A contractor can terminate its employment under the 2016 JCT Standard Form of Design and Build Contract where an employer’s default is repeated, before a right to serve a fresh default notice has accrued.
The Court of Appeal has allowed the contractor’s appeal in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962; [2024] PLSCS 150.
In February 2019 Hexagon and Providence entered into a contract for the construction of buildings in Purley for a contract sum of £7.2m. The contract incorporated the 2016 JCT Form and contained the following terms:
Section 4
Interim payments to be made by Hexagon, the final date for payment being 21 days from the due date. Failure to pay by the due date and within seven days of notice of intention to suspend performance under the contract, allowed Providence to suspend performance.
Section 8: termination by either party
- Hexagon could terminate on notice specifying the default if Providence suspended the carrying out of works, (save for non-payment of interim sums), failed to diligently perform its obligations or refused/neglected to comply with a notice or instruction which materially affected the works. If the default continued for 14 days from receipt of the notice Hexagon could terminate the employment by notice within 21 days.
- If Hexagon failed to make an interim payment Providence could give a notice specifying the default and if the default continued for a further 28 days Providence could terminate its employment by notice within 21 days.
- If, for any reason Providence did not give a further default notice but Hexagon repeated a specified default Providence could terminate its employment within 28 days of such repetition.
Hexagon failed to pay an interim payment of £265,000 before 15 December 2022. Providence served a default notice under section 8 the following day. Payment was made on 29 December 2022.
Subsequently, Hexagon failed to pay £366,000 before 17 May 2023. The next day Providence issued a notice under section 8 terminating its employment.
The notice referred back to the December 2022 notice and relied upon the May 2023 failure as a repetition of the specified default in the earlier notice. Hexagon made payment on 23 May 2023.
The question for the court was whether a notice of termination could be given where a right to serve a default notice had not arisen. The judge decided that it could not.
The Court of Appeal disagreed. The natural meaning of the contractual words allowing Providence to serve a notice terminating its employment applied whether or not a right had accrued to give a further default notice.
Louise Clark is a property law consultant and mediator
