The recent High Court decision of Providence Building Services Limited -v- Hexagon Housing Association Limited [2023] provided clarification on a contractor’s right to terminate its employment under a JCT Design and Build Contract 2016 (‘JCT DB2016’).
Facts of the case-
The case was brought by Providence Building Services, the contractor, who was employed by Hexagon under an amended JCT DB2016 contract. Providence had submitted an interim payment application and Hexagon had failed to make payment by the final date for payment. As a result, Providence proceeded to issue a notice of specified default, pursuant to clause 8.9.1.1 of the JCT DB2016. Following the issue of the default notice, Hexagon proceeded to make payment in full, rectifying the default within the 28-day period specified in clause 8.9.3 of the amended JCT 2016.
Hexagon then failed to make a subsequent interim payment by the final date for payment and Providence proceeded to serve a termination notice citing clause 8.9.4 and relying on the notice of specified default issued in respect of the previous late interim payment. In the alternative, Providence argued that Hexagon’s second failure to pay an interim payment by the final date for payment amounted to a repudiatory breach of contract by Hexagon, which Providence was entitled to accept.
Hexagon disputed Providence’s ability to terminate under clause 8.9.4 or by acceptance of an alleged repudiatory breach by Hexagon. The parties were unable to resolve the dispute and Providence began to vacate the site, resulting in Hexagon notifying Providence of its acceptance of what it said was then a repudiatory breach by Providence.
The dispute was first referred to adjudication. The adjudicator concluded that Providence had no right to terminate under clause 8.9.4 as Hexagon’s failure to pay a later interim payment did not amount to a repeat by it of a “specified default” (since the failure to pay a later interim payment was a different “specified default”, not a repeat of an earlier one).
Providence then brought a Part 8 claim for a declaration as to the correct construction of clause 8.9.4 of the JCT Design and Build Form 2016 and whether it had therefore been entitled to terminate its employment based on Hexagon’s second late payment, without first having (a) served another specified default notice; and (b) waited the requisite period of time to allow the specified default to be remedied.
Terms of the unamended JCT
Clause 8.9.3 sets out that: ‘if a specified default or a specified suspension event continues for 14-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 14-day period by a further notice to the Employer terminate the Contractor’s employment.’
Clause 8.9.4 states that ‘if the Contractor for any reason does not give the further notice referred to in clause 8.9.3…the Employer repeats a specified default;…then, upon or within 14-days after such repetition, the Contractor may by notice to the Employer terminate the Contractor’s employment.’
Hexagon had amended these provisions to provide 28 days, where the standard contract provided 14 days.
Judgment
The Court had to rule over the correct interpretation of clause 8.9.4 and whether a right to terminate under clause 8.9.3 must first arise. The Court came to the conclusion that it was necessary that a right to terminate the contract under clause 8.9.3 must have first arisen before Providence had a right to terminate its employment under clause 8.9.4.
Providence did not have any right to terminate its employment under clause 8.9.3 as Hexagon had remedied the specified default before the right to terminate had arisen (ie: the first instance of failing to pay an interim payment by the final date for payment of it). Thus, Providence’s termination notice was held to be invalid; and it was held to have committed a repudiatory breach of contract by terminating and leaving the site in circumstances where it had no right to do so. Providence was denied permission to appeal.
The lesson arising from the Providence case is that if a contractor is looking to utilise a contractual or common law right to terminate it is vital that it seeks legal advice before doing so. A failure to exercise a contractual or common law right to terminate correctly is likely, as in the Providence case, to amount to a repudiatory breach of contract by a contractor. The implications of that for a contractor is a claim by its Employer for the additional costs incurred by the Employer in engaging an alternative contractor to complete the Works; and the delay-related costs associated with the fact that the Works will likely take much longer to complete.
Our Construction and Regulatory team are happy to advise on any construction and contractual issues. Our Insolvency and Debt Recovery team can advise on any financial difficulties surrounding late payment or termination.
