But why whinge anyway? The reason for triggering termination may be fair. Perhaps the project was being funded piecemeal by donations or grants that ran out. So, a fair use of the termination applies. But say the employer uses the clause to hive off a lump of your work to a firm that will do it cheaper.
Or, what if the employer loses his temper and terminates out of spite? Or what if the clause is used, in your language, as blackmail? Does the contract still reign supreme? In other words, can the contract be used if good faith is absent? It is difficult to define good faith, but what I mean is the use of a contractual right in an excessive or oppressive or tricky way, or for a purpose that was not intended. It is the use of the contract to exploit a turn of events that causes a loss to one party.
Many European and US legal systems recognise and enforce an overriding principle: that in making and carrying out contracts, parties should be acting in good faith. English law has committed itself to no such overriding principle. It has knocked on the door – Lord Denning often talked of good faith – but, by and large, it has used piecemeal solutions to problems of fairness.
Parliament has occasionally had to intervene; it did so last year to oust or limit pay-when-paid clauses. Remedies often lie in the hands of the judges, which is unfair because some will apply the contract strictly, whereas others will see the force of an argument based on interpreting the contractual intentions – which may be similar, in effect, to enforcing the principle of good faith.
But say the employer loses his temper and uses a termination clause out of spite? Does the contract still reign supreme?
But if plain and simple contract provisions are used deviously, are they to be enforced? It so happens that a lecture on this topic was recently given by leading construction barrister John Tackerberry QC. He looked at termination for convenience and termination for trivial breach clauses.
The "convenience" termination has been in use in the USA for generations. It began as a war clause or "government reason" clause, yet was wide enough to allow termination at the absolute discretion of the employer. But the US courts later locked on to the legal concept of good faith. They strike down not the clause itself, but the improper use of that clause. They ask what is the purpose of its use this time? Is it an unconscionable motive? In the USA, if the English developer with such a clause in his home-made contract tried to deploy it as a weapon, it would fail for "want of good faith". If the US clause has recently crept into English construction contracts, shouldn't it also come with a kitbag full of good faith? The Australian courts have also looked at termination clauses for trivial breach. They recognised that neglecting to comply with a direction of the employer, however minor, might be enough to terminate.
Tackerberry's opinion was that such a clause makes the contract unworkable. No contractor in its right mind would enter into a contract under which such a thing could happen. The reasonable contractor, the reasonable employer and the reasonable onlooker would all assume that such a result should not come about except with good reason. The phrase "good faith" gives way to a test of reasonableness. The argument, in my humble view, would have more effect if the principle of good faith in contract law were recognised by the English courts.
Postscript
Tony Bingham is a barrister and arbitrator specialising in construction.
