Court ruling shakes up JCT contract termination for repeated breaches: what you need to know
28 August 2024
Following John Fawcett’s article from December last year which can be accessed here; the Court of Appeal has considered the first instance decision in the case of Providence Building Services Limited v Hexagon Housing Association Limited. The case centred on whether a contractor could terminate a contract for repeated late payments, even if the initial late payment was resolved quickly.
The case in a nutshell
Providence (the contractor) and Hexagon (the employer) were working under a JCT Design and Build Contract, 2016 edition.
Hexagon made two late payments:
- a payment due in December 2022, paid 14 days late
- a payment due in May 2023, which Providence used as grounds for termination; issuing a termination notice pursuant to clause 8.9.4 of the contract a day after the final date for payment.
The key question: could Providence terminate the contract based on the second late payment, even though the first was resolved within the 28-day “remedy period”?
At first instance, the TCC agreed with Hexagon and held that Providence’s purported termination was unlawful. However, the Court of Appeal has now provided further clarification on the issue.
The Court’s decision
The Court of Appeal overturned the first instance decision, and ruled in favour of Providence, allowing the termination. This decision hinged on the interpretation of Clause 8.9.4 of the JCT contract, which deals with repeated defaults by the employer.
The Court of Appeal found that:
- A contractor can terminate for a repeated default, even if the initial default was resolved quickly, and within the remedy period
- The contract doesn’t require the contractor to have had the right to terminate for the first default before it can terminate for a repeated default.
What this means for you
For contractors:
You now have more power to address recurring late payments. You don’t need to wait for an extended period of non-payment before taking action on repeated late payments. However, termination remains a serious step – consider your overall commercial relationship with the employer before pulling the trigger to terminate the contract.
For employers:
The stakes for late payments have increased significantly. Even if you resolve a payment issue quickly, a subsequent late payment could lead to contract termination. Consistent, timely payments are more crucial than ever to maintain your projects and relationships with contractors – as well as reducing the risk of contractor and supply chain insolvency.
Action points for both parties
- Review your contracts: understand the termination clauses in your JCT contracts, particularly around payment defaults.
- Implement robust payment systems: employers should ensure their payment processes are watertight, and sufficient to satisfy their contractual obligations to avoid accidental late payments.
- Keep clear records: both parties should maintain detailed records of all payments, notices, and communications.
- Communicate early: if payment issues arise, open a dialogue immediately to avoid escalation.
- Consider amendments: when negotiating contracts, consider whether you want to amend the standard JCT clauses in light of this ruling.
- Seek advice: if you’re unsure about your rights or obligations, especially in cases of repeated late payments, consult with a construction law specialist.
Remember, while this ruling provides clarity on one aspect of the JCT Design and Build contract, it doesn’t change the fundamental importance of maintaining good working relationships in construction projects. Both contractors and employers should aim for open communication and prompt resolution of issues to keep projects on track and thereby avoid the need for contract termination.
By staying informed and proactive, you can navigate these contract terms effectively, ensuring your projects remain on solid legal and financial footing.
It is also worth noting that the position remains unchanged in the 2024 edition of the JCT Design and Build Contract. Whilst the JCT drafting committee may be minded to make this expressly clear by publishing a revision to the contract; it is not unreasonable to expect the courts to reach the same conclusion, should they be faced with the same facts under the 2024 form of contract in the future.
If you require any assistance either in reviewing contract terms at the outset, or in managing issues as they arise during the course of construction, please do not hesitate to contact a member of our team. We would be happy to assist you.
-
Catherine Andrews
-
Katrina Bretten
Services
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at August 2024.