7th June 2019
In every case, termination of a contract should remain a last resort for the contracting parties, given the serious consequences of wrongful termination. This is particularly relevant in high value construction projects where the financial implications of wrongful termination can be severe.
When examining, for example, whether a client is entitled to terminate, the contract itself will be checked to ascertain whether a contract exists at all. If there is a contract, the nature of the alleged breach of contract by the other party will be examined to determine whether the client has valid grounds to terminate the contract, i.e. by bringing the contract to an end, or whether steps should be taken to avoid the contract being terminated.
In addition, any termination provisions in the contract will be checked to identify whether a notice of default can be issued requiring the other party to take steps to rectify the breach within a given period of time.
If the defaulting party fails to take the necessary steps, that party’s employment under the contract can be terminated by a separate notice. The notice provisions in the contract will be reviewed to ensure that each notice is issued by the correct party and in accordance with the prescribed methods of service. If a party's employment is terminated, the contract itself is not brought to an end.
If, however, the contract is not terminated correctly, or the grounds for issuing the notices of default and/or termination or the method of service are not valid, the other party may be entitled to terminate the contract.
The client will be advised on the steps available following termination, including:
In conclusion, a party wanting to terminate needs to exercise great caution when specifying the basis on which it is terminating and, whenever possible, legal advice should be sought before any steps are taken to terminate.
For further commentary on this case, please contact Steve McCombe or another member of Thrings’ Construction and Engineering team.