Alice Toop, an Associate Solicitor specialising in Construction Disputes, considers a recent Court of Appeal decision in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962, which clarifies the interpretation of Clause 8 of the widely used JCT Design and Build Contract 2016.
A dispute arose between Providence Building Services Limited (“Providence”) and Hexagon Housing Association Limited (“Hexagon”) regarding the correct construction and interpretation of clause 8.9.4 of the JCT Design and Build Contract 2016.
This clause concerns a contractor’s (Providence’s) entitlement to terminate the contract due to default by the Employer (Hexagon).
In this case, clause 8.9 had not been materially amended from the standard form (save that some time periods were extended) and Hexagon committed a specified default by making late payment. It remedied this specified default, by making payment, before Providence’s right to terminate arose under clause 8.9.3.
Several months later, Hexagon made another late payment, so the next day Providence sought to terminate the contract by issuing a Notice of Termination as per clause 8.9.4.
The issue put before the Court of Appeal was to consider whether a contract could be terminated under clause 8.9.4, if it had not been earlier, pursuant to clause 8.9.3?
Providence argued that no prior right to terminate was required while Hexagon said it was.
The Court of Appeal unanimously decided in Providence’s favour and held that, on the true and proper construction of the contract, the first opportunity to terminate the contract did not negate the second.
Just because Hexagon had remedied the first payment default, did not set a precedent that would protect it from contractual repercussions from future defaults.
In summary, the ruling means that even if a contractor does not give further notice as detailed by Clause 8.9.3, but a specified default is repeated by an employer (such as nonpayment) or a specified default event continues, a contractor can still terminate the contract by giving notice to the employer under Clause 8.9.4.
Commentary
This judgment is an important clarification on the effect of the termination provisions in the widely used JCT Design and Build Contract 2016 (and other JCT contracts which contain materially the same terms, including the new 2024 suite of JCT contracts).
Contractors will favour the decision in terms of receiving payments during a construction contract because it provides greater protection to their cashflow and their own contractual obligations downstream. The clarification provided by the Court of Appeal enables contractors to terminate, without risking repudiatory breach, where an employer has repeatedly failed to pay on time.
The decision also suggests that two nonsequential default events in respect of nonpayment can enable a contractor to terminate. This seems a thin margin for termination and will perhaps be concerning for employers. Alice anticipates employers may, therefore, now seek to amend the termination provisions in JCT Design & Build 2016 contracts (and similar) to ensure greater protection for them in respect of a contractor’s right to terminate.
