CONTRACTS
THE TERMINATION OF INTRODUCTION
BUILDING CONTRACTS: The common law of repudiation is
complex, especially so in the
COMMON LAW
context of building contracts. This
REPUDIATION V complexity arises in part because,
CONTRACTUAL under the unitary theory of contract
TERMINATION law, the cases are drawn from a
variety of commercial transactions,
Romauld Andrew yet they are expected to have
Barrister at Law general application. Most of the
Victorian Bar leading cases concern either
charter parties or contracts for the
sale of land.1 The principles have
thus evolved in ways that try to
accommodate the multitude of
commercial settings which may
give rise to disputes, whilst
maintaining, not always
successfully, a coherent theory of
general application.
Then there are the specific
provisions of building contracts
which permit termination, or
determination, or forfeiture, or
some other manner of bringing the
contract, or the parties’ rights and
obligations under the contract, to an
end. It is common in building cases
that when a party attempts to
terminate a contract pursuant to the
terms of the contract, the other
party will counter with an allegation
of repudiation and purport to
terminate the contract at common
law.
Sometimes a party to a contract
makes a mistake when attempting
to terminate under the provisions of
the contract. The other party to the
contract might then allege
repudiation and termination at
common law. When the first party
realizes or apprehends that it has
made a mistake in attempting to
terminate under the provisions of a
contract, and that its contractual
termination may therefore be
invalid, it may further allege that
the other party alleging repudiation
is itself repudiating the contract,
and purport to terminate the
contract at common law, as an
alternative to its contractual
termination.
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004 11
The rights and wrongs of such a
case cannot be resolved without
delving into the full facts and
circumstances surrounding the
alleged terminations and
construing the relevant clauses in
the context of the whole contract.
The victor might only emerge after
a long and protracted litigation, or
the court might find that neither of
the parties has terminated the
contract, either contractually or at
common law, and further litigation
is required.2 It is enough to make
many of the cases settle prior to
final determination.
The result of termination, whether
contractual or at common law, will
usually be severe for the party who
is ‘terminated’. Often a gross
injustice may ensue. If, for instance,
a builder is in continual breach of its
contract, perhaps because it under
quoted for the works and will only
make a loss on the job; and if,
through a mistake of its solicitors
the owner sends an invalid notice of
termination, the builder will seize
upon this act to allege that the
owner has repudiated the contract
and, accepting that alleged
repudiation, purport to terminate
the contract at common law. The
builder is then entitled to claim
damages on a quantum meruit.3 For
the owner, such a result, if reached,
could be disastrous.
While the leading cases are useful
for providing general principles, few
if any are analogous, factually, in
the context of building contracts.
Parties seeking guidance must
resort, therefore, to cases of lesser
authority and hence less reliability
or certainty, especially at appellate
level. Many of the relevant building
cases are decisions of single
judges, often hearing appeals or
cases stated from arbitrators, so
that the judgments are confined to
determining narrow questions,
often without the benefit of full
argument or citation of relevant
authorities. These cases are seldom
reported in authorised reports—
The key question is what
happens if a party sending
a notice of termination
pursuant to the contract
makes a mistake. The
general rule, according to
Carter, is that a wrongful
termination of the
performance of a contract
will constitute a repudiation
of obligation.
12 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004
most are only to be found in
specialist construction law reports.
The general principles of
repudiation in Australian law are
contained in the well known High
Court cases of Laurinda Pty Ltd v
Capalaba Park Shopping Centre
Pty Ltd (1989) 166 CLR 623 and
Foran v Wight (1989) 168 CLR 385.
The common law in this area is
highly complex and it is not the aim
of this article to discuss repudiation
in detail. I wish merely to
emphasise the following key points.
First, repudiation is a serious matter
and is not to be lightly found.4
Generally speaking, repudiation
arises where a party is in breach of
a fundamental term of the contract,
or where by words or actions a
party evinces an intention to no
longer be bound by the contract.
Obvious examples in the context of
building contracts are where an
owner denies the builder access to
the site or engages another
contractor to carry out the works, or
part of the works: as in Carr v J A
Berriman Pty Ltd (1953) 89 CLR
327. Or where a builder abandons
the work and quits the site.
In order to terminate the contract at
common law the innocent party
must make, and communicate to
the repudiating party, a clear and
prompt election to accept the
repudiation and terminate the
contract. Once the contract has
been thus terminated, it cannot be
revived except by agreement of the
parties. If a contract is terminated
pursuant to the contract
beforehand, then it will be too late
to accept the repudiation and
terminate the contract—a contract
can only be terminated once. But if
the innocent party elects to affirm
the contract, then it has waived or
abandoned its rights to elect to
accept the repudiation and
terminate the contract.
Building contracts usually contain
clauses dealing specifically with
termination. For uniformity I shall
refer to such clauses as termination
clauses, but the actual words used
may include ‘determination’ or
‘forfeiture’ or ‘ending the
contractor’s employment’ and so
on. In most cases the clause will
provide for either the employment
of the builder to be ended, or for the
contract to be ended. In some cases
there is an option for either one of
these courses.
Termination is a term often applied
to such clauses, but it is more
correct to speak of termination of
obligations or termination of future
performance rather than
termination of the contract,
because, upon termination, any
rights which have accrued at the
time of the termination remain
enforceable, and it is only the
parties’ future obligations which are
ended. Even then, in some cases,
after a termination, one party may
be entitled to seek damages under
the contract against the other party,
so that obligations under the
contract are ongoing. However,
some of the standard form
contracts now refer to termination
of the contract.5 And the
terminology is not precise or
uniform in the cases either, the
terms rescission or determination
being used synonymously with
termination.
The parties are generally free to
agree to any provisions they wish
concerning termination, subject to
public policy, illegality and statute.
It is also possible, but not common,
to make the contract provisions for
termination a self-standing ‘code’
which excludes the common law. In
all cases, close examination of the
clause is required to ascertain the
parties’ rights.
The key question is what happens if
a party sending a notice of
termination pursuant to the contract
makes a mistake. The general rule,
according to Carter, is that a
wrongful termination of the
performance of a contract will
constitute a repudiation of
obligation.6
As is often the case, this general
rule, whilst capable of being stated
simply, has not been found to be so
easily applied to the facts in
particular cases. As will be seen,
some of the judgments have
produced unusual results.
FAILURE TO COMPLY WITH
THE CONTRACTUAL
PROVISIONS AND
INVALIDITY OF NOTICES
Because the effects of termination
will usually be severe a contractual
termination clause will be strictly
construed and, generally, a failure
to comply with the provisions of the
contract will mean that the
termination is invalid. But the
question of how strictly one should
construe such clauses has met with
different approaches from the
courts. Broadly speaking there are
two approaches, which may be
described as the formalistic7
approach and the common sense
business8 approach.
The formalistic approach construes
the contract very strictly, as in the
case of Re Stewardson Stubbs &
Collett v Bankstown Municipal
Council (1965) NSWR 1671 per
Moffitt J. In that case the contract
provided that the owners were to
give the builder 14 days written
notice to remedy its default before
they could send a notice of
determination. The owners sent the
first notice giving the 14 day notice
required. However, on the 14th day
the owners sent the second notice
by registered mail terminating the
contract ‘forthwith’. Moffit J held
that the notice was invalid because
it was sent prematurely on the 14th
day, even though it was not received
by the builder until the 15th day.
In reaching this decision Moffit J
placed emphasis on the precise
words of the relevant clause,
specifically the word ‘give’ which,
when combined with the
requirement for registered post, led
His Honour to believe that the time
ran from the time of posting. In
contrast is the approach adopted in
the same year (independently, it
would seem) in the English case of
Goodwin v Faucet (1965) 175
Estates Gazette 27 per Stephenson
J who construed the relevant
contract in a ‘common sense
businessman’ way when deciding
whether a termination was
effective.
The strict approach was applied by
Collins J in Eriksson v Whalley
(1971) 1 NSWLR 397. In that case
the respondent builder challenged
the applicant owner’s notice
determining the builder’s
employment under the contract on
three grounds, two of which are
relevant for present purposes: the
first notice had been served
personally on the builder’s
foreman, rather than by registered
mail as required under the relevant
clause; and the second notice
determining the builder’s
employment had been sent
prematurely.
The conclusions of this case are a
little difficult to understand. Collins
J observed that the provisions for
determination in the contract gave
the owner rights in excess of those
it would have had at common law,
and that it was reasonable to
assume that the stringency of those
provisions led to the formulation of
the principle that the power to
forfeit will be strictly construed.
However, when applying that
principle to facts of the case an
unexpected result followed.
First, the court found that the
contractual requirement for service
of the first notice by registered mail
was not merely ‘directory’ as
contended by the owner, but had to
be strictly complied with to the
letter, in part because this method
of service would eliminate to a
large extent disputes about service,
and because service by registered
mail ‘imports a certain solemnity or
importance to the giving of the
notice which a more informal
method of service may not convey’.9
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004 13
Therefore, the court held that the
notice was invalid even though
there was no dispute that the notice
had indeed been received by the
builder through personal service.
Secondly, the court found that the
second notice had been given
prematurely, and hence it too was
invalid. On the facts of the case the
builder had until midnight on 14
May to comply with the first notice,
but the owner mailed the second
notice on 14 May, which was
received by the builder on 15 May.
Because this was sent within the 14
day period, Collins J found that it
was invalid, even though the
contract used the word ‘give’.
Interestingly, His Honour found
that:
It would have been quite possible
for the builder to have effectively
discontinued his default after the
notice terminating his employment
had been sent to him.10
This strict approach was not
followed by English Court of Appeal
in the case of JM Hill & Sons Ltd v
London Borough of Camden (1980)
18 BLR 31. The facts of this case
are complex, but can be
summarised as follows. The
plaintiff contractor claimed to be
owed moneys under certificates
issued by the architect. When the
employer did not pay, the
contractor put in place a policy of
‘go slow’ but otherwise remained on
site. Both parties sent notices to the
other party. The Court of Appeal
found that the contractor’s conduct
did not in the circumstances amount
to a repudiation, so that the owner’s
attempt to terminate the contract
came to nothing.
But the main issue was whether the
contractor’s termination pursuant to
the contract was valid. The
employer raised a late point after
the appeal had been lodged,
namely, that the second notice had
been sent prematurely because it
had been sent by mail on 10 April.
Under the contract, the employer
had until 10 April to remedy its
Giles J accepted that such
provisions are to be strictly
construed because of their
serious consequences but
His Honour could see no
reason to give the relevant
clause a construction, under
the name of strictness,
which would ‘lead to the
unreal result that undisputed
receipt of the notice would
be ineffective because the
medium of registered post
had not been used’.
14 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004
default so the notice of termination,
it was argued, should not have been
sent until 11 April. Eriksson v
Whalley was relied upon in support
of this argument.
The Court of Appeal allowed the
point to be raised, even though it
had not been raised before the
Master or the Judge below, but
such leave appears to have been
given merely to provide an
opportunity to comprehensively and
unceremoniously dispense with the
point. Lawton LJ said that the court
was not bound by Eriksson v
Whalley and appeared dismissive
of the case and described the point
raised by the employer as
‘formalistic’. His Lordship found that
the date of sending the letter was
not important, it was the date of
receipt that was important.11
Ormrod LJ went further, dismissing
Eriksson v Whalley and saying that
the point was ‘farcical’ and, if
applied, would make a ‘mockery’ of
the law.
It might have been thought that the
strict or formalistic approach of Re
Stewardson and Eriksson v Whalley
was thus a thing of the past, except
that these cases were followed by
Ashley J in Wilson v Kirk
Contractors (1991) 7 BCL 284. In
that case, the owners’ solicitor
made several mistakes when trying
to terminate the contract. One of the
many issues under consideration
was whether the owners’ second
attempt to send a notice of
termination was valid. This notice
was sent by security post on the last
day of the period prescribed by the
relevant clause. Ashley J ruled that
the notice was invalid and applied
both Re Stewardson and Eriksson v
Whalley.12 The case of JM Hill &
Sons Ltd v London Borough of
Camden does not appear to have
been brought to Ashley J’s
attention.
The issue of whether the
requirement for registered mail is
‘mandatory’ was not raised in JM
Hill & Sons but it was raised in
Kennedy v Collings Construction
Company Pty Ltd (1991) 7 BCL 25.
In that case Giles J had to consider
whether the plaintiff owner had
validly terminated the contract with
the builder after a litany of defaults
by the builder. The builder
challenged the owner’s notice
because it had not been sent by
registered mail, although there was
no challenge to the fact that it had
been received. Giles J found for the
owner, and after discussing the
relevant provisions stated:
But this does not mean that service
of a notice determining
employment by registered post is
necessary as well as sufficient. It
does not seem likely that the
parties to a contract in the form of
BC3 should have intended that a
notice determining employment
would be invalidly given if
personally served, or if placed in
the hands of the secretary of a
corporate builder at its registered
office. To adopt the words of
Wootten J (at 622) in Spectra Pty
Ltd v Pindari Pty Ltd (above) that
would place an absurd premium on
a particular form which could be of
no benefit to anybody. In my view
the provision for registered mail
should be seen as facultative,
permitting notice of determination
of the builder’s employment by
registered mail rather than by the
perhaps more onerous course of
personal service, but not obligatory.
As a matter of construction of the
June contract, I think it sufficient if
the notice determining the
employment of the builder be given
by any other means which is shown
to have resulted in receipt of the
notice by the builder. I therefore
reject this first answer.13
Giles J accepted that such
provisions are to be strictly
construed because of their serious
consequences but His Honour could
see no reason to give the relevant
clause a construction, under the
name of strictness, which would
‘lead to the unreal result that
undisputed receipt of the notice
would be ineffective because the
medium of registered post had not
been used’.14 His Honour found that
the reference to ‘registered post’ is
explained by another clause which
made service by ordinary post
sufficient service for the purposes
of other notices or documents
under the contract:
The reference therein to registered
post is adequately explained by
cl.25; its function is to make service
by ordinary post, which would
otherwise be sufficient, insufficient.
That is quite understandable, and
reflects the importance of a notice
determining employment, but as I
have said it is a different thing again
to say that notice served by
registered post is not only sufficient
but also necessary—not only
permissible, but also obligatory.15
This approach is eminently
sensible, but it is in conflict with
Eriksson v Whalley, which Giles J
distinguished on a rather fine point.
His Honour said:
Relevant to this matter is the
decision in Eriksson v Whalley
[(1971) 1 NSWLR 397], although I
was not referred to it. …It was held
that the service of the notice was
invalid, on the ground that the
parties had agreed that service by
registered post was ‘imperative’,
not merely ‘directory’. But it is
necessary to consider the
provisions of the particular contract,
and given the distinction within cl.13
between notice and notice by
registered post, and the effect of
cl.25, I do not think that Eriksson v
Whalley [above] requires a different
conclusion from that I have stated
above.
Not all failures to comply with the
contractual requirements may be
dispensed with. The most obvious
failure relates to the requirement to
provide the specified period of time
in which the defaulting party may
remedy their default. A notice which
is given (and received) prematurely
is invalid, as in the case of Cox v
Franz (1987) 6 ACLR 33. In that
case the second notice was given
during the period of default allowed
for under the relevant clause of the
contract. Carmichael J held that the
notice was, accordingly, invalid. And
in Wilson v Kirk Contractors (1991)
7 BCL 284 Ashley J, following Cox v
Franz reached the same result in
similar circumstances. These cases
differ from Re Stewardson and
Eriksson v Whalley because the
notices were given to the builder 2
or 3 days prior to the expiry of the
relevant period. Accordingly, it
follows logically that the notices
were invalid.
In Central Provident Fund Board v
Ho Bock Kee (1981) 17 BLR 21 the
Court of Appeal of Singapore had to
determine whether an owner’s
termination was valid. In that case
the relevant termination clause
provided that the superintending
officer could send a notice of
termination. But an earlier clause
said that if an action taken under
certain clauses, including the
termination clause, was to occur,
then the Chairman of the Board
must take that action. As the
Chairman of the Board had not sent
the notice of termination, the Court
of Appeal of Singapore held the
notice to be invalid.
In Lockland Builders v John Kim
Rickwood (1995) 77 BLR 38 the
English Court of Appeal (Russell,
Hirst and Rose LJJ) held that the
owner’s termination was invalid
because, contrary to the provisions
of the contract, the architect had not
certified the contractor’s default
prior to serving the notice. Indeed,
the owner had completely
disregarded the contractual
requirements and had attempted to
summarily dismiss the contractor
from site. Russell LJ expressed
some sympathy for the owner but
said that the owner only had
himself to blame.16
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004 15
WRONGFUL TERMINATION,
REPUDIATION, ERRONEOUS
CONSTRUCTION AND GOOD
FAITH
As seen above the general rule is
that a wrongful termination of the
performance of a contract will
constitute a repudiation of
obligation.17 The same rule is
stated, in similar terms, in Keating18
and Hudson19. The reasoning
behind this principle is logically
consistent with the principles of
repudiation. For instance if a party
such as an owner denies a builder
access to the site and engages
another contractor to complete the
works, doing so in purported
reliance on an invalid termination,
then that would ordinarily amount
to repudiation.
However, wrongfully terminating a
contract should be distinguished
from merely sending an invalid
notice of termination. It is often
alleged by a party receiving an
invalid notice of termination that the
sending of the notice is itself
repudiation. But that will not always
be the case. On the contrary, the
mere sending of an invalid notice of
termination will in most cases not
amount to repudiation. It all
depends, of course, upon the facts
of each case.
In Cox v Franz the court had to
consider whether sending an invalid
notice amounted to a repudiation of
the contract. In that case, the
builder defendant had agreed in
1975 to construct a home for the
plaintiff owner. After some months
the builder indicated that he would
be unable to complete the works
without additional payment. Then
he advised the owner of his concern
that sub-contractors would enter
the house and destroy work done.
The proprietor changed the locks
but offered keys to some parts of
the house to the builder, but this
offer was refused. The owner then
sent a notice of default, followed by
a notice of determination. However,
I cannot see that because a
step so taken failed to
achieve its purpose the
builder can turn his
continuing breach of
contract into the proprietor’s
repudiation of that contract…
What the proprietor was
purporting to do was to rely
upon the contract itself to
achieve certain rights: there
was certainly no repudiation
of the contract.
16 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004
the second notice was sent
prematurely and was held to be
invalid. Subsequently the owner
locked the builder out of the site
and the builder purported to accept
the owner’s repudiation. The owner
subsequently denied liability and in
turn sought damages from the
builder for repudiation, tacitly
conceding that the contractual
termination had gone awry.20
The builder argued that because
the owner’s notice was invalid, the
owner was repudiating the contract
which repudiation he had accepted.
Carmichael J rejected the builder’s
argument, finding that the owner
had been doing all that he could to
have the contract completed and
therefore it was not possible to
impute to him a repudiation of the
contract by taking steps under the
contract to obtain its completion:
I cannot see that because a step so
taken failed to achieve its purpose
the builder can turn his continuing
breach of contract into the
proprietor’s repudiation of that
contract… What the proprietor was
purporting to do was to rely upon
the contract itself to achieve certain
rights: there was certainly no
repudiation of the contract.21
Similar issues arose in Wilson v
Kirk (1991) 7 BCL 284 where the
owners’ solicitor made several
mistakes when sending out the
relevant notices, with the result that
the notices were held to be invalid.
The first notice of termination
included an assertion that the
contract was determined, but it also
asserted that access to the site was
denied and that the owners would
be engaging another contractor to
rectify and complete the works. The
builder, who had been in default
under the contract, alleged in a
letter that the owners had
themselves repudiated the contract
and accepted the owners’
repudiation.
As Ashley J observed, it must have
come as a ‘rude shock’ to the
owners’ solicitors to receive the
builder’s letter. The owners’
solicitors immediately replied with
2 further letters. The first was sent
to the builder attaching a schedule
of defects and purporting again to
determine the contract, and again
denied access to the site. The
second letter was sent to the
builder’s solicitor and asserted that
the owners had not only
determined the contract under the
relevant clause but also pursuant to
common law.
The builder referred the matter to
arbitration. The arbitrator found
that the owners had not validly
determined the contract, rather, the
owners had repudiated the contract,
which repudiation the builder had
accepted. The owners, appealing
from the findings of the arbitrator,
contended that their letter did not
seek to repudiate the contract, but
to enforce it. Ashley J agreed,
finding that the denial of access to
the site and the indication of an
intention to engage another builder
were altogether consistent with the
course of determination available
under the contract.22 It might be
noted at this point that the acts of
denying access to the site and
indicating an intention to engage
another builder are altogether
consistent with repudiation.
After referring in detail and with
evident approval to Cox v Franz the
court then found that the owners’
solicitors’ letter of 18 July and the
actions which it previewed, should
be considered merely as an
ineffective attempt by the owners to
rely upon and enforce the contract
and not as a repudiation. The court
found that the arbitrator had erred
in finding that the sending of this
letter itself amounted to
repudiation. The arbitrator’s finding,
however, was that:
The proprietors by their action and
general conduct not to be bound
by the contract amounted to a
repudiation of the contract.
(emphasis added)23
This judgment raises some
important questions. First, if the
termination was not valid, then on
what legal basis were the owners
entitled to exclude the builder from
site and engage another
contractor? What remedy, if any,
does this leave the builder,
remembering that in this case the
court found that it was very doubtful
that the builder’s defaults
constituted a repudiation of the
contract.24 These questions are not
answered in the judgment probably
because, having answered the
narrow questions on appeal, the
court remitted that matter back to
the arbitrator for further hearing.
The answer would seem to be,
however, that merely sending an
invalid notice of termination will not
in itself amount to a repudiation,
such an action being conduct
evincing an intention (albeit
erroneously founded) to rely on the
contract. But if that party persists in
relying on the wrongful termination,
then that conduct must, at least as a
matter of logic or common sense,
amount to repudiation. The leading
authority for this principle is Lodder
v Slowey (1904) AC 441 in which the
Privy Council held that where a
party to a contract for execution of
works wrongfully re-enters and
seizes the works in progress, then
the contractor may treat the
contract as at an end and sue for
work and labour done.
In Architectural Installation
Services Ltd v James Gibbons
Windows Ltd (1989) 46 BLR 91 a
builder sent a notice requiring a
sub-contractor to work a full day as
required under the contract. Some
eleven months later the builder
sent a telex to the sub-contractor
purporting to terminate the contract
because the sub-contractor had
withdrawn its labour. The Official
Referee (Judge Bowsher QC) found
that there was no sensible
connection between the first notice
and the telex, either in time or
content. Accordingly, it was held
that the sending of the telex was not
a valid termination under the
contract, rather, it was an unlawful
repudiation of the contract.25
In Mersey Steel & Iron Co v Naylor
Benzon & Co (1884) 9 App Cas 434
purchasers formed an erroneous
construction as to a contract for the
sale of goods, and believed that
they could not pay for goods when a
petition for winding up had been
served, without the sanction of the
court. They applied for an order of
the court, and this conduct was held
not to be repudiatory, the
purchasers conduct being bona fide.
In Sweet & Maxwell Ltd v Universal
News Services Ltd (1964) 2 QB 699
the English Court of Appeal
rejected an allegation that an
erroneous construction of a lease
agreement gave rise to repudiation.
Harman LJ said:
…I do not think that a person who
maintains his view of the
construction of what is, after all, a
not very perspicuous document is
repudiating because he says ‘my
view of it is this, and this I will do’
and the other man says ‘well, my
view is different’. Let them go to the
court and have the matter
determined as they can. But to
seize upon an attitude of that sort
and call it repudiation in order to
serve an object which was then of
course dear to the hearts of the
plaintiffs, who wanted to get rid of
this deed, is not in my opinion
justified…26
Pearson LJ agreed:
Moreover, even if they had taken an
erroneous view as to the effect of
the agreement, it would not follow
that the expression of an erroneous
view or the taking of an erroneous
objection to some clause proposed
to be inserted in the lease would
amount to a repudiation of the
agreement for a lease… In the last
resort, if the parties cannot agree,
the true construction will have to be
determined by the court. A party
should not too readily be found to
have refused to perform the
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004 17
agreement by contentious
observations in the course of
discussions or arguments as to the
provisions to be inserted into the
lease.27
Buckley J agreed and also added
the element of good faith.28 This
case is useful for general principles
but does not assist in the case
where a party, acting on an
erroneous belief, conducts itself in
a manner which would otherwise
give rise to repudiation. For
instance, if an owner misconstrues
a contract, and erroneously
believes the contract has been
validly terminated, and then acts in
a manner which on any objective
view must be repudiatory, such as
denying access to the site and
engaging another contractor, then
there must, logically, be a
repudiation.
That is what happened in Cox v
Franz. Because the court found that
the owner’s purported termination
was invalid, then the owner was
breaching fundamental terms of
the contract. Was not the builder in
that case entitled to accept the
repudiation, and if not, why not?
In Cox v Franz the court found that
the owner had not repudiated the
contract and hence the builder was
not entitled to accept a repudiation.
Carmichael J placed great reliance
on Sweet & Maxwell Universal
News Services Ltd.29
A similar approach was taken in
Wilson v Kirk. In that case Ashley J
cited at length and with evident
approval from the judgment in Cox
v Franz and His Honour also
applied the principle that ‘where a
party takes action relying on the
terms of the contract, not
manifesting by his conduct an
ulterior intention to abandon it, he
should not be treated as having
repudiated it’.30 Ashley J placed
great reliance for this principle on
the case of Woodar Investment
Development Ltd v Wimpey
Construction UK Ltd (1980) 1 WLR
277: (1980) 1 All ER 571 and
accordingly that case warrants
examination.
Woodar Investment Development
Ltd v Wimpey Construction UK Ltd
concerned a contract for the sale of
land by Woodar to Wimpey. The
contract provided that Wimpey
could rescind the contract if any
public authority commenced
compulsory acquisition prior to
settlement. Wimpey sought to rely
on the fact that compulsory
acquisition for part of the land had
commenced and sent notice
rescinding the contract. Woodar
challenged the notice on the basis
that the acquisition had already
commenced when the parties
signed the contract, and that the
rescission clause only related to
compulsory acquisition commenced
after the contract was signed.
Woodar brought an action against
Wimpey seeking a declaration that
Wimpey was not entitled to rescind
the contract. Wimpey in its defence
and counterclaim sought a
declaration that it was entitled to
rescind the contract. Then Woodar
brought a further action alleging
that, by the notice of rescission and
its defence and counterclaim,
Wimpey had repudiated the
contract which was accepted and
damages were claimed.
The House of Lords upheld an
appeal by Wimpey, finding that it
had not repudiated the contract.
Lord Wilberforce found that in
considering whether there has been
repudiation by a party it is
necessary to look at his conduct as
a whole. Lord Wilberforce found
that both parties were asserting a
contrary construction of the
contract, and that each party was
allowing the court resolve the issue,
and accordingly there was no
repudiation by Wimpey.31 Lords
Keith and Scarman followed Lord
Wilberforce’s reasoning, Lords
Russell and Salmon dissenting.
This is an interesting case and
raises its own issues. Consider, for
example, what the result might
18 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004
have been if Woodar had
immediately treated Wimpey’s
rescission notice as evincing an
intention by Wimpey to no longer be
bound by the contract, which it
accepted, rather than seeking a
declaration from the court, and had
then sold the land to another party?
If that were the case, Wimpey’s
conduct might well be seen as
repudiatory because it did not
subsequently affirm the contract.
What makes the case interesting is
the fact that Woodar challenged the
validity of the rescission notice and,
even assuming an election were
available, elected to proceed with
the contract and sought the
intervention of the court. And
Wimpey, rather than persisting in
conduct which might give rise to
repudiation (other than adhering to
its view of the contract) sought the
intervention of the court, thus
affirming the contract. In these
circumstances, both parties can be
seen as affirming the contract.
The facts of Woodar are clearly
distinguishable from cases such as
Cox v Franz or Wilson v Kirk where
the erroneous party proceeded to
take steps which would, on ordinary
common law principles, give rise to
a repudiation, and which would
actually prevent the contractor
from performing the contract.32 See
also Federal Commerce Ltd v
Molena Alpha Inc (1978) 1 QB 927
in which ship owners’ instructions to
the masters of their vessels, based
on an erroneous construction of the
charter party, were held by the
English Court of Appeal to be so
serious in their effect on the
charterers that they amounted to
repudiation.33
The High Court has considered the
issue in DTR Nominees Pty Ltd v
Mona Homes Pty Ltd (1978) 138
CLR 423, another case involving a
contract for the sale of land. The
principle from that case, consistent
with Sweet & Maxwell and Woodar
v Wimpey, is that an erroneous
construction of a contract does not
necessarily give rise to repudiation.
Stephen, Mason and Jacobs JJ
stated the position thus:
But there are other cases in which a
party, though asserting a wrong
view of a contract because he
believes it to be correct, is willing to
perform the contract according to
its tenor. He may be willing to
recognize his heresy once the true
doctrine is enunciated or he may be
willing to accept an authoritative
exposition of the correct
interpretation. In either event an
intention to repudiate the contract
could not be attributed to him. As
Pearson LJ observed in Sweet &
Maxwell Ltd v Universal News
Services Ltd (1964) 2 QB 699, at
p.734:
‘In the last resort, if the parties
cannot agree, the true construction
will have to be determined by the
court. A party should not too readily
be found to have refused to perform
the agreement by contentious
observations in the course of
discussions or arguments...’
(at p.432)
The important distinction, therefore,
which must be drawn between
these cases is the difference
between asserting an erroneous
construction on the one hand, and
proceeding on an erroneous
construction on the other hand. This
is no mere semantic distinction. In
the latter case, the general rule
should apply, and the wrongful
termination should, in theory at
least, give rise to repudiation. As
Brennan J stated in Dainford Ltd v
Smith (1985) 155 CLR 342:
Sometimes it is right to find that a
party who adopts an erroneous
construction of a contract and who
intends to act in accordance with
that construction in fulfilling the
contract is not ready and willing to
perform the contract and has
evinced an intention to perform the
contract only in a manner
substantially inconsistent with its
terms.34
And as is pointed out in Hudson,
differences of interpretation as to a
party’s obligations under the
contract, should they come to a
head, will render a party in real
peril of a successful adverse
rescission should his interpretation
prove to be incorrect, assuming that
he has, as a result of acting on that
interpretation, prejudiced the
further performance of the contract,
quite apart from the obvious cases
where he may have been led into
prematurely rescinding or
terminating or abandoning the
contract himself.35
By this reasoning, the conclusions
reached in Wilson v Kirk and Cox v
Franz are, with respect, unhelpful.
Moreover, these judgments leave
open the question, what happens to
the contract in such cases?
Logically, the contract must still be
live, as neither party has validly
terminated it. But the owner will
have denied the builder access and
engaged another contractor. Does
the contract merely expire by
operation of some as yet
unannunciated principle? Is the
contractor entitled to sue for breach
of contract with damages being the
loss of profit which would have
been earned? What if the new
contractor starts work but then
abandons the site, can the owner
seek to enforce the contract against
the original builder? These
questions are more than academic,
they frequently arise in practice and
the case law does not, it is
submitted, adequately deal with the
issues.
One possibility may arise where the
builder, having purported to accept
the owner’s repudiation, does
nothing more, that is to say, does
not issue proceedings against the
owners seeking damages. If the
owners do not sue the builder, but
merely complete the works using
another contractor, then the parties
may be said to have mutually
abandoned the contract.36
But, in most cases, one party or the And as is pointed out in
other will be seeking to enforce Hudson, differences of
their legal rights against each other
interpretation as to a party’s
so that they cannot be said to have
abandoned the contract. obligations under the
Accordingly, if the reasoning of Cox contract, should they come
v Franz and Wilson v Kirk is to make to a head, will render a party
sense, then some explanation of in real peril of a successful
these open ended questions needs adverse rescission should
to be provided.
his interpretation prove to be
CONCURRENT ACTION? incorrect...
—CONTRACTUAL
TERMINATION V COMMON
LAW TERMINATION
The question often arises whether a
notice of termination may be given
both under the provisions of the
contract and pursuant to common
law. Usually this is alleged in order
to salvage a termination because
there has been some defect in the
contractual notice. Thus, in Cox v
Franz the owner sought to rely on a
common law termination because
the notice was not valid under the
contract. The court held that, where
a contractual notice has been sent,
the owner was affirming the
contract, and could not therefore
also accept repudiation.37 The same
argument was raised in Wilson v
Kirk in which case the court adopted
the reasoning of Carmichael J in
Cox v Franz.38 See also Bysouth v
Shire of Blackburn and Mitcham
(No 2) [1928] VLR 562.
In Kennedy v Collings Construction
Pty Ltd (1991) 7 BCL 25, however,
Giles J found that it was open for
the owners to ‘exercise both the
contractual power to determine the
employment of Collings and the
common law entitlement to accept
the repudiation’.39 Giles J cited
Summers v The Commonwealth
(1918) 25 CLR 144; Bysouth v Shire
of Blackburn and Mitcham (No 2)
[1928] VLR 562; and Hudson (10th
ed) at 687 in support of this finding.
The question may not be as easily
resolved as that, however.
The passage referred to by Giles J
in Hudson (10th ed) reads as
follows:
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004 19
It is an open question
whether an employer, faced
with default by the
contractor which might both
amount to repudiation and
entitle the employer to
operate a contractual
determination clause, can
hedge his position so as to
avail himself of both
opportunities.
20 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004
It may, however, be noted here that
a given event may be both one
which justifies the innocent party in
treating the contract as repudiated,
and also one upon the happening of
which an express forfeiture clause
may be invoked. In such a case,
unless the contract shows an
explicit intention that the stipulated
remedy should exclude the
ordinary remedies, the innocent
party may make an election. He
may simply treat the contract as
repudiated and rely upon the
remedies available upon
repudiation under the general law,
or he may proceed under the
forfeiture clause and avail himself
of the rights contained therein.
Indeed, there would seem to be no
reason why he should not enforce
both sets of remedies
simultaneously and cumulatively.40
The last sentence might need to be
reconsidered, because the rights
under the contract might be
different from the rights at common
law, the party receiving the notice is
entitled to know, unequivocally,
which remedies will be available or
pursued.41
In Architectural Installation
Services Ltd v James Gibbons
Windows Ltd (1989) 46 BLR 91
Judge Bowsher QC, hearing a
preliminary issue, found that the
owner’s notice of termination, whilst
it did not comply with the contract
and was therefore invalid, may
nevertheless have been a common
law acceptance of the builder’s
repudiation, subject to the ultimate
findings on trial.42 And in the current
edition of Hudson the following
passage appears:
…in the absence of express
provision, contractual
determinations by either party are
not intended as a substitute for, or
to exclude, the common law rights
to rescind. While some standard
form determination clauses contain
express ‘without prejudice to other
rights or remedies’ wording, this is
not in fact necessary…43
However, in Lockwood Builders v
John Kim Rickwood (1995) 77 BLR
38 the English Court of Appeal
(Russell, Hirst and Rose LJJ)
rejected an owner’s argument that
the notice, which was held to be
invalid under the contract, was a
common law acceptance of the
builder’s repudiation, saying that in
the absence of express words to the
contrary, the contractual provisions
excluded common law rights.44 The
Court of Appeal did not follow
Architectural Installation Services v
James Gibbons Windows Ltd on this
point.45 Other cases which have
rejected the alternative submission
are: E R Dwyer v Simon Build/Peter
Lind Partnership (1982) 23 BLR 23
and Mvita Construction Co Ltd v
Tanzania Harbours Authority (1988)
46 BLR 19.
The question is addressed in
Keating as follows:
It is an open question whether an
employer, faced with default by the
contractor which might both
amount to repudiation and entitle
the employer to operate a
contractual determination clause,
can hedge his position so as to avail
himself of both opportunities.
Logically, this may not be possible,
since to operate the contract is to
affirm it, which is inconsistent with
accepting a repudiation.46
This reasoning was criticised in the
commentary to Laing Management
Ltd v Aegon (1997) 86 BLR 70:
This is no conundrum at all if what
is truly happening is described
without the use of the traditional
terminology. The exercise of an
express power of termination is an
affirmation of the contract, but is
also an election to terminate the
future employment of the
contractor. An election to accept a
repudiatory breach is also an
election to terminate the future
employment of the contractor and
all executory obligations of both
parties. Since it involves an
assertion that the other party is in
breach of contract it is also an
affirmation of the contract…
The possible dilemma posed in
Keating on Building Contracts… is
therefore, it is submitted, not a real
dilemma.47
This reasoning is superficially
attractive, but, upon closer analysis,
unsound. First, as mentioned above,
the party receiving the notice is
entitled to know which method is
being used because it may affect
the remedies available. But that
party is also entitled to know which
method is being relied on so that, if
it wishes to challenge the
termination, it knows what grounds
might be successful. Finally, it
simply does not follow, as a matter
of logic, that in accepting a
repudiation a party is thereby also
‘affirming’ the contract. Such a
party is merely affirming the
existence of the contract to date,
which has been breached, but is
then immediately electing not to
affirm the contract any further and
instead terminates the contract. In
the case of contractual termination,
that party is not terminating the
contract at all, rather, the contract
may well live on and the remedies
available are often pursuant to the
contract. The principles of common
law repudiation and contractual
termination are, unfortunately, not
so easily reconcilable.48
In the actual judgment of Laing
Management Ltd v Aegon (1997) 86
BLR 70 Judge Humphrey Lloyd QC
said that it is difficult to see how the
exercise of the power to terminate
could be anything other than an
implementation of the contractual
terms and as such an affirmation in
legal terms. His Honour then cited
from the judgment of Lord Goff in
The Kachenjunga (1990) 1 Lloyd’s
Rep 391 at 398, where his Lordship
stressed the point that in cases of
repudiation, an election must be
made, and if an election to affirm is
made, then the right to elect to
terminate is waived or abandoned.
His Honour thus found that the
letter, which specifically, relied Such a party is merely
upon the contractual clause for affirming the existence of the
terminating the builders
contract to date, which has
employment, was not a common
been breached, but is then
law acceptance of termination.49
immediately electing not to
Whilst each case must be
determined upon its own particular
affirm the contract any
further and instead
facts, it is submitted that the views
of Judge Humphrey Lloyd QC in terminates the contract.
Laing Management Ltd v Aegon
(1997) 86 BLR 70 correctly states
the principle. The question still
remains open for further debate
before the courts, especially in
Australia.
REFERENCES
1. For example, Hong Kong Fir
Shipping Co Ltd v Kawasaki Kisen
Kaisha Ltd (1962) 2 QB 26 and
Foran v Wight (1989) 168 CLR 385.
A building contract is the subject of
Carr v J A Berriman Pty Ltd (1953)
89 CLR 327.
2. As for instance in Cox v Franz
(1987) 6 ACLR 33 and Wilson v Kirk
Contractors Pty Ltd (1991) 7 BCL
284, both of which are discussed in
greater detail below.
3. Lodder v Slowey (1904) AC 442;
Bolwell v Foley (1984) VR 97 per
Brooking J;Wilson v Kirk
Contractors Pty Ltd (1991) 7 BCL
284 per Ashley J; Renard
Constructions (1992) 26 NSWLR
234 Meagher JA. But more recently
in GEC Marconi Systems Pty
Limited v BHP Information
Technology Pty Limited (2003) FCA
50 Finn J observed in obiter at para
666 that there is ‘an obvious lack of
coherence between the modern
rationale of quantum meruit (i.e.
unjust enrichment) and the
principles presently employed in
giving effect to it’ but his Honour
was not required to rule on the
matter.
4. Laurinda Pty Ltd v Capalaba
Park Shopping Centre Pty Ltd
(1989) 166 CLR 623 at 657 citing
Lord Wright in Ross T Smyth & Co
Ltd v T D Bailey, Son & Co (1940)
3 All ER 60 at p71.
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004 21
5. See for example AS2124 clause
44.4(b) ‘terminate the contract’ and
HIA Plain English Contract clause
42 ‘bring contract to an end’.
Despite the use of this language, it
is generally accepted that such
termination is not ab initio but
merely in futuro—see McDonald v
Dennys Lascelles Ltd (1933) 48
CLR 457 at 476–477.
6. JW Carter, Breach of Contract,
(2nd ed, 1991) at 282. This general
rule is discussed in greater detail
below.
7. As described in JM Hill & Sons
Ltd v London Borough of Camden
(1980) 18 BLR 31, discussed below.
8. As described in Goodwin v
Faucet (1965) 175 Estates Gazette
27.
9. (1971) 1 NSWLR 397 at
400–401.
10. (1971) 1 NSWLR 397 at 401.
11. JM Hill & Sons Ltd v London
Borough of Camden (1980) 18 BLR
31 at 44.
12. Wilson v Kirk Contractors (1991)
7 BCL 284 at 296.
13. Kennedy v Collings Construction
Company Pty Ltd (1991) 7 BCL 25
at 37.
14. (1991) 7 BCL 25 at 37.
15. (1991) 7 BCL 25 at 37.
16. Lockland Builders v John Kim
Rickwood (1995) 77 BLR 38 at 48.
17. JW Carter, Breach of Contract
Law Book Company, Sydney, 1991
at 282. Carter cites a number of
authorities, including two High
Court cases (Ogle v Comboyuro
Investments Pty Ltd [1976] 136 CLR
444 at 453 and Sibbles v Highfern
Pty Ltd [1987] 164 CLR 214), both
of which relate to contracts for the
sale of land but he also notes that a
wrongful but bona fide termination
may not necessarily give rise to
repudiation, citing Woodar
Investment Development Ltd v
Wimpey Construction UK Ltd (1980)
22 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #97 JULY/AUGUST 2004
1 WLR 277: (1980) 1 All ER 571, 39. (1991) 7 BCL 25 at 39.
discussed further below.
40. IN Duncan Wallace, Hudson’s
18. S Furst and V Ramsey, Keating Building and Engineering Contracts,
on Building Contracts, Sweet & (10th ed), London, Sweet &
Maxwell, London 2001 at 189. Maxwell, 1970.
19. IN Duncan Wallace, Hudson’s 41. This passage does not appear to
Building and Engineering Contracts, have been included in the 11th
Sweet & Maxwell, London 1995. edition.
20. Of course, the owner would not 42. Architectural Installation
have been able to claim damages Services Ltd v James Gibbons
for repudiation if the contract had Windows Ltd (1989) 46 BLR 91 at
been validly terminated under the 100.
provisions of the contract.
43. Hudson, page 1246.
21. (1987) 6 ACLR 33 at 38. 44. The commentary in the Building
22. (1991) 7 BCL 284 at 290. Law Reports seems critical of this
case and suggests that the
23. (1991) 7 BCL 284 at 289.
approach of the House of Lords in
24. (1991) 7 BCL 284 at 294. Gilbert-Ash is a better authority
25. (1989) 46 BLR 91 at 100. (albeit in a different context) for the
principle that express reservation of
26. Sweet & Maxwell Ltd v common law rights was not
Universal News Services Ltd (1964) necessary.
2 QB 699 at 730.
45. See Lockwood Builders v John
27. (1964) 2 QB 699 at 734. Kim Rickwood (1995) 77 BLR 38 at
28. (1964) 2 QB 699 at 737. 45–46 per Russell LJ.
46. Keating, page 190.
29. See Cox v Franz (1987) 6 ACLR
33 at 38–39. 47. Laing Management Ltd v Aegon
30. See Wilson v Kirk (1991) 7 BCL (1997) 86 BLR 70 at 76–77.
284 at 291. 48. It is to be noted that the authors
of Keating have not changed this
31. (1980) 1 All ER 571 at 574–575.
passage from the previous edition
32. Carter observes that the Woodar
the subject of the commentary.
principle is a narrow one: Breach of
Contract at 282. And Hudson states 49. Laing Management Ltd v Aegon
that the case is a difficult one: see (1997) 86 BLR 70 at 108–110.
the note at the end of the summary
of Woodar v Wimpey at page 620.
33. Upheld on appeal by the House
of Lords: Federal Commerce Ltd v
Molena Alpha Inc (1979) 1 ALL ER
307 and cited with approval by Lord
Wilberforce in Woodar v Wimpey.
34. Dainford Ltd v Smith (1985) 155
CLR 342 at 365.
35. Hudson, page 621.
36. See DTR Nominees Pty Ltd v
Mona Homes Pty Ltd (1978) 138
CLR 423 and Summers v
Commonwealth (1919) 26 CLR 180.
37. (1987) 6 ACLR 33 at 38.
38. (1991) 7 BCL 284.