Building Magazine features Steven Carey, who examines a Supreme Court ruling clarifying contractors’ termination rights for late payment in JCT contracts

Following a surprising Court of Appeal decision in Providence Building Services Ltd vs Hexagon Housing Association Ltd, on the workings of the termination provisions in JCT contracts and its interaction with cure periods, any party wishing to terminate a contract may have been left asking questions about how to achieve this.

In January, the Supreme Court settled a short but crucial question: when can a contractor terminate for repeated late payments? The decision made resulted in a reversion of the hitherto assumed industry position. 

The dispute between Providence and Hexagon revolved around whether, as a matter of contractual interpretation, a party could terminate relying upon a prior specified default which had been remedied within the cure period, or whether the aggrieved party did have to go through the process of affording the defaulting party the ability to cure the
subsequent default within the 28-day period.

At first instance, the High Court found for Hexagon. However, the Court of Appeal disagreed and considered that the words “for any reason” in the contract were broad enough to cover a situation where no right to terminate had previously accrued. Then, in January, the Supreme Court unanimously found in favour of Hexagon, in effect reinstating the first instance decision.

Steven Carey, Partner and Head of our Construction, Engineering and Projects group, writes in the March edition of Building Magazine:

The message is clear: based upon the standard JCT wording, a contractor cannot terminate for repeated late payments unless the first late payment went unpaid beyond the 28-day period. While interpretation is essentially based upon assessing the plain meaning of words, commercial sense does have a part to play. The Supreme Court observed that, based upon the contractor’s argument, two payments each only being a day late could entitle the contractor to terminate and this pointed away from a perceived extreme outcome.

Read the full article in Building Magazine here (subscription required).