Termination – The need to prove a Contractor is in default in a long-term contract

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Terminating a long-term contract is far from straightforward, and in particular, proving a Contractor’s default is very difficult, given the risk of allegations as to repudiatory breach.

In long-term contracts, Contractor default can be triggered:

  • By a failure to meet certain objective performance thresholds;
  • By reaching particular levels of deduction made for unavailability or service default; or
  • By a catch-all “material breach” provision whereby a serious breach by an SPV can give rise to “a right to terminate”.

FIDIC Silver Book 2017 clause 15.2, details the six circumstances which give the Employer the right to terminate the contract due to the Contractor’s default. The most contentious provisions are:

  • Clause 15.2(b) – abandons the Works or demonstrates an intention not to perform the Contractor’s obligations under the Contract.
  • Clause 15.2(c) – without reasonable excuse, fails to proceed with the Works in accordance with Clause 8 Commencement, Delays and Suspension.

Although the contract includes the above provisions, the Employer is usually required to prove the Contractor’s default by identifying factual evidence which supports the grounds for termination. This is important as the consequences for wrongfully terminating a contract can lead to substantive claims for damages.

Proving clause 15.2(c) can be very difficult. Some of the case law in which this provision was discussed are as follows:

  • SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC) – delay is not always conclusive evidence of a lack of diligent progress;
  • Hill v London Borough of Camden (1980) 18 B.L.R. 31, CA – time is not of essence – delay on the part of the Contractor does not amount to a repudiation;
  • Rickards v Oppenheim [1950] 1 K.B. 616 at 628, CA: – by contrast, time is of essence – the Employer is entitled to treat the contract as at an end and to dismiss the Contractor from the site.

Termination on long-term contracts was discussed in our webinar on 25 March 2021 with Gordon Nardell QC, Twenty Essex and Sue Kim, HKA.  Click here to view the webinar and detailed notes.

How can Barton Legal help?

At Barton Legal, we have extensive experience in all the standard contract forms, including JCT as well as NEC, IChemE, and FIDIC.

We believe that an increased understanding of contractual terms and the roles and responsibilities of all parties ensures a successful conclusion to a project, which is why we always use plain English and ensure you understand and can apply the terms of your contract.

Our aim is to reduce legal gobbledegook and increase collaboration between parties to increase the prospects of completing your project on time and on budget

We place great emphasis in the early stages of the contract on understanding and preparing thoroughly in order to avoid costly disputes later.

If you have any queries regarding any of these contracts or any form of construction dispute, please do not hesitate to get in touch by email construction@bartonlegal.com  or call our office on 0113 202 9550.