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The decision of the English Court of Appeal in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962 provides important guidance on a contractor’s termination rights under the 2016 JCT Design and Build Contract. The case addresses a narrow but significant issue: Whether a contractor can terminate under clause 8.9.4 for repeated defaults if no prior right to terminate under clause 8.9.3 had accrued. The appellate court unanimously allowed the appeal, offering a pro-contractor interpretation of termination provisions.
Factual Background
Hexagon Housing Association Ltd (Hexagon), as Principal, and Providence Building Services Ltd (Providence), as Contractor, entered into a JCT Design and Build Contract in 2019 (Contract). The Contract provided mechanisms for interim payments and stipulated the conditions under which either party could terminate.
Clause 8.9 of the Contract allowed the contractor to terminate for defaults by the principal, including for non-payment. The relevant clauses are set out below:
- Clause 8.9.1 allows the contractor to issue a notice specifying a principal’s default (e.g., non-payment) (Default Notice).
- Clause 8.9.3 permits termination by further notice if that specified default set out in the Default Notice continues unremedied for 28 days following issue of the Default Notice.
- Clause 8.9.4 allows termination if the contractor for any reason does not give the further notice referred to in clause 8.9.3, but the principal repeats the specified default.
The dispute arose when Hexagon made late payments on two occasions. Although Hexagon paid the sums due within 28 days of Providence issuing the Default Notice, Providence sought to terminate the Contract under clause 8.9.4, arguing that Hexagon had repeated a “specified default” i.e. non-payment by the final due date for payment.
The High Court initially found in favour of Hexagon, holding that termination under clause 8.9.4 could only occur if a right to terminate under clause 8.9.3 had previously arisen. On appeal, Providence challenged this narrow construction.
The question for the court to address was whether clause 8.9.4 could be invoked even if no clause 8.9.3 right had arisen (e.g., if the principal “cured” the first default in time but then defaulted again later).
Court of Appeal’s Decision
The Court of Appeal ruled in favour of Providence, holding that the contractor was entitled to terminate under clause 8.9.4. Lord Justice Stuart-Smith emphasised that the clause’s wording should be interpreted according to its plain meaning. The phrase under clause 8.9.4 “for any reason does not give the further notice referred to in clause 8.9.3” does not impose a requirement that the contractor must have previously had a right to terminate under clause 8.9.3. Instead, it applied broadly to any scenario where a contractor had not served that notice – including where they could not do so because the principal remedied the default within 28 days.
The court also rejected Hexagon’s argument that this interpretation was commercially unreasonable. Without the ability to terminate for repeated defaults, a principal could consistently delay payments just short of the threshold, leaving the contractor without an effective remedy. The ruling reinforces that timely payment is essential, and repeated late payments can justify termination, even if previous defaults were remedied in time.
Further supporting this view, the Court noted the parallel language between clause 8.9 (which governs the contractor’s termination rights) and clause 8.4 (which grants the principal similar rights for contractor defaults). This symmetry suggested that both parties should be held to the same standard, supporting Providence’s position.
Finally, the Court stressed that standard form contracts such as the JCT should be interpreted based on the words used, rather than any specific background facts of the contract. There was no justification for reading additional restrictions into clause 8.9.4 that were not explicitly stated. On this basis, the Court of Appeal overturned the High Court’s decision, confirming that Providence had lawfully terminated the contract.
Relevance and Application in New Zealand
Although New Zealand commonly uses NZS3910 rather than JCT standard form contracts for construction projects, many of the underlying principles, particularly around termination for default, are similar.
NZS3910:2023 contains detailed provisions around payment obligations (primarily in clauses 12 and 13), default, and termination. Specifically, under NZS3910:2023 clause 14.3.1, a contractor may terminate if the principal fails to pay a certified amount by the due date and does not remedy the default within 10 working days of notice. However, unlike the JCT contract, NZS3910 does not explicitly provide a right to terminate for repeated defaults if each instance is remedied within the notice period. In contrast, JCT clause 8.9.4 allows termination if a principal repeats a specified default – even if no prior right to terminate had accrued under clause 8.9.3.
Under NZS 3910:2023, a principal who consistently pays late but within the 10-day notice period may not automatically trigger termination rights. In such cases, a contractor may need to rely on providing notice to the Contract Administrator under clause 14.3.1(b) and/or (f). It may be possible to argue repudiation of contract, by suggesting that persistent payment breaches demonstrate an unwillingness to perform contractual obligations in good faith. Providence v Hexagon could be persuasive in supporting such an argument, reinforcing the idea that termination should be available where a principal repeatedly defaults, even if individual breaches were remedied within prescribed timeframes.
If you have any questions about construction contracts, please get in touch with our Construction Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where require
