Supreme Court restricts contractor’s right to terminate for repeated employer defaults

Providence Building Services Limited v Hexagon Housing Association Limited [2026] UKSC 1

The question

Was a contractor’s right to terminate under a standard contract only triggered where the prior occurrence of the specified default gave rise to an entitlement to terminate?

The key takeaway

Absent clear wording, the courts are reluctant to construe termination rights (particularly in a standard contract) in such a manner that allows a party to end a high value contract upon minor breach(es). Where termination rights are drafted separately for each party, the court will not automatically assume they are intended to mirror each other, even where they adopt broadly similar structures.

The background

In February 2019, Hexagon Housing Association Limited (Employer) contracted Providence Building Services Limited (Contractor) to construct a number of buildings, for a contract sum of approximately £7.2 million.

The contract incorporated the 2016 Edition of the JCT Standard Form of Design and Build Contract, a standard form widely used in the construction industry, as amended by the parties.

The key clause for the court to consider was clause 8.9, which provided:

“Termination by Contractor

Default by Employer

8.9.1        If the Employer:

8.9.1.1    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

8.9.1.2    [Not relevant]

8.9.1.3    [Not relevant]

the Contractor may give to the Employer a notice specifying the default or defaults (a ‘specified’ default or defaults).

8.9.2        [Not relevant]

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):

8.9.4.1    the Employer repeats a specified default;

8.9.4.2    [Not relevant]

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” (emphasis added).

In effect, if the Employer failed to pay an amount due by its final date for payment, the Contractor could serve a notice of specified default under clause 8.9.1 and, if that default continued for 28 days after receipt of the notice, the Contractor could terminate under clause 8.9.3. If the Contractor did not serve a notice to terminate for any reason, clause 8.9.4 provided a further route to termination where the Employer later repeated a specified default.

The Employer failed to pay an amount due by its final date for payment in December 2022. The Contractor served a notice of specified default the following day and the Employer paid the outstanding sum within the 28-day period, meaning no right to terminate accrued under clause 8.9.3.

In May 2023, the Employer failed to make payment on its due date for a second time. The Contractor served notice to terminate the following day, identifying the December late payment as the earlier specified event which, coupled with the May non-payment, gave the Contractor the right to terminate under clause 8.9.4.

The Employer made full payment a few days later and issued a challenge to the Contractor’s interpretation of the termination provisions. It argued that clause 8.9.4 only applied where the Contractor had already accrued (but not exercised) the right to terminate under clause 8.9.3 in respect of the earlier specified default, which it had not.

The Contractor argued that clause 8.9.4 simply required two specified defaults to occur. Provided a notice had been served for the first, it was irrelevant whether the first default had been remedied within 28 days. It submitted that the words “for any reason” in clause 8.9.4 (in respect of not providing notice to terminate under clause 8.9.3), included instances where the circumstances giving rise to a termination right had not occurred, as here. Accordingly, the fact the Contractor had not accrued a right to terminate following the original default was not a prohibiting issue.

At first instance, the High Court found for the Employer. The Court of Appeal disagreed, preferring the Contractor’s construction and holding that termination was available even though the December default had been remedied in time. The Employer appealed to the Supreme Court.

The decision

The Supreme Court unanimously allowed the Employer’s appeal and held that the Contractor was not entitled to terminate the contract.

The court’s analysis focused on the meaning of the cross-reference in clause 8.9.4, holding that the “parasitic” tie-in to clause 8.9.3 only held a sensible function if it assumed a right to give notice to terminate under that clause had already arisen. If it did not, the cross-reference was superfluous and clause 8.9.4 could instead have opened with the words, “if the Employer repeats a specified default”. Since it did not, the natural reading of the words was that clause 8.9.4 was an extension of clause 8.9.3, available where a right to terminate had arisen but not been acted upon.

The Court explained its reasoning by applying a hypothetical commercial consequence to the parties’ differing interpretations of the clause. Under the Contractor’s approach, a right to terminate would arise whenever two specified defaults occurred, irrespective of how minor each one was and however quickly they were remedied. The court gave the example of two payments each being made a single day late, which it considered to be a disproportionate basis for bringing a substantial construction contract to an end. The Employer’s construction avoided this result because a second late payment would only support a right to terminate where the first had already remained unremedied for the full 28-day period.

The court also considered a second argument of the Contractor – that the Contractor’s termination right in clause 8.9.4 should mirror the Employer’s termination right under clause 8.4.3 (which was drafted in a broadly similar structure but did expressly allow for termination for a repeated default even without a prior accrued right to terminate). The argument was rejected with the court deciding there was no basis to assume that rights drafted for two parties with such different obligations under the contract would be identical, particularly where the wording adopted in the two clauses clearly differed.

Why is this important?

This decision offers guidance that where a clause is expressed to trigger following a party’s election not to terminate for an earlier default, that party must have actually held the right to terminate at the time.

The judgment also illustrates two broader points. Firstly, the Supreme Court has shown it will be reluctant to adopt a construction which produces a disproportionate result. Secondly, where termination rights are drafted separately for each party, the court will not automatically assume they are intended to mirror each other, even where they adopt broadly similar structures.

Any practical tips?

• If a repeated default or persistent breach termination right is intended to operate independently of whether an earlier right to terminate ever accrued, the contract should say so expressly, for example by providing that the right arises whether or not any right to terminate has accrued in respect of the earlier default.
• Be alive to the effect of cross referring to an earlier provision. Wording of this kind may be read as importing the earlier clause’s conditions into the later one, even where this is not the intended effect.
• Do not assume that clauses drafted for each party in a reciprocal structure will be interpreted as mirror images of one another. If the clauses are intended to reflect each other, this should be set out expressly.

Autumn 2026