REUTERS | Ahmad Masood

Terminating a building contract and mistaken motives

Terminating a contract is not for the faint hearted. If you terminate for the wrong reasons, you can find yourself having to pay a contractor’s lost profits or an employer’s additional completion costs and a contractor’s wrongful suspension can lead to an employer terminating the contract altogether.

But if the mistake is a genuine one, will attempts to suspend or terminate always give the other party the upper hand?

In Eminence v Heaney, the court addressed this issue in the context of a property transaction. The vendor gave a notice to complete but the date for completion was wrongly stated. The purchaser was reluctant to complete as the market had fallen and he thought he saw a golden opportunity to get out of the transaction. He said that the incorrect notice was repudiatory and asked for his deposit back.

The Court of Appeal went back to the 1980 case of Woodar Investment Development Ltd v Wimpey Construction UK Ltd (which indicates that all the circumstances of the “repudiation” need to be looked at) and concluded that, in this case, the vendor was simply trying to enforce his rights rather than act inconsistently with his obligations under the agreement. He remained willing to complete. Therefore, he did not commit a repudiatory breach of contract.

How might this apply in the construction field?

An obvious example is when a notice to terminate or notice to suspend is given prematurely. If, when the mistake is pointed out, the giver of the notice accepts that it was wrong and agrees to continue to perform its obligations under the contract, then Eminence v Heaney indicates that it may be able to avoid the dangers of repudiation. Indeed, in Mayhaven v Bothma, the TCC came to a similar conclusion in the case of an incorrectly given suspension notice.

However, where some act inconsistent with the continuing performance of contractual obligations has taken place, the position may be different. For example, the employer may have refused to pay the contractor or even acted to shut out the contractor from the site. Alternatively, the contractor may have walked off site.

In that situation, these are more likely to be regarded as defining acts of repudiation and if they rest upon a notice incorrectly given or a stance incorrectly taken, the court is more likely to find that repudiation has occurred. Of course, it would be better if a correct notice had been given in the first place but Eminence v Heaney and Mayhaven v Bothma both indicate that all is not lost and the position can sometimes be retrieved.

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