Termination Troubles: Supreme Court Settles The Providence v Hexagon Debate

When can a contractor pull the plug on an employer under clause 8.9.4 of the JCT Design and Build Contract 2016? After an adjudication, a High Court judgment, a trip to the Court of Appeal, five Supreme Court Justices and many pages of submissions later, we finally have an answer in Providence Building Services Limited v Hexagon Housing Association Limited.

The contractual background

In 2019, Hexagon Housing Association Limited (Hexagon) engaged Providence Building Services Limited (Providence) for the construction of a number of buildings in Purley, London, under a JCT Design & Build 2016 contract (with amendments). The dispute centred on the meaning and operation of clause 8.9 – specifically whether a contractor can terminate for a repeated employer default even if the earlier default was fully cured.

Clause 8.9 (as amended) sets out a staged process:

• 8.9.1 – Contractor serves a notice of specified default (e.g., if the Employer fails to pay the amount due by the final date for payment).
• 8.9.3 – If the specified default continues for 28 days from receipt of the notice, the contractor may by further notice terminate on or within 21 days from the expiry of the 28-day period.
• 8.9.4 – If the contractor does not give the further notice referred to in clause 8.9.3, for any reason, but the employer repeats the default, the contractor may terminate upon or within 28 days after the repetition.

Providence argued that under clause 8.9.4 – based on the inclusion of the words "for any reason" – it was entitled to immediately terminate whenever an employer repeated an earlier notified breach (even if the first breach had long since been remedied), and that there was no requirement for the right to terminate to have previously accrued under clause 8.9.3. Hexagon disagreed.

The facts and the fallout

• December 2022: Pursuant to Payment Notice 27, Hexagon was required to pay Providence £264,242.55 on or before 15 December 2022. However, Hexagon missed the final date for payment.
• 16 December 2022: Providence issued a Notice of Specified Default, under clause 8.9.1.
• 29 December 2022: Hexagon paid in full. Because the breach was cured, the right to terminate under clause 8.9.3 never accrued.
• May 2023: Five months later, Hexagon failed to pay by the final date for payment for a second time, when, pursuant to Payment Notice 37, it failed to pay £365,812.22 on or before 17 May 2023.
• 18 May 2023: Providence issued a Termination Notice under clause 8.9.4, claiming that the May breach was a "repetition" of the December breach. Providence further asserted that 19 of the 32 payments that Hexagon had been required to pay had been made late, and that Providence accepted Hexagon's purported repudiatory breaches of contract
• 23 May 2023: Hexagon paid in £365,812.22 full.
• 24 May 2023: Hexagon disputed the validity of the termination and asserted that Providence's termination was itself repudiatory.

The Supreme Court's decision

The Court sided firmly with Hexagon.

The critical point: clause 8.9.4 only applies where the contractor had already acquired a right to terminate under clause 8.9.3. In other words, the right to terminate under clause 8.9.3 must have previously accrued, before clause 8.9.4 could apply, or, put more simply, the contractor only has a right to terminate for a repetition of a specified default, if the employer has failed to cure any earlier specified default within 28 days.

Providence's interpretation would have meant that a repeated late payment would result in an automatic right to terminate, even where the first breach had been remedied. The Supreme Court considered this to be an extreme outcome, one that "might be thought to provide a sledgehammer to crack a nut".

Because Hexagon had cured the December breach within days, Providence never had a right to terminate under clause 8.9.3. Without that foundation, clause 8.9.4 simply did not engage. The May breach was not a qualifying "repetition", and Providence's purported termination was unlawful.

Key takeaways

For contractors hoping to rely on clause 8.9.4, the message is clear:

• A repetition only counts if the original breach gave rise to a termination right.
• If the employer cures the first breach within the specified period, clause 8.9.4 cannot be triggered.

For employers, there is reassurance that a late payment – remedied quickly – will not leave them exposed months later to instant termination on a repeat slip.

Read the original article on GowlingWLG.com

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