JCT termination rights – repeated breach and termination
8 December 2023
In the recent, thus-far unreported, case of Providence Building Services Limited v Hexagon Housing Association Limited the TCC gave useful guidance on the operation of the termination provisions of the JCT Design & Build Contract 2016.
Hexagon employed Providence to construct a development in Purley. Hexagon was late in paying the sum due under Payment Notice 27. Providence served a Notice of Specified Default under clause 8.9.1 of the contract, which required Hexagon to remedy the specified default within 28 days of the date of the notice. Hexagon rectified the issue and paid up before expiry of the Notice of Specified Default.
So far, so common. The contract was working as intended, right?
The problem was, Hexagon was late again. This time in paying the sum due in respect of Payment Notice 32. The day after the final date for payment, Providence issued a termination notice, pursuant to clause 8.9.4.
Hexagon paid the sum due and then challenged the validity of the termination notice. Hexagon’s case was that the right to terminate for repeated breach only accrued if Hexagon had failed to pay within the period referred to under the original Notice of Specified Default – i.e. the right to terminate must have arisen first.
Providence interpreted the contract differently – it argued that the contract gave it the right to terminate the contract immediately for any repeat of a breach previously identified in the Notice of Specified Default, whether or not that breach had been cured within the original period.
The TCC (as well as an adjudicator) agreed with Hexagon and held that Providence’s purported termination of the contract was unlawful.
The TCC also specifically acknowledged that there is an asymmetry between the termination rights of the parties – with employers having more favourable rights of termination of contract than contractors.
The Birketts view
This case gives some useful clarity on a clause which is regularly relied on by contractors. It should give employers comfort that, providing they get their house in order within the period of the Notice of Specified Default, they will not be on a final warning for the rest of the contract.
In contrast, contractors may feel more exposed to employers who might routinely delay payment. The right of suspension under clause 4.11 may give contractors the leverage they need to ensure employers do not abuse this advantageous interpretation.
This might not be the end of the matter – there are whispers of an appeal, but it would take a very brave contractor to follow Providence’s approach to termination unless and until an appeal is heard not least given the potential for a loss of profit claim in circumstances where the contractor gets it wrong! Likewise, employers would be better avoiding repeated breaches given the risk that the Court of Appeal may yet take a different view.
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 December 2023.