November 14, 2022
Terminating a contract is a serious step and if it is a decision you are thinking of taking, it must be considered carefully and methodically to ensure it is done correctly. If you terminate a contract incorrectly, you may be considered to have repudiated the contract, meaning you no longer intend to perform your obligations under the contract. Wrongful repudiation of a contract may mean that you will not be able to claim damages from the other party upon termination of the contract.
There are a number of ways in which you can terminate a construction contract. This article series will explore the different ways (you may terminate) including:
- substantial breach;
- repudiation;
- frustration; and
- agreement & convenience.
Substantial Breach
In building and construction contracts, a party may have an avenue to terminate the contract if the other party commits a substantial breach of the contract. This concept is typically found in the Australian Standard Form Contracts suite and the Queensland Department of Transport and Main Roads TIC-CO contract. It is important to remember that not all breaches of contract terms will provide you with the right to terminate. A substantial breach is a breach that is considered serious in nature and is typically defined within the contract terms.
Some contracts provide that a substantial breach by a Contractor may include:
- failing to provide security;
- failing to provide evidence of insurance;
- failing to use materials or standard of work required by the contract;
- substantial departure from the construction program; and
- failing to undertake work with due expedition and without delay.
Examples of a substantial breach by a Principal may include:
- failing to make a payment which is due and payable;
- failing to give adequate possession of site;
- failing to provide evidence of insurance; and
- failing to provide a certificate of practical completion.
If the other party does commit a substantial breach, then you should follow the process provided in the contract to ensure valid termination of the contract remains an option. Generally, this may require you to provide the party in breach a written notice to show cause before providing a notice to terminate the contract.
Show Cause Notice
A show cause notice is typically a written document which is sent to the breaching party that:
- provides details of the alleged substantial breach;
- requires the breaching party to show cause in writing why a substantial breach has not been committed and the contract should not be terminated;
- specifies a time and date by which the breaching party must show cause; and
- specifies a place at which cause must be shown.
Providing a show cause notice allows the breaching party to respond and defend itself as well as provide the party the opportunity to remedy the breach. Failing to issue a show cause notice prior to providing a notice to terminate the contract may mean your contract cannot be validly terminated.
If you are sent a show cause notice, it is important you provide a response by the timeframes specified. Your response should include reasons why the other party should not exercise its right to terminate the contract and may include a plan to rectify the breach.
If the party in breach fails to respond to the show cause notice, does not provide reasonable cause as to why the contract should not be terminated, or does not remedy the breach, then you may be able to terminate the contract by written notice.
Lamont Project and Construction Lawyers have the industry knowledge and experience to assist both Principals and Contractors in the construction industry. If you would like to discuss any of the matters raised in the above article as it relates to your specific circumstance, please contact Lamont Project & Construction Lawyers.
The content of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Vanessa George
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