Two late payments no longer mean you can walk off site

Lawrence Pearce is a partner at law firm Holmes & Hills

The Supreme Court has brought clarity to a JCT termination issue that has been unsettling the construction industry since the Court of Appeal’s decision in Providence Building Services Ltd v Hexagon Housing Association Ltd last summer.

At stake was a deceptively simple question: can a contractor terminate a JCT Design and Build contract just because an employer has paid late more than once? The Court of Appeal said yes. The Supreme Court has now said no – and the difference matters.

“Curing a late payment within the contractual grace period really does wipe the slate clean”

The case arose out of a familiar scenario. Hexagon, the client, paid one interim payment late in December 2022. Providence, the contractor, served a formal “specified default” notice under clause 8.9.1 of the JCT Design and Build 2016 form. Hexagon then paid within the contract’s 28-day cure period.

Five months later, another payment was late, having been due by 17 May 2023 under a notice issued by Providence. This time the firm did not wait. It terminated the contract the next day, arguing that the second late payment was a “repetition” of the earlier default and that clause 8.9.4 entitled it to walk away.

The Court of Appeal agreed. It held that the contractor did not need to have acquired a prior right to terminate for the first late payment. Two late payments were enough.

That interpretation caused understandable concern in the market. Under that reading of JCT, an employer could cure a late payment exactly as the contract allows, yet still face termination months later if a further payment slipped – even by a day. The Supreme Court has now overturned that approach.

The judges focused on how clause 8.9 actually works. It sets up a two-stage mechanism. A late payment allows the contractor to serve a notice of default. If that default continues for 28 days, the contractor acquires a right to terminate under clause 8.9.3. That is the gateway. Only once that gateway has opened does the contract allow termination for a “repetition” of the same default under clause 8.9.4.

Hexagon’s December payment was late, but it was cured within the 28-day period. That meant Providence never acquired a termination right under clause 8.9.3. And because that gateway was never reached, the Supreme Court held that clause 8.9.4 could not be used later. Providence’s termination in May was therefore unlawful.

The court was also alive to the commercial consequences of the alternative interpretation. It described the Court of Appeal’s approach as a “sledgehammer to crack a nut”. On that logic, two payments a single day late could entitle a contractor to bring a major project to an abrupt end. That was not what the JCT wording, read properly, supported.

Restoring stability

For employers, developers and funders, the decision restores a measure of stability. It means that curing a late payment within the contractual grace period really does wipe the slate clean. A contractor cannot bank that default and deploy it later when relations deteriorate.

For contractors, the judgment is a reminder that termination is intended to be a response to serious, uncured payment failure – not a tactical option triggered by historic slippage. JCT still gives powerful tools for dealing with cashflow pressure, including interest, suspension and adjudication. But termination only comes into play once a default has been allowed to run on beyond the agreed cure period.

There is also a broader message here about standard forms. The Supreme Court was careful to say that courts should not bend JCT wording to address perceived industry unfairness. If the sector wants a tougher late-payment termination regime, that is a matter for the JCT drafting committee, not judicial interpretation.

The result is that the risk landscape has shifted back towards where many thought it sat before the Court of Appeal ruling in 2024. Repeated late payment is still serious. But under JCT Design and Build, it only becomes fatal if the first breach was bad enough to go uncured.

Two late payments no longer mean you can walk off site. Only one that was allowed to fester does.