In this case, a party to a building contract was prevented from effectively exercising its contractual right of termination because it failed to do so within a “reasonable period”, with the question of what is a reasonable period being a question of fact. Further, the parties were held to have abandoned the contract as “an inordinate length of time” had elapsed during which neither party had manifested any intention to perform the contract. Contracting parties wishing to exercise a right of termination should do so within a reasonable period of such right arising, and take care to ensure that any inaction does not inadvertently amount to abandonment of the contract.
This case involved a dispute in relation to a purported termination of a residential building contract between Mr Zeman and Mr Bollard (trading as Clearwater Homes) (Contract).
Harrowell, Principal Member in the New South Wales Civil and Administrative Tribunal found that:
- following the issue by Mr Bollard of a notice of substantial breach under the Contract on 16 September 2010 (and Mr Zeman’s failure to remedy the breach within the 10 day timeframe stipulated in the Contract), Mr Bollard was required to exercise his right to terminate the Contract within a reasonable period after the right accrued (in the absence of an expressed timeframe in the Contract);
- what is a reasonable period is a question of fact and in this case, expired no later than November 2010. As such, a notice purporting to terminate the Contract on 4 September 2012 was ineffective. Relevant factors in determining the reasonable period included the fact that Mr Bollard was aware by October 2010 that the matters specified in the notice (including redelivery of possession of the premises to Mr Bollard) were not going to be remedied by Mr Zeman and signage had been placed on the site indicating that another company would undertake any future building work. Further, it was clear that Mr Zeman claimed that Mr Bollard was in breach for defective works and was not prepared to pay Mr Bollard any further money; and
- whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from the objective assessment of the conduct of the parties. The underlying premise of abandonment cases is that “an inordinate length of time” elapses during which neither party manifests any intention to perform the contract. In this case, a period of 5 months had elapsed from the initial notice of substantial breach until the commencement of proceedings during which time, neither party had taken any further steps to perform the Contract. On this basis, 5 months was “an inordinate length of time”, particularly having regard not only to the parties’ lack of intention to perform, but also the fact that the duration of the Contract was only 20 weeks for completion.