This case involved an application for summary judgment by the plaintiff, Service Painting and Building Co Pty Ltd (SPB), claiming the sum of $140,618.77, from the defendant, Pacific International Hotel Management School Ltd (PIH).
Factual background
In 2003, a contract was entered into between SPB and PIH for painting work to be carried out over 12 years from 2004 to 2015. The work carried out in year one equated to 70 to 80% of the total value of the work ($660,000 plus GST).
However, this amount was not paid in year one but spread evenly across the 12 years of the contract. Accordingly, it was very much a “front loaded” contract in terms of services rendered.
In 2009 the contract was renewed. The renewed contract included a $236,802 amount for existing agreement termination costs from the 2003 contract, as well as additional payments. Again, the payments were to be spread over the life of the contract.
The total of all payments to be made under the 2009 contract was $329,602. Problems arose with SPB’s performance of the contract in August 2012. No maintenance work was carried out by SPB in 2013/2014, and PIH made no payments during those years.
The dispute
In 2015, SPB received an email from PIH attaching a termination of contract letter that it had sent in 2013. The 2013 letter listed the reasons for termination, including poor quality of workmanship, and breach of its contractual obligations.
SPB denied receiving this letter in 2013, and asserted it had tried to contact PIH to organise completion of works.
It subsequently invoiced for the sum of $117,005.90. This invoice formed the basis of the summary judgment proceedings.
PIH’s position was generally that the ongoing maintenance painting services were an integral part of the consideration for the 2009 contract.
PIH raised several affirmative defences with respect to SPB’s claim:
• PIH were entitled to cancel the contract where a “fundamental breach” of contract had occurred.
• There was an implied term in both contracts that maintenance services would be provided over the Christmas period.
• The 2009 contract expressly provided for set off in the event that SPB’s painting services were terminated.
• There was a number of factual disputes making it unsuitable for summary judgement.
Fundamental breach
PIH said SPB’s fundamental breaches were:
• Failing to provide ongoing maintenance services.
• Failing to provide services to an acceptable standard.
Therefore, any breach, no matter how minor, would amount to repudiation by SPB, immediately extinguishing all its contractual rights and obligations.
Associate Judge Bell said that the expression “fundamental breach” contained within the contract could not be interpreted in a way which would result in SPB receiving nothing for their completed work.
Associate Judge Bell also found that the parties could not terminate the contract without any warning of the party’s intention — 14 days’ notice was to have been given so that the breach could be remedied. PIH had not given appropriate notice, so the 2013 cancellation was not valid.
For completeness sake, he then considered the position of section 7(5) of the Contractual Remedies Act 1979 which states: “a party shall not … cancel the contract if … he has affirmed the contract.”
He found that PIH was aware of the unsatisfactory work by SPB, and elected to proceed with the contract, thus affirming it and losing its right to cancel.
Associate Judge Bell accepted that there was an implied term in the contract, which provided that painting was to be completed over the Christmas break.
Although there was an implied term, there was no actual loss caused to PIH from this breach. PIH could not show any actual costs that they had incurred by having to remedy this breach.
PIH submitted that “termination” of the contract entitled them to set off of the entire contract price. This was rejected by Associate Judge Bell.
The contract made it clear that the parties could only cancel some parts of the Contract Services. “Partial termination” used in the contract indicated that set off would be proportionate to “the reduction in Contract Services”.
Associate Judge Bell accepted that PIH could not claim set off because they had willingly paid the invoices, but added that they were entitled to set off any loss suffered as a result of poor workmanship.
The only evidence and calculation of loss which could be quantified was the loss of the 160 hours owed to PIH.
In weighing up the interests/arguments on both sides, Associate Judge Bell concluded that PIH were entitled to set off $13,800, being the cost of uncompleted work (the 160 hours owed).
Associate Judge Bell found in favour of SPB and awarded damages of $118,646.80, after deducting the set off amount.
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.
