Jade Residential Limited v Paul

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA344/2019
[2020] NZCA 477

BETWEEN	JADE RESIDENTIAL LIMITED Appellant
AND	MURRAY PAUL and MARIE PAUL Respondents

Hearing:	18 June 2020
Court:	Goddard, Ellis and Katz JJ
Counsel:	M B Lawson and J D Cameron for Appellant K A Lomas for Respondents
Judgment:	8 October 2020 at 11.00 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellant must pay the respondents costs for a standard appeal on a band A basis, with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Katz J)

Introduction

Jade Residential Ltd (Jade) is a building contractor. In April 2015, Jade entered into a contract to build a house for Murray and Marie Paul (the Pauls). The contract price was to be paid in instalments linked to the completion of various construction milestones.
A dispute arose between Jade and the Pauls as to whether two of the construction milestones, the closed-in milestone and the lined milestone, had been met. (It is common ground on appeal that those milestones had not been met, contrary to Jade’s assertions at the time.) The Pauls refused to make the payments for those milestones until the required work had been completed. Jade responded by suspending work on the site. When Jade refused to return to work by the deadline set by the Pauls, the Pauls cancelled the contract.
Jade issued proceedings in the District Court, alleging that the contract had not been validly cancelled. Judge Rea held that the Pauls had not been entitled to cancel the contract, as they were required to follow the dispute resolution process set out in the contract prior to exercising their right of cancellation.[1]
[1]Jade Residential Ltd v Paul [2018] NZDC 5673 [District Court judgment] at [55]–[56].
The Pauls appealed to the High Court. Grice J allowed their appeal.[2] Amongst other things, she held that the dispute resolution clause was not a bar to cancellation of the contract, and that the Pauls had validly cancelled the contract.[3] Jade sought leave from the High Court to bring an appeal to this Court, but leave was declined.[4]
[2]Paul v Jade Residential Ltd [2019] NZHC 304 [High Court judgment].
[3]At [54]–[57] and [68].
[4]Jade Residential Ltd v Paul [2019] NZHC 1484 [High Court leave judgment] at [61].
Subsequently, this Court granted leave to Jade to bring a second appeal challenging both of those findings.[5] The approved questions on appeal are:
(a)Did the High Court err in finding that the dispute resolution clause, cl 27, did not “purport to bar anything other than the issue of court or arbitral proceedings” and did not bar or delay “the other rights of the parties under the contract”, including a right to cancel?
(b)Did the High Court err in holding that the Pauls were entitled to, and did validly, cancel the contract because Jade’s suspension of, and failure to return to, work on the contract site constituted a repudiation of the contract?

Facts

[5]Jade Residential Ltd v Paul [2019] NZCA 466.

The building contract between Jade and the Pauls was a combination of a standard form contract prepared by Jade and amendments requested by the Pauls. It provided for a total contract price of $575,760, payable by way of instalments once certain construction milestones were met.
The contract required Jade to commence work within “a reasonable time once the Consents have issued” and to “complete the Work within a reasonable time”. It set out an expected start date (1 May 2015), and an expected completion date (1 October 2015). In addition, cl 4(a) stated:
Commencement: The Builder will commence the Work within a reasonable time once the Consents have issued and the terms of the Consents Variation have been agreed (if applicable) and maintain a continuous construction programme until completion.

The italicised words were added at the Pauls’ request.

Accordingly, once Jade had commenced the contract works, it was obliged to maintain a continuous construction programme subject to its contractual right to suspend work in certain circumstances. Those circumstances included the Pauls’ failure to pay monies due under the contract for a period of seven working days after the due date (cl 14(a)).

“Closed-in” and “lined” milestones

A progress payment of $158,334 was required to be paid to Jade when the “closed-in” milestone was completed. The closed-in milestone date was defined in the contract as “[t]he date the house is able to be locked and external cladding has been completed”.
On 12 February 2016, Jade issued the closed-in milestone invoice. The external plastering work had not been commenced, however, as the sub-contractor who had originally agreed to undertake the work was unable to do so due to health issues. A new sub-contractor was found, but at twice the price. A dispute arose between Jade and the Pauls as to who should pay the difference.
The Pauls’ banker was not willing to advance funds to pay the closed-in milestone invoice until the milestone was actually met (including the external plastering). Jade, however, continued to press for payment. It re-issued the closed-in invoice on 25 February 2016, with altered wording that did not refer to the external cladding, but instead claimed that payment was due on the basis that the building was “deemed Closed In and Lockable”.
In a subsequent email exchange Mr Walls (the sole director of Jade) acknowledged that the external plastering was incomplete, and the external joinery was not installed, but nevertheless maintained the position that the closed-in invoice was payable because the property was deemed “lockable.” Mr Walls offered the Pauls two options:
(a)he could reword the invoice to describe the current stage of the house (with the amount owing to remain the same); or
(b)Jade would stop work until the exterior plasterer completed the job.
Mr Walls then issued another version of the invoice, for the same amount, with the added wording “[t]his invoice excludes exterior plastering”.
Mr Paul responded on 2 March 2016, reiterating that the plastering was Jade’s responsibility and that the closed-in milestone had not yet been met. He indicated, however, that the Pauls would be open to paying “the residual amount” of the progress claim (the claim less the amount required for the external plastering work). No agreement was reached regarding Mr Paul’s offer, however, and Jade continued to press for full payment of the closed-in invoice.
On 7 March 2016, Jade sought to formally vary the contract to increase the allowance for exterior plastering to reflect the quote it had received from the new sub‑contractor. Two days later Mr Walls confirmed that “the progress of the job is on hold until we have resolved the outstanding payment”. The Pauls did not agree to the proposed variation.
Also on 7 March 2016, Jade issued the lined milestone invoice for $57,576. The Pauls disputed that the lined milestone had been met.
The dispute resolution clause in the contract (cl 27) provided that in the event of a dispute the parties were to meet promptly in good faith and use their best endeavours to resolve the dispute.[6] Mr and Mrs Paul, their accountant Mr Shepherd, and Mr Walls accordingly met on 15 March 2016 to try and resolve the impasse. The Pauls offered to pay the closed-in milestone payment in three equal instalments, one of which would be payable immediately. Jade rejected that offer. In relation to the lined milestone invoice, Jade agreed to undertake some fairly limited further work in relation to the shower linings, although who was to pay for that work was not agreed.

Suspension of works

[6]The dispute resolution clause is set out in full at [26] of this judgment.

On 17 March 2016, Mr Walls emailed the Pauls and confirmed that the works would not proceed until the demanded payments had been made. It appears that the only work undertaken on site after that date was some limited relining work in relation to the showers. Jade continued to demand payment for the closed-in and lined milestones and reiterated that it would not recommence work until it had received payment from the Pauls.
On 22 March 2016, Mr Shepherd wrote to Jade on behalf of the Pauls, advising Jade of the legal advice that the Pauls had received, including that the closed-in and lined milestones had not been met and that Jade was in breach of its obligation to maintain a continuous construction programme. Jade was asked to recommence work. It did not do so.
On 8 April 2016, the Pauls’ solicitors wrote to Jade expressing concern that Jade had withdrawn from the site, locked the dwelling (thereby preventing access) and refused to continue work until the disputed invoices were paid. The letter further stated that:
(a)Jade was in breach of the contract by suspending work when the milestones had not been met, and monies were not owing;
(b)Jade was also in breach of its obligation to maintain a continuous construction programme;
(c)Jade was required to recommence work by 8.00 am, Monday 11 April 2016 (later extended to 12 April 2016); and
(d)if Jade refused to return to site and continue with the work, the Pauls had the right to cancel the contract.
Jade’s solicitors responded on 11 April 2016, asserting that both the closed-in and lined invoices were due and payable. The letter claimed that Jade was well within its rights to suspend all work, but that Jade would be “quite prepared to return to complete the job provided a satisfactory resolution can be reached for payment of these invoices”. Jade’s solicitors advised that Jade was not prepared to wait for payment. Nor was it prepared to engage another sub-contractor to complete the work at greater cost to itself.
On 13 April 2016, the Pauls’ solicitors wrote to Jade’s solicitors and gave notice that the contract was cancelled. The following day, 14 April 2016, Jade’s solicitors wrote to the Pauls’ solicitors advising that Jade did not accept the purported cancellation and serving a dispute notice under the contract.
On 18 April 2016 the Pauls took possession of the site.
Both the District Court and the High Court found that the closed-in and lined milestones had not been achieved, and that Jade was not therefore entitled to payment for those invoices.[7] Those findings have not been challenged on appeal.

Issue 1: Did the High Court err in finding that the dispute resolution clause did not bar the right to cancel the contract?

[7]District Court judgment, above n 1, at [27] and [38]; and High Court judgment, above n 2, at [24] and [39].

The first issue on appeal is whether the High Court erred in finding that the dispute resolution clause did not “purport to bar anything other than the issue of court or arbitral proceedings” and did not bar or delay “the other rights of the parties under the contract”, including a right to cancel.

The dispute resolution clause

The dispute resolution clause states:
27. Dispute Resolution
(a)Good faith meeting: If any dispute arises between the parties, the parties agree to meet promptly in good faith and use their best endeavours to resolve such dispute as soon as possible.

(b)Dispute notice: If any dispute arises between the parties and such dispute has not been resolved in accordance with clause 27(a), then any party may give notice of the dispute to the other party (referred to as the Dispute Notice). The Dispute Notice must briefly describe the dispute and state that it is given under this clause.
(c)Mediation: As soon as reasonably practicable after the Dispute Notice has been given, the parties shall refer the dispute to mediation as follows:
(i)The mediator must be agreed between the parties. If the parties cannot agree on a mediator within 5 Working Days of the date the Dispute Notice is given, a mediator must be appointed by the President of the Arbitrators and Mediators Institute of New Zealand.
(ii)Each party must pay its own costs associated with the mediation.

(d)No proceedings: Neither party may require any arbitration, or issue any legal proceedings (other than for urgent interlocutory relief), in respect of any such dispute, unless that party has first taken all reasonable steps to comply with clause 27.

The District Court and High Court decisions

Judge Rea held that the cancellation was ineffective as the parties were required to complete the dispute resolution process set out in cl 27 before the contract could be validly cancelled.[8] His Honour relied in particular on the case of Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd (discussed below).[9]
[8]District Court judgment, above n 1, at [55]–[56].
[9]Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 2089.
On appeal to the High Court, Grice J found that the dispute resolution clause in this case, unlike that in Waihopai, did not bar or delay the exercise of the right of cancellation:[10]
[51]     … In Waihopai the contractual arrangement between the parties governed a long-term relationship. The contracts involved were a grape supply agreement and vineyard management agreement. These were intended to regulate the relationship between the parties for many years. The dispute resolution clause was … complex and far reaching.
[52]     The Waihopai dispute resolution clause specifically prohibited the termination of the contract before the mediation procedure had been followed. In Waihopai, the Judge carefully considered the context of the relationship, the length over which the contracts were intended to remain in existence and the specific wording of the contracts. He concluded that the dispute resolution process should be followed before Waihopai could terminate the [contract]. …
[53]     Therefore, in Waihopai the act complained of that triggered the cancellation was specifically governed by the dispute resolution clause.
[54]     In this case the contract was not governing a long-term relationship between the parties. It was a contract for a one-off building. In addition, the dispute resolution clause is clear and does not purport to bar anything other than the issue of court or arbitral proceedings.
[55]     There is nothing in this contract to suggest that the dispute resolution clause would have the effect of barring or delaying the other rights of the parties under the contract. If a party wished to cancel the contract they could do so.
[56]     In my view, the dispute resolution clause in this case does not prevent nor did it prevent the Pauls from validly cancelling the contract.

Were the Pauls required to complete the dispute resolution process prior to cancelling the contract?

[10]High Court judgment, above n 3 (footnote omitted).

The contract does not expressly provide the Pauls with any rights of termination. The termination provisions of the Contract and Commercial Law Act 2017 (CCLA) therefore apply. They provide a contracting party with a right to terminate a contract where the contract has been repudiated; or where the party was induced to enter into the contract by a misrepresentation by the counterparty, or there has been, or will be, a breach of a contractual term, and certain criteria set out in s 37(2) of the CCLA are met.[11]
[11]Contract and Commercial Law Act 2017, ss 36 and 37.
Jade submitted that, correctly interpreted, the dispute resolution clause suspends the exercise of any rights of termination under the CCLA until the contractual dispute resolution process has been completed. The Pauls, on the other hand, submitted that that is not the correct (or even an available) interpretation of the contract.
In Property Ventures Investments Ltd v Regalwood Holdings Ltd, Blanchard J (giving reasons for the majority) stated that:[12]
Express words or a very clear implication are needed to remove a remedy for breach of contract arising by operation of law.
[12]Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231 at [71]; citing Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 13.
We agree with Grice J that Jade’s reliance on the Waihopai decision in this context is misplaced. In Waihopai, the contracts contained express provisions that limited the right of termination until completion of the contractual dispute resolution process. There is no such provision here. Clause 27 sets out a dispute resolution process that must be followed before proceedings can be issued. The clause does not, however, bar the exercise of other contractual remedies, such as cancellation.
Mr Lawson, counsel for Jade, submitted that contractual dispute resolution clauses would be rendered redundant if a party was entitled to cancel without first going through the contractual dispute resolution process. We do not accept that submission. Many contractual disputes will not give rise to a right of cancellation. Even where a right of cancellation arises, the innocent party may elect not to exercise that right. Further, even if a right of cancellation exists, and it is exercised, any dispute resolution clause may well survive the cancellation of the contract — cancellation only discharges the parties from future performance of the contract; provisions that were intended to survive cancellation and rights that have already been acquired are not affected.[13]
[13]Contract and Commercial Law Act, ss 34, 42; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (HL); Dorchester Finance Ltd v Deloitte [2012] NZCA 226, [2012] NZCCLR 15; Gilbert‑Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 (HL) at 717 and 723; Brown v Langwoods Photo Stores Ltd [1991] 1 NZLR 173 (CA); JNJ Holdings Ltd v Kent Sing Trading Co Ltd [2017] NZHC 3274 at [401]–[408]; and McDonald v Dennys Lascelles Ltd [1933] HCA 25, (1933) 48 CLR 457 at 476–477 per Dixon J.
There are no express words in cl 27 that required the Pauls to defer exercising their right of cancellation until the dispute resolution process had been completed. Nor, in our view, can such a requirement reasonably be implied from the words of that clause, viewed in their full contractual context. The High Court was accordingly correct to find that the dispute resolution clause did not prevent the Pauls from validly cancelling the contract.

Issue 2: Did the High Court err in holding that the Pauls were entitled to, and did, validly cancel the contract?

The second issue on which leave to appeal was granted is:
Did the High Court err in holding that the Pauls were entitled to and did validly cancel the contract because Jade’s suspension of, and failure to return to, work on the contract site constituted a repudiation of the contract?

High Court decision

The High Court’s findings on the issue of repudiation (and the subsequent cancellation) were as follows:[14]
[66]      In this case, Jade’s responses demonstrated it did not intend to complete the Contract except on terms which were substantially different to those imposed by the Contract. A right of cancellation arose when Jade communicated its position to the Pauls, and Jade did not recommence work. It is insufficient for Jade to now argue that, following Kumar, it honestly believed money was owed.
[67]      I make this finding in light of Jade’s refusal to return to the site to perform the contract. Jade insisted it would “…perform it only in a manner substantially inconsistent with the obligations which the contract imposed…”[15] The question therefore becomes whether this was a legal error that could be corrected before the date of performance. Mr Lomas points to Kumar in support of his argument noting that the Court said “…if a party persistently refuses to perform unless the other party accepts additional onerous terms inconsistent with the contract…the party may well be found to have repudiated the contract…”.[16] That must be the case here.
[68]      In light of this repudiation, the contract was validly cancelled on 13 April 2016.

Relevant law

[14]High Court judgment, above n 2.

[15]Betham v Margetts [1996] 2 NZLR 708 (HC) at 711.

[16]Kumar v Station Properties Ltd [2015] NZSC 34, [2016] 1 NZLR 99 at [63].

A breach of contract will always entitle the innocent party to pursue a claim for damages. However, a right of cancellation will only arise in the circumstances set out in ss 36 and 37 of the CCLA. The circumstances that are relevant to this case are:
(a)where a party repudiates the contract by making it clear (by words or conduct) that it does not intend to perform or complete the performance of its obligations under the contract (s 36); or
(b)where a party breaches a term in the contract (or it is clear that it will breach a term) and:
(i)the parties have expressly or impliedly agreed that the performance of the term is essential to the cancelling party (s 37(2)(a)); or
(ii)the effect of the breach or anticipated breach of the contract is, or will be, to substantially reduce the benefit or increase the burden of the contract to the cancelling party or (in relation to the cancelling party) make the benefit or burden of the contract substantially different from that represented or contracted for (s 37(2)(b)).
In Kumar v Station Properties Ltd, the Supreme Court observed that in some situations (in particular, where “partial” repudiation is alleged), these two scenarios converge.[17] In particular:[18]
[57] Repudiatory conduct may relate to the whole of the contract or to part of it. The possibility of partial repudiation seems to follow from the language of s 7(2):
… another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.
The italicised words suggest that the repudiating party may have done something by way of performance, but then refused to complete. In the case of partial repudiation, however, the conduct must constitute a contractual breach that is sufficient to entitle the innocent party to cancel in terms of ss 7(3) and (4). If the breach does not justify cancellation in terms of ss 7(3) and (4), the innocent party will be left to its remedy in damages. Because an allegation of “partial repudiation” requires analysis in terms of ss 7(3) and (4), the term is arguably somewhat unhelpful.
(Footnotes omitted, emphasis in original.)
[17]At [55].
[18]Kumar, above n 16. Section 7(2) of the Contractual Remedies Act 1979 is the predecessor to s 36 of the CCLA and ss 7(3) and (4) are the predecessor provisions to s 37 of the CCLA.
The Supreme Court noted that this analysis is consistent with the position at common law. It referred to Lord Wright’s statement in Ross T Smyth & Co Ltd v T D Bailey Son & Co,[19] that a party who intended to fulfil a contract but only in a manner substantially inconsistent with his obligations and not in any other way would have repudiated the contract, as well as the similar observation made by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd.[20]
[19]Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 (HL) at 72.
[20]Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2002] UKPC 50, [2004] 1 NZLR 289 at [58].
The learned authors of Burrows, Finn and Todd on the Law of Contract in New Zealand observe, on the issue of partial repudiation, that the Supreme Court in Kumar:[21]
… seems to envisage that in order to entitle the innocent party to cancel the contract, the repudiation must be such that the corresponding breach of the term or terms repudiated would entitle cancellation. This suggests

a repudiation of either of two kinds. The first is where the party evinces an intention not to perform a stipulation which is essential to the cancelling party. …
The second is where the threatened breach of part of the contract will have serious consequences in that it will substantially reduce the benefit or increase the burden of the innocent party under the contract.
[21]Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 698.

In Kumar the Supreme Court made the following observations on the issue of whether a mistaken interpretation of a contract can constitute a repudiation:[22]
[63] On this point, it is necessary to return to the fundamental question under s 7(2) [now s 36 of the CCLA], namely, whether an inference can reasonably be drawn in the circumstances that the relevant party no longer intends to perform its obligations under the contract. This fact-based assessment must be made against the background that the threshold is a high one and that disputes about the meaning of contracts or the nature of the obligations they impose are commonplace. The mere fact that a party vigorously espouses a view of a contract’s meaning that is ultimately shown or accepted to have been wrong does not mean that the party is thereby manifesting an intention not to perform its obligations under the contract. If it is clear that the party accepts that it is bound by the contract, whatever meaning it is ultimately determined to have, the party should not be held to have repudiated the contract. By contrast, if a party persistently refuses to perform unless the other party accepts additional onerous terms inconsistent with the contract or on the mistaken view that there was never an enforceable contract, the party may well be found to have repudiated the contract. In such circumstances, the stance adopted amounts to a refusal to accept any obligation to complete the contract in accordance with its terms.
[22]Kumar, above n 16 (footnote omitted).
The time at which the mistaken interpretation of a contract is espoused is an important factor in this analysis. In some cases, a mistaken interpretation may be espoused by a party before the time for performance has arrived. In such cases the party does not necessarily breach their contractual obligations at the time they adopt that stance. Rather, the issue will be whether the mistaken party is simply espousing a particular interpretation of the contract but accepts they are bound by the contract and will perform in accordance with whatever meaning the contract may have, or whether they have gone further and manifested an intention to perform the contract at the time when performance is due only on the basis of their interpretation, regardless of whether that interpretation is wrong (an anticipatory repudiation).
If a party adopts an unequivocal (and incorrect) stance on the interpretation of a contract that relates to the future performance of a particular term or part of that contract, rather than to the contract as a whole, then it follows from Kumar that the other party will be entitled to cancel only if the term(s) in question are essential, or the threatened breach is serious. In this scenario, the requirements of s 37(1)(c) and (2) would also be satisfied, so classifying the threatened breach as a partial repudiation does not appear to add anything.
Where performance of the contract has already commenced or is already due, a further possibility arises. In such circumstances, a mistaken party may decide to perform the contract in accordance with their (incorrect) interpretation. If so, that party may breach the contract in the present, rather than simply manifesting an intention not to perform it in the future. It follows from Kumar that if the term breached is essential, or if the breach is serious enough, the mistaken party may be found to have repudiated the contract. In this scenario the requirements of s 37(1)(b) and (2) would also be satisfied, so once again classifying the breach as a partial repudiation does not appear to add anything.
It follows that, as the Supreme Court recognised in Kumar, an analysis in terms of partial repudiation under s 36 may be unhelpful: rather, the analysis should focus on s 37. However, as this case was analysed by the High Court and argued by the parties in terms of repudiation under s 36, we will begin by using that terminology, then set out the equivalent analysis under s 37.
In the construction contracts context, a number of cases have held that an absolute refusal to carry out the work, or an abandonment of the work before it is substantially completed, without any lawful excuse, is a repudiation.[23] Ultimately, however, as the English High Court observed in Mayhaven Healthcare Ltd v Bothma, whether there has been a repudiatory breach of a construction contract “will depend in each case on the breach and the facts and circumstances of the case”.[24] Applying the House of Lords’ decision in Woodar Investment Development Ltd v Wimpey Construction UK Ltd (which was also referred to with approval by the Supreme Court in Kumar[25]) the Court in Mayhaven stated that:[26]
… a party who bonafide relies on an express provision of the contract, in the present case to suspend performance, is not by that fact alone to be treated as having repudiated his contractual obligations if he turns out to be mistaken in his rights. Rather, that is one factor. The suspension must be viewed in the light of all the facts and circumstances of the case.
[23]Stephen Furst and Vivian Ramsey Keating on Construction Contracts (10th ed, Sweet & Maxwell, London, 2016) at [6-114]; citing Mersey Steel & Iron Co Ltd v Naylor (1884) 9 App Case 434 (HL); Marshall v Mackintosh (1898) 78 LT 750 (QB); and Hoenig v Isaacs [1952] 2 All ER 176 (CA).
[24]Mayhaven Healthcare Ltd v Bothma [2009] EWHC 2634 (TCC) at [25].
[25]Kumar, above n 16, at n 44 and 48.
[26]Mayhaven, above n 24, at [26]; paraphrasing Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 (HL) at 283 per Lord Wilberforce.
Mayhaven involved a construction contract between a building company, DAB, and a rest home company, Mayhaven. DAB mistakenly believed that Mayhaven had not paid a progress payment that it had been ordered to pay by an adjudicator. DAB suspended work on the site as a result. DAB would have been legally entitled to suspend work if the relevant progress payment had not been made, as it believed. Rather than alert DAB to its error, Mayhaven responded, on the same day, by terminating the contract on the basis of DAB’s alleged repudiation. Mayhaven knew that DAB was acting under a misapprehension that it had not been paid but made no effort to correct the misunderstanding. Rather, Mayhaven sought to take advantage of DAB’s mistake. The Court upheld the arbitrator’s decision that DAB had not repudiated the contract.[27]
[27]At [33].
Although not a construction case, the New Zealand case of Starlight Enterprises Ltd v Lapco Enterprises Ltd bears a number of similarities to Mayhaven.[28] Lapco agreed to manufacture 4,000 bags for Starlight at a price of $3 per bag. Part way through the contract, Lapco attempted to unilaterally raise the price, following which Starlight purported to cancel the contract. This Court held that Lapco had not repudiated the contract. Relevant circumstances included that Starlight had failed to inform Lapco that the contract did not permit a price increase. If that had been pointed out, the Court said, Lapco might well have wished to reconsider its position. It had not been given that chance.[29] The learned authors of Burrows, Finn and Todd on the Law of Contract in New Zealand express the view, however, that there can be little doubt that there would have been a repudiation justifying cancellation in Starlight if Lapco had insisted on its erroneous construction.[30]
[28]Starlight Enterprises Ltd v Lapco Enterprises Ltd [1979] 2 NZLR 744 (CA).
[29]At 748.
[30]Finn, Todd and Barber, above n 21, at 698.
The test for repudiation is an objective one. A court will consider how a reasonable party would interpret the repudiating party’s conduct. The repudiating party's actual intentions are not a relevant consideration:[31]
The question is whether in all the circumstances the communication should be regarded as an irrevocable indication that the party concerned would take no further steps to perform his or her obligations under the contract or alternatively that he or she would perform it only in a manner substantially inconsistent with the obligations which the contract imposed. If that were the objectively determined meaning of the communication, it matters not what the party making it intended or wanted … It would be different if there were a mere misinterpretation or legal error with opportunity for correction before due date for performance …
(Citations omitted.)
[31]Betham v Margetts, above n 15, at 711.
Given the serious consequences, repudiation will not be lightly inferred.[32] There must be a distinct, unequivocal and absolute refusal to perform.[33] The equivalent requirement set out in s 37(1)(c) is that it must be “clear” that the party will not perform.

Did the High Court err in finding that Jade’s suspension of, and failure to return to, work on the contract site constituted a repudiation of the contract?

[32]Kumar, above n 16, at [58].

[33]Sun v Peninsula Road Ltd (in rec and in liq) [2016] NZCA 427, (2016) 18 NZCPR 319 at [85].

Pursuant to cl 1 of the terms and conditions of the contract (as amended) Jade was obliged, subject to those terms and conditions, to “complete the Work in accordance with the plans, specifications and variations, if any, as supplied by the client”. In addition, Jade was required by cl 4 to “maintain a continuous construction programme until completion”. Clause 14 entitled Jade to suspend work for non‑payment of monies due under the contract. As noted previously, however, payments for the closed-in and lined milestones were not due at the time Jade suspended work.
In accordance with the legal principles we have outlined above, Jade will have repudiated the contract if it made it clear (by words or conduct) that it did not intend to perform, or complete the performance of, its obligations under the contract, or indicated that it will only perform the contract in a way substantially inconsistent with its obligations and not in any other way. In accordance with Kumar, the repudiatory conduct must relate to contractual terms breach of which would be sufficient to entitle the innocent party to cancel in terms of s 37 of the CCLA.[34]
[34]It appears to be implicit in the Supreme Court’s reasoning in Kumar, however, that the requirements of s 37 will be met where a party is only willing to perform the contract in a way substantially inconsistent with their obligations and not in any other way.
Mr Lawson’s primary submission was that, viewed objectively, there was no irrevocable indication by Jade that it would take no further steps to perform its obligations under the contract or, alternatively, that it would only perform it in a manner substantially inconsistent with the obligations which the contract imposed. He referred in particular to Jade’s letter of 11 April 2016 (two days before the Pauls cancelled the contract) in which Jade stated:
On a without prejudice basis, our client is quite prepared to return to complete the job provided a satisfactory resolution can be reached for the payments of these invoices.
Mr Lawson submitted that this letter demonstrates that Jade was willing to return to work, but first required a satisfactory resolution to the current impasse. This did not necessarily mean payment in full, although that was one option. The dispute resolution process may have resulted in some other resolution or, if necessary, a binding arbitral determination as to whether or not the invoices were owing. Mr Lawson submitted that Jade was simply vigorously espousing a particular view of the contract. Although Jade’s interpretation of the contract was ultimately shown to be wrong, the fact that it had espoused an incorrect interpretation does not in itself “mean that the party is thereby manifesting an intention not to perform its obligations under the contract”.[35]
[35]Kumar, above n 16, at [63].
In our view, however, Jade’s conduct went significantly beyond simply vigorously espousing a view of the contract that was ultimately shown to be wrong. It acted on its erroneous view of the contract, by suspending work on the site when it was not contractually entitled to do so. It refused to return to work until the disputed invoices were paid or some other “satisfactory resolution” was reached. It rejected the compromise proposals advanced by the Pauls. This put huge pressure on the Pauls given that, if an agreement was not reached, the completion of formal dispute processes under the contract (including arbitration) would potentially take months, if not years.
This was not a case where a reasonable person in the Pauls’ shoes would have understood that Jade was open to performing in accordance with the correct interpretation of the contract. Jade was already in breach, and there was no reason to think that Jade was willing and able to perform in accordance with the Pauls’ interpretation if that was shown to be correct. There were no realistic steps that could be taken by the Pauls to obtain timely performance by Jade in accordance with its obligations.
This was not a case like Mayhaven or Starlight where simply pointing out the contractual obligation might be sufficient to secure performance: the Pauls had already done so, without success. Nor was this a case like Woodar v Wimpey where a party sought to exercise a contractual termination right and did so in a manner which the majority in the House of Lords considered was consistent with a willingness to perform the contract if their interpretation of the relevant provision was held to be incorrect, in circumstances where it was realistic for performance to take place after that issue was determined. That is, the prospect of performance remained live if it was established that the party purporting to terminate was not entitled to do so. In the present case, the stance taken by Jade was not consistent with the prospect that Jade would perform the term requiring a continuous construction programme, if Jade’s interpretation of the contract was subsequently shown to be wrong. It could take months, if not years, to complete the dispute resolution process (including arbitration and possible subsequent appeals). We note in this context that this litigation commenced in July 2016, over four years ago. Jade’s stance precluded performance of the contract, correctly interpreted, if Jade was wrong.
The letter of 8 April 2016 from the Pauls’ solicitors clearly placed Jade on notice that the consequences of its failure to return to work would be that the Pauls would be able to cancel the contract. In response, Jade’s solicitors asserted the external plastering work was the Pauls’ responsibility, that the closed-in milestone had been achieved (and payment was therefore due), and that it was not prepared to engage a sub-contractor to complete the external plastering works. On the plain wording of the contract Jade must have (or should have) known that that milestone had not yet been achieved. Nevertheless, Jade repeatedly refused to re-commence work until it received payment for that milestone.
The Pauls attempted to correct Jade’s misinterpretation of the contract on a number of occasions. Mr Paul, his accountant Mr Shepherd, and the Pauls’ solicitors all wrote to Jade informing it that it had not yet reached the milestones, was not entitled to demand payment, and had no right to suspend work. This case is not therefore analogous to cases like Mayhaven or Starlight. On the contrary, the observation of the learned authors of Burrows, Finn and Todd on the Law of Contract in New Zealand that there can be little doubt that there would have been a repudiation justifying cancellation in Starlight if the manufacturer had insisted on its erroneous construction (having been corrected) is apt here.[36] Jade went significantly beyond merely espousing a mistaken view of the contract.
[36]Finn, Todd and Barber, above n 21, at 698.

If this case is analysed as one involving partial repudiation, the approach adopted in Kumar requires consideration of the s 37(2) criteria. In this case Jade’s suspension, and refusal to perform the balance of the contract in a manner consistent with its obligations, substantially reduced the benefit of the contract to the Pauls. Indeed, in a construction context, few breaches are likely to be as serious as a contractor unlawfully suspending work on a site and then refusing to return to work unless a client makes very significant payments (here more than one-third of the total contract price) to which the contractor is not contractually entitled.
We also consider that the “continuous construction programme” term that Jade was refusing to comply with was essential to the Pauls, as evidenced by their insistence that the standard terms be amended to include such a term, and the obvious importance to them of not being exposed to lengthy interruptions in the construction process.
It follows that Jade’s conduct amounted to a (partial) repudiation, and that the Pauls were entitled to cancel under s 36 of the CCLA.
The analysis we have set out above could be carried out more simply, without reference to repudiation, by simply applying s 37 of the CCLA. Jade breached the contract by suspending work in circumstances where its right to suspend had not accrued (cl 14). Jade’s conduct also breached its obligation to maintain a continuous construction programme (cl 4) and its overarching obligation to complete the work in accordance with the plans and specifications, in consideration of the contract price paid by the Pauls (cl 1). Jade also made it clear that it would continue to breach these provisions indefinitely, unless its unjustified demands were met. We are satisfied that Jade’s actual and threatened breaches of contract substantially reduced the benefit of the contract to the Pauls. And as noted above, we are satisfied that the continuous construction programme term was essential to the Pauls. It follows that the Pauls were entitled to cancel under s 37.
Mr Lawson submitted that the High Court’s findings were inconsistent with Mr Paul’s evidence as to the reasons for cancelling the contract. He advanced a similar argument in the High Court on appeal, and again in the application to the High Court for leave to appeal. When considering the application for leave to appeal, the High Court found, however, that:[37]
[52] … Mr Lawson argues that Mr Paul in his evidence-in-chief had said that he had not put “delays at issue” and did not rely on Jade’s delays as grounds to terminate the contract. It appears from the context of Mr Paul’s comments in the Notes of Evidence that he was referring to earlier delays by Jade not the delay caused by Jade walking off the job and refusing to return.
[53] I also note the statements of Mr Paul are not inconsistent with the findings of this Court. The grounds for repudiation were not based on the earlier delays by Jade in performing the contract but rather the persistent failure of Jade to continue construction following notice requiring it to do so given in April 2016. Therefore, the negotiations between the parties which took place in an attempt to get Jade back to the site did not amount to affirmation. …
[37]High Court leave judgment, above n 4 (footnote omitted).
We find no error in Grice J’s analysis of this issue. We further note that even if a party purports to cancel a contract for an insufficient reason, cancellation may nevertheless be justified if there was a sufficient reason at the time of the cancellation even if the party cancelling was not aware of it. The law does not require that a party who wishes to cancel a contract must give a valid reason at the time of cancellation.[38]
[38]Kumar, above n 16, at [65]–[66]; see also Thompson v Vincent [2001] 3 NZLR 355 (CA) at
The Pauls appear to have done their best, for an extended period, to try to keep the contract on foot. By the time the contract was cancelled on 13 April 2016 work on the site (apart from some minor work on the shower linings) had been suspended since at least 17 March 2016, and quite possibly since 9 March 2016. This was a significant period, given that the contract envisaged a five-month timeline for the entire building project. Even then, Jade was given a final opportunity to return to work before the contract was cancelled. It failed to do so.
Mr Lawson submitted that the Pauls were not permitted to make time of the essence by unilaterally requiring a return to the site by 12 April 2016. In our view there is nothing in this point. Ultimately, the issue is whether, at the time of cancellation, Jade had made it clear that it did not intend to complete the performance of its obligations under the contract, or that it would only perform the contract in a way substantially inconsistent with its obligations. That test is clearly met.
In conclusion, the High Court was correct to conclude that Jade had repudiated the contract. The same conclusion could be expressed by reference to s 37: the criteria for cancellation under that provision were met. It follows that the Pauls were entitled to cancel the contract.

Result

The appeal is dismissed.
Jade must pay costs to the Pauls for a standard appeal on a band A basis, with usual disbursements.

Solicitors:
Lawson Robinson, Napier for Appellant
Braun Bond and Lomas, Hamilton for Respondents

[86]–[90].

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established