Carry on at your convenience

"Termination for convenience" clauses allow parties, usually employers, to end construction contracts for any reason. They are useful in speculative developments where market movements may make employers want to pull the plug at any time. Similarly, "variations" (or "omissions") clauses often entitle employers to omit as much work as they like, when they like (when, say, value engineering). But can these clauses entitle employers to dump contractors or withdraw part of the works and engage others to do it? Two recent judgments in the Technology and Construction Court offer some guidance.

In Abbey Developments vs PP Brickwork (4 July 2003) Abbey engaged PPB as labour-only subcontractor on a housing development. Having repeatedly complained about PPB's progress, Abbey told it to limit its works to the houses then under construction. Abbey said that once those houses were done, PPB's contract would be ended and another contractor employed. PPB pursued for extra completion costs. Abbey sought a court declaration that it had acted correctly.

The subcontract suggested that Abbey could, without terminating the contract, vary the quantity of work and renegotiate rates or suspend the works and retender. Abbey relied solely upon varying the quantity of work.

The judge said that a "convenience" or "omissions" clause needs "reasonably clear words" to entitle an employer to transfer work from one contractor to another. The judge held that although termination for convenience clauses weren't objectionable in law, those that did not provide for compensation risked be treated as "unenforceable as unconscionable". The same applied to omissions clauses.

The judge held that the purpose of the contract was critical, saying: "If […] it turns out that the variation was not ordered for a purpose for which the power to vary was intended then there will be a breach of contract." The same might be said of termination for convenience clauses. The purpose of a contract can be as difficult to discern as the state of someone's digestion.

The judge refused Abbey's application. The clause permitting variation of quantity of work lacked "the necessary clarity of expression" to entitle Abbey to act as it did. It only conferred a right to omit work that Abbey considered was no longer required for the project.

However, the judge suggested (without expressing a final view) that the other clause was effectively a termination for convenience clause and might have permitted Abbey to suspend the works and retender. This interpretation was commercially justified because the contract was labour-only, housebuilding "is speculative" and the parties might be taken as sharing the risks.

In Hadley Design Associates vs Westminster LBC (9 July 2003), Westminster engaged HDA as consultant. Westminster then washed its hands of HDA, relying upon a one-month notice of termination clause that did not require reasons for termination. This was apparently done to "market test the current level of professional fees" – that is, to seek a cheaper consultant.

HDA claimed that Westminster had promised it would terminate only if HDA defaulted or Westminster ran out of funds. Otherwise, HDA said, Westminster could only terminate in good faith or when it was fair or reasonable to do so. HDA also claimed that it had contracted on Westminster's standard terms and the termination clause was unreasonable and therefore unenforceable.

The judge rejected all these arguments. Abbey was not mentioned and it was not suggested that the clause was unconscionable, despite not providing for compensation.

Although both cases turned on their particular contracts, some general points emerge:

• The harsher the objective, the clearer the words that should be used.

• The courts question transfers of work between contractors, particularly where the original contractor supplies materials and has its own supply contracts.

• Provision for compensation can be important.

Employers will no doubt continue to like convenience and omissions clauses. Contractors should agree to them with open eyes: your profits may be flushed down the pan at the employer's convenience.