What to do when you receive a Notice of Default or Notice of Intention to Terminate
By Alex Milne, Construction and Planning Law Expert, Lovegrove Solicitors
In most building contracts, termination in the event of breach is not allowed unless notice has been given to the other party about the alleged breach, and a period of time has been allowed for the other party to respond. This is a critical time for the parties, as significant consequences flow from whether a party terminates the contract lawfully or terminates the contract wrongfully.
The theory behind this procedure is that the consequences of termination are so great in the context of a building contract, that a party should always be given a warning before they are terminated. Upon receipt of this warning that party will have the chance to remedy their default, or contest the grounds relied upon.
The First Step – Taking Advice:
When you receive a Notice of Intention to Terminate, it is wise to seek legal advice as soon as possible. These notices will give you a limited time in which to respond, and time can be very tight. Consider the fact that you will need to arrange a conference with the solicitor, explain to them the situation, provide them with any necessary documentation, assess the solicitor’s advice, decide on a strategy, and then implement that strategy.
Often a notice of default may allow only around a week in which to respond. However in almost all cases it is imperative that one must respond to a notice of intention to terminate within the timeframe allowed. This is why quick action is vital.
In many cases a party in receipt of a Notice of Intention to Terminate will dispute the breaches alleged by the other party in the notice. In this case it will be your solicitor’s job to assess the strength of your argument refuting the alleged breach and prepare a response to the party which has issued the notice.
Potential Grounds to Refute a Notice of Default:
Commonly a party in receipt of a notice which alleges that they are in breach of contract will have a different view. In most cases there is more than one side to any story, and this is particularly true with Building Disputes. The party in receipt may dispute that they are in breach of contract. Alternatively they may believe that the other party is also in substantial breach of the contract, and that therefore that termination by the issuing party is unreasonable.
Where the breach alleged is disputed, the notice should be refuted in writing. In many cases the issuing party may proceed to terminate the contract, notwithstanding your dispute. When this occurs, one needs hard evidence to rely on to show that their position had been communicated to the terminating party before they terminated. This kind of evidence can help to bolster a case that the termination was wrongful.
If the party issuing the notice is in substantial breach of the contract themselves, then they will generally not be allowed to terminate the contract. One needs to take legal advice on whether the issuing party is in substantial breach of the contract, and if so, a letter outlining this breach and demanding the withdrawal of the Notice of Intention to Terminate may be issued. Once again, because the issuing party may proceed to terminate anyway, it is better to have put this in writing prior to the expiry of the notice to protect your position at law.
It may also be possible to dispute a Notice of Intention to Terminate on the basis that the notice itself is defective. In most cases there are certain requirements as to what must be included in such a notice. For example a notice will usually need to specify the breaches of contract relied upon, with reference to the specific provisions of the contract, and specify a deadline by which the breach must be remedied, and a method by which the breach can be remedied.
Each contract may specify different requirements for what must be included in a notice. Requirements may also be implied by operation of statute or with reference to precedent in a given jurisdiction. If a notice is missing some critical ingredient, your solicitor may be able to dispute its validity. As above this will be more helpful if the validity is disputed prior to notice period expiring,
Finally by discussing all of these potential options with a solicitor as soon as the notice is received one can keep their options open. A solicitor may advise you that you are in a weak position, and that the Notice of Intention to Terminate is most likely going to be valid. It is always better to know that your case is weak before the contract is terminated rather than after the contract is terminated. If you come to terms with this before the contract is terminated, there may still be time to remedy the breach alleged by the issuing party, and avoid being terminated.
In these circumstances it may be wise to have your solicitor send a letter reserving all rights, but stating that action will be taken to remedy the alleged breach prior to the expiry of the notice period. After all a Notice of Intention to Terminate is effectively an advanced warning which gives you the chance to remedy a breach of contract. If you are indeed in breach of contract, then you may be able to remedy that breach.
If steps are taken to remedy the breach the issuing party may not be able to terminate you. If they do terminate you despite your efforts to remedy the breach alleged, then the termination may be wrongful, giving you the upper hand in any future litigation.
When one receives a Notice of Intention to Terminate, it is not a time for informal phone calls, and on-site meetings. It is a time for putting things in writing, obtaining immediate expert legal advice, and making sure you are covered. Potentially great sums of money will rest on whether or not a termination is lawful, and the gravity of these consequences dictates the need for such rigour.
By Alex Milne, Construction and Planning Law Expert, Lovegrove Solicitors
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© Lovegrove Solicitors 2013
