An East Grinstead contractor successfully overturned a court ruling that it wrongly terminated a contract due to late payments.
- The legal battle stemmed from a JCT contract with Hexagon Housing Association for a £7.2 million project in Purley.
- Providence Building Services claimed the right to terminate after Hexagon’s repeated late payments, despite a grace period payment.
- The Court of Appeal’s decision now implies a ‘two strikes and out’ rule for repeated late payments in such contracts.
- This ruling has significant implications for contractors and housing associations using the JCT model.
A legal conflict arose between Providence Building Services Limited and Hexagon Housing Association Limited concerning a £7.2 million construction project in Purley. The central issue was whether Providence was within its rights to terminate its contract due to Hexagon’s late payments. Initially, a High Court ruling favoured Hexagon, arguing that Providence lacked grounds for termination as the first late payment had been settled promptly within the grace period.
In November 2022, Hexagon Housing failed to pay an outstanding invoice of £264,000 within the stipulated timeframe. According to the JCT contract terms, Hexagon’s failure to remit payment within an additional 21 days allowed Providence to halt work. Should the payment remain overdue for another seven days, contract termination by Providence was permissible. However, Hexagon cleared the outstanding amount within 28 days, which temporarily averted termination.
The situation resurfaced in April 2023 when Hexagon again missed a payment deadline, this time for an invoice amounting to £366,000. Seizing this repeated default, Providence terminated the contract. Hexagon disputed this action, insisting Providence had no right to terminate solely based on late payments that were ultimately resolved.
Upon appeal, the Court of Appeal sided with Providence, interpreting the contract’s wording as granting termination rights upon repeated defaults, independent of initial grace period resolutions. The appeal court underscored that Providence was not obligated to terminate after the first default to exercise this right after a second occurrence. The ruling has introduced a new risk for employers; a single day’s delay can activate a default notice, and a second lapse could lead to contract termination.
Mark London from Devonshires, representing Hexagon, stressed that the judgment now imposes a ‘two strikes and you’re out’ provision, fundamentally altering JCT termination practices. Darren Tancred, Providence’s managing director, indicated that the Court of Appeal decision ensures business stability and emphasised its broader implications for the construction industry, particularly for those employing the standard JCT contract.
This precedent-setting case reshapes the landscape for contract termination due to late payments within the construction sector.
