The decision in the NSW Court of Appeal DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117 highlights the importance of ensuring that termination of a construction contract is effected in accordance with the terms of the contract or the terminating party's rights at common law. In this case, the court confirmed that repudiation of a contract will not be lightly found or inferred.

The decision of the NSW Supreme Court at first instance was examined in Champion Homes Sales Pty Limited v DCT Projects Pty Limited [2015] NSWSC 616.

DCT Projects Pty Limited (principal) engaged Champion Homes Sales Pty Limited (builder) under a contract dated 8 May 2006 to construct several townhouses.

Work commenced in August 2006, following which there were delays and the parties fell into dispute in relation to variations claimed by the builder.  In November 2007, the builder suspended work on the basis that (amongst other things) the principal had not paid the builder for a number of variations. The parties entered into a modification agreement in December 2007. However, further disputes arose and the builder suspended work on another three occasions between February and June 2008.

The principal gave notice purporting to terminate the contract on 2 July 2008, asserting that the builder had repudiated the contract. Notably, the principal did not seek to terminate the contract for breach, which would have required the principal to serve a notice of default and allow the builder a 10 working day remedy period. On 7 July 2008, the builder treated the principal's purported termination as repudiation of the contract and itself terminated the contract.

The builder sued the principal for damages, claiming the contract sum less the amount it had been paid. It also sued the principal's guarantors. The principal mounted several cross-claims against the builder and its managing director.

The trial judge found that the principal had wrongfully terminated the contract and that its conduct amounted to repudiation entitling the builder to terminate the contract. The principal appealed the trial judge's findings on several grounds. We have not discussed any of the principal's other grounds of appeal in this article.

The Court of Appeal upheld the trial judge's finding that the principal had wrongfully terminated the contract.

Gleeson JA stated that repudiation 'is a serious matter and is not to be lightly found or inferred'. His Honour examined the principles relevant to repudiation, including:

• for a party's conduct to 'constitute a renunciation of its contractual obligations', that party must have 'evinced an intention to no longer be bound by the contract, or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way'; and
• a renunciation can be by words or conduct. If by conduct, the conduct must 'convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it'.

The principal advanced several arguments in support of its contention that the builder's words and conduct gave rise to an inference that the builder was unwilling to perform the contract, including that the builder had:

• delayed in performing the contract;
• threatened suspension of the works in March 2008;
• failed to provide an updated works programme; and
• suspended the works in June 2008.

However, the court did not agree with any of the principal's arguments and dismissed the principal's appeal against the trial judge's finding that it had wrongfully terminated the contract. The court confirmed the trial judge's award of damages to the builder (subject to an adjustment resulting from a miscalculation).