Check Your Contract: Written Notices May Be Required
Over the years, I have often said that the party with the best paper wins the day. By that, I mean having everything in writing and keeping meticulous records can protect you. This standard was proven again in a recent case.
Details of the Contract
In May 2012, James Construction Group, LLC, entered into an agreement with Westlake Chemical Corporation to provide mechanical and civil construction work at a plant in Louisiana. As part of the contract, James was responsible for the safety of its subcontractors and employees, and it was expected to maintain the safety and stability of all construction operations on the site. Meanwhile, Westlake had the right to intervene if it detected safety concerns and to require James to remediate any hazardous situations. Either party had the right to cancel the contract with 60 days’ written notice. However, to terminate, section 21.3 of the contract required Westlake to submit three separate notices to James. These would trigger James’s obligation to pay costs incurred by Westlake in completing the work. The notices were outlined as follows: 1) notice in Westlake’s view that James had serious safety violations, beginning a 72-hour window in which James would begin remediation; 2) notice that Westlake was not satisfied with the quality and pace of James’ remediation; and 3) notice that Westlake was canceling all or a portion of the agreement. In addition, the contract included a general provision requiring all contractual notices to be completed in writing.
Communication Between the Parties
As the work progressed, Westlake had concerns about safety on the site. On December 28, the Westlake project manager forwarded an email from a Westlake vice president and copied the James site manager. The email referenced a fatal injury that had occurred, called it “completely preventable,” and indicated the need for a safety review. However, the email did not cite safety violations, possible cancelation, default, or section 21.3
On January 18, Westlake sent another email to James, explaining its decision to use another contractor for some of the work, but there was no mention of site safety. In the following months, the company’s actions and emails were mixed. On the one hand, it assigned more work to James. On the other hand, a March email said it needed to put James on notice. There was another email that mentioned a safety audit. But nowhere was it explicit that the January 18 email was a second notice, stating Westlake’s dissatisfaction with the remediation efforts.
After another safety incident on the site, the two parties met in person. Westlake instructed James to remove all its workers from the site. However, Westlake provided no written notice that James had been terminated. It did not summarize the meeting in any written way.
James followed up with an email confirming that it had ceased all mechanical work on the site. Westlake used another contractor to complete that work, and James continued to do civil work. Westlake paid James for all the work completed, and the other contractor finished the mechanical work in October 2013.
Details of the Case
In December 2014, Westlake filed a claim against James for breach of contract. Westlake asserted that James was responsible for the costs related to the other contractor completing the mechanical work. In response, James argued it had not been appropriately terminated because there had been no written notice.
In the initial trial, the jury decided that both Westlake and James had breached the contract in their own respects, so it awarded attorney’s fees and damages to both parties.
On appeal, the result was somewhat different. The appellate court ruled that strict compliance with the written notice stipulation was not required. It affirmed the awarding of attorney’s fees and damages to Westlake but reversed that decision for James.
The case, James Construction Group, LLC v. Westlake Chemical Corporation, then made its way to the Texas Supreme Court. There, the justices considered if they should allow some leeway under the doctrine of substantial compliance, but ultimately, they determined that Westlake was not entitled to damages. The court explained, “We hold that substantial compliance is the appropriate standard when evaluating whether a party complied with a contractual notice condition. However, we also hold that substantial compliance with a condition precedent requiring written notice may not be achieved without a writing in some form.” The court noted that Westlake failed to provide notice in writing, meaning it did not satisfy the conditions to seek damages.
Westlake had also sought damages under a separate contract indemnity provision. The court allowed damages for that claim because the notice provision did not constitute a material breach. The breach of the written notice provisions meant Westlake could not recover damages according to the termination provision. That did not impact the indemnity claim.
The Texas Supreme Court decision is meaningful because it clarifies a vital issue. If a contract mandates written notice, then applicable notices must be in writing to satisfy substantial compliance. This is true even when actual notice is delivered in person. Without any doubt, this decision states that contract provisions requiring written notices can be enforced. In addition, Westlake’s communications with James should have been more direct. If the owner was displeased with the contractor, that should have been made crystal clear in written communications.
For Westlake, this decision resulted in a substantial financial loss. The damages awarded by the jury were reversed, and the owner was left responsible for all costs associated with the project, including having to pay another contractor after James halted its work. Westlake could have avoided that loss if personnel had put everything in writing.
When owners and contractors sign agreements, they often do so without considering the consequences of the provisions. However, this case highlights how critical specific clauses can be. If you are unsure about your contracts and what will be enforced, be sure to consult legal counsel. An experienced construction attorney can review your agreements and advise you on essential provisions.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.