On May 20, 2022, the Texas Supreme Court issued its long-awaited decision in James Construction Group, LLC. v. Westlake Chemical Corp., holding that substantial compliance with notice provisions in construction contracts is acceptable, except in one instance. If the contract requires that notice be in writing, the notice must be in writing. While the James Construction opinion has other important holdings, in this article we will focus exclusively on the Court’s application of the doctrine of substantial compliance with contractual notice requirements.

The factual history of the dispute is long and, as with many contractual disputes, nuanced. In December 2012, Gregory Price was killed on a construction work site at Westlake’s Louisiana chlor-alkali plant (Plant). Price, an employee of James Construction, was standing on a ladder leaning against a truck when a co-employee flagged the truck to move forward without checking to see if Price was clear. Price fell, suffered a closed head injury, and died. The co-employee’s action violated standard protocol and resulted in numerous OSHA citations.

Prior to the accident, Westlake had entered into a contract with James Construction to provide mechanical and civil construction work at the Plant. Under the contract, James was responsible for the safety and health of its employees and Subcontractors and for the safety of all operations, construction equipment and the construction site and methods necessary for the performance of the work.

For several months before the accident that caused Price’s death and for several months afterwards, James Construction had numerous other safety incidents, including multiple OSHA-recordable injuries and near misses. In April 2013, Westlake transferred the remaining mechanical work to Turner Industries Group (Turner) and terminated James Construction for “default” of the contract.

The termination for default provision of the contract, found in section 21.3, allows Westlake to terminate the contract, take possession of the work, complete the work, and recover costs in excess of the stated contract price from James Construction. To avail itself of these remedies, Westlake was required to provide James Construction three separate written notices, as follows: “(1) [N]otice that Westlake had determined in its reasonable opinion that James had serious safety violations, triggering a seventy-two-hour window for James to begin to remedy the violations; (2) notice that Westlake was not reasonably satisfied with the pace and quality of the remediation efforts; and (3) notice that Westlake had elected to terminate the contract or a portion of the work.”

Westlake sued James Construction for additional costs incurred with Turner to complete the work. James Construction denied Westlake had terminated for default and counter-claimed for breach of contract. The case was tried to a jury. At trial, Westlake provided evidence that the first of the three notices under Section 21.3 was in writing, but not the other two. Responding to a detailed set of questions, the jury found that while Westlake had not strictly complied with the notice provisions in the contract, it had substantially complied, entitling Westlake to damages against James Construction. The Houston Court of Appeals affirmed the judgment against James Construction, and James Construction petitioned the Texas Supreme Court to review the decision.

The Texas Supreme Court held that Westlake, by failing to give all three of the written notices required in Section 21.3, did not substantially comply with the notice requirements of the contract. As such, the Court held that Westlake was not entitled to recover damages from James Construction under that Section.

The Court reasoned that verbal notice, as Westlake provided to James Construction for two of the three required notices, did not comply, “substantially or otherwise” with the written notice requirement of Section 21.3. For other types of deviations from contractual notice requirements, however, the Court explicitly recognized the doctrine of substantial performance, as follows.

[A] party’s minor deviations from a contractual notice condition that do not severely impair the purpose underlying that condition and cause no prejudice do not and should not deprive that party of the benefit of its bargain….[T]he doctrine serves the important purpose of preventing parties from engaging in bad-faith “gotcha” tactics to avoid their own contractual obligations based on a technicality.

The Court approvingly cited other cases in which the doctrine of substantial performance was applied to the amount of detail contained in a notice and the manner by which a notice was transmitted (e.g., registered mail).  However, in the Court’s own words, “oral notice does not satisfy a contract’s written-notice requirement.”  By finding that Westlake failed to fulfill the written notice requirements, a condition precedent to recovering damage against James Construction, the Court gave effect, “as we must, to the contractual language the parties chose.”

As mentioned as the outset, the Court’s interpretation of the doctrine of substantial compliance with notice requirements was only one part of its opinion, albeit an important one.  The Court’s holding and its reasoning speak to the need of parties to any contract to understand the nuances of what it means to “substantially comply” when providing notice.

The attorneys in our Austin and Dallas offices routinely assist clients in preparing, interpreting and litigating contracts related to the design and construction industries. If you should have any questions regarding your contractual rights and remedies, please contact us at info@gstexlaw.com.

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