Terminating a Building Contract – Bellis v Sky House Construction Ltd

A recent judgment of the Technology and Construction Court in England & Wales provides a reminder of the importance of complying with contractual requirements for termination.

Background

The case arose out of the construction of an extension to a residential property in Weybridge. Sky House (the Contractor) was engaged by Bellis (the Employer) under a JCT Minor Works Contract (the Contract) to carry out the extension.

The Employer was dissatisfied with the Contractor’s performance and, on 1 September 2021, gave notice warning the Contractor that the Contract would be terminated unless a number of points were addressed by 8 September. A notice of termination was then sent on 8 September. Disputes arose and there were two adjudications between the parties.

The first adjudication concerned whether the Employer had wrongfully terminated the Contract by issuing a termination notice prematurely. The adjudicator found that the Employer had wrongfully terminated. The second adjudication concerned amounts due to the Contractor on its final account.

The second adjudication prompted the Employer to challenge the adjudicator’s finding on termination. The issue for the Court to determine was whether the Employer had terminated the Contract correctly.

JCT Minor Works Building Contract

The JCT Minor Works Building Contract provides for a right for an employer to end a contractor’s employment if:-

• the contractor commits a specified default; and
• continues that specified default “for 7 days from receipt of” a notice specifying that default.

Clause 1.4 of the Contract, entitled “Reckoning Periods of days” provides that:

“Where under this Contract an act is required to be done within a specified period of days after or from a specified date, the period shall begin immediately after that date.”

The Law – Termination

The consequences of getting termination wrong vary and are fact sensitive.

If a purported termination is not justified by a contractual or other right to terminate, then it can itself be a repudiatory breach of a contract leading to a potential liability for damages.

Decision

The Judge accepted the adjudicator’s finding that the Employer’s termination notice, sent on 8 September 2021, was premature.

The Employer was required to wait for seven clear days after the date of the warning notice (sent on 1 September) and could therefore only serve a termination notice from 9 September.

The Judge described the “essence” of the termination provision as being:-

“the contractor has seven days in which to put right the default of which it has been notified by the warning notice. That is a short period (not least as the defaults of which the contractor is notified may be extensive), as well as a potentially critical one, and the contract should be read so as not to reduce the already short period and also so as to give both parties certainty as to how long the contractor has to act, and when the employer's right to terminate will arise. Against that background, it is not, in my judgment, a legitimate construction of clause 6.4.2 that a termination notice could lawfully be given less than seven whole days after the warning notice.”

The Employer’s purported termination was therefore “unlawful, because the termination notice was sent before any right to send such a notice could have arisen.”

The Employer’s claim was dismissed.

Carson McDowell view

The Court did not deal with other issues between the parties, which included “hotly contested” allegations of defective work. However, irrespective of the merits of those allegations, the Employer found itself in breach of the Contract and at risk of damages as a failure to comply with termination provisions.

The Judge’s decision was unsurprising. Erring on the side of caution, and ensuring that the contractual procedure for termination was followed, could well have avoided the Employer being on the wrong side of decisions from both an adjudicator and a Judge.

Provisions that allow a party to terminate when a notified default has not been remedied within a stipulated period of time are common in construction and engineering contracts. For example, outside of the JCT suite, clause 9 of the NEC4 Engineering and Construction Contract provides for termination rights in the event that a contractor does not put right specified defaults within a stipulated period after notification.

No matter what contract you are working under, an understanding of its terms is crucial.

If you would like any further information or advice, please contact John Dugdale from the Construction team.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.