Termination – where did it all go wrong?

August 19, 2021

Gatehouse chambers

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Is it just me who have seen many disputes regarding an unlawful dismissal since the beginning of the COVID-19 pandemic? Much of these disputes concerned whether a party terminated under the terms of a JCT contract. Although the parties often seek to exercise termination provisions under JCT contracts, very few appear to do so effectively.

The termination provisions in JCT contracts are not to be taken lightly. There are a number of potential pitfalls for both employers and contractors.

Take the JCT Standard Construction Contract Form, 2016 Edition (SBC 2016) to look at some of the most common and rarest mistakes.

Failure to deliver the messages in accordance with the contract

Section 8 of the 2016 SBC is entitled “Termination”. Section 8.2 is headed “Notices under Section 8” and states that any communication referred to in this Section (ie Section 8) “shall be made in accordance with Section 1.7.4”.

Clause 1.7.4 states that any communication expressly required by this clause must be hand-delivered or sent by registered mail with signature or by special mail.

In particular, section 1.7.4 does not provide for the delivery of notifications by email.

No specification of one of the standard values ​​in the contract

Clause 8.4.1 of the SBC 2016 states that if the contractor commits one or more of the errors specified in subsections prior to the practical completion of the work, the architect / contract administrator can make a notification in which the Standard or standard values.

Clause 8.4.1 therefore requires notice to indicate one of the failures listed, rather than some entirely different reason purported to warrant termination.

Failure to comply with the prescribed times

Continuing the termination by an employer, clause 8.4.2 of the SBC 2016 provides that, if a contractor continues a certain delay 14 days after receiving the notification pursuant to clause 8.4.1, on or within 21 days after the expiry of this 14th -day deadline to terminate the contractor’s employment relationship by giving another notice.

Clause 8.4.3 provides that if the employer does not give notice of termination within the 21-day period and the contractor repeats a certain delay, the employer can terminate the contractor’s employment relationship at or within a reasonable period after such a repetition.

There are a few things to keep in mind in these clauses:

  • Clause 8.4.2 assumes that the contractor continues a certain delay 14 days after receipt of the notification according to Clause 8.4.1. It is not uncommon for a contractor to be confronted with a message that they are not regularly and conscientiously performing their obligations to provide more manpower or to speed up. Such an event requires a careful legal review, which is a failure to act regularly and carefully (see West Faulkner Associates v London Borough of Newham [1994] 71 BLR 1 and Vivergo Fuels Ltd v Redhall Engineering Solutions Ltd [2013] EWHC 4030 (TCC)) and the specific facts.
  • In accordance with Section 8.4.2, the client can only terminate the contract after the 14-day period in which the contractor continued the specified delay has expired. Local circumstances sometimes lead employers to apply for a dismissal at their own risk before the 14 days have elapsed.
  • In accordance with Section 8.4.2, the employer can only terminate the contract by giving notice on or within 21 days after the 14-day period has expired. If an employer fails to meet the 21-day deadline, Section 8.4.3 applies and an employer can only terminate the contract if a certain non-performance is repeated. Employers can be tricked into neglecting to quit within the 21 day period by attempting to quit on day 22, regardless of whether a particular outage was repeated.
  • Section 8.4.3 only permits termination “on or within a reasonable period” if the specified delay is repeated. Delaying the issuance of such a notice therefore exposes an employer to the argument that the notice was not issued within a reasonable time.

The termination was unreasonable

Section 8.2.1 of the SBC 2016 stipulates that “termination of the contractor’s employment relationship may not take place in an unfair or abusive manner”.

It was only when I had to address this point in a judgment that I realized that I could not find a single case in which the court had found a dismissal to be unreasonable.

Ormrod LJ declared in Hill versus the London Borough of Camden
[1980] BLR 31 that it was difficult to imagine that the plaintiffs had behaved inappropriately. He also stated:

“But what the word ‘unreasonable’ means in this context is not known. I imagine it should protect an employer who is one day in arrears or whose check is in the mail, or maybe because the bank has been closed or there was a delay in cashing the check, or something – accidental or purely accidental, so that the court could see that the contractor was taking advantage of the other party in circumstances where, from a business point of view, it would be completely unfair and almost smelly strict practice. I can think of no other meaningful construction of the word ‘unreasonable’ in this context. “

In the unreported case of Lubenham Fidelities & Investments Company Ltd v South Pembrokeshire District Council, Newey QC said that the fact that the parties were negotiating at the time the notice was served “may make it very inappropriate to serve the notice.”

In Reinwood Ltd v L Brown and Sons Ltd [2007] BLR 10 HHJ Gilliland QC derived six suggestions from the authorities, including that the test be objective and that the benchmark is how a reasonable contractor would have acted in any circumstances. Of particular interest is the sixth sentence, which states that a decision may be inappropriate if it disproportionately disadvantages the employer.

In my case, the contractor tried to cancel under the JCT terms due to two late payments. The first payment was paid in full, but a few days late. For the second payment, due to cash flow problems in the chain, the employer paid nearly 80% of the payment several days early and the remaining percentage two days late. The employer has informed the contractor in advance that he will pay the majority of the sum ahead of time and the remainder slightly late. Even after the second delay in payment, the contractor was still on site for two weeks without indicating that he wanted to terminate due to the delay in payment.

The adjudicator acknowledged that the alleged dismissal in such circumstances was inappropriate and therefore invalid.

The reasonableness of a termination is therefore another matter that both employers and contractors need to be careful about.

Where did everything go wrong?

The answer to this question is often – if the party wanted to terminate without paying very close attention to the termination provisions of the contract. Failure to fully address the termination provisions in a JCT contract can result in an apprentice-style autopsy and one party wondering, “Where did it all go wrong?”

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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