In brief
- The Supreme Court has confirmed that a contractor can only terminate for a repeated specified default under clause 8.9.4 of the JCT Design and Build (2016 edition) if they had an accrued right to terminate under clause 8.9.3 that they chose not to exercise.
- If the employer cured the default within the specified period, no such right accrues.
- While the established approach to contractual interpretation applies to industry-wide standard form contracts like the JCT form, parties using such forms can generally expect their rights and obligations to be interpreted consistently with other parties using the same form.
In Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1 the Supreme Court has provided helpful guidance on the operation of the termination clause in the JCT Design and Build Contract, and broader guidance on the approach to interpreting industry-wide standard form contracts.
Background
In February 2019 the parties entered into a construction contract on the basis of an amended JCT Design and Build standard form (2016 edition).
Clause 8.9.1 of the contract provided that if the Employer did 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 or defaults".
Under clause 8.9.3, "if a specified default … continues for 28 days from the receipt of notice under clause 8.9.1… 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". (28 days replaced the 14-day period proposed in the standard form.)
Finally, under clause 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) 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". (Again, 28 days replaced the "reasonable time" proposed in the standard form.)
In December 2022 the employer failed to pay sums due under a payment notice within the specified timeframe, and so the contractor served a notice of specified default pursuant to clause 8.9.1. The employer paid the outstanding amount within 28 days of that notice.
In May 2023 the employer again failed to make payment by the due date. The contractor therefore purported to issue a notice of termination under clause 8.9.4, relying on the latest non-payment as a repetition of the specified default that was the subject of the December notice. However, after paying the outstanding sums in full, the employer disputed the lawfulness of the termination.
The issue
The key issue was whether a termination notice could be validly served under clause 8.9.4 for repetition of a specified default in circumstances where the earlier default had been cured within 28 days, and thus there was no accrued right to serve a notice under clause 8.9.3.
At first instance the High Court held it could not, but the Court of Appeal disagreed. The employer appealed to the Supreme Court.
The decision
In the Supreme Court's view, on a natural and ordinary reading, clause 8.9.4 was parasitic on clause 8.9.3 rather than being independent of it. Thus, the contractor required an accrued right to terminate under clause 8.9.3 before clause 8.9.4 applied – it was only if an employer had failed to cure any earlier specified default within 28 days that the contractor could terminate for a repetition of the specified default.
The Court had limited sympathy for the contractor's submission that this interpretation would mean an employer could delay making every payment, impairing the contractor's cash flow position, but still avoid termination. Indeed, the contractor's rival interpretation (which would entitle a contractor to terminate in circumstances where an employer has made two late payments, even if only late by a single day) produced a far more extreme outcome.
The appeal was therefore allowed.
In reaching this decision, the Court accepted that, while the established approach based on the objective intentions of the contracting parties in the relevant context, should be applied, it can generally be taken that those objective intentions are that their respective rights and obligations should be consistent with those of other parties using the same form, and should reflect the objective intentions of those who were concerned with the drawing up of the standard form contract.
Conclusion
It is now clear that contractors operating under the JCT Design and Build (2016 edition) will only be entitled to terminate for a repeated default where the original default was not cured within the timeframe specified in the contract. It is therefore more important than ever that contractors monitor employer defaults and serve notices where appropriate. Meanwhile, employers should note that while the decision offers greater protection from termination, that protection will only be available if a default can be cured in the specified time.
As the Supreme Court noted, the standard form JCT contract is widely used in the construction industry, and while a new edition was published in 2024, the wording of the termination clause remains the same as the 2016 edition. While the contractors' concerns about the potential effect of the decision on cash flow may result in changes to a future standard form, the Supreme Court's decision will, for the time being, be of significance across the industry.
Meanwhile, the Supreme Court's comments concerning the approach to interpretation of industry-wide standard form contracts will be of interest to participants in a wide range of other sectors, including the shipping, commodities and energy sectors, where such agreements are used as a matter of course. While the established approach to contractual interpretation remains, parties seeking contractual certainty should take some comfort from the Court's indication that such forms will usually be interpreted consistently, subject to any bespoke drafting.