A recent, high profile, judgment from the UK’s top court has wider application than just standard-form contracts such as those that are a feature of the construction industry.
Central to the decision in Providence Building Services Limited v Hexagon Housing Association Limited (2026) was the termination mechanism in a standard form (UK) construction industry contract.
Hexagon engaged the builder (Providence) under a standard form contract that provided two routes for termination in the event of non-payment:
- Route 1: If a specified default (in this case late payment) continued for 28 days from receipt of a default notice, the contractor could terminate by giving a further notice; and
- Route 2: If the contractor does not give the further notice under Route 1, but the other party repeats the specified default – then the contractor can terminate the contract by a notice to terminate.
In the case before the court, Hexagon was late making a payment in December which resulted in Providence issuing a default notice, but the payment was made within the 28-day period.
Hexagon was again late with making a second payment in the following May, and Providence gave notice immediate termination under Route 2 – for repeated default.
Hexagon’s payment was received 6 days late.
The issue for the court was whether Providence was entitled to terminate. The first late payment had been cured. This meant that termination under Route 1 wasn’t available.
At first instance the court sided with Hexagon. This decision was overturned on appeal, and then on further appeal to the Supreme Court, Hexagon’s position was upheld.
Whilst much of the UK Supreme Court’s decision is applicable to the use of industry-standard contracts (such as those used in the construction sector), a brief understanding of the key elements of the decision is still useful in a wider context.
General principles of interpretation
The UK Supreme Court decision applied general principles of interpretation. This should come as no great surprise and underlines the point that widely used / industry-standard templates do not generate their own rules of interpretation. Helpfully, in a New Zealand context, with the overlay of the work of the Contracts and Commercial Law Reform Committee in the 1970s that generated a series of reforms to contract law (which were later consolidated into the Contract and Commercial Law Act 2017), there are some useful navigation points – plus a 2019 paper produced by the Chrief Justice and two of her colleagues in the Supreme Court.
The use of guidance material
The UK Supreme Court decision also noted that, in the case of industry-standard standard templates, admissible background (to interpret the meaning of the contract) is likely to extend beyond the categories of material that would be admissible for a standalone contract. For example, the courts should be more ready to consider industry guidance published in conjunction with a template form of contract. This in addition previous court decisions applying the same form of (template) contract and possibly previous iterations. Despite this, the Court discouraged a sort of archaeological dig of such templates in favour of applying the language actually used in the current form of the template.
Decision
As a matter of straightforward contractual application, the UK Supreme Court found that Route 2 was not a free-standing right to terminate for repeated instances of late payment. Instead, it was described as ‘parasitic’ on Route 1. That is, it wasn’t an independent right of termination and could only be invoked if a right to terminate under Route 1 had accrued before it could be invoked.
Concluding comments
More generally, the decision reinforces that termination of a contract is a serious step. Consequently, courts are likely to interpret the termination mechanism carefully, requiring any necessary process hurdles to be adhered to. This is particularly the case for notice and/or cure periods.
Therefore, recurring late payments which are remedied within the notice and/or cure period – must be regarded as (practically) unlikely to trigger a right to terminate. This is likely even if there is a pattern of late payment. (Note that some industry-standard contract templates do contain a right of termination for repeat or persistent breaches and even [wilful] neglect of obligations – albeit that it is not clear the extent to which they have been relied on. In the construction sector, questions of insolvency often seem to intervene).
In the case of supply chain-type contracts, a more common approach is to provide for interest for late payment. A good credit controller will often nip the problem in the bud by practical measures.
For more information, please do not hesitate to contact me.