The recent decision of the Court of Appeal in Providence Building Services Limited v Hexagon Housing Association Limited [2024] EWCA Civ 962 has significantly raised the risk of termination for Employers (or Contractor's under a Sub-Contract) who repeat a specified default under the JCT and SBCC suite of contracts.
Background
Providence agreed to construct a number of buildings at a site in Purley for Hexagon under an amended JCT 2016 Design & Build Contract. Hexagon were obliged to pay Providence around £260,000 in interim payments but failed to do so. The next day Providence served a Notice of Specified Default under clause 8.9.1 of the Contract, communicating its intention to terminate the contract if the default was not rectified. Hexagon then rectified the default by making a full payment, meaning Providence had no opportunity to serve a notice to terminate under clause 8.9.3.
The following year, Hexagon were obliged to pay Providence around £360,000. Again, Hexagon did not pay, however, this time Providence issued a Notice of Termination under clause 8.9.4 the next day, terminating the contract.
The relevant clause 8.9 (which is to be found in most of the JCT and SBCC suite of contracts) provides that:
“.3 If a specified default or a specified suspension event continues for 28 days from the receipt of notice under clause 8.9.1 or 8.9.2, the Contractor may on, or within 21 days from, the expiry of that 28-day period by a further notice to the Employer terminate the Contractor’s employment under this Contract.
.4 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):
.1 the Employer repeats a specified default; . . .
.2 . . . then, upon or within 28 days after such repetition, the Contractor may by notice to the Employer terminate the Contractor’s employment under this Contract."
At first instance the Technology and Construction Court decided against Providence's termination of their employment.
Court of Appeal Decision
The question for the Court of Appeal was whether a specified default had been repeated because the notified sum was not paid by Hexagon on two separate occasions, or whether the rectification of the first default meant the second default didn't 'count' as a repeated default.
The Court sided with Providence, holding that a clause 8.9.4 notice to terminate employment can be given for a repeated specified default irrespective of whether the first default has been rectified within the contractually prescribed period.
Practical Implications
To use Lord Justice Stuart-Smith's own words, this decision '"renders the Employer's ice thinner from the outset" than may have been previously thought. If a Contractor serves a Notice of Specified Default under clause 8.9.1 for non-payment, even where that default is rectified the very next day, an Employer will thereafter have to make certain all remaining payments are made on time or risk termination. This decision obviously presents a cautionary warning to all Employers whilst offering an opportunity for Contractors to exit an unfavourable contract more easily - and with less risk - than had been thought to be the case.
Contributors
Senior Associate
Head of Dispute Resolution and Risk & Partner
Trainee Solicitor
