Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962
This recent decision should sound as a stark warning to Employers under JCT contracts over the perils of failing to make payments on time. Overturning the first instance decision, the Court of Appeal held that the Contractor was entitled to terminate its employment based on just two late payments, each of which was rectified within 14 days.
Background
Hexagon Housing Association Limited ("Hexagon") engaged Providence Building Services Limited ("Providence") to construct a number of buildings under a contract (the "Contract") incorporating the 2016 JCT Design and Build Contract as amended by the parties.
Clause 8.9 of the Contract set out the circumstances in which Hexagon could terminate its employment under the Contract as follows:
"8.9.1 If the Employer:
1. does not pay by the final date for payment the amount due to the Contractor in accordance with clause 4.9 and/or any VAT properly chargeable on the that amount...
the Contractor may give to the Employer a notice specifying the default or defaults (a 'specified' default or defaults).
8.9.3 If a specified default or a specified suspension event continues for 28 days from the receipt of the 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):
.1 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."
In December 2022, Providence issued a notice under clause 8.9.1 in respect of Hexagon's failure to pay the amount specified under Employer's Agent Payment Notice 27 by the final date for payment. Hexagon paid the amount due to Providence before the 28 day period under clause 8.9.3 had expired.
In May 2023, Hexagon failed to pay the amount specified under Employer's Agent Payment Notice 32 by the final date for payment. Providence gave notice that Hexagon had repeated a specified default and stated that it had terminated its employment under clause 8.9.4 of the Contract.
Hexagon paid the amount due under Payment Notice 32 and asserted that Providence had repudiated the Contract. Hexagon referred the dispute to adjudication. The adjudicator found in favour of Hexagon and so Providence commenced Part 8 proceedings regarding the operation of clause 8.9.4.
First instance decision
At first instance, the Court held that the right to give notice under clause 8.9.4 only arose where a notice could have been given under clause 8.9.3 but the Contractor had decided not to do so. Accordingly, if the first specified default had been remedied within the 28 day period under clause 8.9.3, it could not be relied upon as the basis for giving a notice under clause 8.9.4.
Appeal
The Court of Appeal disagreed and held that the words "for any reason" in clause 8.9.4 were wide enough to cover cases where the reason that a notice had not been given under clause 8.9.3 was because the right to give that notice had never arisen. Accordingly, Providence was entitled to give notice under clause 8.9.4 of the Contract and terminate its employment.
The Court of Appeal acknowledged that this left Employers on thin ice in respect of late payments and would potentially allow a Contractor to terminate for repeated default even where either the underpayment was very small or the delay was very short. However, the Court of Appeal considered this was a commercially acceptable allocation of risk, especially given the potential for a serial defaulter to escape significant consequences if they managed to end their defaults within the 28 day period.
Concluding thoughts
Given the significant consequences of purporting to terminate a contract without the right to do so, it is crucial that parties understand the extent of their contractual rights. Save for the periods of time, clause 8.9.4 was unamended from JCT standard form wording. Accordingly, this judgment provides helpful guidance which should have broad application. Employers may be alarmed by how little leeway they are afforded in respect of late payments, whilst Contractors will likely observe that this should deter serial late payers. However, certainty over the contractual rights should benefit all.
In reaching its decision, the Court of Appeal cited two judgments concerning the 1998 JCT standard form in which a similar conclusion had been reached. The Court of Appeal cautioned against relying on the development of standard form wording from previous versions as an aid to interpretation but noted that there are some instances where an amendment can be confidently identified as due to a particular judgment, change in legislation or publicised event.
It is therefore notable that that the 2024 version of the JCT standard form has retained the same wording in clause 8.9. It is not clear if this was because the JCT agreed with the first instance decision or because the first instance decision was published too late for the JCT to respond. In any event, the Court of Appeal noted that the drafting of clause 8.9.4 could have been better and so this appears to have been a missed opportunity for the JCT to clarify the intention of the standard form wording.
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