HWLE Lawyers recently acted for a successful plaintiff in establishing that a subcontract was validly terminated for renunciation due to aggressive, threatening and violent conduct. The decision highlights that conduct which fundamentally undermines the trust and confidence necessary for ongoing project delivery may expose a party to immediate termination at common law.

Factual Background

MacDonald & Co Construction Pty Ltd (Mac & Co) engaged Kharty Property Group Pty Ltd (KPG), trading as ‘Basement and Above Structures’, under a subcontract for concreting and piling works associated with the construction of an early learning centre in Burwood East.

In summary:

• By March 2025, there were various disputes among the parties concerning defects, delays and rectification works. As a result, representatives of KPG attended a meeting at Mac & Co’s Melbourne office on 19 March 2025 to discuss the outstanding works and proposed rectification solutions (the 19 March Meeting).
• The conduct of KPG’s representatives at the 19 March Meeting and whether it amounted to repudiatory conduct was what became the central issue in the proceeding.
• Justice Craig found that KPG’s general manager engaged in conduct that included punching a boardroom table twice, yelling abuse, swearing, aggressively moving around Mac & Co’s office, following Mac & Co’s director down a corridor for the purpose of yelling abuse at him and threatening Mac & Co’s CFO by spoken words.¹
• Justice Craig found that the behaviour of KPG’s general manager was inappropriate, angry, intimidating and threatening.
• As a result of the events that took place during the 19 March Meeting and immediately thereafter, Mac & Co issued a termination letter later that day terminating the subcontract with immediate effect (Termination Letter). During the proceedings KPG argued that the termination was ineffective because Mac & Co had not followed the subcontract’s “show cause” process before terminating. Meanwhile, Mac & Co argued that KPG’s conduct during the 19 March Meeting amounted to a repudiation of the subcontract, allowing it to terminate immediately and without the need to follow the show cause process.

Was the Subcontract lawfully terminated?

The Court considered the subcontract’s termination regime, the show cause process and whether the Termination Letter validly terminated the subcontract. To answer this, the Court considered the following questions:

1. What are the relevant common law principles with respect to the right to terminate?
2. To what extent did clauses 73 to 75 of the subcontract regulate and limit Mac & Co’s right to terminate (being the show cause regime under the subcontract)?
3. To the extent that Mac & Co had a common law right to terminate upon a proper construction of the subcontract, was that right enlivened by the events of the 19 March Meeting so as to justify Mac & Co’s act of termination?

In consideration of the above, Justice Craig accepted that the subcontract substantially regulated termination for breach and that, as a general proposition, Mac & Co could not simply bypass the contractual process absent a renunciation.² However, the Court drew an important distinction between termination for breach of contract and termination for renunciation in its analysis of Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 (Koompahtoo).

Applying the principles from Koompahtoo, the Court held that the contractual termination provisions dealt with breaches of contract but did not address repudiation in its first sense, namely, renunciation. As a result, the contractual regime did not exclude the parties’ common law right to terminate where a party had renounced the contract or a fundamental contractual obligation.³

Breach of good faith obligation

Despite the Court finding that the contractual regime was intended to partially exclude, supplant and ‘codify’ Mac & Co’s common law right to terminate rather than augment it,⁴ KPG’s conduct at the 19 March Meeting constituted a breach of clause 2 of the subcontract which stipulated that KPG was to “with good faith carry out and complete the Subcontract Works in accordance with the Subcontract in a proper and workmanlike manner and to the satisfaction of the Builder“.⁵

The obligation to carry out the subcontract works in good faith was a fundamental obligation under the subcontract.

The Court found that because the 19 March Meeting was conducted for the purpose of discussing the performance and completion of the subcontract works, the obligation of good faith applied to KPG’s conduct during those discussions.⁶

By engaging in threatening and aggressive behaviour during discussions concerning the performance of the subcontract, KPG breached that obligation.

Renunciation 

The court then considered whether KPG’s conduct objectively conveyed that it no longer intended to be bound by the subcontract, or by its fundamental obligation to act in good faith under clause 2 or instead intended to perform the contract in a manner fundamentally inconsistent with those obligations.

Evidently, the Court concluded that a reasonable person in Mac & Co’s position would have understood from KPG’s aggressive and threatening conduct that KPG would not perform its fundamental obligation to act in good faith in carrying out the subcontract works. His Honour stated:

“An ongoing and prospective threat to the physical safety of a staff member of KPG’s contractual counterparty was a disavowal of the fundamental term of the Subcontract to act reasonably in the carrying out of the Subcontract Works. It fundamentally undermined the relationship of trust and confidence required to continue the carrying out of the Subcontract Works.”⁷

The Court’s finding was that the conduct objectively demonstrated that KPG was not prepared to take its obligation to carry out the works in good faith seriously. Accordingly, Mac & Co was entitled to terminate the subcontract for renunciation immediately.

Key takeaways

While construction disputes often focus on defects, delay, payment claims and variations, this decision highlights that inappropriate conduct can also carry significant contractual consequences.

The Court’s reasoning recognises that where conduct breaches an essential term of good faith and trust, continued contractual performance may no longer be commercially or practically viable. The consequences of this were that Mac & Co validly terminated the subcontract for renunciation, notwithstanding that the contractual show cause process had not been followed.

In doing so, the Court recognised that a threat to the safety of a counterparty can fundamentally undermine the trust and confidence required for a construction contract to continue.

This decision serves as a clear warning that threatening conduct in the course of project administration may give rise not only to workplace and safety issues but also to immediate and effective termination consequences.

This article was written by Leighton Moon, Partner, Tara Nelson, Special Counsel, and Lachlan Spriggs, Solicitor. 

¹MacDonald & Co v Kharty [2026] VSC 336 [109].

²Ibid at [153].

³Ibid at [161].

⁴Ibid at [147] referring to the phrase adopted by Sackar J in SK Chop Pty Ltd v Man Cave Barber Shop Rouse Hill Pty Ltd [2021] NSWSC 410, [237].

⁵Ibid at [199].

⁶Ibid at [205] – [207].

⁷Ibid at [193].