Providence Building v Hexagon Housing – the Supreme Court closes the floodgates to termination under JCT 21 January 2026

The court was required to consider whether a right to terminate under clause 8.9.3 needed to have accrued before a right to terminate under clause 8.9.4 would become exercisable.

At first instance, the High Court ruled that a right to terminate under clause 8.9.4 only arose if the right to terminate under clause 8.9.3 had accrued. The judge based his reasoning upon “the natural and ordinary meaning of clauses 8.9.3 and 8.9.4 in the context of the contract as a whole”. He also dismissed submissions that these interpretations would cause unfairness to the contractor, who could theoretically have to endure payment 27 days late in every payment cycle. The judge noted that the contractor “has a battery of weapons available to him to protect his cash flow position”, including statutory interest.

On appeal, the Court of Appeal took the opposite view. Stuart-Smith LJ began by considering clause 8.9.4 “viewed in isolation”. He found that there was no suggestion that a contractor must have had a previous exercisable right to terminate the contract under clause 8.9.3, in order to terminate under clause 8.9.4. The Court of Appeal took the view that the words “for any reason” in clause 8.9.4 were sufficiently broad to cover circumstances where the contractor had not previously issued a further notice to terminate, because the earlier default had been remedied within 28 days and no right to terminate had arisen at that time.

In addition, Stuart-Smith LJ was unpersuaded by the argument that the contractor has a plethora of remedies available to it to offset late payment. In his view, the other remedies failed to be as immediate as full payment on time.

The Supreme Court’s Decision

The Supreme Court judgment began by restating familiar principles of contractual interpretation derived from the leading House of Lords and Supreme Court authority, including:

1. the aim of contractual interpretation is to ascertain the meaning which the contract would convey to a reasonable person having all the relevant background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract;
2. the words used by the parties are of primary importance so that one must be careful to avoid placing too much weight on business common sense (or purpose) at the expense of the words used; and one must be astute not to rewrite the contract so as to protect one of the parties from having entered into a bad bargain; and
3. contractual interpretation involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated.

As to the interpretation of JCT standard forms:

4. the court found that explanatory notes to a contract may be admissible in evidence as an aid to interpretation, and it was not disputed in this case that the JCT’s Design and Build Contract Guide 2016 was admissible evidence in interpreting the contract;
5. industry standard forms, such as the JCT contract forms, are to be distinguished from “take it or leave it” standard forms used by parties with superior bargaining power: there is no such problem of inequality of bargaining power in relation to industry-wide standard forms; and
6. in interpreting industry-wide standard forms, the admissible background context may include past decisions of the courts on and practice in relation to clauses in an earlier version of the standard form, although an “archaeology of the forms” is generally to be discouraged.

The Supreme Court found that entitlement to terminate under clause 8.9.4 could not arise without a termination right under clause 8.9.3 having first arisen.

Key to the Supreme Court’s decision was the observation that the opening words of clause 8.9.4 would be superfluous if not for clause 8.9.3. This, the Court said, indicated that the right to terminate under clause 8.9.4 was dependent on the specified default not having been remedied within 28 days prior to the repetition which could trigger termination under clause 8.9.4. In that way, the court decided, the right to terminate under clause 8.9.3 acts as the ‘gateway’ to termination under clause 8.9.4.

It was also the Supreme Court’s view that the consequences of the Court of Appeal’s decision would weigh heavily on the employer. Adopting (incidentally) an opposite example to the hypothetical used before the High Court and the Court of Appeal, the Supreme Court noted that if the employer made only two late payments, only one day late in each case, the contractor could serve a notice immediately following the first late payment and then simply terminate the contract following the second. This was likened to using “a sledgehammer to crack a nut”.

For those reasons, the Supreme Court decided that the right to terminate under clause 8.9.4 can only arise where the prior occurrence of the specified default gave rise to an entitlement to terminate under clause 8.9.3.

Impact of the decision