Termination and Contractual Cure Periods – What are Your Rights?

29 JUN 2020

 

Background

In Visual Building Construction Pty Ltd v Armistead (No 2) [2019], the NSW Court of Appeal considered when a building contract is validly terminated with respect to a remediable breach.

Specifically, the court considered the scenario where a termination clause provides for termination if a remediable breach is not remedied within a set time-frame.

Key Takeaways

If a contract contains a notice period within which a default may be cured before termination, this period will be enforced by the courts.

However, where the default in question is incapable or not realistically capable of being remedied within the notice period required by the relevant termination clause, there is no requirement to provide such notice to cure the default.

Facts

Mr Armistead and Ms Patisso (the Owners) entered into a contract for Visual Building Construction (Visual) to build a house (the Contract).

Terms of the Contract included that Visual was responsible for obtaining the required approvals.

Clause 15 contained a termination clause which stated that for certain types of breach, if the breach could be remedied, the Owners could terminate the Contract if the breach was not remedied in 10 business days. Notice of termination was to be given in writing 10 business days prior to termination.

Visual failed to complete certain aspects of the Contract, including failing to receive certain Council approvals. There was also a range of defects with regard to the construction of the house. 

As Visual had commenced construction without approval, Council sent the parties a notice of intention to seek an order stopping all building work until the required construction certificates were obtained.

The Owners then terminated the Contract and sought damages, without giving 10 business days’ notice.

The District Court decided in favour of the Owners. The issue on appeal was whether the Owners had validly terminated the Contract.

Decision on Appeal

The NSW Court of Appeal agreed with the determination of the District Court.

To the extent that the Contract imposed any requirement to give 10 business days’ notice prior to termination, such a requirement only applied if the default was capable of being remedied within this period.

The failure to obtain the construction certificate was not something that could be remedied within 10 business days as the construction certificate was required prior to commencement of the works and this could never be remedied.

Therefore, the Contract was validly terminated even though the Owners did not give 10 business days’ notice prior to termination.

In determining the matter, the court applied the two pronged interpretation of what constituted remediable breaches in termination clauses, as set out in Burger King Corporation v Hungry Jack’s Pty Limited [2001]:

  • first, the fact that a breach is ‘once and for all’ does not make that breach categorically non-remediable; and
  • second, a termination clause providing for termination if a defect is not remedied within a set time-frame of notice being given under the clause does not require notice to be given to terminate if the defects nature is such that it is impracticable to remedy within that time-frame.

What Does This Mean for You?

The case has significance for the interpretation of contractual provisions that provide a party may terminate if a remediable breach is not remedied within a given time-frame.

If you would like advice or assistance in relation to the above or any other Commercial matters, please contact our accredited business law specialists and Partners Justin Thornton on jthornton@marsdens.net.au and Rahul Lachman on rlachman@marsdens.net.au or otherwise by calling them on (02) 4626 5077.

The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.

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