Providence Building Services terminated its construction contract with Hexagon Housing Association after repeated late payments. The Supreme Court held that a contractor cannot terminate under clause 8.9.4 for repeated default unless a right to terminate had previously accrued under clause 8.9.3. The appeal was allowed.
Facts
Providence Building Services Ltd (the Contractor) and Hexagon Housing Association Ltd (the Employer) entered into a construction contract in February 2019 incorporating the JCT Design and Build Contract (2016 edition). The original contract sum was approximately £7.2 million.
On 25 November 2022, Payment Notice 27 required the Employer to pay £264,242.55 by 15 December 2022. The Employer failed to pay on time, and on 16 December 2022, the Contractor served a notice of specified default under clause 8.9.1. The Employer paid in full on 29 December 2022, within the 28-day cure period specified in clause 8.9.3.
Subsequently, Payment Notice 32 required payment of £365,812.22 by 17 May 2023. The Employer again failed to pay on time. On 18 May 2023, the Contractor issued a notice of termination under clause 8.9.4, claiming this was a repetition of the specified default from December.
Issues
The sole issue was one of contractual interpretation:
Can the contractor terminate its employment under clause 8.9.4 of the JCT 2016 Design and Build Form, in a case where a right to give the further notice referred to in clause 8.9.3 has never previously accrued?
The Employer’s Position
The Employer argued that before a termination notice can be validly served under clause 8.9.4, the Contractor must previously have had an accrued right to terminate under clause 8.9.3. Since the December late payment was cured within 28 days, no such right had accrued, and therefore the Contractor could not immediately terminate for the May late payment.
The Contractor’s Position
The Contractor argued that where there has been a repetition of a specified default, there is no requirement that the right to terminate has previously accrued under clause 8.9.3. The Contractor was therefore entitled to terminate immediately upon the May late payment.
Judgment
The Supreme Court unanimously allowed the Employer’s appeal. Lord Burrows, delivering the judgment with which Lord Reed, Lord Briggs, Lord Stephens and Lord Richards agreed, held that clause 8.9.4 is parasitic on clause 8.9.3 rather than independent of it.
Natural Meaning of the Words
Lord Burrows explained that the opening words of clause 8.9.4 are essential to understanding its meaning:
If clause 8.9.4 were independent of clause 8.9.3 there would be no need for those opening words. If all that is needed for the Contractor to terminate is that the Employer has repeated a specified default, the clause would simply start with the words in clause 8.9.4.1, ‘If the Employer repeats a specified default…’. In contrast, the opening words of clause 8.9.4 are essential if clause 8.9.4. is parasitic on clause 8.9.3.
Lord Burrows stated that the Contractor’s interpretation would render the opening words of clause 8.9.4 superfluous:
The interpretation put forward by Mr Chennells for the Contractor contradicts the objective natural meaning of the words in their context because, essentially, his suggested interpretation renders the opening words of clause 8.9.4 superfluous. Even if not superfluous, they are on his alternative interpretation unclear and ambiguous.
Commercial Consequences
The Court found that the Employer’s interpretation produces a rational outcome, while the Contractor’s interpretation would produce an extreme result:
The rational consequence is that it is only where the earlier breach (for which a specified notice of default was given by the Contractor) went uncured for 28 days, and was in that sense particularly serious, that the Contractor can terminate immediately for a further late payment.
Lord Burrows observed that the Contractor’s interpretation would mean:
For example, if the Employer made two late payments, each being made one day late, the Contractor, on this interpretation, would be entitled to serve a notice terminating the contract (provided a specified default notice had been served in respect of the first late payment). That might be thought to provide a sledgehammer to crack a nut.
Comparison with Clause 8.4
The Court rejected the Court of Appeal’s heavy reliance on clause 8.4 (termination by Employer) for three reasons: there is no necessary reason why termination rights should be symmetrical; the clauses as incorporated were already asymmetrical in various respects; and different words were deliberately used in clause 8.4.3 compared to clause 8.9.4.
Why use that different wording (ie the inclusion in clause 8.4.3, but not in clause 8.9.4, of the words ‘as a result of the ending of any specified default’) if the two clauses had the same meaning? That would be especially puzzling given that the JCT standard form is the carefully considered product of the work of experienced construction professionals advised by expert lawyers.
Implications
This decision has significant implications for the construction industry as it clarifies the interpretation of a widely-used termination clause in the JCT Design and Build Contract, which remains unchanged in the 2024 edition. Contractors must now ensure that a right to terminate has previously accrued under clause 8.9.3 before they can terminate under clause 8.9.4 for a repeated specified default. This means that where an employer cures a specified default within the 28-day period, the contractor cannot immediately terminate for a subsequent late payment but must wait to see if that subsequent default is also cured within the relevant period.
Lord Burrows acknowledged that if this interpretation creates difficulties for contractors dealing with cash-flow problems caused by late payments, the solution lies with the JCT rather than judicial interpretation:
If there is a problem for Contractors, which could be justifiably ameliorated by a differently worded termination clause, that is a matter for the JCT to consider, in the light of this judgment, in a future draft of the standard form contract.
Verdict: Appeal allowed. The Supreme Court held that a contractor cannot terminate its employment under clause 8.9.4 of the JCT 2016 Design and Build Form where a right to give the further notice referred to in clause 8.9.3 has never previously accrued. The Contractor’s termination notice was therefore invalid.
Source: Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1
