When does a contractor have the right to terminate for late payment?


Tim Atwood is a senior associate at law firm CMS Cameron McKenna Nabarro Olswang 

The recent Technology and Construction Court (TCC) decision in Providence Building Services Ltd v Hexagon Housing Association Ltd considered the JCT termination provisions and concluded that a repeated breach by a client only entitles a contractor to terminate where it has previously accrued a right to terminate in respect of an earlier breach. But if the earlier breach was remedied by the client within the contractual grace period, the right to terminate for a repeated breach will not be automatic.

“Hexagon would have to have not paid within the 28 days to trigger a right for Providence to serve a notice to terminate”

Hexagon appointed Providence on a JCT Design and Build contract for the construction of a number of buildings in Purley. The contract was amended but the contractor-termination provisions were largely unchanged, save for the notice periods within the clause.

Clause 8.9.1 stated that if Hexagon failed to make a payment by the final payment date, Providence could give Hexagon a notice of that failure as a “specified default”. Hexagon failed to make a payment by its final date of 15 December 2022, and Providence issued a notice identifying this specified default on 16 December 2022.

Clause 8.9.3 allowed Hexagon 28 days to remedy the specified default, failing which Providence could serve a notice to terminate. Hexagon made payment in full on 29 December 2022 – within the 28 days available to it.

Clause 8.9.4 stated that if Providence did not, “for any reason”, serve a termination notice under 8.9.3, and if Hexagon subsequently repeated a specified default, then Providence may, upon the repetition or within a further 28 days, serve a notice to terminate. Hexagon failed to make another payment by its final date of 17 May 2023.

In response to that second failure, Providence issued a notice of termination on 18 May 2023 under clause 8.9.4, relying on this second failure to pay being a repeat of the specified default which it first notified in December.

Hexagon disputed that Providence had a contractual right to terminate under clause 8.9 and the parties applied to the court for declarations as to the proper construction of the clause.

Providence’s argument was that the wording of clause 8.9.4 did not expressly require that a right to terminate had arisen in relation to the initial breach. It says that the right to terminate for a repeated breach arises if a notice to terminate under 8.9.3 was not given “for any reason”, and in its case, that reason could be that the right to give that termination notice had not arisen because the default had been cured.

The court rejected this, agreeing with Hexagon’s position that Providence would first have had to accrue the right to terminate under clause 8.9.3. In other words, Hexagon would have to have not paid within the 28 days to trigger a right for Providence to serve a notice to terminate, and Providence would then have to have made a decision not to serve the notice available to it.

Available remedies for late payment

The decision is of importance to the remedies that are available to a contractor appointed under a JCT contract to deal with late payment, insofar as it will not have a contractual right to terminate for persistent late payment where a client makes the payments within the available cure period.

Although the judge said clause 8.9.4 was “clear as a matter of language”, the Court of Appeal has given Providence permission to appeal, so the matter will receive further debate.



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