D&R Constructions (Aust) Pty Ltd v Wesiak

NCAT Appeal Panel|2015-12-16

Solicitors: HWL Ebsworth (Appellant) D G Briggs and Associates (Respondents) File Number(s): AP 15/54656 Decision under appeal Court or tribunal: Civil and Administrative Tribunal NSW Jurisdiction: Consumer and Commercial Division Citation: N/A Date of Decision: 27 August 2015 Before: S. Thode (Senior Member) File Number(s): HB 13/63782 and HB 14/29554

Introduction

This is an appeal from a decision of a Senior Member of this Tribunal dismissing a claim brought by the appellant builder seeking compensation following an asserted termination by it of a building contract entered into with the respondents, as homeowners. That decision upheld a claim for compensation brought by the homeowners following the termination of the building contract. The grounds of appeal will be considered in some detail later in these reasons for decision.

Communications Between the Parties Leading To a Breakdown in the Relationship

Because this is such an important and integral matter in the determination of these appeal proceedings, it is necessary to summarise the respective communications between the parties which, fortunately, occurred predominantly in electronic form and in email letter form. Obviously, the contemporaneous expressions of the parties in a form which has been reduced to writing provides the most reliable narration of what occurred.
On 13 June 2013, the respondents sought information about how much they had paid on the project to that date. A schedule was forwarded to them the next day which stated that, inclusive of GST, the respondents had paid $573,029 together with variations of $32,020 and that a further $75,862 remained outstanding under the building contract. On 16 June, the respondents forwarded an email to the appellant listing 12 items of work still to be completed and noting that under the contract they were required to make payment at the rate of 95% of the value of work performed, but had, in fact, made total payments of 88% of the total value of the contract. They said that they felt that they had paid well in excess of 95% of the work completed and asked the appellant to estimate what percentage of work had been completed on the project thus far. This prompted a reply by email the same day pointing out that the unpaid invoice was now in arrears by 7 days and seeking payment by the next day otherwise there would be a need for recourse to mediation. The email pointed out that further materials had been delivered to the site and subcontractors had been booked to complete further work. It was said that the request of an estimate of work to be completed was a separate issue to the outstanding invoice, but that further consideration would be given to providing these details. There appear to have been some oral exchanges between the parties including an alleged threat by the appellant to remove building supplies and return them to the suppliers. There was also the reference to appointment of a mediator.
On 30 June 2013, the respondents listed 24 items which they said were still outstanding and requested arrangements be made for a mediation. The appellant replied on 2 July attaching a "true schedule of works to be completed." We do not appear to have a copy of that schedule. That email said that the appellant was "keen to resolve these issues with you and complete your project." There was a reference to the need to reschedule certain work and a reference to work that was to be finalised by the respondents. Importantly, that email said: We are concerned that monies that are due and future monies that are due to D & R are at risk of being unpaid. May we suggest perhaps a trust fund be set up assuring us that payment will be made. We can discuss this at the meeting.
The controversy between the parties crystallised further in an email from the respondents to the appellant on 2 July 2013. In this email it was claimed that the total amount "billed" by the appellant was $600,028.50, the respondents were only required to pay 95% of that amount, and they had, in fact, paid $573,028.50, being an excess of $3,001.43. The email also raised queries about the extent of the PC items and excluded works. The respondents said that they were not required to provide internal balustrades, hot water systems and internal staircases. The appellant replied by email on 3 July. It remonstrated with the respondents about the inclusions and exclusions. The appellant denied that the stairs and balustrades were included. It said that there was no documentation about these items and no quotation which referred to them. The appellant pointed out that documentation of the stairs was only given to it three months previously and complained that it was being bullied into providing the stairs at the expense of the appellant. Tellingly, the appellant said in part: There have been many delays on this project due to uncompleted paperwork from your end, your interference with the supervision of the works, your arguments with neighbours etc. We were supposed to finish this project last year. Because of these delays we have been made to carry rises in materials and labour costs because of the amount of time has lapsed since contracts were signed. None of these increases have been passed on to you but what little profit that was due to us has been eaten way by the delays and to top it off you are insisting that we pay for items that were not listed on your quotation/contract out of our own money!
The email went on to explain that 95% was "not a true percentage of what has been paid, there are still variations that have not been billed to you which will make your contract price higher." The appellant said that it would participate in mediation, but at the cost of the respondents.
By reply email dated 5 July, the respondents asserted that there was detail in the specifications for internal balustrades, installation of paving to courtyards, installation of new steel gates to front fence "and lots more." They said that they had paid the appellant "about 90% of the contract price, but there is still a lot more work to be done. The discrepancies have to be resolved prior to further payments to be made to you." The respondents asked that the appellant pay one half of the mediation costs.
In a letter to the respondents dated 8 July 2013, the appellant referred to a number of items within the contract documentation which it said was "straightforward and unambiguous." On this basis it said that mediation was not necessary and it declined to participate. There then followed a detailed discussion of six items. To give some flavour of the attitude of the appellant we refer to some of them. In connection with gas hot water units, it said the documents indicated the builder was to install but not to supply them, front fences and screens were to be installed as indicated to future details to be confirmed, there was no confirmation so this was not included, and with respect to internal stair structure and balustrades, future details were to be provided, they were not provided at the time of quotation and therefore were not included in the quotation. The letter also referred to provisions of the contract concerning a delay occasioned by matters outside the control of the builder which allowed the contract price to be adjusted. There was a notation of delays being caused by the delay in issue of a construction certificate which was not supplied until mid-April 2012, engineers drawings being marked "not for construction" which required the issue of modified drawings, disputation between the respondents and the owners of neighbouring properties and their builders, work to be carried out by the respondents being delayed, delays in paying the latest invoice and inclement weather. Finally, the letter asked for payment of the outstanding invoice for June 2013 and said that the appellant was entitled to refrain from undertaking further building work until payment had been made.
By reply dated 12 July 2013, the respondents disputed the appellant's understanding of the scope of works. They agreed to pay the last invoice "so long as the staircases are installed and you bring the work up to the percentage we have paid you to date." They said that because mediation had been refused they had filed a complaint with the Department of Fair Trading. Later that day the appellant by email rejected the respondents' email and said that if the outstanding monies were not paid that day the matter would be referred to its solicitors. There were further exchanges of emails between the parties in similar vein.
By notice dated 26 July 2013, the appellant suspended the building work by reason of the asserted failure of the respondents to pay the outstanding invoice.
The parties then retained solicitors to act on their behalf in connection with the disputation between them. Correspondence between the solicitors indicates that a mediation was held on 15 August 2013, but was unable to deal with all of the issues between the parties. It seems the solicitors then endeavoured to resolve the outstanding issues without the assistance of a mediator. Correspondence between the solicitors indicates that there was a measure of agreement about a number of specific issues but an inability to reach agreement about all of them. As is evidenced from the correspondence, the respondents remained concerned that the costs of bringing the works to completion exceeded any remaining liability to the appellant under the building contract. In a letter dated 30 August 2013, the solicitors for the respondents raised a number of specific issues concerning some outstanding items. The letter also raised concerns about the claims for the costs of variations made by the appellant asserting that they had not been raised previously by the appellant and had not been agreed to by the respondents in writing. The letter invited an indication as to the terms upon which the appellant would be prepared to settle the dispute. A further letter from the respondents' solicitors to the appellant's solicitors is dated 13 September 2013. It noted that no reply had been received to the earlier letter, nor had the respondent received any communication from the appellant since the mediation. This letter proposed two alternative bases upon which the respondents were prepared to resolve the controversy with the appellant. The first contemplated that the appellant recommence building work and complete them, that the respondents would pay the balance of the contract price by progress payments of 95% provided the claims in total did not exceed the pro rata sums remaining payable under the contract, as well as payment or adjustment with respect to certain specified items. The alternative option was that there be agreement to terminate the contract on the basis of a payment to the respondents by the appellant of $34,450. The letter concluded by asserting that the respondents had grounds to terminate the contract.
On 8 September 2013, the appellant issued a tax invoice to the respondents itemising 11 variations to the contract totalling $34,673.74 inclusive of GST.
By letter dated 16 September 2013, the appellant's solicitors referred to a lengthy document entitled "Inclusions and Exclusions". It dealt firstly with 17 items supplied and installed by the appellant and commented about liability for payment with respect to each of them. Some items were agreed and some disputed. With respect to items supplied by the respondents and installed by the appellant, there was again reference to 15 matters, some of which were agreed and some others not. The appellant referred to items which were not identified in the contract or quotation, and said that none of these was its liability. That letter proposed that the appellant would complete the building works upon payment of the outstanding monies of $62,333.74 by way of invoice and variations, together with a further $46,151.50 paid into a controlled trust account from which payment could be made by way of progress claims. There were a number of additional matters referred to comprised in the offer.

The 17 September 2013 Letter and Consequences

The correspondence between the solicitors following this exchange was of fundamental significance to the parties in the respective positions which they presented to us on appeal.
By letter dated 17 September 2013, the respondents' solicitors disputed the position with respect to some of the particular items put on behalf of the appellant. The letter is detailed and dealt with some particularity about a number of matters including items supplied and installed by the appellant, items supplied by the respondents and installed by the appellant, items supplied and installed by the respondents and items not identified in the contract or quote. In discussing these matters, the letter dealt in a comprehensive fashion with each of these items. The letter then went on to set out the reply of the respondents to the last position put by the appellant's solicitors including terms of settlement which had been offered.
The letter then continued: In a letter dated 13 September 2013, our clients expressed their concerns. Unfortunately the matters raised in that letter and our earlier correspondence dated 30 August 2013 remain unanswered. Regrettably, the parties remain opposed in numerous material respects. For the reasons set out in our letter of 13 September 2013, our clients must mitigate their losses and intend to proceed to terminate the Contract….. Our clients are presently seeking quotations for the completion of the works. Upon receipt of an acceptable quotation, they will terminate the Contract and engage a new contractor to complete the works. We are not instructed as to when that will occur but we understand that those discussions are well underway….. In the intervening period and until such time as our client terminates the Contract, we invite a reply to this letter. We urge your client to act promptly.
The letter sought a response to the matters raised in the 13 September 2013 letter by midday the following day. The offer of settlement was rejected.
In order to fully comprehend the message which was being conveyed to the appellant's solicitor in that letter of 17 September 2013, it is necessary to refer in some further detail to the contents of the 13 September letter. Relevantly, it was a reference to the fact that the disputation had not resolved and that the appellant was working on other building sites. The letter said in part "Our clients however have an incomplete development with no certainty of outcome in the foreseeable future." It was noted that 17 months had passed since building work had commenced and a further three months was required to complete the project. Because the parties were "no longer at an equal bargaining position in respect to the dispute" the respondents were required to "take steps to mitigate their losses." The letter then referred to the "primary concern" of the respondents namely that on the advice of experts retained by them "the cost of bringing the works to a conclusion exceed our clients' remaining payment liability to your client under the Contract." In discussing this, the letter stated that the amounts paid by the respondents appeared to exceed the value of works undertaken. In part this was thought to be due to the fact that the respondents had not held back retention funds of 5% which it was said they were entitled to do under the contract. After outlining two options for the settlement of the dispute, the letter went on to state that if the appellant did not accept either option by 5pm on 17 September 2013, the respondents intended to serve a "Notice of Termination of Contract" under Clause 28 (a) (ii) of the contract.
In essence, Clause 28 (a) (ii) permitted the respondents, as Owner, to determine the contract if the appellant, as Builder, was in default by failing to proceed with the works with due diligence or in a competent manner. Despite purporting to be in a form of contract prepared by the Master Builders Association of NSW, clause 28 is inelegantly phrased. It is possible to read the particular subclause as also including by way of default the wholly suspension of the building works before Practical Completion without reasonable cause. In any event, the letter set out a number of "reasonable grounds to terminate the Contract" being wrongful suspension of the works, effective abandonment of the works, miscalculation of past progress claims and loss suffered by the respondents caused by the failure of the appellant to proceed with the works.
Accordingly, the reference in the letter of 17 September to the "reasons" contained in the 13 September letter is a reference to a number of concerns expressed by the respondents as justifying termination of the contract.
By letter dated 26 September 2013, the respondents' solicitors again gave the appellant an opportunity of replying before termination of the contract. The letter noted a failure to reply to the letter of 17 September, the failure of the appellant to substantiate its variation claims, the losses being suffered by the respondents for rental of alternative accommodation, the fact that the appellant was continuing with other projects and the lack of "parity in the respective positions of the parties." This letter referred back to the 17 September letter in which the respondents were said to have "foreshadowed terminating the Contract", and said that they were "now at liberty to terminate the Contract at any time." The letter concluded: If your clients have anything to say to our clients before the Contract is terminated, please advise promptly. Our clients otherwise reserve their rights -whether under the Contract or at law.

Notice of Termination of the Contract

On 20 October 2013, the appellant gave notice to the respondents of termination of the contract. The notice recited the notice of breach of contract and suspension of works issued by the appellant dated 26 July 2013, the fact that dispute resolution had been undertaken without resolution, the fact that the owners had not remedied the breach (assumed to refer to the failure to pay the tax invoice of $27,000), and, importantly, that: The Owners have indicated an intention not to be bound by the Contract in that: (i) They have failed to pay the sum of $27,000 within time; (ii) Indicated that they intend to terminate the Contract and retain persons unknown to complete the building works.
The respondents were given notice that the appellant treated their conduct "as a wrongful repudiation of the Contract and treats the Contract as terminated", and as a result of a failure to remedy "the breach" terminated the Contract pursuant to Clause 29, and would remove certain items from the building site.
Clause 29 is a provision allowing for determination of the contract by the Builder if the Owner is in default in a number of respects including, a failure "to pay the Builder any progress payment" within 10 days of a written request" or other specified period.
In addition to the notice of termination dated 20 October 2013, the solicitor for the appellant wrote to the solicitor for the respondents on 22 October 2013, referring to the letter of 17 September 2013 and a subsequent telephone conversation. The letter then purported to set out the "current position" of the appellant. It asserted that the respondents had wrongfully repudiated the contract by reason of the failure to pay the outstanding sum of $27,000 and because they had indicated an intention to terminate the contract and retain other persons to complete the building works. In the alternative: …by failing to remedy the breach within the time permitted under the Breach Notice and within the further time allowed since expiration of that notice period, the builder terminates the contract as at the date of this letter.
By letter dated 24 October 2013, the solicitors for the respondents acknowledged service of a Notice of Termination on 21 October 2013 and referred also to the letter of the following day. That letter denied that there had been any failure to remedy a breach, and denied that the respondents had repudiated the contract. Significantly, the letter said in part: Your client has now terminated the Contract. We say that the termination took place on the date on which the Notice was served upon our clients. Irrespective, our clients say the termination of the Contract by your clients is unlawful.

The Proceedings in the Tribunal at First Instance

Both parties initiated proceedings in this Tribunal seeking the payment of monies under the building contract. The respondents claimed that the appellant had unlawfully repudiated and subsequently terminated the contract and claimed payment of monies totalling $265,226.10 for reimbursement of unsubstantiated progress payments made, reimbursement of payment of costs "beyond the scope of the Contract", and for the costs of completing the building works. The appellant sought the payment of outstanding monies under the contract totalling $77,551.59, based on an unpaid invoice, unpaid variation claims, loss of profits on the balance of the contract work and a small item for goods stolen or retained by the respondents.
Both parties had retained counsel as well as solicitors for the purpose of the proceedings. In addition to receiving lengthy oral and documentary evidence, both parties filed comprehensive written submissions dealing with the various issues raised in the proceedings. Essentially, the appellant builder maintained its entitlement to have terminated the contract based on the two grounds on which it had relied, namely, firstly a breach of the contract essentially because of a failure to pay the $27,000 progress claim, and, secondly, an asserted repudiation of the contract by the respondents essentially contained within the solicitor's letter of 17 September 2013. The builder's claim for compensation arose out of and was a consequence of its asserted right to terminate the contract. The respondents denied that the appellant was entitled to terminate the contract on either of the bases asserted by it. Their claim for compensation arose out of and was a consequence of the alleged wrongful termination of the contract by the appellant. Accordingly, the most fundamental matter for determination before the Tribunal was whether the appellant was entitled to terminate the contract on either of the bases asserted. Quantification of any claim for compensation was dependent upon the determination of this fundamental issue.
In her decision, the Senior Member focused attention on the claim for $27,000 made by way of progress claim on 4 June 2013, the non-payment of which formed part of the bases upon which the builder purported to terminate the contract. The Senior Member examined carefully the provisions of the building contract which stated that a claim for a progress payment had to be made in a particular form setting out a number of matters. Those included the value of the contract work performed at the date of the claim, the value and brief description of any variations included in the claim, other adjustments under the contract, and a reference to amounts previously paid. These required inclusions are included within the standard form contract for good sensible reasons. In particular, they enable the client of the builder to understand the progress claim made in the context of the overall contract price.
It is clear, as found by the Senior Member that the tax invoice did not comply with this requirement. However, none of the earlier progress claims made by the appellant was in the proper form, and yet they had been paid by the respondents. Indeed, no complaint was ever made by the respondents about the form of the invoice for this progress claim until after they had retained solicitors. In these circumstances, it may be concluded that the failure of the appellant to observe the provisions of the contract in terms of the form of the progress claim document did not contribute of itself to the breakdown of the relationship between the parties which culminated in the termination of the contract.
The Senior Member found that the progress claim for $27,000 was not validly issued and, therefore, that non-payment of it could not justify termination of the contract. The Senior Member then found that "possession of the site was returned to the owners by agreement between the parties." In her reasons for her decision, the Senior Member stated that she was: …satisfied that the builder's actions amounted to repudiation and that the owners, by taking possession of the site accepted the repudiation and elected to terminate the contract…… I find that the contract was wrongfully terminated on 20 October 2014 and that the purported termination was not in accordance with the terms of the contract, and that the owners accepted the builder's termination by taking possession of the site and employing third-party (sic) complete the contract works.
The Senior Member then considered what compensation should be paid to the respondents consequent upon the finding that the appellant had wrongfully terminated the contract.
We agree with the conclusion of the Senior Member that the appellant was not entitled to terminate the contract on the basis of non-payment of the $27,000 claim by way of progress payment. Because we are of the opinion that the appeal must be allowed for other reasons, it is not necessary that we discuss this aspect in any detail. We observe that in all the circumstances then pertaining to the contract and the building works being undertaken pursuant to it, the failure to pay the $27,000 invoice was not of itself of such a fundamental character as to constitute a breach by the respondents of their obligations under the contract which would justify termination by the appellant. (See the discussion of essential terms and "a sufficiently serious breach of a non-essential term" in the joint judgment of Gleeson CJ, Gummow, Heydon and Crennan JJ in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 at [49] and following). In effect, the respondents had said to the appellant that they were not going to make any further payments of any kind under the building contract because of the basic concern that the outstanding monies under the contract would not be sufficient to fund the completion of the building works. This was a motivating factor for the professed desire of the respondents as referred to in the letter from their solicitors dated 17 September 2014 to obtain alternative quotations for the completion of the work and to engage others to do so.
Whether and to what extent the appellant was entitled to insist on payment of the $27,000 progress claim depended, in our opinion, not so much on the form of the demand for payment but whether it complied with the provisions of schedule 2 which applies to progress payments. This states: Payments to be made at the rate of 95% of the value of the work performed at the date of the request for payment. Requests for payment are to be made every per month.
In order to determine whether the appellant was entitled to seek payment it is first necessary to understand what is meant by the expression "the value of the work performed." Does this mean the aggregate value of all progress claims, deposit and other monies paid to date under the contract, or does it mean an amount of money determined by reference to some valuation undertaken of the work completed to date, irrespective of claims made and monies paid? Fortunately, it is not necessary that we answer this question. However, we express concern that a form of building contract which is presumably in common use by consumers throughout New South Wales would contain language of this kind which is clearly ambiguous. Indeed, both parties in these appeal proceedings were represented by counsel having undoubted experience and expertise in building matters, and neither was able to assist us in providing any satisfactory explanation of the meaning of these words as used in this standard form of building contract. We note for completeness that the respondents appeared in the correspondence with the appellant to be asserting that it was the latter meaning which applied, whereas the appellant seems to have relied on the former.

An Appeal as of Right

The extensive written submissions provided by the parties dealt in some detail with the alternative basis upon which the appellant had relied in terminating the contract, namely the asserted repudiation of the contract by the respondents as contained in the letter from their solicitors dated 17 September 2013. Indeed, the Senior Member referred to this issue in her Decision when reciting the submissions made by the builder. However, this issue was neither considered nor resolved in the reasons for Decision. We agree with the submission of the appellant that the failure to deal with this issue which was a serious matter raised in the proceedings amounted to a failure to exercise discretion in determining the proceedings. It therefore constitutes an error of law, and the appellant is entitled by reason of section 80 of the Civil and Administrative Tribunal Act, 2013 to bring this appeal as of right. So much was conceded by counsel for the respondents.

Was there Repudiation by the Respondents?

We have previously set out in some detail the communications between the parties and their solicitors which culminated in the Notice of Termination issued by the appellant. The question for determination is, therefore, whether the respondents had repudiated the contract as asserted by the appellant by indicating an intention to terminate it and retain others to complete the building works.
There can be no doubt that the common law right of repudiation applies even though there may be concurrent rights of termination given under the provisions of the contract. This is a fundamental proposition of law and requires no elaboration. Counsel for the respondents did not contend to the contrary.
41Likewise, the principles to be applied in determining whether a party to a contract has evinced the requisite intention to repudiate it are also well-known. In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1988-1989) 166 CLR 623, Mason CJ in the High Court of Australia referred to the relevant principles as follows (at 633-4): It is evident that Connolly J., in reaching his conclusion upon this point, had in mind the observations of Fullagar J. in Carr v. J. A Berriman Pty. Ltd. [1953] HCA 31; (1953) 89 CLR 327 where his Honour said with reference to the facts of that case (at p 351): "It is in this state of affairs that the building owner announces that he has engaged another contractor to carry out a large part of the work comprised in the contract. A reasonable man could hardly draw any other inference than that the building owner does not intend to take the contract seriously, that he is prepared to carry out his part of the contract only if and when it suits him." Fullagar J. went on to say (at pp 351-352) that the intention evinced was "an intention not to be bound by the contract" and that, upon that intention being shown to exist, the other party was entitled to treat the contract as at an end. What his Honour said in this respect accords with later statements upon the topic by members of this Court. In Shevill v. Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, Gibbs C.J. stated (at pp 625-626) that: "... a contract may be repudiated if one party renounces his liabilities under it - if he evinces an intention no longer to be bound by the contract ... or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way ..." See also Progressive Mailing House Pty. Ltd. v. Tabali Pty. Ltd. [1985] HCA 14; (1985) 157 CLR 17, at pp 33, 40.
It is a fundamental aspect of the application of the common law principle of repudiation that the relevant communications between the parties are to be viewed objectively and without regard to any subjective intention which may have underlain the approach of either party. It is appropriate to refer to the judgment of Deane and Dawson JJ in the High Court of Australia in Laurinda, previously cited. At 657 their Honours said: Lord Wright's oft-quoted admonition that "repudiation of a contract is a serious matter, not to be lightly found or inferred" (Ross T. Smyth & Co. Ltd. v. T.D. Bailey, Son & Co. (1940) 3 All ER 60, at p 71) is, no doubt, a wise one. It should not, however, be allowed to cloud the fact that an allegation of repudiation of contract in a civil case does not involve an assertion that the alleged repudiator subjectively intended to repudiate his obligations. Thus, it is of little assistance in the present case to identify reasons why the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease. An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor's conduct "would be reasonably calculated to have upon a reasonable person" (per Lord Herschell L.C., Carswell v. Collard (1893) 20 R (HL) 47, at p 48; Forslind v. Bechely-Crundall (1922) SC (HL) 173, at p 190). It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.
What is required is an examination of the communications between the parties to ascertain whether there exists the requisite intention to repudiate the contract. An example of the necessity of examining very closely the precise nature of the communications is provided by the recent decision of the New South Wales Court of Appeal in Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16. Those proceedings concerned an agreement for the sale of assets of a business. Before completion of the sale, notification of a charge on some of the assets the subject of the sale was made by a third party. The purchaser forwarded a letter to the vendor stating that because of the claim for a charge which had been made, the purchaser "has no other choice than to issue you with a notice period to try to resolve the legal matter before we decide whether the Asset Sale Agreement is capable of completion". A period of 30 days was provided to allow the purchaser to resolve the legal complication. The letter went on to say that if at the end of that notice period the vendor had been unable to resolve the matter that the purchaser would have to terminate the sale agreement. A fundamental question for determination by the Court on appeal was whether that letter constituted a repudiation enabling the vendor to terminate the agreement and claim compensation for breach.
In his judgment, Barrett JA (Meagher JA and Gleeson JA agreeing on this point) said at [59] - [60]: The question whether PGI, by sending the letter of 23 January 2009, repudiated the assets sale agreement is to be answered by deciding whether its conduct was of the quality referred to by Gleeson CJ, Gummow, Heydon and Crennan JJ in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 at [44], that is, whether the conduct evinced "an unwillingness or an inability to render substantial performance of the contract" or "an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations". Such conduct may, it was said, be termed "renunciation". The test is "whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it". PGI's conduct was not of this quality. Its letter drew attention to the need for SCA "to resolve the legal matter that is causing uncertainty over the fact that Southern Cross does not seem to have an unqualified right to sell its assets to PGI". The statement in the letter's penultimate paragraph that PGI would "have to terminate the Asset Sale Agreement" did not manifest an intention to renounce the contract. Rather, it put SCA on notice that if at the end of the specified period, SCA had not resolved the "legal matter" regarding ownership of the subject assets, PGI would regard itself as in a position where the subject matter for which it had bargained (and which SCA had promised to give) could not be delivered to it. Taken as a whole, the letter evinced a desire and an intention to see the contract completed according to its terms - emphasising, however, that those terms contemplated the giving of clear and unclouded title by SCA and that it was for SCA to find within a reasonable time means of achieving this in the face of the clearly flagged claims by the liquidators of NMA.
The appellant in these proceedings sought to characterise the contents of the letter of 17 September 2013 as clearly evincing an intention by the respondents to terminate the contract. It said that the fact that there was an intention to engage other contractors and to terminate the contract was an anticipatory breach which the appellant was entitled to treat as a repudiation. Furthermore, the fact that the respondents were "presently seeking quotations" was indicative that they had already commenced that process. This constituted an actual breach rather than an anticipatory breach. The respondents maintained that the letter was not repudiatory because it merely expressed an intention to exercise a power under the contract. Secondly, they would have been entitled to exercise that power because the appellant was in breach. And, thirdly, even if they did not have such an entitlement, they genuinely thought that they had the right to terminate. These submissions were vehemently opposed by the appellant, because whatever the respondents may have thought was irrelevant. The matter had to be assessed objectively as established in the authorities which we have earlier referred to.

Consideration on the Repudiation Issue

Consistent with the principles to be found in the authorities which we have quoted above, we commence our consideration of this issue by examining the circumstances which prevailed at the time that the letter of 17 September 2013 was issued. We observe firstly that it was written by a solicitor, rather than by a layperson, and as such we must assume some workmanlike approach to the use of language and some care taken in the formulation of the contents of the letter.
Secondly, the surrounding factual circumstances are apparent from the contents of the communications between the parties leading up to the letters of 13 September and 17 September 2013. It will be remembered that the 17 September letter makes reference to the earlier letter of 13 September and the reasoning expressed therein. The 13 September letter referred to the fact that the disputation had not resolved and that the appellant was working on other building sites. The respondents had an incomplete development with no certainty of outcome in the foreseeable future, there had been considerable delay of 17 months since building work had commenced and a further three months were estimated to complete the project. Because the parties were "no longer at an equal bargaining position in respect to the dispute" the respondents were required to "take steps to mitigate their losses." The letter then referred to the "primary concern" of the respondents namely that the cost of completing the construction exceeded any monies remaining due to the appellant under the contract. The letter went on to state that if the appellant did not accept either option by 5pm on 17 September 2013 the respondents intended to serve a "Notice of Termination of Contract" under Clause 28(a)(ii) of the contract.
The appellant failed to respond to the letter of 13 September, and this failure clearly prompted the letter of 17 September. It was in this context, and by reference to the matters described in the 13 September letter including the fundamental concerns as to cost and time about the completion of the building works that the 17 September letter referred to a necessity for the respondents to "mitigate" their losses by means of the expressed intention to proceed to terminate the contract. It was for this purpose that the respondents were said to be: presently seeking quotations for the completion of the works. Upon receipt of an acceptable quotation, they will terminate the Contract and engage a new contractor to complete the works. We are not instructed as to when that will occur but we understand that those discussions are well underway…..
The professed course of action described by the respondents in the 17 September letter is to be contrasted with the course of action proposed by the purchaser in Protector Glass Industries referred to above. In those proceedings it was held that the purchaser had expressed an intention to embrace the contract and to see it completed "according to its terms" provided that the vendor was able to perform its obligations within a specified time period. In our opinion, viewed objectively by reference to its terms and in the context in which it was written, the 17 September letter manifested an intention to terminate the contract once the respondents had received quotations from others for the completion of the work. They had already embarked upon the process of obtaining those quotations. Termination of the contract was said to follow receipt of an acceptable quotation. The intention to terminate is not expressed in terms which were conditional upon anything other than the receipt of an acceptable quotation. Taken overall, the letter manifests an intention to no longer be bound by the contract with the appellant builder. This conclusion is reinforced by the tenor of the respondents' solicitor's letter of 26 September which is to the same effect.
The situation is not unlike that referred to by Fullagar J in Carr, extracted above.
We should add that in coming to this conclusion we are not unsympathetic to the concerns expressed by the respondents, and the circumstances in which they found themselves. Their concerns were exacerbated by the studious failure of the appellant to respond over a not inconsiderable period to the several letters issued by the respondents' solicitors. Nevertheless, as the situation evolved, they conducted themselves in a manner which may be characterised, as we have found, as engaging in repudiatory conduct, entitling the appellant to terminate the contract.
In written submissions filed 30 December 2015, the respondents submitted that the appellant was not justified in terminating the contract on the basis of the repudiation by the respondents, because it was itself in breach of the contract, as found by the Senior Member. In written submissions filed 2 February 2016 the appellant said that we should not receive these further submissions, because they were not within leave given for further submissions. However, the appellant responded to them on a without prejudice basis. Because, for reasons which will become apparent, we have found them to be of assistance, we intend to refer to them in expressing our reasons for upholding this appeal. The breach relied upon by the respondents was said to consist of the wrongful cessation of work and abandonment of the contract. In making this submission the respondents relied upon two principles.
The first basis was the observations of Dixon CJ in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25. The observations relied on were to the effect that a party to a contract may be dispensed from performing a condition by another party expressly or impliedly intimating that it was useless to perform that condition. Those proceedings arose out of a contract for the sale of oats, containing a condition relating to the shipment of the oats within a particular period. Difficulties arose in arranging the shipment. In the circumstances of those proceedings it was held that there was an intimation that the oats could not be shipped in accordance with the condition of the contract, thus relieving the purchaser of any obligation under it. We do not apprehend that there is any relevant analogous situation in the circumstances of these proceedings. The respondents' submission appears to assert that in some way the appellant had abandoned the site and ceased work, and this was presumably evidence of an intimation by the appellant that it did not require the respondents to adhere to the contract thereafter. We do not regard this submission as relevant to our determination of these proceedings because firstly it is not consistent with the facts as we have found them, and secondly the appellant does not appear to have represented to the respondents that they were entitled to walk away from the contract.
The second basis was that referred to in the joint judgment of Stephen, Mason and Jacobs JJ (Aickin J agreeing) in the High Court of Australia in DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12. The submission extracted the following from [24] of their Honours' judgment, to the following effect; ". A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach…." Presumably, the respondents were submitting that in some way the appellant had indicated that it was not prepared to perform the contract on its proper interpretation, a reference to the fact that the appellant had not submitted progress claims and in particular invoice 20 of 4 June 2013 in a form consistent with the provisions of the building contract.
Coincidentally, the factual situation in DTR is analogous to the facts in these proceedings. The appellant vendor had contracted to sell land to the respondents consisting of nine lots in a plan of subdivision which was annexed to the contract, showing a subdivision in all of 35 lots. It was a condition of the contract that the vendor would lodge the plan of subdivision for registration. As it transpired, the appellant decided to proceed with the subdivision in two stages. The first stage was to subdivide off the nine lots being sold, and the second stage would deal with the remaining lots. Upon registration of the plan for the subdivision of the nine lots being sold the appellant asked the respondents to settle the purchase. They declined, on the basis that the plan annexed to the contract anticipated a subdivision in all of 35 lots, and this is not what had occurred. The respondents sought to rescind the contract on the ground that the plan which was registered was not contemplated by the contract and this constituted a repudiation by the appellant of the contract. At all times, the appellant was under the impression that it was sufficient compliance with the contract to proceed on the two-stage basis on which it had embarked. The appellant asserted that the purported rescission by the respondents was a wrongful repudiation of the contract and that it was entitled to terminate the contract and claim damages.
In determining whether the respondents were entitled to rescind, the plurality said that their case was to be considered on the basis that it was one of rescission for repudiation and renunciation for anticipatory breach. They said; 20. The relevant question therefore is whether the events which we have recounted evidence an intention on the part of the appellant to repudiate or renounce the contract or more precisely whether such an intention is to be inferred from those events. 21. For the respondents it was submitted that such an intention should be inferred from the appellant's continued adherence to an incorrect interpretation of the contract. It was urged that the appellant, because it was acting on an erroneous view, was not willing to perform the contract according to its terms. No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. As Pearson L.J. observed in Sweet & Maxwell Ltd. v. Universal News Services Ltd. (1964) 2 QB 699, at p 734 : "In the last resort, if the parties cannot agree, the true construction will have to be determined by the court. A party should not too readily be found to have refused to perform the agreement by contentious observations in the course of discussions or arguments..." (at p432) 22. In this case the appellant acted on its view of the contract without realizing that the respondents were insisting upon a different view until such time as they purported to rescind. It was not a case in which any attempt was made to persuade the appellant of the error of its ways or indeed to give it any opportunity to reconsider its position in the light of an assertion of the correct interpretation. There is therefore no basis on which one can infer that the appellant was persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement. 23. …… on the evidence this Court would not be justified in finding that the appellant acted otherwise than in accordance with a bona fide belief as to the correctness of the interpretation which it sought to place upon the contract. Consequently it is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear (see Asprey J.A. in Satellite Estate Pty. Ltd. v. Jaquet (1968) 71 SR (NSW) 126, at p 149 ). In these circumstances the Court is not justified in drawing an inference that the appellant intended not to perform the contract according to its terms or that it repudiated the contract. That being so, the respondents were not entitled to rescind the contract for "anticipatory breach" as they purported to do by their notice of 19th July 1974. (at p433)
We would apply the reasoning in DTR Nominees to the circumstances of these proceedings. At all times the appellant issued claims for progress payments in a form which did not comply with the provisions of the building contract. There is no suggestion on the evidence of which we are aware that the appellant knew that the form of the claims was incorrect. Certainly, no point was ever taken by the respondents that the forms were incorrect until after they had engaged solicitors, and after the final controversial progress claim had been made. In the circumstances, applying the approach of the High Court by way of analogy we would not be justified in drawing an inference that by making the claim in the form that it did the appellant intended not to perform the contract according to its terms or that it repudiated the contract. Such a conclusion is contrary to the decision under appeal and contrary to the submissions of the respondents.
We repeat the conclusion which we have earlier set out that the appellant at no stage indicated that it was not prepared to complete the building works under the contract until its solicitor had served the notice of termination on the respondents. The correspondence and communications between the parties which we have earlier set out and summarised is indicative that the appellant wanted to complete the building works, but was also anxious to ensure that monies which it asserted were properly payable to it by way of progress claims and variations were paid by the respondents. The correspondence between the solicitors is indicative of detailed and comprehensive negotiations concerning many points of contention, including offers by both parties to compromise their circumstances.
For all these reasons we conclude that the appellant was entitled to terminate the contract when it did so by notice dated 20 October 2013. It follows that in these circumstances the appellant is entitled to claim compensation from the respondents, and the respondents have no entitlement to the compensation awarded in their favour in the Decision under appeal.

Consequences of a Finding of Termination by the Appellant Based on Repudiation

Because of the conclusion which we have reached to the effect that the appellant was entitled to terminate the contract by reason of the repudiation by the respondents, it follows that orders made in the Decision under appeal that the appellant pay monies to the respondent should be quashed. However, the appellant will be entitled to consequential orders for the payment of monies to it by the respondents.
In her decision, the Senior Member found that the respondents owed the appellant under the contract the sum of $74,800. This amount includes the outstanding claim of $27,000 and an amount claimed for variations. In any event, there is no appeal before us from this finding.
In written submissions filed on 18 December 2015, the appellant claimed compensation totalling $89,972.40.
In their submissions in reply filed 30 December 2015 the respondents appear to be in agreement that the relevant amounts to be considered as found by the Senior Member are as follows; unpaid progress claim no 20 $27,000 unpaid variation claims $35,333.74 loss of builder's profit of 20% on amount not yet paid on balance of contract $75,862, $15,172.
The bases for these amounts are found in [81] of the Decision which identifies $75862 as being the balance which would be payable for building works not yet undertaken, upon which the 20% loss of profits claim has been claimed, in [82] which finds that the variation of $27000 was not to be included within the $75862 and in [84] which finds that $35333.74 is owing for prior variations.
[85] awards 20% loss of profits on the amount of $62333.15, namely, $12466. The amount of $62333.15 approximates the aggregate of all variation claims. The respondents assert (and the appellant denies) that there is included within this sum an amount for builder's profit of 20% and that this sum of $12466 should not be payable by the respondents as this would involve double counting. The respondents say (and the appellant denies) that the sum of $89972.40 now claimed by the appellant includes this amount of $12466 and clearly involves double counting of the appellant's builder's profit contained within these additional items, and should be disallowed. This remains an outstanding unresolved issue. (However, the sum of $15172 is clearly payable).
We were not taken in detail to the substance and contents of the variation claims, and whether they include an element of builder's profit. As the proceedings will need to be remitted back to the Senior Member in any event, this is a matter which can be determined by reference to the underlying documentation on further hearing.
As properly conceded by counsel for the appellant, it will be necessary for the Tribunal to deal with allegations made by the respondents that certain parts of the work carried out by the appellant were defective, and that the respondents should be compensated accordingly. As was also conceded, there is simply no or insufficient information or evidence available to us within the almost 1,500 pages of appeal papers that would enable us to make any appropriate determination as to whether there was such defective work as alleged, and if so, what allowance should be made in favour of the respondents to properly compensate them.
In all the circumstances, there seems to be no alternative other than to remit the matter back to the Senior Member for determination of these outstanding issues, (unless the parties can reach sensible agreement about them) together with any application for the payment of costs consequent upon the findings which we have made. Contemporaneously, orders can be made which will reflect the findings which we have made, our conclusions as to the disposal of the appeal and consequential orders for the payment of compensation.

Orders

We make the following orders: 1. The appeal is upheld. 2. The orders made in the Decision under appeal are quashed. 3. The proceedings are remitted to the Senior Member for the purpose of determining consequential orders for the payment of compensation and costs consequent upon our determination that the appellant was entitled to terminate the building contract between the parties by way of notice given dated 20 October 2013.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 February 2016

At a glance

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Judgment (13 paragraphs)

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Cases Cited (10)

Cited By (1)