Key takeaways
Repeat defaults by an employer do not risk immediate termination
Contractors must have an earlier accrued unexercised termination right under the JCT to terminate for a repeat.
JCT termination regime favours employers
Only contractors are at risk of immediate termination for repeating defaults under the JCT.
Standard forms require consistent industry interpretation
The courts favour uniform interpretation of standard forms such as the JCT and the NEC.
In Providence Building Services Limited (Respondent) -v- Hexagon Housing Association Limited (Appellant) [2026] UKSC 1, the Supreme Court has finally brought an end to a hard-fought battle concerning the proper interpretation of the termination provisions in the JCT suite of contracts. This decision is of significant importance to the construction industry, resolving long-standing uncertainty as to how these provisions should operate.
The facts
The relevant background facts of the case are as follows:
Hexagon employed Providence to carry out certain works pursuant to a JCT Design and Build Contract 2016 with bespoke amendments (the “Contract”).
The Contract incorporated the employer default provisions at clause 8.9 of the standard form, with only minor amendments, which provided that:
A failure to make payment before the final date for payment would entitle Providence to give notice of a specified default (cl.8.9.1.1) (the “Default Notice”);
Providence were entitled to issue a further notice to terminate its employment in the event a specified default continued for 28 days (amended from 14 days) from receipt of a notice under clause 8.9.1;
on the expiry of this 28 period; or,
within 21 days thereafter (cl.8.9.3) (the “Termination Notice”);
If Providence “for any reason” did not give the Termination Notice referred to in clause 8.9.3, but Hexagon repeated the same specified default then, upon or within 28 days of such repetition, Providence became entitled to terminate its employment by notice (cl.8.9.4) (the “Repeat Notice”).
In December 2022, Hexagon failed to pay a notified sum before the final date for payment, resulting in Providence serving a notice of specified default the following day (a Default Notice).
Hexagon made payment of the outstanding amount in full 13 days after this notice.
In April 2023, Hexagon again failed to pay a notified sum before the final date for payment.
Providence responded by issuing a notice of termination on the basis this was a repeat of a previously notified specified default, relying on the first notice issued in December 2022 (i.e., a Repeat Notice)
Hexagon subsequently made payment of the outstanding amount in full, and thereafter accepted what it considered to be a repudiatory breach of contract by Providence in terminating its employment.
Following a referral to adjudication, the adjudicator sided with Hexagon, resulting in Providence issuing Part 8 proceedings seeking for the court to determine the meaning and effect of these provisions.
The issue for determination
The issue for determination was whether, on a true construction of the standard JCT termination clauses, clause 8.9.4:
Empowered a contractor to terminate its employment if the employer repeated a specified default, irrespective as to whether the previously notified default had remained uncured, thereby entitling the contractor to issue a termination notice under clause 8.9.3; or,
Operated only where a specified default was repeated, and the right to issue a termination notice under clause 8.9.3 for the previously notified default had accrued, but was not exercised, for whatever reason.
The Court of Appeal previously decided that clause 8.9.4 operated independently from clause 8.9.3, meaning any repeat of a previous specified default by the employer would risk termination, irrespective as to whether it was cured in the time permitted. Hexagon appealed.
The decision
The Supreme Court overruled the decision of the Court of Appeal - finding that a contractor has no right to terminate under clause 8.9.4, unless it had already accrued the right to terminate under clause 8.9.3, which it had not exercised (i.e., the previously notified defect had remained uncured and was then repeated).
In reaching this conclusion, the court noted as follows:
The Court of Appeal’s reliance on the structure and similarities between clause 8.9.4 and 8.4.3 in reaching their judgment was misplaced. There was no reason why the right to terminate should be symmetrical as between employer and contractor given that their relevant contractual obligations were so different. The Court questioned why different words were used in the respective provisions if they were intended to have symmetrical effect.
Clause 8.9.4 must be construed in the context of clause 8.9 as a whole to understand its meaning, with 8.9.4 appearing to be parasitic on clause 8.9.3, not independent of it, primarily as it included the opening words “if the Contractor for any reason does not give the further notice referred to in clause 8.9.3…” which would otherwise be superfluous and contradict the natural meaning of the words and render them “otiose” (i.e., ineffective).
Interpreting clause 8.9.4 in the manner advanced by Providence (and accepted by the Court of Appeal) would lead to more extreme outcomes, as it would allow a contractor to terminate for any repeated late payment (i.e., two instances where payment was one day late) provided a specified default notice had been served previously. In contrast, the Court concluded that its preferred interpretation reflected the objective natural meaning of the wording within the context of clause 8.9 as a whole, and produced a less extreme, more rational outcome consistent with the seriousness of termination rights.
Commentary
In summary, the judgment represents a decisive win for employers, with contractors operating under the unamended terms losing what could have been a significant tool in their armoury when in dispute with an employer. Other options are of course available but arguably none as draconian as that previously afforded with by the Court of Appeal in this case.
In addition to the protection from the risk of immediate termination for promptly cured late payments - employers have also benefited from the court’s clear distinction between employers’ rights to terminate under clause 8.4, which, contrastingly, allows employers the right to terminate for repeated defaults, notwithstanding the absence of an accrued right to terminate for the previous breach. Given this lack of equity, if notified of an alleged specified default, contractors will need to remain vigilant throughout the lifespan of the project.
With the above in mind, amendments to the standard form JCT remain something to be carefully considered, particularly for contractors, with the current 2024 suite retaining the same clause 8.9 wording as the 2016 edition considered by the courts in this case.
The court also offered some noteworthy observations on the interpretation of industry-wide standard forms, such as the JCT and NEC suites, stating that “…where parties choose to use an industry-wide standard form, it can generally be taken that their objective intentions in the relevant context are that their respective rights and obligations should… reflect the objective intentions of those who were concerned with the drawing up of that standard form agreement.” In essence, the court clarified that the provisions in these standard forms should be interpreted consistently across the industry, and that this wider understanding is unlikely to be contradicted by the objective intentions of the contracting parties for a specific project. Parties often agree to adopt standard form contracts without too much consideration. For those unfamiliar with the intricacies of those contracts, these comments should be borne in mind.
