Termination under JCT building contracts

Blog author – Andrew Keeley, Charles Russell Speechlys

There is no general right to terminate without cause under most of the JCT contracts. This is unsurprising; a construction project requires a significant commitment from both parties and cannot be abandoned lightly. However, sometimes there is no other option but to part company. In these circumstances it is crucial to carefully check the particular contract terms of the contract you are using.

Here are some important points to consider before terminating a JCT Standard Building Contract 2011 (SBC 2011) or JCT Design and Build Contact 2011 (DB 2011).

1. Don’t terminate unreasonably or vexatiously
Both employer and contractor are expressly forbidden from terminating the contract “unreasonably or vexatiously”, otherwise the purported termination may be void. In this context ‘vexatiously’ has been taken by the courts to imply an ulterior motive to oppress, harass or annoy (see Reinwood Ltd v L Brown & Sons Ltd [2007] BLR 10). The test is how a reasonable party would act in all the relevant circumstances. It may be relevant to consider whether the termination will disproportionately affect the other party.

2. Consider common law termination
The contractual JCT termination provisions are expressly stated to be “without prejudice to any other rights and remedies”. This is likely to preserve a party’s common law right to accept a repudiatory breach of conduct and terminate the contract. However, many conceivable repudiatory breaches (for example, suspension of the works or non-payment) are already covered by the express JCT termination clauses. In such circumstances, the recent case of Vinergy International (PVT) Ltd v Richmond Mercantile Ltd FZC – [2016] EWHC 525 confirms there is no general principle that a contractual clause requiring notice before termination (such as JCT clauses 8.4.1 and 8.9.1) will necessarily apply to repudiatory breaches within the scope of the clause. Therefore it may be possible to terminate on the basis of a repudiatory breach without reference to the contract. However, the safest course of action will usually be to comply with the contractual termination provisions.

3. Choose the right ground for termination
If one party becomes formally insolvent within the meaning of clause 8.1, then this will provide a straightforward basis for termination. Some of the other possible grounds for termination can be more controversial. In particular, many disputes have arisen over whether a contractor’s unsatisfactory progress constitutes a failure to “proceed regularly and diligently with the performance of his obligations”, thereby entitling the employer to give notice of default and subsequently terminate.

Considering an identical clause in West Faulkner Associates v London Borough of Newham [1994] 71 BLR 1, the Court of Appeal held that:

“…the obligation upon the contractor is essentially to proceed continuously, industriously and efficiently with appropriate physical resources so as to progress the works towards completion substantially in accordance with the contractual requirements as to time, sequence and quality of work.”

However, assessing an alleged failure to proceed “regularly and diligently” is a question of degree, and where progress is simply slower than desired both parties may have difficulty in confidently predicting whether a future adjudicator will decide that grounds for termination have arisen. Caution should therefore be exercised.

4. Give proper notice of termination
Certain notices under a JCT contract must be either delivered by hand or sent by Recorded Signed for or Special Delivery post. This includes all termination-related notices under section 8 of SBC 2011 and DB 2011. As usual, the notices should be sent to the recipient’s address as stated in the Contract Particulars or such other address as may have been notified. It is good practice for such notices to clearly identify the express reason for termination.

It is also important to correctly observe the relevant time periods as, for example, in some cases notice of termination can only be given if a specified default has continued for a certain period. Bear in mind that public holidays are excluded when calculating the number of days.

Termination of a building contract is clearly a serious step for an employer or contractor to take. Termination also provides fertile ground for disputes. The relevant JCT provisions are detailed and prescriptive, so it is important to avoid making a difficult situation worse by failing to carefully comply with the contractual requirements for an effective termination. By its very nature, the question of termination will tend to arise when the parties’ relationship has irretrievable broken down, so you can expect your termination notices to be carefully scrutinised by hostile eyes.

Note: Blog posts are the views of the author(s) and do not necessarily represent the views of JCT.