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Contract Repudiation, or a Better Pathway to Resolution

Contracts that are not fit for purpose


Contracts did not always include variation clauses. That meant you could not change the scope of work without first agreeing either (a) a contract amendment or failing that, (b) cancelling the contract to avoid the net undesirable outcomes of continuation.

 

But when you cancel a contract, you are exposed to the possibility of damages.

 

If you have a contract cancelled on you, damages restore you to the position you should have been in had the cancellation not occurred (assuming you are not at fault).

 

For small matters that can aggregate to big ones, these are not good options.

 

 

The right to direct or vary the scope of works

 

Variations are permitted and Directions must be followed. See NZS3910:2013 clauses;

 

“9.1.1 The Engineer may order any Variations to the Contract Works within the scope of the Contract”

 

“9.1.4 The Contractor shall carry out and comply with any Variation ordered under 9.1.”

 

These provisions solve many problems, but also bring challenges to agree the effect of Directions and Variations. The battle to agree what is a variation and what it is worth ensues, until…

 

 

What Happens when you do not follow the Direction / Variation rules?

 

Your builder communicates:

 

“The gas line this can’t be ordered or laid until our claim for a variation is agreed upon. I’ve been though the plans and pricing with the QS and it’s not been allowed for in our price.

 

Your project will have to stop and deal with the disagreement over whether or not the scope is in the contract or a variation, and determine what it is worth, before works can continue.”

 

 

Expect a response like this…

 

Your reply:

 

“The Schedule of Works, on page 7 there is a section confirming the demarcation of all services including bullet point 6 "gas, Builder to run new mains to BDY for connection - Vector costs by owner". Refusing to proceed with works, whether original scope or a direction, later confirmed to be a variation, is a repudiation of contract.”

 

 

Repudiation and the Law

 

Contract and Commercial Law Act 2017

 

‘36 Party may cancel contract if another party repudiates it

 

(1) A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to —

(a) perform B’s obligations under the contract; or

(b) complete the performance of B’s obligations under the contract.

(2) This section is subject to the rest of this subpart.”

 

Repudiation by conduct, could also be Contractual Default by the Contractor;

 

NZS3910:2013 clause 14.2 Default by the Contractor;

Part 14.2.1 (c) The Principal may at its option after giving notice to the Contractor either terminate the Contract or resume possession of the Site in the event of The Engineer certifying in writing to the Principal that in his or her opinion the Contractor has abandoned the Contract or is persistently, flagrantly or wilfully neglecting to carry out its obligations under the Contract, and the Contractor’s default has not been remedied within 10 Working Days of receiving the notice.

 

 

TWO BIG QUESTIONS about Repudiation

 

Q1. To stop doing the work (or threaten to stop doing the work), or just do the work?

 

Q2. To Cancel or affirm the contract, when the other party repudiates the contract?

 

A1. Being first one out the door carries the risk you will owe damages to the other party.

 

A2. Faced with a repudiation, being the second one out the door gives you options, but the courts will not let you delay making a choice to achieve the timing of your desires. It would be unjust to continue a course of dealing disingenuously. So faced with repudiation by the other parties words or deeds, you must either cancel or affirm the contract. Caution, not all that looks like repudiation actually is repudiation, and if the courts decide an act or deed does not meet the threshold for repudiation, your cancellation that follows it, may itself be a repudiation by you. Whereas affirming the contract means the contract is still afoot, regardless.

 

 

Get Legal Advice

 

These matters are best considered with legal advice. Be very careful, that you do not flippantly threaten not to carry out your contractual obligations, and do not decide, without legal advice, to cancel (or affirm) the contract when faced with alleged repudiation by the other party. Particular circumstances at the time are likely to play a major part in these decisions.

 

The CCA sets out limited provisions when a payee may legally suspend work and it will not be an act of repudiation. If considering CCA suspension, get legal advice, because not fitting into the CCA criteria also runs the risk of repudiation and the possibility of damages.

 

When faced with a matter, where you consider that “stopping work” is the right course of action to get it resolved, rather than dance with Repudiation and potentially sudden death cancellation followed by damages, choose a better pathway to resolution.

 

 

A Better Pathway to Resolution

 

The bottlenecks start to back up when someone stops listening.

 

Draft a communication as a script, outline the subject matter and advise the other party that you seek to resolve this matter with discussion around the issues between you both, to arrive at a common understanding of the position you each are in, so you both can then agree upon a resolution of the matter in a timely cordial and respectful manner, to the reasonable satisfaction of all parties. Pick up the phone and try and deliver the message directly to the person intended, failing that, send an email prefaced with “This email follows my call and voice message regarding…”

 

Break the deadlock of back and forth without connection, by reaching out with an open hand and invite a conversation. If not accepted, keep trying to seek an audience for in-person conversation with the right person to facilitate a solution. Failing that, try again,…



“If you enjoy this blog, please share it with your like minded colleagues”


“Celebrating 50 years of New Zealand Building Economist 1972 to 2021”


By Matthew Ensoll

Life Member NZIQS. Reg.QS.

Editor New Zealand Building Economist.



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