Termination By The Employer Under The FIDIC Form Of Contract

Termination is a serious step and is never one to be taken lightly. It is important that determination provisions are followed precisely. If a dispute arises, those procedures will usually be carefully considered and strictly applied. These issues recently came before the TCC in London, in the case of Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar1 where Mr Justice Akenhead had to consider whether or not the Employer, in a tunnel project at Gibraltar airport, was entitled to terminate the contract. The contract was the FIDIC Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant, and for Building and Engineering Works, Designed by the Contractor, 1st edition, 1999 (better known as the "Yellow Book").

Sub-clause 15.1 states that: "If the Contractor fails to carry out any obligation under the Contract, the Engineer may by notice require the Contractor to make good the failure and to remedy it within a specified reasonable time."

Sub-clause 15.2 lists the circumstances in which an Employer may terminate upon the giving of 14 days' notice, including if the Contractor:

"(a) fails to comply ... with a notice under Sub-Clause 15.1 ... b) ... plainly demonstrates the intention not to continue performance of his obligations under the Contract, (c) without reasonable excuse fails: (i) to proceed with the Works in accordance with Clause 8."

Sub-clause 15.1: notice to correct

First of all, the Judge considered subclause 15.1, noting that the following:

(i) Sub-clause 15.1 related to "more than insignificant contractual failures" by the Contractor, for example a health and safety failure, bad work or a serious delay on aspects of the work. Given the potentially serious consequence of non-compliance, the notices need to be construed strictly, and the Judge noted that "generally in relation to termination for fault clauses, courts have often construed them in a commercial way so as to exclude reliance on trivial breaches". 2

(ii) The specified time for compliance with the sub-clause 15.1 notice must be reasonable in all the circumstances prevailing at the time. What is reasonable is fact sensitive.

(iii) Sub-clause 15.1 is designed to give the Contractor an opportunity and a right to put right its previous, identified contractual failure.

(iv) The Judge noted with approval the comments of the editors of Hudson's Building and Engineering Contracts (12th edition) at para 8.056:

"Termination clauses occasionally allow termination on the ground of 'any breach' or 'any default'. Although in principle, parties may agree whatever they wish, the courts will generally be reluctant to read such wording literally. 'Default' will be read as meaning a...