Partner London
"The case is of particular interest to the industry as it concerns termination for a repeat payment default by an Employer under a JCT D&B 2016."
Executive Summary
In Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962, the Court of Appeal delivered a significant judgment concerning the interpretation of the JCT Standard Form of Design and Build Contract (2016 Edition). The ruling clarifies the circumstances under which a contractor can terminate its employment under Clause 8.9.4, even if the right to give the further notice under Clause 8.9.3 has never accrued. This decision has substantial implications for employers in the construction industry, particularly regarding their obligations towards subcontractors and contractors in terms of payment and termination rights.
Legal points considered
The case involved a contract between Hexagon Developments Ltd (“Hexagon”) and Providence Construction Ltd (“Providence”) for the construction of buildings in Purley. Hexagon failed to make timely payments as required under the contract, leading to disputes about the contractor’s right to terminate the contract under the JCT Form.
Key contractual provisions considered
- Clause 4.9 stipulated the schedule for interim payments;
- Clause 8.9.1 allowed the contractor to notify the employer of a specified default for non-payment;
- Clause 8.9.3 permitted termination by the contractor if the specified default continues for 28 days after the notice; and
- Clause 8.9.4 allowed termination if the contractor does not give the further notice under Clause 8.9.3 but the employer repeats the specified default.
The High Court ruled that a right to terminate under Clause 8.9.4 could only arise if the right to give notice under Clause 8.9.3 had previously accrued. This interpretation was based on the wording and structure of the clauses.
In terms of termination, the Court of Appeal found that the phrase “for any reason” in Clause 8.9.4 was broad enough to cover scenarios where the contractor could not give a notice under Clause 8.9.3 because the default had been remedied within the 28-day period. The Court compared the structure of Clauses 8.4 [Termination by Employer] and 8.9 [Termination by Contractor] and found that the same interpretation should apply to both, emphasizing the congruence in their wording. The judgment acknowledged the commercial rationale behind allowing the contractor to terminate upon repeated defaults, providing a balanced risk allocation between the parties.
"Employers must be aware that any failure to make timely payments can be treated as a serious breach under the contract."
The case deals significantly with the concept of repeated breaches, particularly in the context of the contractor’s right to terminate the contract under Clause 8.9.4, which allows the contractor to terminate the contract if the employer repeats a specified default, even if the contractor did not serve a notice under Clause 8.9.3 due to the default being remedied within the 28-day period.
Conclusions and Advice
Employers must be aware that any failure to make timely payments can be treated as a serious breach under the contract. Repeated instances of late payment, even if individually remedied within the prescribed period, can cumulatively lead to termination rights under Clause 8.9.4. The judgment underscores that employers are at risk of contract termination upon repeated breaches. This risk persists irrespective of whether the initial breaches were remedied within the allowable period.
Employers must ensure strict compliance with payment schedules to avoid triggering termination rights under Clause 8.9.4. Even minor delays or repeated defaults can lead to termination risks.
It is advisable to implement robust monitoring systems to track payment due dates and prevent defaults, and to establish protocols for immediate rectification of any missed payments to avoid accruing termination rights under the contractor.
In addition, employers should consider negotiating amendments to the JCT Form to clarify termination provisions and potentially mitigate the impact of late payments. Custom clauses could provide additional grace periods or alternative dispute resolution mechanisms.
By developing a comprehensive risk management strategy that includes contingency plans for potential contract terminations, all stakeholders, including subcontractors and suppliers, will be aware of their contractual obligations and the implications of defaults.
It might also be prudent to regularly consult with legal advisors to stay informed about contractual rights and obligations. Proactive legal advice can help pre-empt disputes and ensure compliance with contractual terms.
Employers should consider, if they need to take steps to review and, if necessary, amend their contractual arrangements and internal procedures in light of this judgment to safeguard their interests and ensure smooth project execution.
As always, should you have any questions or require further insight into how this development may impact your project, please do not hesitate to reach out.
Key contacts
Partner London
Senior Associate London
