Builders win dispute over cancelling contract due to late payments

Providence Building Services Ltd won its case to terminate a £7.2m construction contract without further warning after repeated late payments from housing provider Hexagon. The Court of Appeal ruled Providence could cancel under clause 8.9.4 of the JCT Design & Build Contract, a decision impacting future UK construction agreements.

A building firm has won its legal argument that it was entitled to terminate a construction contract without issuing a warning for repeated late payments by the employer. Hexagon, a housing provider, engaged Providence Building Services Ltd for a £7.2 million accommodation project in Purley, London, under the widely used JCT Design & Build Contract 2016. The dispute arose after Hexagon failed to make timely payments for two consecutive payment applications. Although the first late payment was resolved after Providence issued a warning notice, the second late payment led Providence to terminate the contract without issuing another warning.

The crux of the case revolved around the interpretation of clauses 8.9.3 and 8.9.4 of the JCT contract. Clause 8.9.3 allows the contractor to terminate the contract if the employer fails to remedy a default within 28 days after a warning notice. However, Providence relied on clause 8.9.4, which permits termination if the employer repeats a specified default, arguing that it could terminate the contract without issuing a further warning notice.

Initially, the Technology and Construction Court (TCC) ruled in favour of Hexagon, stating that Providence’s termination was invalid as the original default had been rectified. The TCC emphasized that the contractor had other remedies available, such as suspending work or seeking statutory interest, and that the contract did not explicitly allow termination for late payments that had been resolved.

However, the Court of Appeal took a different view. Lord Justice Stuart-Smith, delivering the judgment, focused on the plain wording of the contract, particularly the phrase “for any reason” in clause 8.9.4. He ruled that this wording was broad enough to allow termination without a warning notice, even if the initial default had been rectified. The court also noted that the drafting of the contract could have been clearer but ultimately upheld Providence’s right to terminate.

This ruling has significant implications for construction contracts across the UK, as it shifts the balance of power between employers and contractors. While employers may be concerned about the potential for abrupt contract terminations, contractors now have a clearer right to protect their interests in cases of repeated late payments.

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