Construction & engineering briefing: November 2012

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As one would expect, during the recession, the number of construction insolvencies has increased steadily. Whilst a lot has been written about contractor insolvency, commentators have said relatively little on developer insolvency. What are the issues concerning developer insolvency – particularly in circumstances where construction work remains incomplete?

In the wake of a developer’s insolvency, the biggest issue a main contractor faces is whether to determine his employment under the building contract.

Our clients are often surprised to learn that, under the common (general) law, insolvency (even liquidation) is not a fundamental breach of contract for which a party may terminate. Insolvency does not even constitute a breach of contract which entitles the other party to claim damages. That said, most industry form agreements (such as the JCT building contracts) have been drafted to give the contractor an express right to determine his employment upon the occurrence of an insolvency event of a type set out in the building contract.

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