Litig8: Contract Interpretation: Strict reading of standard contracts

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By Geoffrey Dimharos, Law Graduate

Each month as a part of Mills Oakley’s Litig8, we bring to you snapshots of eight key cases, legislative changes or other legal events. The summaries are not comprehensive and do not constitute legal advice. You should seek professional advice before taking any action based on the content of this email.

Part 2 of the May edition of Litig8

A recent decision in the ACT Supreme Court has left a builder unable to recover over $380,000 for building work performed (and the homeowners with a windfall) due to a strict construction of the standard ACT Home Building Contract.

In R Developments Pty Ltd v Forth & Anor [2016] ACTSC 8 the builder had undertaken works on a Yarralumla Property to the value of $380,000. The builder terminated the contract – alleging the owner failed to comply with clause 4 (which required the owner to provide evidence of capacity to pay).  The builder claimed damages for costs incurred for works completed to the date of termination, amounts paid to contractors and suppliers and costs of variations (either as an agreed variation or on a quantum meruit basis) together with a 20%  builders margin.

The Supreme Court found that the owner’s obligation under clause 4 only applied prior to commencement of works and as the builder sought to rely on clause 4 to terminate after works had been commenced, the builder had invalidly terminated the Contract in the absence of any breach by the owners. Accordingly the builder was not entitled to recover damages for works already performed and costs incurred up to termination.  Had damages been available to the builder, certain variations claimed would not have been recoverable in any event as the pre-requisites set out in the contract had not been satisfied.  Further, as the works performed otherwise fell within the scope of the terms of contract, restitution on a quantum meruit basis was similarly not available.

However, the Court did take into account the fact that the owners had received the benefit of the builder’s works in awarding the owners only nominal damages of $5 on their successful counterclaim against the builder for repudiation.

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