JCT contracts are widely used in the construction industry, with the aim of setting out a balanced set of contractual terms between those involved in the industry.
In a recent case, the Court had to consider the issue of whether a JCT contract[1] had been validly terminated.
The Case[2]
In 2019 Hexagon and Providence entered a JCT contract for the construction of a number of buildings, at a cost of around £7.2 million.
The contract including the standard payment mechanism, under which Hexagon had to pay interim payments within 21 days and if it failed to do so for 7 days after the final date for payment, Providence could suspend its obligation to provide building services.
In December 2022, Hexagon failed to pay an interim payment by the final date and Providence issued a notice of default. However, it did make the payment before the 28 day period allowed before a right arose for Providence to terminate the contract.
In May 2023, Hexagon failed to make another interim payment in time. On the day after the final date for payment, Providence issued notice of termination, based on a repetition of the default regarding the December payment.
Hexagon responded by paying the sum due, alleging that Providence’s termination was invalid and in turn asserting that Providence had repudiated the contract.
In the Court of Appeal, the judges considered specific wording of the JCT contract.
“Default by Employer
8.9.1 If the Employer:
.1 does not pay by the final date for payment the amount due to the Contractor in accordance with clause 4.9 and/or any VAT properly chargeable on that amount; or
.2 [Number not used]; or
.3 fails to comply with clause 3.16,
the Contractor may give to the Employer a notice specifying the default or defaults (a ‘specified’ default or defaults)….
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.
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.
Hexagon argued that clause 8.9.4 presupposes the prior existence of an accrued right to give a notice of termination under clause 8.9.3. It also saw the provisions of 8.9 as a sequence to be followed rigidly, before a right to terminate under 8.9.4 arose.
Providence’s view, which was the one preferred by the Court, was that 8.9.4 could be considered in isolation, without the need to give a further notice under clause 8.9.3 and it was justified in giving the notice to terminate.
Take Away Point
The case demonstrates the importance of being fully aware of the terms on which you enter a contract and in construction contracts, particularly for the employer.
As was said in the case[3]: “.. the commercial consequences of Providence’s interpretation represent a contractual allocation of risk that is commercially acceptable, even though it renders the Employer’s ice thinner from the outset than would be the case if Hexagon’s interpretation were to be adopted.”
[1] The particular contract was the 2016 Edition of the JCT Standard Form of Design and Build Contract
[2] Providence Building Services Ltd -v- Hexagon Housing Association Ltd 2024 EWCA Civ 962
[3] By Lord Justice Stuart-Smith, para 42