UK Supreme Court delivers judgment on contractual interpretation of termination clauses in standard form contracts

On 15 January 2026, the UK Supreme Court delivered judgment in Providence Building Services Limited v Hexagon Housing Association Limited [2026] UKSC 1. This decision is of great significance to the construction industry as it concerns the interpretation of clauses in the commonly used standard form JCT Design and Build Contract (2016) (JCT D&B 2016). The case is also relevant more widely to the interpretation of termination clauses in standard form agreements generally.

Relevant Background

• In February 2019 Hexagon (HHA) as Employer and Providence (PBS) as Contractor entered into a £7.2m building construction contract incorporating the JCT D&B 2016, as amended.
   
• At the heart of the dispute were two late payments by HHA to PBS, the first of which was due on 15 December 2022. On 16 December, PBS issued a contractual “Notice of Specified Default” under clause 8.9.1 (see below for the clause wording). Payment was then made by HHA on 29 December 2022. That payment was 14 days late but still within the 28-day contractual cure period.
   
• In April 2023, PBS issued another invoice to HHA which was due for payment on 17 May 2023. HHA failed to pay by that date and on 18 May 2023, PBS issued a Notice of Termination of the contract. HHA paid the April invoice six days after the due date on 23 May 2023.
   
• PBS’s position was that it was entitled to terminate the contract because HHA had paid late twice and PBS had provided a Notice of Specified Default in respect of the first late payment in December 2022 and it didn’t matter that HHA had paid the invoice after that. HHA argued that PBS was only entitled to terminate the contract for a second late payment if HHA had not made the first late payment during the contractual cure period. PBS did not have a previously accrued right to terminate.
   
• There was an adjudication which found for HHA. Following this, PBS issued court proceedings to seek a declaration as to the correct interpretation of clauses 8.9.3 and 8.9.4 (see their wording below).
   
• The High Court found for HHA: there could be no termination in circumstances where the late December payment was made within the contractual 28-day cure period. In 2024, that decision was overturned by the Court of Appeal, which found for PBS. It held that PBS was entitled to terminate the contract if HHA failed to pay on time twice, even if the first payment was made within the cure period. HHA appealed to the Supreme Court.
   
• The sole question before the Supreme Court was “Can the contractor terminate its employment under clause 8.9.4 of the [JCT D&B 2016], in a case where a right to give the further notice referred to in clause 8.9.3 has never previously accrued?”

Relevant clauses of the JCT D&B 2016

Clause 8.9 of the JCT D&B 2016 with the parties’ amendments to the standard form shown in strike-through and words in square brackets states:

“Termination by Contractor

Default by Employer

8.9        1          If the Employer:

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

                                    2. fails to comply with clause 7.1 [number not used]; or

                                    3. fails to comply with clause 3.16,

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

…

3          If a specified default or a specified suspension event continues for 14 days  [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 14 day [28 day] period by a further notice to the Employer terminate the Contractor’s employment under this Contract.

4          If the Contractor for any reason does not give further the further notice referred to in clause 8.9.3, but (whether previously repeated or not):

1. the Employer repeats a specified default; or

2. a specified suspension event is repeated for any period, such that the regular progress of the Works is or is likely to be materially affected thereby,

then, upon or within a reasonable time [28 days] after such repetition, the Contractor may by notice to the Employer terminate the Contractor’s employment under this Contract.”

Although clause 8.9 was the focus of the appeal, the Employer’s (HHA’s) rights to terminate as set out in an earlier clause (clause 8.4) were noted as being asymmetrical to the Contractor’s termination rights. The Supreme Court’s approach to this is set out below.

The decision

The Supreme Court found for HHA by ruling that that the correct construction of the JCT D&B 2016 was that PBS was not entitled to terminate.

Reasons why termination was not permitted

1. The objective natural meaning of the opening words in clause 8.9.4 in their context meant that PBS must have had an accrued right to terminate under clause 8.9.3 before clause 8.9.4 would apply. Otherwise the reference back to clause 8.9.3 would be superfluous. i.e. if all that was needed to give PBS a right to terminate was for HHA to repeat a specified default, clause 8.9.4 would have started with the words “..if the Employer repeats a specified default”. The opening wording would not have been present. The Court found that clause 8.9.4 was “parasitic” on clause 8.9.3.
    
2. It would be an extreme outcome (“a sledgehammer to crack a nut”) if PBS was entitled to terminate the contract because it received each of two payments a single day late. It would be less extreme if the second delay entitled the contractor to terminate only where the first late payment was delayed beyond the 28-day contractual cure period.
    
3. Reliance on the scope of HHA’s termination rights by PBS to determine the scope of PBS’s own termination rights was misplaced. The Employer’s and the Contractor’s contractual obligations were very different and there was no reason to presume their termination rights would necessarily be identical. HHA’s and PBS’s termination rights were asymmetrical in other respects. These were worded differently and it would be hard to see why if they were intended to have identical meanings.
    

Commercial considerations

The Court also noted that it wasn’t for a Contractor to rely on clause 8.9.4 of the JCT D&B 2016 to enable it to deal with cashflow concerns caused by late payments. The interpretation of clause 8.9.4 should not be distorted so as to favour the Contractor.

If there are cashflow problems for Contractors using this standard form contract which could be ameliorated by a differently worded termination clause then that is a matter for the JCT to consider in a future draft of the JCT D&B 2016.

Key takeaways

This decision provides a useful summary of the law on interpretation of contracts, including industry-wide standard form contracts where the bargaining power of the parties is similar:

1. The modern approach is to ascertain the meaning of the words used by applying an objective and contextual approach. Business or commercial common-sense may be relevant but declarations of the parties’ subjective intentions and previous negotiations cannot be used to determine what the contractual language means.
    
2. The words used by the parties are of primary importance so care must be taken to avoid placing too much weight on business common-sense or purpose. It is not an option to “rewrite the contract” to protect one of the parties from a bad bargain.
    
3. Contractual interpretation involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated.
    
4. Explanatory notes to a contract may be admissible evidence to aid interpretation (in this case the parties agreed that the JCT’s Design and Build Contract Guide 2016 to the JCT D&B 2016 was admissible evidence to interpret their contract).
    
5. The Court distinguished between two types of standard form contract: (i) the “take it or leave it” one where one party has superior bargaining power and (ii) the industry-wide standard form which has been negotiated by contracting parties on both (or all) sides of a particular trade or industry, where inequality of bargaining power is not a problem.
    
6. For such industry-wide standard form contracts, the admissible background context may include past Court decisions and earlier versions of the standard form, albeit an examination of the “archaeology of the forms” is very much discouraged.