Termination for repeated breach and late payment under the JCT

A recent TCC decision has considered the meaning of the JCT termination provisions for repeated breach. The decision concludes that a contractor may only terminate for repeated breach where it has previously accrued a right to terminate in respect of an earlier breach. If the earlier breach has been remedied by the employer within the agreed period after the receipt of a notice specifying the default, the right to terminate for repeated breach will not arise. This means a contractor will not be entitled to terminate for persistent late payment if an employer ensures that payments are made within the relevant cure period after a notice specifying the default.        

Providence Building Services Limited v Hexagon Housing Association Limited

Hexagon entered into an amended JCT Design and Building 2016 edition contract with Providence for the construction of a number of buildings at a site in Purley. The contractor termination provisions of the contract were largely unchanged from the JCT wording, save for the notice periods within the clause.

Clause 8.9.1 stated that where Hexagon failed to make a payment by the final date for that payment, Providence could give Hexagon a notice of that failure as a “specified default”. Clause 8.9.3 then allowed Hexagon a period (28 days in this case) to remedy the specified default, failing which Providence could serve a notice to terminate on the expiry of the 28-day period or within a further 21 days.

Clause 8.9.4 stated that if Providence did not, “for any reason”, serve a termination notice under 8.9.3, and if Hexagon repeated a specified default, then Providence may, upon the repetition or within a further 28 days, serve a notice to terminate.

Hexagon failed to make a payment by its final date of 15 December 2022. Providence then issued a notice under clause 8.9.1 identifying this “specified default” on 16 December 2022. It is not reported in the judgment, but is understood that Hexagon made payment in full on 29 December 2022, and so within the 28 days available to it under clause 8.9.3.

Subsequently, Hexagon failed to make another payment by its final date of 17 May 2023. In response to that failure, Providence issued a notice of termination on 18 May 2023 under clause 8.9.4, relying on this second failure to make payment being a repeat of the specified default which it had notified on 16 December 2022.

Hexagon disputed that Providence had a valid contractual right to terminate under clause 8.9 and the parties applied to the court for declarations as to the proper construction of the clause.

No right to terminate

Providence argued that the wording of clause 8.9.4 did not expressly require that a right to terminate had arisen in relation to the initial breach. Clause 8.9.4 says that the right to terminate for repeated breach arises if a notice to terminate under 8.9.3 was not given “for any reason”.  One such reason could be that the right to give that notice had not arisen because the specified default had been cured.

The court rejected these arguments, agreeing with Hexagon’s position that in order for Providence to obtain a right to terminate for repeated breach under clause 8.9.4, it first had to have had a right to terminate under clause 8.9.3. In other words, Hexagon would have had to continue its non-payment for 28 days, triggering a right for Providence to serve a notice to terminate under clause 8.9.3, which Providence would then have had to have decided not to serve.

In reaching its decision, the court considered that Providence was relying too heavily on the words “for any reason” and that they only meant that Providence may have decided not to serve a termination notice for any reason (i.e. that it would first have needed a right to serve, in order to then decide not to do so).

Conclusions and implications

This is a significant decision which affects the remedies available to a contractor to deal with late payment under the JCT suite of contracts. Although the judge in this case considered clause 8.9.4 to be “clear as a matter of language”, the Court of Appeal has recently given Providence permission to appeal, suggesting that it considers the matter to be worthy of further debate.

Providence had complained that Hexagon’s reading of clause 8.9.4 effectively opened the door for an employer to be consistently late in making its payments, as long as it eventually did so within the cure period under clause 8.9.3. Hexagon countered by drawing attention to a contractor’s other protections, such as a right to suspend, interest on late payments, and adjudication – and of course if an employer is a serial offender there may be a case to be made for repudiatory breach. Hexagon also noted that Providence’s interpretation would give “trigger happy” contractors the ability to terminate on a moment’s notice for a minor breach, such as a very small underpayment, or a very short delay in payment.

Either interpretation could arguably create a harsh result for one party over the other and both employers and contractors would be well advised to amend the standard clause to make their intention clear. 

Reference: Providence Building Services Limited v Hexagon Housing Association Limited [2023] EWHC 2965 (TCC)