Termination of Building Contracts for Delay

Section 41 of the Domestic Building Contracts Act 1995 (Vic) (the “Act”) confers a right on Owners to terminate the contract if:

• the work has not been completed within one and a half times the period in which it ought to have been completed; and

• the reason for the increased time or cost was something that could not have been reasonably foreseen by the builder at the date the contract was made.

In these circumstances, the Owner is entitled to serve a notice terminating the contract. However variations made by the Owner (s 38), prime cost items and provisional sums are excluded from this calculation to the extent that they caused the delay (s 41(2)).

Kubic Pty Ltd v Catanese [2011] VCAT 862 (“Kubic”) demonstrates that if the requirements under the Act are not met, then any such notice does not have the effect of determining the contract, regardless of the intention of the Owner.

For service of the notice to terminate to be valid and effective, it must be ascertained, on the evidence, that the factual bases for the service of the notice is established. The burden of proof of these facts rests on the Owner. Kubic also emphasises that it is not enough to put forth possible reasons for delay in the affidavit material before VCAT. What it was that actually delayed the work must be proven or the Owner will not be found to have been entitled to serve the notice and terminate the contract under s 41 of the Act.

Mardel Constructions Pty Ltd v Sinha [2009] VCAT 1532 (“Mardel”) highlights that s 41 does not operate independently of the contract, and in all cases whether termination was valid will depend on the facts specific to each case. In Mardel, the complaint about the over-run was not pleaded as a breach, but was pleaded as the basis of a claim for termination of the contract pursuant to s 41 of the Act. In Mardel, the contract contained a clause governing the valid termination of the contract which gave the Builder the opportunity to remedy ‘substantial breaches’ within 10 days of the Builder receiving notice, but further, it stipulated that the Owner was not entitled to end the contract when the Owner was himself in substantial breach of the contract. The Owner in Mardel substantially contributed to the delay due to non-payment of the lock-up claim resulting in the Builder suspending works. Thus, it was found that the Owner purported to terminate when he had no right to do so. Indeed, the purported termination amounted to a repudiation of the contract.

If you are a builder and you think that you may be at risk because of delays to completion, feel free to contact us for a free consultation on (02) 9262 5495 or (03) 8899 7870, or visit our website at www.mclp.com.au or our Facebook Page at http://goo.gl/Jx2hdO.

This article is not legal advice and should not be relied upon as legal advice. All articles found on this website are intended to provide informative information, nevertheless, in many instances legislation and case law has been simplified and/or paraphrased. If you would like personal legal advice based on your current circumstances, you should contact MurdockCheng Legal Practice for a free consultation.