The Supreme Court's recent judgment in Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1 brings important clarity to the workings of JCT Design and Build 2016 termination provisions, particularly around clauses 8.9.3 and 8.9.4.
The appeal concerned an extremely important contractual interpretation point, not only because the JCT form of contract is so widely used in the construction industry, but also since the wording is unchanged in the latest 2024 edition of the contract.
The judgment provides a sobering reminder to contractors that even small slip-ups in payment paperwork can derail what is believed to be a clear right to termination.
Background of the case
Hexagon contracted Providence in February 2019 to construct a development in Purley, London, using an amended JCT Design and Build contract.
This included two amendments increasing the payment timing from 14 to 28 days that would form the basis of the disagreement.
|
Clause 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.'
|
|
Clause 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; 2. a specified suspension event is repeated for any period, such that the regular progress of the Works is or is likely to be materially affected thereby, 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, Hexagon failed to make a payment in time with the contract provisions.
Providence served a notice of specified default under clause 8.9.1, following which Hexagon made payment, rectifying the default within the 28-day period specified by clause 8.9.3, in keeping with a contract amendment that changed the standard period of 14 days to 28 days.
In May 2023, Hexagon again failed to make a payment in time. Providence promptly served a notice of termination under clause 8.9.4, on the basis that this was a repeat of the specified default which had previously been notified.
Providence argued that no new notice of specified default under clause 8.9.1 was required before moving to notify termination under clause 8.9.4, because Hexagon had not given the further notice referred to in clause 8.9.3 prior to the specified default being repeated.
Hexagon disputed the validity of the termination, referring the dispute to adjudication, where the adjudicator decided in Hexagon's favour.
Providence subsequently commenced court proceedings seeking a judgment on the interpretation of clauses 8.9.3 and 8.9.4.
The High Court also favoured the employer, Hexagon, by finding that no right to terminate had arisen in circumstances where the first instance default, specified in the notice of specified default, had been cured within the 28-day period.
However, the Court of Appeal overturned the High Court decision. It found that the wording of clause 8.9.4, which included 'for any reason', was broad enough to include a scenario where the further notice of default had not been issued because the default in question had been remedied.
The Court of Appeal found that Providence was entitled to terminate due to Hexagon's repeated specified default.
Hexagon was granted leave to appeal this decision, leading to the case being before the Supreme Court for a final ruling.
The Supreme Court decision
The key question was whether the contractor can terminate the employment under clause 8.9.4, where a right to give the further notice referred to in clause 8.9.3 has not previously accrued, because the first instance of late payment had been cured within the permitted clause 8.9.3 timeframe.
The Supreme Court made it clear that the objective intentions of the parties should still be considered.
Even when the interpretation of standard forms of contract, such as the JCT, is required, the objective natural meaning should be given to the words of the contract.
Regarding the correct interpretation of the two clauses, the Supreme Court found that clause 8.9.4 was 'parasitic' on clause 8.9.3 – it was not independent of it.
The Court found that in order to use clause 8.9.4 to terminate a contract, the defaulting party must have failed to rectify the specific default that has arisen during the 28-day period stated in 8.9.3.
Only after failing to rectify that specific default can the contractor use 8.9.4 to terminate the contract. Essentially, the accrued right provided for by clause 8.9.3 is the 'gateway' to termination provided for by clause 8.9.4.
The Supreme Court found in favour of Hexagon and reversed the Court of Appeal's decision.
Lord Burrows, in his explanation of the judgment, stated that Providence's interpretation of clause 8.9.4 contradicts the objective natural meaning of the words in their context because such an interpretation renders the opening words of clause 8.9.4 'superfluous', whereas Hexgon's interpretation produced a rational and less extreme consequence.
'Regarding the correct interpretation of the two clauses, the Supreme Court found that clause 8.9.4 was 'parasitic' on clause 8.9.3 – it was not independent of it'
Impact of the decision on the construction industry
The Supreme Court's decision means that a late payment may not give rise to a termination right, unless the contractor's paperwork is timely, accurate and issued correctly.
Providence believed that it had suffered two late payments and that the second late payment triggered its right to terminate. However, based on the decision, a chronology of late payments does not automatically assume a right to terminate.
The right to terminate only crystallises provided that the necessary time defined in the contract has passed and a specified notice of default has been issued.
The contractual provisions must be followed strictly, in order for the contractor to hold the right to terminate.
Contractors must pay particular attention to the terms of their contracts, and follow them exactly if they find themselves in a position where they wish to terminate as a result of delayed payment.
On the other hand, employers benefit from the decision of the Supreme Court. It essentially means that they can repeatedly pay late, as long as payment is provided within the timeline provided by clause 8.9.4.
Even if repeated payment breaches exist, once payment is within the timeline, they are not at risk of termination. This allows for an imbalance in termination rights.
To address this imbalance, contractors should think ahead prior to entering into contracts, and consider introducing bespoke amendments when the contract is being drafted.
Options are available to contractors here, such as shortening the delay period before the right to termination crystallises, or introducing a clause that removes the ability of the employer to 'reset the clock' once payment is made within the contracted time period in clause 8.9.3.
Contractors need to be aware of the termination rights that are granted to them by a contract before entering into that contract, especially regarding delayed payment by the employer. They are recommended to seek legal advice so that bespoke drafting can be incorporated in to the contract, in order to restore balance to termination rights.
Contractors should also be aware of the specifics of their contract should they wish to begin the termination process.
Their contract will provide strict requirements that must be followed to ensure that they can properly terminate the contract should there be a breach of payment obligations by the employer.
Discover the new RICS Member App: CPD on the go
RICS has introduced a refreshed CPD approach that prioritises meaningful, high-quality learning that genuinely benefits your work and is tailored to your specialism, career stage, and the real-world challenges you face.
The new app makes logging CPD simpler and more intuitive, so you can focus on the development that matters to your practice.
