Breach of contract and termination
| Author | Julian Bailey |
| Pages | 771-854 |
771
CHAPTER 9
BREACH OF CONTRACT AND TERMINATION
Breach of contract 772
(i) Denition 772
(ii) Consequences of a breach of contract 774
(iii) Interrelated breaches of contract 775
(iv) Accrual of a cause of action 776
Termination 776
(i) Generally 776
(ii) Termination on reasonable notice? 777
Termination at common law for repudiation or breach 778
(i) Repudiation 778
(ii) Anticipatory breach 781
(iii) Willingness and ability to perform by the innocent party 782
(iv) Terminating party also in breach 782
(v) Breach of a serious term 783
(vi) Cumulative eect of contractual breaches 784
(vii) Wrongful allegation of repudiation 784
Instances of repudiatory conduct or serious breach 785
(i) Repudiation or serious breach by the owner 785
(ii) Repudiation or serious breach by the contractor 789
Election to arm or terminate 794
(i) Generally 794
(ii) Election to arm 795
(iii) Election to terminate 797
Specic performance 797
(i) Generally 797
(ii) Specic performance ordered against a contractor 798
(iii) Specic performance ordered against an owner 802
Termination pursuant to a contractual power 804
(i) Generally 804
(ii) Material breach 805
(iii) Code to termination 806
Termination by the owner pursuant to a contractual power 807
(i) Generally 807
(ii) Termination for unsatisfactory performance 807
(iii) Termination for convenience 809
(iv) Injunction 811
Termination by the contractor pursuant to a contractual power 811
BREACH OF CONTRACT AND TERMINATION
772
Manner of termination 812
(i) Common law 812
(ii) Termination pursuant to a contractual power 813
(iii) “Show cause” and default notices 814
(iv) Termination notice 818
(v) Reasonableness, good faith and termination 820
(vi) Strict compliance 824
(vii) Contractual termination or termination at common law? 826
(viii) Consequences of ineective attempt to terminate pursuant to a
contractual power 826
(ix) Automatic termination 827
(x) Burden of proof 828
Rights and remedies following termination at common law 828
(i) General eect of termination at common law 828
(ii) Consequences of termination at common law for owner’s
repudiation or serious breach 829
(iii) Consequences of termination at common law for a contractor’s
repudiation or serious breach 836
Consequences of termination pursuant to a contractual power 838
(i) Generally 838
(ii) Suspension of payment to contractor 840
(iii) Completion of the works by the owner following termination 842
Termination due to frustration 845
(i) What is frustration? 845
(ii) Eects of frustration 849
(iii) Law Reform (Frustrated Contracts) Act 1943 (UK) 850
(iv) Australian, Hong Kong and Singapore legislation 851
(v) Contractual terms 851
Termination due to death 852
Discharge by performance 852
Termination by agreement or mutual abandonment 853
Termination of non-contractual arrangement 854
Breach of contract
(i) Denition
9.01 A breach of contract is a failure by a party to full its contractual promise. What a
party has promised to do (or not do) is to be ascertained from the terms of the particular
contract. A contractor’s express obligation is almost invariably to carry out and complete
the works described in the scope of works, not merely to exercise reasonable skill and
care to ensure that the works are done, or to exercise reasonable or best endeavours to
complete the works. is means that a contractor will usually be in breach of contract if
it fails to complete the works, even if with the exercise of skill and diligence it would have
BREACH OF CONTRACT AND TERMINATION
773
been unable to complete them.1 A contractor’s promise to perform certain works is abso-
lute in nature, unless qualied by the terms of the contract itself.2 A breach of contract
may therefore be committed irrespective of fault, intent3 or negligence.4 Hence, by way
of illustration, where a main contractor has undertaken to build a structure that meets
a certain specication, and the structure as built fails to comply with the specication,
it is no excuse for the main contractor vis-à-vis the owner that the critical deciency in
the structure arose because a specialist subcontractor engaged by the main contractor
failed to design the structure correctly, even if the subcontractor appeared to be perfectly
competent, and the main contractor had no reason for doubting the adequacy of the
subcontractor’s design; that is, it cannot be said that the main contractor did anything
“wrong”.5 It is only if the breach of contract was caused by a matter for which the coun-
terparty was legally responsible that a party who is notionally in breach of contract will
be excused from performance.6 e position may be dierent where a contractor agrees
to build a structure to a particular specication, and duly does so, yet the structure as
built fails to comply with statutory regulations or other legal requirements. In such cases,
the contractor may have complied with the letter of the contract, and may therefore, in
one sense, not be regarded as being in breach of contract, but there may nevertheless be
legal consequences that ow to it (and/or the owner) due to the non-compliance of the
structure with the applicable legal requirements.7
1 Hence, a contractor may be in breach of its obligation to complete the works even if the work that it has
performed is of a suitable quality (eg, where the contract species particular qualities or features of the works to be
performed), but the works do not comport with what the contract calls for because they are incomplete: Midland
Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 at 434–435, per Oliver J.
2 LLoyd, “Contractors’ liability for design: an English point of view” in Lloyd (ed), e Liability of Contractors
(Longman, 1986) page 142. Where, however, a contractor undertakes to use “reasonable endeavours” or “best
endeavours” to achieve a result, it is not guaranteeing that the result will be achieved: Midland Land Reclamation
Ltd v Warren Energy Ltd [1997] EWHC Tech 375 at [92]–[93], per HHJ Bowsher QC. It is usually implicit in a
promise by a person to use their best or reasonable endeavours to perform certain work that the promisor has the
nancial means to perform the work, meaning that it will be no excuse for non-performance that the promisor did
not have the nancial means to perform or procure the execution of the work: see Gauld v Obsidian Holdings Pty
Ltd [2009] NSWSC 924 at [31]–[33], per White J.
3 Although intent may be relevant for other purposes. us, if a director of a company intentionally brings about
a breach of contract by the company, the director of the company may be liable in tort for inducing the breach of
contract: see Palmer Birch v Lloyd [2018] EWHC 2316 (TCC) at [156]–[193], per HHJ Russen QC. A similar
liability may accrue pursuant to statute: see, eg, Wrongs (Public Contracts) Act 1981 (Vic) section 3.
4 Beard Watson Ltd v Dixson Trust Ltd (1914) 14 SR (NSW) 133; Ranieri v Miles [1981] AC 1050 at 1086; RDC
Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR(R) 413 at [134], per Andrew Phang Boon Leong JA [Sing
Ct App]. A breach of contract may usually be equated with a party being in “default”, although the two concepts
are not necessarily coincidental: Re Bayley-Worthington and Cohen’s Contract [1909] 1 Ch 648 at 656, per Parker J;
City of Manchester v Fram Gerrard Ltd (1974) 6 BLR 70 at 90, per Kerr J; Perar BV v General Surety & Guarantee Co
Ltd (1994) 66 BLR 72 at 84, per Peter Gibson LJ; L/M Construction Inc v e Circle Ltd Partnership (1995) 49 Con
LR 12 at 34, per Millett LJ, at 37, per Ward LJ. A person’s breach of contract may, however, also constitute an act
of negligence or some other tort, and liability for breach of contract may be concurrent with any tortious liability:
see paragraphs 10.183–10.186.
5 Independent Broadcasting Authority v EMI Electronics (1980) 14 BLR 1 at 42–44, per Lord Fraser. See also Leslie
v Metropolitan Asylums District Managers (1901) 2 Arch Law Rep 36, 68 JP 86 (CA); Mitchell v Guildford Union
(1903) 2 Arch Law Rep 43, 68 JP 84 [KBD, Phillimore J]; e Crossing Co Inc v Banister Pipelines Inc, 2005 ABCA
21 at [2], per Côté J.A. e position may be dierent in relation to torts, as the general rule is that a person is not
liable in tort for the conduct of an independent contractor engaged by him. As to independent contractors, see
paragraph 8.146.
6 is issue is discussed below in relation to interrelated breaches of contract.
7 See Lowe v W Machell Joinery Ltd [2011] BLR 591 at 601 [41]–[45], per Lloyd LJ.
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