Providence Building Services Ltd v Hexagon Housing Association Ltd

[2024] EWCA Civ 962 (15 August 2024)

We discussed this case in Dispatch, Issue 290. Providence had brought a Part 8 claim seeking a declaration against Hexagon as to the proper construction of clause 8.9 of the 2016 JCT Design and Build Contract between the parties. On appeal, Stuart-Smith LJ said that the dispute raised in an issue about the proper construction of the contract that was: “simpler to state than … resolve: can the Contractor terminate its employment under clause 8.9.4 of the JCT Form in a case where a right to give the further notice referred to in clause 8.9.3 has never previously accrued?”. In the TCC, the judge, finding in favour of the employer, Hexagon, had held that the answer to this question was “no”. The CA disagreed. 

Clause 8.9 of the Contract set out the circumstances in which Hexagon could terminate its employment under the Contract:

“8.9.1 If the Employer:

1. does not pay by the final date for payment the amount due to the Contractor in accordance with clause 4.9 and/or any VAT properly chargeable on the that amount …

the Contractor may give to the Employer a notice specifying the default or defaults (a ‘specified’ default or defaults).

8.9.3 If a specified default or a specified suspension event continues for 28 days from the receipt of the notice under clause 8.9.1 or 8.9.2, the Contractor may on, or within 21 days from, the expiry of that 28 day period by a further notice to the Employer, terminate the Contractor’s employment under this Contract. 

8.9.4 If the Contractor for any reason does not give the further notice referred to in clause 8.9.3, but (whether previously repeated or not):

.1 the Employer repeats a specified default; …

then, upon or within 28 days after such repetition, the Contractor may by notice to the Employer terminate the Contractor's employment under this Contract.”

Under Payment Notice 27, issued by the employer’s agent, Hexagon was obliged to pay the sum of £260,000 on or before 15 December 2022, but it did not do so. Providence served a Notice of Specified Default under clause 8.9.1 of the Contract. The agent issued a further relevant Payment Notice, number 32, in the sum of £360,000. Hexagon did not pay by the final date of payment.

Providence, therefore, issued a Notice of Termination under clause 8.9.4, relying on the Notice of Specified Default of December 2022, and the repetition of that specified default. There was also, without prejudice to the contractual termination, an acceptance, or purported acceptance, of Hexagon’s repudiatory breach. Providence did not give a notice under clause 8.9.3.

Hexagon subsequently paid the sum claimed but challenged the validity of the Notice of Termination. They then accepted, or purported to accept, Providence’s repudiatory breach on 31 May 2023. 

Clause 8.9 set out to define the circumstances in which the contractor can terminate its employment as a consequence of the employer’s default. The clause set out a sequence of events that may properly lead to termination. The question to be addressed is, simply and only, whether the contractor has given further notice, not whether the giving (or not) of the notice can be given the (non-contractual) description of being the result of a decision or the taking of an active step.

For the judge, although he accepted that the drafting could have been of better quality, the natural and probable meaning of clause 8.9.4 was that it applied to a case where no right accrued to give a further notice under clause 8.9.3. The words “for any reason” in clause 8.9.4 were wide enough to cover cases where the reason that a notice had not been given under clause 8.9.3 was because the right to give that notice had never arisen. Accordingly, Providence was entitled to give notice under clause 8.9.4 of the Contract and terminate its employment. 

The intention of the clauses was to encourage and cause the party concerned to comply with their contractual obligations (in this case, the obligation to pay by the final date), and a repetition of a previous specified default was the trigger entitling the wronged party to terminate.

The CA recognised that this would potentially allow a contractor to terminate for repeated default even where either the underpayment was very small or the delay was very short. However, this was a commercially acceptable allocation of risk, especially given the potential for a serial defaulter to escape significant consequences if they managed to end their defaults within the 28-day period. 

In reaching his decision, Stuart-Smith LJ cautioned against relying on the development of standard form wording from previous versions as an aid to interpretation unless a change has been made to respond to the effect of a particular decision of the courts, a change in legislation or a widely publicised event, referring to the words of Aikens LJ in The Rewa [2012] EWCA Civ 153:

“Whilst there may be occasions when this has to be done in order to assist in solving a problem of an ambiguous wording, I would generally discourage such exercises in ‘the archaeology of the forms’. In most cases, it makes the task of interpretation of contractual wording unnecessarily over-elaborate and it can add to the expense and time taken in litigating what should be short points of construction.”

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