When a party breaches a contract the innocent party will be
entitled to damages due to the breach by the other party. The types
of damages recoverable and the sum of the said damages will be
contingent upon the type of breach committed. It is beyond the
breadth of this article to consider all the types of breaches of a
contract that can be possibly committed, however, it will focus on
substantial breaches and breaches that amount to a repudiation (the
incorrect termination) of the contract.
Substantial breaches of a building contract are normally
breaches that are so severe in nature that they will give rise to
the right of the innocent party to terminate the contract, if the
breach is not remedied in a set period of time.
Typical types of substantial breaches from a builder's point
of view are:
the owner/principal refuses to pay a progress claim under the
the owner/principal takes possession of the works;
the owner fails to provide evidence of capacity to pay the
contract sum; or
the owner interferes with the builders trades.
From the Owners Point of View
Typical types of substantial breaches from an
Owner/Principal's point of view are:
the builder suspends the works without cause; or
the builder refuses to perform works that are required by the
In these circumstances the types of damages that a party may
seek to claim are damages that 'flow as a natural
consequence' from the breach of contract (Hadley v Baxendale
(1854) 9 Exch 341). These damages may include such items as:
extra interest payments on any loans due to a delay in
interest on the sum of a withheld progress payment; and
holding payments to third party suppliers whilst the works are
Where a party repudiates a contract (terminates a contract
incorrectly) the innocent party will argue that they are entitled
to damages to place them in the same place they would have been if
the contract was performed, and to compensate them for any losses
they have suffered due to the repudiation of the contract.
From a Builder's Point of View
If an owner repudiates a contract the builder may seek damages
for such costs as:
work performed under the contract (even if it has not reached
the relevant progress payment stage);
the loss of profit the builder would have been entitled to if
the builder had completed the contract; and
payments owing to third party suppliers for materials or
cancellations of orders that relate to the contract works.
From an Owner's Point of View
If a builder repudiates a contract the Owner/Principal may seek
damages for such costs as:
the difference in cost of obtaining a new builder to complete
the works and the original contract sum;
costs associated with obtaining a new building permit;
costs associated with obtaining different insurance for the
extra interest payments on loans due to the works being
if the builder was made aware that works when complete were due
to be leased or sold, in some circumstances the owner may seek to
claim in additional costs they incur in relation to the sale or
lease of the building being delayed.
The above article is a brief synopsis on the types of damages
that may be claimed if a party breaches or repudiates a contract.
Each contract is different and many building contracts have clauses
that may cover some of the loss that may be incurred by a party,
such as liquidated damages and delay damages clauses. A party will
not be entitled to recover twice for the same loss, so one must
bear this in mind when deciding on what type of damages to claim
for a breach of contract.
A construction lawyer should always be consulted at first
instance when a party considers that the other party is in breach
of the contract. Assessing whether a breach of building contract
has in fact occurred is never as straight forward as it initially
seems and one would be wise to get expert advice rather than to
start down the road to a possible repudiation of the contract.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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