Case Spotlight: Premature Termination Notices under JCT Contracts

Scenario: You, a Contractor, entered into a JCT Minor Works Building Contract 2016 (the "Contract") with an Employer. The Employer believes that you are in breach of the Contract and serves a "warning notice" in accordance with Clause 6.4.1 of the Contract, on 17 July 2023, specifying your defaults.

The provisions of Clause 6.4.2 of the Contract state that you have 7 days to remedy these breaches, or the Employer may, "on or within 10 days from expiry of the 7-day period", serve a notice terminating the Contract (the "termination notice"). The Employer serves said notice on 24 July 2023.

You don't believe that the relevant 7-day period has expired and so begin to wonder if the Contract was legally terminated.

According to the recent case, Bellis v Sky House Construction Ltd, it was not.

The Case

Apart from the dates, the situation described above is identical to that in Bellis v Sky House Construction Ltd.

Bellis, the Claimant, raised proceedings in the TCC against Sky House, the Defendant, to dispute the decision of the adjudicator that the Contract was not legally terminated by the Claimant. The Claimant, in this case, served a "warning notice" on Wednesday, 1 September 2021 at 5:52 pm, and following the failure of the Defendant to remedy the relevant breaches, served a "termination notice" on Wednesday, 8 September 2021 at 7:20 am.

The Defendant argued at adjudication that the JCT standard form requires that the calculation of timescales specified within the Contract is based on a "clear days" approach, effectively excluding the day an event occurs from the calculation. Therefore, the earliest date that the termination notice could have been served was on Thursday 9 September 2021. The Defendant argued that Clause 1.4 of the Contract provided for this approach:

"1.4 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."

The TCC Judge accepted this argument for the following reasons:

• Clause 1.4 reflects the standard approach to calculating time periods for legal documents and court procedure, which is counted by "clear days". As an example, he takes Clause 2.8 of the Civil Procedure Rules which defines this method as applicable to all civil procedure in England.
• A commercial approach should be taken to the words "an act is required" at clause 1.4. Clauses 6.4.1 and 6.4.2 do not strictly specify that upon the issue of a warning notice the Contractor must "act" and rectify the relevant breaches. Failure to carry out this act would not in and of itself constitute a breach of Contract by the Contractor; instead, the effect of the provision is to give the Employer the right to terminate (following the issue of the warning notice and the expiry of the relevant time period). Nonetheless, it is commercially sensible to interpret the rectification of the defaults as "an act [which] is required to be done" to which clause 1.4 is applicable, given that that the Contractor must act in order to avoid the termination of the Contract.
• The alternative method of calculation, by non-clear days, would give effect to a very onerous provision against the Contractor. The Judge highlighted that breaches of a construction contract can be extensive and/or critical. In such instances, 7 days may already be a very short period to allow for rectification. In his opinion, to provide the Contractor with less than the stated short period would create a provision which is too onerous as well as inconsistent with the key objective of the clause, which is to allow an opportunity for rectification. This would indeed be the case in Bellis v Sky House, where the Contractor would have only had a "fraction over six days" to comply with the notice had the clear day rule at clause 1.4 not been applied.

Takeaways:

An equivalent of clause 1.4 is found in most JCT standard form contracts so the decision in Bellis v Sky House is important in clarifying how it should be interpreted and how it applies to other provisions of the JCT contract.

In Bellis it was confirmed that a commercial (and so, in this case, a relatively wide) approach should be taken to the application of the provision. As a result, it is likely that the "clear day" principle will apply to most timescales specified within the JCT standard form. The Court's comments around the "clear day" approach constituting the "standard approach" may also indicate that the Courts will be inclined to adopt this approach to timescales stated within other contracts.

Nonetheless, given the limited scope of this judgement to the JCT termination provisions, an abundance of caution should be taken by all parties when complying with timescales within a construction contract.

From a Contractor's perspective, it is prudent to take a conservative approach to timescales and complete any act required under a provision well within the relevant period.

Conversely, in circumstances where a Contractor is allowed a particular period of notice before the Employer can take further action (as in Bellis), the Employer will want to take a more lenient approach and at the very least ensure that the relevant number of clear days has elapsed before taking any subsequent action, in order to ensure that its subsequent action is in compliance with the Contract.

Finally, in addition to their own responsibilities, parties will also want to ensure that they are familiar with the notice provisions that their counterparties are required to comply with, not only in respect of timescales, but also in respect of method of service (e.g., by hand or recorded delivery). This will help to ensure that any defence or argument around notification can be immediately recognised and raised.