Owners led evidence concerning the Builder’s failure to bring the works to practical completion by the date specified in the contract. However, the Owners had not led sufficient evidence as to the rate of progress of the works on site and instead relied on the Builder’s failure to reach practical completion.

In this case, the Owners excluded the Builder from the site after issuing a show cause and termination notice purporting to terminate the contract.

On appeal, the Appeal Panel confirmed that the decision of Senior Member Blakce SC and cited with approval the principles in the Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303 and in so doing confirmed that the onus was clearly on the Owners to prove that the Builder had not proceeded with due diligence. In applying the principles in Hometeam, the Tribunal found and the Appeal Panel concurred that it was not sufficient for the Owners to merely prove that the Builder had not reached practical completion by the date specified in the building contract.

The Appeal Panel also emphasised the need for a show cause notice to comply strictly with the contractual requirements of a show cause notice. In this case, the Owners requested a project timeline to confirm when the works would be completed in circumstances where the contract between the parties did not provide for such a timeline.

As a result of the invalid termination, the Appeal Panel held that the Owners’ were not entitled to claim for defective and incomplete wok applying the principles set out in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302 per White J.

The decision is a timely reminder that:

  • Owners seeking to terminate building contracts in accordance with its terms must ensure that any contractual notices issued to terminate the contract are strictly in accordance with the terms of the contract and do not go outside the terms of the contract.

  • Owners ought to consider matters carefully before terminating a building contract and in particular terminating a building contract because the Builder has delayed the works.

Source: Patel v Redmyre Group Limited [2021] NSWCATAP 132, 14 May 2021.

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