Contracts – discharge, breach and defences to action for breach – repudiation and non-performance – Building and Construction Industry Security of Payment Act 2009 (SA) (Act)
Before suspending work for failure to pay a progress claim, subcontractors should consider whether they are objectively entitled to do so under the relevant contract or the Act, otherwise such conduct may amount to repudiation.
On 30 July 2012, Kennett Pty Ltd (plaintiff) subcontracted J & S Janssen Bricklayers (defendant) for the construction of block work and brickwork for a new aged care facility. Disagreements subsequently arose between the parties concerning progress and variation claims, progress prices and the level of work provided, culminating in the plaintiff's paying the balance of the most recent progress and variation claim, after rejecting certain amounts.
On 25 February 2013, the defendant wrote to the plaintiff requiring it to agree to pay its most recent progress and variation claim in full and other various matters, otherwise it would have to cease trading from 28 February 2014.
On 26 February 2013, the defendant suspended work and did not return to the site.
On 4 March 2014, the defendant wrote to the plaintiff alleging it was in breach of contract for not paying progress and variation claims and other matters and stated that the defendant had suspended work and would only resume after all invoices were paid and agreement on a revised scope of works and variations is reached. Later that day the plaintiff responded by issuing a notice terminating the subcontract for repudiation.
The plaintiff sued the defendant for damages for breach of contract. The defendant denied it had repudiated the contract and counterclaimed that the plaintiff had repudiated the contract and it was entitled to payment in quantum meruit.
Justice Blue held that the defendant's conduct was repudiatory and awarded the plaintiff $225,212.22 in damages for breach of contract together with interest.
The defendant had conceded it was not entitled to suspend work under the contract or the Act as it had not used the independent adjudication process provided under the Act in respect of its progress payments. His Honour held that, considered objectively from the perspective of an observer in the plaintiff's position, this conduct was repudiatory and allowed the plaintiff to terminate the subcontract.
In coming to this decision, Blue J held that:
- acts or omissions in breach of contract or of statements of intention as to future acts or omissions may comprise repudiatory conduct, provided that the conduct evinces an unwillingness or inability to render substantial performance of the contract;
- the adoption by one party of an erroneous view as to the construction of a contract or another relevant matter that would be apparent to an objective observer in the position of that party is one factor to be taken into account in assessing whether a party's conduct is repudiatory; and
- in assessing whether a party's conduct is repudiatory, and the effect of the adoption of an erroneous view, it will be highly relevant whether the party is in present breach of contract or merely stating an intention to engage in acts or omissions in the future which would be in breach of the contract.