Court rules on JCT termination dispute

A Supreme Court ruling has clarified when a contractor may terminate a contract for late payment by an employer under the commonly used JCT Contract.

“The industry as a whole will welcome a heavy dose of common sense, given termination of the contract is a drastic remedy which carries significant consequences,” said Tim Healey, partner at Herbert Smith Freehills Kramer, following the ruling in January.

The Court delivered a unanimous judgment in Providence Building Services v Hexagon Housing Association, resolving a point of contractual interpretation under the JCT Design and Build Contract (2016 edition) – a standard form widely used in construction contracts.

Late payments

Providence Building Services wanted to terminate its contract after the employer failed to make two interim payments on time. The contractor served a specified default notice after the first late payment in December 2022, which was later cured within 28 days, meaning it did not accrue a right under clause 8.9.3 to serve a termination notice. 

It then attempted to terminate after a second missed payment in May 2023 by relying on clause 8.9.4, which allows termination for a repetition of a specified default. 

The Supreme Court held that a contractor cannot validly terminate under clause 8.9.4 unless it previously had an accrued right to terminate under clause 8.9.3. As such, the first default must have led to an existing right to give a further termination notice. As the December late payment was cured within 28 days and never gave rise to an accrued termination right, the contractor’s termination in May was judged to be invalid.

What does the ruling mean for industry players? 

The ruling clarifies how termination mechanisms in the standard JCT Design and Build form operate, particularly on repeated breaches such as late payment. Construction professionals and contract administrators should review termination provisions carefully when assessing rights and risks around repeated breaches, especially under JCT standard forms that retain this wording. 

How the case reached the Supreme Court

In 2023, Hexagon’s interpretation of the clauses was successful at adjudication and then before a judge at the Technology and Construction Court. Providence successfully appealed to the Court of Appeal in 2024 and Hexagon appealed to the Supreme Court. 

Mark London, head of the construction, engineering and procurement team at Devonshires, who represented Hexagon, said: “While the judgment is important to the construction industry given the prevalence with which the JCT forms are used, this judgment will impact a significant number of parties and projects across the country. 

“In an industry where cash is king and project costs creep ever upward, the reversal of the Court of Appeal’s decision has clarified a powerful protection for employers.”