Contractor entitled to remedy default before termination

This blog post considers the recent case of Interserve Construction Ltd v Hitachi Zosen Inova AG [2017] EWHC 2633 (TCC).

This Technology and Construction Court (TCC) case related to the construction of an energy from waste plant whereby the defendant, Hitachi Zosen Inova was the main EPC contractor and entered into a design and build sub-contract with the claimant, Interserve Construction Ltd in respect of civil works and building facilities. Under the sub-contract, Hitachi was referred to as the Purchaser and Interserve as the Contractor. Work proceeded until the Purchaser terminated the Contractor’s employment and the Contractor was removed from the site.

The sub-contract listed many grounds for immediate termination in clause 43.1, which was "subject to" clause 43.1A. Clause 43.1A stated that, in relation to certain grounds in clause 43.1, the Purchaser:

"…may (at its absolute discretion) notify the Contractor of the default and if the Contractor fails to commence and diligently pursue the rectification of the default within a period of seven (7) days… terminate the employment of the Contractor under the Contract."

The Purchaser claimed to terminate immediately on grounds to which clause 43.1A applied, stating that it was exercising its discretion not to allow seven days for rectification.

The TCC granted a CPR Part 8 declaration that the Purchaser should have given the Contractor an opportunity to remedy a breach of contract before termination. It held that it was a condition precedent to the Purchaser having the right to terminate pursuant to clause 43.1 that the Purchaser should first issue a notice pursuant to clause 43.1A and allow the Contractor a seven day period in which to commence and diligently pursue the rectification of the default that was the subject of the notice.

The Court noted that the use of the words "subject to" made it clear that the right to terminate only arose if clause 43.1A had been operated. The reference in Clause 43.1A to "absolute discretion" did not make the seven-day period optional but meant that the Purchaser's failure to give a notice would not be taken to mean that no default existed or any breach was waived. The interpretation of the wording of the relevant clauses relied on the way in which similar terms were used elsewhere in the sub-contract.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.