A recent Supreme Court judgment (Providence Building Services v Hexagon) has provided much-needed clarity on how the widely used JCT Design and Build Contract 2016 handles termination for employer non‑payment.
At its heart was a seemingly simple question: if an employer is late paying twice, does the contractor get an automatic right to terminate if they have served the right notices? Or, to use the footballing analogy often used in the context of termination, “is a second yellow, a red?”
Ultimately, the Supreme Court decided that the automatic right to terminate did not arise. That is important for those working with JCT or SBCC forms - not only because the relevant drafting appears across multiple versions and editions (including the 2024 editions), but because the Court also highlighted that the position is different for certain repeated breaches by the contractor. In that case, two yellows can make a red!
The contract terms
While the parties’ contract was subject to some modest amendments, the relevant clauses largely followed the standard form:
- Clause 8.9.1 allowed the contractor to issue a termination warning notice if the employer committed one or more serious defaults. One of those “specified defaults” was the employer failing to make payment due by the final date. Others included failure to comply with the CDM Regulations.
- Clause 8.9.3 allowed the contractor to terminate (i.e. issue a “red card”) if the employer failed to remedy the specified default(s) within 28 days.
- Clause 8.9.4 dealt with the employer committing subsequent, serious breaches (i.e. further yellow card offences). It said:
“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 ….
the Contractor may give to the Employer a notice specifying the default or defaults …”
In our footballing analogy, this is the issue of a “yellow card” for committing a serious foul.
“If a specified default … continues for [28 days] from the receipt of notice under clause 8.9.1 …, the Contractor may … by a further notice to the Employer terminate the Contractor’s employment under this Contract.”
The contractor had discretion on whether to issue a termination notice or not. However, if they did seek to terminate, the notice had to be served by a specific deadline.
“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), the Employer repeats a specified default … 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”.
It was this clause that was at the centre of the case.
The facts and parties’ Arguments
The purported termination revolved around two late payments by the employer.
- The 1st late payment
- Payment was due on 15 December 2022, but the employer failed to pay on time.
- The contractor served a notice of specified default under clause 8.9.1 (a “yellow card”) on 16 December 2022.
- The employer made payment on 29 December 2022, within the 28-days remedy period.
- As a result, the contractor did not acquire a right to terminate under clause 8.9.3.
2. The 2nd late payment
- The employer again failed to pay by the final date for payment in May 2023.
- The contractor issued a termination notice under clause 8.9.4 the following day.
The contractor argued that clause 8.9.4 was triggered as soon as the employer committed a further specified breach (in this case the second late payment), having already received a ‘yellow card’ under clause 8.9.1. The words “for any reason” in clause 8.9.4 were broad enough to ensure that clause applied even where no right to terminate under clause 8.9.3 had arisen because the earlier breach had been remedied in time. On that basis, a second yellow was a red.
The employer argued the opposite: previous “yellow cards” were not enough on their own. Termination under clause 8.9.4 was only available if the previous breach had remained unremedied, meaning a ‘red card’ could have been given under clause 8.9.3. The words “for any reason” were narrower than the wording used in the equivalent contractor-default clause and were intended to cover missed deadlines or a contractor’s choice not to terminate – not a fully remedied breach.
The Supreme Court’s Decision
The Supreme Court decided in favour of the employer, overturning the earlier Court of Appeal decision. Its reasoning was:
- If the contractor could terminate simply for two yellow card offences, clause 8.9.4 did not need to refer to clause 8.9.3 at all. It could simply start “If the Employer repeats a specified default”. In an objective, natural reading of the clause, the cross-reference was there because Clause 8.9.4 was “parasitic” on clause 8.9.3. The contractor must have accrued (but not used) the right to terminate under clause 8.9.3 before clause 8.9.4 applied. Put another way: a second yellow only becomes a red if the first yellow had turned into a red‑card opportunity.
- The contractor’s interpretation led to an extreme outcome, allowing termination for any second late payment, even after a modest breach that had been promptly remedied. Following the earlier Court of Appeal decision, employers expressed significant concern that they could be exposed to termination because of slightly late payments, with contractors trying to escape bad bargains.
- The Court noted that the corresponding contractor-default clause used broader language, explicitly allowing termination for repeated contractor breaches even if no right to terminate had arisen the first time. This reinforced that the employer‑default clause was intentionally narrower, and that the termination rights of the contractor and employer need not be symmetrical.
Key takeaways
- Termination is a high‑risk step. If you get it wrong, it can amount to repudiatory breach, potentially exposing the terminating party to substantial damages.
- Legal advice should always be taken before seeking to terminate a contract (or when receiving any warning or termination notice).
- If you are a contractor, you face stricter consequences because certain repeated breaches can give the employer an immediate right to terminate. Two yellows can make red!
- If you an employer, the termination regime you face is slightly narrower, and two yellow card offences won’t automatically amount to a red. However, late payment and other defaults still matter, as the contractor retains protections and rights (including adjudication and suspension), and repeated issues can have reputational and project-level consequences.
While there is broad agreement that contractual interpretation should begin with the plain meaning of the words used, this case demonstrates how difficult that can be in practice.
Published 29 January 2026
