Meaning of validly terminated - validity of Notice of Intention to Terminate - default under Master Builders Residential Contract - due diligence - defective work - financial capacity - termination of contract at common law - repudiation and discharge of contract

Section 86(1) Queensland Building Services Authority Act 1991

ThunderCorp Pty Ltd represented by Karen Schwede, Lawyers Qld

Queensland Building Services Authority represented by Mardee Campbell , Acting Principal Legal Officer

[1] The applicant seeks to review a decision of the respondent, Queensland Building Services Authority (QBSA), made on 19 March, 2008 arising out of building work performed by the applicant at 57 Carew Street, Nundah (the Works). The application for review was filed in the former Commercial and Consumer Tribunal on 17 September 2008.

[2] On 14 April 2010 it was directed that this Tribunal decide on the papers the question: "Was the decision of the Queensland Building Services Authority to accept that the domestic building contract had been validly terminated by the owner, Mr Richard Chester, correct?"

[3] Other aspects of the application to review the respondent's decision, in relation to the scope of work to be performed to complete the Works, will be dealt with after this question has been answered. It should also be noted that the applicant has other applications on foot to review decisions arising out of the Works. In particular, Application No. QR 175-08 seeks to review a decision of the respondent, dated 4 July 2008 in relation to the scope of work to be undertaken under the statutory insurance scheme to rectify or complete tribunal work and a determination as to whether items identified in a Direction to Rectify are incomplete work or defective work.

[4] Both the applicant and respondent have filed written submissions in relation to the question before me. I have had reference to those submissions and to the respondent's amended statement of reasons filed 7 September 2009, the statement of Richard Chester, filed 17 December 2009, the statement of Rebecca McCall, filed 17 December 2009, the statement of Peter Wright, filed 17 December 2009, the Statement of Raimo Huttunen, filed 17 December 2009, the statement of Mark Spinelli, filed 17 November 2009, the statement of Eddy Healy, filed 17 November 2009, the statement of Christopher Robert, filed 17 November 2009, the statement of Jeffrey Hills, filed 17 November 2009 and the statement of Matthew Hadad, filed 17 November 2009.

[5] Unless otherwise indicated, I accept the evidence given in the various statements as to the following facts.

[6] Mr. Richard Chester, the owner of a property at 57 Carew Street, Nundah, Queensland entered into a Master Builders Residential Contract, dated 10 November 2006, with a builder Thunder Corp Pty Ltd for the performance of building work at the property for a price of $31,000.00. The builder's representative was Mr Matthew Hadad_._

[7] Building work commenced on 30 January 2007. The contract provided for a construction period of 110 days. Annexure 1 to the contract (said to take precedence) provided for "start within 3 weeks of contract sign and completion 22 weeks or uninterrupted construction time".

[8] The owner was in occupation of the house at the time of commencement of work until the end of March 2007.

[9] Drainage approval was not obtained by the owner until April 2007. Little work was performed prior to April 2007. This affected the originally planned sequence of works.

[10] On 3 July, Mr Hadad advised the owner in writing of a time estimate for the works, with Practical Completion to occur on 10 October 2007. No formal complaint appears to have been made about this time estimate at the time it was given.

[11] During the period August 2007 to December 2007 there was consistent rainfall which affected the progress of the works, in particular the steepness of the site made access difficult as a result of the rain. Mr Hill's statement attaches Bureau of Meteorology rainfall records which indicate that during the period May to December 2007, rainfall occurred on 63 days. During the period 16 August to 30 December 2007 there were 45 days where it rained. This left only 47 working days during that four and a half month period where it did not rain.

[12] A building boom taking place at the time made it difficult to engage tradesmen in a timely way.

[13] Variations were requested by the owner, including an additional concrete patio slab, additional stumping, a block and blanket variation and additional bathroom plumbing.

[14] On 9 October 2007 the applicant informed the owner that the estimated completion time was a further 37 days, and that taking into account delays, the contract was 16 days behind as at 9 October 2007. No formal complaint was made about the time estimate at the time it was given.

[15] On 9 October 2007 the builder sent the owner a progress claim for $28,128.00 in accordance with a new payment schedule, including the costs of additional work to the bathroom and under roof blanket.

[16] By email dated 15 October 2001, the owner sent the applicant a list of "Defects, Omissions or Concerns".

[17] On 22 October 2007 the applicant notified the owner of a suspension of work due to non payment of a $28,128.00 progress claim. The owner paid the sum of $28,000.00 on 30 October 2007.

[18] The owner states that he does not recall the builder returning to site from then on, however, as at 12 November 2007 a revised layout for the external and internal stairs was received by Mr Hadad from the owner and he notified the owner of rain preventing site access. During November the owner and Mr Hadad were discussing an engineer's inspection of the footings and that was being attended to. It is also apparent that in December, Mr Hadad met the carpenter Mr Spinelli on site to discuss future work and that he met the foreman and skilled labourer, Mr Robert on site and arranged for them to commence work in January 2008. In December 2007 the concreter was booked to re-commence in January 2008.

[19] Mr Hadad advised the owner in early December 2007 that he had booked tradesmen to perform work in January. That is supported by the statements of Mr Spinelli, Mr Healy and Mr Robert. Mr Hadad advised the owner that he was taking 4 weeks leave from the Christmas/New Year period and that trades and suppliers all stop work over that period.

[20] On 6 December 2007 the owner emailed Mr Hadad making complaint about delays and requesting an answer by Sunday, 9 December 2007 as to Mr Hadad's intentions in relation to fulfilling the contract. He attached the document headed "Defects Omissions or Concerns".

[21] The builder and the owner exchanged proposals in relation to completion of the contract outside the contract's terms on 10 and 11 December 2007. Neither proposal was accepted.

[22] In an email sent on 10 December 2007 Mr Hadad told the owner that "projected completion is now around mid March".

[23] Mr Hadad went on Christmas holiday. He told the owner he was going on holiday, although it is not clear exactly when he told him or when he left for his holiday.

[24] On 19 December 2007 the owner forwarded to the applicant, by facsimile transmission a Notice of Intention to Terminate contract and attached the list of Defects, Omissions and Concerns.

[25] The owner made several attempts to deliver the Notice of Intention to Terminate, including emailing the applicant and sending the notice to Mr Hadad's father's business address.

[26] Despite this the applicant says that the Notice of Intention to Terminate did not come to his attention until after his return from holiday in January 2008. By then the time frames set by the owner had expired.

[27] On reading the 19 December 2007 fax, Mr Hadad says that he did not think the applicant was in breach of the contract.

[28] Mr Hadad says he assumed the owner had engaged another builder. Mr Hadad asserts the owner had threatened to do so in a number of earlier conversations between them. (This is denied by the owner and I make no finding in this regard.)

[29] Mr Hadad did not contact the owner, but instead cancelled the tradesmen he had booked and treated the contract as at an end.

[30] On 14 February 2008 the respondent informed the applicant that a complaint had been received from the owner. Changed postal and contact details were provided to the respondent on 15 February 2008.

[31] The respondent subsequently sent notice of a site inspection to the builder at a wrong address and it was not received.

[32] Mr Huttunen, of the respondent attended a site inspection with the owner and prepared a report, dated 25 February 2008. I make no findings in relation to the contents of the report but note that it concluded:

• the owner has provided a comprehensive list of works that he considers defective or incomplete. However this work cannot be said to be defective in that it is still in the process of construction and most areas are constructed to industry standards.
• 95% of frame stage.
• licensee appears to have abandoned the work prior to the owner termination of the contract.
• recommendation: file to insurance for assessment as licensee is bankrupt see folio text.
• obvious defects

1. control joints to blockwork not to engineers drawings.

2. footing at left hand side of entry too high by one block.

[33] On 29 February 2008 the respondent informed the applicant a claim under the QBSA's statutory home warranty insurance scheme for completion or rectification of defective building work was being considered.

[34] Mr Hadad appears not to have responded to this letter.

[35] Mr Hadad received in the post sometime after 17 March 2008, a Notice of Termination of Contract, from the owner, dated 17 March 2008. The owner has not referred to this Notice and only attaches a notice dated 12 February 2008 to his statement, which he attempted to deliver to Mr Hadad, apparently unsuccessfully.

[36] On 19 March 2008 the respondent advised the applicant that it had decided the contract between the applicant and the owner had been validly terminated having the consequence of allowing an insurance claim for non-completion under the Statutory Insurance Scheme.

[37] At the request of the respondent, Peter Wright, Professional Engineer of Hughes Beale & Wright Pty Ltd, provided 2 reports dated 14 May 2008 and 31 July 2008 respectively which gave rise to a Direction to Rectify and/or Complete by the respondent to the applicant.

"15.1 Builder's entitlement to extensions of time

If the progress of the Works is delayed as a result of

(e) inclement weather or any condition arising as a result of inclement weather

(f) any act, default or omission on the part of the Owner...

(g) any suspension of the Works under this Contract; or

(h) any other cause beyond the reasonable control of the Builder

The Builder may within a reasonable time, claim a reasonable extension of the Date for Practical Completion equal to the period of the delay.

15.2 Extensions for delays which have been allowed

Where the reason for the delay has been allowed for by the Builder in Part C of the Appendix to the Schedule, the Builder is only entitled to an extension of the Date for Practical Completion to the extent that the length of the delay exceeds the Builder's allowance.

15.3 Date for Practical Completion deemed to be extended if Owner fails to reject or dispute Builder's Claim

If the Owner does not notify the Builder in writing and reject or dispute the claim within seven(7) days after receipt, the Date for Practical Completion is deemed to be automatically extended by the period stated in the claim.

15.4 If Owner rejects or disputes Builder's claim

If the Owner serves a written notice upon the Builder disputing or rejecting the Builder's claim the Builder is still entitled to a fair and reasonable extension of time of the Date of Practical Completion.

18.1 Owner's entitlement to liquidated damages

If the Builder fails to bring the Works to Practical Completion by the Date for Practical Completion the Builder must pay or allow to the Owner liquidated damages at the rate stated in Item 18 of the Schedule for the period commencing from the Date for Practical Completion and ending on the day the Works reach Practical Completion, or the date the Owner takes Possession whichever is earlier.

Liquidated Damages for each Day of delay in achieving Practical Completion $10 per day

1. Start - within 3 weeks of contract sign
2. Completion - 22 weeks or uninterrupted construction time...

1. Inclement weather
2. For every day of late payment this time to be added to overall construction time
3. Any situation beyond builders control
4. Public holidays, Saturdays
5. 4 week end year break

20.1 Owner's right to serve notice of intention to terminate contract

(a) Fails to proceed with the Works with due diligence or in a competent manner;

(b) ...

(c) Refuses or persistently neglects to remove or remedy defective work or improper materials, so that the Works are adversely affected

(d) Is unable or unwilling to complete the Works or abandons the Contract...

The Owner may give a written notice to the Builder

(i) Describing the alledged (sic) breach or breaches of the Contract by the Builder, and

(ii) Stating the Owner's intention to terminate the Contract unless the Builder remedies the alledged (sic) breach or breaches within a ten (10) Days after receiving the Owner's notice.

20.2 If Builder fails to remedy breach, Owner may terminate contract

If the Builder fails to remedy the breach or breaches stated in any notice served by the Owner under Clause 20.1, the Owner may, without prejudice to any other rights or remedies, terminate this contract by further written notice to the Builder, provided that such notice of termination shall not be given unreasonably or vexatiously and, if so given then any such notice of termination shall be null and void and of no force or effect.

20.3 Owner may not terminate contract in certain circumstances

The Owner may not terminate this contract if the Owner is in substantial breach of this contract.

[39] This is an existing proceeding, commenced before the former Commercial and Consumer Tribunal. Pursuant to section 271 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act), this Tribunal has the functions of the former Tribunal and may only make a decision the former Tribunal could have made.

[40] Under section 104 of the Commercial and Consumer Tribunal Act 2003, that Tribunal could on an application for review:

• (a) confirm the decision being reviewed; or

• (b) set aside the decision and substitute another decision; or

• (c) set aside the decision and return the matter to the State agency that made the decision with directions that the tribunal considers appropriate.

[41] The jurisdiction of the Commercial and Consumer Tribunal, and of this Tribunal to exercise those powers with respect to the decision in question, derives from section 86 (1) of the Queensland Building Services Authority Act 1991, which at the relevant time provided that the Tribunal may review "a decision that a domestic building contract has been validly terminated having the consequence of allowing a claim for non-completion under the statutory insurance scheme".

[42] Section 71(1) of the QBSA Act provides that if the QBSA makes any payment on a claim under the insurance scheme, the Authority may recover the amount of the payment as a debt from the building contractor by whom the relevant residential construction work was carried out.

[43] The relevant Insurance Policy Conditions are in Edition 7, effective 29 September 2006. The Policy Conditions state that subject to the terms of the policy the QBSA will pay for loss for non-completion and defective construction. Part 1 of the Policy Conditions relates to "non-completion". The relevant clauses are:

Subject to the terms of this Policy, BSA agrees to pay for loss suffered by the Insured in the event of the contractor failing to complete the contract for the residential construction work.

(a) BSA is only liable to pay for loss under this Part when the contract is for a fixed price and the Insured has properly terminated the contract with the contractor.

(b) In this policy "properly" means lawfully under the contract or otherwise at law, upon the contractor's default ..."

[44] The relevant part of the decision made on 19 March 2008, by the QBSA which is the subject of review is that "a domestic building contract has been validly terminated having the consequence of allowing a claim for non completion under the statutory insurance scheme ...".

[45] It is apparent that the terms of the policy and the terms of section 86(1) of the QBSA Act are different in the way they each qualify the termination of the contract. Section 86(1) requires an enquiry as to whether the contract has been "validly" terminated. The Policy which is to be engaged on a finding of valid termination of the contract, requires that the contract has been "properly" terminated. "Properly" is defined to mean "lawfully under the contract or otherwise at law, upon the contractor's default".

[46] In my view, for the contract to have been "validly" terminated with the consequence of allowing a claim for non-completion under the statutory insurance scheme, the contract must have been "properly" (as defined) terminated for the consequence to flow.

[47] Accordingly the enquiry which this Tribunal must make in exercising its jurisdiction and answering the question set for it, is whether the contract has been "properly" terminated within the scope of that definition in the policy.

[48] Member Lohrisch in Karsikas, R. v Queensland Building Services Authority[1] came to the same conclusion when considering the wording of the termination of contact clause in Edition 6 of the Insurance Policy, which is the same wording as appears in Edition 7, under consideration here.

[49] The analysis that this Tribunal must undertake is to consider:

• (a) whether the applicant is in default under the contract;

• (b) whether in light of any default by the applicant, the owner has followed the contract termination provisions to lawfully terminate the contract; or alternatively

• (c) whether in light of any default by the applicant, the owner has lawfully terminated the contract in accordance with the common law.

[50] The respondent submits that the applicant was in breach of the terms of the contract, in that:

• (a) the contract works were due to be completed by 20 May 2007, but were not complete and had in fact ceased without completion as at 20 November 2007, some 294 days after the works had commenced;

• (b) the applicant was on notice from 6 December 2007 of the owner's concerns, prior to the issue of the Notice of Intention to Terminate and failed to take any action in this regard;

• (c) although the contract provides for a "4 week end year break", that term should be deemed void for uncertainty. When purporting to take the break the applicant failed to provide any notification, written or otherwise, to the owner to indicate to the owner when he should reasonably expect the applicant to be continuing the works under the contract;

• (d) when receiving the Notice of Intention to Terminate, the applicant accepted the contract was at an end based on an assumption that the owner had engaged another contractor. This was not the case and in the circumstances, the applicant abandoned the contract.

[51] The respondent says that it is under no obligation to consider any other information or make investigations in relation to the circumstances of an alleged contract termination. This assertion is based on the submission that both parties are afforded natural justice and procedural fairness in that, should either party disagree with the decision, they are at liberty to apply to the Tribunal for a review of the decision.

[52] Finally the respondent says that the Notice of Termination was sent to the last known address of the applicant. It submits that the applicant has a positive obligation to update its contact details with the Authority and other relevant organisations should they change and cannot claim to have not received the owner's notices, especially in light of the Authority's submissions that by 12 February 2008, the applicant has abandoned the contract.

[53] The applicant submits that the respondent and the owner have not in their statements, rebutted the applicant's detailed account of events as outlined in Mr Hadad's statement and Mr Hill's statement.

[54] The applicant says that:

• (a) the owner did not properly terminate the contract;

• (b) the owner repudiated the building contract by conduct demonstrating an unwillingness to be bound by its terms and the builder accepted that repudiation in January 2008;

• (c) the Notice of Intention to Terminate served by the owner dated 19 December 2007 was ineffective because:

  • the builder was not in breach at the time;

  • the owner knew that the builder would not receive the notice because he was away on Christmas holidays;

  • the owner knew that it was impossible to remedy the alleged breaches in the time permitted by the owner;

• (d) the breaches alleged by the owner in the Notice are not supported by the contract or the evidence;

• (e) on the basis that the owner's Notice of Intention to Terminate, dated 19 December 2007 was not valid, the owner's two Notices to Terminate (one bearing a date in February and the other in March 2008) are ineffective because:

  • a Notice of Termination served under the contract is dependent on a valid Notice of Intention to Terminate having first been served; and

  • in any event the contract had been terminated by the builder in January 2008 on the basis of the repudiatory conduct of the owner and the contract could only be terminated once.

[55] In response to the respondent's submissions that the applicant failed to progress the works with due diligence, the applicant says that it proceeded with due diligence and had not abandoned the work, in particular:

• (a) this issue is addressed in Mr. Hadad's and Mr. Hill's statements with respect to reasons for delay including the weather, the owner residing in the house, the owner failing to obtain approvals, the owner changing plans, the owner making unreasonable demands, the owner alleging defective work when the work had not been completed, the owner failing to make a progress payment on time leading to suspension of works;

• (b) the evidence does not support the owner's allegation that the builder did not proceed with due diligence and that the builder abandoned the work;

• (c) the BSA relied solely on the owner's allegation;

• (d) the owner was aware that the builder was simply on a break over Christmas and the owner (being an architect) knew that even if the builder himself was not on holidays, it was impossible to remedy the alleged breaches within the time he allowed because the building industry is shut down over the Christmas New Year period. The respondent itself closes every Christmas New Year period as evidenced by its own website and the building industry shutdown is well known to the public at large;

• (e) the contract term as to a 4 week break was clear and binding. Mr Hadad was entitled to do what he did when he advised Mr Chester that he was going on holidays and then went on holidays;

• (f) the owner set an impossible task for the builder and then relied on it to purportedly terminate the contract;

• (g) the owner has not rebutted Mr Hadad's evidence that he told the owner in December 2007 that he was going on holidays for 4 weeks over Christmas New Year and that he had trades lined up to work in January 2008.

[56] The applicant further says that the respondent's submission that it abandoned the contract in January 2009 "enabling the owner to terminate the contract" is flawed for 3 reasons:

• Mr. Hadad identified 15 reasons in his statement at paragraph 51 as to why the owner had "decided to take advantage of me being away to try to terminate the contract", being:

  • (1) the owner knew he was away on holidays when he served the notice;

  • (2) the owner could have given him more than 10 working days but he didn't;

  • (3) the owner knew that even if Mr Hadad wasn't on holidays, he couldn't do anything about the so called breaches over the Christmas/New Year period as trades were away and factories were closed;

  • (4) the owner knew all the reasons why the work was not yet complete and that he was not responsible for the delays;

  • (5) the owner knew because Mr Hadad told him that the windows had been ordered and would be delivered in January 2008;

  • (6) the owner knew Mr Hadad could not control the window manufacturer and could not have the windows made within the time he had stated in his Notice;

  • (7) the owner knew, because Mr Hadad told him, that the items on his list called "Defects, omissions or concerns" would all be dealt with before practical completion;

  • (8) the owner knew Mr Hadad's suggestion that he pay the window manufacturer direct was because he wanted them before Christmas even though there was no contractual obligation for them to be delivered before Christmas and there were no trades available to install them anyway;

  • (9) the owner knew or ought to have known that he had no legal right to ask Mr Hadad to demonstrate to him that he had the ability to pay for the windows and to complete the work under the contract;

  • (10) prior to Christmas break, the owner was abusive, disrespectful and rude when he spoke to Mr Hadad and the relationship had broken down;

  • (11) in his email of 6 December 2007, Mr Chester had conveyed his view that Mr Hadad was a liar and incompetent;

  • (12) the owner had corresponded with him about finalising the contract on 10 and 11 December 2007, but without success;

  • (13) since November 2007 the owner had told him he was speaking with other builders about having them complete the work and he even provided Mr Hadad with a copy of a quote to prove it;

  • (14) the time in the 19 December Notice had already expired; and

  • (15) although there was nothing else from the owner after the 19 December Notice, Mr Hadad thought he had gone ahead and engaged another builder otherwise why send the Notice saying he was in breach while he was away. Mr Hadad accepted the owner's conduct was such that the contract was at an end and Mr Hadad contacted trades to inform them not to return to the site. Mr Hadad says he never heard from the owner again until March 2008.

[57] Finally, the applicant submits that the respondent did not afford it an opportunity to respond to the allegations by the owner before a decision was made. It submits that it is a denial of natural justice and procedural fairness for the respondent to only inform the applicant of its decision after it has been made particularly when the financial consequences are potentially catastrophic for the applicant who faces either a $200,000.00 debt to the respondent or substantial legal costs in applying to the Tribunal for a review of the decision.

[58] In relation to the respondent's submissions as to the applicant's address, Mr Hadad says that as the contract had already been terminated by the applicant in January 2008, the conduct of the owner thereafter is of no consequence. He says that he was at all times contactable on his mobile phone.

Was the applicant in default under the contract?

[59] The Notice of Intention to Terminate, dated 19 December 2007, particularises breaches of the contract by the applicant as:

• (a) failing to proceed with the works with due diligence, giving as evidence, the date for practical completion being July 2007. The owner required by way of remedy that the windows be installed within 10 days and the remaining works be scheduled to bring them to Practical Completion within a reasonable time;

• (b) failing to have notified defects and omissions rectified by trades as they returned to site. The owner required an attached list of defective or incomplete works to be rectified within 10 days; and

• (c) the applicant requesting an advance by the owner of moneys to enable it to order and pay for windows and installation of the windows, when there was no contractual obligation for the owner to make such an advance. By way of remedy for this alleged breach the owner required the applicant to demonstrate financial capacity to complete the works within 10 days.

[60] The Notice of Termination of Contract, dated 12 February 2008 and the later notice, dated 17 March 2008 relied on failure by the applicant to remedy the breaches particularised in the Notice of Intention to Terminate Contract, dated 19 December 2007.

[61] I will deal with each of the alleged breaches of the contract to determine if there was a default on the part of the applicant which justified the issue of the Notice of Intention to Terminate.

Failing to proceed with the works with due diligence

[62] A number of clauses of the contract deal with progress of the Works, including clause 15 and annexure 1 to the contract which are set out above.

[63] I accept the applicant's submission that the owner has not rebutted Mr Hadad's assertions in relation to the reasons for delay to the contract works. I accept Mr Hadad's evidence and the evidence of Mr Hills and find that the contract works were mainly delayed because of:

• (a) drainage approval not being obtained until April 2007, meaning that little work was performed prior to April 2007 and this affected the originally planned sequence of works creating a particular problem in accessing tradesmen during a time of building boom;

• (b) there was consistent rainfall which affected progress of the works and access to the site;

• (c) variations to the contract works were required by the owner which altered the time for completion; and

• (d) the Works were suspended for a time through non payment of a progress payment.

[64] Clause 15 of the contract enables the builder to claim an extension of the Date for Practical Completion, equal to the period of delay. The applicant did so on 3 July 2007, extending the time for Practical Completion to 10 October 2007. The owner did not complain and follow the process set out in clause 15.3 of the contract with the result that the contract was automatically extended until 10 October 2007. The applicant again gave written notice on 9 October 2007, of an estimated completion time of 37 days from that date. Again no challenge was made to the claim, although a question was raised as to the number of days said to have been days delayed. The matter was not taken further upon the applicant's response in an email dated 11 October 2007, with the result that the date for Practical Completion was extended from 10 October 2007 for a further 37 days. This would give a date of 29 November 2007.

[65] On 10 December 2007, the applicant notified the owner in writing that the "projected completion is now around mid March". This notification formed part of a discussion as to how the Works might best be completed and does not have the character of a formal claim for extension of time. Nevertheless the rain experienced in November and December and the 4 week end year break notified in the contract annexure as a ground for delay would enable the applicant to seek an extension of time equivalent to the period of the delay.

[66] In view of the owner's failure to object to extensions of the date for Practical Completion I do not think the owner can establish any lack of due diligence prior to 29 November 2007.

[67] The question is whether the failure to reach Practical Completion by the end of November 2007 in circumstances where a further extension could reasonably be sought in light of the weather and the 4 week end year break, amount to lack of due diligence in attending to the Works so as to put the applicant in default under the contract?

[68] The contract contains no warranty on the part of the builder that it will conduct the works with due diligence. There is no express obligation on it to do so under the contract. The Domestic Building Contracts Act 2000 (Qld) does not impose a statutory obligation to do so for a contract of this type. However, clause 20 of the contract gives the owner a right to terminate the contract, if the builder does not remedy a notified failure to proceed with the Works with due diligence. This raises questions as to the meaning of the words "due diligence" in clause 20.1 of the contract and whether there is an implied term in the contract for the applicant to execute the contract works with due diligence.

[69] Although the contract does not expressly require due diligence in the progress of the contract works, it does promote the orderly progress of the Works by setting a date for Practical Completion, by giving a means for extending that date and a right to object to that extension. Further, it imposes liquidated damages in the event the date for Practical Completion is not met.

[70] In Greater London Council v Cleveland Bridge & Engineering Co Ltd[2] the contractor was engaged to manufacture and install gate arms for the Thames Barrier. There were key completion dates, but no express obligation on the contractor to act with due diligence. The contract provided that the proprietor was entitled to terminate the contract if the contractor neglected to execute the works with due diligence, after giving notice of its intention to do so. Staughton J in the Commercial Court held that there was no implied term of due diligence, even though the neglect to execute the works with due diligence entitled the proprietor under the contract to discharge the contract. Moreover, if there was a term of due diligence, then it must be interpreted in the light of other obligations as to time in the contract, and would have been an obligation on the contactor to execute the works "with such diligence and expedition as were reasonably required in order to meet the key dates and completion dates in the contract".

[71] In an article entitled "Due Diligence and Expedition Terms in Building Contracts - Obligations and Issues", George Govan QC discussed the Cleveland Bridge case and consistent with the decision in that case said:

"In my opinion, the proper interpretation of the phrase "due diligence" in the context of building contracts disregards the personal characteristics of the builder. The only relevant consideration is whether the works have fallen behind what would reasonably be expected to be done to enable completion by the completion date, as adjusted from time to time. In other words, the term relates to delays in progress during the course of construction which will prevent the works from being completed by the completion date, not due to causes which would entitle the builder to obtain an extension of time under the contract, even if those causes are beyond the control of a conscientious builder."[3]

[72] I agree with this analysis and think that the correct enquiry in this case is whether the Works have fallen behind what would reasonably be expected to be done by the end of November 2007 taking into account delays which would entitle the applicant to further extend time for Practical Completion.

[73] From the statement of Jeffery Hills, I note that in the period 19 October 2007 to 28 November 2007 there were 20 days of rain. I accept the evidence of Mr Hills that "the progress of the works was significantly slowed by the rain".

[74] On this basis I find neither the owner nor the respondent have shown that there was a lack of due diligence on the part of the applicant in the period to the last extended date for Practical Completion at the end of November 2007.

[75] As to the period after November 2007 I note that there was significant rainfall during December and the applicant took a four week break. The four week year end break is noted in the contract as a reason for delay. It is true as the respondent submits that there is no reference to when the break will commence and how the commencement of the break will be agreed. It is said the applicant failed to tell the owner when the works would continue after the break. For these reasons it is said the provision in the contract as to the 4 week break is void for uncertainty. I disagree. I accept the evidence of the applicant that he had organised a carpenter to commence work on 7 January 2008 and concreters to return in January 2008. I accept the evidence of the applicant that he told the owner he would be taking a 4 week break over the Christmas/New Year period and that all trades and suppliers stop work at that time so that it was impossible to have work performed in the period. The owner does not rebut this evidence in his statement.

[76] I also accept the submissions of the applicant that a building industry shut down over the Christmas /New Year period is well known to the public at large.

[77] I consider that there is sufficient certainty in terms of the timing of the 4 week break and the length of the break for the parties to be bound by it as a term of the contract.

[78] I consider the applicant would be entitled to claim a further extension to the date for Practical Completion to take account of these delays. There is no time when the extension should be claimed under the contract, simply "within a reasonable time". Further the applicant had flagged his estimate of the likely Practical Completion date as at mid March 2008.

[79] I find that as at 19 December 2007 there was no default by the applicant under the contract, in terms of a lack of due diligence, which would justify the owner giving a Notice of Intention to Terminate.

Failing to have notified defects and omissions rectified by trades as they returned to site.

[80] The owner has not asserted the ground set out at clause 20.1 of the contract on which he relies as a basis for delivery of the notice. However, the only possible ground is set out at clause 20.1(c) "that the applicant refuses or persistently neglects to remove or remedy defective work or improper materials, so that the Works are adversely affected". The Notice does not refer to the contractual obligation to remove or remedy defective work or improper material. I will deal with the adequacy of the notice later in this decision. At this point however the enquiry is whether the alleged failure to have notified defects and omissions rectified by trades as they returned to site is a default under the contract.

[81] The contract deals with defective work in clause 17 of the contract which sets out the obligations of both parties upon Practical Completion. Clause 17.5 deals with the provision by the builder of a list of minor defects and omissions which the owner may raise at Practical Completion. Clause 17.6 requires the builder to complete the agreed works on the defects document. Clause 19 deals with the defects liability period which runs for 6 months after the date of Practical Completion and during which time the builder must rectify defects and omissions in the work which become apparent and are notified to the builder during the defects liability period.

[82] The contract does not give the owner the right to deliver a list of alleged defects and omissions at any time prior to Practical Completion and does not give the owner a right to expect those matters to be dealt with upon the giving of the list.

[83] At law, the primary obligation of the builder is to deliver up the work free of defective work upon final completion: see Qantas Airways Ltd v Joseland & Gilling[4]. In the absence of a contrary provision in the contract, the builder is not obliged to rectify defective work at the time when it becomes apparent but may wait until the work has reached practical completion or final completion.[5]

[84] It is not necessary for me to make any finding that the work detailed in the list attached to the Notice of Intention to Terminate was defective or incomplete. My finding is that whatever the state of the Work, there is no default under the contract which could justify the delivery of a Notice of Intention to Terminate, based on an allegation of breach of contract by the applicant that it failed to have notified defects and omissions rectified by trades as they returned to site. The applicant was not contractually obliged to attend to the owner's complaints at the time the list of defective or incomplete works was given to it.

Requesting an advance by the Owner of moneys to enable the Builder to order and pay for windows, when there is no contractual obligation for the Owner to make such an advance

[85] The owner has not said which ground of clause 20.1 of the contract he relies on in alleging this breach of the contract by the applicant. It is possible that he is suggesting the applicant is unable to complete the Works through financial incapacity, but this is not made clear in the Notice. Again I will deal with adequacy of the notice later in this decision.

[86] It is not possible to conclude that the applicant's request, described by the owner, demonstrates a financial inability to complete the contract. I cannot find that the applicant is in default under the contract by merely asking for money for the windows. In any event, I accept the applicant's version of events in relation to this issue, set out at paragraphs 40 and 41 of his statement. That is, I accept that the applicant suggested to the owner that if he wanted the windows installed earlier than the date in January 2008 when the applicant had requested delivery of the windows, then the owner could pay the manufacturer direct. I do not think such a suggestion is evidence that the applicant does not have the financial capacity to complete the contract. The owner has not addressed the applicant's version of events with respect to payment for the windows, other than to refer to an exchange of emails in relation to payment for the windows. The emails are not inconsistent with the applicant's version.

[87] In any event, there is no contractual obligation on the part of the applicant to demonstrate financial capacity to complete the works. Accordingly, I find that there is no default under the contract through failure to demonstrate financial capacity. I also find that there is no evidence of financial incapacity on the part of the applicant.

[88] For these reasons, I find that delivering the Notice of Intention to Terminate on this ground, was not warranted.

Has the owner followed the termination provisions of the contract to lawfully terminate the contract?

[89] Apart from my findings that there was no default on the part of the applicant sufficient to justify delivery of a Notice of Intention to Terminate, I will explore the question of whether the Notice was given in accordance with the contract.

[90] Clause 20.1 of the contract requires that the Notice describe the alleged breach or breaches of the contract and state that the contract will be terminated unless the builder remedies the breaches within 10 days.

[91] The position in Queensland with respect to the sufficiency of notices of the kind contemplated by clause 20.1 of the contract is set out in QLine Interiors Pty Ltd v Jezer Construction Group Pty Ltd[6] where His Honour Justice Muir said:

"In my view, the letter of 9 July, by itself or in conjunction with other communications, is not a notice of the type required by cl124. Although such a notice need not take any particular form, it should be recognisable as a notice which clearly identifies a default under the terms of the subcontract and which states what must be done to remedy that default. The object of such a provision is to acquaint a party with the existence of an alleged event of default and to afford that party the opportunity of remedying default by complying with the stipulations in the notice. It may also be thought that a purpose of the notice is to give the defaulting party warning of the existence of a state of affairs which might lead to termination of the contract if default is not remedied. Consequently, it would be inappropriate to infer the giving of due notice in the absence of a document or documents which plainly and unambiguously fulfilled the requirements of cl124."

[92] More particularly, in Finlayson, J v Pornsakulpaisan, S & Y[7], Member Mr T Bradley, of the Commercial and Consumer Tribunal, considered a Notice of Intention to Terminate which merely reproduced the language of clause 20.1 of the contract (the same form of contract as under consideration in this case). He said at paragraph 64:

"Under clause 20.1 of the contract, the owners were required to give a notice "describing the alleged breach or breaches of the Contract by the Builder". Merely reproducing the language of clause 20.1 (a) goes little way towards describing a breach. A notice under the clause ought to describe what it is the builder is alleged to have done or failed to do, which the owners wish to contend amounted to a failure to proceed with due diligence. The evidence adduced by the owners falls short of establishing the alleged lack of due diligence."

[93] For completeness I should refer to a decision of the New South Wales Court of Appeal, in Hometeam Constructions Pty Ltd v Fiona McCauley as Administrator for the Estate of the Late Luke McCauley[8]. That case dealt with a default notice in relation to an alleged failure to comply with an express contractual warranty that the contractual works would be "done with due diligence and within the time stipulated in this contract...". The Court of Appeal undertook an exhaustive analysis of relevant decisions (although not the Queensland decisions), and concluded that it was sufficient for the Notice of Default to recite the terms of the contractual warranty and complain that the appellant had failed to proceed with the building works with due diligence. It was not thought necessary for any particularity to be given as to the lack of due diligence. Reference was made in the decision to an earlier decision of Moffitt J in Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal Council[9] where it was said "...the mere reference to the clause said to be in breach may be sufficient to specify the default...what is called for is not a repair of the consequences of past lack of diligence but compliance in a substantial and commercial sense with the general obligations under the contract...".

[94] The Notice alleges a failure to proceed with the works with due diligence. The particulars given to demonstrate the failure to proceed with due diligence are that the contract was for a period of 22 weeks and that the date for Practical Completion was July 2007.

[95] In my opinion the particulars wrongly assert that the date for Practical Completion under the contract was July 2007. The last date fixed for Practical Completion under the contract was the end of November 2007 and as previously discussed the facts suggest a further claim for extension to the date for Practical Completion could validly be made.

[96] The common thread through all the cases on sufficiency of Notices of default is that the applicant receiving the notice could fairly discern what default on his part is alleged and what he must do to remedy the default.

[97] What must be done to remedy a breach of an obligation of due diligence is to work diligently to bring the Works to completion by a lawfully adjusted date for Practical Completion.

[98] In this case I do not think particularising all the items of work which should have been performed (even given valid delays recognised under the contract), but were not, because of a lack of due diligence would enhance the applicant's understanding of what was being complained about, nor define any better what it must do to remedy the alleged default. In this regard, the owner has said what must be done to remedy the alleged breach of contract. He has required as one would rightly expect that the applicant "schedule the remaining works to bring the remaining works to Practical Completion within a reasonable time". However, the owner has gone further and required a specific item of work to be performed within 10 days. The owner has required the builder to "install the windows into the works within ten (10) business days". I think this goes too far and sets up a ground for termination outside the ambit of the alleged breach. There is no evidence that this item of work is the only item of work required to bring the Works to Practical Completion. There is no express term of the contract requiring the windows to be installed at a particular time. The work is part of all the work which needs to be diligently performed to bring the Works to Practical Completion. The owner has been unreasonable in isolating this work and setting a timeframe for its performance which on the evidence was impossible to meet, given the lead time for delivery of the windows and the fact the windows had been ordered for delivery in January 2008. In this regard I refer to the uncontested statement of the applicant on this issue and attachments MH-7 to his statement which set out the lead time of 20 working days.

[99] I find that the Notice is defective, insofar as the lack of due diligence ground is concerned, because:

• (a) it mis-states the date for Practical Completion; and

• (b) it goes beyond the requirement of clause 20.1 that the owner describe the alleged breach and state his intention to terminate the contract "unless the builder remedies the alleged breach...". The effect of going too far in the notice by requiring a particular item of work to be performed in an impossible time frame, is to confuse the issue of what must be done to remedy the alleged breach of a lack of due diligence.

[100] The next particular of alleged breach is that the builder advised the owner defective and incomplete work would be performed by each trade as they returned to the site and none of the notified defects and omissions have been rectified by any of the trades that have returned to site.

[101] Although not expressly stated in the notice it would appear the owner is relying on clause 20.1(d) of the contract as the basis for serving the notice. That is, the builder "refuses or persistently neglects to remove or remedy defective work or improper materials, so that the Works are adversely affected". Clause 20.1 does not create contractual obligations, it merely lays the basis for delivery of a notice if in the circumstances described in clause 20.1 a breach of contract has allegedly occurred. The owner needs to look at the builders express and implied obligations under the contract, state that obligation and describe the breach of that obligation, giving enough detail to enable the builder to know what must be done to rectify the breach.

[102] I do not think that the notice is a valid notice under the contract. There is no contractual obligation the owner can point to which matches the allegation of breach made in the Notice. The only clauses which require remedy of defective work are clauses 17 and 19, which impose the obligation after the date for Practical Completion. The obligation had not arisen at the time the Notice was given.

[103] If what the owner is really complaining about is a lack of competence or a failure to perform the work with reasonable care and skill, then the Notice needed to be cast entirely differently to the way it has been cast.

[104] For these reasons, I find that the Notice is defective, insofar as the ground of failure to remove or remedy defective work is concerned.

[105] Finally, the owner has alleged a breach of contract by the applicant as a result of allegedly requesting an advance by the owner of moneys to enable the builder to order and pay for the windows and to install the windows. Although not stated, the basis for this allegation would appear to be clause 20.1(d), the Builder "is unable or unwilling to complete the Works...". One draws from the Notice that the complaint is the builder does not have the financial capacity to complete the Works. There is no contractual obligation on the part of the applicant to demonstrate financial capacity to complete the contract. On this basis I find that the Notice is defective. It does not fulfil the first criteria of the Notice required by clause 20.1. It does not describe a breach of contract by reference to a contractual obligation.

[106] In my view the Notice is also problematic because it does not help the applicant understand what must be done to remedy any breach. I cannot see that demonstrating financial capacity remedies a breach described as requesting an advance of moneys to pay for windows. This problem highlights the fact that complaint does not describe a breach.

[107] I have found that the applicant was not in default under the contract as alleged by the owner; and the owner has not delivered a valid Notice of Intention to Terminate under the contract.

[108] On this basis, I find that:

• (a) the owner has not followed the contract termination provisions to lawfully terminate the contract. The result is that the purported termination of the contract by Notices dated 12 February 2008 and 17 March 2008, relying on a failure to remedy breaches particularised in the Notice of Intention to Terminate, have not lawfully terminated the contract; and

• (b) the Notices of Termination were given unreasonably. In accordance with clause 20.2 of the contract, I find that the Notices of Termination are null and void and of no force or effect.

In light of any default by the applicant, has the owner lawfully terminated the contract in accordance with the common law?

[109] To recap, the definition of "properly terminated" in the QBSA Insurance Policy, which goes to the issue of a "valid termination" of the contract, the subject of the question before me, means lawfully under the contract "or otherwise at law, upon the contractor's default".

[110] Clause 20.2 of the contract provides that if the builder fails to remedy the breach or breaches stated in any notice served by the owner under clause 20.1, "the Owner may, without prejudice to any other rights or remedies" terminate this contract...".

[111] The contract contemplates that common law rights will operate in addition to rights set out in the contract for termination of the contract. Thus apart from my conclusion that the contract has not been validly terminated in accordance with the contract, there remains an enquiry as to whether the contract has been validly terminated at common law, as the owner is entitled to do.[10]

[112] The applicant asserts that the contract cannot be terminated twice and that it terminated the contract by accepting the owner's repudiation in January 2008. It is true that a contract can only be terminated once. If the applicant is right in its submission, then whatever steps the owner may have taken subsequently, which may have had the effect of a valid termination at common law, will be irrelevant.

[113] The respondent has made no submissions on whether the owner has validly or properly terminated the contract at common law, limiting itself to a consideration of validity of termination in accordance with the Notice of Intention to Terminate and Notice of Termination.

[114] The applicant asserts that the owner repudiated the building contract by conduct demonstrating an unwillingness to be bound by its terms. It relies on the owner's conduct in delivering an invalid Notice of Intention to Terminate and in particular asserts that it was not in breach at the time the Notice was delivered; the owner knew that the builder would not receive the Notice because he was away on Christmas holidays and the owner knew that it was impossible to remedy the alleged breaches in the time permitted by the owner.

[115] The applicant sets out 15 reasons in his statement at paragraph 51 as to why the owner had "decided to take advantage of me being away to try to terminate the contact". The matters are set out at paragraph 56 of this decision.

[116] To succeed in its argument that the applicant terminated the contract as a result of the owner's repudiation of the contract, the applicant needs to demonstrate that:

• (a) the matters relied on by it amount to a repudiation of the contract by the owner, and

• (b) the applicant's conduct in response was sufficient to amount to an acceptance of the repudiation and an election to terminate the contract.

[117] Repudiation of a contract involves a party renouncing his liabilities under the contract by evincing an intention to no longer to be bound by it or to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way.[11]

[118] The owner's conduct is amenable to scrutiny under the second limb of this explanation of repudiation.

[119] The question is whether a reasonable person in the shoes of the applicant, would have thought that the owner was refusing to perform the contract, except on his own terms which are inconsistent with the contract.

[120] I am of the view a reasonable person would think that the owner was not prepared to abide by the contract, other than if his demands were met, in circumstances where the person was not in default under the contract and an invalid Notice of Intention to Terminate had been delivered, which did not point to any contractual breaches and which required the performance of steps which could not be undertaken in the time given.

[121] In Freedom Homes Pty Ltd v Botros [1999] QCA 150; (2000) 2 Qd R 377, the Queensland Court of Appeal found that a party cannot unilaterally impose requirements for which there is no contractual warrant or authority. In that case the owner refused to pay progress claims until the builder provided an engineer's report in relation to the footings and the plasterboard in the lounge and dining room was removed and replaced. There was no contractual obligation to do these things. In this case the owner has required the applicant to install windows within 10 days, when the time for performance of that work had not arrived, he required alleged defects and incomplete work to be rectified within 10 days when the time for performing that work had not arrived and he required the applicant to demonstrate the financial ability to complete the contract when there was no contractual entitlement to do so. The facts in this case are consistent with the decision in Freedom Homes, and with the conclusion that the owner has repudiated the contract by evincing an intention not to perform the contract except on impermissible terms.

[122] For these reasons I find that the owner's conduct in delivering a Notice of Intention to Terminate, when there had been no default under the contract and when he had no entitlement to seek the matters set out in the Notice of Intention to Terminate is a repudiation of the contract entitling the applicant to accept the repudiation and to elect to terminate the contract. It is not necessary for me to make any finding with respect to the assertions made by the applicant in relation to the owner knowing the applicant was away on holidays and that it was impossible to remedy the alleged breaches and in relation to the 15 reasons set out at paragraph 51 of his statement as to why the owner "decided to take advantage" of him.

[123] The applicant's right to terminate at common law subsists in addition to its rights to terminate under the contract. Clause 22 provides that the builder may terminate the contract if the owner fails to remedy a breach, "without prejudice to any other rights or remedies".

[124] The next question is whether the applicant's conduct amounts to an acceptance of the owner's repudiation. The applicant does not appear to have expressly communicated his intention to the owner. Instead he cancelled the subcontractors engaged to start work in January 2008 and treated the contract as at an end.

[125] The key issue is that the applicant's conduct should unequivocally indicate the contract is at an end, as opposed to being construed as an affirmation of the contract. Communication of the election to terminate is essential, but it need not be direct communication. Cheshire and Fifoot at paragraph 21.23[12] refer to Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd[13], where a maintenance provider was held to have accepted the other party's repudiation of the maintenance agreement by executing an agreement transferring its assets and employees to a third party, although the transfer agreement did not purport to exercise any right to terminate.

[126] I find that the applicant's conduct in cancelling the subcontractors due to attend site and treating the contract at an end is conduct inconsistent with the continued existence of the contract with the owner.

[127] The respondent has submitted that the applicant's conduct amounted to an abandonment of the contract. In the context of the owner's repudiation of the contract I find that the conduct was consistent with an acceptance of the repudiation and an election to terminate the contract.

[128] Given these findings it is not necessary to consider further whether the owner validly terminated the contract at common law. It is a general principle that a party who has repudiated a contract cannot terminate for the other's breach.[14]

[129] On this basis I find that the owner has not validly terminated the contract at common law.

[130] I note the applicant's submissions that it was denied natural justice in that the respondent did not seek advice from it as to the issue of termination of the contract, before making its decision. I also note that the applicant was informed a short time before the decision in question was made, that a claim on the statutory home warranty insurance scheme was being considered, and that the applicant did not raise its concerns at that time. However, many of the problems created by the respondent's decision could have been avoided if the respondent had specifically called on the applicant for its version of events before making the decision and making payment under the insurance scheme.

[131] I answer the question which I was required to consider as follows:

"The decision of the Queensland Building Services Authority to accept that the domestic building contract had been validly terminated by the owner, Mr. Richard Chester, was not correct."

[132] The matter should now be listed for Directions before Senior Member Oliver on 10 March 2011 at 3.30pm, at which time submissions may be made as to appropriate orders to be made by the Tribunal in relation to setting aside the decision or otherwise; and as to the future conduct of all matters before the Tribunal.

[3] (1999) 9 Australian Construction Law Newsletter 39 at 40_._

[4] (1986) 6 NSWLR 327.

[5] LexisNexis Butterworths, Halsbury's Laws of Australia, Vol 3(2)( as at 2 January, 2011), 65 Building and Construction, "Contractor's Liability to Proprietor" (65-1505).

[6] (2002) QSC 088 at (28). See also Re White Industries (Qld) Pty Ltd (1991) BCL 200 and South Bank Corporation v Mostia Constructions Pty Ltd BC9903210, unreported, QSC (Mackenzie J), 11 June 1999.

[7] (2007) QCCTB 123 (31 August 2007).

[8] (2005) NSWCA 303.

[9] (1965) NSWR 1671 at 1676.

[10] Dorter & Sharkey, Building and Construction Contracts in Australia, 2nd Edition, paragraph 12.16; Pescott v Noonbrace Pty Ltd t/as Jason Burr Constructions (2010) QDC 81.

[11] Shevill v Builders Licensing Board (1982)149 CLR 620 at 625-626.

[12] Cheshire and Fifoot, Law of Contract (9th Aust Ed, 2008) p 1033.

[14] Cheshire and Fifoot, op.cit.p.1038.