Peter Hastings, Rogers and Norton


Contract Termination

The hazards of terminating a contract on the basis of common law repudiatory breach as opposed to relying on a contractual right of termination is underlined in the case of the Dulux paint manufacturer, Imperial Chemical Industries Ltd (the Employer).

The company engaged Merit Merrell Technology (the Contractor), a specialist engineering piping manufacturer, for the works relating to the construction of a new paint manufacturing facility in Northumberland.

The engagement was made by way of an amended NEC3 standard form (the Contract). The initial contract sum was valued at approximately £1.9 million. Extra works were then instructed at a later date, which the Contractor valued at over £23 million! The dispute arose over the quality of the Contractor’s welding together with the value of the works. On 17 February 2015, the Employer wrote to the Contractor stating it was terminating the Contract on the grounds that the Contractor was in repudiatory breach of the Contract due to its purported defective works and ordered the Contractor to leave site immediately.

MMT responded by disputing both the Employer’s factual and legal grounds for termination.

The court considered two key issues in its judgment:

  1. Whether the Contractor had repudiated the Contract as a result of defective works.
  2. If it had not, whether the Employer’s letter of termination itself represented a repudiatory breach by the Employer.

The Contractor argued that because the Employer had not exercised its contractual rights to terminate the Contract, but had instead relied mistakenly on the Contractor’s supposed repudiatory breach, the Employer’s letter of termination was itself a repudiatory breach. ICI argued that its termination letter was based on both a repudiatory breach and its contractual right thus seeking to avoid being found in repudiatory breach itself.

  • The Contractor had not repudiated the Contract as a result of defective works. Further factual evidence highlighted that the Employer had, in fact, not dismissed the Contractor because of defective works but had been trying to avoid paying the Contractor more money.
  • The termination letter could not be construed as the exercise of the Employer’s contractual right to terminate – it was not drafted as such.
  • In the absence of any repudiatory breach by the Contractor and because the Employer had not terminated under the terms of the Contract, by serving the termination letter the Employer was in fact in repudiatory breach. As a result, the Employer was liable to the Contractor for damages arising from that breach.

ICI tried to terminate on the basis of a repudiatory breach (enabling it to avoid all notices and form requirements under the Contract) but, at the same time, trying to argue that it was a contractual termination in the event that its allegation of repudiatory breach failed. It is essential that the correct notices are followed and all claims for delays and defects are investigated as the issues will be fact based. On occasions, expert evidence should also be obtained.

If you have any concerns or problems relating to issues such as this then do not hesitate to contact Peter and his construction team at ph@rogers-norton.co.uk or 01603 675639.

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