The Joint Contracts Tribunal (JCT) publishes standard forms of building contracts that are used on many construction projects in England and Wales. Although all parties involved may aim for a straightforward and unproblematic process eventually leading to the successful completion of the project, occasionally there is no other option but to part ways.
It is extremely important to check the requirements for termination under the relevant contract in order to effectively terminate the contract. For the purposes of this article, we will focus on an unamended JCT Design and Build Contract 2016 ("JCT DB 2016"), which is designed for projects where the contractor carries out both the design and the construction work. Many of the other JCTs contain similar termination provisions to the JCT DB 2016, however a word of caution to always check the relevant contract as the requirements may vary. We set out a few considerations a party should have when terminating a JCT:
- Is termination the appropriate course of action?
It is always worth considering the contractual, practical and commercial consequences of terminating the contract and weighing these up when considering terminating. It is worth checking the contractual provisions on what happens on termination to check you are happy to invoke that process.
- Check for amendments
The remainder of the points of this article relate to the unamended JCT DB 2016, but many projects will have a schedule of amendments so its crucial to check for this and follow any requirements set out in it.
- Check that you have a valid reason to terminate
It is important to ensure that you have a valid reason to terminate as if you seek to terminate when you do not have the right to do so, you are likely to then be in breach of the contract yourself.
- Ensure that the termination is not unreasonable or vexatious
Both the employer and contractor are expressly prohibited from serving"unreasonable or vexatious"termination notices.
The courts have taken "vexatiously" to mean having an "ulterior motive or purpose of oppressing, harassing or annoying" the other party and will consider what an unreasonable termination is by reference to how a reasonable contractor or employer would have acted in the circumstances.
It therefore follows that the terminating party must choose the correct ground on which to terminate the JCT.
- Check how many notices are required and on the prescribed timings
If, for example, the termination of the contractor's employment is due to the other party's default, then the JCT DB 2016 requires a party to serve two notices. Firstly, a notice specifying the default must be served and the terminating party must wait 14 days from receipt of the first notice to see if the default continues. If the default continues, then the terminating party must serve a second notice terminating the contractor's employment, which must be served at any point from the expiry of the 14-day period, up to 21 days after expiry. It should be noted that bank holidays should not be counted as "days" here.
If, however, the termination is, by way of example, as a result of insolvency of either the employer or the contractor, only one notice may be required. Therefore it is important to be clear which notices are required and when.
- Ensure the method of serving the notice is correct
Under the JCT DB 2016, a termination notice must either be deliveredby hand or sent by Recorded Signed for or Special Deliverypost. Any notice not given in this format will therefore not be valid. Under the JCT DB 2016, the termination notice shouldbe sent to the recipient's address as stated in the ContractParticulars or such other address as may have been notified.
- Be clear on when the termination takes effect
It is important that you are clear on when the termination takes effect. The JCT DB 2016 states that termination of the contractor's employment takes effect on receipt of the termination notice, which will of course depend on the method of transmission used to serve the notice.
Therefore, while there may sometimes be a warning period in connection with the termination, it may on some occasions take effect immediately which will have a bearing on the consequences of termination.
- Consider if there is a common law right to terminate
There is a difference between contractual termination rights and the common law right of termination. To be able to rely on contractual rights, specific drafting is needed to this effect, however, the right does not need to be stated or preserved in a contract for a party to be able to rely on the right to terminate under common law – this means that the common law right will apply unless it is specifically excluded from the contract. Under common law, you can terminate a contract where there has been a repudiatory breach i.e., a breach of contract so serious that it entitles the innocent party to treat the contract as terminated with immediate effect and to sue for damages for breach of contract. Terminating in this way may give rise to different remedies so it is crucial the correct termination route is chosen.
Getting a termination of contract right under the JCT is very important to avoid any disputes or challenges to the contrary.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.