Repudiation of a Building Contract – Addinos v OJ Pippin Homes

Repudiation of a building contract occurs when one party evinces an intention no longer to be bound by the contract.

In a recent decision of the District Court in Brisbane, Rinaudo AM DCJ handed down a decision finding that OJ Pippin Homes Pty Ltd repudiated a building contract.

As a result of the repudiation of a building contract, the OJ Pippin Homes Pty Ltd were ordered to pay Addinos Pty Ltd, by way of loss and damage, the sum of $159,169.69, plus interest and costs calculated on the indemnity basis.

OJ Pippin Homes Pty Ltd repudiated the contract by sending an email and a text message which showed an intention to no longer be bound by the contract.

Addinos Pty Ltd then accepted the repudiation of the building contract and terminated the building contract.

What is interesting about this case is that the repudiation arose from the allegation that OJ Pippin Homes could not proceed because of the increased costs in the building and construction industry.

This is topical in a post-COVID19 world because of the sheer number of builders who are trying to raise the prices in their fixed-price residential building contracts.

This is a case study of Addinos Pty Ltd v OJ Pippin Homes Pty Ltd [2022] QDC 205 by our building and construction lawyers.

Background to the Dispute

Addinos Pty Ltd is a property developer. Addinos contracted with OJ Pippin Homes to perform the following works on the site:

1. The demolition of a dwelling; then
2. The excavation, levelling and cutting; then
3. The construction of townhouses on the site.

It is alleged that by way of a letter dated 17 March 2016, the OJ Pippin Homes repudiated the building contract because they said words to the effect of:

I regret to inform you that we will be terminating your contract. Please see attached letter … Due to unforeseen time taken to date we are no longer able to build this project within our construction schedule or for the costs originally quoted.

The letter contained similar wording to the email, it said:

We write to advise you that OJ Pippin Homes Pty Ltd will be terminating the build contract for the dwellings to be constructed at the above address. The construction costs have increased significantly since the project was priced, almost 12 months ago. The building approval process has been extremely lengthy and we no longer have the capacity to undertake the works within our production schedule…

There was further evidence by way of a copy of a text message from Mr Hastie, the director of OJ Pippin Homes, to Mr Thomson, the development manager for Addinos Pty Ltd which read:

Hi Kevin … Not sure if you will get this but I just can’t build this project sorry mate. We just lost two of our most experienced supervisors and Kelly [Simpson] in the office due to the complexities of building these small projects. Our costs for these are going through the roof with trades charging big premiums on rates due to access issues etc. this is then causing delays in contract times and hence liquidated damages. We have decided as a business to go back to just houses at this state. I really am sorry for the inconvenience caused.

On 23 June 2016, Addinos Pty Ltd accepted the repudiation of the building contract by OJ Pippin Homes Pty Ltd by sending a letter which said:

I refer to your letter of 17 March 2016 … Both your letter, and your abandonment of the contract and works, each amount to a wrongful repudiation and breach of the contract. To avoid the cost and expense to both of us associated with following the formal termination procedure under the contract, we propose … that we agree that the contract was at an end as at 17 March 2016 as a result of your letter … any and all rights we have under the contract or otherwise (including but not limited to any rights to damages) are reserved…

At the time of the termination, the demolition works were complete, but the excavation works and the construction works had not commenced.

As a result of the repudiation of the building contract, Addinos Pty Ltd alleged that it suffered damage and loss.

The Main Issues in Dispute

OJ Pippin Homes tried to use a number of defences against their opponents in defence of the claim.  You can see this at paragraphs [56] to [75].

However, the only issues that were discussed by the Court in this decision were:

1. The alleged proper party defence.
2. The termination of the contract.
3. The extension of date for practical completion
4. The repudiation of the building contract by the Plaintiff.
5. The losses and damages.

We will explain these in more detail below.

The alleged Proper Party Defence

OJ Pippin Homes argued that it did not contract with the plaintiff, but in fact it contracted with an entity called “Addinos Pty Ltd ABN 159 849 584”.  This was alleged to be the ABN of the trust.

However, on the evidence of Mr Addison (the director of the plaintiff) the Court was satisfied that Addinos Pty Ltd ACN 166 300 349, in its capacity as trustee of the Addinos Discretionary Trust ABN 159 849 584 was the correct entity.

The Court found that this does not affect the legality of the contract, referring to Yara Australia Pty Ltd v Oswal [No 2] [2013] WASCA 187 at [259] where Pullin JA said:

The fact that Pankaj was described as trustee of the Burrup Trust in the OSD and the SD does not alter the fact that those deeds were executed and entered into by Pankaj. The common law does not recognise a trustee as having assumed an additional or qualified legal personality.

OJ Pippin Homes also attempted to dispute the validity of the termination of the building contract.

The Termination of the Contract

In relation to the repudiation of the building contract, Rinaudo AM DCJ referenced Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, where Mason J of the High Court of Australia stated at [33]:

What needs to be established in order to constitute a repudiation is that the party evinces an intention no longer to be bound by the contract or that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way.

See also Shevill v The Builders Licensing Board (1982) 149 CLR 620 at 625-6.

In relation to the email, the letter, and the text message, His Honour said at [84] and [87]:

[84] It was submitted, and I accept, that the message conveys that the defendant did not intend to build the project because of issues solely related to the defendant, and not to any delay on the part of the plaintiff.

[87] I am satisfied that the defendant had no lawful basis to terminate the contract on the grounds stated by Mr Hastie, and that those communications evinced an intention to no longer be bound by the contract.

In relation to the acceptance of the repudiation, and the subsequent termination of the building contract, His Honour Rinaudo AM DCJ referred to Cooper v Kinsella [2011] NSWCA 45 at [70].

An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end.

His Honour Rinaudo AM DCJ deciding at [88] and [90] that:

[88] I accept that this letter communicated to the defendant that the plaintiff treated the contract as at an end.

[90] Accordingly, I find that the defendant repudiated the contract by emailing the attached letter dated 17 March 2016. I find that the plaintiff accepted the defendant’s repudiation of the contract by letter dated 23 June 2016.

In an attempt to mitigate the amount of damages and interest, OJ Pippin Homes claimed that they were entitled to an extension of time for practical completion.

The Extension of Date for Practical Completion

In the defence, OJ Pippin Homes claimed:

1. Interest should be reduced based upon the basis of the nominal Date for Practical Completion being extended to 20 November 2016, at [60].
2. There should be no amount for costs in Annexure D, on the basis that the defendant could not have completed the building works any earlier, or in the alternative, on the basis of a nominal Date for Practical Completion being extended to 20 November 2016, at [63].
3. In respect of quantum, Practical Completion should be a minimum of 20 November 2016. Therefore, no amount for interest should be allowed on Annexure A, C and D, and an amount of $8,542.06 only should be allowed for Annexure E, at [66].

OJ Pippin Homes Pty Ltd claimed that it was entitled to an extension of time for the date for practical completion pursuant to clause 22 of the building contract, because of delay by:

1. an act of prevention by the Owner not otherwise covered by this clause; or
2. any other matter, cause, or thing beyond the control of the Contractor.

OJ Pippin Homes Pty Ltd claimed that they were entitled to claim seven (7) months and 12 days, being from 5 August 2015 to 17 March 2016.

The building contract also stated that to claim a delay pursuant to clause 22(a), it must give a written notice to Addinos Pty Ltd stating:

(i) the cause of the delay;

(ii) the time during which the carrying out of the Works was delayed; and

(iii) the extension of the Date for Practical Completion that the Contractor claims as a result of the delay,

Within 28 Days after the Contractor becomes aware of the conclusion of the delay or 21 Days after Practical Completion, whichever is the earlier.

His Honour Rinaudo AM DCJ referred to two cases in relation to the claim for an extension of time because of delay, Opat Decorating Service (Aust) Pty Ltd v Hansen Yuncken (SA) Pty Ltd (1994) 11 BCL 306 and Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (1996) 12 BCL 317 (unreported).

The Opat case was an appeal of the decision of Mohr J who was reviewing a decision of an arbitrator who said that:

In my opinion the giving of the required notice and particulars under Clause 31(b) or adopting the procedure set out in Clause 47, neither of which the sub-contractor did, are pre-requisites for the granting of extension of time except in the circumstances of Clause 31(e) and (g) and the arbitrator was correct in so holding.

In the Opat case, Bollen J with Prior and Duggan JJ agreeing, dismissed the appeal by Opat and agreeing with Mohr J.  The Court said at [34]:

I respectfully agree with the arbitrator and with Mohr J about the meaning and operation of Clause 31(b). It is a mandatory provision. I agree, with respect, that Mohr J is correct in his interpretation of Clause 47 although I do not think that matters.

In the Australian Development Corporation (ADC) case, Giles CJ held:

Imposing the notification requirement upon ACT was a deliberate and important part of the mechanism for determining the time by which the date for practical completion should be extended. It was in mandatory terms (“shall notify”) equivalent to the mandatory terms imposed on ADC … In my opinion, therefore, in the absence of timely notification as required by article 4.4.1 ACT was not entitled to extension of the date for practical completion.

In the present case, following these cases above, His Honour Rinaudo AM DCJ finding at [93]:

In accordance with Clause 22(b), the contractor must give the owner a written notice of the delay. I accept that compliance with Clause 22(b) is a condition precedent to the defendant’s entitlement to an extension of the Date for Practical Completion.

Therefore, OJ Pippin Homes Pty Ltd were unable to mitigate their exposure the damages, costs, and interest in the way that they intended.

There was also a claim that the plaintiff repudiated the building contract.

The Repudiation of the Building Contract by the Plaintiff

In paragraph 39 of the defence, OJ Pippin Homes Pty Ltd pleaded at [98] that:

…by its excessive and unreasonable delay and failure to obtain the requisite approvals in a timely fashion, and by its failure at any time to obtain the construction approval for the remainder of the Works over and above the partial approval, and further or alternatively by making no or no reasonable efforts to obtain the requisite approvals in a timely fashion, the Owner:

(a) breached its obligation under annexure C to the Building Contract to obtain the requisite approvals;

(b) breached its obligation under the Building Contract to co-operate in doing all things necessary to enable the defendant to have the benefit of the Building Contract;

(c) indicated that it would perform its obligations under the Building Contract (if at all) as, when and how it saw fit, with no regard at all for the timely carrying out of such obligations so as to progress the project;

(d) evinced an intention no longer to be bound by the Building Contract, and repudiated it (“the Owner’s repudiation of the Building Contract”).

The court had to answer a relatively simple question, namely – did the plaintiff renounce its obligations under the contract by evincing an intention to no longer be bound by the contract, and/or alternatively, is there evidence that demonstrates that the plaintiff intended to fulfil the contract only in a manner substantially inconsistent with its obligations, and not in any other way?

In finding that there was no evidence to support these allegations as pleaded, the question could only be answered in one (1) way.  His Honour Rinaudo AM DCJ finding at [103]:

I find, therefore, that the plaintiff did not repudiate the contract by reason of its delay in obtaining the Demolition Approval, Plumbing Approval, and Building Approval.

The Court also discussed the quantum of losses and damages.

Losses and Damages for Repudiation of a Building Contract

OJ Pippin Homes Pty Ltd made arguments that Addinos Pty Ltd “was or reasonably should have been aware that the works were going to cost more than originally agreed” and the argument above in relation to delay and the extension of the date for practical completion.

In response to these claim, His Honour Rinaudo AM DCJ decided at [105] to [107] that:

I am satisfied, on the evidence, given that the contract was for a fixed lump sum, that the plaintiff would have no reason to consider that the Works were going to cost more than originally agreed.

The Date for Practical Completion in the contract was 26 June 2016. The date was never extended, and no request to extend the date was ever made.

I am satisfied that:

(a) The plaintiff’s loss and damage “fairly and reasonably considered naturally arise[s] from” the defendant’s repudiation of the contract;[89]

(b) The causal link between the defendant’s repudiation of the contract and the plaintiff’s loss and damage was not severed by a novus actus interveniens, other than the additional CJN Constructions works; and

(c) The plaintiff’s loss and damage flow, in the usual course of things, from the defendant’s breach.

The Court then made the following orders:

1. Judgment be entered for the plaintiff;
2. As a result of the defendant’s repudiation of the contract, the defendant pay the plaintiff, by way of loss and damage, the sum of $159,169.69, plus interest and costs;
3. The defendant pay the plaintiff’s costs of and incidental to the proceeding (including reserved costs, if any) to be assessed on the indemnity basis; and
4. The defendant pay interest to the plaintiff in the sum of $35,459.96.

Key Takeaways re. Repudiation of a Building Contract

The main takeaways from this case are:

1. Builders and/or building company directors / senior staff – engage lawyers early and stop sending these types of correspondence by phone, letter, email, and text message.
2. Never say words to the effect of “we want to terminate the contract” or “we do not want to continue with this build” or “you need to pay us $X more money, or we are not going to continue with the build”. This conduct could be repudiation.
3. If you are seeking to use the delay clause in the building contract, the notice given in the required time, with all of the required details, is a pre-requisite to obtaining the extension of time, and extending the date for practical completion.

For the sake of a few hundred or a few thousand dollars, seek legal advice before you take any steps in relation to terminating your building contract.

In this case, OJ Pippin Homes Pty Ltd would have saved (probably) low to mid-six figure judgment with costs and interest, had they sought 30 minutes of advice from a solicitor.