This case involved an appeal by homeowners (Owner) from a judgment of the County Court of Victoria concerning a major domestic building contract (Contract) with the respondent builder (Ozzie). In a joint judgment, the Court, constituted by McLeish, Lyons JJA and Nichols AJA revisited, affirmed and explained Cardona v Brown,^[1] including the identification of repudiation and its consequences under a major domestic building contract.

Ozzie had completed and been paid for the base and frame stages under the Contract. It subsequently advanced towards the lock up stage of works. The expert evidence was to the effect that while 95% of the lock up stage had been performed, the stage remained incomplete. Instead of external doors (temporary or permanent), Ozzie installed plywood sheets over certain external doorways, whereupon it issued a payment claim for the lock up stage.

On appeal, it was also uncontentious that certain defects existed in the works. At first instance, the Court held that the works were sufficiently progressed so as to satisfy the statutory intention of the Domestic Building Contract Act 1994 meaning of ‘lock up stage’ notwithstanding the presence of defects, and thus was entitled to issue the progress claim.

The Owner refused to pay the payment claim for the lock up stage, which the trial judge characterised as repudiatory. Ozzie shortly thereafter unilaterally suspended the works without issuing a contractual notice of suspension.

Following competing correspondences, Ozzie purported to terminate the Contract. In reply the Owner invited further discussions, but ultimately engaged an alternative builder without further notice to Ozzie.

On appeal, both parties relied on the decision in Cardona but advanced competing constructions of its effect, resulting in the Court revisiting and explaining that decision.

In respect of whether Ozzie had achieved the ‘lock up stage’ pursuant to the Contract, the Court of Appeal allowed the appeal and held that the Court at first instance erroneously concluded that the presence of defects was irrelevant to whether the works had reached lock-up stage. The Court of Appeal explained that whether a stage has been reached is a question of degree, and defects may be relevant to that assessment, including for an intermediate stage of construction.

The proper issue for determination was whether the works performed conformed to the requirements of the Contract and so unconditionally accrued to Ozzie the entitlement to issue the relevant progress claim.

The Court of Appeal affirmed Cardona’s distinction between failures characterised as trivial or ‘born of impracticalities’, and those that were of such significance that it could not be said that the stage was complete. In so doing, the Court held that the Contract specified that doors be installed in the external doorways, and so installation of plywood sheeting did not satisfy the contractual requirement to install external doors.

Accordingly, Ozzie was not entitled to issue the lock up stage payment claim and its subsequent purported termination was repudiatory. Consistently with Mann v Paterson,^[2] Ozzie could not recover on a quantum meruit because its entitlement was governed by the Contract and no relevant contractual right to payment had accrued.

The case also stands as a salutary reminder that a party electing to accept a wrongful repudiation must communicate its election to the repudiating party. In this instance, the Court of Appeal concluded that the Owner’s conduct in engaging a new builder without notice to Ozzie given Ozzie’s prior conduct, constituted an agreement to discharge the Contract which was to be inferred from the facts (in contradistinction from the colloquial phrase: ‘mutual abandonment of the Contract’). In so doing, the Owner was not entitled to damages consequential upon Ozzie’s wrongful repudiation of the Contract.

Liability limited by a scheme approved under professional standards legislation