Mitchamy Developments Pty Ltd v Adams - [2010] QCAT 484

CITATION:

Mitchamy Developments Pty Ltd v Adams & Anor [2010] QCAT 484

PARTIES:	Mitchamy Developments Pty Ltd
v
Mr Adams & Ms Adams-Atkinson

APPLICATION NUMBER:

BD062-06

MATTER TYPE:

Building matters

HEARING DATE:

Decision on the papers

HEARD AT:

Brisbane

DECISION OF:

Thomas Bradley – Member

DELIVERED ON:

1 October 2010

DELIVERED AT:

Brisbane

ORDERS MADE:

The Tribunal declares that the respondents’ notice of termination dated 7 December 2005 was not valid or effective to terminate the domestic building contract between the applicant and the respondents dated 2 December 2004.

The Tribunal orders that paragraphs 6, 7 and the second sentence in paragraph 9 of the counterclaim in attachment “B” to the respondents’ Amended Defence filed on 8 February 2008 are struck out.

CATCHWORDS :

Domestic building contract – builder’s failure to reach Practical Completion by Date for Practical Completion – owners’ failure to pay progress claim on time or in full – owners’ notice of termination – whether builder in substantial breach of contract – whether owners entitled to give notice while in substantial breach

APPEARANCES and REPRESENTATION (if any):

Decision on the papers.

REASONS FOR DECISION

This is a decision on one of the issues arising in a dispute between the applicant Mitchamy Developments Pty Ltd and the respondents Michael Adams and Erica Adams-Atkinson.

Background facts

The applicant is a building contractor and the respondents are the owners of land at Twin Waters. They were parties to a domestic building contract in the form of the Queensland Building Services Authority Major Works Contract.
The work to be performed under the contract was the construction of a detached dwelling on the respondents’ land; and therefore was “domestic building work” for the purposes of section 8 of the Domestic Building Contracts Act 2000 and “reviewable domestic work” for the purposes of the Queensland Building Services Authority Act 1991 (the “QBSA Act”).The dispute between the applicant and the respondents relating to the performance of that work and the contract is a “domestic building dispute” within the meaning of the QBSA Act and the Tribunal has jurisdiction to determine the dispute pursuant to section 77 of the QBSA Act. That jurisdiction is original jurisdiction pursuant to section 10(1)(b) of the Queensland Civil and Administrative Tribunal Act 2009 (the “QCAT Act”).
The contract was dated 2 December 2004. It provided for the applicant, as contractor, to build a house on the respondents’ land with a lump sum component of $693,520.00 and prime cost items of $149,395. The building work commenced on 13 December 2004 with a Date for Practical Completion of the works on or about 15 August 2005.
The respondents paid a deposit of $34,676 (5% of the lump sum component) on 3 December 2004, before works commenced. The applicant claimed and the respondents paid the first progress payment of $104,028 (15%) on 23 December 2004.
In January 2005 the respondents obtained an approval of finance from the Bank of Queensland. In a letter dated 10 January 2005 the bank advised the applicant that payment would be made in accordance with the schedule to the contract and to direct all progress claims to the respondents, as the bank would not provide a progress payment without the respondents’ authority.
As work proceeded, the applicant claimed and the respondents paid further progress payments: $104,028 (15%) on 8 April 2005; and $242,732 (35%) on 19 May 2005.
By early May 2005 the respondents had requested a number of variations to the contract works, including a change to the loggia and the addition of plumbing work in the bathroom, the extra retreat area and the outdoor kitchen. In a letter dated 10 May 2005, the respondents, concerned about the overall cost of the building works, asked the applicant to delete the loggia louvers, the vac maid unit, landscaping, screens, window furnishings and fencing. They also requested a revised statement of the cost to complete the works and an estimate of the date the respondents would be able to occupy the new house.
On 11 July 2005 the applicant wrote to the respondents attaching variations previously presented to one of the respondents and requested that they be signed and returned. The applicant advised that “further works will not be able to proceed until current variations are signed off.” The letter also set out a brief “production schedule to completion”, setting out works to be undertaken including “paint internal” to be undertaken from 15 to 26 August 2005, “fit off” to be undertaken from 29 August to 9 September 2005. The schedule included further items (driveway, paths, external tiles, pool tiling and final external painting) for which no dates were given.
On 5 September 2005 the applicant provided, at the respondents’ request, a written quote to construct boundary fences on the land. The letter providing the quote included a “current schedule” advising that the painter would return in a fortnight and finish on 24 September 2005, that the pool tiles were needed “ASAP” and that the driveway was “to be scheduled” for 27 to 29 September 2005.
On 7 September 2005 the applicant delivered a further progress payment claim for the “mould-out, tiling and joinery” stage of the work. The claim was for $138,704 or 20% of the lump sum price. The respondents failed to pay the claim within 5 working days.
On 14 September 2005 the respondents gave a written notice to the applicant requesting the “deletion of work and adjustment from the contact price” for five prime cost items, totalling $44,695. These were for carpet, landscaping, screens, loggia louvers and window furniture. The applicant did not agree to the requested deletion and adjustment. It appears that on 19 and 21 September 2005 the respondents wrote to the applicant requesting it adjust the 7 September 2005 progress claim by reducing it for the amount of “the payments in lieu of commissions”. This appears to be a reference to the “set-off” amount of $40,400 that was pleaded in paragraph 3(iii) of the respondents’ amended defence, until it was struck out by the Tribunal on 11 February 2010.
On about 30 September 2005, the applicant stopped work on the site, on the ground that the September progress claim had not been paid.
On 1 October 2005 the respondents wrote an ill-tempered letter to the applicant, again asking for the “commissions” to be treated as “cash payments” and for the applicant to provide a revised progress claim for the respondents to submit to the bank, which was financing the construction. In the letter, the respondents also asked the applicant to delete the carpets, loggia, flyscreens and landscaping from the contract and to delete “any request for additional work previously requested”.
On 4 October 2005, the respondents wrote to their bank expressing concern that if the bank should pay the September progress payment claim in full “there would be insufficient funds to complete the house, from the current position of construction.” In the letter the respondents recorded that they estimated the current contract position to be such that in addition to the contract price of $693,520 work estimated at $31,010 was required by agreed variations.
On 11 October 2005 an amount of $105,508 was paid to the applicant, leaving $33,196 outstanding from the September progress claim.
On 12 October 2005 the applicant wrote to the respondents proposing terms on which it would recommence work on 17 October 2005 and stating that completion date would depend upon trade availability.

On about 13 October 2005, it appears the applicant reached agreement with the respondents to delete $33,196 worth of work from the contract by deleting some prime cost items.
On 19 October 2005 the applicant wrote to the respondents proposing “as an offer of good faith” that work would recommence on 24 October 2005 “with an expected time of completion subject to trades availability of three weeks” and setting out an alternative set of conditions, including “no further variations.” It appears that work recommenced on 24 October 2005.

On 27 October 2005 the respondents’ then solicitors responded to the applicant’s letter of 19 October 2005. In the letter, the solicitors alleged that the applicant had breached the contract by failing to have the works completed by 15 August 2005. The letter stated that the respondents were prepared to provide the applicant with five weeks (until 25 November 2005) in which to have the work completed in exchange for the applicant agreeing to “a liquidated damages clause” of $85 per day for any delay after 25 November 2005. By the letter the respondents accepted the applicant’s “no further variations” condition for the resumption of work, but referred to the need for further communications about certain matters, including the location of the driveway, the quantity of tiles to be ordered for the pool area and location of the clothes line. The letter also stated that the respondents “expressly reserve their rights to terminate the contract in any event and sue for damages and loss.”
On 3 November 2005 the applicant wrote to the respondents: asking them to mark the driveway kerb crossover by 9:00 am on the next day and to fax details of the concrete layout and clothes line position; giving the dimensions of the pool and water feature perimeter and requiring the waterline tiles to be delivered on the morning of 8 November 2005.
On 28 November 2005 the respondents then solicitors wrote to the applicant enclosing a Notice to Remedy Breach. The notice was signed by each of the respondents and dated 28 November 2005. The notice gave the following details of the “substantial breach” of the contract:
you have failed to reach practical completion of the new dwelling, pool fencing and landscaping by the nominated time of 15 August, 2005.
The notice was sent under cover of a letter from the respondents’ solicitors dated 27 November 2005. The covering letter advised that if the breach was not rectified within seven business days of the giving of the notice, then the respondents would terminate the contract.
On 29 November 2005 the applicant’s solicitors replied to the respondents’ solicitors in these terms:
Our client does not accept for the reasons previously given that it has caused the delay with respect to this project. Work has of late not proceeded as fast as our client wishes and this has been due solely to the availability of tradesmen. The original tiler refused to return and a new tiler is commencing work today. Another tradesman is on site working.
Our client understands that completion will be effected within three weeks. Your clients[‘] frustration is understandable and matched by our clients. It is simply a question of availability of tradespeople and our client is every bit as keen as your clients no doubt are to have this job finished.
The respondents signed a notice of termination addressed to the applicant dated 7 December 2005 in these terms:
We give you notice pursuant to Clause 26 of the Contract that the Contract is now ended by your failure to comply with the Contract and specifically with Clause 26.
According to the respondents’ amended defence, attachment B, paragraph 7, the notice of termination was sent on 9 December 2005.

The Tribunal proceeding

On 6 February 2006, the applicant commenced this proceeding, which is a domestic building dispute, in the former Commercial and Consumer Tribunal.

On 1 December 2009 the former Tribunal’s jurisdiction was transferred to this Tribunal and this proceeding became a proceeding in this Tribunal.
On 11 February 2010, the Tribunal directed, by consent, that the validity or otherwise of the respondent’s termination of the contract be determined on the papers, that is without a hearing and on the basis of written submissions and evidence filed by the parties. The respondents were directed to file in the Tribunal Registry copies of the notices of 27 November 2005 and 9 December 2005 and all parties were directed to file and exchange any submissions on which they intended to rely with respect to the termination of the contract.
The parties complied with these directions; copies of the notices were filed on 20 February 2010 and written submissions were filed on 11 March 2010.
On 9 April 2010, the 11 February 2010 decision was stayed pending the outcome of an application by the respondents for leave to appeal another decision in the same proceeding. On 7 May 2010, the respondents’ application for leave to appeal was dismissed.
This is the decision on the validity of the termination, as directed on 11 February 2010, which can now proceed as the application for leave to appeal has been determined. This decision requires a consideration of the above course of events in light of the general law and the relevant provisions of the contract.

The termination notice

Clause 26, to which the respondents referred in their notice of termination, is in the following terms:
26 Termination after notice of default
If:
·     a party is in substantial breach of this Contract; and
·     the other party gives a notice to the party in breach stating the intention of the party giving notice to terminate the Contract if the breach is not remedied within seven (7) business days from the giving of the notice; and
·     the breach is not so remedied,
then, the party giving that notice may terminate this Contract by a further written notice given to the party in breach and may recover from the party in breach all damages, loss, cost or expense occasioned to the party so terminating by or in connection with the breach or that termination and may set off such claim against payment otherwise due by the party so terminating.
The right to terminate under this Condition is in addition to any other powers, rights or remedies the terminating party may have.
Substantial breach by the Owner includes, but is not limited to:
·     failing to produce evidence of the Owner’s title or of the Owner’s capacity to pay the Total Price in compliance with Condition 6 of this Contract;
·     failing to pay any money due and owing to the Contractor for five (5) business days; and
·     substantially or persistently obstructing the Contractor in the performance of the work under this Contract.
Substantial breach by the Contractor includes, but is not limited to:
·     failing to perform the work under this Contract competently;
·     failing to provide materials which comply with this Contract;
·     unreasonably failing to replace or remedy defective work or materials;
·     unreasonably failing to perform the work diligently or unreasonably delaying, suspending or failing to maintain reasonable progress; and
·     failing to effect or maintain any insurance required by this Contract.
The respondents’ statement in the termination notice that there had been a “failure to comply with” clause 26 on the part of the applicant appears misguided. It is the party giving a notice under clause 26 who must comply with clause 26, not the party to whom the notice is given. Plainly, the respondents intended to state: that the applicant was in “substantial breach”, within the meaning in clause 26; that the respondents had given a notice to remedy the breach; and that the applicant had not done so. I am satisfied that this is the manner in which the notice would have been understood by the applicant. I am content to read the termination notice as having been given with that effect.
As noted above, before the termination notice, the respondents had given the applicant the notice to remedy breach dated 28 November 2005. It is clear that the respondents were relying on the applicant’s failure to remedy the breach alleged in that earlier notice as the basis for terminating the contract. The alleged breach was a failure to reach Practical Completion by 15 August, 2005.

Clause 13 of the contract deals with Practical Completion. It provides that the applicant:
must achieve Practical Completion of the Works by the Date for Practical Completion stated or calculated in accordance with Schedule Item 4 or any extended date under this Condition or under Condition 7.
It appears that in schedule item 4 of the contract the parties nominated “on or about 15 August 2005” as the Date for Practical Completion and that, in schedule item 5, the applicant stated that, in calculating the Date for Practical Completion, it had allowed for 30 non-working days, 20 days of inclement weather and 10 days on account of trades and supply availability.
“Practical Completion” is defined in clause 28 of the contract. The applicant does not dispute that the building works had not reached Practical Completion by 15 August 2005, nor had that stage been reached by 7 or 9 December 2005. It is not necessary to consider that matter any further.
The applicant contends that the termination notice was not valid or effective on two grounds:
(a)Firstly, that the applicant could claim and was entitled to a reasonable extension of the Date for Practical Completion for a period of 16.5 weeks under clause 13 of the contract; and
(b)Secondly, that the respondents were in substantial breach of the contact and could not give a notice while they were in breach.
It is convenient to consider each of these grounds in turn.

Extension of Date for Practical Completion

Clause 13 includes the following provisions about extension of the Date for Practical Completion:
The Contractor may claim and is entitled to a reasonable extension of the Date for Practical Completion to the extent contemplated by and subject to the provisions of the remaining paragraphs of this Condition, if the Contractor is or will be delayed in achieving Practical Completion of the Works by any of the following causes:
·     events occurring on or before the Date for Practical Completion which are beyond the reasonable control of the Contractor, including, but not limited to, general industrial action (excluding contractor-specific action) and inclement weather (subject to the provisions of the remaining paragraphs of this Condition);
·     delays occasioned by the Owner, the Owner’s Representative, the Owner’s employees or the Owner’s agents (whether occurring before or after the Date for Practical Completion);
·     a variation which is the subject of a Variation Document in accordance with the provisions of Condition 21 of this Contract so long as:
(a) the variation was one requested by the Owner; or
(b) for a variation not requested by the Owner, then only if the variation was required due to circumstances which the Contractor could not reasonably have foreseen when the Contract was made; or
·     Schedule Item 5 delays if:
(a) there is a delay for any of the reasons listed in Schedule Item 5; and
(b) the number of days actually delayed is more than that provided for in Schedule Item 5.
Note: For a delay to be claimed under Schedule Item 5, the delay allowed for must be reasonable having regard to the circumstances.
The Contractor may not claim an extension for Schedule Item 5 delays in any other circumstance.
If the Contractor wishes to claim an extension of the Date for Practical Completion other than under Condition 7, the Contractor must give to the Owner a BSA Form 1 Extension of Time Claim and Owner's Response to Claim with the particulars completed or other written notice which must:
·     be given within seven (7) business days of the occurrence of the relevant cause of delay;
·     identify the cause of the delay; and
·     state the period of time that the Contractor wishes to claim an extension of the Date for Practical Completion.
The Owner must then, within seven (7) business days of receiving the Contractor’s claim, return to the Contractor the said Form 1 Extension of Time Claim and Owner’s Response to Claim or other written notice stating that:
·     the Owner agrees to the claimed extension; or
·     the Owner wholly or partially rejects the claimed extension and giving the Contractor reasons for that rejection.
If the Owner fails so to respond to the Contractor’s claim, the said extension of time will be deemed to be disputed by the Owner.
Delay or failure by the Owner to agree to an extension of time does not cause the Date for Practical Completion to be set at large, but the Contractor shall be entitled to loss, cost or expense actually incurred by the Contractor by reason of the wrongful rejection of a claim for an extension of the Date for Practical Completion.

The applicant contends that it is entitled to an extension of time for the following matters:
(a)It alleges the respondents failed to make plumbing selection until the day before rough-in, which delayed the rough-in work for 3 days until the selected materials arrived and the plumber was able to return and complete the work;
(b)It alleges the applicant did not receive the joinery details from the designer until 14 April 2005, then obtained several quotes from a cabinet maker, accepted a final quote on 20 June 2005, but the contract was not signed by the applicant until 11 July 2005, because the cabinet maker had not put the correct dates on the contract; and the cabinet maker did not construct a bulkhead for the kitchen, which the applicant’s carpenter then constructed; so that the completion of this part of the work was delayed by 8.6 weeks;
(c)It alleges the respondents did not pay the applicant’s invoice delivered on 7 September 2005 within 5 working days; the invoice was partly paid on 11 October 2005; and, as a consequence, work was suspended for 3.3 weeks between 30 September 2005 and 23 October 2005;
(d)It alleges the pool tiles were not delivered until 9 November 2005; the applicant could not secure a tiler until 30 November 2005; so that the work was delayed by 3 weeks; and
(e)It alleges an insufficient quantity of tiles was ordered and supplied by the respondents for the outdoor tiling area; additional tiles had to be supplied; and as a consequence work was delayed by 1 week.
The applicant contends that the cumulative effect of these delays entitled it to an extension of the Date for Practical Completion until 17 December 2005, which is after the termination notice.
The respondents deny the applicant’s allegations about each of these claimed periods of delay.
The applicant did not give the respondents an extension of time notice in the form referred to in clause 13. Such a notice appears to be a requirement for claiming an extension of time under clause 13. The clause requires the applicant to give an extension of time notice within seven (7) business days of the occurrence of the relevant cause of delay. The time prescribed in clause 13 may not be of the essence of the contract; it is not included in the matters that amount to a “substantial breach” of the contract, listed in clause 26. However, in the ensuing five years, the applicant has not given any notice under clause 13.
In the circumstances, although the applicant may be entitled to claim an extension under clause 13, it has not claimed one and the Date for Practical Completion set by schedule item 4 of the contract has not been altered by any extension under or in accordance with clause 13.
The applicant’s challenge to the 14 August 2005 Date for Practical Completion may not be entirely misconceived. In their written submissions, the respondents characterise their solicitors’ letter of 27 October 2005 in this way: “the Respondent[s] granted the Applicant a further five (5) weeks in which to have the house completed, that is, by no later than 25 November 2005”. At the least, this was an election to treat the contract as still being on foot, despite the applicant’s failure to achieve Practical Completion by 15 August 2005. Arguably, it effected an agreement to extend the date to 25 November 2005. The reservation of rights referred to in the letter is quite inconsistent with the balance of the text.
In the circumstances, I am satisfied that on about 27 October 2005 the respondents lost their right to terminate the contract on the basis of the applicant’s failure to reach Practical Completion by 15 August 2005.
It follows that the notice to remedy breach of 28 November 2005 was wrong, as it complained of a failure to complete by the, by then overtaken, date of 15 August 2005. The breach, strictly speaking, could not be remedied because the alleged Date for Practical Completion had already past. The applicant was not obliged to remedy that alleged breach and its failure to do so did not give the respondents a right to terminate the contract by their notice dated 7 December 2005.
In the notice of 28 November 2005 the respondents did not complain of the failure to reach Practical Completion by 25 November 2005 or call upon the applicant to remedy any such failure.
It is far from clear that a failure to reach Practical Completion by the Date for Practical Completion (as initially agreed or as varied) would place the applicant in substantial breach of the contract. Clause 26 does not include such a situation in the definition of “substantial breach”. It would have been a simple matter for the contract to do so or for the parties, if that was their specific agreement, to amend the contract to so provide. Although the definition of “substantial breach by a Contractor” is inclusive, rather than exhaustive, it does specifically include “unreasonably failing to perform the work diligently or unreasonably delaying, suspending or failing to maintain reasonable progress”.
Perhaps conscious of this problem, in their written submissions, the respondents did not rely on the breach identified in their notice. Instead, they contended that the applicant was in “substantial breach” of the contract “by unreasonably failing to perform the work diligently and unreasonably delaying, suspending or failing to maintain reasonable progress for the works.” In doing so they picked up the language of the definition in clause 26.
If the respondents had made that allegation in their notice to remedy breach, it would have been a breach capable of remedy; the applicant would have had seven days in which to remedy that alleged breach by performing the contract work diligently and maintaining reasonable progress with the work. Of course, the applicant would contend that it did work diligently and maintain reasonable progress with the work in the period between the respondents’ two notices. As noted above, the applicant’s case is that the tiles for the pool area were not delivered until 9 November 2005 and the applicant could not secure a tiler until 30 November 2005. The applicant’s managing director, Mr Gibson, says these delays were beyond its control. There is no evidence to the contrary.
The delays the respondents identify in their submissions are, in the main, the delays the applicant relies on for its “extension of time” claim and which are set out above. Save for the days between 28 and 30 November 2005, those periods of delay do not coincide with the period between the giving of the two notices. There is no evidence that the applicant did not perform the contract work diligently and maintain reasonable progress between 28 November and 7 December 2005. It is the respondents who make that allegation, in their written submissions. In the absence of evidence that supports the allegation, it fails.
It follows that the respondents’ purported termination of the contract by the notice of termination dated 7 December 2005 was not valid or effective to terminate the contract, because, at the time the respondents’ notices were given, the breach alleged in the notices was not a breach of the contract; and the respondents have not shown that the applicant failed to remedy the breach alleged in their written submissions.

Breach by the respondents

It is not strictly necessary to consider the applicant’s second ground of contention concerning the notice of termination. However, in the event that the above conclusion is challenged and found to be in error, the second ground should be considered.
The respondents’ failure to pay the September progress claim in full is alleged to be a substantial breach of the contract.
Clause 26 of the contract, set out above, contains a definition of a substantial breach by an owner, which includes “failing to pay any money due and owing to the Contractor for five (5) business days.”
Clause 16 of the contract deals with payment. It provides, in part, as follows:
The Progress Payment for each stage shall consist of:
(a) the percentage of the Lump Sum Component or other progress payment applicable to that stage as stated in Schedule Item 10 or in any separate document setting out payment stages;
(b) the amount payable for any Prime Cost Items completed to that stage and not included in a previous Progress Payment;
(c) the value of any Provisional Sum Item completed to that stage and not included in a previous Progress Payment but if the value of any Provisional Sum Item exceeds by 10% the amount allowed for that Item in the Provisional Sums Schedule the Contractor is entitled to payment of so much of the amount in excess as is reasonable. If there is a dispute between the parties as to reasonableness of the whole or part of the amount in excess that dispute must be referred for resolution in accordance with Condition 27; and
(d) any other amount then payable to the Contractor in respect of variations pursuant to and in accordance with Condition 21.
The Owner must pay the Contractor the Progress Payment, or so much of the relevant claim for Progress Payment as is not disputed by the Owner, within five (5) business days of receipt of the relevant claim.
If the Owner disputes the relevant claim for Progress Payment or any part of it, the Owner must within five (5) business days of receipt of the relevant claim give to the Contractor a BSA Form 4 Notice of Dispute of Progress Claim with the particulars completed or other appropriate written notice, stating the reasons for so disputing the claim or part of it. If that dispute is not resolved by the parties within five (5) business days of the receipt by the Contractor of the notice of that dispute, the dispute must be referred for resolution in accordance with Condition 2
It follows that from about 15 September 2005 the respondents were in substantial breach of the contract.
In paragraph 3(i) of their amended defence, the respondents allege that the applicant had completed some but not all of the items of work in the stage the subject of the September progress claim. If that was the case, the respondents could have disputed the progress claim by a notice under clause 16 of the contract. They did not do so. Their contractual obligation was to pay to the applicant “so much of the relevant claim for Progress Payment as is not disputed”. This means not disputed in accordance with the contract; it does not extend to include any private or informal dispute about payment that the respondents may have in contemplation. As the September progress claim was not disputed under clause 16, the whole of the claimed sum was due to be paid by 15 September 2005.
In paragraph 3(ii) of attachment “A” to their Amended Defence filed on 8 February 2008, the respondents plead their request of 14 September 2005 for deletions of certain items from the contract and, in paragraph 3(iii), they had alleged that allowing for the deletion of the prime cost items (agreed to on about 13 October 2005) the contract price was reduced so that the September progress claim exceeded the percentage (35%) of the contract price to be paid for the relevant stage. Paragraph 3(iii) of the pleading was struck out on 11 February 2010. In any event, the percentage to be paid in a progress claim is a percentage of the lump sum component of the contract price. The agreement apparently reached about the prime cost items did not alter the lump sum component. It had no effect on the progress payment claimed by the applicant on 7 September 2005.
It follows that the respondents were still in substantial breach of the contract at the dates they gave their notices to the applicant. Given clauses 16 and 26, there is no doubt that the obligation to pay the progress claim within the stipulated time was an essential term of the contract.
At common law, an innocent party may terminate an executory contract by accepting the other party’s breach of an essential term as a repudiation of the contract: Heyman v Darwins Ltd [1942] AC 356 at 361; Ryder v Frohlich [2004] NSWCA 472 at [116]. Where a party is itself in substantial breach of a contract – a breach entitling the other party to give a notice and, if the breach is not remedied, terminate the contract – there may be some difficulty in the breaching party itself acting to terminate the contract.
The respondents’ breach (not paying the progress claim) began before and continued throughout the period in which the respondents contend the applicant failed to remedy the breach alleged in their 28 November 2005 notice. It does not appear from any evidence filed or referred to in the submissions that the applicant ever acted in a way that demonstrated an unequivocal election to forego its right to be paid the progress claim in full.
If the applicant had been in substantial breach between 28 November and 7 December 2005 (as the respondents unsuccessfully contended) then the respondents were simultaneously in substantial breach. If the respective obligations were interdependent, at common law, neither side may have been entitled to terminate the contract: Foran v Wright (1989) 168 CLR 385 at 417; Bremer Vulkan v South India Shipping [1981] AC 909 at 987; Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854. However, the applicant’s obligation to proceed with the works was not conditional upon the respondents’ obligation to pay a progress claim; they were independent and separate obligations; so that the respondents’ breach might not have prevented it acting on the applicant’s breach: Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40 at 51; Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462 at 481.
In any case, the respondents did not purport to terminate the contract on the basis of any repudiation by the applicant. Instead they relied on the right to terminate under clause 26 of the contract. That right is expressly “in addition to any other powers, rights or remedies the terminating party may have”. Clause 26 does not include any express limitation or qualification on a party’s right to terminate such that a party itself in substantial breach could not give another party, also in substantial breach, a notice. No case has been made that would justify the implication of any such limitation or qualification on the express contractual right in this contract.

Had the applicant been in substantial breach of the contract when the respondents gave their notice of termination dated 7 December 2005, then the respondents’ notice could have been effective to terminate the contract. However, the respondents have failed to show that the applicant was then in substantial breach, as alleged in the notice or otherwise. It follows that their notice was not valid or effective to terminate the domestic building contract between the parties dated 2 December 2004.
It is appropriate to give effect to this conclusion by making a declaration to that effect, pursuant to the power conferred by section 60 of the QCAT Act. It is also appropriate that the respondents’ pleading about the termination, in paragraphs 6, 7 and the second sentence in paragraph 9 of the counterclaim in attachment “B” to the respondents’ Amended Defence, be struck out.