Contracts and Completion Dates
Akatea Developments NZ Ltd & JG Adsett Holdings Ltd v The Scout Association of New Zealand
This case concerns a contract entered into by a soils and aggregates contractor with the Scout Association of New Zealand. The contract was for Adsett to cleanfill a site owned by the Scouts so that, ultimately, the site could be used by the Scouts as a playing field. Some years later, after the landfill was partially completed, the Scouts terminated the contract and a claim was brought by Adsetts for damages.
The issues that the Court had to decide upon were as follows:
(a) Whether the Scouts breached the contract by wrongful termination.
(b) If so, whether the plaintiff has suffered consequential loss of tipping fees and revenue for recycled material. (This article will not deal with this issue).
(c) Alternatively, whether the plaintiff is entitled to remuneration for work undertaken on the landfill on a quantum meruit basis.
(a) The written contract did not contain a completion date. It was concluded by the Court that there was implied into the contract a term to the effect that the work would be completed within a reasonable period of time.
From here it was argued by the Scouts that there were sufficient delays that justified termination of the contract. The Court found as a matter of principle that one party to a contact cannot cancel a contract before having made the time of the essence for completion of the contract.
In order to do this the Court found that the cancelling party must:
i. Give notice making time of the essence;
ii. Require performance by a reasonable and stated future date; and
iii.Indicate that in the absence of performance, it would regard itself as entitled to cancel.
It was concluded by the Court, that by May 1998 time for completion was made of the essence and that notice of this had been provided by this date. It was also concluded by the Court that the parties had in mind that the work would be completed within one more summer, the work being largely seasonal. That is, completion by the end of April/May 1999. It was also concluded by the Court that such a completion date was a reasonable one.
Finally in resolving this issue, the Court had to decide whether in fact the Scouts had indicated that if the work was not completed by April/May 1999, it would entitle it to cancel the contract. The Court concluded that the Scouts had indicated this fact.
Accordingly on this issue, the Court concluded that the contract had been validly terminated. They gave notice making time of the essence; required performance by a reasonable and stated future date; and made it clear that in the absence of performance, they would regard themselves as entitled to cancel.
(c) A claim for quantum meruit was brought by the Plaintiff against the Defendant for $306,066.75 based upon the actual number of hours work done on the site plus the cost of the materials on site and cartage less tipping fees received. The claim was based from actual machine hours spent on the site.
It was contended for the Plaintiffs that a quantum meruit claim can be advanced where it fails to establish a contract and a contract is wrongfully terminated and the contractor is unable to perform the work.
However the Court concluded that there was no actual quantifiable benefit received by the Scouts as a result of the work carried out by the Plaintiff. Further, the contract never contemplated payment by the defendant for actual machine hours expended on the basis argued by the plaintiffs. Rather, the contract was that the Plaintiff’s remuneration would be in the form of tipping fees received from third parties and later any monies received from the sale of surplus topsoil. The claim for quantum meruit failed.
The important point to take from this decision is the power of a Court to imply a term that contract works will be completed within a reasonable period of time where a contract remains silent as to this issue. Further, linked to such an implied term will be a corresponding right for a contracting party to cancel a contract, where this term is breached. The Courts will not find that the completion of construction contracts can continue into perpetuity, where they are silent as to a completion date.