Hexagon loses in Court of Appeal over late payment to contractor

A south-east London housing association has lost a Court of Appeal case over repeated late payments to a contractor.

Hexagon, a mid-sized association with a stock of about 4,500 homes, hired West Sussex based Providence Building Service in 2019 on a £7.2m contract to build a development of 37 flats in Purley.

Hexagon failed to pay Providence a £365,812 bill, issued on 28 April last year, within the 21-day deadline specified in the contract.

The day after this payment deadline Providence issued a termination notice.

The decision to issue this notice followed a previous late payment by Hexagon of £264,242 for a bill issued in November.

Hexagon’s failure to meet the December payment deadline triggered the issuing of specified default notice by Providence on the following day after which the association paid in full a fortnight later.

When issuing the termination notice in May, Providence said Hexagon’s non-payment repeated the default specified in December’s notice.

Providence said that 19 of that Hexagon’s 32 payments to pay had been made late.

Hexagon challenged the termination notice on the grounds that the default notice only applied to the previous payment delay.

In July last year an adjudicator found in favour of the association.

In November, deputy High Court judge Adrian Williamson KC also backed Hexagon, saying in his judgement that to not do so would “allow a trigger-happy contractor to terminate for repeated default, even if the default was a very small underpayment or a small delay in payment”.

However in a fresh judgement following an appeal by Providence, handed down yesterday (Thursday), the Court of Appeal has over-turned November’s ruling.

Allowing Providence’s appeal, lead judge Lord Justice Stuart-Smith, said the consequences of accepting Providence’s stance is “commercially acceptable” even though it leaves employers like Hexagon on “thinner” ice.

>>See also: Home Group taken to High Court by contractor over alleged £7.7m unpaid bill

And he disagreed with the High Court that contractors, like Providence, have a “battery” of other remedies to pursue missed payments, such as the rights to suspend the payment of statutory interest and to refer disputes to adjudication.

“None provides a satisfactory and immediate solution. 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,” the judge said

Accepting Hexagon’s interpretation would allow “a serial defaulter to escape any meaningful consequences of their defaulting on payment” if they delayed payments sufficiently, he added.

Mark London, partner at Devonshires, the law firm which 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.”

Hexagon has been contacted to comment for this article.