Prevention is better than cure

DAB Builders was engaged for building work on the Down Nursing Home for Mayhaven Healthcare. A dispute was referred to adjudication, and the adjudicator made an award in DAB’s favour. Believing that Mayhaven had failed to pay it, DAB suspended the works. In fact, Mayhaven had paid the amount awarded in the adjudication in subsequent valuations. Mayhaven accepted the suspension as a repudiatory breach of the contract.

DAB accepted that there had been an improper suspension of the works due to the mix up over the payment, but argued that it was not a repudiatory breach of the contract. The arbitrator appointed by DAB had agreed, and now Mayhaven raised this issue before the Technology and Construction Court as a question of law, along with a number of other issues.

The court decided that the arbitrator had correctly applied the legal principles. A breach of contract is repudiatory if it goes to the root of the contract. Not every wrongful suspension of the works would automatically be a repudiatory breach. It would depend upon the circumstances. The arbitrator had correctly taken into account the misunderstanding over the payment. Mayhaven had known that they had made the payments, but had not told DAB that they had. If they had told DAB what they had done, there would have been no suspension of the works. Letters written by DAB showed that they were willing to continue.

The court’s decision shows that whether a wrongful suspension amounts to a repudiatory breach is not straightforward. There are a number of factors which need to be taken into account: the contract’s provisions, the alleged breach or breaches and the circumstances.

DAB had genuinely believed that payment had not been made and was not going to be paid. They relied on a letter from Mayhaven’s Solicitors which stated that Mayhaven “will not be making any payment to your client pursuant to the Decision”. The arbitrator had also concluded that Mayhaven and their solicitors had known that DAB had been paid before the works had been suspended. Taking into account all this, the arbitrator had been correct in deciding that DAB’s suspension had not been a repudiation.

The old slogan, “It’s good to talk” had it been applied here would have saved both parties the time and money involved in the court proceedings. Preventing a dispute must always be preferable to curing one.

Author: Ann Glacki

Date: February 2010

Commentary

The significance of this case it that it shows that a ‘wrongful suspension’ is not, in itself, automatically classed in law as a repudiatory breach without further enquiry.

Effectively the performance of a (construction) Contract is to be classed as an innominate term such that the question of whether it is repudiatory or not depends on the actual circumstances.

In the case of DAB and Mayhaven the admitted wrongful suspension was not a repudiatory breach the court found because DAB had clearly suspended on the basis that they had not been paid, when in fact they had been and the other Party let them wrongfully suspend without providing them with the relevant information upon receipt of which DAB would either not have suspended or would have returned to work.

If a breach can be treated as repudiatory then it provides the non-defaulting Party two main stream remedies namely damages and accepting the contract as having been repudiated so that it can be terminated so that they can walk away from future performance. If a breach is not repudiatory then generally only one remedy is available, namely damages.

For more information please contact Lorne Alway by telephone 01295 275975 or by email on lorne.alway@alway-associates.co.uk

Author: Lorne Alway

Date: February 2010

Lorne Alway

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