JCT STANDARD FORM AND CONTRACTOR'S RIGHT TO TERMINATE
While it is not so usual to encounter the JCT Standard Form of Design and Build Contract in Singapore, the England and Wales Court of Appeal decision in Providence Building Services Ltd v Hexagon Housing Association Ltd [2024] EWCA Civ 962 (“PB v HH”) shows the importance of paying attention to the phrasing of contractual provisions in context of the contractor’s right to terminate.
The issue. PB v HH concerned the 2016 Edition of the JCT Standard Form of Design and Build Contract (“JCT Form”), and the case turns on a simple, but important, issue: can the contractor terminate its employment pursuant to Cl. 8.9.4 of the JCT Form in a case where the right to give the further notice referred to in Cl. 8.9.3 of the JCT Form has never previously accrued?
The clauses. Before proceeding, we set out Cl. 8.9 of the JCT Form from PB v HH [9] below:
“Default by Employer
8.9.1 If the Employer:
.1 does not pay by the final date for payment the amount due to the Contractor in accordance with clause 4.9 and/or any VAT properly chargeable on that amount; or
.2 [Number not used]; or
.3 fails to comply with clause 3.16,
the Contractor may give to the Employer a notice specifying the default or defaults (a 'specified' default or defaults).
8.9.2 If after the Date of Possession (or after any deferred Date of Possession pursuant to clause 2.4) but before practical completion of the Works the carrying out of the whole or substantially the whole of the uncompleted Works is suspended for a continuous period of [2 months] by reason of any impediment, prevention or default, whether by act or omission, by the Employer or any Employer's Person, then, unless it is caused by the negligence or default of the Contractor or any Contractor's Person, the Contractor may give to the Employer a notice specifying the event or events (a 'specified' suspension event or events).
8.9.3 If a specified default or a specified suspension event continues for 28 days from the receipt of notice under clause 8.9.1 or 8.9.2, the Contractor may on, or within 21 days from, the expiry of that 28 day period by a further notice to the Employer terminate the Contractor's employment under this Contract.
8.9.4 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):
.1 the Employer repeats a specified default;
.2 a specified suspension event is repeated for any period, such that the regular progress of the Works is or is likely to be materially affected thereby,
then, upon or within 28 days after such repetition, the Contractor may by notice to the Employer terminate the Contractor's employment under this Contract.”
So, Cl. 8.9 is a clause which sets out the contractual right for the contractor to terminate its employment if the conditions are met.
Importantly, Cl. 8.9.4 provides that if the contractor “for any reason does not give the further notice referred to in clause 8.9.3”, then the contractor may by notice terminate the contractor’s employment under the contract (upon satisfaction of certain other requirements).
While at first blush this clause seems straightforward enough, as the case demonstrates, it is not so clear.
Is the right to terminate on Cl. 8.9.4 contingent on there having accrued a right to terminate under Cl. 8.9.3? Does the phrase “for any reason” encompass a situation where the contractor fails to give a notice under Cl. 8.9.3, because there was no right to issue the “further notice” under Cl. 8.9.3?
What occurred. The Employer (“Hexagon”) and the Contractor (“Providence”) entered into a contract which incorporated the JCT Form in February 2019 (PB v HH [4]).
On 25 November 2022, the Employer’s agent issued a Payment Notice 27 which required the Employer to pay £264,242.55 on or before 15 December 2022, which the Employer failed to do (PB v HH [10]). On 16 December 2022, the Contractor served a notice under Cl. 8.9.1 of the JCT Form (PB v HH [10]). Payment of £264,242.55 was made by the Employer on 29 December 2022, and it was not in dispute that due to this payment, the Contractor was not entitled to serve a further notice under Cl. 8.9.3 of the JCT Form in respect of that late payment (PB v HH [11]).
Subsequently, on 28 April 2023, the Employer’s agent issued a Payment Notice 32, requiring the Employer to pay £365,812.22 on or before 17 May 2023, which the Employer failed to do (PB v HH [11]). On 18 May 2023, the Contractor issued a further notice under Cl. 8.9.4, referring back to the Contractor’s notice sent on 16 December 2023, and stated that as the Employer had “repeated a specified default”, the Contractor therefore terminated its employment pursuant to Cl. 8.9.4. The Contractor also referred to what it termed as repudiatory breaches by the Employer due to making late payments for 19 of 32 payments, which the Contractor accepted and terminated the employment in accordance with the Contractor’s common law rights (PB v HH [12]).
The Employer made payment of £365,812.22 in full on 23 May 2023, and disputed the lawfulness of the Notice of Termination served on 18 May 2023, asserting that the Contractor had repudiated the Contract, which the Employer purported to accept on 31 May 2023 (PB v HH [13]).
Lead up to the appeal. The dispute was referred to adjudication by the Employer, and the adjudicator decided substantially in its favour (PB v HH [14]).
The Contractor then issued proceedings to determine "whether a right to terminate under Clause 8.9.3 must first have accrued before Providence [the Contractor] could have any right to terminate under Clause 8.9.4” (PB v HH [14]). The judge determined that a contractor cannot give a valid Cl. 8.9.4 notice in circumstances where the right to give a Cl. 8.9.3 notice has never arisen (PB v HH [16])
Dissatisfied, the Contractor appealed, with its key argument being that “for any reason” in Cl. 8.9.4. “cover[s] the case where the reason why the contractor does not give the further notice referred to in Clause 8.9.3 is that the circumstances associated with the original specified default do not give rise to an accrued right to do so” (PB v HH [19]).
What the EWCA held. And on appeal, the Contractor’s argument was accepted, both on a natural meaning of the clause, as well as viewing the clause in context.
On the natural interpretation of the clause, Stuart-Smith LJ at PB v HH [29] held that “[v]iewed in isolation, the natural meaning of the conditional words at the commencement of Clause 8.9.4 are clear: "If the Contractor … does not give the further notice referred to in Clause 8.9.3" are broad enough to cover any state of affairs other than one where the Contractor does give notice. Put another way, unless the Contractor gives the further notice referred to in clause 8.9.3, the condition is satisfied. Viewed in isolation there is no basis for a submission that the conditional words imply anything about whether the Contractor could or could not have given the notice.”
And when viewed in context, Stuart-Smith LJ held at PB v HH [31] the context does not support an interpretation that “excludes from the scope of Clause 8.9.4 a case where the Contractor has not had an accrued right to serve a notice under Clause 8.9.3”, stating that the “question to be addressed is simply and only whether the Contractor has given further notice, not whether the giving (or not) of the notice can be given the (non-contractual) description of being the result of a decision or the taking of an active step”. Additionally, Stuart-Smith LJ referred to the employer’s right to terminate under the JCT Form and found that the above interpretation on the contractor’s right to terminate is supported by the structure and conditional words used in relation to the employer’s right to terminate (PB v HH [32] – [33]).
Thoughts. While the England and Wales Court of Appeal reached an unanimous decision, both the adjudicator and the first instance judge found in the Employer’s favour. As such, it does not appear that Cl. 8.9.3 and Cl. 8.9.4 were, in fact, so clearly drafted. Indeed, Stuart-Smith LJ at PB v HH [34] stated that “I would accept that the drafting could have been of better quality”.
Stuart-Smith LJ also stated at PB v HH [35] that neither the Employer’s nor the Contractor’s interpretation were “without any commercial sense”, though, as set out above, the Contractor’s interpretation was eventually held to be the correct one. In this regard, as Stuart-Smith LJ observed at PB v HH [42], this interpretation rendered the “Employer’s ice thinner from the outset” than would have been the case had the Employer’s interpretation been favoured.
Indeed, Stuart-Smith LJ observed that while it may be said that a contractor may have recourse to a “battery” of other remedies as stated by the first instance judge, which could ameliorate to some extent the contractor’s cash flow, “none provides a satisfactory and immediate solution to the typical case of late payment: each involves a measure of delay and, in the case of suspension or resorting to adjudication, additional cost and uncertainty for the contractor in pursuing them” (PB v HH [43]).
So, why is this English decision relevant in Singapore’s context? While it is not so common to encounter the JCT Form in Singapore, we do encounter contracts which establish a similar mechanism in Singapore. Indeed, some clients may wish to establish a similar mechanism to accord the contractor a contractual right to terminate.
In such situations, one should consider the implications of PB v HH carefully and ask if the contract would lead to the result in PB v HH, and if so, was it meant to lead to such a result. From the contractor’s perspective, a similar mechanism may be commercially sensible for the reasons as set out by Stuart-Smith LJ, assuming that the contractor has the bargaining power to ask for such a mechanism.
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