Parts of the contract may be in writing – there may be a specification and an estimate - but important terms, such as completion date and terms of payment, may have been agreed verbally, or may not have been expressly agreed at all, and it may fall to the court, after hearing argument from each side’s barrister to decide what terms should be implied by law. As well as terms which might be implied by the particular circumstances, there can be presumptions which apply. For example where a long and costly piece of work is to be carried out there is a presumption that the contractor is entitled to interim payments as work proceeds even where the Housing Grants, Construction and Regeneration Act 1996 (which gives a statutory right to interim payments in certain circumstances) does not apply.
If the contractor is guilty of a breach of the contract which is so serious that it amounts to a “repudiatory” breach then the employer can bring the contract to an end and claim compensation for loss. Such compensation might include the extra cost of completing the work (over and above the price which the employer had expected to pay under the original contract) and possibly the knock-on effects of delay (such as loss of rental income if the property under construction is to be let).
Likewise if the employer is guilty of repudiatory breach, the contractor can bring the contract to an end and claim the amount due for the partly completed work plus the profit element lost on the uncompleted portion.
If however the employer terminates the contract when the contractor is not in repudiatory breach, that means that he employer is, because of the wrongful termination, itself in repudiatory breach. Similarly if the contractor terminates when the employer was not in repudiatory breach, that means that the contractor is in repudiatory breach. It is important, therefore, to take legal advice before terminating, as a termination which a court later decides is unjustified can be costly. The fact that the other party is in breach of contract does not necessarily justify termination – it depends on how serious the breach is.
The party claiming compensation has to show that their loss was caused by the other party’s breach of contract and the “innocent” party is expected to take reasonable steps to minimise their loss. One issue which may arise if the employer has justifiably terminated the contract is whether the employer should allow the contractor access to rectify defects. This may well be less expensive than a new contractor rectifying defects but on the other hand the employer may have no confidence in the old contractor doing this work. Ultimately the court may have to decide whether a refusal of access is reasonable.
The above explanation of the law is only an overview and in order to be reasonably concise I have had to leave some details out - details which are likely to affect what the law would say about your own situation. So please do not rely on the above but Contact me for advice
This page was lasted updated in August 2016 Disclaimer