Court enforces an informal building contract, but builder still loses out

10 February 2012 

A recent decision of the Supreme Court of the ACT has underlined the importance of ensuring clear communication when negotiating or ending a contract. In Mareva Building Consultants v Zevon [2012] ACTSC 18, Katzmann J was required to determine whether a legally binding contract had been formed between the parties for the construction of a new house, in circumstances where there was no formally executed document. The builder (Mareva) argued that there was a contract, and that the owners’ (Mr & Mrs Zevon’s) ultimate refusal to proceed constituted a repudiation of that contract, entitling Mareva to damages for loss of profits.

Katzmann J applied the rules from the High Court case of Masters v Cameron (1954) 91 CLR 353 in holding that a detailed quote by Mareva, and the subsequent acceptance of this quote and request for the drawing up of a formal building contract by the Zevons, formed the basis of an intention to be bound prior to the execution of a formal, written contract: the parties intended to be bound immediately by their agreement, knowing that it would be drawn up in a more formal document at a later date.

When financing failed to materialise, the Zevons asserted that the contract was subject to finance and was therefore no longer binding on them. However, Katzmann J found that the Zevons had never communicated such a condition to Mareva during negotiations, and consequently it did not form part of the contract. Accordingly, the Zevons were held to have repudiated the contract when they refused to proceed.

Despite this finding, her Honour also held that Mareva was unable to claim damages because it did not explicitly accept the Zevons’ repudiation and terminate the contract. Rather, when the Zevons decided not to proceed with the contract, they instead offered Mareva an alternative building project elsewhere, which Mareva accepted. Katzmann J therefore found that both parties had abandoned the original contract and showed no intention that it was to be further performed. This meant that Mareva was unable to establish that its loss was attributable to any breach of contract on the part of the Zevons.

The full decision can be viewed here.