Supreme Court Clarifies the JCT Termination Clause: What it Means for Contractors and Employers

A Supreme Court decision redefines the risk allocation and procedural certainty, for contractors and employers alike, when dealing with repeated payment defaults under one of the UK’s most widely used standard forms. The Court’s judgment inProvidence Building Services Limited v Hexagon Housing Association Limited[2026] UKSC 1 provides much-needed clarity on the operation of the contractor’s JCT termination provisions in the Design and Build Contract.

At the heart of the decision is the relationship between clauses 8.9.3 and 8.9.4 of the JCT 2016 form. The Supreme Court unanimously held that a contractorcannot terminate under clause 8.9.4 for a repeated employer default unless a right to terminate under clause 8.9.3 had first accrued even if that right was not exercised.

In practical terms, this means that where an employer cures a payment default within the contractual cure period (28 days, as amended in this case), the contractor does not subsequently have the right to terminate immediately if the employer commits another late payment. The contractor must instead issue a new default notice and allow the cure period to elapse once more before any JCT termination right arises.

The Dispute

The case concerned a JCT Design and Build Contract (2016 edition) for a residential development in Purley. The employer, Hexagon, failed to pay an interim certificate by the final date in December 2022. The contractor, Providence, issued a notice of specified default under clause 8.9.1. Hexagon cured the default by paying in full within the 28-day period (as amended from the standard 14 days), meaning Providence never acquired a right to terminate under clause 8.9.3.

In May 2023, Hexagon again failed to pay a subsequent certificate on time. Providence immediately issued a termination notice under clause 8.9.4, contending that this was a “repetition” of a specified default, which entitled it to terminate without waiting for a further cure period.

Hexagon challenged the termination, arguing that clause 8.9.4 could only be invoked where a right to terminate under clause 8.9.3 had first accrued, even if unexercised.

The Legal Issue

The sole question for the Court was:

“Can the contractor terminate its employment under clause 8.9.4 of the JCT 2016 Design and Build Form, in a case where a right to give the further notice referred to in clause 8.9.3 has never previously accrued?”

The Supreme Court’s Decision

Giving the leading judgment, Lord Burrows found in favour of Hexagon. The Court held that clause 8.9.4 is “parasitic” on clause 8.9.3, and therefore requires that a right to terminate under clause 8.9.3 must have accrued in respect of the earlier default.

The Court’s reasoning emphasised:

1. The Natural Meaning of the Words

The opening words of clause 8.9.4 “If the Contractor for any reason does not give the further notice referred to in clause 8.9.3…” were central. These words presuppose the existence of a right to give that further notice. To interpret clause 8.9.4 as operating independently would render this wording superfluous, or as the Court put it, “both otiose and obscure.”

2. A Rational Commercial Outcome

The Court considered that the employer’s interpretation produced a more balanced result. It ensures that immediate termination for a repeated default is only available where the initial default was sufficiently serious to persist beyond the cure period. The contractor’s interpretation, by contrast, would allow termination for any repeated late payment, however minor, which the Court viewed as commercially extreme.

3. Asymmetry Between Employer and Contractor Termination Rights

The Court rejected the argument that clause 8.9.4 should be read symmetrically with clause 8.4.3, which governs JCT termination by the employer for contractor default. The clauses use materially different language: clause 8.4.3 expressly refers to termination “whether as a result of the ending of any specified default or otherwise,” wording absent from clause 8.9.4. This deliberate difference confirms that the two regimes are not intended to operate identically.

4. The Primacy of Contractual Language

The judgment reaffirms the approach in *Arnold v Britton* that the words used are of primary importance. Arguments based on business common sense or contractor cashflow concerns could not displace the clear natural meaning of the clause. Lord Burrows noted that if the clause is considered to operate harshly on contractors, “that is a matter for the JCT to consider… in a future draft.”

Guidance on Interpreting Standard Form Contracts

The Court also provided important guidance on interpreting industry-wide standard forms such as JCT contracts:

- While the objective intention of the parties remains paramount, where an industry standard form is used, it is generally assumed the parties intend their rights to align with those of other users and reflect the drafters’ intentions.

- Explanatory notes and past judicial decisions on earlier versions may be admissible as contextual aids, but generalised “archaeological digging” into previous editions is discouraged.

- Consistency of interpretation across the industry is a key objective, promoting certainty for all users of the form.

Implications for Employers

The ruling offers employers significant protection and procedural certainty:

• Reduced Termination Risk:Employers who remedy late payments within the cure period are shielded from immediate termination if a subsequent late payment occurs. This prevents contractors from using clause 8.9.4 as an accelerated termination route for minor or promptly corrected defaults.
• Clarity on Process:Employers can now proceed with greater confidence in managing cash flow and interim payments, knowing that isolated or quickly rectified delays will not lead to sudden JCT contract termination.
• Asymmetry Confirmed:The judgment confirms that the termination regime is deliberately asymmetrical. Employers retain the ability under clause 8.4.3 to terminate for repeated contractor defaults even where the initial default was cured within the cure period—a right not reciprocated for contractors under clause 8.9.4.

Implications for Contractors

For contractors, the decision imposes clearer and more restrictive procedural requirements:

• Accrued Right Required:Contractors must now establish that a right to terminate under clause 8.9.3 had fully accrued before they can rely on clause 8.9.4 for a repeated default. This means allowing the full cure period to expire without payment.
• Strategic Timing:The ruling may influence how contractors sequence and respond to payment delays. There may be greater incentive to issue default notices earlier or to escalate disputes via adjudication rather than relying on the termination mechanism for recurring minor defaults.
• Limited Leverage:The “repetition” mechanism under clause 8.9.4 can no longer be used as a swift remedy for ongoing late payment patterns unless each individual default was serious enough to justify termination in its own right.

Conclusion

The Supreme Court’s clarification brings some form of certainty to a previously ambiguous area of JCT contracting. For employers, it provides a firmer foundation for managing payment obligations without fear of abrupt termination. For contractors, it underscores the importance of strict adherence to contractual procedure and may prompt a review of how payment defaults are managed in practice.

As the wording remains unchanged in the JCT 2024 suite, this interpretation will continue to apply across a wide range of projects. Both parties should now operate with a clearer understanding of the steps required and the limits imposed by the JCT termination provisions in one of the construction industry’s foundational documents. For those drafting JCT terms, perhaps some amendments are required and considered as the Court explicitly noted that if the clause is considered too favourable to employers, it is for the Joint Contracts Tribunal, not the courts to address in future editions.

Get Further Support

Our team at Shemmings Hathaway are available to guide you through the contract process including your JCT termination rights. We specialise in handling construction law disputes to safeguard your interests and deliver the best outcomes for you or your business. Call us today for a free consultation.

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