Termination for incomplete construction work

The recent decision in Hopper & Anor v Queensland Building and Construction Commission & Anor (No 2) [2019] 212 illustrates that parties to residential construction contracts need to be very careful when purporting to terminate a residential building work contract because of incomplete works.

Part 5 of the Queensland Building and Construction Commission Act 1991 establishes a statutory insurance scheme, the purpose of which, among other things, is to provide assistance to consumers of residential construction work for loss sustained when such work is incomplete. In order to make a claim for loss suffered as a consequence of incomplete residential construction work, the Home Warranty Insurance Policy requires the contract with the building contractor first be properly terminated.  Failure to do that will result in the QBCC disallowing an insurance claim.

Background to the dispute

In February 2015 the homeowners contracted with the builder for the construction of a new home pursuant to a Queensland Building and Construction Commission – New Home Construction Contract (the Contract).

A substantial amount of the residential construction work was completed before the parties fell into dispute.  In February 2016 the parties entered into an agreement to resolve the dispute which included a term that the residential construction work would be completed by 10 May 2016.

Under the Contract, the physical works only commenced on 21 September 2015 in circumstances when the original date for practical completion was 30 September 2015.

The construction work was not completed by 10 May 2016 and on 22 July 2016 the homeowners served a Notice of Substantial Breach alleging one substantial breach of the Contract, being failure to achieve practical completion by the date for practical completion.  On 10 August 2016, the homeowners served a Notice of Termination of the Contract.

QBCC denied the homeowner’s statutory insurance scheme claim for loss sustained because of incomplete residential construction work on the basis that the failure by the builder to reach practical completion by the due date was not, on its own, a substantial breach of the Contract.

What findings did the Tribunal make?

QCAT found that:

• under clause 27.2 of the Contract, the rights of termination under clause 27 were in addition to any powers, rights or remedies a terminating party may have – the common law right to terminate was not explicitly excluded by the Contract;
• under clause 27.4 of the Contract, substantial breach was defined as among other things, unreasonably failing to perform the work diligently or unreasonably delaying, suspending or failing to maintain reasonable progress;
• clause 27.4 of the Contract did not specifically refer to failure to achieve practical completion by the date for practical completion as amounting to a substantial breach;
• there had been significant delays throughout the term of the Contract – during the term of the Contract there were only 74 days of actual work;
• termination of the Contract could as a matter of law be justified on any sufficient ground available to a party claiming to terminate even if that specific ground was not relied upon at the time of termination;
• the residential construction work was far from complete when the homeowners purported to terminate the Contract on 10 August 2016;
• the builder had unreasonably failed to perform the work required of it in a reasonable time and failed to maintain reasonable progress;
• the homeowners were entitled to rely on the breach of clause 27.4 of the Contract, namely unreasonably failing to perform the work diligently, or unreasonably delaying or failing to maintain reasonable progress, although that ground was not raised in the Notice to Remedy Breach;
• the builder by its conduct in unreasonably failing to perform the work diligently, or unreasonably delaying or failing to maintain reasonable progress, had repudiated the Contract; and
• even though the homeowners initially only relied upon the failure by the builder to achieve practical completion by the date for practical completion, they were legally justification in relying on any or other specific grounds to terminate the Contract even though the specific ground may not have been relied upon at the time of termination.

Given the Tribunal’s findings, QBCC’s decision to disallow the homeowner’s statutory insurance scheme claim was set aside and the claim for non-completion under Part 5 of the Act was allowed.

Takeaways

Homeowners need to take care when drafting notices alleging breaches of a building contract to ensure compliance with the contract terms invoked in reliance upon termination.  While ultimately the homeowners in this case prevailed, it no doubt proved to be a time consuming and stressful experience to achieve the desired result three years after the event.

Links and further references

Cases

Hopper & Anor v Queensland Building and Construction Commission & Anor (No 2) [2019] 212

Legislation

Queensland Building and Construction Commission Act 1991

Related insights

Top ways to avoid a building dispute in Queensland
Implications of non-compliance with the Queensland Building and Construction Commission Act (Qld) 1991
Why you should not engage an unlicensed building contractor

Further information about building contracts

If you need assistance regarding the termination of a building contract, contact Dundas Lawyers Gold Coast for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.