Judgement in long-running dispute has “clarified a power protection for employers”
The Supreme Court has ruled in favour of a housing association after a contractor terminated their development agreement over two late payments.
In 2019, Providence Building Services Limited signed a contract with Hexagon Housing Association to deliver 37 flats in Purley, south London.
Hexagon paid one instalment 14 days late in December 2022, followed by a second delayed payment in May 2023. This prompted Providence to issue a notice terminating the contract under the JCT design and build contract, a form widely used across the construction industry.
The dispute centred on the interpretation of wording under clause 8.9 in the JCT contract. Providence argued that it allows termination of a deal if the employer commits two late‑payment defaults, provided the first had been the subject of a “specified default” notice, which it had served.
Hexagon countered that termination was only permitted if the first late payment had remained outstanding for more than 28 days, giving rise to an “accrued right to terminate”. Because the first payment was ultimately made within that period, Hexagon said the contractor had no such right.
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In July 2023, an adjudicator found in favour of the association. However, this decision was reversed by the Court of Appeal in August the following year, where the lead judge said accepting Hexagon’s interpretation would allow “a serial defaulter to escape any meaningful consequences of their defaulting on payment” if they delayed payments sufficiently. Hexagon was then given permission to appeal to the Supreme Court in December 2024.
Yesterday’s decision was based on the rejection of the Court of Appeal’s interpretation of the wording in the relevant contract clause.
The Court of Appeal considered clause 8.9 to mean that if the contractor does not give a termination notice in the first instance “for any reason” but the employer then repeats the same default, then the contractor is within its right to end the agreement.
In this interpretation, the phrase “for any reason” is broad enough to include the situation where the contractor could not serve the earlier termination notice because the first late payment was cured within 28 days.
The Court of Appeal also supported this reading given that an employer has similar termination rights under the clause. These state that an employer can axe a deal if the contractor repeats a breach even if the first was fixed quickly.
However, the Supreme Court concluded that a contract can only be terminated for a repeated default if the contractor had a right to terminate the first time, meaning a default left unresolved for more than 28 days.
The Supreme Court also argued that allowing termination after two minor delays would be “extreme” and that it is wrong to distort the correct interpretation of the disputed termination as a way of protecting contractors from cash-flow difficulties caused by late payments.
It also made the point that the rights of a contractor and employer cannot be assumed to be symmetrical given their different roles.
Mark London and Lena Barnes at Devonshires – who successfully represented Hexagon – said they had been “somewhat surprised” by the Court of Appeal’s decision but are now “delighted that the Supreme Court have clarified the correct way to interpret the clause in question.”
The firm’s head of the construction, engineering and procurement team and senior associate added: “While the judgment is important to the construction industry give 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 power protection for employers.”
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