Most construction contracts include (or should include) a date for completion of the works. If the works are not completed by that date, the employer/purchaser may be entitled to damages.
Where a contract does not include a completion date, a term will usually be implied that the works must be completed within a “reasonable time”.
In either case, the employer/purchaser will generally not have an automatic right to terminate the contract. However, where one party has given a clear indication that it will not perform its side of the bargain, this may amount to “repudiation” of the contract, which the innocent party is entitled to accept and treat the contract as terminated.
The tricky bit is establishing what amounts to repudiatory conduct.
This point was considered in the case of Baht v Masshouse Developments.
Masshouse was in the process of developing an apartment block and had appointed a main contractor.
In late 2007/early 2008, Baht and others entered into contracts with Masshouse and paid deposits for purchase of the apartments in the expectation that they would be completed in April 2009.
In October 2008, the main contractor went into administration. In November 2008, Masshouse considered an alternative scheme, whereby the development could be sold as a hotel.
In January 2010, Masshouse carried out some further works.
In February/March 2010, the purchasers served notices alleging repudiatory breach and demanded return of their deposits. Masshouse refused, completed the works and in May 2011, served Notices to Complete. When the purchasers refused to complete, Masshouse purported to exercise its contractual right to rescind the contracts and forfeited the deposits.
Not surprisingly, the purchasers issued Court Proceedings.
The Court had to decide whether there was an implied term requiring completion of the works within a “reasonable time”; whether Masshouse was in breach of its obligation to arrange for completion of the apartments with all due diligence; and whether Masshouse repudiated the contract or was allowed to keep the deposits.
The Court decided that:
- It was not possible to give an exact date when a “reasonable time” to complete works had expired, but in these circumstances the length of time it took Masshouse to complete the apartments was not “reasonable”
- Masshouse was in breach of the express term to arrange for completion of the works with all due diligence particularly given that it had for several months been considering the hotel scheme rather than the apartment scheme it was contracted to build
- The lack of any works for several months was enough to infer that the development had been abandoned and the purchasers were entitled to treat this as a repudiation and Masshouse was ordered to return their deposits
Comment: Each case will be decided on its own facts. However, the decision highlights the difficulty in ascertaining what a “reasonable time” is. It is the age old question of “how long is a piece of string” or “you know it when you see it”. The key message is that the conduct complained of, must be sufficiently severe to amount to a repudiation. The case also highlights the need for contracts to have clear deadlines for completion wherever possible in order to crystallise the parties’ respective rights and obligations.
At the time of writing, the full judgement was not available and so any further relevant guidance will be made available in due course.
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