Where payment is not made when due, may a contractor or subcontractor lawfully suspend performance for non-payment?
Leaving site for non-payment is dangerous unless the law is on your side. Whether a temporary suspension is available, or only termination for repudiation, turns on whether the Construction Act applies.
Only a temporary suspension is available, and only under the Construction Act: for a construction contract, the contractor may suspend performance on seven days notice for non-payment, recovering an extension of time and reasonable costs, but where the Act does not apply there is no common-law right to suspend, and serious non-payment gives only a right to terminate for repudiation
Only a temporary suspension is available, and only under the Housing Grants, Construction and Regeneration Act 1996. For a construction contract within the Act, the unpaid party may suspend performance where the notified sum required by section 111 has not been paid in full by the time the final date for payment passes and no valid pay-less notice has been given, but only after at least seven days' notice stating the grounds, and the right ends on payment in full. The Local Democracy, Economic Development and Construction Act 2009 extended the right to any or all of the obligations and added a right to recover the reasonable costs of suspending. JCT 2011, clause 4.14, and GC/Works/1, condition 52, give a matching contractual right with an extension of time, and the ICE and Engineering and Construction Contract forms leave it to the statute. Where the Act does not apply, for example work for a residential occupier, there is no common-law right to suspend temporarily; the only remedy is to treat serious non-payment as a repudiation and terminate, as D R Bradley (Cable Jointing) Ltd v Jefco Mechanical Services Ltd and C J Elvin Building Services Ltd v Noble show.
| Statutory suspension | Available under the Construction Act on seven days notice |
| Ends on payment | The right to suspend ceases when the sum due is paid in full |
| Costs and time | An extension of time and reasonable costs of suspending (2009 Act) |
| Outside the Act | No common-law right to suspend temporarily |
| Repudiation | Serious non-payment may allow termination, as in Bradley and Elvin |
The problem
A contractor or subcontractor that is not paid is tempted to down tools and leave. Whether it can do so lawfully, and whether it may suspend temporarily or must instead terminate, depends on whether the contract is a construction contract within the Housing Grants, Construction and Regeneration Act 1996, and on what the contract itself says. Getting it wrong turns the unpaid party into the party in breach.
The statutory right to suspend
For a construction contract within the Act, there is a statutory right to suspend. By section 112, the right arises where the requirement in section 111 to pay the notified sum is not met, that is, the notified sum has not been paid in full by the time the final date for payment passes and no valid pay-less notice has been given. The suspension notice is a separate step: the right may be exercised only after at least seven days' notice stating the grounds, and it ends when the outstanding sum is paid in full. In 2009 the Local Democracy, Economic Development and Construction Act widened that right to any or all of the obligations under the contract, and added, by section 112(3A), a right to recover a reasonable amount of the costs and expenses reasonably incurred in exercising it.
The forms
The forms reflect the statutory right. JCT 2011, clause 4.14, lets the contractor suspend if the employer fails to pay in full and the failure continues for seven days after written notice, with a copy to the architect or contract administrator; suspension continues until payment in full, and the contractor is entitled to an extension of time under clause 2.29.6 and to reasonable costs and expenses under clause 4.14.2. GC/Works/1, condition 52, gives a like right on a seven-day warning notice, with an extension of time but no express costs entitlement, so recovery of costs there comes from the statutory right. The ICE 7th Edition and the Engineering and Construction Contract contain no express suspension provision, so the statutory right supplies the extension of time and the recovery of reasonable costs.
Outside the Act
Where the Act does not apply, for example work for a residential occupier, there is no right at common law to suspend work temporarily for non-payment. The only common-law remedy is to treat serious non-payment as a repudiation and terminate.
A domestic subcontractor's earlier underpayments were held not to be a repudiatory breach, but non-payment of the last application, which reasonably shattered the subcontractor's confidence of being paid, was such a breach, so the subcontractor was entitled to treat the contract as at an end.
On a contract for a residential occupier, outside the Act, the court held that a refusal to pay a substantial sum due, or a threat not to pay any more until completion, could amount to a repudiatory breach. The contractor's leaving the site had been triggered by the employer's non-payment and was not itself repudiatory, and the court found for the contractor.
Practical steps
Check first whether the contract is a construction contract within the Act. If it is, you have a right to suspend.
Give at least seven days' written notice stating the grounds before suspending, and resume once you are paid in full.
Claim your extension of time and your reasonable costs of suspending; the 2009 Act gives the costs entitlement.
Where the Act does not apply, do not suspend; there is no common-law right to do so, and you would put yourself in breach.
Outside the Act, treat serious non-payment as a possible repudiation and consider terminating, but take advice before you leave site.
Authorities
| Authority | Citation | What it decides |
|---|---|---|
| D R Bradley (Cable Jointing) Ltd v Jefco Mechanical Services Ltd | (1989) | Non-payment of a final application that reasonably shattered the subcontractor confidence of being paid was a repudiatory breach entitling it to treat the contract as at an end, though earlier underpayments were not |
| C J Elvin Building Services Ltd v Noble | [2003] EWHC 837 (TCC) | On a contract outside the Act, a refusal to pay a substantial sum due or a threat to withhold further payment could be a repudiatory breach; the contractor leaving site was triggered by the non-payment and was not itself repudiatory |