The pitfalls of termination
Stephanie Geesink, Of Counsel, and Dominic Turner-Harriss, Associate, Watson Farley & Williams
DELAY and termination often go hand in hand on construction projects. Although the contracts usually contain relatively detailed provisions permitting termination, it is not always straightforward in practice. Following the contractual procedures is important and the consequences of any errors can often be significant. A recent decision regarding Thomas Barnes & Sons Plc (In Administration) v Blackburn with Darwen Borough Council (2022) EWHC 2598 (TCC) from the Technology and Construction Court has highlighted some of these issues and highlighted how the common law can come to the rescue.
The facts
The dispute arose out of the termination of a contract for the construction of Blackburn bus station as a result of delays. The contractor was the claimant in this case, whereas the council was the defendant's employer. The contract terms were an amended JCT Standard Form Building Contract with Quantities 2011. The bus station was to be an impressive contemporary rectangular structure on the site of Blackburn’s old town market. The building was designed to incorporate a ‘hub’ at one end providing office space, with the remainder of the space being the bus station concourse incorporating a waiting area.
The construction of the bus station was subject to a number of significant delays and cost increases, and a dispute arose as to where the responsibility for those delays and costs increases lay, rather than the details of the design and construction of the bus station itself. These delays ultimately culminated in the council terminating the contract on 4 June 2015 for an alleged default by the contractor. Subsequently, as the works were not finished, the council engaged a replacement contractor to complete the works to the bus station.
The construction was subject to a number of significant delays and cost increases and a dispute arose as to where the responsibility for those delays and costs increases lay.The contractor entered administration later in 2015 and it asserted that one of the main reasons was the council’s failure to make interim payments and the wrongful termination of the contract. The contractor’s administrators brought a claim against the council amounting to £1,788,953.76, net of VAT and interest. This sum represented monies due under the contract on a proper valuation of the works done up to termination, which included the prolongation for matters which the council was responsible and damages for the wrongful termination.
Interestingly, the court commented on the fact that the directors of the contractor were strongly of the opinion that the failings of the project were pinned on them by both the council and Capita plc, who undertook the full design and project administration.
The contractor’s witnesses furthered this opinion and dialogue in their statements and evidence, in contravention of the relevant court rules. The judge considered this opinion to be wrong and held that it had so significantly coloured the witnesses recollections that, together with the contravention of the witness evidence rules, he was unable to give any real weight to their evidence where it was not supported by contemporaneous documents.
The decision
The court ultimately held that the contractor was partly successful in its claim for an extension of time. It did establish an entitlement to an extension of time for a longer period than allowed for by the council, although for a period significantly shorter than that claimed for by the contractor. The contractor also established its entitlement to prolongation and in turn, delay-related damages.
However, the council had been entitled to terminate the contract when it did. Although the council failed to follow the correct termination procedure under the contract, specifically in respect of serving notice, it had successfully terminated under the common law rules. The council was entitled to accept the delay-related breaches by the contractor as a serious and significant breach of the contract, otherwise known as a repudiatory breach and terminate the contract as a result.
As the contractor showed clear intent not to honour the terms of the contract, the court held that the council was entitled to treat the contract as discharged and engage a replacement contractor to complete the works. Although the contractor was entitled to claim for delay-related damages, it was held that they had no prospect of recovering anything in the litigation as any entitlement was extinguished due to the council’s ability to recover and set off the costs associated with using replacement contractors to complete the contract.
Analysis
This case usefully emphasises the benefit of successfully terminating a contract, although at the same time highlights the pitfalls to be aware of in doing so. The termination notice not only identified the delay-related breaches, but also highlighted the substantial suspension of works by the contractor. This was in some part due to the contractor’s lack of payment to suppliers and subcontractors, which led to their refusal to return to site to continue the works.
However, the contract required the notice to be served by hand or recorded delivery at the contractor’s registered office. The council did not do this, which meant that its contractual termination failed. In considering the repudiatory breach, as outlined above, the judge held that the relevant test was objectively whether ‘the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract’, and on the facts whether in all circumstances that was the intention of the contract breaker. Further, although the council unsuccessfully attempted to terminate under the contract, this was ‘without prejudice to any other rights and remedies’ thus allowing them to accept the contractor’s repudiatory breach and terminate under the common law.
Although the issuance of the notice was incorrect under the contractual terms, the clear significant breaches of contract by the contractor allowed the council to accept those as repudiatory and discharge itself from any obligations under the contract, reminding us that both contractual and common law termination can be available to parties simultaneously. Although in this case, the termination was held to be successful, it does illustrate how problematic terminating contracts can be, and that contractual and common law rights should always be considered carefully by parties and their legal advisors.
Stephanie Geesink, Of Counsel, and Dominic Turner-Harriss, Associate, Watson Farley & Williams
