Nick Kaplan cautions about the "very wide-ranging implications" of Providence Building v Hexagon Housing

21st August 2024

3PB's specialist construction barrister Nick KaplanNick KaplanCall: 2013 acted as Junior Counsel for Hexagon Housing Association in their recent Court of Appeal case which considered the termination provisions under the JCT form of contract.

The Court of Appeal handed down judgment last week in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962, and its decision is likely to come as a significant surprise to many in the industry.

The case concerned the circumstances in which a Contractor can terminate for the repetition of an employer’s default under clause 8.9.4 of the JCT Design and Build Form of Contract 2016, a standard form contract in use throughout the nation. The Judgment is likely to be significant for the foreseeable future given that the recently published 2024 edition of the same form of Contract uses the same language.

The issue between the Parties was whether, in order to terminate for repetition of a default under clause 8.9.4, the Contractor first had to acquire the right to terminate for continuation of the original default under clause 8.9.3. Hexagon successfully argued that this was required before both an adjudicator and the Court at first instance. However, the Court of Appeal, in a unanimous decision, disagreed and concluded that on the natural meaning of the language used in clause 8.9.4, there was no need for a right to terminate under 8.9.3 to arise before the Contractor could terminate for repetition of a default under 8.9.4.

Nick, commenting on this Court of Appeal’s decision, said: “One of the most surprising features of this case is that the issue has not previously come before the Court, despite the fact that the relevant wording of clause 8.9 has been substantially the same since the JCT published the 2005 edition of the Design and Build form of Contract 19 years ago."

"It is likely that the issue has not arisen before because either the industry had understood that the clause meant what Hexagon said it meant (a reading with which the adjudicator and the first instance judge agreed) or considered the clause to be sufficiently ambiguous that it was not worth the risk of terminating under 8.9.4, unless the right to terminate under 8.9.3 had first arisen. It is important to note that the Court of Appeal’s decision makes it substantially easier for contractors to terminate, than the reading argued for by Hexagon and accepted by both the Adjudicator and the Judge."

Nick concluded that: "I believe that this Court of Appeal’s decision has the potential to have very wide-ranging implications, as it may be viewed by contractors as giving the green light to terminate in circumstances where it was previously considered too risky to do so. As a result, we may now see an opening of the floodgates, with contractors deciding to terminate instead of persisting with loss-making projects in a construction market with notoriously tight margins."

"It is likely that going forward, employers will want to amend the standard wording of clause 8.9 in light of this judgement. In the meantime, employers with ongoing projects operating under unamended JCT terms will have to look very carefully at their payment processes.”

To contact Nick, please email him at [email protected]. To instruct him, or see about his availability, please contact his clerks Joe Townsend or Steve Evers by emailing them at [email protected] or [email protected] or by speaking to either of them on 020 7583 8055.