Dispute Resolution clause no bar to cancellation of contract

The High Court held a dispute resolution clause in a homeowners’ contract with their builder to build their house did not prevent them cancelling the contract when the builder left site due to non-payment of invoices: Paul v Jade Residential Ltd [2019] NZHC 304 (1 March 2019) (PDF).

The Pauls contracted Jade Residential to build their house. Jade claimed two milestone payments. The Pauls disputed milestones had been reached. Jade ceased work prior to completion. The Pauls cancelled the contract and another builder completed the house. Jade sued for payment. The District Court held the Pauls’ cancellation was unlawful: they had not followed the provision of a dispute resolution clause, although as Jade had not reached the milestones, it could not determine how much the Pauls owed Jade. On appeal, the High Court rejected this: clear words are needed to remove a party’s right to cancel a contract for breach. The dispute resolution clause had no such clear words. The High Court sent the matter back to the District Court to determine Jade’s claim to be paid for its work, and the Paul’s claim for costs they incurred engaging another builder to finish the house once Jade ceased work. Presumably this is a ‘win’ for the homeowners -  they can recover the extra costs of engaging another builder, as well as a share of their legal costs.

Lesson for homeowners: take advice on your contractual rights before you sign a contract and as soon as you are in dispute with your builder. In my experience, homeowners only do this when it is much too late.