The starting point is always to consider the express terms of the Consultant’s Appointment. This will frequently set out the parties’ rights to terminate, the procedure to be followed and what payments then become due.
Many Appointments give the Client an express right to terminate on notice even where there may not have been any breach on the part of the Consultant; essentially a termination by the Client for convenience. The reasoning behind such a provision is to ensure that Clients are able to terminate Appointments should, for example, they fail to secure planning permission or funding in respect of the project. Typically a party appoints its Consultants using either the GC/Works/5 Framework Agreement or, for specific projects, a standard GC/Works/5. These are referred to below as the "Framework Agreement" and the "Standard Agreement" respectively. Accordingly, this ‘answer’ is specifically tailored to these two forms of appointment.
Termination under the Framework Agreement
The Framework Agreement allows both for the termination of individual ‘Orders’ and the Agreement itself. Condition 1.49(2) provides that:-
By giving a minimum of 14 Days notice to the Consultant the Employer may cancel the whole or part of the Consultant’s Services in respect of any one Order or number of Orders…
It is also possible to terminate the Agreement. Condition 1.50(1) provides that:-
The Employer shall have power to determine the employment of the Consultant under the Appointment:
- at any time and for any reason, or
- as a consequence of any breach by the Consultant
Termination under the Standard Agreement
The ability to terminate is addressed in Condition 50 which provides that:-
The Employer shall have power to determine the employment of the Consultant under the Appointment at any time and for any reason or as a consequence of any breach by the Consultant. The Employer shall determine by giving notice to the Consultant and upon receipt by the Consultant of the notice of determination, the employment of the Consultant under the Appointment shall be determined but without prejudice to the rights of the parties accrued to the date of determination and to the operation of the provisions referred to in Condition 42 (Payment following termination).
Do the words mean what they say?
On a literal reading of the termination provisions it would seem clear that the client under both agreements has complete freedom to terminate either for any reason or for any breach by the consultant. Unfortunately, the situation is not quite as straightforward as it first appears.
Turning first to the use of the termination for convenience clauses. There is very little English case law on the subject but decisions in both the United States and some Commonwealth jurisdictions have established some guidelines which could be persuasive should the issue arise in the English courts.
It seems the client’s motive is important in deciding whether a termination for convenience clause will be effective. In the American case of Troncello v U.S. (1982) such a clause was held to be ineffective where the U.S. Government had invoked the termination for convenience clause simply to secure a more attractive price elsewhere. This is arguably no different to an Employer omitting part of a Contractor’s works only to have those works performed by others. In the absence of very clear words in the contract to the contrary such conduct by an Employer will constitute a breach of contract.
A termination for convenience clause has to be read in the light of the duty of good faith clause which appears in both the Framework Agreement and the Standard Agreement. This provides that:-
- The Employer and the Consultant shall deal fairly, in good faith and in mutual co-operation with one another, and the Consultant shall deal fairly, in good faith and in mutual co-operation with all members of the Project team
- Both parties accept that a co-operative and open relationship is needed for success, and that teamwork will achieve this.
In light of the case law discussed above and the express duty of good faith any attempt by a party to terminate for anything other than a legitimate reason could result in a claim from the Consultant. Hudson’s Building and Engineering Contracts, Eleventh Edition, paragraph 12.017 suggests that such a legitimate reason could be a genuine abandonment of the project by a Client, either permanently or for the time being. It also suggests that it would be reasonable for the Client to do so where the Client is bona fide dissatisfied with a Contractor’s performance but prefers to avoid using a default based termination provision.
It is then necessary to consider the fault based termination provisions. As is noted above, both forms of appointment allow the Client to terminate on the grounds of any breach by the Consultant. The key difference between terminating for convenience and for breach is that in the latter case the Client has the ability to recover the additional costs of engaging another Consultant. Condition 1.42(2) of the Framework Agreement provides that:-
In the event of the Appointment being determined where the Consultant has committed a breach of this Appointment then the Employer will be entitled to engage another consultant to complete those Services which would otherwise have been performed by the Consultant under the terms of this Appointment and to recover from the Consultant any losses or additional costs and expenses which, in the opinion of the Employer, are attributable to such determination and/or the engagement of another consultant. In the event of determination of the Appointment for any reason, the Consultant shall co-operate in the transfer of the Consultant’s Services in accordance with the Employer’s instructions.
On a literal reading a Client appears to be able to terminate for any breach and then to recover the losses referred to in Condition 1.42(2).
Unsurprisingly, the law has sought to restrain the possible abuse by Clients of clauses which provide for termination in the event of any breach. The case of Rice (t/a Garden Guardian) v Great Yarmouth Borough Council concerned a gardener engaged by the local authority on a 4 year term agreement to maintain its sports facilities and its parks and gardens. The contract provided that:-
If the Contractor commits a breach of any of its obligations under the contract, the Council may, without prejudice to any accrued rights or remedies under the Contract, terminate the Contractor’s employment under the Contract by notice in writing having immediate effect.
The Council sought to rely on this clause following a number of alleged breaches on the part of Mr Rice relating to the state of the cricket pitches and bowling greens. The Court considered the two keys issues to arise in the case namely;
- Was the clause entitling termination for any reason effective; and
- Was the accumulation of minor breaches by Mr Rice sufficiently serious to warrant termination?
In relation to the first issue, the Court said that such a term flew in the face of commercial common sense and as such the Council was not entitled to rely on it.
In relation to the second issue, the Court also found in Mr Rice’s favour. Whilst there had been a number of breaches on the part of Mr Rice they were insufficient to deprive the Council of "substantially the whole benefit of its contract".
General principles and practical tips
- Any attempt to terminate a Consultant’s Appointment simply on the grounds of obtaining a more favourable price elsewhere may well be considered to be unreasonable. The grounds for termination should be legitimate.
- It is still possible to use a termination for convenience clause even where the underlying reason may in fact be poor performance on the part of the Consultant but such performance does not constitute a material breach. This is a recognition that some Clients may simply want to avoid the possible conflict of relying on a termination for breach. This does, however, deprive a Client of the express provisions of the contract which may be available on a termination for breach. For example, many building contracts will permit an Employer to use a Contractor’s plant and equipment to complete a project. This is unlikely to be the case where a termination is simply for convenience.
- Clauses allowing Clients to terminate for any breach will be subject to scrutiny. A court will consider the gravity of the breaches and it is not necessarily the case that a series of breaches will give rise to a right to terminate.
- Parties would be well advised to specifically define what breaches they consider to be so serious as to warrant termination of the contract. Whilst this is not a watertight approach it is likely to find more favour with a court than simply treating any breach as grounds for termination.
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