R Developments Pty Ltd v Forth

Case [2016] ACTSC 8

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:

R Developments Pty Ltd v Forth & Anor

Citation:

[2016] ACTSC 8

Hearing Dates:

10, 11, 12 August 2015

DecisionDate:

4 February 2016

Before:

Mossop AsJ

Decision:

See [183]

Catchwords:

CONTRACT – Standard form building contract – contract wrongfully terminated by builder on basis of alleged failure by owner to comply with contractual requirement to provide evidence of capacity to pay amounts due under contract – not open to builder to rely on contractual requirement once building works commenced – no entitlement to rely on alternative power to end contract – counterclaim based on acceptance of wrongful termination as repudiation of contract – entitlement to damages on repudiation – quantum of damages not established

Legislation Cited:

Court Procedures Rules 2006 (ACT)

Cases Cited:

AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170

Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237
Phillips v Ellinson Brothers Pty Ltd (1941) 65 CLR 221
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
Shevill v Builders Licensing Board (1982) 149 CLR 620
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Tan Hung Nguyen v Luxury Design Homes Pty Ltd [2004] NSWCA 178

United Petroleum Pty Ltd v 7-Eleven Stores Pty Ltd [2012] QCA 172

Texts Cited:

Cheshire and Fifoot, Law of Contract, 10th Australian edition

Parties:

R Developments Pty Ltd (Plaintiff)

Andrew Stephen Forth (First Defendant)

Ksenija Maria Nemet (Second Defendant)

Representation:

Counsel

AJ Greinke and JPD Trost (Plaintiff)

BF Katekar (First and Second Defendants)

Solicitors

Meyer Vandenberg Lawyers (Plaintiff)

Kamy Saeedi Law (First and Second Defendants)

File Number:

SC 201 of 2014

Introduction

  1. This case relates to a building contract.  The contract was for the construction of a residence at 12 Bailey Place, Yarralumla.  The plaintiff was the builder and the defendants are the owners.  I will generally refer to the parties as the Builder and the Owners.  The contract was a written one entered into on 27 February 2013.  The Builder terminated the building contract on 13 August 2013.  The ground upon which the contract was terminated was an alleged failure to comply with a requirement under the contract to supply evidence of the Owners’ capacity to pay the amount required to be paid under the contract.  The resolution of the case depends, in substance, on whether or not the termination by the Builder was a valid one.  If it was valid then the Builder asserts an entitlement to damages.  If it was not valid then the purported termination has been accepted as a repudiation of the contract and the Owners assert an entitlement to damages.  The positions of the parties are somewhat more refined than this and I will identify their positions in some more detail by reference to their pleadings.

  1. My conclusion is that the Builder’s claim fails because it was not entitled to insist,…

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R Developments Pty Ltd v Forth [2016] ACTSC 8
Case
[2016] ACTSC 8
Decision Date

CaseChat Overview and Summary

The case of R Developments Pty Ltd v Forth involved a dispute between a property owner and a builder over a standard form building contract. The builder had terminated the contract on the basis that the owner had failed to provide evidence of capacity to pay amounts due under the contract. The owner counterclaimed that the builder had wrongfully terminated the contract, which constituted a repudiation, and sought damages. The court was required to determine whether the builder was entitled to terminate the contract based on the owner's failure to provide evidence of capacity to pay, and if the owner was entitled to damages for the wrongful termination.

The court found that the clause in the contract which required the owner to provide evidence of capacity to pay was contingent on the commencement of the building works. Once the works had commenced, the builder could no longer insist on the evidence of capacity to pay, and had effectively elected to proceed with the works without requiring the evidence. Therefore, the builder was not entitled to terminate the contract based on the owner's failure to provide evidence of capacity to pay. The court also found that the owner was entitled to damages for the wrongful termination, as the builder had repudiated the contract by terminating it without cause. However, the quantum of the damages was not established in the case.

The court's reasoning was based on the interpretation of the contractual provisions and the principle of election. The court held that once the building works had commenced, the builder had made an election to proceed with the works and could no longer insist on the evidence of capacity to pay. The court also found that the owner was entitled to damages for the wrongful termination, as the builder had repudiated the contract by terminating it without cause. The court did not establish the quantum of the damages, as this was not the focus of the case. The court's decision highlights the importance of carefully considering the terms of a contract and the principle of election when terminating a contract. It also underscores the need for builders and owners to clearly understand their contractual obligations and rights, and to seek legal advice where necessary.

Orders

Orders of the court

See [183]

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Conclusion: My conclusion as to the operation of cl 4 is as follows. The function of the words “Before the commencement of the Works” is to fix the point at which the obligation arises. If that point is passed then the obligation no longer exists. If by reason of satisfaction or otherwise the builder chooses to commence the works then it has extinguished any obligation upon the owner to provide the evidence that it might have insisted upon. Such an outcome could be described as the builder making an election to proceed with the works and to not require compliance with cl 4. In Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 641 Stephen J said of the doctrine of election: The Builder countered this argument by saying that cl 7 does not make the entitlement to commence the works contingent upon compliance with cl 4. Hence it argued that it is not a case of there being inconsistent rights. However this submission does not, in my view, give proper effect to the opening words of cl 4(a) as a limit upon the time when the obligations arise. If the effect of the opening words of cl 4(a) is to confine the operation of the clause to the period prior to commencement of works then inconsistent sets of rights can be seen to exist. First, there is the right to insist upon provision of evidence under cl 4 and then proceed to commence the works or terminate the contract under cl 27. Alternatively, there is the right to commence the works without that evidence which necessarily extinguishes the rights under cl 4. These can be seen as inconsistent rights because by adopting the latter course the entitlement to insist upon the additional obligations in cl 4 has been destroyed. The Builder has made an election in the sense that it has made a decision to take action which under the contract ends the period during which the obligation upon the owner exists. By doing so it necessarily disentitled itself from insisting upon compliance with cl 4(a) or taking the steps under cl 4(b) consequent upon a failure by the owner to comply with that obligation. Whether this is in fact described as an election or simply an interpretation of the contract which confines the operation of cl 4 to the period before the commencement of works does not really matter. The ultimate point is that the clause ceases to have effect at the point where building works under the contract have been commenced and it is no longer open to the builder to assert any non-compliance with that obligation. There are two further arguments against such an interpretation which must be considered. The Builder argued that giving this effect to the opening words of cl 4 would be inconsistent with the drafting of cl 20 which relates to the payment of a deposit. That clause also uses the words “before the commencement of Works”. The Builder argued that it would never be contended that if the builder commenced works that the deposit would no longer be payable and hence that cl 4 should not be interpreted as ceasing operation at the point where the builder commenced works. While there is some force in this argument I do not accept it. First, the conceptual precision in the drafting of the contract as a whole is not such as to allow great weight to be given to the use of the same expression elsewhere in the contract. Second, the submission fails to take into account the various features of both the drafting of cl 4 and its context which have been referred to above and which, in my view, indicate that it should be given the interpretation which I have indicated.

Ratio Decidendi

Legal Principle Established

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