Supreme Court rules on termination for repeated breach under the JCT
The Supreme Court yesterday overruled a Court of Appeal decision in relation to the JCT termination provisions for repeated breach, finding that Contractors must have previously had a right to terminate before a fresh right to terminate for repeated breach will arise. This decision restores what was largely thought to be the position prior to the present litigation. It will be particularly welcome to Employers under the JCT form who had become exposed to, in the Supreme Court’s words, “extreme” consequences following the interpretation adopted by the Court of Appeal.
Providence Building Services Limited v Hexagon Housing Association Limited: a recap
Providence and Hexagon entered into a JCT Design and Build 2016 contract, in largely standard form save for notice periods. Clause 8.9 provided Providence with a right to terminate for non-payment among other things. The clause required Providence to serve an initial notice (a “Default Notice”) specifying the default and giving Hexagon a period of 28 days to make good the arrears, failing which it would be entitled to serve a notice terminating its employment under the contract (the “Further Notice”). Clause 8.9.4 of the contract provided an additional right to terminate in circumstances where Providence had “for any reason” not given the Further Notice and Hexagon had repeated a default specified in a Default Notice.
Providence sought to terminate its employment under the contract relying on clause 8.9.4. Providence had issued a Default Notice following late payment by Hexagon. Payment was made within the 28 day cure period and the right to terminate by a Further Notice did not arise. However, when Hexagon delayed in making a subsequent payment, Providence sought to terminate on the basis that Hexagon had repeated the default specified in Providence’s original Default Notice.
The TCC found that no right to terminate had arisen in circumstances where the default specified in the Default Notice had been cured within the 28 day period. The reference in clause 8.9.4 to Providence not giving the Further Notice assumed that Providence had been entitled to serve such a notice (i.e. because the default had not been cured).
The Court of Appeal overturned the TCC’s decision, finding that the words “for any reason” in clause 8.9.4 included a scenario where the Further Notice had not been given because the default in question had been cured. It drew support for this interpretation from similar rights of termination for repeated breach given to Hexagon. These rights involved the same Default Notice and Further Notice procedure and expressly stated that the right to terminate for repeated breach would arise if the Further Notice was not given “whether as a result of the ending of any specified default or otherwise”. These words, in the Court of Appeal’s judgment, expressly contemplated the ending of a specified default within the cure period. Providence’s equivalent right in clause 8.9.4 must be at least as wide, as the wording in that clause refers more broadly to the Further Notice not being given “for any reason”.
For a more detailed review of the TCC and Court of Appeal decisions, please see our earlier Law-Nows here and here.
The Supreme Court
The Supreme Court has restored the TCC’s original decision. In its judgment, the right to terminate for repeated breach in clause 8.9.4 was dependent or “parasitic” on the primary right to terminate by issuing a Further Notice where the specified default had not been cured within the cure period. With this in mind, the Court noted that the words of clause 8.9.4 which refer to a Further Notice not having been given “for any reason” would be superfluous if the Court of Appeal’s interpretation were correct. It would have been sufficient to begin with the second part of the clause i.e. the simple requirement that Hexagon had repeated a specified default.
The Supreme Court also considered this interpretation to be less extreme than that adopted by the Court of Appeal. It meant that an earlier breach specified in a Default Notice would need to go uncured for 28 days, and would in that sense be sufficiently serious, before Providence would be entitled to terminate for a further late payment. The Court of Appeal’s interpretation, on the other hand, could allow termination where two payments had been late by only one day. In the Supreme Court’s judgment, that “might be thought to provide a sledgehammer to crack a nut”.
The Supreme Court also considered the Court of Appeal’s reliance on similar rights of termination for repeated breach given to Hexagon to be misplaced. There was no reason why the two sets of clauses should have the same interpretation when they were dealing with different defaults and involved different notice periods. Moreover, the different wording used in relation to the failure to give a Further Notice suggested, contrary to the Court of Appeal’s view, that a different interpretation should be given to Providence’s right to terminate under clause 8.9.4.
Conclusions and implications
This is an important decision for those contracting on the JCT form of contract. The extreme consequences for Employers created by the Court of Appeal’s decision and noted in our earlier Law-Now appear to have weighed heavily in the minds of the Supreme Court Justices. These have now been avoided and Employers will no longer need to make bespoke amendments to the standard form in order to achieve a commercially acceptable position.
On the other hand, the Supreme Court has made no mention of the avoidance tactics available to Employers on the interpretation which it has upheld. Employers will now be aware they can repeatedly pay late without the risk of a Contractor termination under clause 8.9.4, provided payment is made within 28 days of a Default Notice from the Contractor. Whilst repeated late payments can in some circumstances give rise to a right to terminate at common law for repudiation, such conduct must first deprive the Contractor of substantially the whole of the benefit of the contract (see Valilas v Januzaj). Given the other remedies provided for late payment under the JCT form, terminating on such grounds is likely to carry significant risks and be unattractive to many Contractors.
Contractors may wish to press for amendments to prevent Employers engaging in such tactics, although a middle ground between the two interpretations considered in this case is likely to be necessary if Employers are to agree. The Supreme Court also noted that any difficulties of this nature would be for the JCT drafting committee to consider in future editions of the standard form. Whether the committee will take up this invitation, and whether the diverse interests represented by the committee are able to reach agreement on any amendments, remains to be seen.
References:
Valilas v Januzaj [2014] EWCA Civ 436
Providence Building Services Limited v Hexagon Housing Association Limited [2023] EWHC 2965 (TCC)
Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962
Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1
