Background
Last week, the TCC handed down judgment in the case of Thomas Barnes & Sons PLC (in administration) (“Thomas Barnes”) -v- Blackburn and Darwen Borough Council (the “Council”) EWHC 2598 (TCC), addressing termination under a contract.
The dispute related to a contract for the construction of a bus station in Blackburn (the “Contract”). As explored below, the Council terminated the Contract by way of termination notice (“Termination Notice”) (sent by email and post) for alleged delays on the part of Thomas Barnes as contractor. After Thomas Barnes subsequently entered into liquidation, Thomas Barnes’ administrators brought a claim for wrongful termination including loss and expense, alleging that the (purportedly wrongful) termination caused the insolvency of the contractor.
The judge in the case had a number of different matters to consider and this note looks in particular at some of the Court’s helpful comments surrounding termination notices.
The Termination Notice and Thomas Barnes’ removal from the site
The Termination Notice was first sent by the Council by email, on a Thursday, which is the day that Thomas Barnes was removed from the site.
However, email was not a permitted method for service of notices under clause 1.7.4 of the Contract. As such, the initial Termination Notice by email was invalid and this amounted to a failure to terminate the Contract in accordance with the contractual provisions.
The Termination Notice was also sent by post. The Court found that this was valid service in accordance with the contractual provisions, with deemed service taking effect two business days later on the following Monday.
As a result, the question for the Court to consider was as to whether Thomas Barnes’ removal from site two working days earlier than it could validly have been removed anyway, was conduct which was in all the circumstances repudiatory?
Did an invalid Termination Notice amount to repudiatory breach?
The starting point usually is that if a party wrongfully terminates a contract, that party is itself in repudiatory breach of contract. At paragraph 228, the judgment refers to the standard termination position being that, “A wrongful termination by the employer or its agents normally amounts to repudiation on the part of the employer”.
Here however, the Court held that the two working day early removal from site did not prejudice Thomas Barnes and did not amount to repudiatory conduct that would otherwise entitle Thomas Barnes to terminate at common law.
In reaching its judgment, it was relevant that: the Council was entitled to terminate pursuant to clause 8.4 of the Contract; there was no adverse impact to the contractor (because it could have been removed from site two working days later in any event); the contractor had already ceased all meaningful activity on site; and the contractor knew that termination was justified and that the Council was exercising its right to terminate (paragraphs 228-259 of the judgment).
Interplay of contractual and common law termination
Interestingly, as part of its findings, the Court held that the Council was permitted to:
- contractually terminate the Contract (from the Monday, the date of deemed service of the Termination Notice); and, also,
- accept Thomas Barnes’ repudiatory breach (for delay) so as to terminate under common law (by way of the Termination Notice).
What appeared to influence this decision were the facts that:
- clause 8.3.1 of the Contract (on a JCT standard form) stated that the termination provisions of the Contract are “without prejudice to any other rights and remedies of the employer” i.e. so the contractual termination ground did not prejudice common law rights to terminate; and
- the Termination Notice contained the two positions in the alternative i.e. stating that if the contractual termination was not effective, the notice should be treated as acceptance of Thomas Barnes’ repudiatory breach of contract.
It may also have influenced the Court that, in the circumstances, the consequences of termination contractually mirrored those at common law. The result being that, in either event, the Council’s costs in completing the works through a replacement contractor more than extinguished any claim (in loss and expense) from Thomas Barnes.
Takeaway points
It is clear from this case that an invalid termination notice will not always lead to repudiatory breach. In particular, a distinction may be drawn as to circumstances in which a party has a right to terminate (but fails to issue its notice in a legally effective manner) and circumstances in which a party has no right to terminate (which seems more likely to lead to a repudiatory breach scenario).
In any event, this case is a reminder of the importance of serving notices, in particular termination notices, strictly in accordance with the Contract. The Court made clear here that contractual termination was not valid unless and until notice was deemed to have been served under the Contract.
It is also interesting that the Court found it open to the Council to serve a notice of termination under the contractual termination provisions and, in the alternative, a notice of acceptance of Thomas Barnes’ repudiatory breach.
As an employer, it would be advisable to include termination provisions that are operable ’without prejudice to any other rights and remedies of the employer’ in your own construction contracts. This is to assist to protect your termination rights in full and prevent a situation where you are forced to elect which type of termination (i.e. contractual or under common law) you are relying upon. You may even go further, to specify in your contracts that an invalid termination notice does not constitute an act of repudiation, again to help protect against any attempt to argue that a technical failure could be treated as such.
As always, termination remains a tricky area and if you are in any doubt, please do not hesitate to get in touch.
This article was written by Oliver Macrae and Karen Paley.