NSW Court upholds valid common law and contractual right to terminate contract


Eden Co Construction Pty Ltd v Leed Engineering and Construction Pty Ltd [2018]

NSWSC 1882

In closing out December 2018, the NSW Supreme Court have upheld a decision of the Queanbeyan Local Court determining that common law rights to terminate a building contract co-existed with the contractual right to termination.

The facts

In February 2016, Eden Co Construction Pty Ltd (Eden) and the Defendant, Leed Engineering and Construction Pty Ltd (Leed) entered into a Subcontract, under which Eden were engaged as a subcontractor by Leed to construct manholes in a sewer line.

In March 2016, Leed terminated the Subcontract for an alleged breach by Eden. The termination was made without notice and without giving any opportunity to Eden to remedy the breach as set out in the Subcontract.

In the original Local Court proceedings, Eden argued that the termination was wrongful and claimed for damages arising from the loss of the Subcontract. In September 2017, the Local Court found in Leed’s favour and held that Eden had breached the Subcontract. In this decision, the Local Court also held that the common law granted Leed’s the right to terminate the contract where there was an actual breach of the condition of the contract.

Eden commenced proceedings in the Supreme Court appealing the Local Court’s decision. The basis of this appeal was that his Honour erred in finding that Eden’s breaches of the Subcontract were sufficiently serious to have justified Leed’s termination of the Subcontract and that Eden had not been given the requisite notice under the Subcontract.

In December 2018, the Supreme Court upheld the Local Court’s earlier decision, finding in Leed’s favour that their termination of the Subcontract was valid.

Take home message

The Court’s decision in this case is a timely reminder that a common law right to terminate a contract normally co-exists with the contractual right to terminate. In this regard, it is not always necessary to follow the available contractual mechanism (including ordinarily the obligation to issue a default notice and providing an opportunity to remedy such a default) in order to validly terminate a Contract.

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