In the recent case of Thomas Barnes & Sons Plc (in administration) v Blackburn with Darwen Borough Council  EWHC 2598 (TCC) the court considered whether a contract for the construction of Blackburn Bus Station had been validly terminated.
Summary of Claim
The claim arose out of an amended JCT standard form of building contract with quantities (2011 edition), as entered into by Thomas Barnes & Sons plc (in administration) (the contractor) and Blackburn with Darwen Borough Council (the employer) in 2014, for the construction of the bus station.
The project was beset by significant delays and cost increases for which the Council blamed Thomas Barnes, leading the Council to terminate the contract for reason of contractor default on 4 June 2015. The Council subsequently appointed a replacement contractor to complete the project.
Thomas Barnes’ administrators brought the claim against the Council, alleging that the Council’s failure to make interim payments in breach of the contract, and its unlawful and repudiatory termination of the contract, caused it to go into administration. The administrators sought sums they claimed were due under the contract as at the date of termination (including loss and expense), and damages for wrongful termination of the contract, being loss of profits for the remainder of the project. The total value of the claim was circa. £1.79 million. In defending the claim, the Council argued that its termination of the contract was lawful and consequent on (amongst other things) Thomas Barnes’ failure to progress the project or properly manage its subcontractor works packages. The Council further asserted its entitlement to recover from Thomas Barnes the sum of £1.87 million, either under the contractual termination provisions or at general law, to account for the cost of employing a replacement contractor, albeit it did not counterclaim for this sum given the administrators’ reports indicated there was no prospect of recovery for Thomas Barnes’ unsecured creditors.
The claim turned on whether the Council validly terminated the contract. If the council could establish that it did, no further sums would be due to Thomas Barnes, because the amount that the Council had to pay to the replacement contractor exceeded the full value of Thomas Barnes’ claim.
Thomas Barnes claimed that the termination was unlawful for the following reasons:
- The delays on the project were the fault of the Council or Capita plc, which had been engaged by the Council to carry out a design and project administration service on the project; and
- The purported termination was not effected in accordance with the contract and therefore itself constituted a repudiatory breach of the contract.
The Court rejected Thomas Barnes’ claim, finding in summary that while Thomas Barnes had established an entitlement to prolongation and consequently delay-related damages (for 27 days beyond the extensions of time already granted under the contract), the Council was entitled to terminate the contract under its termination provisions as a result of Thomas Barnes’ delay-related default, and to accept Thomas Barnes’ delay-related breaches as being repudiatory and treat the contract as discharged at common law.
Reasons for Decision
On the facts, His Honour Judge Stephen Davies found that while Thomas Barnes was entitled to a relatively small extension of time, the majority of the delay on the project was due to its subcontractors refusing to undertake further works because they had not been paid for works already completed. His Honour Judge Davies disagreed with Thomas Barnes’ assessment that its cashflow problems were as a result of the Council not paying it in full or on time, and criticised Thomas Barnes for substantially suspending works unless and until the Council accepted its demands for an extension of time beyond that to which it was entitled, and a “blank cheque” to accelerate the works. In finding that Thomas Barnes was in such significant breach of contract as entitled the Council to terminate the contract, His Honour Judge Davies noted at paragraph 214 of the Judgment:
“Since the end of February 2015 the works had been plagued by delays which were almost entirely the claimant’s own fault and contractual responsibility”.
In addressing the question of whether termination had been validly effected, His Honour Judge Davies noted that the termination notice was delivered by hand and issued by email and recorded delivery by the Council to Thomas Barnes on Thursday 4 June 2015. However, the contract did not allow for service of notices by email, and the delivery of the notice by hand was contractually ineffective as it was delivered by hand to the site address rather than Thomas Barnes’ registered office as required by the contract. The termination notice issued by post was contractually effective as it was sent to Thomas Barnes’ registered office, and took effect two business days later, on 8 June 2015. The question for His Honour Judge Davies was whether the removal of Thomas Barnes from the site on 4 June 2015 (i.e. before the validly delivered termination notice took effect on 8 June 2015) constituted a repudiatory breach of the contract by the Council in the circumstances. In finding that such removal did not constitute a repudiatory breach, His Honour Judge Davies noted that Thomas Barnes had ceased all meaningful activity on the site, the Council was entitled to terminate, and that Thomas Barnes knew that it was the Council’s intention to terminate.
His Honour Judge Davies further found that even if the Council was in repudiatory breach of the contract by reason of failing to terminate in accordance with the contractual notice requirements, this would not assist Thomas Barnes in the circumstances, given that the Council had included in its termination notice a ‘fall-back’ position that it had accepted Thomas Barnes’ repudiatory breach and accordingly the contract was discharged at common law.
This case serves as a timely reminder of the risks and potential consequences of failing to comply with contractual notice provisions, in particular when purporting to terminate a contract pursuant to such provisions. In quoting Keating on Construction Contracts 11th edition (11-003) the Judgment notes that “[a] wrongful termination by the employer or its agent normally amounts to repudiation on the part of the employer”, and it was only on the specific facts of this case that the Council’s failure to terminate the contract in accordance with the contractual termination provisions was found not to be repudiatory.
Finally, His Honour Judge Davies identified deficiencies in both parties’ lay witness evidence, noting that Thomas Barnes’ witness’ recollection was “inevitably, poor as to the details, given they were giving evidence about events occurring 7 to 8 years ago” and that there was “an almost wholesale failure by the [Council] to call any relevant witnesses in relation to most of the contested issues in the case”. This serves to highlight the importance of keeping comprehensive contemporaneous records, as the value of such evidence will inevitably increase with the passage of time.