The valuation of work and consequences of wrongful determination.Summing upThe case: Martin John Hayes & Linda Hayes (T/A Orchard Construction) -v- Peter Gallant (2008), EWHC 2726 (TCC), 10 November 2008.The issue: The valuation of work on the basis of a reasonable price and consequences of wrongful determination.The implication: Delay on the part of the contractor is not sufficient grounds for the employer to determine the contract such that the employer was in repudiatory breach by doing so, entitling the contractor to claim for loss of profit on the work it was prevented from completing.
If an employer wants to determine the employment of the contractor, then it should be very careful that it does so on grounds permitted by the contract and that it complies with any determination procedure under the contract.
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The consequences of getting this wrong are quite likely to be that the employer will be found to have wrongfully determined the contract and itself to have committed a repudiatory breach of contract by refusing to allow the contractor to complete the work. The contractor will then be entitled to claim damages for the wrongful determination.
The recent case of Martin John Hayes & Linda Hayes (trading as Orchard Construction) -v- Peter Gallant (2008) concerns a situation where it seems that the employer (Peter Gallant) felt that the contractor (Orchard Construction) was overcharging for work it was carrying out and that it was taking too long and that the work was defective. In consequence, Peter Gallant excluded Orchard Construction from site.
The works comprised refurbishment works on Peter Gallant's house and outbuildings and the construction of a covered pool complex. There was no written contract between the parties.
Orchard Construction contended that there was a contract or series of contracts on the basis of regular statements of account setting out the cost of work undertaken. Until the summer of 2004, Peter Gallant made regular payments on account of these invoices but thereafter a dispute arose about the reasonableness of Orchard's costs, resulting in Peter Gallant refusing to make any further payment and excluding Orchard Construction from site.
Orchard argued that such payments indicated agreement to its statements and that Peter Gallant was therefore bound by that agreement. Peter Gallant contended that the works were to have been carried out on a cost-plus basis and that payments made on account were not made on account of the invoices submitted from time to time but on account of a final reckoning.
Orchard Construction further argued that as it had been unlawfully expelled from the site, it was entitled to claim for loss of profit on work that would otherwise have been carried out. Peter Gallant contended that he had been entitled to terminate the contract because of Orchard's delay in completing the work, and as a consequence of defective work.
Prior agreement
The judge held that Peter Gallant had ordered the works to be carried out, and that while earlier in the project the parties had followed a procedure whereby Orchard Construction rendered an estimate to Peter Gallant, which was agreed prior to the work being carried out and was later paid for on that basis, after a certain date that practice had not continued and Peter Gallant had, thereafter, agreed to pay a reasonable price for subsequent work. The latter was valued on the basis of actual cost properly incurred, plus a reasonable percentage for overheads and profit.
The judge then went on to determine the question of Orchard Construction's claim for loss of profit, which was made on the basis that by excluding it from site, Peter Gallant had repudiated the contract.
Where there is a fundamental breach of contract that goes to the root of the contract by one party and the other party accepts the repudiation, then the contract will be brought to an end. Failure to continue to perform might be sufficient notice that the innocent party had elected to treat the contract as at an end. Where time was not of the essence, delay on the part of a contractor did not amount to a repudiation unless it deprived the innocent party of the whole benefit of the contract.
Judge's verdict
The judge held that Orchard Construction had not been responsible for any delay that entitled Peter Gallant to terminate the contract and it was not the case that Orchard could not complete the contract within a reasonable time.
Peter Gallant's action in excluding Orchard Construction from the site was unjustified and amounted to repudiation of the contracts, which Orchard had had to accept. Orchard was therefore entitled to recover its loss of profit for uncompleted work.
Finally, it was found that Peter Gallant's allegations of defective work were unfounded, particularly where Orchard Construction had agreed to carry out any remedial works free of charge as necessary.
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