Breach And Termination Of A Contract

Repudiatory Breach

There are different types and different descriptions of breaches of contract. Not all contracts use the same terminology. Common descriptions for breaches of contract include:

  • Material, serious or substantial
  • Minor
  • Continuing, repeated or persistent
  • Remediable
  • Irremediable
  • Deliberate
  • Fundamental

The most serious breaches can justify a party terminating a contract. These are acts or omissions that qualify as a ‘repudiatory breach’ under common law. If the other party to your construction contract commits a repudiatory breach, you can decide to accept the repudiation. This immediately brings the contract to an end.

Unless the contract expressly excludes it, every party to a contract has a right at common law to terminate a contract at once by accepting a repudiatory breach.

A repudiatory breach can even happen before a party is due to perform its obligations under a contract. For instance, if an earthwork subcontractor makes clear that it cannot or will not attend to prepare the site for construction according to the project schedule, this could be seen as an anticipatory breach or anticipatory repudiation.

For a confidential and free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

Frustration

The doctrine of frustration says that a contract may be brought to an end if something happens that makes the contract impossible to fulfil – for physical, legal, or commercial reasons.

Alternatively, something happens that transforms a party’s obligation to perform into something radically different from what they had first agreed to. When you can say, “this is not what I promised to do”, you may be able to rely on the doctrine of frustration.

When Will Frustration Not Apply?

Whether an event amounts to frustration will depend on the circumstances. That’s why we would always recommend taking specialist advice.

Here, however, are some examples of where the courts have held a contract not to be frustrated:

  • When the contract merely becomes more expensive to complete
  • There are changes in economic conditions
  • The parties should have foreseen the event that’s alleged to be frustrating
  • Where it’s possible for performance of the contract to be carried out in an alternative way
  • Where the parties have expressly provided for the consequences of the particular event. (See Force majeure below.)

Construction contracts are generally not regarded as being personal service contracts, such as an employment contract. That means parties can’t claim frustration on the basis of personal incapacity.

However, if an existing building or premises were to be destroyed by an accidental fire, a contract to carry out work on that building would be frustrated.

Force Majeure

This phrase is used in contracts to describe events that could possibly affect the contract and that are completely outside the parties’ control. Force majeure is similar to frustration. The difference is that the parties have expressly set out in their contract what will happen were certain events to happen that are outside their reasonable control.

Typically, a force majeure clause excuses one or both parties from performing the contract in some way. It may excuse them from performance of all or some of their obligations. Alternatively, it may entitle them to suspend performance.

Examples of force majeure events may include:

  • Acts of God (storms, earthquakes, floods, etc.)
  • Fires
  • Strikes and labour disputes
  • Pandemics and civil emergencies

Disputes can arise about whether an event was foreseeable and so not caught by the force majeure clause. There can also be arguments over whether an event was beyond the reasonable control of a party. For instance, if they could and should reasonably have prevented a fire, they won’t be able to rely on the force majeure clause.

Estoppel

Estoppel is like the phrase “you can’t say that” enshrined in law. It’s a rule of evidence that polices contradictions in a party’s stated position. It stops a party from going against something they have said or done that the other party has relied on in good faith.

There are different types of estoppel. Generally, they can be used as a defence to a claim but not provide the basis for launching litigation. They’re a shield, not a sword.

The most common estoppels found in commercial construction litigation are:

  • Estoppel by representation – Prevents a party from seeking to contradict and disprove the truth of a statement they previously made.
  • Promissory estoppel – Also known as equitable forbearance, this type of estoppel is perhaps the most common in commercial construction disputes. It concerns representations made about contractual rights. It prevents one party from insisting upon the strict letter of a contractual entitlement if they have promised not to do so.
  • Proprietary estoppel– Alone among types of estoppel, proprietary estoppel can give you the basis of a claim. It applies when an owner of land has led another to believe they will gain certain rights in or over land and the other person, to their detriment, has acted in reliance on that assurance.
  • Estoppel by convention – This is a special form of estoppel by representation. It prevents a party to a contract from disputing the truth of an understanding (of the law or facts) that the parties shared when entering into a transaction.
  • Estoppel by deed – Stops someone who has executed a deed from denying that the facts stated in the deed are true. The statement of fact or facts must be unambiguous and have been adopted as the basis for the transaction that is recorded in the deed.
  • Contractual estoppel – This holds parties to a prior contractual agreement that a particular state of affairs will form the basis of their dealings with each other. This type of estoppel applies even if the parties know that the state of affairs is not as stated.
  • Estoppel by judgment – A core principle of litigation is finality. Once an appeal process has been exhausted, that is the end of the matter. This estoppel prevents parties from seeking to relitigate claims or issues that a court has already decided.
  • Waiver by estoppel – A party can be held to have waived their legal rights through estoppel. Essentially, the other party will need to prove promissory estoppel.

Case Study: How We Helped Our Client Avoid A Breach Of Contract

One of our client’s subcontractors was messing them around. They claimed they had stopped trading. We advised our client on how to:

  • Validly terminate the contract
  • Withhold payments
  • Serve notices to remove the subcontractor from site without breaching the contract

As well as saving our client money, we helped them avoid time delays and ensured there were no problems caused by the subcontractor’s plant and equipment remaining on site. We also helped them avoid any further exposure to risk towards the main contractor.

Altion Law are specialists in advising and representing parties on commercial construction contracts, claims and disputes.

For a confidential and free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.