The High Court in Hsieh (as trustee of Hsieh Family Trust) v Dreamhome Construction Group Ltd [2025] NZHC 1643 has recently provided important guidance for the construction sector, on three key issues: contractor obligations when taking over partially completed works, the strict enforcement of extension of time clauses, and the risks associated with contract termination.

Background

The trustees of Hsieh Family Trust (Trustees) engaged Dreamhome Construction Group Ltd (Dreamhome) to construct two dwellings on their Auckland property under bespoke fixed-price contracts. Another contractor, Latham Construction Ltd, had previously undertaken works on the dwellings, including erecting the frames, before Dreamhome took over.

Following significant delays and concerns about construction quality, the Trustees terminated the contracts with Dreamhome and engaged a new contractor to complete the works. Dreamhome counterclaimed, alleging wrongful termination, and sought payment for outstanding invoices and lost profits.

Key findings

1. Contractor responsible for defects

The Court confirmed that, in the absence of an express clause stating otherwise, a contractor who takes over partially completed works is responsible for all work necessary to complete the project, including remedying existing defects. The contractor is not entitled to a variation or extension of time, as the remedial works impliedly form part of the scope of works.

2. Strict compliance with extension of time clauses

Extension of time clauses are to be strictly construed. Failure to claim an extension in accordance with the contractual procedure may disentitle the contractor from an extension to which it might otherwise be entitled. Dreamhome was not entitled to any contractual extensions as it failed to notify the Trustees of delays within the required timeframe.

3. Grounds for termination

Termination is a risky process that is highly dependent on the terms of the contract. The contract allowed the Trustees to terminate if Dreamhome was in substantial breach and failed to remedy it within 10 days of receiving a default notice. The contract clarified that ‘substantial breach’ included an “Unreasonable failure to perform the Building Works diligently or unreasonable delay, suspension or failure to maintain reasonable progress”. This is likely a lower threshold than that contained in the NZS standard form contracts, which requires a contractor to “persistently, flagrantly or wilfully neglecting to carry out its obligations under the Contract”.

The Court accepted that Dreamhome’s right to seek an extension of time could be considered when assessing whether Dreamhome was in substantial breach. However, the Court found that the Trustees were entitled to terminate the contract as Dreamhome had:

• failed to perform the building works diligently;

• unreasonably delayed the work; and

• failed to make reasonable progress.

4. Defects not breaches

The Court affirmed that the existence of defects during construction does not, in itself, constitute a breach. A breach arises only if the contractor refuses or fails to remedy the defects by completion. Therefore, the Court rejected the Trustee’s argument that the existence of outstanding defective works constituted a substantial breach giving rise to a right to terminate.

5. Obligations following termination

Some obligations survive the termination of a contract. The Court accepted that there was a term implied into the contracts that Dreamhome would, upon termination of the contracts, deliver to the Trustees any documents generated by it or its subcontractors for the works performed. This included producer statements for the works carried out by the terminated contractor as well as any guarantees, warrantees and operating manuals.

Our view

Hsieh v Dreamhome has important legal and practical implications for principals, contractors and consultants alike. The decision reinforces the importance of early intervention, planning and adherence to process:

• Scope of Work and Defects: Disputes often arise where the scope of works is not clearly defined. Courts will readily imply a term requiring contractors and consultants to perform all works necessary to complete the works to the standard required by the contract. It is therefore critical to clearly delineate scope, especially when others have, or are, undertaking similar works on the project.

• Contractual Procedures and Timeframes: Time and again we see the failure to comply with contractual procedures give rise to headaches down the line. Parties must establish internal procedures to ensure adherence to contractual processes and timeframes, in particular, processes and timeframes relating to claiming variations and extensions of time.

• Termination and Documentation: Contract termination is an inherently risky process. It is highly fact dependent. And contractual thresholds will usually set a high bar. This decision shows that issues can appear during and following termination. To be successful, terminating parties must plan extensively to ensure that the termination is lawful and that the transition to a replacement contractor is seamless.

This article was co-authored by Oscar Read, Solicitor from our Construction and Infrastructure team