I’m not sure this judge (HHJ Stephen Davies) has a very high opinion of main contractors as he said:
There is plainly evidence that the claimant was struggling with cashflow on this project. The correspondence clearly demonstrates that, like many main contractors, it would use almost every trick in the main contractor’s book of tricks to string out subcontractors in order to improve its cashflow… It is also plain that in relation to a number of subcontractors its tactics backfired, so that subcontractors refused to undertake further works because they had not been paid all that they were entitled. [Emphasis added]
Your fault or my fault?
But whose fault was this cashflow issue?
The main contractor sought to blame the client. The evidence showed the client had paid all applications in full and on time, with the exception of the final payment. The contractor’s final application was responded to with a pay less notice, as allowed under the Construction Acts 1996 and 2009.
The court said:
It is clear that the claimant’s financial problems and, in particular, its inability or unwillingness to pay subcontractors, long preceded this non-payment.
What was the impact of not paying its subcontractors? The client sought to blame the main contractor for failing to proceed regularly and diligently (as required by the contract), partly caused by failing to manage its subcontractor works packages.
The contractor had admitted it was unable and unwilling to complete by the extended completion date, and would only complete at all if it was given unjustified extra time and unlimited extra money.
Ultimately, the client issued a notice of termination to the contractor. The court agreed that the works had been plagued by delays which were almost entirely the [contractor’s] own fault and contractual responsibility.
The court said that even though the client was playing hardball with the final interim application, this did not justify or excuse the contractor refusing to complete the project except as above.
Notice of termination
Although the court agreed that the client had grounds under the contract terms to terminate the contract, it served the notice of termination wrongly so that notice was invalid.
It is sensible to strictly follow the precise letter of the contract when it comes to terminating a contract under express termination procedures.
Not all breaches which entitle a contractual termination are also a breach entitling termination under the English common law. In this case, the contract was effectively terminated for repudiatory breach.
What should you do?
Read and follow all your contract processes – whether it is about when and how often you get paid (so you can keep your cashflow positive), or about how to end the contract.
Ignoring the contract processes will prove unpleasant at best or catastrophic at worst.
Case: Thomas Barnes & Sons Plc v Blackburn with Darwen Borough Council [2022] EWHC 2598