Matthew Yee notes that, in the following decision of the Supreme Court of the Australian Capital Territory, the court applied a strict interpretation of the contractual provisions and held that the builder had wrongfully terminated the contract and was not entitled to damages, despite having completed $380,000 of building work.
On 27 February 2013, the defendants, Forth (owner), and the plaintiff, Rosa (builder), entered into a standard form building contract (the 'ACT Home Building Contract' of the Masters Builders Association of the Australian Capital Territory) for the construction of a residence. From 27 February until 13 August the builder carried out building work on the property, including several major variations. On 2 August, the builder issued a notice requesting evidence of the owner's capacity to pay for the construction stating that it would terminate the contract within five days if evidence was not provided. The owner did not provide evidence of its financial capacity and the builder terminated the contract. The builder brought a claim for damages and the owner counterclaimed for damages.
The court found in favour of the owner on the builder's claim for damages and awarded the owner nominal damages on its counterclaim.
The builder relied upon two clauses.
The first, clause 4 provided: 'Before the commencement of the Works, the Owner will ...'. Mossop AsJ held that the builder was not able to insist that the owner provide evidence of its financial capacity under that clause as works had commenced. The clause fixed the point at which the obligation arose. If that point is passed then the obligation no longer exists. As a consequence, the termination of the contract by the builder was not effective.
The second, clause 27(a)(v) provided that the builder may end the contract if the owner failed to provide evidence that it obtained finance or the finance was withdrawn. Mossop AsJ found that an entitlement to terminate is not necessarily dependent upon a breach of contract and there was no breach in this case. This meant that the builder was not entitled to damages because any losses incurred by the builder resulting from the termination under clause 27(a)(v) would be losses caused by the builder's decision to terminate and not as a result of a breach of contract by the owner.
Mossop AsJ also found that the builder had not properly quantified its loss from the alleged breaches and had proceeded on the basis that it was entitled to damages flowing from the termination of the contract.
The owner's counterclaim was based upon the repudiation of the contract. However, the owner also failed to properly quantify its loss including by failing to acknowledge several major variations. His Honour awarded the owner nominal damages.