Termination of Contract in United Kingdom

Buyer’s Right to Termination of Contract

Note: see the Vienna Convention on Contracts for the International Sale of Goods 1980.

Statutes

Sale of Goods Act 1979 as amended in 1994 and 1995.

Judicial Decisions

• Afovos Shipping Co. v. Pagnan [1983] 1 W.L.R. 195.
• Agricultores Federados Argentinos v. Ampro S.A [1965] 2 Lloyd’s Rep. 157.
• Alghussein Establishment v. Eton College [1988] 1 W.L.R. 587.
• Arcos, Ltd. v. E.A. Ronaasen & Son [1933] A.C. 470.
• Ashmore & Son v. C.S. Cox & Co. [1899] 1 Q.B. 436.
• Avimex S.A. v. Dewulf & Cie [1979] 2 Lloyd’s Rep. 57.
• Barber v. NWS Bank plc. [1996] 1 All ER 906.
• Behn v. Burness [1863] 3 B. and S. 751 (122 E.R. 281).
• Bentsen v. Taylor, Sons & Co. [1893] 2 Q.B. 274.
• Bernstein v. Pamson Motors (Golders Green) Ltd. [1987] 2 All E.R. 220.
• Bettini v. Gye [1876] 1 Q.B.D. 183.
• Borrowman Phillips & Co. v. Free & Hollis (1878) 4 Q.B.D. 500.
• Bowes v. Shand (1877) 2 App. Cas. 455.
• Bremer Handelsgesellschaft m. b.H. v. C. Mackprang Jnr. [1979] 1 Lloyd’s Rep. 221.
• Bremer Handelsgesellschaft m. b.H. v. J. H. Rayner & Co. Ltd. [1979] 2 Lloyd’s Rep. 216.
• Bremer Handelsgesellschaft m. b.H. v.Vanden Avenne-Izegem P.V.B.A. [1978] 2 Lloyd’s Rep. 109.
• Bunge Corp v. Tradax Export S.A. [1980] 1 Lloyd’s Rep. 294 (C.A.).
• Bunge Corp v. Tradax Export S. A. [1981] 1 W.L.R. 711 (H.L.).
• Car & Universal Finance Co. Ltd. v. Caldwell [1965] 1 Q.B. 525.
• Cehave N.V. v. Bremer Handelsgesellschaft m. b. H. (The Hansa Nord) [1974] 2 Lloyd’s L. R 216.
• Cehave N.V. v. Bremer Handelsgesellschaft m. b. H. (The Hansa Nord) [1976] 1 Q.B. 44.
• Chanter v. Hopkins (1838) 4 M. and W. 399 (150 E.R., 1484).
• Charles Rickards Ltd. v. Oppenhaim [1950] 1 K.B. 616.
• Compagnie Commerciale Sucres Et Denrees v. C. Czarnikow Ltd. (The Naxos) [1989] 2 Lloyd’s Rep. 462.
• Compagnie Commerciale Sucres Et Denrees v. C. Czarnikow Ltd. (The Naxos) [1991] 1 Lloyd’s Rep. 29.
• Decro-Wall International S.A. v. Practitioners in Marketing Ltd. [1971] 1 W.L.R. 361.
• Decro-Wall S.A. v. Marketing Ltd. [1971[ 2 All E R p. 216.
• Denmark Productions Ltd. v. Boscobel Productions Ltd. [1969] 1 Q.B. 699.
• Donaldson J. Warinco A. G. v. Samor S. P. A. [1977] 2 Lloyd’s Rep. 582
• E. E. & Brian Smith (1928), Ltd. v. Wheatsheaf Mills. Ltd. [1939] 2 K.B. 302.
• Federal Commerce & Navigation v. Molena Alpha Inc. (The Nanfri) [1979] AC. 757.
• Gator Shipping Corporation v. Trans-Asiatic Oil Ltd. (The “Odenfeld) [1978] 2 Lloyd’s Rep. p. 357.
• Gertreide Import Gesellschaft mb H v Itoh & Co. (America) Inc. [1979] 1 Lloyd’s Rep. 592.
• Gill & Duffus S.A. v. Berger & Co. Inc. [1984] A.C. 382.
• Gill and Duffus S.A. v. Societe Pour L’ Exportation des Sucres S.A.[1986] 1 Lloyd’s Rep. 322.
• Graanhandel T. Vink B.V. v. European Grain & Shipping Ltd. [1989] 2 Lloyd’s Rep. 531. Grebert-Borgnis v. J. & W. Nugent (1885) 15 Q.B.D. 85.
• Gunton v. Richmond-upon-Thames L.B.C. [1981] ch. p. 448
• H. Parsons (Livestock) Ltd. v. Uttley Ingham & Co. Ltd, [1978] 1 Q.B. 791.
• Hartley v. Hymans [1920] 3 K.B. 475.
• Heron II, The, Koufos v. C. Czarnikow Ltd. (The Heron II) [1969] 1 A.C. 350.
• Heyman v. Darwins Ltd. [1942] A.C. 356.
• Hirji Mulji v. Cheong Yue SS Co. Ltd. [1920] A.C. p. 497.
• Honck v. Muller (1881) 7 Q.B.D. 92.
• HongKong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. [1962] 2 Q.B. 26.
• In Re General Trading Co. & Van Stolk’s Commissiehandel (1910) 16 Com. Cas. 95.
• Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd. [1989] 1 Q.B. 433.
• J. Aron & Co. v. Comptoir Wegimont [1921] 3 K.B. 435.
• Jackson v. Rotax Motor & Cycle Co. [1910] 2 K.B. 937.
• James Finlay and Co. Ltd. v. N. V. Kwik Hoo Tong Handel Maatschappij [1929] 1 K.B. 400 (AC).
• Johnson v. Agnew [1980] A.C. 367.
• Joseph Constantine SS. Line Ltd. v. Imperial Licensing Corp. Ltd. [1942] A.C. 154.
• Kanchenjunga, The. Motor Oil Hellas (Corinth) Refineries S.A. v. Shipping Corpn of India, [1990] 1 Lloyd’s Rep. 391.
• Kwei Tek Chao v. British Traders & Shippers Ltd. [1954] 2 Q.B. 459.
• Lakshmijit v. Faiz Sherani (P.C.) [1974] A.C. 605.
• Longbottom v. Bass Walker [1922] W.N. 245.
• M.S.C. Mediterranean Shipping Co. S.A. v. B.R.E-Metro Ltd. [1985] 2 Lloyd’s Rep. 239.
• Manbre Saccharine Co. Ltd. v. Corn Products Co. Ltd. [1919] 1 K.B. 198.
• Maple Flock Co. Ltd. v. Universal Furniture Products (Wembley) Ltd [1934] 1 K.B. 148.
• Mardorf Peach & Co. v. Attica Sea Carriers Corp. of Liberia (The Laconia) [1977] A. C. 850
• Maredelanto Compania Naviera SA v. Bergbau-Handel G m b H (The Mihalis Angelos) [1971] 1 Q.B. 164.
• Martindale v. Smith (1841) 1 Q.B. 389 (113 E. R. 1181).
• McDougall v. Aeromarine of Emsworth Ltd [1958] 3 All E.R. 431, and 1 W. L. R. 1126.
• Mersey Steel & Iron Co. v. Naylor, Benzon & Co. (1884) 9 App. Cas, 434.
• Millar’s Karri and Jarrah Co. v. Weddel [1909] 100 L.T. 128.
• Moschi v. Lep Air Services Ltd. [1973] A.C. 331 (H.L.).
• Panchaud Freres S.A. v. Etablissements General Grain Co. [1970] 1 Lloyd’s Rep. 53.
• Payzu Ltd. v. Saunders [1919] 2 K.B. 581.
• Peyman v. Lanjani [1985] Ch. 457.
• Photo Production Ltd. v. Securicor Transport Ltd [1980] 1 All E R p. 556
• Photo Production v. Securicor Transport [1980] A.C. 827.
• Playa Larga, The. Empresa Exportadora de Azucar v. Industria Azucareva Nacional S.A. (The “Playa Larga” and Marble Islands) [1983] 2 Lloyd’s Rep. 171.
• Raineri v. Miles [1981] A.C. 1050.
• Reardon Smith Line v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989.
• Regent OHG Aisenstadt und Barig v. Francesco of Jermyn Street Ltd. [1981] 3 All ER 327.
• Reuter, Hufeland, & Co. v. Sala & Co. (1879) 4 C.P.D. 239.
• Robert A. Munro & Co. Ltd. v. Meyer [1930] 2 K.B. 312.
• S.I.A.T. Didal Ferro v. Tradax Overseas S.A [1980] 1 Lloyd’s Rep. 53.
• State Trading Corp. of India Ltd. v. M. Golodetz Ltd. [1989] 2 Lloyd’s Rep. 277.
• Steedman v. Drinkle [1916] A.C. 275.
• Suisse Atlantique Societe d’Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1967] A.C. 361.
• Suzuki & Co. v. Burgett & Newsman (1922) 10 Ll. L.R. 223.
• Tamvaco v. Lucas (no. 1) [1859] 1 E & E 581 (120 E.R. 1027).
• Taylor v. Oakes, Roncoroni & Co. (1922) 38 T.L.R. 349 (HL).
• Tetley v. Shand (1871) 25 L.T. 658.
• Thomas Borthwick (Glasgow) Ltd. v. Bunge & Co Ltd.[1969]1 Lloyd’s Rep. 17.
• Tools Sales Ltd. v. Schuler A. G. [1974] AC 235.
• Tradax Export S.A. European Grain & Shipping Ltd. [1983] 2 Lloyd’s Rep. 100.
• Tradax Internacional S.A. v.Goldschmidt S.A. [1977] 2 Lloyd’s Rep. 604.
• United Australia Ltd. v. Barclays Bank Ltd. [1941] A.C. 1.
• United Scientific Holdings Ltd. v. Burnley Borough Council[1978] A.C. 904.
• Universal Cargo Carriers Corp. v. Citati [1957] 2 Q. B. 401.
• Varley v. Whipp [1900] 1 Q.B. 513.
• Vitol SA v Norelf Ltd., The Santa Clara [1994] 4 All E R 109.
• Wallis, Son & Wells v. Pratt & Haynes[1910] 2 K.B. 1003 (C.A.).
• Warinco A. G. v. Samor S. p. A. [1977] 2 Lloyd’s Rep. 582.
• Wickman Machine Tools Sales Ltd v. Schuler A.G. [1972] 1 W.L.R. 840.
• Wickman Machine Tools Sales Ltd v. Schuler A.G. [1974] A.C. 235.

Termination of Construction Contract

An architect (or the person who administer the contract) who certifies more than the amount properly due to the contractor is negligent and in breach of the contractual obligations to the employer by which the architect undertook to administer the contract. All the standard forms of contract permit the architect to certify only those amounts properly due. Because payment certificates are cumulative, the architect should be able to retrieve the situation in the next certificate. Obviously, that would not be the case if the employer terminated, the contractor went into liquidation, or the certificate in which the over-certification took place was the one issued after practical completion. Interim certificates are not intended to be precisely accurate. It has been well said that they are essentially a means by which the contractor is assured of some cash flow that roughly approximates to the work carried out.1

It is doubtful whether the employer would have grounds to terminate the contractor’s employment simply because the contractor was running over time. Under JCT contracts, the architect would have to be satisfied that the contractor was failing to proceed regularly and diligently. However, for the sake of this question let us suppose that there are adequate grounds to terminate. The architect will be obliged to confirm that to the employer. Then the architect has no option but to inform the employer that there has been some over-certification and that it would be better to wait until the work on site has caught up with the amount certified. How long that will be will depend on the degree of over-certification and the rate at which the contractor is currently working.

Of course, the employer can always go through the termination procedure and then reclaim the over-certified amount, together with any other balance due, after the Works have been completed by others. In doing so, however, the employer would have to challenge the architect’s certificate, probably in adjudication. This would be an additional cost which, if the adjudicator found in favour of the employer, the employer would assuredly try to recover from the architect.

In practice, instances of over-certification tend to be unusual and concern relatively small amounts, usually as a result of the valuation of defective work. It is the architect’s responsibility to notify the quantity surveyor of all defects so that they will not be valued. In any event, certification is entirely the province and responsibility of the architect.2 That is why architects should not simply accept valuations from quantity surveyors and blindly transfer the valuation figures to the certificate; they should ask for a simple breakdown of the valuation. It is not the architect’s job to do the valuation again, but the architect should have enough information to be satisfied that the valuation looks about right.

Termination under SBC due to the contractor’s insolvency: the issue of full payment

Termination due to the contractor’s insolvency is covered by clause 8.5 of SBC. The employer may terminate at any time by written notice. The interesting point is that under clause 8.5.3.1, the provisions of the contract that require any further payment or release of retention cease to apply as soon as the contractor becomes insolvent, even if no written notice has been given by the employer.

That means that although the employer may be slow in taking action to terminate the contractor’s employment, the employer’s duty to pay is at an end except as set out in clauses 8.7.4, 8.7.5 and 8.8. It should be noted, however, that there is no longer any provision for automatic termination.

These clauses stipulate that an account must be drawn up of whatever balance may be due from employer to contractor, or vice versa as the case may be, after taking into account all the costs of finishing off, including any direct loss or damage caused to the employer by the termination. This must be done within a reasonable time after completion of the Works by another contractor and the making good of defects. If the employer decides not to complete the Works using another contractor, a statement of account must be drawn up and sent to the original contractor after the expiry of six months from termination.

It is not unknown for liquidators to threaten employers with proceedings, either directly or more usually through the services of specialist insolvency surveyors, if payment of all money is not made immediately. This contract now makes clear that the normal payment provisions are at an end. Therefore, if a certificate has already been issued, the employer no longer has any obligation to pay the sum certified. If a certificate is due, the architect no longer has a duty to certify. The employer or the architect should respond to the liquidator or the surveyor, referring to the contract clause as the reason why no further payment will be made until the final statement of account is prepared.

In these circumstances, the employer will often have delayed payment of a certificate because it is suspected that the contractor is about to become insolvent. Indeed, the employer’s failure to pay and the failure of others may be the very reason why the contractor eventually becomes insolvent. Therefore, at the date of insolvency, not only is a certified amount outstanding, but it may have been outstanding for a considerable time. Is the employer bound to pay such a sum on the basis that the employer cannot take advantage of its own breach of contract (failing to pay a certified amount on time)? The answer to the question seems to be that the employer is bound to pay monies that were outstanding at the date of the insolvency. The use of the words ‘which require further payment’ appears to support that view, because a payment that is overdue is not a ‘further payment’, but rather a payment that ought to have been made already. The point is not beyond doubt, and in practice the courts may be reluctant to order such payment when there is no realistic chance of it being recovered later because the cost of completion of the Works may prove to be more than the cash still retained by the employer.

Tenders to complete the Works

It is commonly assumed that it is necessary to invite three tenders and to accept the lowest tenderer when having work carried out in cases where the cost will be reclaimed. In the best of all possible worlds, that is indeed sound practice. However, circumstances do alter that assumption. It must not be forgotten that where an employer has terminated the contractor’s engagement, the reason why the employer is in the position of having to get the work done by another contractor is because the first contractor was in default or perhaps became insolvent. That consideration will always be a factor for a court.

There are many instances where the kind of work to be remedied requires a particular kind of specialist or is so fragmented and of so many varied trades that it is impractical to seek tenders and it is more important to ensure that the work is competently carried out. In the case of West v Ian Finlay & Associates,3 the issue was remedial work, but since the cost of the work was part of the damages which the Wests claimed from the architect, the principle is the same. Three of the contractors on the original list declined to tender for the remedial work. Two of the original contractors agreed to tender, and another contractor was added to the list. Following tendering, two contractors were about £100,000 lower than the third contractor. Then one of the two lowest withdrew its tender, leaving just two contractors. Various aspects of the lowest tenderer caused concern and investigations were carried out. As a result, it was decided that the higher of the tenderers should be accepted. This decision was questioned by the architect, who argued that it was the lowest tender which should be considered when damages were awarded.

The court went through the facts surrounding the acceptance of the tender and concluded that the Wests had done everything reasonable to obtain the best tender in a difficult tendering climate. In this case, several firms would not touch the job, and the Wests were faced with engaging a contractor and proceeding as quickly as possible or engaging in a very protracted negotiation and possibly re-tendering.

Architects are often in the position of having to engage others to complete work or defects on behalf of the employer, and they should not unduly agonise about competitive tendering if it is not really practicable in all the circumstances.

Source: David Chappell, Construction Contracts: Questions and Answers, July 2010

Resources

Further Reading

• Adams, J., Waiver Redistributed, 36 Conv. (NS), (1972) 245.
• Ahdar, R. J., Seller Cure in the Sale of Goods, L.M.C.L.Q., [1990] 364.
• Albery, M., Mr. Cyprian William’s Great Heresy 91 L.Q.R. (1975) 337.
• Apps, A., The Right to Cure Defective Performance L.M.C.L.Q. [1994] 525.
• Atiyah, P.S., The Law of Contract, [1989] 4th ed.
• Atiyah, P.S., The Sale of Goods, [1990] 8th ed.
• Atiyah, P. S. & Adams, J., The Sale of Goods, (Pitman Publishing, London, 1995, 9th ed.).
• Beale, H., Remedies for Breach of Contract, (Sweet & Maxwell, London, 1980).
• Beale, Bishop and Furmston: Contract: Cases and Materials, (Butterworths, London, 1995 3rd ed.).
• Bradgate and White in: Birds, Bradgate and Villiers: Termination of Contract, (Wiley Chancery, London, 1995).
• Bradgate, R., Commercial Law, (Butterworths, London, 1995 2nd ed.).
• Bridge, M., Discharge for Breach of the Contract of Sale of Goods, 28 McGill L.J. (1983) 868.
• Bridge, M., Sale of Goods, (Butterworths, Toronto, 1988).
• Bridge, M., The Sale of Goods, (Clarendon Press, Oxford, 1997).
• Brownsword, R., Retrieving Reasons, Retrieving Rationality? A New Look at the Right to Withdraw for Breach of Contract, 5 J. C. L. (1992) 83.
• Carter, J.W., Hodgekiss, C., Conditions and Warranties: Forebears and Descendants, 7 Syd. L.R. (1977) 31.
• Carter, J.W., Classification of Contractual Terms: the New Orthodoxy?, 40 C.L.J. (1981) 219.
• Carter, J. W., Breach of Contract, (The Law Book Company Ltd., Australia, 1991 2nd ed.).
• Carter, J. W., Conditions and Conditions Precedent, 4 J.C.L. (No. 2) (1991 A) 90.
• Carter, J. W., Buyer’s Remedies of Rejection and Cancellation under the UCC and the Convention 6 J.C.L. (1993) 93.
• Cheshire Fifoot & Furmston: Law of Contract, (Butterworths, London, 1996 13th ed.).
• Clarke, M., Time and the Essence of Mercantile Contracts: The Law Loses its Way, C.L.J. (1991) 29.
• Coote, B., The Effect of Discharge by Breach on Exception Clauses, C.L.J. (1970) 221.
• Coote, B., The Second Rise and Fall of Fundamental Breach, 55 A.L.J. (1981) 788.
• Corbin, A. L., Conditions in the law of contract, 28 Yale L.J. (1917) 739.
• Davies, I., Commercial Law, (Blackstone Press Ltd., London, 1992).
• Dawson, F., Rescission and Damages, 39 M.L.R. (1976) 214.
• Dawson, F., Metaphors and Anticipatory Breach of Contract 40 C.L.J. (1981) 83.
• Devlin, Lord: Treatment of Breach of Contract, C.L.J. (1966) 192.
• Furmston, M., Sale and Supply of Goods, (Cavendish Publishing Ltd., London, 1995 2nd ed.).
• Goode, R. M., Commercial Law, (Penguin Books, London, 1995, 2nd ed.).
• Guest, A. G., Anson’s Law of Contract, (Clarendon Press, Oxford, 1984, 26th ed.).
• Guest A.G. et all: Chitty on Contracts, (Sweet & Maxwell, London, 1994, 27th ed.) vol. 1.
• Guest A.G. et all: Chitty on Contracts, (Sweet & Maxwell, London, 1994, 27th ed.) vol. 2.
• Guest A.G. et al: Benjamin’s Sale of Goods, (Sweet Maxwell, London, 1997, 5th ed).
• Law Commission: Sale and Supply of Goods (WP No. 85), (Her Majesty’s Stationery Office, London, 1983).
• Law Commission: Sale and Supply of Goods (No. 160), (Her Majesty’s Stationery’s Office, London, 1987).
• Lord Hailsham of St. Marylebone: Halsbury’s Laws of England, (Butterworths, London, 1983 4th ed.) vol. 9.
• Lord Hailsham of St. Marylebone: Halsbury’s Laws of England, (Butterworths, London, 1983 4th ed.) vol. 41.
• McGarvie, R.E., The Common Law Discharge of Contracts upon Breach (Part I), 4 Melb. Univ. L. R. [1963] 254.
• McGarvie, R.E., The Common Law Discharge of Contracts upon Breach (Part II), 4 Melb. Univ. L. R. (1964)305.
• McGarvie, R.E: Contractual Concepts of the Credit Bills 53 A. L. J. (1979) 687.
• Montrose, J. L., Some Problems about Fundamental Terms C.L.J. [1964] 60 and 254.
• Opeskin, B. R., Damages for Breach of Contract Terminated under Express Terms, 106 L.Q.R. (1990) 293.
• Perell, P. M., Putting Together the Puzzle of Time of the Essence, 69 Ca. Bar. Rev. (1990) 417.
• Reynolds, F. M. B., Warranty, Condition and Fundamental Term, 79 L.Q.R. (1963) 534.
• Reynolds, F. M. B., Discharge of Contract by Breach, 92 L.Q.R. (1976) 17.
• Reynolds, F. M. B., Loss of Right to Reject, 104 L.Q.R. (1988) 16.
• Sassoon, David M., C.I.F. and F.O.B. Contracts, (Sweet & Maxwell, London, 1995, 4th ed.).
• Sealy, L.S. & Hooley, R. J. A., Text & Materials in Commercial Law, (Butterworths, London, 1994).
• Shea, A. M., Discharge from Performance by Failure of Condition, 42 M.L.R. (1979) 623.
• Stoljar, S. J., The Contractual Concept of Condition, 69 L.Q.R. (1953) 485.
• Stoljar, S.J., Untimely Performance in the Law of Contract, 71 L.Q.R. (1955) 527.
• Sutton, K.C.T., Sales Warranties under the Sale of Goods Act and UCC, 6 Melb. U.L.R. (1967) 150.
• Thomson, J. M., Effect of Repudiatory Breach, 41 M. L. R. (1978) 137.
• Thornely, J. W. A., Effects of Resale by Unpaid Sellers of Goods – Sale of Goods Act 1893, S. 48, C.L.J. (1967) 168.
• Treitel, G. H., Specific Performance in the Sale of Goods, J.B.L. [1966] 211.
• Treitel, G. H., Remedies for Breach of Contract, (Clarendon Press, Oxford, 1988).
• Treitel, G. H., “Conditions and Conditions precedent, 106 L.Q.R., (1990) 185.
  Treitel, G. H.: The Law of Contract, (Sweet & Maxwell Stevens, London, 1991, 8th ed.).
  Treitel, G. H.: The Law of Contract, (Sweet & Maxwell Stevens, London, 1999, 10th ed.).
  Weir, T.: Contract- The Buyer’s Right to Reject Defective Goods,”” C.L.J. (1976) 33.”