Providence Building Services Ltd v Hexagon Housing Association Ltd – Interpreting Termination Clauses
Background
The dispute between Providence Building Services Limited (“Providence”) and Hexagon Housing Association Limited (“Hexagon”) highlights the risks around termination under the JCT Design and Build Contract 2016, where payment defaults occur more than once.
Hexagon appointed Providence in February 2019 to carry out building works under JCT Design and Build Contract 2016, with a schedule of amendments. Hexagon was required to make regular interim payments, a failure to do so would amount to a “specified default”.
In December 2022, Hexagon missed a payment. Providence responded by serving a notice of specified default under clause 8.9.1. Hexagon then made the payment within the required period, so the contract continued.
In May 2023, Hexagon missed another interim payment. This time, Providence terminated the contract under clause 8.9.4, arguing that Hexagon had repeated a specified default.
The dispute centres on whether Providence was entitled to terminate in these circumstances.
The key legal issue
The main question before the courts is a point of contract interpretation:
Does a contractor need to have acquired a right to terminate under clause 8.9.3 before it can rely on clause 8.9.4 for a repeated default?
Clause 8.9.3 allows a contractor to terminate if a specified default continues for 28 days after notice. Clause 8.9.4 deals with repeated defaults and allows termination even where the contractor did not give the follow-up notice required under clause 8.9.3.
The issue is whether clause 8.9.4 stands on its own or whether it only applies if clause 8.9.3 was previously triggered.
What the courts have decided
- High Court – The High Court found in Hexagon’s favour. It decided that 8.9.4 could only be used if the contractor had already gained a right to terminate under clause 8.9.3. As Hexagon had remedied the first payment default in time, Providence had never acquired that right.
- Court of Appeal – The Court of Appeal disagreed and overturned the High Court’s decision. It held that clause 8.9.4 does not depend on a right to terminate under 8.9.3 having arisen. In the Court’s view, the wording of the contract showed that clause 8.9.4 was intended to protect contractors where an employer repeatedly defaults, even if earlier defaults were put right.
The Supreme Court’s final ruling
The Court unanimously held that, under the JCT Design and Build Contract 2016, a contractor cannot terminate its employment under clause 8.9.4 unless a right to terminate under clause 8.9.3 has first arisen and not been exercised. In practice, this means a contractor cannot terminate for repeated late payments unless an earlier payment default had already given rise to a termination right that was notified and not remedied within the contractual cure period.
The Supreme Court considered this interpretation to produce a more sensible commercial outcome, rejecting Providence’s argument that would have allowed termination for repeated but minor late payments even where payment was made within the cure period. The Court described that result as “extreme”.
The Court also clarified that the employer’s termination provisions operate differently. Under clause 8.4, an employer may terminate for repeated defaults even if no prior right to terminate has accrued.
The decision is highly significant given the widespread use of the JCT Design and Build form and the fact that the 2024 edition retains the same termination wording. While the ruling settles a long-running dispute over the meaning of fewer than 20 words, it is likely to be welcomed by employers and viewed less favourably by contractors.
More broadly, the judgment provides important guidance on the interpretation of standard form contracts. The Supreme Court confirmed that, where parties adopt an industry-wide standard form, their objective intentions will generally be taken to align with those of the form’s drafters, rather than reflecting bespoke commercial negotiations.
(The full Supreme Court Judgment can be found here)
This case offers some useful guidance:
- Repeated non-payment matters – Even if a payment default is corrected, it may still count as part of a pattern of default later on.
- Employers must take payment deadlines seriously – Missing interim payments more than once can expose employers to termination risk.
- Contract wording is critical – Standard form termination clauses can have a significant consequences, particularly where amendments have been made.
- Termination should be approached with care – Getting termination wrong can lead to serious financial exposure. Legal advice should be taken before serving termination notices.
How Rogers & Norton can help
The Construction Litigation team at Rogers & Norton advises contractors, employers and developers on termination rights, payment disputes and claims under bespoke construction contracts and JCT contracts.
If you would like advice on how this case affects your projects or contracts, please contact Peter Hastings at ph@rogers-norton.co.uk