FEATURE
INCORPORATING COLD CHAIN
TERMINATION OF N/S
SUBCONTRACT
The N/S agreement provides at clause 38.3:
‘The subcontractor may give summary
notice of termination to the contractor in
the event of termination by the contractor
or employer in terms of the principal
agreement.’
It would seem that this clause refers to
any termination of the principal building
agreement by the employer or the
contractor on the grounds of the other’s
default. The subcontract specifically and
separately provides:
• At clause 37 for termination by the
employer where the works have been
destroyed; therefore, this is excluded
and dealt with in terms of sub-clauses
of this clause.
• At clause 39 for termination for reasons
associated with vis major 1 and similarly
requires the implementation of the sub-
clauses under this heading.
The minute it comes to the subcontractor’s
attention that either the employer or
contractor has terminated the principal
building agreement on grounds excluding
those provided for at clauses 37 and 39, it
can issue summary notice (without giving
advance notice) of its own immediate
termination of the subcontract. This should
be done immediately as will be seen from
the consequences of termination but also
dependent on the status of payments on
which it could impinge materially.
It is irrelevant to the subcontractor
whether the termination of the principal
contract was proper or not or on what
default it was terminated. To protect its
interests, the subcontractor should obtain
a written document from some source
confirming the termination to justify its
actions in terms of clause 38.3.
1.
THERE ARE THREE POSSIBLE
CONSTRAINTS THAT MAY IMPINGE
ON THIS ISSUE:
1. Where the contractor rejects the
termination – one of the legal
options available to the contractor,
if applicable, is to allege that the
employer is repudiating the contract.
Repudiation in such a case means
that the employer is acting contrary
to the terms of the contract. The
relevant facts in such a case are
objective and it is irrelevant whether
the employer did not realise it was
breaching the contract. How this
impinges on the subcontractor is
that the prejudiced party faced
with a repudiation of the contract
has a choice. It can either elect to
accept the repudiation and sue for
breach of contract, which provides
a clear-cut termination in terms
of clause 38.3, or it can elect to
demand specific performance i.e.
try to force the employer to abide by
the contract. Where an election to
demand specific performance from
the employer leaves a subcontractor
in terms of clause 38.3 becomes
dependent on the facts in each case.
It is probable that the subcontractor
would be entitled to terminate on
the basis of the manifestation of the
employer’s intention to persist with the
termination and argue the question
of the legality of the termination
in dispute resolution forums. The
subcontractor should assess the
balance of prejudice it faces and act
accordingly.
2. Where the subcontractor is in
‘material breach’ of contract and is
therefore precluded from terminating
the subcontract in terms of clause
Because the parties’ obligations are suspended by vis major/casus fortuitus, the right to terminate if the cause of the suspension
continues for too long or arises repeatedly is dependent on each particular circumstance. To overcome this uncertainty, building
contracts generally try to stipulate for an enforceable period after which either party has a right to terminate.
COLD LINK AFRICA •
OCTOBER 2019
38.6. It should be noted that such
breach could probably be argued
and proved after termination if not
already alleged prior thereto. The
question facing such a subcontractor
would probably involve an analysis
of its factual position at the time and
the balance of prejudice it would
suffer. It is submitted that the resultant
prejudice the terminated contractor
could prove in the event of the
subcontractor choosing to terminate
the subcontract could be arguable
and that the subcontractor would
probably find it preferable to terminate
and rely on the benefits available to
it in terms of clause 38.5 and leave
it to the contractor to try to claim
damages. The risk in the latter case
would lie in the contractor’s ability
to recover from the subcontractor’s
security.
3. The potential for the contractor (or
the liquidator) to allege an improper
termination and recover the funds
available from the on-demand JBCC
construction guarantee. This is a very
real risk and the contractual disputes
are not available as a defence to the
obligation of the guarantor to pay
upon receipt of the properly delivered
notices from the contractor.
THE EFFECT OF TERMINATION
Without becoming involved in legal detail,
‘termination’ means broadly that there is
no contract and the terms of the contract
fall away, leaving only the residual
obligations and provisions as provided in
the contract. The terms of the subcontract
agreement have ongoing significance
for purposes of damages claims as the
source of the position that would have
prevailed had the subcontract not been
terminated. The termination clauses
include provisions that guide the process
and determine the rights and obligations
POSSIBLE DRAFT NOTICE
Legal advice should always be sought,
but if an emergency arises, the following
letter may provide some thoughts:
To contractor, principal agent,
responsible specialist agent and
employer:
Dear Sir,
We have been advised that the
employer has terminated the principal
agreement with you in terms of clause
36.0 of the JBCC Principal Building
Agreement for the works. Should this not
be the case we request that you please
respond urgently and advise us of the
correct state of affairs.
In terms of clause 38.3 of our JBCC
N/S Subcontract Agreement with you,
our N/S agreement can be summarily
terminated upon such termination of
the principal agreement and we hereby
give notice to you of our intention to
exercise this right with immediate effect.
We refer you (and by copy hereof
the employer and principal agent)
to the provisions applicable to such
termination at clause 38.5 which we
will start to implement with immediate
effect.
[We place on record that at the time
of termination we had suspended work
on the N/S works as instructed by you in
your mail of …] (If applicable).
We await your confirmation of the
alleged status and of receipt of this
notice by return of mail.
All our rights remain fully reserved.
Regards,
(sign)
www.coldlinkafrica.co.za
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