Providence Building Services Ltd (“Providence”) entered into a JCT Design and Build Contract (2016 Edition – “the JCT Contract”) with Hexagon Housing Association Ltd (“Hexagon”). Hexagon were late paying on numerous occasions and, ultimately, Providence terminated the JCT Contract as a result. This is set out in more detail below.
Background facts
On one occasion of late payment (“the First Application”), Providence served a notice under clause 8.9.3 of the JCT Contract which, in effect, would allow Providence to terminate unless Hexagon brought payments up to date within 28 days (as amended). On this occasion Hexagon brought payments up to date within 28 days. However, Hexagon failed to pay on time on another occasion (“the Second Application”) and Providence served notice under clause 8.9.4 of the JCT Contract terminating the JCT Contract and relying upon the previous notice under clause 8.9.3.
Providence said that it was entitled to rely on the service of the previous clause 8.9.3 notice, even though it did not relate to the late payment upon which it terminated the JCT Contract for. Hexagon said it was not and by terminating incorrectly, it was in repudiatory breach of contract.
The Technology and Construction Court’s Judgment
At first instance the Technology and Construction Court which found that Providence were not correct to terminate their employment under the JCT Contract in the above circumstances.
The TCC’s rationale was that Providence did not lawfully terminate their employment under clause 8.9.4 for the Second Application because Hexagon needed to have first committed a specified default under clause 8.9.3 relating to the Second Application itself. In this case, Providence had served a notice under clause 8.9.3 for the First Application and sought to rely on that notice when the Second Application was overdue – to the TCC that was incorrect and not in accordance with the wording of the JCT Contract.
The above produced a harsh and ultimately heavily criticised Judgment from the TCC, where Providence was accused of being ‘trigger happy’ despite submitting that 19 out of 32 payments made to them, by Hexagon, were late.
The Court of Appeal’s Judgment
Unsurprisingly, Providence appealed the TCC’s decision. The Court of Appeal unanimously agreed that the TCC were wrong and Providence was entitled to rely on the notice under clause 8.9.3 in the First Application when terminating under clause 8.9.4 for late payment of the Second Application. It was the Court of Appeal’s position that upholding the TCC’s Judgment would allow serial late payers to escape consequences. Common sense prevailed.
Summary
The Court of Appeal’s Judgment is a warning to Employer’s going forward. If you consistently pay late under an unamended JCT Design and Build Contract, then you could be faced with a termination by the Contractor. This being said, the parties can agree to vary the terms of clause 8.9 and we suspect that Employer’s will be pushing to do this going forward given the Court of Appeal’s Judgment in Providence. No doubt Contractor’s will want to retain the original wording of clause 8.9.