Termination pitfalls – further guidance from the Supreme Court

Why is this important?

Termination of commercial contracts is high risk and fertile ground for disputes, sometimes not because parties disagree that a right to terminate exists, but because one party missteps in how it is exercised. The precise wording of termination provisions, and the factual sequence leading up to their use, can determine whether a business brings a contract to a clean and lawful close, or instead exposes itself to allegations of wrongful termination and significant commercial risk.  In a landscape where late payments, performance concerns or strategic change can prompt parties to consider exit routes, understanding exactly what the contract requires before a termination right arises is critical. 

The Supreme Court decision in Providence Building Services Ltd v Hexagon Housing Association Ltd [2026] UKSC 1 relates to a JCT design and build contract, with nuances specific to the construction industry, however, it is an important reminder to those giving notice to terminate to exercise caution when assessing whether a right to terminate arises. Here we examine why strict compliance with contractual mechanics matters, and the consequences of getting it wrong.

Background to the dispute

The contract required Hexagon Housing Association Limited (‘Hexagon’) to make various interim payments to Providence Building Services Limited (‘PBS’) throughout the life of the contract.  

PBS had a contractual right to terminate the contract where late payment, defined as a ‘specified default’, had not been rectified within 28 days of service of a default notice (‘the Cure Period’) (‘Clause 8.9.3’). The contract went on to say that if, “for any reason”, PBS did not give notice to terminate in respect of a specified default, and Hexagon repeated the default, PBS may terminate the contract by written notice (‘Clause 8.9.4’).

The operative parts of the contract were as follows:

• 8.9.1 If [Hexagon] does not pay by the final date for payment…..[PBS] may give to [Hexagon] a notice specifying the default.. 
• 8.9.3 If a specified default … continues for 28 days…[PBS] may … by a further notice to [Hexagon] terminate… 
• 8.9.4 If [PBS] for any reason does not give the further notice referred to in clause 8.9.3, but….[Hexagon] repeats a specified default….[PBS] may by notice to [Hexagon] terminate…” 

Hexagon was late in making its December payment and PBS served a notice of specified default in accordance with the contract. Hexagon made payment approximately two weeks later within the Cure Period.

A few months later, Hexagon was late making payment again.  In response, PBS immediately served a termination notice on the basis of a repeated default under Clause 8.9.4. 

Hexagon disputed the lawfulness of PBS’s termination, claiming PBS was in repudiatory breach of the contract.  Hexagon was largely successful at adjudication and PBS commenced court proceedings, seeking a declaration from the court on how Clauses 8.9.3 and 8.9.4 should be interpreted.

The parties’ arguments

PBS argued that where there had been a repetition of a specified default (late payment) it was entitled to terminate. In the alternative, that Hexagon was in repudiatory breach under common law because 19 of its 32 payments had been late. 

Hexagon argued that, before a termination notice could be validly served for a repetition of a specified default, the right to terminate must have first accrued (but not been exercised) in respect of the earlier default. As the December payment had been made within the Cure Period, no right to terminate had previously arisen. As such, a default notice should have been served, with an opportunity to cure, in respect of any subsequent late payment.

Different judicial approaches

The High Court agreed with the Adjudicator and found in favour of Hexagon, but the Court of Appeal took a different view—holding that a repeated specified breach alone entitled PBS to terminate and the phrase “for any reason” in Clause 8.9.4 was wide enough to cover situations where no termination right had yet accrued. 

The Supreme Court disagreed, reinstating the Adjudicator’s original conclusion and confirming that a right to terminate must first arise before the repeated default mechanism could be triggered. The right to terminate for a repeated default did not arise unless and until a right to terminate for the original default arose but was not exercised.  The fact that Clause 8.9.4 referenced Clause 8.9.3 meant it was parasitic on that clause, rather than independent of it.  Before it had a right under clause 8.9.4 to terminate, PBS must have first accrued a right to terminate under clause 8.9.3. 

Commentary

In reaching its decision the Supreme Court focused on the natural and objective meaning of the contractual words used. Where the parties have allocated risk through express rights and obligations, the court will likely apply these terms literally rather than seek to balance rights which are clearly different for compelling commercial reasons. The Supreme Court also clarified that a right to terminate need not be symmetrical as between one party and another where the relevant contractual obligations were clearly different. 

Interestingly, commercial factors such as cash flow consequences for one party were not considered relevant to the interpretation of the express words used, especially where thought had clearly been to the drafting. Nor were minor periods of delay sufficient to give rise to a right to terminate, given the express Cure Period and overall commercial context. Whilst the Supreme Court was not asked to consider whether Hexagon could have been considered in repudiatory breach under common law as a result of the repeated late payments, the commentary around the delays not being sufficiently serious indicates that in would likely not have found in favour of PBS on this point. In different factual contexts, however, repeated breaches can sometimes amount to a repudiatory breach.

The judgment also included guidance that where parties use an industry-wide standard form it can generally be taken that the contracting parties’ objective intentions are that their respective rights and obligations should be consistent with those of other parties using the same form.

A discussion on the impact of this decision on the Construction industry can be found here.

Key practical and commercial takeaways for businesses considering termination

1. Treat termination as a high risk step, not a commercial pressure tactic

   Businesses should approach termination as a last resort legal mechanism—not a negotiation tool—and ensure every procedural step has been followed to the letter.

2. Map the contract mechanics precisely before acting

   Contracts frequently contain layered notice, cure and escalation provisions. Mis sequencing those steps—such as serving a termination notice before a cure period expires or referencing the wrong breach—can render the termination unlawful. Contractual notice provisions frequently prescribe strict requirements (email vs. post, named recipients, service deadlines, and content requirements). Failing to comply with these formalities can invalidate what would otherwise be a valid termination. For a detailed treatment of these issues, view our Practical Guide to Contractual Notices and our Guide to Termination.

3. Assess whether a right to terminate has genuinely crystallised

   A breach that feels material operationally may not legally constitute a “material breach”, “persistent breach” or trigger termination rights under the contract. Conversely, a pattern of minor service issues or late payments may, depending on drafting, create cumulative rights. Businesses should document the factual context carefully and test it against the contractual definitions before taking action.

4. Preserve evidence and create a clear contemporaneous record

   If a termination is later challenged, the business will rely heavily on contemporaneous evidence: service level reports, correspondence, incident logs, payment records and internal assessments. Gaps in the chronology can undermine the ability to justify the grounds for termination. Consider upward and downstream operational impact before serving notice

5. Understand your exposure if the termination is later dispute

   A business that terminates unlawfully may itself be in repudiatory breach, facing claims for losses incurred. Knowing the downside ensures decision makers weigh legal, operational and commercial risk together.

6. Coordinate messaging across legal, procurement, operations and IT

   In TMT contracts, internal misalignment can be fatal—especially if operational teams continue to accept services, request changes or make payments after a purported termination event. A unified internal position preserves the integrity of the termination process.