JADE RESIDENTIAL LTD v PAUL [2020] NZCA 477

JADE RESIDENTIAL LTD v PAUL [2020] NZCA 477 [8 October 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA344/2019[2020] NZCA 477BETWEEN JADE RESIDENTIAL LIMITEDAppellantAND MURRAY PAUL and MARIE PAULRespondentsHearing: 18 June 2020Court: Goddard, Ellis and Katz JJCounsel: M B Lawson and J D Cameron for AppellantK A Lomas for RespondentsJudgment: 8 October 2020 at 11.00 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondents costs for a standard appeal ona band A basis, with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Katz J)Introduction[1] Jade Residential Ltd (Jade) is a building contractor. In April 2015, Jade enteredinto a contract to build a house for Murray and Marie Paul (the Pauls). The contractprice was to be paid in instalments linked to the completion of various constructionmilestones.[2] A dispute arose between Jade and the Pauls as to whether two of theconstruction milestones, the closed-in milestone and the lined milestone, had beenmet. (It is common ground on appeal that those milestones had not been met, contraryto Jade's assertions at the time.) The Pauls refused to make the payments for thosemilestones until the required work had been completed. Jade responded by suspendingwork on the site. When Jade refused to return to work by the deadline set by the Pauls,the Pauls cancelled the contract.[3] Jade issued proceedings in the District Court, alleging that the contract had notbeen validly cancelled. Judge Rea held that the Pauls had not been entitled to cancelthe contract, as they were required to follow the dispute resolution process set out inthe contract prior to exercising their right of cancellation.1[4] The Pauls appealed to the High Court. Grice J allowed their appeal.2 Amongstother things, she held that the dispute resolution clause was not a bar to cancellationof the contract, and that the Pauls had validly cancelled the contract.3 Jade soughtleave from the High Court to bring an appeal to this Court, but leave was declined.4[5] Subsequently, this Court granted leave to Jade to bring a second appealchallenging both of those findings.5 The approved questions on appeal are:(a) Did the High Court err in finding that the dispute resolution clause,cl 27, did not "purport to bar anything other than the issue of court orarbitral proceedings" and did not bar or delay "the other rights of theparties under the contract", including a right to cancel?(b) Did the High Court err in holding that the Pauls were entitled to, anddid validly, cancel the contract because Jade's suspension of, and failureto return to, work on the contract site constituted a repudiation of thecontract?1 Jade Residential Ltd v Paul [2018] NZDC 5673 [District Court judgment] at [55]–[56].2 Paul v Jade Residential Ltd [2019] NZHC 304 [High Court judgment].3 At [54]–[57] and [68].4 Jade Residential Ltd v Paul [2019] NZHC 1484 [High Court leave judgment] at [61].5 Jade Residential Ltd v Paul [2019] NZCA 466.Facts[6] The building contract between Jade and the Pauls was a combination ofa standard form contract prepared by Jade and amendments requested by the Pauls.It provided for a total contract price of $575,760, payable by way of instalments oncecertain construction milestones were met.[7] The contract required Jade to commence work within "a reasonable time oncethe Consents have issued" and to "complete the Work within a reasonable time". It setout an expected start date (1 May 2015), and an expected completion date(1 October 2015). In addition, cl 4(a) stated:Commencement: The Builder will commence the Work within a reasonabletime once the Consents have issued and the terms of the Consents Variationhave been agreed (if applicable) and maintain a continuous constructionprogramme until completion.The italicised words were added at the Pauls' request.[8] Accordingly, once Jade had commenced the contract works, it was obliged tomaintain a continuous construction programme subject to its contractual right tosuspend work in certain circumstances. Those circumstances included the Pauls'failure to pay monies due under the contract for a period of seven working days afterthe due date (cl 14(a))."Closed-in" and "lined" milestones[9] A progress payment of $158,334 was required to be paid to Jade when the"closed-in" milestone was completed. The closed-in milestone date was defined inthe contract as "[t]he date the house is able to be locked and external cladding has beencompleted".[10] On 12 February 2016, Jade issued the closed-in milestone invoice.The external plastering work had not been commenced, however, as the sub-contractorwho had originally agreed to undertake the work was unable to do so due to healthissues. A new sub-contractor was found, but at twice the price. A dispute arosebetween Jade and the Pauls as to who should pay the difference.[11] The Pauls' banker was not willing to advance funds to pay the closed-inmilestone invoice until the milestone was actually met (including the externalplastering). Jade, however, continued to press for payment. It re-issued the closed-ininvoice on 25 February 2016, with altered wording that did not refer to the externalcladding, but instead claimed that payment was due on the basis that the building was"deemed Closed In and Lockable".[12] In a subsequent email exchange Mr Walls (the sole director of Jade)acknowledged that the external plastering was incomplete, and the external joinerywas not installed, but nevertheless maintained the position that the closed-in invoicewas payable because the property was deemed "lockable." Mr Walls offered the Paulstwo options:(a) he could reword the invoice to describe the current stage of the house(with the amount owing to remain the same); or(b) Jade would stop work until the exterior plasterer completed the job.[13] Mr Walls then issued another version of the invoice, for the same amount, withthe added wording "[t]his invoice excludes exterior plastering".[14] Mr Paul responded on 2 March 2016, reiterating that the plastering was Jade'sresponsibility and that the closed-in milestone had not yet been met. He indicated,however, that the Pauls would be open to paying "the residual amount" of the progressclaim (the claim less the amount required for the external plastering work).No agreement was reached regarding Mr Paul's offer, however, and Jade continued topress for full payment of the closed-in invoice.[15] On 7 March 2016, Jade sought to formally vary the contract to increase theallowance for exterior plastering to reflect the quote it had received from the newsub-contractor. Two days later Mr Walls confirmed that "the progress of the job is onhold until we have resolved the outstanding payment". The Pauls did not agree to theproposed variation.[16] Also on 7 March 2016, Jade issued the lined milestone invoice for $57,576.The Pauls disputed that the lined milestone had been met.[17] The dispute resolution clause in the contract (cl 27) provided that in the eventof a dispute the parties were to meet promptly in good faith and use their bestendeavours to resolve the dispute.6 Mr and Mrs Paul, their accountant Mr Shepherd,and Mr Walls accordingly met on 15 March 2016 to try and resolve the impasse.The Pauls offered to pay the closed-in milestone payment in three equal instalments,one of which would be payable immediately. Jade rejected that offer. In relation tothe lined milestone invoice, Jade agreed to undertake some fairly limited further workin relation to the shower linings, although who was to pay for that work was notagreed.Suspension of works[18] On 17 March 2016, Mr Walls emailed the Pauls and confirmed that the workswould not proceed until the demanded payments had been made. It appears that theonly work undertaken on site after that date was some limited relining work in relationto the showers. Jade continued to demand payment for the closed-in and linedmilestones and reiterated that it would not recommence work until it had receivedpayment from the Pauls.[19] On 22 March 2016, Mr Shepherd wrote to Jade on behalf of the Pauls, advisingJade of the legal advice that the Pauls had received, including that the closed-in andlined milestones had not been met and that Jade was in breach of its obligation tomaintain a continuous construction programme. Jade was asked to recommence work.It did not do so.[20] On 8 April 2016, the Pauls' solicitors wrote to Jade expressing concern thatJade had withdrawn from the site, locked the dwelling (thereby preventing access) and6 The dispute resolution clause is set out in full at [26] of this judgment.refused to continue work until the disputed invoices were paid. The letter furtherstated that:(a) Jade was in breach of the contract by suspending work when themilestones had not been met, and monies were not owing;(b) Jade was also in breach of its obligation to maintain a continuousconstruction programme;(c) Jade was required to recommence work by 8.00 am, Monday 11 April2016 (later extended to 12 April 2016); and(d) if Jade refused to return to site and continue with the work, the Paulshad the right to cancel the contract.[21] Jade's solicitors responded on 11 April 2016, asserting that both the closed-inand lined invoices were due and payable. The letter claimed that Jade was well withinits rights to suspend all work, but that Jade would be "quite prepared to return tocomplete the job provided a satisfactory resolution can be reached for payment of theseinvoices". Jade's solicitors advised that Jade was not prepared to wait for payment.Nor was it prepared to engage another sub-contractor to complete the work at greatercost to itself.[22] On 13 April 2016, the Pauls' solicitors wrote to Jade's solicitors and gavenotice that the contract was cancelled. The following day, 14 April 2016, Jade'ssolicitors wrote to the Pauls' solicitors advising that Jade did not accept the purportedcancellation and serving a dispute notice under the contract.[23] On 18 April 2016 the Pauls took possession of the site.[24] Both the District Court and the High Court found that the closed-in and linedmilestones had not been achieved, and that Jade was not therefore entitled to paymentfor those invoices.7 Those findings have not been challenged on appeal.Issue 1: Did the High Court err in finding that the dispute resolution clause didnot bar the right to cancel the contract?[25] The first issue on appeal is whether the High Court erred in finding that thedispute resolution clause did not "purport to bar anything other than the issue of courtor arbitral proceedings" and did not bar or delay "the other rights of the parties underthe contract", including a right to cancel.The dispute resolution clause[26] The dispute resolution clause states:27. Dispute Resolution(a) Good faith meeting: If any dispute arises between the parties,the parties agree to meet promptly in good faith and use their bestendeavours to resolve such dispute as soon as possible.(b) Dispute notice: If any dispute arises between the parties and suchdispute has not been resolved in accordance with clause 27(a), thenany party may give notice of the dispute to the other party (referred toas the Dispute Notice). The Dispute Notice must briefly describe thedispute and state that it is given under this clause.(c) Mediation: As soon as reasonably practicable after theDispute Notice has been given, the parties shall refer the dispute tomediation as follows:(i) The mediator must be agreed between the parties. If theparties cannot agree on a mediator within 5 Working Days ofthe date the Dispute Notice is given, a mediator must beappointed by the President of the Arbitrators and MediatorsInstitute of New Zealand.(ii) Each party must pay its own costs associated with themediation.(d) No proceedings: Neither party may require any arbitration, or issueany legal proceedings (other than for urgent interlocutory relief), inrespect of any such dispute, unless that party has first taken allreasonable steps to comply with clause 27.7 District Court judgment, above n 1, at [27] and [38]; and High Court judgment, above n 2, at [24]and [39].The District Court and High Court decisions[27] Judge Rea held that the cancellation was ineffective as the parties wererequired to complete the dispute resolution process set out in cl 27 before the contractcould be validly cancelled.8 His Honour relied in particular on the case ofWaihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd (discussed below).9[28] On appeal to the High Court, Grice J found that the dispute resolution clausein this case, unlike that in Waihopai, did not bar or delay the exercise of the right ofcancellation:10[51] In Waihopai the contractual arrangement between the partiesgoverned a long-term relationship. The contracts involved were a grapesupply agreement and vineyard management agreement. These were intendedto regulate the relationship between the parties for many years. The disputeresolution clause was complex and far reaching.[52] The Waihopai dispute resolution clause specifically prohibited thetermination of the contract before the mediation procedure had been followed.In Waihopai, the Judge carefully considered the context of the relationship,the length over which the contracts were intended to remain in existence andthe specific wording of the contracts. He concluded that the dispute resolutionprocess should be followed before Waihopai could terminate the [contract].[53] Therefore, in Waihopai the act complained of that triggered thecancellation was specifically governed by the dispute resolution clause.[54] In this case the contract was not governing a long-term relationshipbetween the parties. It was a contract for a one-off building. In addition, thedispute resolution clause is clear and does not purport to bar anything otherthan the issue of court or arbitral proceedings.[55] There is nothing in this contract to suggest that the dispute resolutionclause would have the effect of barring or delaying the other rights of theparties under the contract. If a party wished to cancel the contract they coulddo so.[56] In my view, the dispute resolution clause in this case does not preventnor did it prevent the Pauls from validly cancelling the contract.8 District Court judgment, above n 1, at [55]–[56].9 Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 2089.10 High Court judgment, above n 3 (footnote omitted).Were the Pauls required to complete the dispute resolution process prior to cancellingthe contract?[29] The contract does not expressly provide the Pauls with any rights oftermination. The termination provisions of the Contract and Commercial Law Act2017 (CCLA) therefore apply. They provide a contracting party with a right toterminate a contract where the contract has been repudiated; or where the party wasinduced to enter into the contract by a misrepresentation by the counterparty, or therehas been, or will be, a breach of a contractual term, and certain criteria set out in s 37(2)of the CCLA are met.11[30] Jade submitted that, correctly interpreted, the dispute resolution clausesuspends the exercise of any rights of termination under the CCLA until the contractualdispute resolution process has been completed. The Pauls, on the other hand,submitted that that is not the correct (or even an available) interpretation of thecontract.[31] In Property Ventures Investments Ltd v Regalwood Holdings Ltd, Blanchard J(giving reasons for the majority) stated that:12Express words or a very clear implication are needed to remove a remedy forbreach of contract arising by operation of law.[32] We agree with Grice J that Jade's reliance on the Waihopai decision in thiscontext is misplaced. In Waihopai, the contracts contained express provisions thatlimited the right of termination until completion of the contractual dispute resolutionprocess. There is no such provision here. Clause 27 sets out a dispute resolutionprocess that must be followed before proceedings can be issued. The clause does not,however, bar the exercise of other contractual remedies, such as cancellation.[33] Mr Lawson, counsel for Jade, submitted that contractual dispute resolutionclauses would be rendered redundant if a party was entitled to cancel without firstgoing through the contractual dispute resolution process. We do not accept that11 Contract and Commercial Law Act 2017, ss 36 and 37.12 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47,[2010] 3 NZLR 231 at [71]; citing Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 13.submission. Many contractual disputes will not give rise to a right of cancellation.Even where a right of cancellation arises, the innocent party may elect not to exercisethat right. Further, even if a right of cancellation exists, and it is exercised, any disputeresolution clause may well survive the cancellation of the contract — cancellation onlydischarges the parties from future performance of the contract; provisions that wereintended to survive cancellation and rights that have already been acquired are notaffected.13[34] There are no express words in cl 27 that required the Pauls to defer exercisingtheir right of cancellation until the dispute resolution process had been completed.Nor, in our view, can such a requirement reasonably be implied from the words of thatclause, viewed in their full contractual context. The High Court was accordinglycorrect to find that the dispute resolution clause did not prevent the Pauls from validlycancelling the contract.Issue 2: Did the High Court err in holding that the Pauls were entitled to, anddid, validly cancel the contract?[35] The second issue on which leave to appeal was granted is:Did the High Court err in holding that the Pauls were entitled to and did validlycancel the contract because Jade's suspension of, and failure to return to, workon the contract site constituted a repudiation of the contract?High Court decision[36] The High Court's findings on the issue of repudiation (and the subsequentcancellation) were as follows:14[66] In this case, Jade's responses demonstrated it did not intend tocomplete the Contract except on terms which were substantially different tothose imposed by the Contract. A right of cancellation arose when Jadecommunicated its position to the Pauls, and Jade did not recommence work.It is insufficient for Jade to now argue that, following Kumar, it honestlybelieved money was owed.13 Contract and Commercial Law Act, ss 34, 42; Photo Production Ltd v Securicor Transport Ltd[1980] AC 827 (HL); Dorchester Finance Ltd v Deloitte [2012] NZCA 226, [2012] NZCCLR 15;Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 (HL) at 717 and723; Brown v Langwoods Photo Stores Ltd [1991] 1 NZLR 173 (CA); JNJ Holdings Ltdv Kent Sing Trading Co Ltd [2017] NZHC 3274 at [401]–[408]; and McDonald v Dennys LascellesLtd [1933] HCA 25, (1933) 48 CLR 457 at 476–477 per Dixon J.14 High Court judgment, above n 2.[67] I make this finding in light of Jade's refusal to return to the site toperform the contract. Jade insisted it would "perform it only in a mannersubstantially inconsistent with the obligations which the contractimposed"15 The question therefore becomes whether this was a legal errorthat could be corrected before the date of performance. Mr Lomas points toKumar in support of his argument noting that the Court said "if a partypersistently refuses to perform unless the other party accepts additionalonerous terms inconsistent with the contractthe party may well be found tohave repudiated the contract".16 That must be the case here.[68] In light of this repudiation, the contract was validly cancelled on13 April 2016.Relevant law[37] A breach of contract will always entitle the innocent party to pursue a claimfor damages. However, a right of cancellation will only arise in the circumstances setout in ss 36 and 37 of the CCLA. The circumstances that are relevant to this case are:(a) where a party repudiates the contract by making it clear (by words orconduct) that it does not intend to perform or complete the performanceof its obligations under the contract (s 36); or(b) where a party breaches a term in the contract (or it is clear that it willbreach a term) and:(i) the parties have expressly or impliedly agreed that theperformance of the term is essential to the cancelling party(s 37(2)(a)); or(ii) the effect of the breach or anticipated breach of the contract is,or will be, to substantially reduce the benefit or increase theburden of the contract to the cancelling party or (in relation tothe cancelling party) make the benefit or burden of the contractsubstantially different from that represented or contracted for(s 37(2)(b)).15 Betham v Margetts [1996] 2 NZLR 708 (HC) at 711.16 Kumar v Station Properties Ltd [2015] NZSC 34, [2016] 1 NZLR 99 at [63].[38] In Kumar v Station Properties Ltd, the Supreme Court observed that in somesituations (in particular, where "partial" repudiation is alleged), these two scenariosconverge.17 In particular:18[57] Repudiatory conduct may relate to the whole of the contract or to partof it. The possibility of partial repudiation seems to follow from the languageof s 7(2): another party repudiates the contract by making it clear that he doesnot intend to perform his obligations under it or, as the case may be,to complete such performance.The italicised words suggest that the repudiating party may have donesomething by way of performance, but then refused to complete. In the caseof partial repudiation, however, the conduct must constitute a contractualbreach that is sufficient to entitle the innocent party to cancel in terms ofss 7(3) and (4). If the breach does not justify cancellation in terms of ss 7(3)and (4), the innocent party will be left to its remedy in damages. Because anallegation of "partial repudiation" requires analysis in terms of ss 7(3) and (4),the term is arguably somewhat unhelpful.(Footnotes omitted, emphasis in original.)[39] The Supreme Court noted that this analysis is consistent with the position atcommon law. It referred to Lord Wright's statement in Ross T Smyth & Co Ltd v T DBailey Son & Co,19 that a party who intended to fulfil a contract but only in a mannersubstantially inconsistent with his obligations and not in any other way would haverepudiated the contract, as well as the similar observation made by the Privy Councilin Dymocks Franchise Systems (NSW) Pty Ltd v Todd.20[40] The learned authors of Burrows, Finn and Todd on the Law of Contract inNew Zealand observe, on the issue of partial repudiation, that the Supreme Court inKumar:21 seems to envisage that in order to entitle the innocent party to cancel thecontract, the repudiation must be such that the corresponding breach of theterm or terms repudiated would entitle cancellation. This suggests17 At [55].18 Kumar, above n 16. Section 7(2) of the Contractual Remedies Act 1979 is the predecessor to s 36of the CCLA and ss 7(3) and (4) are the predecessor provisions to s 37 of the CCLA.19 Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 (HL) at 72.20 Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2002] UKPC 50, [2004] 1 NZLR 289 at [58].21 Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contractin New Zealand (6th ed, LexisNexis, Wellington, 2018) at 698.a repudiation of either of two kinds. The first is where the party evinces anintention not to perform a stipulation which is essential to the cancelling party.The second is where the threatened breach of part of the contract willhave serious consequences in that it will substantially reduce the benefit orincrease the burden of the innocent party under the contract.[41] In Kumar the Supreme Court made the following observations on the issue ofwhether a mistaken interpretation of a contract can constitute a repudiation:22[63] On this point, it is necessary to return to the fundamental questionunder s 7(2) [now s 36 of the CCLA], namely, whether an inference canreasonably be drawn in the circumstances that the relevant party no longerintends to perform its obligations under the contract. This fact-basedassessment must be made against the background that the threshold is a highone and that disputes about the meaning of contracts or the nature of theobligations they impose are commonplace. The mere fact that a partyvigorously espouses a view of a contract's meaning that is ultimately shownor accepted to have been wrong does not mean that the party is therebymanifesting an intention not to perform its obligations under the contract. Ifit is clear that the party accepts that it is bound by the contract, whatevermeaning it is ultimately determined to have, the party should not be held tohave repudiated the contract. By contrast, if a party persistently refuses toperform unless the other party accepts additional onerous terms inconsistentwith the contract or on the mistaken view that there was never an enforceablecontract, the party may well be found to have repudiated the contract. In suchcircumstances, the stance adopted amounts to a refusal to accept anyobligation to complete the contract in accordance with its terms.[42] The time at which the mistaken interpretation of a contract is espoused is animportant factor in this analysis. In some cases, a mistaken interpretation may beespoused by a party before the time for performance has arrived. In such cases theparty does not necessarily breach their contractual obligations at the time they adoptthat stance. Rather, the issue will be whether the mistaken party is simply espousinga particular interpretation of the contract but accepts they are bound by the contractand will perform in accordance with whatever meaning the contract may have, orwhether they have gone further and manifested an intention to perform the contract atthe time when performance is due only on the basis of their interpretation, regardlessof whether that interpretation is wrong (an anticipatory repudiation).[43] If a party adopts an unequivocal (and incorrect) stance on the interpretation ofa contract that relates to the future performance of a particular term or part of that22 Kumar, above n 16 (footnote omitted).contract, rather than to the contract as a whole, then it follows from Kumar that theother party will be entitled to cancel only if the term(s) in question are essential, or thethreatened breach is serious. In this scenario, the requirements of s 37(1)(c) and (2)would also be satisfied, so classifying the threatened breach as a partial repudiationdoes not appear to add anything.[44] Where performance of the contract has already commenced or is already due,a further possibility arises. In such circumstances, a mistaken party may decide toperform the contract in accordance with their (incorrect) interpretation. If so, thatparty may breach the contract in the present, rather than simply manifesting anintention not to perform it in the future. It follows from Kumar that if the termbreached is essential, or if the breach is serious enough, the mistaken party may befound to have repudiated the contract. In this scenario the requirements of s 37(1)(b)and (2) would also be satisfied, so once again classifying the breach as a partialrepudiation does not appear to add anything.[45] It follows that, as the Supreme Court recognised in Kumar, an analysis in termsof partial repudiation under s 36 may be unhelpful: rather, the analysis should focuson s 37. However, as this case was analysed by the High Court and argued by theparties in terms of repudiation under s 36, we will begin by using that terminology,then set out the equivalent analysis under s 37.[46] In the construction contracts context, a number of cases have held that anabsolute refusal to carry out the work, or an abandonment of the work before it issubstantially completed, without any lawful excuse, is a repudiation.23 Ultimately,however, as the English High Court observed in Mayhaven Healthcare Ltd v Bothma,whether there has been a repudiatory breach of a construction contract "will depend ineach case on the breach and the facts and circumstances of the case".24 Applying theHouse of Lords' decision in Woodar Investment Development Ltd v Wimpey23 Stephen Furst and Vivian Ramsey Keating on Construction Contracts (10th ed, Sweet & Maxwell,London, 2016) at [6-114]; citing Mersey Steel & Iron Co Ltd v Naylor (1884) 9 App Case 434(HL); Marshall v Mackintosh (1898) 78 LT 750 (QB); and Hoenig v Isaacs [1952] 2 All ER 176(CA).24 Mayhaven Healthcare Ltd v Bothma [2009] EWHC 2634 (TCC) at [25].Construction UK Ltd (which was also referred to with approval by the Supreme Courtin Kumar25) the Court in Mayhaven stated that:26 a party who bonafide relies on an express provision of the contract, in thepresent case to suspend performance, is not by that fact alone to be treated ashaving repudiated his contractual obligations if he turns out to be mistaken inhis rights. Rather, that is one factor. The suspension must be viewed in thelight of all the facts and circumstances of the case.[47] Mayhaven involved a construction contract between a building company,DAB, and a rest home company, Mayhaven. DAB mistakenly believed that Mayhavenhad not paid a progress payment that it had been ordered to pay by an adjudicator.DAB suspended work on the site as a result. DAB would have been legally entitledto suspend work if the relevant progress payment had not been made, as it believed.Rather than alert DAB to its error, Mayhaven responded, on the same day, byterminating the contract on the basis of DAB's alleged repudiation. Mayhaven knewthat DAB was acting under a misapprehension that it had not been paid but made noeffort to correct the misunderstanding. Rather, Mayhaven sought to take advantage ofDAB's mistake. The Court upheld the arbitrator's decision that DAB had notrepudiated the contract.27[48] Although not a construction case, the New Zealand case of StarlightEnterprises Ltd v Lapco Enterprises Ltd bears a number of similarities to Mayhaven.28Lapco agreed to manufacture 4,000 bags for Starlight at a price of $3 per bag. Part waythrough the contract, Lapco attempted to unilaterally raise the price, following whichStarlight purported to cancel the contract. This Court held that Lapco had notrepudiated the contract. Relevant circumstances included that Starlight had failed toinform Lapco that the contract did not permit a price increase. If that had been pointedout, the Court said, Lapco might well have wished to reconsider its position. It hadnot been given that chance.29 The learned authors of Burrows, Finn and Todd on theLaw of Contract in New Zealand express the view, however, that there can be little25 Kumar, above n 16, at n 44 and 48.26 Mayhaven, above n 24, at [26]; paraphrasing Woodar Investment Development Ltd v WimpeyConstruction UK Ltd [1980] 1 WLR 277 (HL) at 283 per Lord Wilberforce.27 At [33].28 Starlight Enterprises Ltd v Lapco Enterprises Ltd [1979] 2 NZLR 744 (CA).29 At 748.doubt that there would have been a repudiation justifying cancellation in Starlight ifLapco had insisted on its erroneous construction.30[49] The test for repudiation is an objective one. A court will consider howa reasonable party would interpret the repudiating party's conduct. The repudiatingparty's actual intentions are not a relevant consideration:31The question is whether in all the circumstances the communication should beregarded as an irrevocable indication that the party concerned would take nofurther steps to perform his or her obligations under the contract oralternatively that he or she would perform it only in a manner substantiallyinconsistent with the obligations which the contract imposed. If that were theobjectively determined meaning of the communication, it matters not what theparty making it intended or wanted It would be different if there werea mere misinterpretation or legal error with opportunity for correction beforedue date for performance (Citations omitted.)[50] Given the serious consequences, repudiation will not be lightly inferred.32There must be a distinct, unequivocal and absolute refusal to perform.33The equivalent requirement set out in s 37(1)(c) is that it must be "clear" that the partywill not perform.Did the High Court err in finding that Jade's suspension of, and failure to return to,work on the contract site constituted a repudiation of the contract?[51] Pursuant to cl 1 of the terms and conditions of the contract (as amended) Jadewas obliged, subject to those terms and conditions, to "complete the Work inaccordance with the plans, specifications and variations, if any, as supplied by theclient". In addition, Jade was required by cl 4 to "maintain a continuous constructionprogramme until completion". Clause 14 entitled Jade to suspend work fornon-payment of monies due under the contract. As noted previously, however,payments for the closed-in and lined milestones were not due at the time Jadesuspended work.30 Finn, Todd and Barber, above n 21, at 698.31 Betham v Margetts, above n 15, at 711.32 Kumar, above n 16, at [58].33 Sun v Peninsula Road Ltd (in rec and in liq) [2016] NZCA 427, (2016) 18 NZCPR 319 at [85].[52] In accordance with the legal principles we have outlined above, Jade will haverepudiated the contract if it made it clear (by words or conduct) that it did not intendto perform, or complete the performance of, its obligations under the contract, orindicated that it will only perform the contract in a way substantially inconsistent withits obligations and not in any other way. In accordance with Kumar, the repudiatoryconduct must relate to contractual terms breach of which would be sufficient to entitlethe innocent party to cancel in terms of s 37 of the CCLA.34[53] Mr Lawson's primary submission was that, viewed objectively, there was noirrevocable indication by Jade that it would take no further steps to perform itsobligations under the contract or, alternatively, that it would only perform it ina manner substantially inconsistent with the obligations which the contract imposed.He referred in particular to Jade's letter of 11 April 2016 (two days before the Paulscancelled the contract) in which Jade stated:On a without prejudice basis, our client is quite prepared to return to completethe job provided a satisfactory resolution can be reached for the payments ofthese invoices.[54] Mr Lawson submitted that this letter demonstrates that Jade was willing toreturn to work, but first required a satisfactory resolution to the current impasse.This did not necessarily mean payment in full, although that was one option.The dispute resolution process may have resulted in some other resolution or, ifnecessary, a binding arbitral determination as to whether or not the invoices wereowing. Mr Lawson submitted that Jade was simply vigorously espousing a particularview of the contract. Although Jade's interpretation of the contract was ultimatelyshown to be wrong, the fact that it had espoused an incorrect interpretation does notin itself "mean that the party is thereby manifesting an intention not to perform itsobligations under the contract".35[55] In our view, however, Jade's conduct went significantly beyond simplyvigorously espousing a view of the contract that was ultimately shown to be wrong.34 It appears to be implicit in the Supreme Court's reasoning in Kumar, however, that therequirements of s 37 will be met where a party is only willing to perform the contract in a waysubstantially inconsistent with their obligations and not in any other way.35 Kumar, above n 16, at [63].It acted on its erroneous view of the contract, by suspending work on the site when itwas not contractually entitled to do so. It refused to return to work until the disputedinvoices were paid or some other "satisfactory resolution" was reached. It rejected thecompromise proposals advanced by the Pauls. This put huge pressure on the Paulsgiven that, if an agreement was not reached, the completion of formal disputeprocesses under the contract (including arbitration) would potentially take months, ifnot years.[56] This was not a case where a reasonable person in the Pauls' shoes would haveunderstood that Jade was open to performing in accordance with the correctinterpretation of the contract. Jade was already in breach, and there was no reason tothink that Jade was willing and able to perform in accordance with the Pauls'interpretation if that was shown to be correct. There were no realistic steps that couldbe taken by the Pauls to obtain timely performance by Jade in accordance with itsobligations.[57] This was not a case like Mayhaven or Starlight where simply pointing out thecontractual obligation might be sufficient to secure performance: the Pauls had alreadydone so, without success. Nor was this a case like Woodar v Wimpey where a partysought to exercise a contractual termination right and did so in a manner which themajority in the House of Lords considered was consistent with a willingness toperform the contract if their interpretation of the relevant provision was held to beincorrect, in circumstances where it was realistic for performance to take place afterthat issue was determined. That is, the prospect of performance remained live if it wasestablished that the party purporting to terminate was not entitled to do so. In thepresent case, the stance taken by Jade was not consistent with the prospect that Jadewould perform the term requiring a continuous construction programme, if Jade'sinterpretation of the contract was subsequently shown to be wrong. It could takemonths, if not years, to complete the dispute resolution process (including arbitrationand possible subsequent appeals). We note in this context that this litigationcommenced in July 2016, over four years ago. Jade's stance precluded performanceof the contract, correctly interpreted, if Jade was wrong.[58] The letter of 8 April 2016 from the Pauls' solicitors clearly placed Jade onnotice that the consequences of its failure to return to work would be that the Paulswould be able to cancel the contract. In response, Jade's solicitors asserted the externalplastering work was the Pauls' responsibility, that the closed-in milestone had beenachieved (and payment was therefore due), and that it was not prepared to engagea sub-contractor to complete the external plastering works. On the plain wording ofthe contract Jade must have (or should have) known that that milestone had not yetbeen achieved. Nevertheless, Jade repeatedly refused to re-commence work until itreceived payment for that milestone.[59] The Pauls attempted to correct Jade's misinterpretation of the contract ona number of occasions. Mr Paul, his accountant Mr Shepherd, and the Pauls' solicitorsall wrote to Jade informing it that it had not yet reached the milestones, was not entitledto demand payment, and had no right to suspend work. This case is not thereforeanalogous to cases like Mayhaven or Starlight. On the contrary, the observation of thelearned authors of Burrows, Finn and Todd on the Law of Contract in New Zealandthat there can be little doubt that there would have been a repudiation justifyingcancellation in Starlight if the manufacturer had insisted on its erroneous construction(having been corrected) is apt here.36 Jade went significantly beyond merelyespousing a mistaken view of the contract.[60] If this case is analysed as one involving partial repudiation, the approachadopted in Kumar requires consideration of the s 37(2) criteria. In this case Jade'ssuspension, and refusal to perform the balance of the contract in a manner consistentwith its obligations, substantially reduced the benefit of the contract to the Pauls.Indeed, in a construction context, few breaches are likely to be as serious asa contractor unlawfully suspending work on a site and then refusing to return to workunless a client makes very significant payments (here more than one-third of the totalcontract price) to which the contractor is not contractually entitled.36 Finn, Todd and Barber, above n 21, at 698.[61] We also consider that the "continuous construction programme" term that Jadewas refusing to comply with was essential to the Pauls, as evidenced by their insistencethat the standard terms be amended to include such a term, and the obvious importanceto them of not being exposed to lengthy interruptions in the construction process.[62] It follows that Jade's conduct amounted to a (partial) repudiation, and that thePauls were entitled to cancel under s 36 of the CCLA.[63] The analysis we have set out above could be carried out more simply, withoutreference to repudiation, by simply applying s 37 of the CCLA. Jade breached thecontract by suspending work in circumstances where its right to suspend had notaccrued (cl 14). Jade's conduct also breached its obligation to maintain a continuousconstruction programme (cl 4) and its overarching obligation to complete the work inaccordance with the plans and specifications, in consideration of the contract pricepaid by the Pauls (cl 1). Jade also made it clear that it would continue to breach theseprovisions indefinitely, unless its unjustified demands were met. We are satisfied thatJade's actual and threatened breaches of contract substantially reduced the benefit ofthe contract to the Pauls. And as noted above, we are satisfied that the continuousconstruction programme term was essential to the Pauls. It follows that the Pauls wereentitled to cancel under s 37.[64] Mr Lawson submitted that the High Court's findings were inconsistent withMr Paul's evidence as to the reasons for cancelling the contract. He advanced a similarargument in the High Court on appeal, and again in the application to the High Courtfor leave to appeal. When considering the application for leave to appeal,the High Court found, however, that:37[52] Mr Lawson argues that Mr Paul in his evidence-in-chief had saidthat he had not put "delays at issue" and did not rely on Jade's delays asgrounds to terminate the contract. It appears from the context of Mr Paul'scomments in the Notes of Evidence that he was referring to earlier delays byJade not the delay caused by Jade walking off the job and refusing to return.37 High Court leave judgment, above n 4 (footnote omitted).[53] I also note the statements of Mr Paul are not inconsistent with thefindings of this Court. The grounds for repudiation were not based on theearlier delays by Jade in performing the contract but rather the persistentfailure of Jade to continue construction following notice requiring it to do sogiven in April 2016. Therefore, the negotiations between the parties whichtook place in an attempt to get Jade back to the site did not amount toaffirmation. [65] We find no error in Grice J's analysis of this issue. We further note that evenif a party purports to cancel a contract for an insufficient reason, cancellation maynevertheless be justified if there was a sufficient reason at the time of the cancellationeven if the party cancelling was not aware of it. The law does not require that a partywho wishes to cancel a contract must give a valid reason at the time of cancellation.38[66] The Pauls appear to have done their best, for an extended period, to try to keepthe contract on foot. By the time the contract was cancelled on 13 April 2016 workon the site (apart from some minor work on the shower linings) had been suspendedsince at least 17 March 2016, and quite possibly since 9 March 2016. This wasa significant period, given that the contract envisaged a five-month timeline for theentire building project. Even then, Jade was given a final opportunity to return to workbefore the contract was cancelled. It failed to do so.[67] Mr Lawson submitted that the Pauls were not permitted to make time of theessence by unilaterally requiring a return to the site by 12 April 2016. In our viewthere is nothing in this point. Ultimately, the issue is whether, at the time ofcancellation, Jade had made it clear that it did not intend to complete the performanceof its obligations under the contract, or that it would only perform the contract in a waysubstantially inconsistent with its obligations. That test is clearly met.[68] In conclusion, the High Court was correct to conclude that Jade had repudiatedthe contract. The same conclusion could be expressed by reference to s 37: the criteriafor cancellation under that provision were met. It follows that the Pauls were entitledto cancel the contract.38 Kumar, above n 16, at [65]–[66]; see also Thompson v Vincent [2001] 3 NZLR 355 (CA) at[86]–[90].Result[69] The appeal is dismissed.[70] Jade must pay costs to the Pauls for a standard appeal on a band A basis, withusual disbursements.Solicitors:Lawson Robinson, Napier for AppellantBraun Bond and Lomas, Hamilton for Respondents