UK, Northern Ireland
Earlier this month, the UK Court of Appeal (comprising Coulson LJ, Popplewell LJ and Stuart-Smith LJ) overturned the previous decision of the High Court by handing down a judgment in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] and in doing so, provided what many may regard as a surprising clarification of the termination rights conferred on contractors under the 2016 Edition JCT Standard Form of Design and Build Contract (the "JCT Contract"). The dispute between Providence Building Services Ltd ("Providence", in its role as "Contractor" under the JCT Contract) and Hexagon Housing Association Ltd ("Hexagon", in its role as the "Employer" under the JCT Contract) concerned the true intention and interpretation of the JCT Contract, specifically, under what circumstances a Contractor's right to terminate its own employment under the JCT Contract arises on the grounds of the Employer's default. This issue will be crucial for those in the construction industry moving forward, due to the fact that similar terms have been incorporated into further contracts within the JCT suite, including the latest 2024 edition.
The crux of this case was the proper construction of clause s 8.9.4 of the contract between the parties, which was based on the JCT Contract. Clauses 8.9.3 and 8.9.4 of the JCT Contract state as follows, with the parties bespoke amendments underlined below:
"8.9.3 If a specified default or a specified suspension event continues for 28 days from the receipt of notice under clause 8.9.1 or 8.9.2, the Contractor may on, or within 21 days from, the expiry of that 28 day period by a further notice to the Employer terminate the Contractor's employment under this Contract.
8.9.4. If the Contractor for any reason does not give the further notice referred to in clause 8.9.3, but (whether previously repeated or not):
- The Employer repeats a specified default....
... then upon or within 28 days after such repetition, the Contractor may by notice to the Employer terminate the Contractor's employment under this Contract."
The parties were in agreement that Hexagon had committed a specified default under the JCT Contract by way of late payments to Providence. However, both parties also agreed that this specified default had been remedied by Hexagon paying the duly owed sums to Providence before Providence's right to termination had arisen under clause 8.9.3. Furthermore, both parties accepted that a matter of months later, Hexagon had repeated the same specified default in relation to a later payment period. It was at this point that Providence sought to invoke its right to terminate the JCT Contract under clause 8.9.4.
However, the issue between the parties was whether or not, in order to terminate under this clause 8.9.4, the Contractor first had to establish that the right to terminate the JCT Contract had previously arisen but not been availed of under clause 8.9.3.
In the first instance before an adjudicator and later before the High Court, Hexagon had successfully argued that it was essential for Providence to have previously had the right to terminate the JCT Contract under clause 8.9.3, but not have exercised this right, before any termination rights under clause 8.9.4 would arise. However, in a unanimous decision, the Court of Appeal rejected this decision and concluded that the true and proper construction of the JCT Contract, was that once the Employer has committed a specified default but the right to terminate has not arisen under clause 8.9.3 (because the specified default had been remedied) the Contractor thereafter had an immediate right to terminate the JCT Contract under clause 8.9.4 on the basis of the Employer's repetition of the specified default. In the wake of this judgment, it will be substantially easier for contractors to terminate JCT Contracts on the grounds of default by employers, noting that it is anticipated employers entering into new JCT Contracts will seek to amend the standard termination provisions in order to attempt to protect their future positions under the JCT suite of contracts.
The authors would like to acknowledge the contribution of Ruth McIlwaine.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.