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Can payment be withheld, and a construction contract cancelled, on the basis of incomplete work?

Can payment be withheld, and a construction contract cancelled, on the basis of incomplete work?

In this month’s article I wish to review the March 2017 decision of Bulmer v Envisage Construction Ltd. This decision was initially heard in the District Court, and was subsequently appealed to the High Court.

 

Factual background

The appellants (Mr and Mrs Bulmer) owned a block of land upon which they contracted with Envisage Construction Ltd (ECL) to construct a house.

On receipt of the 12th staged payment claim, which covered “all interior decoration or coatings”, the appellants withheld payment because of four matters:

failure to install slab edge insulation, 

failure to install two attic stairs, 

an “allowance for laundry”, and

an “allowance for supplies”.

There was dispute between the parties as to whether these items were included in the contract price. 

In response to the appellants’ non-payment, ECL suspended working on the project. Following this, mediation was attended by both parties, where no agreement was reached.

The appellants thereafter cancelled their contract with ECL, and further engaged another contractor to complete the work.

 

District Court

In the District Court, Judge Tompkins found in favour of ECL, awarding it judgment for the amount of the 12th claim. He ruled that the appellants had breached the contract by failing to make payment of the 12th staged payment and, thereafter, wrongfully cancelled the contract.

Their counterclaim of “overpayment” of invoices (for the above four matters) was dismissed. 

In examining the clauses of the contract, Judge Tompkins said ECL was entitled to suspend work, while the appellants were not entitled to cancel the contract following the suspension.

The claim of “overpayment” was dismissed because the contract provided for “substantial” completion, not full completion, as well as the fact that there was no evidence to establish that the work would not have been completed in full by ECL.

 

High Court

In the High Court, the appellants raised three grounds of appeal, namely:

Is it reasonably arguable that ECL had wrongly suspended work under the contract?

Is it reasonably arguable that the Bulmers were entitled to a refund for pre-payment on provisional cost sums irrespective of who repudiated the building contract?

Should the presence of significant factual disputes between the parties have prevented the entry of summary judgment?

In addressing the first ground of appeal, Judge Collins examined clause 69 in the contract which enabled ECL to suspend work, but contained no express words prohibiting set off by the appellants.

He then said the appellants were entitled to set off their own claim as against progress claims and, therefore, ECL could not lawfully suspend construction works because they did so.

However, the first ground of appeal could only succeed if he was satisfied “that ECL hadn’t discharged the onus of establishing that there was no basis for the appellants to claim a set off”, regarding the 12th claim.

He concluded that the failure to install slab edge insulation product was arguably an item of set off. There were conflicting positions from both parties as to whether a more expensive Texturite product was to have been installed.

Accordingly, the court ruled that it was reasonably arguable that ECL had wrongly suspended performing work under the contract.

The court also found that the court could not summarily dismiss the appellants’ counterclaim, in light of the fact that it now had ruled that they had not repudiated the contract.

It was certainly arguable that some of the provisional sum items ought to have been delivered by the 12th claim, and where they had not been delivered, a refund was applicable.

Finally, it found that there were factual issues requiring determination by a full hearing, which made this proceeding inappropriate for resolving at summary judgment level.

 

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.

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