Or at least doing it properly often is….
In the case of Optimus Build Ltd v Southall & Anor, reported last month, it was an all-too-familiar case of a falling out between home-owner and their building contractor and the termination of their building contract. Each party blamed the other for committing the ‘repudiatory breach’, that it is to say the breach that was so fundamental that it was capable of bringing the contract to an end.
This is usually an important question because in this scenario typically the homeowner (employer) wants to be able to recover any increased costs of having the remaining work carried out by a different contractor (for which the contractor must be found to be in repudiatory breach); and the contractor typically wants to recover the contribution to head office overheads and loss of profit that it should have made on carrying that remaining work out (for which the employer must be found to be in repudiatory breach). So there is often a lot at stake to fight over.
These cases are always fact-dependent and the facts in the case suggested that the homeowners did not pay the contractor an interim payment so the contractor ‘downed tools’. The court held that it was a breach of contract for the contractor to have downed tools where it had no right to suspend its work for non-payment. Most construction contracts will have a right to suspend for non-payment either as an express term, or as an implied term under the Construction Act. However, the Construction Act does not apply to contracts involving a residential occupier, as here.
But was that breach so serious, in the circumstances, as to be repudiatory and capable of bringing the contract to an end?
The circumstances here included the fact that the parties were in dispute about the basis of pricing of the actual contract – was it a lump sum, as the homeowners said, or was it cost-plus, as the contractor said?
The evidence in the case also pointed to the contractor pausing the work, rather than cancelling it, so it was clear enough that they would have returned to site once they had been paid the correct amount. The court held that because the contractor had only suggested a meeting to agree a way forward, rather than ceasing work and insisting upon the employer conceding to its demands, that of itself could not be a repudiatory breach, so should not have been treated by the employer as if it were.
“The claimant was not in repudiatory conduct when it was making it plain its willingness to meet and seek to resolve the issues which divided the parties with a view to completing the project.”
It was also a relevant circumstance that the homeowners did not even pay the contractor the undisputed part of its application.
So the homeowner was found to be in repudiatory breach for failing to meet and discuss the situation with the contractor and instead treating the contract as if it was already at an end. A potentially expensive mistake for the homeowners, who will now need to pay a replacement contractor to carry out the work AND pay the original contractor’s loss of profit on that same outstanding work (not to mention the legal costs associated with the court case).
At the point of wishing to part ways it always makes sense to obtain legal advice on whether you can treat the contract as being at an end, or whether you need to do anything else first.
Footnote - Another interesting element to this claim was the TCC deciding to add VAT to the damages for loss of profit, which went against the usual practice because of a late-2020 HMRC update stating that compensation payments relating to commercial payments, including early termination provisions, would be subject to VAT.