Providence Building Services Ltd v Hexagon Housing Association Ltd

[2023] EWHC 2965 (TCC)

Note: Decision over-turned by the Court of Appeal. See Issue 291.

Providence brought a Part 8 claim seeking a declaration against Hexagon as to the proper construction of clause 8.9 of the JCT Design and Build Contract 2016 Contract between the parties. Providence had agreed to carry out and complete works involving the erection of a number of buildings at a site in Purley. The original contract sum was approximately £7.2 million.

The background to the dispute was agreed. 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, therefore, 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.

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. Hexagon referred the dispute between the parties to adjudication, seeking decisions and declarations inter alia as to the Notice of Termination and the clause 8.9.4 point. The adjudicator found substantially in favour of Hexagon.

The issue for Adrian Williamson KC related to Providence’s right, or otherwise, to terminate their employment pursuant to clause 8.9 thereof, a standard JCT clause amended by the Schedule of Amendments. Clause 8.9.1.1 provided that, if the employer does not pay by the final date for payment the amount due to the contractor, the contractor may give to the employer a notice specifying the default.

Clause 8.9 then further provided at:

“.3 If a specified default or a specified suspension event continues for 28 days from the receipt of 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.

“.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; . . . ".2 . . .

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.”

The judge noted that contractual termination clauses are to be strictly construed, and must be strictly complied with. The key task was to ascertain the natural and ordinary meaning of clauses 8.9.3 and 8.9.4. 

Clause 8.9.3 was “straightforward”. If a specified default continued for 28 days after a clause 8. 9.1 notice, the contractor may give notice to terminate. The clause gave the contractor a choice whether or not to serve a notice to terminate, and termination required the contractor to take an active step – namely serving the notice.

With clause 8.9.4, the judge did not consider that the words “does not give” in the context of a clause 8.9.3 notice envisaged an active step being taken by the contractor, or not. If the contractor took that active step under clause 8.9.3, then termination ensues. If they did not, then, if there was a repeated default, the contractor may serve termination notice under clause 8.9.4.

Nothing in clauses 8.9.3 and 8.9.4, as a whole, envisaged that a contractor can give a valid clause 8.9.4 notice in circumstances where the right to give a clause 8.9.3 notice has never arisen. That is, where the specified default has been cured within the 28-day period. Clause 8.9.4 required that a clause 8.9.3 notice could have been given but the contractor had decided not to do so for whatever reason.

This meant that as Providence had not acquired any prior right to terminate for the continuation of a specified default under clause 8.9.3, it did not have any right to terminate for the repetition of a specified default under 8.9.4. As a result, the termination notice was invalid for the purposes of clause 8.9.4.

Providence had argued that the construction of clause 8.9.4 contended for by Hexagon would produce the harsh and uncommercial result that the employer could make every payment 27 days late, and thus avoid the possibility of termination because the right to serve a clause 8.9.3 notice would never arise. The judge noted that a contractor has a “battery of weapons” available to protect its cash flow position. These included the right to suspend, the payment of statutory interest, and the right to refer disputes to adjudication. It was not, therefore, necessary or appropriate to read into clause 8.9 a right to terminate to deal with such a situation.

Further, the judge considered that it would be surprising if clause 8.9 was so drafted that a contractor could terminate where there was a specified default that had been cured and was then repeated, perhaps only to a very minor extent, subject only to recourse to the contention that the termination was unreasonable or vexatious.

Here, the “business commonsense” arguments did not take the matter very far one way or the other. The parties had chosen to draft clause 8. 9.4 in a particular fashion which was, to the judge, clear as a matter of language. That might produce unsatisfactory results for one party or the other, but that was the choice the parties had made.

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