Providence v Hexagon: Contractor termination under JCT - permission granted to appeal to the Supreme Court

Hexagon Housing Association Limited has been granted permission to appeal to the Supreme Court in relation to its ongoing dispute with Providence Building Services Limited. 

Background

The underlying facts giving rise to the dispute were covered in our previous blog which can be found here. In short, the case concerns the proper interpretation of clause 8.9.4 of the JCT Design and Build Contract 2016 which is incorporated (with minor amendments which do not materially affect the substance of the standard JCT clause) into the contract between Hexagon and Providence (the “Contract”). Hexagon is the “Employer” under the Contract, and Providence is the “Contractor” under the Contract. Clause 8.9.4 relates to Providence’s right to terminate in the event of default by Hexagon. 

Part 8 proceedings were commenced by Providence on 28 July 2023 in which Providence identified the dispute as “whether a right to terminate under Clause 8.9.3 must first have accrued before Providence could have any right to terminate under Clause 8.9.4.”

Clause 8.9 of the Contract

Clause 8.9 of the Contract reads as follows:

8.9       .1         If the Employer:

                        .1         does not pay by the final date for payment the amount due to the Contractor [..];

                        .2         [..];

                        .3         [..],

                        the Contractor may give to the Employer a notice specifying the default or defaults
                        (a ‘specified’ default or defaults).

            .2         [..]

            .3         If a specified default [..] continues for 28 days from the receipt of notice under clause 8.9.1
                        [..], 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.

            .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         [..],

                        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.”

Key issue

The key issue in contention is:

Did Providence, as Contractor, have the right to terminate its employment under clause 8.9.4 of the Contract in circumstances where: 

• Hexagon committed a specified default (i.e. late payment). Providence issued a default notice under clause 8.9.1 in relation to that specified default, but Hexagon rectified the specified default before Providence’s right to issue a termination notice arose under clause 8.9.3 (i.e. before the 28-day period expired); and 

   

• Hexagon then repeated the specified default (i.e. late payment again in a subsequent payment cycle). Providence did not issue a default notice under clause 8.9.1 (and so Providence’s right to terminate under clause 8.9.3 did not and could not arise); instead, Providence issued a termination notice under clause 8.9.4.

TCC

The Technology and Construction Court initially found in favour of Hexagon, in that a right for Providence to terminate, and therefore issue a termination notice, under clause 8.9.3 must first have arisen before Providence had any right to terminate under clause 8.9.4. Mr Adrian Williamson KC said, in granting the declarations sought by Hexagon, as follows:

“Neither [,,], nor clauses 8.9.3 and 8.9.4 as a whole, envisage in my view that a Contractor can give a valid clause 8.9.4 notice in circumstances where the right to give a clause 8.9.3 notice has never arisen. That is where the specified default has been cured within the 28-day period. In my view, clause 8.9.4 requires that a clause 8.9.3 notice could have been given but the Contractor has decided not to do so for whatever reason.”

It followed that the Notice of Termination served by Providence under clause 8.9.4 was invalid.

CoA

The Court of Appeal subsequently reversed the TCC’s decision, finding that a right for Providence to terminate under clause 8.9.3 did not first need to have arisen before Providence could have any right to terminate under clause 8.9.4. In allowing Providence’s appeal, Stuart-Smith LJ said:

“The correct place to start is with the words that are to be interpreted themselves. Viewed in isolation, the natural meaning of the conditional words at the commencement of clause 8.9.4 are clear: “If the Contractor . . . does not give the further notice referred to in Clause 8.9.3” are broad enough to cover any state of affairs other than one where the Contractor does give notice. Put another way, unless the Contractor gives the further notice referred to in clause 8.9.3, the condition is satisfied. Viewed in isolation there is no basis for a submission that the conditional words imply anything about whether the Contractor could or could not have given the notice. That natural meaning is reinforced by the words “for any reason”, which (at risk of paraphrasing) mean that there is to be no exception based upon the reason why the Contractor does not give the notice. Even assuming that the reason why the Contractor does not give the further notice is that the right to do so has not accrued under Clause 8.9.3, that remains within the meaning of the phrase “for any reason”.”

Consequences

It should be noted that clause 8.9.4 of the JCT Design and Build Contract 2024 contains the same wording as clause 8.9.4 of the JCT Design and Build Contract 2016. In the absence of ‘employer friendly’ amendments to the standard clause 8.9.4, this potentially has serious implications for employers who pay late.

Watch this space

The eagerly anticipated Supreme Court hearing is expected to be listed in 2025.

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