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 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.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.