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| Words: 4100 | Submitted: 06-Jun-2010
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It is common in construction contracts to find determination clauses allowing either side to bring their contractual obligations to an end should an event specified occur due to the actions or inactions of the other. It would seem that common law determination and determination under a clause of contract are alternatives. There are differences between the processes. First, whereas common law determination depends upon repudiatory conduct or a fundamental breach, the grounds of determination specified by the contract need not exhibit these features, although frequently such will be present. Second, the remedies for common law determination are provided by law, whereas with a contractual determination the clause itself must expressly deal with the issue of remedies. Third, at common law in the face of repudiatory conduct or fundamental breach the innocent party need only indicate to the other that he accepts the breach and considers the contract discharged. Under a contractual determination clause the procedure specified must be carefully followed, failure to so may prevent a successful determination.
The right of forfeiture may be stipulated to accrue either
(1) on the bankruptcy of the contractor only, or
(2) on his bankruptcy and also on the occurrence of other events, or
(3) on the occurrence of other events only
Clause 8.5.1 of the JCT SBC 05 states that if the contractor is insolvent, the employment may at any time by notice to the contractor terminate the contractor’s employment. Similarly Clause 8.10.1 of the JCT SBC 05 states that the employer is insolvent, the contractor may by notice to the employer terminate the Contractor’s employment under the contract.
A provision empowering the employer to forfeit the contract on the bankruptcy of the contractor is introduced into building and engineering contracts for the purpose of preventing a contractor’s trustee in bankruptcy from electing to complete the contract, and such a provision is valid, if it is coupled with a stipulation that the contractor’s contract shall be a personal one; and further, so far as the forfeiture affects the mere licence of the contractor to enter upon the site, it would seem that the revocation of that licence can be conditioned on bankruptcy, as a mere licence does not seem to be included in the definition of property . A trustee, however, would be entitled to enter the site to remove property of the bankrupt in respect of which the employer had no right under the contract
The validity of a right to forfeit on the bankruptcy of the contractor is dependent on the nature of what is stipulated to be forfeited. In addition to bankruptcy, forfeiture is usually conditioned upon the happening of one or more of the following events: 1)not commencing the work 2) not regularly proceeding with the work for a fixed number of days , 3) not proceeding to the satisfaction of the employer or the architect , 4) not proceeding with such despatch as, in the opinion of the architect, will enable the works to be duly completed by the time stipulated, 5) not observing some stipulations of the contract 6) leaving the works in an unfinished state, or 7)failing after proper notice to rectify defective work, 8) not maintaining the works
JCT 05 SBC Clause 8.2 states:
1. Notice of termination of the Contractor’s employment shall not be given unreasonably or vexatiously.
2. Such termination shall take effect on receipt of the relevant notice
3. Each notice referred to in this section shall be given in writing and given by actual, special or recorded delivery. Where given by special or recorded delivery it shall, subject to proof to the contrary, be deemed to have been received on the Second Business Day after the date of posting.
Also Clause 8.3 of the JCT 05 states:
1. The provisions of clauses 8.4 to 8.7 are without prejudice to any other rights and remedies of the Employer. The provisions of clauses 8.9 and 8.10 and (in the case of termination under either of those clauses) the provisions of clauses 8.12, are without prejudice to any other rights and remedies of the contractor.
2. Irrespective of the grounds of termination, the contractor’s employment may at any time be reinstated if and on such terms as the parties may agree
The requirements of the contract must be properly complied with, for the courts construe forfeiture clauses strictly , and a wrongful forfeiture by the employer or his agent normally amounts to a repudiation on the part of the employer . There must be some definite unqualified act showing that the power has been exercised, although writing or other formality is not necessary unless expressly required. The contract may also require a certain notice to be given, and that such notice must set out the default complained of . In appropriate circumstances the notice may be of a general character and need not necessarily refer to the number of the clause which is being invoked, provided that there is no doubt that it is exercising or purporting to exercise the contractual power of determination . But it is obviously preferable to state explicitly the clause relied on and to follow its actual wording as closely as possible. It also seems that if a material statement in such a notice is made recklessly, without an honest belief in its truth, the notice is a nullity. Forfeiture in reliance on such a notice would be ineffective and would normally amount to repudiation by the employer.
When an event occurs which gives rise to the right to forfeit, the power of forfeiture must be exercised within a reasonable time or the employer will be deemed to have waived his right unless the event is a continuing breach of contract. Where the contract provides for termination of the contract by a warning notice followed by a termination and two notices have been served, a party can only rely on that provision if an ordinary commercial businessman can see that that there is a sensible connection between the two notices both in content and in time as seen in the case of Architectural Installation Services v James Gibbon Windows
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