Court of appeal provides important clarification on JCT termination provisions

Blog written by Matthew Stevens, Partner, and Stevie-Jo Hinge, Solicitor, in our Construction, Infrastructure and Projects department.

Providence Building Services Ltd v Hexagon Housing Association Ltd

As Lord Denning famously said “cash flow is the life blood of the construction industry”.

That statement is as true today as it was when Lord Denning said it over fifty years.

The court of appeal, overturning the lower court’s decision, has now decided that there could be grave consequences for persistent late payers under JCT construction contracts.

Facts

Hexagon Housing Association Ltd (“Hexagon”) employed Providence Building Services Ltd (“Providence”) to carry out works pursuant to a JCT Design and Build Contract (2016 Edition).

In December 2022, Hexagon failed to pay a notified sum before the final date for payment, resulting in Providence serving a notice under clause 8.9.3 of the contract (often referred to as a “warning” notice), which would allow Providence to terminate unless Hexagon paid within 28 days (as amended). Hexagon eventually paid the notified sum.

In April 2024, Hexagon again failed to pay a notified sum before the final date for payment. Providence responded by immediately terminating the contract by serving a clause 8.9.4 notice, which referred to the December 2022 “warning” notice and relied upon Hexagon’s non-payment as a repetition of the specified fault.

Hexagon subsequently paid the sum claimed but challenged the validity of the termination. They asserted that Providence was in repudiatory breach of contract.

Hexagon referred the dispute to adjudication, and the adjudicator found in favour of Hexagon. Providence commenced Part 8 proceedings regarding the operation of clause 8.9.4. The TCC decided in Hexagon’s favour and Providence appealed to the Court of Appeal.

Decision

In a unanimous decision, the Court of Appeal disagreed with the lower court’s decision.

They concluded that on the natural meaning of the language used in clause 8.9.4, a notice under clause 8.9.4 can be given for a repeated specified default irrespective of whether the first specified default had been rectified within the contractually prescribed period.

Summary

The case provides important guidance on the tools available to a receiving party where a paying party is persistently late in making payments under JCT contracts.

While termination provisions and the related notice requirements will need to be approached with caution and considered carefully, the court of appeal’s decision that persistently late payers could face having their contracts terminated rather quicker than perhaps they anticipated, will come as welcome news to many in the construction industry.