Kept in suspense? Some thoughts on termination under JCT

Current events are stress-testing construction contracts, in ways which their authors could never have foreseen. Unsurprisingly, that includes termination provisions – including those in the JCT forms. One recent client query certainly gave me pause for thought: if the client issued an instruction to suspend the works because of Covid-19, could the contractor eventually become entitled to terminate its employment under the contract?

My gut feel was "yes". But well knowing the dangers of relying on my memory, I reached for a copy of the JCT Design and Build Contract (DB). But instead of clear confirmation, I was left guessing – and wondering why the DB termination provisions differ, in one respect,  from those in its stablemate, the Standard Building Contract (SBC).

What the contracts say

Both DB and SBC permit an instruction to be issued on behalf of the employer, suspending the works (clause 3.10 and clause 3.15, respectively). Naturally, such an instruction entitles the contractor to an extension of time and the payment of loss and expense. Further, both forms state that if:

• a suspension of the whole (or substantially the whole) of the works lasts continuously for a specified minimum period (the JCT default is two months); and
• the contractor has notified the employer of this event, with suspension continuing for 14 days from receipt of the notice,

the contractor may issue a termination notice. (The relevant conditions in each of DB and SBC are clauses 8.9.2 and 8.9.3.)

So far, so similar. But I was then slightly taken aback by something buried in the small print. Clause 8.9.2 in the SBC specifically refers to suspension instructed under clause 3.15 as an event which may trigger termination. By contrast, DB doesn't mention clause 3.10: instead – mirroring other wording in clause 8.9.2 of SBC – it simply describes the suspension event as one arising "by reason of any impediment, prevention or default" by the Employer.

Same outcome by a different route?

What is the reason for the difference and does it ultimately matter? It is surprising, because in all other respects the termination provisions in DB and SBC are practically identical. There's no obvious explanation – certainly, nothing dictated by the different procurement routes for which the forms cater. So it may be a drafting oversight on JCT's part, not a deliberate choice. Why would suspension without end, with no right to terminate, be thought palatable under one contract, but not the other? (There is one slight qualification to this general statement: where the employer's suspension instruction is due to a statutory undertaker's negligence or default – clause 8.11.2 in each of DB and SBC. I've yet to hear of a termination on that ground.)

Whether or not inadvertent, I wonder whether a tribunal reviewing DB clause 8.9.2 would give the divergence much weight. In fact, I suspect it would look for ways to read the contract to arrive at a "fair" or "common sense" outcome, allowing the contractor to terminate for an instructed prolonged suspension. The language of clause 8.9.2 itself may well be supple enough to support that outcome. A suspension instruction given by the employer under clause 3.10 of DB can hardly be a "default" – after all, it's a thing permitted by the contract. But could it be an "impediment" or "prevention" on the employer's part?

I'm inclined to think so. The dictionary definitions of impediment and prevention overlap: the sense is of something that, to some extent, stops something else from occurring.  It may be that the two terms are to be read generously together, with it being unnecessary or artificial to hold that an employer's suspension instruction is definitively only one thing or the other. This would accord with their normal usage. If so, "impediment or prevention" would seem, naturally enough, to cover an employer's suspension instruction. This would avoid the unattractive conclusion that an employer may unilaterally and indefinitely extend the period of a contractor's performance, but with the contractor given no mechanism by which it can exit what has become a very different bargain.

What else does the Design and Build contract say?

This broad approach derives some support from very similar language used in the prevention "sweeper" in clause 2.26.6 of DB. This relevant event entitles the contractor to an extension of time for anything that the employer does or does not do which delays the works from being completed by their completion date.

It is well understood that this wording is to be given a generous meaning. This is to ensure that the extension of time mechanism applies to all situations where the employer – one way or another –somehow causes the contractor to be in delay. The risk otherwise – according to the time-honoured conventional view – is that a delay for which the employer is responsible might set time at large, with the consequence that any delay liquidated damages cease to be recoverable.

There is, however, an issue with this approach. Clause 2.26 of DB specifically provides that an employer's instruction under clause 3.10 is a ground for extension of time (clause 2.26.2.2). So the wording of clause 2.26.6 clearly does not cover instructions postponing work: that is dealt with separately. That said, if clause 2.26.2.2 were deleted, there would seem (for the reasons just given) to be a strong argument for interpreting clause 2.26.6 to cover the deficiency. The policy behind including clause 2.26.6 argues for it to be given a wide meaning.

Suspended judgment?

So there are good grounds for saying that the difference between DB and SBC, in relation to this termination point, is one of form rather than substance. But it is a little mystery why the point has been left hanging – suspended, even – in the air. Perhaps the loose end will be tied up in the next edition of JCT.