Adjudication – Jurisdiction – Breach of natural justice – Claimant and defendant entering into construction contract – Claimant purporting to terminate contract – Defendant referring dispute to adjudication – Claimant seeking declarations adjudicator deprived it of potential defence – Whether defendant in breach of requirements of natural justice – Claim dismissed
The claimant and the defendant were parties to a construction contract made on or around 30 October 2020 in the form of the JCT Standard Building Contract 2016, without quantities, incorporating bespoke amendments, for RYC to carry works to form 38 bedrooms with ensuite bathrooms via a combination of conversion and extension and the creation of new rooms to provide communal kitchens, dining and living rooms, cinema and library at Clare Hall Manor, Blanche Lane, South Mimms. The contract sum was £2,018,014.35 subject to adjustments.
On 11 November 2021, the contract administrator served a default notice on the defendant by email, identifying specified defaults, and warning of the claimant’s intention to terminate the contract if those defaults were not remedied within 14 days.
The claimant subsequently purported to terminated the contract by sending a notice of termination. The defendant considered that the claimant’s conduct was repudiatory and accepted it, bringing the contract to an end.
By notice of adjudication dated 6 April 2022, the defendant gave notice of its intention to refer the dispute to adjudication limited to determining whether the claimant correctly served its notice of termination and/or otherwise complied with the notice requirements contained in clause 8.4 of the contract.
The claimant subsequently brought a Part 8 claim against the defendant seeking declarations that by declining to consider and excluding from his consideration, the claimant’s case that it had had a lawful entitlement to terminate the contract, the adjudicator deprived the claimant of a potential defence to the dispute and thereby acted in breach of the requirements of natural justice; and in consequence, the decision was invalid and of no effect.
Held: The claim was dismissed.
(1) A referring party was entitled to define the dispute to be referred to adjudication by its notice. It was entitled to confine the dispute referred to specific parts of a wider dispute, such as the valuation of particular elements of work forming part of an application for interim payment.
A responding party was entitled to raise any defences it considered properly arguable to rebut the claim made by the referring party. By so doing, the responding party was engaging with and responding to the issues within the scope of the adjudication.
Where the referring party sought a declaration as to the valuation of specific elements of the works, it was not open to the responding party to seek a declaration as to the valuation of other elements of the works. It was for the adjudicator to decide whether any defences put forward amounted to a valid defence to the claim in law and on the facts. If the adjudicator asked the relevant question, it was irrelevant whether the answer arrived at was right or wrong. The decision would be enforced.
If the adjudicator failed to consider whether the matters relied on by the responding party amounted to a valid defence to the claim in law and on the facts, that might amount to a breach of the rules of natural justice; but not every failure to consider relevant points would do so. The breach had to be material and a finding of breach would only be made in plain and obvious cases. If there was a breach of the rules of natural justice and such breach was material, the decision would not be enforced: Global Switch Estates Ltd v Sudlows [2020] EWHC 3314 (TCC); [2021] BLR 111 followed.
(2) The court had to assess the correct level of abstraction at which to consider the question the adjudicator was required to determine (whether by way of referred claim or proffered defence), and should not be distracted by minor sub-issues. However, failure to consider a critical or fundamental element of a defence (even if it might properly be described as a sub-issue) might make the decision unenforceable.
The court also had to bear in mind the distinction between considering an asserted defence and concluding it was not tenable; and deciding not to consider an asserted defence at all. The former was unlikely to be a breach of natural justice whereas the latter might be.
The court also had to bear in mind the distinction between considering an asserted defence and a deliberate or conscious decision to exclude consideration of a defence. An inadvertent omission was a relevant consideration but not determinative. Of much more importance was the gravity of the omission; it was necessary to look at the substance of the decision rather than the form.
(3) In deciding whether there had been a breach of natural justice, the starting point was to consider the case actually advanced in the adjudication that the termination notice constituted a valid contractual termination notice.
The case advanced by the claimant was dealt with fully by the adjudicator. The substantive question of common law termination was not outside the adjudicator’s jurisdiction, because it had been raised by way of a material defence to declarations which could not be granted if the claimant had validly terminated the contract. The adjudicator dealt with it head on: he rejected the contention that the termination letter constituted an acceptance of repudiatory breach for the purposes of a common law termination, so that it was unnecessary to consider the substantive question of repudiatory conduct.
Having decided that the termination notice was not a valid acceptance of repudiatory conduct at common law, the adjudicator did not need to consider the substance of the allegations of repudiation: His decision not to do so was not a breach of natural justice.
(4) The case that the claimant’s conduct was capable of constituting acceptance of repudiatory breach was not put in the adjudication, and it was not a breach of natural justice for the adjudicator to fail to deal with a case which was not advanced.
It was clear that the adjudicator considered the substance of the claimant’s alternative claim based on common law repudiatory breach. He rejected it on its merits on the basis that there had been no valid acceptance and concluded correctly that it was not necessary for him to consider the question of substantive repudiatory conduct. He also dealt with the claimant’s renunciation case on its merits, and rejected it. There was no breach of natural justice.
Seb Oram (instructed by DAC Beachcroft LLP) appeared for the claimant; James Frampton (instructed by Sheridan Gold LLP, of Reigate) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Manor Co-Living Ltd v RY Construction Ltd
