Introduction
A contract is an agreement that outlines specific details of an issue between different parties regarding a certain matter; it is usually a written document, although it can also be verbal and is enforceable in a court of law (Turner, 2008). When a contract has been broken a breach is said to have occurred; breach of contract in legal terms is used to describe actions that has been undertaken by one of the parties in contravention to the binding agreement as originally agreed between the parties. It is also used to describe situations where the terms of an agreement as entered between various parties is not honoured according to the articles of the agreement (Elias and Levinkind, 2005).
In this paper we are going to discuss two of the major ways that termination of a contract may be undertaken, namely premature termination of a contract and termination based on contractual claims. It is imperative that parties to a contract be aware of the circumstances under which a contract might be breached in general. Most of UK standard contracts dealing with engineering and construction projects have a range of provisions necessitating termination. In this paper we shall review one such form of contractual agreement that is routinely used by parties in the construction sector i.e. UK JCT building contract.
Grounds for Premature Termination
A contract that is prematurely terminated would normally be undertaken by the employer for a variety of reasons that has nothing to do with the nature of articles and provisions of the agreement (Murdoch and Hughes, 2008). Most forms of contract termination on this ground normally occurs under factors that are described as ‘termination for convenience” because the reasons for doing so are varied and can be undertaken at any time (Lavers, 2011).
This form of contract termination provides the employer with a lot of leeway in terms of reasons of doing so which makes it very essential to ensure such reasons are justifiable in order to maintain fairness in the event that a contract is cancelled on such grounds.
There are three grounds for termination covered by the UK JCT contract; one, when a contractor fails to rectify a structural fault within a period of 14 days after being notified to do so (Lavers, 2011). After the expiry of these 14 days the employer is justified to terminate the contract if the contractor had not rectified such faults by then and this will mean the contract has been prematurely terminated. Secondly, the employer may prematurely terminate the contract if there is evidence that the “contractor is insolvent” (Lavers, 2011).
Finally, early termination may be exercised by the employer if the employer becomes aware that the contractor might have broken laws pertaining to Prevention of Corruption Acts (Lavers, 2011). There also exist circumstances under which the contractor can terminate the contract prematurely such as when the employer fails to provide essential support financially or through materials necessary to ensure the work gets initiated.
In any of these events there is a well defined procedure that the employer or the contractor is expected to follow when intending to terminate the contract such as issue of notices, provision of grace period during which the contractor is given an opportunity to make right such wrongs and further issuance of final notice in writings that outlines the reasons for doing so. Most importantly it is essential that the employer be as objective as possible in doing so since such cases might have to be arbitrated in a tribunal where a contractor decides to contest the reasons of doing so.
Termination based on Contractual Claims
This is termination of a contract that is undertaken based on breach of certain provisions of the agreement contrary to what was originally agreed between the parties and maybe exercised by any of the parties (Gibson Rigby and Tamsitt, 2005). The grounds of terminating contracts in this case will most often give rise to claims for damages usually in form of financial compensation and is normally referred as “termination for cause” (Lavers, 2011). In this case, most often the termination of the contract usually result from actions that amount to breach such as by omission or action that contravenes the provisions of the agreement either by the contractor or by the employer.
Unlike in the case of early termination of contract the procedure of terminating contract in this case becomes effective immediately once the breach has been determined to have occurred. Some of the grounds that can lead to immediate termination and give rise to contractual claims include failure by the contractor to obtain necessary documents on time such as bank guarantees, commencement certificate, availability certificate and suspension of work on site for more than “15 consecutive business days” (lavers, 2011).
In most of these circumstances compensation may be claimed by the employer as payment for inconveniency and delay. Consequently the contractor has recourse to terminate the contract and claim damages where the employer has breached the terms of the agreement such as by failing to make agreed payments, avail site of construction, delay commencement of work or hinder the contractor from discharging their duties (Lavers, 2011).
Conclusion
It’s thus imperative that the contract be detailed in such a manner that clearly states the expectations, obligations and terms of each party in the contract which must then be followed to the letter and in good faith. The contract should also clarify which form of remedy should be provided in case of breach of contract by any of the parties.
References
Elias, S & Levinkind, S. 2005. Legal Research: How to Find & Understand the Law. 14th ed. California: Berkeley.
Gibson, A., Rigby, S. and Tamsitt, G. 2005. Commercial Law: In Principle. 3rd edition, Sydney: Thomson Law Book Co.
Lavers, A. 2011. Early Termination by the Client in the Event of the Contractor’s Non-performance. A Paper given to the European Society of Construction Law in Amsterdam. Society of Construction Law.
Murdoch, J and Hughes, W. 2008. Construction contracts: law and management. London: Taylor & Francis.
Turner, C. 2008. Australian Commercial Law, 27th edn. Victoria: Thomson Reuters.