In our previous article, we examined the first instance decision in the case of Providence Building Services Limited v Hexagon Housing Association Limited. This dispute concerned a contractor's (in this case, Providence) right to terminate for employer default under clause 8.9.4 of the JCT Design & Build Contract (2016 Edition).
Providence subsequently appealed the decision. This article provides an update on the case, reveals the Court of Appeal’s decision and highlights the key takeaways.
Background to case
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In this case, Hexagon was late in making a payment, and Providence issued a notice of specified default. Hexagon rectified that by making payment within 28 days. This meant that Providence did not have a right to serve notice to terminate, under clause 8.9.3. However, Hexagon then repeated the default, with another payment not paid by the final date for payment following which Providence served a notice to terminate under clause 8.9.4 on the basis of a repeated specified default.
At first instance, the Technology and Construction Court (TCC) grappled with the construction of clauses 8.9.3 and 8.9.4 concerning the contractor’s right to terminate in these circumstances and determined that a right to terminate under clause 8.9.3 must have arisen (meaning the specified default, in this case failure to pay, must have continued for 28 days following the contractor’s notice of default) before the right to terminate under clause 8.9.4 for a repeated default could arise.
Since Hexagon had rectified the initial specified default, (i.e. by paying the overdue notified sum due by the final date for payment in December 2022) Providence’s right to terminate following the ‘repeated’ default in May 2023 had not in fact accrued.
The Judge in the TCC, Deputy Judge Mr Adrian Williamson KC, took the view that clause 8.9.4 required that a clause 8.9.3 notice could have been given, but the contractor had decided not to give such a notice, for whatever reason. In circumstances where the right to give a clause 8.9.3 notice has never arisen, the Judge found that a contractor cannot give a valid clause 8.9.4 notice.
Providence appealed, arguing that the words ‘for any reason’ in clause 8.9.4 cover the scenario where the reason the contractor does not give the further notice referred to in clause 8.9.3 is that the circumstances associated with the original specified default (i.e. the failure to pay the notified sum due by the final date for payment in December 2022) do not give rise to an accrued right to do so (because this default was rectified by the employer).
In a significant ruling, the Court of Appeal agreed with Providence’s interpretation and overturned the first instance decision, finding that the contractor can terminate its employment under clause 8.9.4 of the JCT Design and Build Contract 2016 in a case where a right to give the further notice referred to in clause 8.9.3 had not previously accrued.
The Court of Appeal held that the natural meaning of the words in clause 8.9.4 was broad enough to cover ‘any state of affairs other than one where the Contractor does give notice. Put another way, unless the Contractor gives the further notice referred to in clause 8.9.3 the condition is satisfied.’
Interestingly, when interpreting the meaning of clause 8.9.4, the Court of Appeal determined that it was ‘necessary’ and ‘vital’ to view the words of the clauses in context and in particular, two features of the context needed to be scrutinised:
The full terms of clause 8.9 - termination by the contractor for employer default.
The terms of clause 8.4 which deals with termination by the employer in the event of contractor default, and in particular “8.4.3 If the Employer does not give the further notice referred to in clause 8.4.2 (whether as a result of the ending of any specified default or otherwise)…”
Drawing parallels between the clause 8.4.3 and 8.9.4, the Court of Appeal observed that the clauses are structurally similar, although they provided different remedies. Clauses 8.4.2 and 8.9.4 each specify the circumstances in which the employer or contractor may serve a further notice, while clauses 8.4.3 and 8.9.4 specify what may happen if no such notice is given.
It was observed that both clauses 8.4.3 and 8.9.4 begin by stating: ‘If the [Employer/Contractor] does not give the further notice referred to in clause [8.4.2/8.9.3]’. The Court of Appeal concluded that ‘congruence and structure’ of these words in both clauses to meant that they must carry the same meaning.
Furthermore, it was observed that the words "for any reason" are not used in clause 8.4.3 which instead contains the words "whether as a result of the ending of any specified default or otherwise". The Court noted that this wording covered situations where the right to give a further notice had accrued and cases where it had not. With this in mind, the Court of Appeal concluded that the wording “for any reason” in clause 8.9.4 was at least as broad as the wording of 8.4.3, and concluded that the natural and probable meaning of clause 8.9.4 is that it applies to a case where no right to give a further notice under Clause 8.9.3 had accrued.
The Court of Appeal took a holistic approach when interpreting the wording of clause 8.9.4, factoring in the case as a whole, the context of the above clauses (as well as the whole contract) and previous forms of the JCT. The Court of Appeal unanimously concluded that Providence’s interpretation of 8.9.4 was to be preferred.
The case emphasises the risks of repeating something previously raised as a specified default. One possible consequence of the decision could be an increase in tactical specified default notices being issued by contractors and employers under 8.4.3.
Whilst the JCT Design and Build Contract 2016 includes safeguards under 8.2.1 to prevent such notices being given unreasonably or vexatiously, parties should take care when navigating these termination provisions to avoid inadvertent breaches of contract which could lead to a claim for damages.
For more information, please contact our construction and infrastructure team.
