Delay must go to the root

Posted: 3rd June 2013

ConstructionIn the context of a major construction project, the Court of Appeal has emphasised that delay in completion of works will only be sufficient to justify repudiation of a contract if it goes to the root of the agreement between the parties and deprives one of them of at least a substantial part of the benefit thereunder.

A developer had embarked on construction of a substantial mixed-use development and an investor had agreed to take a 999-year lease of the commercial parts of the project upon completion. Completion of the first two blocks of the development was delayed by about five months and the investor complained bitterly after work on the remaining two blocks was suspended due to funding difficulties.

The developer assured the investor that it was committed to the project and resumed work once the funding issues had been resolved but the investor soon afterwards purported to terminate the contract on grounds that the delays amounted to a repudiatory breach of contract on the part of the developer.

The investor’s arguments succeeded at first instance. Upholding the developer’s appeal, the court noted that it had repeatedly asserted its intention to complete the works and had in fact done so after the contract came to an end. The investor had only purported to terminate the contract after work had resumed and had suffered no substantial financial loss due to the delay.

Giving guidance for the future, Lord Justice Lewison said: “I accept that uncertainty caused by delay is a commercial problem. But it seems to me that, absent any attempt to make time of the essence, delay, even with its attendant uncertainties, will only become a repudiatory breach if and when the delay is so prolonged as to frustrate the contract”.

Quoting from authority, he added: “Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations”.