Among the questions which came before the Victorian Court of
Appeal for consideration in Kane v Sopov1 were:
whether an incorrect interpretation of a contract can amount to
repudiatory conduct; and when might a party be disentitled from
terminating a contract?
In Kane, the conduct of Sopov (the owners) which Kane (the
builder) considered to be repudiatory included:
deduction of liquidated damages from certified progress
certificates and a subsequent refusal to remedy the default when
provided with an opportunity to do so;
recourse to the bank guarantee with neither an actual
entitlement nor compliance with the contractual machinery for
purporting to take the works out of the builder's
The owners alleged that their conduct was not repudiatory but
even if it was, the builder was disentitled by its own conduct from
accepting any alleged repudiation and hence terminating the
contract. The court disagreed.
The alleged disentitling conduct of the builder was the issue of
a notice to show cause which identified the default as a failure to
pay the progress claim, rather than a progress certificate which
was issued later than the 14 days allowed by the contract, and the
purported reliance on that notice to suspend the works. The notice
was issued prior to the decision in Brewarrina v
Beckhaus2 and at a time when a failure to issue a
progress certificate within the time set out by the contract meant
that the progress claim was automatically payable in full. However,
while the notice identified a failure to pay the progress claim,
later correspondence issued by the builder also identified the
owners' wrongful deduction of liquidated damages from the
certified amount as a serious breach of the contract. The owners
refused to remedy that breach.
The joint judgment of Maxwell P and Kellam JA found that
"the objective test of repudiation...leaves no room for
consideration of whether the party in breach...held the honest
belief that its action was justified by the contract.
Axiomatically, the repudiator's state of mind is irrelevant,
what matters is the character of the repudiator's
The court further rejected the suggestion that acting upon an
incorrect interpretation of a contract in reliance upon legal
advice could excuse the otherwise repudiatory conduct.
The court held that, viewed objectively, the steps taken by the
builder were "a justifiable exercise of a contractual
right". In contrast, the owners "persisted willy
nilly" in an "obviously untenable" interpretation of
the contract and the builder was "well justified" in
drawing the inference of repudiation on both bases.
The owners' subsequent application for special leave to
appeal to the High Court was dismissed.
1 Kane Constructions Pty Ltd v Sopov, Walker and
Stacks Properties Pty Ltd  VSCA 257.
2 Brewarrina Shire Council v Beckhouse Civil Pty
Ltd (2003) 56 NSW LR 576
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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