“Breaking Up Is Hard to Do” sang Neil Sedaka (those born after 2000, please Google) which, according to the broadsheets and national media, seems apt for the ongoing financial impact of Brexit on UK Plc. If the ‘boffins’ are correct (and I sure they are), there has been a post Brexit drop of 27% in UK exports and a 32% decline in imports from the EU since 2021. That is not a good outcome but, for the sake of balance, I must point out that we did get back £350m per week for the NHS. Well that is what the Boris Brexit Bus promised would happen.
If Brexit was and continues to be hard to do, can the same be said of breaking up from a building contract? Well, a relatively recent Court of Appeal case suggests that it could be less hard than previously understood.
Providence Building Services Ltd v. Hexagon Housing Association Ltd [2024] EWCA Civ 962JCT DB 2016 (amended by the parties)
The case involves that well-used ‘standard form’ building contract known as the JCT Design & Build Contract 2016. I am certain many of those reading this rambling will have used and will continue to use that particular JCT form and, in due course, the new 2024 edition. The focus of the dispute was the termination provisions of the JCT DB 2016, in particular clause 8.9 and the meaning of the key words “for any reason” in sub-clause 8.9.4.
The dispute arose because, you guessed it, the Employer (Hexagon) didn't pay the Contractor (Providence) on time, i.e. by the final date for payment. This meant Providence was entitled, under clause 8.9.1, to give Hexagon a notice specifying it was in default for not paying by the final date and this became a ‘specified default’. The JCT DB 2016 then says, by clause 8.9.3, that if a specified default continues for a further 14 days [amended to 28 by the parties], the Contractor (Providence) can serve a second notice terminating its employment.
Hexagon paid but paid late
Hexagon didn't pay the November 2022 interim payment by the final date, so Providence served a notice pursuant to clause 8.9.1. Hexagon then paid but two weeks late, i.e. well before the 28 day period referred to in clause 8.9.3. Then Hexagon failed to pay the April 2023 interim payment by the final date, so Providence served a second notice. This, however, was a notice of termination under clause 8.9.4 and not a fresh ‘specified default’ notice under clause 8.9.1.
Hexagon did pay Providence albeit a week late. It then disputed the termination notice and the parties ended up before an adjudicator who found in favour of Hexagon. The dispute then went before a TCC judge and Hexagon won again. But Providence was convinced it was in the right and took the dispute to the Court of Appeal and won.
Why did Providence win?
It won because clause 8.9.4 applies where “for any reason” the Contractor (Providence) does not give a second notice under clause 8.9.3. This includes, as in this case, where the Employer (Hexagon) has made good the specified default by paying what is due (the ‘notified sum’) within the prescribed number of days of the specified default notice. In this case, the period was 28 days whereas under the unamended JCT DB 2016 it would 14 days but the same principle applies.
This, paying late but within the prescribed period of 28 days, is what Hexagon had done in respect of the November 2022 interim payment, i.e. it paid Providence the notified sum but two weeks after the final date for payment. Accordingly, as Providence had been paid (albeit late) the specified default had ceased and it had, under clause 8.9.3, no contractual right to serve a second notice of termination.
Of course Hexagon relied upon this point (and others) to argue, unsuccessfully, that this meant Providence had to serve a fresh specified default notice under clause 8.9.1 in respect of the late payment of the April 2023 interim payment before a right to terminate could arise. In other words, by making good its breach of contract by paying the November 2022 interim payment, Hexagon had ‘reset’ the contract and the parties went back to the starting point in clause 8.9.1.
Unanimously, the Court of Appeal did not agree with Hexagon. It did not agree because the right to give a notice of termination under clause 8.9.4 is not dependent upon a right to terminate having arisen under clause 8.9.3 but not been used. Indeed, clause 8.9.4 provided:
“If [Providence] for any reason does not give the further notice referred to in clause 8.9.3 but … [Hexagon] repeats a specified default … then, upon or within 28 days after such repetition, [Providence] may by notice to [Hexagon] terminate [Providence]'s employment under this Contract."
The words “for any reason” in clause 8.9.4 were wide enough to include the situation in which the reason for not serving a second notice under clause 8.9.3 was because the specified default (the late payment) had, within the prescribed 28 days, been remedied. In this case, Hexagon had paid the November 20222 interim payment two weeks late and well within the 28 day period under clause 8.9.3. However, Hexagon had then repeated the specified default by not paying the April 2023 interim payment by the final date for payment. Accordingly, Providence was entitled, under clause 8.9.4, to serve a notice of termination which it did. The fact that the right to terminate under clause 8.9.3 had not arisen in respect of the late payment of the November 2022 interim payment was irrelevant.
Observations
The decision appears to have ruffled a few legal feathers in the learned construction press. Whether you agree with the Court of Appeal's decision or not is rather irrelevant. For present purposes, those using the JCT DB 2016 must be alive to fact that where:
- a Contractor has given a specified default notice under clause 8.9.1; and
- an Employer repeats a specified default,
the Contractor can serve a notice of termination under clause 8.9.4 even where, as in the Providence v. Hexagon case, the Employer has made good the specified default within the prescribed period in clause 8.9.3.
Termination by the Employer
The wording of clause 8.4 of the JCT DB 2016 is different, but if one looks at sub-clause 8.4.3 there is no reason why the same should not apply where the Contractor repeats a specified default, i.e. the Employer can, by notice under 8.4.3, terminate the Contractor's employment.
JCT DB 2024
Save for a couple of minor changes to clause 8.4.1, these provisions have not changed in the 2024 edition of the JCT Design & Build Contract.
Advice
Contrary to Neil Sedaka's lyrics and Brexit, breaking up under the JCT DB 2016 (and 2024) might, after all, be a little less hard to do following Providence v. Hexagon.
"Brexit deal hurting UK-EU goods trade, and it's getting worse Red tape on British businesses created by the Brexit trade deal has led to a sharp fall in UK-EU goods trade, a new report shows. Academics at Aston Business School have analysed the impact of the Trade and Cooperation Agreement (TCA) on UK-EU trade relations – and found that trade is down by over a quarter."