Court of Appeal hands down ruling on construction of clause 8 of JCT 2016 Design and Build Form

The Court of Appeal (Civil Division) has ruled in favour of a builder and against its housing association client in what is thought to be the first litigation concerning the proper construction of Clause 8 of the JCT 2016 Design and Build Form.

Lord Justice Stuart-Smith gave the main judgment in the case between Providence Building Services and Hexagon Housing Association, which the latter had won in the High Court.

Mark Chennells KC, of Atkin Chambers, acted for Providence, whose case concerned the lawfulness of the company’s termination of a contract with Hexagon.

Atkin Chambers said the issue was whether Providence was entitled to terminate under clause 8.9.4 upon the repetition of a ‘specified default’ in circumstances where the previous specified default had been remedied by Hexagon within the ‘cure period’, such that Providence had not previously had the right to terminate under clause 8.9.3 for the continuation of a specified default beyond the end of the cure period.

The set said clause 8.9.4 stipulated that 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 …. the contractor may by notice to the employer terminate the contractor’s employment under this contract.

Atkin Chambers explained: “The Court of Appeal unanimously held that the right to terminate upon repetition of a specified default extended to the circumstance in which the further notice referred to in clause 8.9.3 had not been served because no right to serve it had arisen, the preceding specified default having ended before the right to serve the further notice under clause 8.9.3 had arisen.”

The set said this had been the drafting of the JCT standard forms up to 2005, but this was later revised to take its current form.

“The judgment of the court makes clear that those drafting changes did not have the effect of radically altering the manner in which the termination provisions were to operate,” Atkin Chambers said.

“This litigation is believed to be the first to address the issue at hand and will serve to provide clarity and certainty to users of the JCT standard forms, putting this narrow but important point of interpretation beyond doubt.”

The Court of Appeal heard that in February 2019, Hexagon let a contract to Providence for £7.2m to build homes at Purley under which Hexagon was to make interim payments by 21 days from the due date.

In November 2022, Providence invoiced Hexagon for £264,242.55, which Hexagon failed to pay.

Providence served a notice of specified default and Hexagon later paid the full sum of £264,242.55 so the specified default did not continue for 28 days and it never became open to Providence to serve a further notice pursuant to Clause 8.9.3 for late payment.

In April 2023, Providence demanded £365,812.22 from Hexagon, which the latter again failed to pay on time.

Providence issued a Notice of Termination under Clause 8.9.4, which referred back to the December notice and relied upon Hexagon's non-payment as a repetition of the specified default. It therefore gave notice that Hexagon had repeated a specified default and stated that it terminated its employment under the contract pursuant to Clause 8.9.4.

Providence said that 19 of the 32 payments that Hexagon had been required to pay had been made late and stated what it characterised as Hexagon's repudiatory breaches of contract terminated the contract in accordance with its Common Law rights.

Later in May 2023, Hexagon paid £365,812.22, disputed the lawfulness of the Notice of Termination and asserted that Providence had repudiated the contract.

Stuart Smith LJ said: “Standing back and reviewing the case as a whole, I am persuaded that the plain meaning of the words ‘does not give’, the congruence of those critical words in Clauses 8.4.3 and 8.9.4, and the presence of the words ‘for any reason’ in Clause 8.9.4, when seen in the full context of the terms of the contract and the previous versions of the JCT Form, lead to the conclusion that Providence's interpretation is to be preferred.

“I reject the submission that the commercial consequences of the rival interpretations should lead to a different result. Accordingly, I would allow Providence's appeal.”

Lord Justice Popplewell and Lord Justice Coulson both agreed.

Mark Smulian