Breach of contract notices
Many construction contracts specify that notices must be given or actions taken at a certain point in time. For example, contracts often require notice of breaches to be given and a certain number of days to pass before they can be terminated. This is to give the contractor or sub-contractor the opportunity to correct those breaches and avoid termination.
A recent case gives clarity as to when those notice periods expire and a warning of the significant dangers of getting it wrong. Most arguments are about notices being too late, but in this case, it was claimed that they were too early!
Bellis v Sky House Construction Limited
Mr Andrew Bellis entered into a JCT Minor Works Building Contract 2016 Edition with Sky House, for the construction of an extension to his property. It contained a two stage termination mechanism which is used in several of the JCT contracts:
- If the Contractor was in breach of various provisions, then the Architect/Contract Administrator could give a notice specifying the breach (or breaches where there is more than one);
- If the Contractor continued any such breach for seven days from receipt of that notice, Mr Bellis could “on, or within 10 days from, the expiry of that seven day period” give a second notice to terminate Sky House’s employment under the Contract.
Mr Bellis was unhappy with Sky House’s performance and by email on 1 September at 5.52pm, he gave the first notice, stating that he would terminate if various points were not addressed by Wednesday 8 September.
At 7.20am on Wednesday 8 September, Mr Bellis gave the second notice by email, terminating the contract.
Mr Bellis argued that his second notice was given at the correct time while Sky House argued that it was given early and was therefore invalid. The parties adjudicated. After the adjudicator gave his decision, the court was asked to reach a different decision.
The court’s finding
Sky House relied on clause 1.4, which also appears in a similar form in several other JCT contracts, and states:
“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.”
Sky House argued that if the first notice was given on 1 September, then day 1 (of 7) was 2 September, so 8 September was day 7, meaning that the first day the second notice could be given was 9 September. Accordingly, the second notice was given too soon and was invalid.
Mr Bellis argued that a strict interpretation of the wording of clause 1.4 meant that giving a warning notice was not a ‘specified date’ so clause 1.4 did not apply.
The court agreed with Sky House, finding that:
- The purpose of the clause requiring seven days’ notice of a breach is that the contractor has seven days to put right the breach.
- That is a short and potentially critical period (particularly if the breach is “extensive”).
- The contract should be read so as not to reduce the already short period and also so as to give both parties certainty as to how long the contractor has to act, and when the employer’s right to terminate will arise.
- In light of the importance of ensuring that the contractor has a full seven days in which to address the issues identified in a warning notice, the termination clause required a period of seven clear days, ending at midnight on 8 September 2021.
- The earliest date the second notice could have been validly given was therefore 9 September.
- As the second notice was given on 8 September it was too early, so it was invalid.
The big picture – why is this important?
The court proceedings were under the expedited ‘Part 8’ procedure, so the court was only tasked with deciding some technical points like the one identified above, rather than the whole dispute between the parties.
However, the bigger picture is that a party which wrongfully terminates is likely to be in repudiatory breach of contract itself, entitling the other party to damages.
This means that even if Mr Bellis had been perfectly correct about his complaints about Sky House’s breaches, Sky House is likely to have had a claim for damages for wrongful termination because of the technical failure on the timing of the relevant notices. Such a claim would normally include (among other things) its loss of overhead and profit on the remaining work. This could tip the overall position from Sky House owing Mr Bellis money, to the other way around.
Had Mr Bellis given the notice a day later, Sky House would not have had any entitlement to such a claim (assuming that Mr Bellis’ complaints about the breaches were correct).
Practical advice
There are various practical issues falling out of this judgment:
- Make sure that notices are given strictly in accordance with the terms of the contract – too early or too late can have serious consequences.
- Terms about when, how and who notice is to be given must also be followed.
- Be especially careful when counting numbers of days. Be alert to any provision which requires ‘clear’ days. For example, notices of suspension of work must be operated in the same way (i.e. if 7 days’ notice of intention to suspend was given on 1 September, the first day the Contractor could suspend would be 9 September).
- It is usually prudent for the party giving a notice to take a cautious approach, but where termination is concerned, be aware that this gives more time for the breaches specified in the first notice to be rectified. If they have been rectified, then the further notice cannot be given.
How CCC can help you
Whether you are considering terminating a contract, you have received a notice of intention to terminate, or your contract has already been terminated, CCC has considerable experience in assisting parties in these situations and can provide the advice and support that you need, including:
- Providing advice to help you make sure that you are taking the right steps at the right time.
- Drafting termination notices or drafting responses to termination notices.
- Helping parties quantify their claims following termination.
- Assisting parties with dispute resolution following termination.
We can also provide assistance and advice in relation to other notifications required under your contract and the procedures that need to be followed to avoid technical faults, such as timing notices correctly so as not to result in a loss of entitlement – or even worse – liability for a claim against you.
