Michael Creedon | Clare Turner | Gemma Galloway
Failing to comply with the express requirements under a contract for reaching practical completion, making a final claim and for variation claims may disentitle a contractor to payment. If a builder refuses to undertake remedial work in accordance with its obligations under the contract, this may be considered a repudiation of the contract, entitling the other party to the contract to terminate.
In July 2018, Mr and Mrs Kaminaras (Kaminaras) entered into a contract with Cairns Building and Construction Pty Ltd ATF P&T Kelly Trust t/as Phil Kelly Builders (builder) for the design and construction of a house. The builder asserted that the works reached practical completion on or about 29 April 2019. On 10 May 2019, the builder issued a Notice of Practical Completion, a defects document and a final claim to Kaminaras.
Kaminaras did not pay the final claim and each party purported to terminate the contract (Kaminaras on 9 September 2019 and the builder on 10 September 2019).
The builder alleged that any minor defects or omissions did not prevent the work from reaching practical completion and sought to terminate the contract on the basis of the Kaminaras’ alleged repudiation. The builder commenced proceedings in QCAT seeking payment of the amount owing or alternatively damages for breach of contract, repudiation and wrongful termination of the contract.
Kaminaras contended that the defects or omissions required substantial remedial work, the work was not practically complete and therefore payment of the final claim was not due. Kaminaras also purported to terminate the contract on the basis of the builder’s alleged repudiation. Kaminaras counterclaimed against the builder, seeking damages for breach of contract, or on the alternative breach of warranty or negligence.
The Tribunal held that practical completion had not occurred due to a number of items being defective, meaning the builder was not entitled to payment of the final claim. The Tribunal:
- dismissed the builder’s claims for damages for breach of contract, damages for the Kaminaras’ alleged repudiation and wrongful termination and interest on damages;
- ordered the builder to pay the Kaminaras’ damages, representing the costs to rectify the incomplete and defective work; and
- set-off the unpaid final claim and the unpaid agreed variations against the builder’s liability to pay those damages, with the net result being that there was no amount to be paid.
The defective work
Kaminaras claimed damages on the basis that construction was defective. The Tribunal concluded that, as at 29 April 2019, 10 out of the 16 items were defective.
Whether or not practical completion was achieved
The builder asserted that practical completion was achieved on or about 29 April 2019 or alternatively, no later than 10 September 2019 when Kaminaras took possession of the house. The builder relied on the definition of ‘practical completion’ in the contract which included the words, ‘that will not unreasonably affect occupation’ and contended that the defective work did not affect occupation. Kaminaras submitted that the definition of practical completion under the contract was not satisfied due to the significant defective work items.
The Tribunal was of the view that something ‘more than simply minor omissions or defects’ was required for practical completion not to be achieved. The Tribunal concluded that the defective work was not minor, especially the roof drainage and underground drainage issues. Practical completion had not been achieved and could not be achieved until that work was rectified.
The builder’s final payment claim and variation claims
The builder made a final payment claim (payable on practical completion) in addition to a number of variation claims. Kaminaras disputed these claims and contended that the builder did not accrue a right to payment because it failed to comply with the procedure for reaching practical completion contained contract.
In accordance with the contract, Kaminaras notified the builder of defects or omissions, which required the builder to issue a further notice of practical completion. Kaminaras’ obligation to pay the final payment claim was not triggered until the further notice was received. The builder failed to follow this procedure. The Tribunal held that this failure ‘permeated its conduct’ on the issue of practical completion, disentitling it to payment.
The Tribunal rejected the builder’s variation claims because it failed to comply with the express requirements of the variation clause in the contract.
Termination of contract
The Tribunal found that Kaminaras was justified in terminating the contract on 9 September 2019 due to the builder’s repudiatory conduct in refusing to complete certain works.