Ending a consultancy before the work is done
Most service and consultancy agreements are contracts for work. The Code gives the employer a wider right there than either side usually expects, and it can be used without anyone having breached anything.
A works contract is measured by the result
Section 587 of the Civil and Commercial Code defines a contract for work as one by which a person, the contractor, undertakes to complete a piece of work for another, the employer, and the employer agrees to pay remuneration for the result of that work. The phrase for the result of that work is the core of the definition: the remuneration attaches to the outcome, not to the time spent.
Why the characterisation matters from the start
A great deal of consultancy and service work sits between two contract types, the contract for work and the contract of employment, and the parties often never decide clearly which they are in. Drafting around deliverables and tying the fee to those deliverables matches the words of section 587; setting out working hours, place of work and detailed supervision points the other way. What actually happens weighs more than what the document is called.
Withholding the fee for late or defective delivery
Section 599 provides that where delivery is late, or the work delivered is defective, the employer may withhold the remuneration, unless the contractor furnishes reasonable security. The right belongs to the employer by operation of law and needs no clause to create it, and the exception for reasonable security is the route a contractor can use to keep payment moving while the dispute is still open.
Termination at any point before completion
Section 605 provides that so long as the work is not finished, the employer may terminate the contract on compensating the contractor for any damage arising from the termination. The right does not depend on the contractor being in breach, so an employer may end the engagement even where the work is proceeding normally. The condition is the payment of compensation, not the existence of a default.
What to draft, given how wide the default is
Read together, sections 599 and 605 leave the employer two tools: withholding the fee and ending the engagement mid-way. What is worth drafting is therefore whatever makes both calculable — dividing the work into stages with acceptance criteria for each, and a method for valuing work already done if the contract ends. Disputes under section 605 are rarely about whether the right existed; they are about the figure.
PREPARE
What to bring
- The signed agreement and the scope of work annexed
- What has been delivered, and evidence of acceptance
- The delivery dates agreed, and those that actually happened
- Payments made and any instalment outstanding
- Any letter or message terminating the engagement
QUESTIONS
Questions this raises
The client terminated although nothing was wrong with the work.
Section 605 allows the employer to terminate so long as the work is unfinished and does not require any breach. What follows is the duty to compensate for any damage arising from the termination. What has to be prepared is therefore proof of the damage actually suffered — both the work already done and the consequences of the engagement ending part-way.
The client is withholding payment, saying the work is not right.
Section 599 lets the employer withhold the fee where delivery was late or the work delivered is defective, but subject to the exception unless the contractor furnishes reasonable security. A contractor who considers the complaint unfounded therefore has the option of offering reasonable security so that payment resumes, and arguing the question of defects separately.
LAW
The legislation
- Civil and Commercial Code, section 587
- Civil and Commercial Code, section 599
- Civil and Commercial Code, section 605
ENQUIRIES
