A CONTRACTOR CAN'T BE SIMPLY TERMINATED THERE AND THEN
This week the AJ offers guidance on the potentially thorny topic of what to do if the client asks you, as the administrator of the building contract, to sack the contractor. You need to handle this unpleasant duty without putting your client in repudiatory breach of contract (and defending a claim for damages) and leaving you facing a negligence claim. The easy answer is to suggest the client employs a lawyer to advise him. But we all know there is often a reluctance to incur legal fees, meaning the client will look to you instead.
The first practical, if obvious, tip is to read the building contract.
They are not all the same and there may be bespoke amendments that you were not aware of or have forgotten about. Both you and the client need to be aware that determining the contractor's employment is usually a two-stage affair, and normally requires some actual default by the contractor. The default must fall within specified grounds. For example, in JCT Minor Works 2005 the defaults are set out at clause 6.4 of section 6 on termination as;without reasonable cause wholly or substantially suspending the carrying out of the works;
failing to proceed regularly and diligently with the works; or
failing to comply with the CDM Regulations.
However, if you believe that the contractor is failing in his duties to meet one or all of these matters, you cannot simply terminate his employment there and then. You must give him a chance to put matters right. This means serving a notice specifying the default(s). Sometimes it is not straightforward to identify which category of default your client's complaint falls into, and care needs to be taken to link the complaint to the grounds of default set out in the contract.
In addition to the grounds set out in Minor Works there are others in JCT Design & Build 2005 at section 8.4 namely;
refusing or neglecting to comply with a written notice or instruction from the employer requiring him to remove any work, materials or goods not in accordance with this contract and by such refusal or neglect the works are materially affected; or ? failing to comply with clause 3.3 (consent to subletting) or 7.1 (assignment).
Once you have identified the default(s) that you wish to rely upon, you need to check how many days' notice is required.
Under Minor Works 2005 it is seven days from receipt of the notice by the contractor. Under Design & Build 2005 it is 14 days from receipt. If the contractor continues the specified default(s) and fails to comply within the notice period, then the client is entitled to terminate his employment.
But care needs to be taken in two areas when serving a notice of default in the first place. The first is the method of serving the notice. In both Design & Build 2005 and Minor Works 2005 it states that the notice has to be in writing and given by actual, special or recorded delivery. Until recently actual delivery meant physically going round to an office and handing over the notice.
However, 21st-century technology has arrived and in the case of Construction Partnership UK Limited v Leek Developments (2006) the judge held that service by fax did constitute actual delivery.
He said that 'actual' delivery is simply 'transmission by an appropriate means so that it is actually received'. It is therefore likely that email would also be deemed to be appropriate. You should always keep your fax transmission sheet or obtain an email 'read receipt' to show that the recipient has opened the email, in case actual delivery is disputed. However getting the method of service wrong is not necessarily fatal as long as you can show that the notice was received.
The way in which the notice is served leads to the second point, which is calculating the day the notice period starts from.
Fax, email or same-day courier will constitute same-day receipt.
Both JCT contracts referred to in this article refer to the notice being deemed received on the second business day after posting, subject to proof to the contrary, but consider the difference between posting the notice on a Friday by recorded delivery, which would be deemed received on Tuesday but could be proved by the recipient not to have been received until the Wednesday, and posting by special delivery (which guarantees next-day delivery) on a Friday, which would be deemed received on the Tuesday but could be proved, if signed for, to have been delivered earlier on the Monday or even the Saturday.
It is very easy to make a fundamental mistake in calculating the notice period if you do not accurately identify the date of receipt.
The next question is: do you count the day of receipt when calculating the notice period? The JCT contracts are clear, as they contain the following clause: 'where under this contract an act is required to be done within a specified period of days after or from a specified date, the period shall begin immediately after that date. Where the period would include a day which is a public holiday that day shall be excluded'. Thus you start counting the notice period from the day after receipt.
Only when that period has expired may you serve the further notice to actually terminate the contractor's employment under the contract. Serving the second notice a day early will make the process invalid and put the client in repudiatory breach of contract (with consequences for your PI insurance! ) Also check whether there is a latest date by which the notice of determination must be given. Under Minor Works and Design & Build 2005 it is on, or within, 10 days from the expiry of the notice period. If the second notice is a day late this may not be in accordance with the terms of the contract, putting the client in repudiatory breach of contract.
Finally, be wary of so called 'convenience clauses' which purport to allow the employer to terminate the contractor's employment where there has been no default. These are becoming more common in bespoke contracts. They may be unenforceable particularly if they fail to provide for compensation for the contractor.
Jane Ryland is a partner and Head of Construction at Cripps Harries Hall LLP. email: jane. ryland@crippslaw. com