Contractor wins legal appeal over housing association late-payment case

The High Court initially ruled in Hexagon’s favour on the basis that the notice of termination was invalid.

Providence appealed the decision, arguing that it will have a “trickle-down effect” of promoting late payments and will make the final date of payment “optional”.

Hexagon missed the payment deadline on two separate amounts: £260,000 in December 2022 and £360,000 in May 2023.

In last November’s ruling, the judge stated that West Sussex-based Providence had a “battery of weapons available” to protect its cash-flow position.

These included a right to suspend the works, the payment of statutory interest and the right to refer disputes to adjudication.

However, among their reasons for allowing the appeal, the judges this week said they were not “persuaded” by the “battery” of other remedies.

“None provides a satisfactory and immediate solution to the typical case of late payment,” the judgement said. “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.”

Mark London, a partner at law firm Devonshires who represented Hexagon, said: “The Court of Appeal’s judgment has introduced a significant risk to employers everywhere who, in the event of a specified default, will face the proverbial sword of Damocles for the remainder of the contract.

“Contrary to the way in which the construction industry has operated the Joint Contracts Tribunal termination provisions since the current wording was introduced in the 2005 JCT suite, employers will now be subject to a ‘two strikes and you’re out’ regime.”

Mr London said that if an employer was late making a single payment “even by one day”, a contractor would “inevitably serve a default notice”.

“If it happens again, then the contractor may terminate – even if the previous late payment is promptly cured.  

“This will be a potentially powerful tool in the armoury of a contractor that wishes to exit an unprofitable project,” he added.

In a statement, Darren Tancred, managing director of Providence, said the process had been “damaging for the business”, but it had remained “certain that our interpretation of the contract clauses was correct”.

“The three Court of Appeal judges agreed with us and found unanimously in Providence’s favour, re-enforcing Lord Denning’s famous message that ‘cash flow is the life blood of the construction industry’,” he said.

Mr Tancred said it was a “warning to employers, who have only a few fundamental obligations and with payment in accordance with the contract condition being one of them”.

He said that Hexagon had “cynically and persistently ignored their payment obligations, whilst expecting Providence to continue to perform its obligations to its full extent”.

Hexagon has been contacted for comment.