Factual and Procedural Background
In February 2019, Company A (the Employer) and Company B (the Contractor) entered into a contract for the construction of several buildings in The City, incorporating the 2016 Edition of the JCT Standard Form of Design and Build Contract ("the JCT Form") as amended. The original contract sum was approximately £7.2 million. The contract included provisions for interim payments, suspension rights, and termination rights for both parties under specific clauses.
Company A failed to pay sums due under interim payment notices on time on at least two occasions: a payment due on 15 December 2022 and another due on 17 May 2023. Company B issued notices under relevant contractual clauses addressing these defaults, including a termination notice relying on a repeated default under Clause 8.9.4 of the JCT Form.
The parties disputed whether Company B could validly terminate the contract under Clause 8.9.4 where the right to give the further notice under Clause 8.9.3 had never previously accrued because the original default was remedied within the prescribed period. The dispute was referred to adjudication, which found substantially in favour of Company A. Company B then issued proceedings under CPR Part 8, raising the issue of the proper construction of Clauses 8.9.3 and 8.9.4.
The Deputy Judge found in favour of Company A, holding that Clause 8.9.4 could not be invoked without a prior accrued right to give notice under Clause 8.9.3. Company B appealed that decision.
Legal Issues Presented
- Whether the Contractor can terminate its employment under Clause 8.9.4 of the JCT Form where the right to give the further notice referred to in Clause 8.9.3 has never previously accrued.
Arguments of the Parties
Appellant's Arguments (Company B)
- The words of Clause 8.9.4 are clear and do not require that the Contractor had an accrued right to give the further notice under Clause 8.9.3.
- The phrase "for any reason" covers situations where the right to give the Clause 8.9.3 notice has not accrued, negating any implication that the Contractor must have chosen not to give such notice.
- The Contractor’s right to terminate under Clause 8.9.4 depends solely on whether the further notice was given, not on any decision or choice.
- The commercial "battery of weapons" available to the Contractor is insufficient protection against repeated late payments by the Employer.
- The Contractor’s interpretation provides certainty and avoids costly disputes about repudiatory conduct in cases of serial late payment.
Respondent's Arguments (Company A)
- The wording of Clause 8.9.4, including the use of "If ... then ..." and "for any reason does not give the further notice referred to in clause 8.9.3," presupposes that the Contractor had an accrued right to give such notice but chose not to do so.
- The definite article "the" in "the further notice" implies reference to a specific notice that the Contractor was entitled to give under Clause 8.9.3.
- Clause 8.9 should be read as a sequence or cascade of steps, starting with the Employer’s default, the Contractor’s notices, and opportunities to remedy, culminating in termination rights.
- It defies commercial common sense for the Contractor to terminate on repetition of a default where no prior right to terminate had accrued, especially where the repetition may be minor.
- The Contractor’s right to terminate under Clause 8.9.4 arises only if the original default was not remedied within the 28-day period, thus accruing a right to give notice under Clause 8.9.3.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Lamesa Investments Limited v Cynergy Bank Limited [2020] EWCA Civ 821 |
Principles of contractual construction, particularly strict construction of termination clauses and focus on natural and ordinary meaning of words. |
The court adopted the summary of principles from this case to guide interpretation of Clauses 8.9.3 and 8.9.4, emphasizing strict construction and natural meaning. |
| Seadrill Management Services Ltd v OAO Gazprom [2011] 1 All ER (Comm) 1977 |
Admissibility of prior versions of standard forms as aids to construction. |
The court endorsed caution in using earlier versions of standard forms unless a clear reason for amendment is identified; this informed the approach to the 1998 and 2005 JCT Forms. |
| The Rewa [2012] EWCA Civ 153 |
Caution against excessive "archaeology of the forms" when interpreting standard contract terms. |
The court applied this caution in deciding not to place undue weight on earlier versions of the JCT Form or drafting commentary. |
| Reinwood Ltd v L Brown & Sons Ltd [2007] BLR 10 |
Interpretation of termination provisions in standard form contracts relating to repeated defaults and reasonableness of termination notices. |
The court found the termination clause clear and unambiguous, supporting the right to terminate upon repetition of a specified default, subject to reasonableness. |
| Ferrara Quay Ltd v Carillion Construction Ltd [2009] BLR 367 |
Contractor’s right to terminate for repeated payment defaults and the contractual scheme to ensure payment compliance. |
The court recognized the contractual power to terminate where payment terms are not complied with, supporting the appellant’s interpretation. |
Court's Reasoning and Analysis
The court began by examining the natural and ordinary meaning of Clause 8.9.4 in isolation, concluding that the phrase "If the Contractor ... does not give the further notice referred to in Clause 8.9.3" is broad and includes any situation where the further notice is not given, regardless of whether the Contractor had an accrued right to give it. The words "for any reason" reinforce that no exception is made based on the reason for not giving the notice.
The court then considered the contractual context, particularly Clause 8.9 as a whole and its structural similarity to Clause 8.4. Both clauses contain parallel provisions regarding further notices and consequences of not giving them. The court found that the conditional words in Clauses 8.4.3 and 8.9.4 are identical and must carry the same meaning. Since Clause 8.4.3 expressly covers cases where no accrued right to give a further notice existed, Clause 8.9.4 must be read similarly.
The court rejected the lower court’s interpretation that the Contractor must have "taken an active step" or "decided" not to give the Clause 8.9.3 notice, viewing such reasoning as a distraction from the plain meaning of the words.
The court considered commercial sensibility arguments from both parties but found them inconclusive and not determinative. The court emphasized that the intention of the clauses is to encourage compliance with contractual obligations and that repetition of a specified default triggers the right to terminate.
Reviewing earlier versions of the JCT Form and relevant case law, the court noted that the 1998 version supported the appellant’s interpretation and that no evidence suggested the 2005 changes were intended to alter this aspect of the contract. The court found the commercial consequences of the appellant’s interpretation acceptable and rejected reliance on alternative remedies as sufficient protection for the Contractor.
Ultimately, the court preferred the appellant’s interpretation, holding that Clause 8.9.4 applies even where no prior accrued right to give a further notice under Clause 8.9.3 existed.
Holding and Implications
The court ALLOWED the appeal.
The holding establishes that under the 2016 Edition of the JCT Standard Form of Design and Build Contract, Clause 8.9.4 permits the Contractor to terminate its employment on repeated specified defaults by the Employer, even if the right to give the further notice under Clause 8.9.3 had never accrued. The decision clarifies the interpretation of termination provisions in this standard form contract, confirming that the absence of an accrued right to give notice under Clause 8.9.3 does not preclude termination under Clause 8.9.4.
This ruling directly affects the parties by validating the Contractor’s termination notice in circumstances where the Employer’s prior default was remedied within the notice period but subsequently repeated. The court did not establish new precedent beyond the interpretation of these contractual provisions and emphasized strict adherence to the contract’s language and structure.