Termination of a building contract – Notice period – 'once and for all' breaches
In this case, the New South Wales Court of Appeal considered when a contract is validly terminated if the termination clause provides for termination if a remediable breach is not remedied within a set timeframe.
The court held that where a contractual clause provides for termination if a remediable breach is not remedied within 10 business days of notice, there is no requirement to provide 10 business days' notice to terminate if the nature of the breach is not realistically remediable within 10 business days.
This case has significance for interpretation of contractual provisions that provide a party may terminate if a remediable breach is not remedied within a given timeframe.
Facts
Mr David Armistead and Ms Maria-Luisa Patisso entered into a contract for Visual Building Construction to build a house. Terms of the building contract included that the building must be completed by 5 July 2015, and that Visual was responsible for obtaining the required approvals. Clause 15 of that contract provided that for certain types of breach, if the breach could be remedied, Mr Armistead and Ms Patisso could notify Visual in writing that the contract would be terminated if the breach was not remedied in 10 business days.
During the building process, Visual did not receive the council approvals it was required to obtain under the contract, and there was a range of defects that Mr Armistead and Ms Patisso sought and received rectifications for with the Department of Fair Trading. After the council sent the parties a notice of intention to seek an order stopping all building work until the required construction certificate was obtained, Mr Armistead and Ms Patisso terminated the contracted and sought damages.
The issue on appeal was whether Visual validly terminated the contract.
Judgment
Chief Justice Bell (Justice Macfarlan and Justice White agreeing) dismissed the appeal, holding that the primary judge was correct in finding that valid termination had occurred.
To the extent that clause 15 could be read as imposing a 10-business-day-notice requirement before termination, its effect was limited to defaults that were capable of being remedied within the 10-day period. Mr Armistead and Ms Patisso's notice of termination particularised at least one default – Penrith City Council's refusal to grant Visual the required construction certificate – that was incapable of being remedied within the notice period.
In resolving the matter, Chief Justice Bell applied the two-pronged interpretation of what constituted remediable breaches in termination clauses, as set out in Burger King Corporations v Hungry Jack's Pty Limited [2001] NSWCA 187:
- first, the fact that a breach is 'once and for all' does not make that breach categorically non-remediable. In this case, failing to apply for the construction certificate before construction started breached a temporal aspect of the contract that technically could not be remedied (because any construction certificate would then have been obtained after construction had started). But if Visual could have obtained the construction certificate within the 10-business-day stipulation, the court may have treated the defect as remedied in substance; and
second, a termination clause providing for termination if a defect is not remedied within a set timeframe of notice being given under that clause does not require notice to be given to terminate if the defect's nature is such that it is impracticable to remedy within that timeframe. Here, the court accepted the primary judge's factual findings that it was impracticable for the construction certificate to be obtained and the balance of the building to have been completed within 10 business days. Therefore, the contract was validly terminated even though Mr Armistead and Ms Patisso did not give 10 business days' notice of termination.