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The UK Supreme Court has ruled on the interpretation of clauses in a standard form JCT Design and Build Contract. For the construction industry, the case is useful for illuminating the meaning of certain ambiguous JCT Design and Build clauses. However, more generally, the case is interesting for the Supreme Court's comments on the interpretation of industry-wide standard form contracts.
Missed payments
Under a contract for Providence to carry out building works for Hexagon, Hexagon had to make interim payments. Hexagon missed a payment, but paid in full within a cure period. Hexagon then missed another payment, and Providence purported to terminate the contract in exercise of its rights under a clause allowing it to terminate for certain repeated defaults by Hexagon.
Did not give rise to right to terminate
Providence argued it could terminate if there were two late payments as long as it had given a default notice on the first late payment (which it had). Hexagon said Providence could only terminate for the second late payment if the first had not been made within the cure period (and here the first payment had been made within that period). In other words, Providence must have had a previously accrued right to terminate.
The Supreme Court unanimously found for Hexagon. Its reasoning was narrow and based on the specific wording of the relevant clause. In essence:
- This was the natural meaning of the words.
- A right to terminate in these circumstances would have been a sledgehammer to crack a nut.
- Looking to Hexagon's termination rights to assist with interpretation was unhelpful since the parties'rights were asymmetrical.
- It was wrong to twist the wording to protect contractors like Providence from cash flow difficulties.
Reflections on interpreting standard form contracts
On the general subject of interpreting industry-wide standard form contracts, the court had this to say:
- It is clear that explanatory notes to standard form contracts are admissible as an aid to interpretation.
- With industry-wide standard forms, where all parties'interests have been taken into account in negotiating and drafting the standard form, inequality of bargaining power is generally not an issue.
- Past decisions of the court on, as well as industry practice in relation to, clauses (including where clauses may have been amended to address case law) are all admissible background context.
- However, sifting through the "archaeology of the forms", as the court strikingly put it, was to be discouraged.
Hexagon argued that the relevant objective intention for industry-wide standard form contracts was that of those who drafted the standard form, not the current parties. The court thought this went too far. Instead, the contractual parties could generally be taken objectively to intend that "their respective rights and obligations should be consistent with those of other parties using the same form and should reflect the objective intentions of those who were concerned with the drawing up of that standard form agreement".
Judgment:Providence Building Services v Hexagon Housing Association
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