Clarifying a contractor's right to terminate under a JCT Design & Build Contract 2016 | Fieldfisher
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Clarifying a contractor's right to terminate under a JCT Design & Build Contract 2016

Alex Delin
01/12/2023

Locations

United Kingdom

The judgment handed down in Providence Building Services Limited v Hexagon Housing Association Limited provided important clarification of a Contractor’s right to terminate its employment.

Background

Providence Building Services Limited agreed to construct buildings at a site in Purley for Hexagon Housing Association, under an amended JCT Design and Build Contract, 2016 edition. 

Providence sought a Part 8 declaration over the meaning of Clause 8.9. Hexagon issued a Payment Notice obliging it to pay Providence about £260,000 by 15 December 2022.

Hexagon did not pay so Providence served a Notice of Specified Default under Clause 8.9.1 the next day 16 December 2022.

The following year, Hexagon issued a second payment notice on 28 April 2023 with a final date for payment 17 May 2023 for about £360,000.

Again, Hexagon did not pay by this date and Providence issued a Notice of Termination the next day 18 May 2023 pursuant to Clause 8.9.4 (as well as accepting an alleged repudiatory breach of the contract). According to Providence, a specified default had been repeated because of not paying the notified sum on two separate occasions.

Hexagon paid up but challenged the validity of the Notice of Termination, in turn accepting Providence's own repudiation by invalidly terminating.

Hexagon referred the matter to adjudication and, substantively, succeeded.

The judgment

The main issue was the meaning of Clauses 8.9.3 and 8.9.4. which enables a contractor, here Providence, to terminate within 21 days of the 28th day the Notice of Specified Default was issued on the basis the default continues for 28 days, or if no such second notice is given, within 28 days after the default is repeated.

Importantly, Mr Williamson KC held on proper construction of Clauses 8.9.3 and 8.9.4, this does not give Providence the right to "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 because the 28 days are provided to cure the specified default that arises.

A Clause 8.9.3 notice, i.e. the second Notice of Specified Default, could be given upon the second instance of non-payment, but here Providence issued a Notice of Termination instead.

To dispense with these requirements would "allow a tigger-happy Contractor to terminate for repeated default, even if the default was a very small underpayment or a small delay in payment".

Significance

Providence were effectively trying to argue it was not necessary for a right to terminate to have arisen a second time to be able to terminate. Hexagon maintained it was.

Otherwise, a contractor could be in default, remedy the breach, enabling an employer to capitalise on that past breach to sidestep the terms of the contract and terminate immediately without any opportunity for the employer to remedy.

The Court has clarified, to the extent it was not previously clear, that a right to terminate must first accrue before exercising that right.  

With thanks to Solicitor Apprentice Hannah Farrell, co-author of this article.
 

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Construction