You are on page 1of 6

Termination of employment

A contract, once formed, imposes duties and obligations on the parties. These duties
and obligations must be carried out fully by both sides in fulfilment of their
respective promises. The parties can only be freed from their mutual obligations
under the contract by the discharge of the said contract, such as:
1. by performance;
2. by breach and its acceptance;
3. by consent or agreement between the parties;
4. by frustration;
5. by operation of law; and
6. by novation

Breach of Contract
The refusal or failure by a party to fulfil an obligation imposed on him under that
contract, such as repudiation of liability before completion or conduct preventing
proper performance. There is an unjustified or inexcusable failure by either party to
undertake its obligations under the contract or a repudiation of these obligations.
For repudiatory breach of contract, the tendency is to pursue this as a common law
claim. When a party to a contract has refused to perform, or disabled himself from
performing, his promise in its entirety, the promise may put an end to the contract,
unless he has signified by words or conduct, his acquiescence in it continuance.
When a promise is not performed in its entirety that failure goes to the root of the
contract, it deprives the promisee of what he bargained for in the contract.
The innocent party can treat the contract as valid and sue for specific damages and
losses, or accepts the repudiation and rescind the contract while maintaining the
right to sue for damages in respect of the breach committed. The contract does not
comes to an end until and unless the repudiation is accepted by the other party.

Essential principles of rescission includes:

a) The innocent party is obliged to communicate the acceptance of the
repudiation and the rescission of the contract to the repudiatory party.
b) If the contract includes any requirement of communication of such
rescission, these must be complied with by the innocent party.
c) Once the decision to rescind the contract is effectively communicated to
the repudiatory party, it is final and cannot be retracted.

d) The repudiatory party is liable in damages for:

o any earlier breaches,
o the breach that leads to the rescission, and
o all obligations which would have matured.
e) Common law right to rescind a contract by way of termination only arises
when there has been a total failure of consideration.

In the event the innocent party refuses to accept the repudiation of the contract, the
status quo ante is preserved intact, where the situation is restored to the state in
which it existed previously, and the contract remains alive and subsisting for the
benefit of both parties:
o The innocent party remains subject to his own obligations and liabilities
under the contract;
o Enables the repudiatory party to change his mind and complete the contract
notwithstanding his previous repudiation.
o Each party as a right to sue for past and future breaches.

The parties may by consent or by mutual agreement incorporate provisions in the

contract to govern their rights consequent to serious breaches of contract, in
addition to or as an alternative to the common law right of termination. These
provisions may stipulate:
o The particulars of the breaches or defaults envisaged;
o The procedures governing the method of effecting the compensation;
o Their respective rights and obligations.

Termination/Determination of Contractors Employment by Employer

Clause 25.0 of PAM 2006 sets out:

The circumstances where determination by the employer can be

contractually effected;
The procedures regulating the determination process;
The rights and obligations of the parties consequent to the determination;
All other issues, formalities and procedural requirements.

Wrongful determination will tantamount to a repudiation of the contract on the part

of the party initiating the determination.

25.1 Defaults by Contractor

Clause 25.1 empowers only the employer to exercise the rights to determine. The
power to determine should be reserved to the parties to the contract, otherwise, it
may be rendered legally ineffective.

Clause 25.1(a): Failure to Commence the Works

Failure to commence within a reasonable time is not itself a repudiatory breach. The
contractor may counter that he can complete within the remaining time or within a
shorter time frame and he has every intention of finishing in time.

Clause 25.1(b): Suspension of Work

Suspension does not imply that the contractor has left the site. It is implied that the
contractor may have reasonable cause to suspend works if it is in compliance with
an architects instruction or with a direction or order from a statutory or
governmental body, or due to the employers failure to pay the contractor.

Clause 25.1(c): Failure to Proceed Regularly and Diligently

Contractors obligation under the contract is to finish the works by the completion
date. Failure to abide by the work programme is not a breach of contract because
work programme does not form part of the contract. Mere neglect or omission to
effect this is not a failure to proceed with due diligence and expedition, so long as he
meets the stipulated completion date.

Clause 25.1(d): Persistent refusal or neglect to comply with an AI

There must be a series of reminders sent to the contractor after the initial AI, and
despite which the contractor refused or neglected to act positively thereby affecting
the works in a material way. If the works are not materially affected, the employer
has to distribute the tasks to others, such as engaging third party, otherwise a
determination effected can be invalidated.

Clause 25.1(f): Abandoned the Works

Abandonment is a repudiatory breach of contract entitling the employer to
determination at common law. Abandonment must entail complete cessation of all
activities and works under the contract and the clear intention not to continue.

25.2 Procedure for determination

The alleged default must be one which is expressly stipulated under Clause 25.1. If
the default is not as listed, the employer had no recourse for determination under
the contract, but has to rely on extra-contractual remedies such as his common law
rights. Once the employer decides to proceed with the determination, the default
notice may either be issue by the employer or the architect acting in the employers
behalf. If the contractor continues with the default for 14 days after the receipt of
the notice, then (only) the employer may within a further 10 days determine the
contractors employment by a notice. The employer must issue the determination
notice within 10 days after the 14 days default notice expiry.

Determination of Own Employment by Contractor

The contractor has similar rights as the employer to determine his own employment
under the contract or to terminate the contract at common law for the employers
default such as performance of contractual obligations or employers financial
problem. These defaults may or may not be serious enough to constitute as
repudiatory breaches of contract entitling determination or termination.

Clause 26.0 Determination of Own Employment by Contractor

26.1 Defaults by Employer

Clause 26.1(a): Failure to Pay Certified Amount

This clause makes the employer liable for default on any certificate. Therefore, on a
accurate explanation, the contractor can invoke his right to determination even if
the employer failed to pay on a single certificate. Nonpayment of a single certificate
is not sufficient for a contractor to repudiate a contract. The employers delay in
payment by a few days, even if persistently repeated, is not a fundamental breach
and does not tantamount to repudiation. The contractor has to firstly establish that
an Interim Certificate under Clause 30.1 of the contract had been issued by the
authorized person such as the architect. Until and unless such a certificate has been
prepared and issued to the contractor, the employers obligation to pay the
contractor under the contract does not formed.

Clause 26.1(b): Interference of any Certificate

The architect is to act fairly and independently in administering the contract.
Intermeddling by the employer into the architects discharge of his duty as the
certifier is a performance default.
Interference or obstruction by employer can take the form of:

refusing to allow the architect to go on site for the purpose of the certificate;
directing the architect as to the amount to be certified;
directing the architect as to the decision which he should arrive at;
directing the architect to withhold a certificate

Clause 26.1(c): Failure to appoint succeeding Architect or Consultant

The employer is under a duty to appoint a contract administrator to undertake a
variety of roles and duties for the purpose of the contract

Clause 26.1(d): Suspension of the Works

Permits the contractor to determine his employment under the contract when the
whole or substantially the whole of the uncompleted works is suspended for a
continuous period of time which is more than that stated in the Appendix (by default
3 months).