Building contract – Termination – 2016 JCT Standard Form Design and Build Contract – Appellant contractor employed by respondent in connection with construction of buildings – Appellant terminating employment following respondent’s failure to make interim payment within specified period – Judge holding appellant not entitled to terminate employment – Appellant appealing – Whether contractor entitled to terminate employment where right to give further notice not previously accrued – Appeal allowed
In February 2019, the respondent housing association and the appellant contractor entered into a contract for the construction of a number of buildings in Purley. The contract incorporated the 2016 JCT Standard Form of Design and Build Contract, as amended by the parties. The original contract sum was approximately £7.2m.
Clause 8.9.4 of the contract stipulated: “If the contractor for any reason does not give the further notice referred to in clause 8.9.3, but (whether previously repeated or not) the employer repeats a specified default… then… the contractor may by notice to the employer terminate the contractor’s employment under this contract”.
When the respondent employer failed to pay an interim payment of £265,000 before 15 December 2022, the appellant served a default notice under clause 8 the next day. Payment was eventually made on 29 December 2022.
Following the respondent’s subsequent failure to pay £366,000 before 17 May 2023, the appellant issued a notice under clause 8 terminating its employment. That payment was made on 23 May 2023.
An issue arose whether the contractor was entitled to terminate the contract under clause 8.9.4 upon the repetition of a “specified default” where a previous specified default had been remedied by the employer within the requisite 28-day period, such that the contractor had not previously had the right to terminate under clause 8.9.3 for the continuation of a specified default beyond the 28-day period.
The High Court held it was not: [2023] EWHC 2965 (TCC). The appellant appealed.
Held: The appeal was allowed.
(1) Contractual termination clauses were to be strictly construed and had to be strictly complied with. In the present case, the court’s first and probably only task was to ascertain the natural and ordinary meaning of clauses 8.9.3 and 8.9.4 of the contract.
Where dealing with a standard form of wording, the interpretation was unlikely to be affected by the context in which the parties concluded their particular contract: rather the process of interpretation would ultimately depend upon an intense focus on the words used. As always, the court had to consider the quality of drafting of the clause and the agreement in which it appeared: Lamesa Investments Ltd v Cynergy Bank Ltd [2020] EWCA Civ 821 followed.
(2) The correct place to start was with the words that were to be interpreted. Viewed in isolation, the natural meaning of the conditional words at the commencement of clause 8.9.4 were clear: “If the contractor… does not give the further notice referred to in clause 8.9.3” were broad enough to cover any state of affairs other than one where the contractor did give notice. Unless the contractor gave the further notice referred to in clause 8.9.3, the condition was satisfied.
Viewed in isolation there was no basis for a submission that the conditional words implied anything about whether the contractor could or could not have given the notice. That natural meaning was reinforced by the words “for any reason”, which meant that there was to be no exception based upon the reason why the contractor did not give the notice. Even assuming that the reason why the contractor did not give the further notice was that the right to do so had not accrued under clause 8.9.3, that remained within the meaning of the phrase “for any reason”.
(3) The first step, therefore, was that the natural meaning of the words in clause 8.9.4 viewed on their own did not give rise to an inference or an implication that the contractor could have given a further notice but did not do so. When the words were viewed in isolation, the gloss for which the respondent contended was not supportable.
The question was simply and only whether the contractor had given further notice, not whether the giving (or not) of the notice could be given the (non-contractual) description of being the result of a decision or the taking of an active step.
On either interpretation, the intention of the clauses was the same, namely, to encourage and cause the party concerned to comply with their contractual obligations (in this case the obligation to pay by the final date), and a repetition of a previous specified default was the trigger entitling the wronged party to terminate.
(4) Standing back and reviewing the case as a whole, the plain meaning of the words “does not give”, the congruence of those critical words in clauses 8.4.3 and 8.9.4, and the presence of the words “for any reason” in clause 8.9.4, when seen in the full context of the terms of the contract and the previous versions of the JCT Form, led to the conclusion that the appellant’s interpretation was to be preferred.
The appellant’s interpretation had the advantage of certainty, without which the parties would be left with the time-consuming and money-consuming uncertainties of alleging and proving repudiatory conduct, particularly in a case such as the present where there was alleged to be a serial failure to pay on time. The commercial consequences of the rival interpretations did not lead to a different result.
(5) Accordingly, the right to terminate upon repetition of a specified default applied in circumstances where the further notice referred to in clause 8.9.3 had not been served because no right to serve had accrued, since the previous specified default ended before the right to serve the further notice referred to in clause 8.9.3 had arisen: Reinwood Ltd v L Brown & Sons Ltd [2007] EWCA Civ 601; [2007] PLSCS 129; [2007] BLR 10 and Ferrara Quay Ltd v Carillion Construction Ltd [2009] BLR 367 considered.
Mark Chennells KC (instructed by Clyde & Co) appeared for the appellant; Jonathan Lewis KC and Nicholas Kaplan (instructed by Devonshires Solicitors) appeared for the respondent.
Eileen O’Grady, barrister
