The recent Hong Kong Court of First Instance decision in Ipson Renovation Ltd v The Incorporated Owners of Connie Towers, HCCT 26/2014, highlights the consequences of wrongfully suspending works under a construction contract.
The Defendant, Incorporated Owners of a property (IO), entered into a contract with the Plaintiff contractor (Contractor) under which the Contractor was to carry out repair and maintenance works at the property, Connie Towers (the Project). The IO engaged a consultant architect for the Project (Consultant).
The Contractor was unable to commence the works because some of the owners of Connie Towers were dissatisfied with the Project and prevented the Contractor and its workers from entering and bringing scaffolding, materials and tools into the work site. Subsequently, the IO instructed the Consultant to suspend the works and the Consultant issued a formal suspension notice to the Contractor instructing it to suspend works under the Project until further notice. The IO also sought to reduce the Contract price by deleting some items of work from it.
The Contractor issued proceedings against the IO claiming that the IO was in repudiatory breach of the Contract by preventing the Contractor from entering the site to commence works and by instructing the Contractor to suspend works.
The Court held that the obstruction of the commencement of works by the disgruntled owners could not be said to be the IO’s acts. However, the Consultant’s suspension of all works for an indefinite period, on the instructions of the IO, without any indication to the Contractor that it was entitled to an extension of time or to claim for direct costs or loss as a result of such suspension, coupled with demands made by the IO for material items of the works to be omitted, without acceptance of the Contractor’s intimated claims for direct loss, expenses and damages incurred as a result of the suspension and the reduction of the scope of works, collectively amounted to a repudiation of the Contract. The Court also found that the Contractor had accepted the repudiation.
Disputes arising out of renovation projects of IO have been common in recent years. In many cases, important decisions were made without seeking proper legal advice, which may lead to disastrous consequences. Under what circumstances suspension of works or reduction in scope of works may constitute repudiatory breach can be a difficult question, even for construction lawyers.