Further to our article published last week here, outlining the position regarding possible entitlements to extensions of time and/or loss and expense in the context of force majeure clauses, readers will appreciate that their contractual position is likely to be uncertain as regards the existence of a force majeure clause in individual contracts; whether any such clause entitles a party to an extension of time and/or loss and expense; and the meaning of “force majeure” when that phrase is not further defined (as is the case in the majority of JCT contracts).
With all of the above uncertainties in mind, and given the very real prospect of invoices going unpaid, contractors and sub-contractors may wish to seriously consider exercising a right to suspend for non-payment in the event that an interim payment is not received by the final date for its payment, even if you are no longer on site because of coronavirus-related restrictions.
The right to suspend for non-payment is a statutory one that exists in most construction contracts (save, in many cases, for contracts with residential occupiers and contracts where there is no right to interim payments). Many construction contracts (especially standard form contracts, such as JCT) reflect that statutory right in an express contractual provision. The contractual pre-requisites to exercising a right to suspend for non-payment are likely to vary between contracts so they must be carefully checked in all cases. However, the default statutory position is that a party who has not received a sum properly due to it by the final date for payment has a right to suspend performance of all or any of its obligations, but must first give to the paying party seven days’ notice of its intention to suspend performance. If payment is not made by the end of the seven-day period, the party may then suspend performance without further notice and may continue that suspension until payment is made in full. Likewise, if further interim payments are not paid by the final date for payment, a further right to suspend exists and a further Notice of Intention to Suspend should be given (even when performance has already been suspended for earlier non-payment).
The critical point about suspending for non-payment is that, whether the right exercised is an express contractual one or a default statutory one, the suspending party is entitled to (a) an extension of time for the period of suspension (and the consequential remobilisation time when the right expires); and (b) a reasonable amount in respect of costs and expenses reasonably incurred as a result of exercising the right to suspend. Set against the context of an uncertain contractual position if a contractor or sub-contractor has stopped work because of force majeure, exercising the right to suspend for non-payment will, in contrast, bring a period of certainty (and clear contractual entitlements to an extension of time and recovery of costs) so long as that right is properly exercised.
Should you require express advice about your contractual rights to suspend, please contact Ian Seeley for further advice on 07773 073885.