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When is notice not required? Contractual termination by owners upheld in Visual Building Constructions Pty Ltd v Armistead

by admin admin

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In Visual Building Construction Pty Ltd v Armistead (No 2) [2019] NSWCA 280, the appellant (builder) had entered into a contract with the respondents to build a duplex building on land owned by the respondents for $400,000. In breach of the contract, the builder had not obtained a Construction Certificate before it commenced work. In early June 2015, the Penrith Local Council issued a notice of intention to serve an order pursuant to s 121B of the Environmental Planning and Assessment Act 1979 requiring the builder to immediately cease work, obtain a Building Certificate for the unauthorized work (which would have prevented the Council from obtaining a demolition order for the unauthorised works) and to obtain a Construction Certificate to complete the development work. The Council then issued stop work orders. Despite this, no steps were taken by or on behalf of the builder to obtain a Building Certificate or a Construction Certificate. The owners terminated the contract in July 2015. In early 2018, the Council made an order requiring that the entire works be demolished.

The builder appealed the finding of the District Court of New South Wales that the building contract had been validly terminated even though the owners had not complied with Clause 15 of the contract, which provided:

If the Project Supervisor:
• Is unable or unwilling to complete the work or abandons the work;
• Suspends the work before completion without reasonable cause;
• Fails to proceed diligently with the work;
• Fails to remedy defective work;
• Without reasonable cause, fails to comply with an order or direction of a public authority with respect to defective or incomplete work, which would substantially affect the quality and/or progress of the work,
the owner may, if such default can be remedied, notify the Project Supervisor in writing that unless the default is remedied within 10 business days, the owner will terminate the contract.
If the default cannot be remedied, the owner may terminate the contract by giving written notice to this effect to the Project Supervisor..
. (emphasis added).

The Court of Appeal dismissed the appeal and held that the owners did not have to comply with clause 15 of the contract because the default could not have been remedied within the 10-day time period. The owners were awarded damages for breach of contract being the cost of demolishing and removing the existing works and constructing the dual occupancy dwellings, estimated at $871,537, from which was to be deducted the unpaid contract amount of $220,000, the owners having paid $180,000 of the original contract price of $400,000.

The owners would have been entitled to restitution on the basis of a total failure of consideration and sought a complete refund of the sums paid pursuant to the contract. The author suggests that a clearer example cannot be found of owners also being entitled to seek damages for breach of contract namely the additional cost that they would incur for the cost of demolishing and removing the existing works and the additional cost of constructing the dual occupancy dwellings. The author acknowledges however that the outcome is likely to be the same in dollars terms.

For more on remedies that might be available in restitution and contract law damages for a contractor who terminates a contract upon repudiation by an owner, see the upcoming article by the author and Professor JW Carter in the Building and Construction Law Journal in which the authors will discuss the significance of the recent High Court Decision in Mann v Paterson Constructions Pty Ltd [2019] HCA 32 and its potential ramifications.


Laina Chan
MTECC Chambers

Liability Limited by a scheme approved under Professional Standards Legislation.

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