It is now common knowledge that the building industry is Australia suffering due to the increase in material and supplier costs, and this is felt more by builders who have agreed to fixed-price contracts.
In the recent decision in the District Court of Queensland of Addinos Pty Ltd v OJ Pippin Homes Pty Ltd  QDC 205, Rinaudo AM DCJ determined that an unwillingness to complete a building contract due to the increase of material and supply costs evidenced an intention and/or refusal to no longer perform or be bound by the building contract, and this amounted to a repudiation.
Addinos Pty Ltd (ACN 166 300 349) as trustee for the Addinos Discretionary Trust (“Addinos”) was the owner of a property located at Lot 7, 17 Pickwick Street, Cannon Hill, and OJ Pippin Homes Pty Ltd ACN 150 026 921 (“OJ”) was a builder.
Addinos, as principal, entered into a contract for building works with OJ as contractor, for work to be completed at the Cannon Hill property (the “Contract”). The Contract provided for works relating to demolition, excavation, and construction of townhouses on the property.
Relevantly, it was found that the Contract provided for a:
- varied fixed contract price of $1,452,100.00;
- clause allowing OJ to seek an extension of time in certain circumstances, only if it made a request in writing to Addinos; and
- date for practical completion of 26 June 2016.
Conduct amounting to repudiation
Addinos contended that an email correspondence attaching a letter sent on 17 March 2016 by Mr Hastie on behalf of OJ amounted to a repudiation, which relevantly stated:
I regret to inform you that we will be terminating your contract for the construction at Kates St Morning side [sic, Pickwick Street]. Please see attached letter…
Due to unforeseen time taken to date we are no longer able to build this project within our construction schedule or for the costs originally quoted…
The attached letter relevantly states:
We write to advise you that OJ Pippin Homes Pty Ltd will be terminating the build contract for the dwellings to be constructed at the above address. The construction cost [sic] have increased significantly since the project was priced, almost 12 months ago. The building approval process has been extremely lengthy and we no longer have the capacity to undertake the works within our production schedule…
The above correspondence suggested that there were multiple reasons for OJ not wishing to continue with the Contract, namely delay and increasing costs. Addinos then further contended (successfully) that the true reason why OJ repudiated the Contract is revealed in a text message sent by Mr Hastie on 17 March 2016, which said:
…Not sure if you will get this but I just can’t build this project sorry mate. We just lost two of our most experienced supervisors and Kelly [Simpson] in the office due to the complexities of building these small projects. Our costs for these are going through the roof with trades charging big premiums on rates due to access issues etc. this is then causing delays in contract times and hence liquidated damages. We have decided as a business to go back to just houses at this state. I really am sorry for the inconvenience caused.
On 23 June 2016, Addinos sent a letter to OJ accepting the repudiation of the Contract and giving notice of termination.
Addinos claimed various heads of damage, including increased construction costs due to engaging an alternative contractor, interest on bank fees charged by financial institutions, and other consequential loss and damage that but for the repudiation would not have been suffered by Addinos.
Extension of time
OJ claimed that it is entitled to an extension to the Date for Practical Completion in the Contract pursuant to sub-clause 22(a) for a period of seven calendar months and 12 days, being the period of time from 5 August 2015 up to and including 17 March 2016.
Sub-clause 22(a) relevantly provides:
(a) The Contractor is entitled an extension of the Date for Practical Completion if the progress of the Works is delayed as a result of any of the following causes:
(xii) an act of prevention by the Owner not otherwise covered by this clause; or
(xiii) any other matter, cause or thing beyond the control of the Contractor.
(b) If, at any time prior to the Works reaching Practical Completion, the Contractor believes that the progress of the Works was delayed as a result of a cause set out in clause 22(a), the Contractor shall give the Owner a written notice setting out:
(i) the cause of the delay;
(ii) the time during which the carrying out of the Works was delayed; and
(iii) the extension of the Date for Practical Completion that the Contractor claims as a result of the delay,
Within 28 Days after the Contractor becomes aware of the conclusion of the delay or 21 Days after Practical Completion, whichever is the earlier.
OJ submitted that in respect to any loss and damage alleged to have been suffered by Addinos due to the works not reaching practical completion, such as interest charges from financial institutions, should not be allowed in circumstances where the date for practical completion had been validly extended.
Determination and loss and damage
It was determined that the email correspondence sent on 17 March 2016 by Mr Hastie on behalf of OJ, read in light of the text message of 17 March 2016, amounted to a repudiation of the Contract by OJ, and that OJ had no lawful basis to terminate the Contract. It followed that Addinos validly terminated the Contract on 23 June 2016 by accepting the repudiation
Regarding the extension of time claim by OJ in purported reliance on Sub-clause 22(a) of the Contract, it was determined that OJ must give written notice of the delay, and that such written notice is a condition precedent to an extension of time for the date for practical completion. Written notice was not provided by OJ to Addinos for an extension of time and therefore the date for practical completion was not extended.
In summary, it was found that OJ had repudiated the Contract, Addinos had accepted the repudiation and terminated the Contract and Addinos was entitled to judgement in the sum of $159,169.69, plus interest and costs, for the following sums:
- $85,656.25 in respect of the increased cost of construction;
- $33,423.15 in respect of additional interest and bank fees charged against a National Australia Bank loan;
- $7,221.52 for miscellaneous loss and damage;
- $17,162.06 for other loss and damage incurred as a consequence of OJ’s repudiation; and
- $15,706.67 in respect of the Macquarie Bank line of finance.
Lessons from this case
It is clear that prior to communicating with another party to a building contract, you should engage a lawyer to advise you accordingly, as correspondence can amount to evidence of an intention to no longer be bound by a contract.
While this decision is not a superior court decision, it does provide some insight as to whether a builder bound by a fixed-price contract can seek to terminate the contract due to increase costs of materials. Of course, the contractual rights of the parties will largely be governed by the individual contract in specific circumstances.
Finally, it shows that the failure to satisfy the pre-condition of written notice for an extension of time claim in building contracts can be fatal to a builder seeking to extend the date for practical completion.
It is not difficult to see how this claim against OJ could have been prevented if it had have obtained appropriate legal advice during the negotiation, performance, and intended termination of the Contract.
Marino Law has extensive experience acting for parties negotiating and drafting building contracts and disputes arising therefrom. Should you require assistance, please contact one of our highly experienced building and construction litigation lawyers.