If you don’t get paid or your client is in breach of contract, can you just stop work? It can be exceeedingly expensive to get this legal issue wrong!
Stop or continue?
Under English law, and assuming there is no express term or statutory provision* which allows suspension:
the innocent party is not… entitled simply to withhold performance of its own obligations, whether such course would be reasonable or not
This was confirmed by a 2022 decision of the High Court – where a contractor on a £153m waste-to-energy plant found itself liable for damages relating to delays and termination caused by its invalid suspension exceeding £117m (Energy).
If your client is in breach of a contractual term, for example failing to provide instructions, not paying your invoices, or preventing you carrying out your obligations, then this will only give rise to a claim for damages, and the innocent party will be obliged to continue its outstanding performance of the contract notwithstanding that breach (Channel Tunnel).
One of the key texts on construction cases (Keating) confirms that there is no general right to suspend work if payment is wrongly withheld. This has been amended for construction contracts – linked the asterisk above – by the s112 of the 1996 Construction Act under which a supplier can suspend for non-payment or late payment (with some qualifications).
If you do choose to stop or suspend work without a right to do so, you may be faced with serious consequences. Abandoning a project or suspending services can be a breach of contract entitling the other to terminate (known as termination for repudiatory breach) and claim damages for your breach.
What should you do?
Before you stop carrying out works, delivering goods or performing services under a contract, check carefully whether you have a right to do so.
If not, you may face a very expensive legal claim.
Cases: Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1992] QB 656; Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd & Ors [2022] EWHC 3275
