Suspension and Termination

William Brown BEng (Hons) LLB (Hons) MSc LLM FCInstCES Civil Engineer, Solicitor, Adjudicator William.Brown@FortfieldBrown.com What we do: ✓ Review contracts for commercial risks ✓ Draft contracts ✓ General advice on construction legal issues ✓ Party representation in Adjudication ✓ Training on contracts and administration

Agenda for today • Understand the law: • Suspension • Termination • Contingences for a possible recession • All of this… with real life examples!

The fundamental point We are in an extremely volatile market Contractors / subcontractors struggling to stand over prices Could lead to suspension and/or termination

Suspending works • Can you suspend at common law? • Statutory suspension? • Construction Contracts Act 2013 • S.5 – right to suspend work for non- payment • So when is this right triggered?

Suspending works • So when is the statutory right to suspend triggered? S5(1) amount due not paid IN FULL by due date S5(2) “at least” seven days notice given of intention to suspend + grounds AND

Suspending works • What are the implications of suspension? S5(4)-(6) extension of time (so no LADs) Suspension X days Extension of time X days Original contractual time limit for completion

Suspending works • What are the implications of suspension? • Time • No money • Different to likes of UK / Australia • S5(3)(b) - Right to suspend stops on NoA

Suspending works • Things to consider: • Is there actually an amount due? • Notice requirements of the contract? • Have you specified the grounds correctly? • Was the notice timed correctly? • Take away = be bloody careful! If you get any of this wrong, and still suspend, then the suspension could be a repudiatory breach S5(7) non-payer’s right to claim damages preserved

Termination • Two flavours of termination • Common law termination (repudiation) • Contractual termination

Repudiation • Latin repudium = divorce • Repudiation • when a contract is brought to an end by one party carry carrying out a repudiatory breach of contract, and the other party accepting that breach • Repudiatory breach? • Acceptance?

Repudiation – Worked example Date Event 18 May 2022 Order placed with SUBCO for supply and install of panels in the amount of €100k. 24 May 2022 Deposit of €50k paid. 07 July 2022 (16:12) SUBCO wrote to confirm it was having difficulties fulfilling order: “Furthermore, due to the level of orders in hand at present plus the shortage of materials required and the day to day price increases, we regret to inform you that we are unable to meet the delivery date so we cannot pursue this Project any further. Please forward your Bank details and your deposit will be returned straight away.”

Repudiation – Worked example Date Event 07 July 2022 (16:25) Response issued to SUBCO: “You made an offer, we accepted, we appointed your company with a PO, you accepted and asked for a substantial deposit which we agreed to and paid. You are legally obligated to carry out these works. I tried calling you but was unable to get through. Please call me immediately to discuss.” 07 July 2022 Telephone call between the parties. 07 July 2022 (16:59) Follow up email issued to SUBCO: “For clarity, you have informed me by telephone that you are not carrying out these works regardless of any appointment or deposit. Please return the full deposit of €50,000 immediately into our account.”

Repudiation – Worked example • SUBCO stating it cannot perform • Anticipatory repudiatory breach • A breach of a term which deprives the innocent party of substantially the whole benefit of the contract e.g. abandonment, renunciation etc • Asking for return of deposit • Acceptance of repudiatory breach • Clear and unequivocal communication that the innocent party has elected to accept the repudiation and to treat the contract as at an end • Repudiatory breach + acceptance = termination • Repudiatory damages – replacement now costs €110k?

Contractual Termination • Destroying a contract by the same manner in which it was created • This can happen in one of two ways: • By a subsequent binding contract between the parties (mutual termination agreement); or • By operation of a term in the original contract

Mutual termination agreement Foresight needed Careful drafting needed A new contract, which mutually waives the terms of the other Agreement? Intention? Consideration? Ronaldo leaves by “mutual agreement”

Operation of contract term • Almost all construction contracts have termination clauses • Think of these as “agreed circumstances” • Normally three categories Default Insolvency “At will” / “for convenience”

Operation of contract term • Most termination clauses have detailed notice requirements • For example – RIAI • If Contractor defaults in one of the specified ways – clause 33(a) • Then Employer must • Notify default by registered post or by letter delivered to the Contractor specifying default • Wait 10 working days • If default continues, then issue second notice If you get any of this wrong, then it could be a repudiatory breach

Key take aways • When faced with non-payment issues: • Be bloody careful when it comes to suspending • Avoid repudiatory breach • Try to get contract term for suspension damages • Consider adjudication • If push comes to shove: • Priority 1 – Work together to mutually end the contract • Priority 2 – Exercise termination rights • Priority 3 – Consider doctrine of repudiation

Recap • Understand the law: • Suspension • Termination • Contingences for a possible recession • All of this… with real life examples!