Manor Co-Living Limited v RY Construction Limited

This is a Part 8 Claim brought by the Claimant Manor Co-Living Limited (‘MCL’), against the Defendant, RY Construction Limited (‘RYC’). The Part 8 Claim seeks the following declarations:

MCL relies upon a witness statement from Mr Warren Kemp dated 16 May 2022. No evidence in rebuttal was served by RYC, and the underlying facts are not materially contentious.

The following factual background, relevant to the arguments deployed in the Adjudication, is drawn from the witness statement of Mr Kemp and/or from the face of the documents appended to his witness statement.

MCL and RYC 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 described as “to form 38no. 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 EN6 3LD” . The contract sum (subject to adjustment) was £2,018,014.35.

By email on 11 November 2021 the Contract Administrator served a default notice on RYC, identifying specified defaults, and warning of MCL’s intention to terminate the Contract if those defaults were not remedied within 14 days (‘the Default Notice’). The Default Notice amended and replaced an earlier notice, given on 4 November 2021, the validity of which had been challenged by the RYC. That email was not sent in hard copy by post until 17 November 2021 and RYC did not receive the letter by post until 19 November 2021.

By letter dated 30 November, sent under cover of an email dated 1 December 2021, the Contract Administrator wrote a letter to RYC which concluded:

The email was timed 13.00, but due to the time difference from the sender, the time was 6pm in the evening on 1 December 2021. The covering email pointed out that MCL had arranged for security for the site, and asked RYC not to attempt to gain access without prior arrangement.

On 2 December 2021, RYC sent a letter to MCL stating:

This was followed up by correspondence from RYC’s lawyers the same day, reiterating that MCL’s purported termination of the contract pursuant to the Termination Notice was invalid.

The battle lines were at this stage drawn: MCL considered that it had validly terminated the contract and was justified in sending the Notice of Termination. RYC disputed this, and considered that MCL’s conduct was repudiatory and accepted it, bringing the contract to an end. The debate continued in correspondence, which does not need to be set out in detail. However, to set the scene for the impending Adjudication, it is worth noting that by its letter of 25 March 2022, solicitors for MCL wrote a letter setting out what was (then considered to be) the ‘substance of the dispute’. After identifying the dispute relating to whether or not the Termination Notice had been served prematurely, it stated:

Thus, the alternative case advanced at this time was not that MCL had in fact terminated the contract at common law by accepting RYC’s repudiatory breach: it asserted that it had an entitlement to do so, and would have done so. This, it was said, went to the question of loss.

In this section, I will set out the relevant sections of the various adjudication submissions, and make a number of observations that in due course will feed into my analysis of the parties’ contentions.

By Notice of Adjudication dated 6 April 2022, RYC gave notice of its intention to refer to adjudication a dispute that had arisen. At paragraphs 10 and 11, RYC make clear what it considered to be the boundaries of what it was referring to adjudication, in the following terms:

In paragraph 14 of the Notice, RYC set out the relief that it sought from the Adjudicator, comprising 5 declarations, as follows:

The Referral fleshed out the arguments advanced, but did not change or expand the matters referred, and as is usual repeated the relief sought at paragraph 42. It is to be noted, however, that RYC repeated its intended limit on what it considered it was referring to Adjudication. At paragraph 8 it stated:

It is commonplace for a referring party to seek to limit the scope of an adjudication. There is nothing impermissible about this as a strategy. Whether, however, a referring party is ultimately able to constrain the scope of an adjudication depends upon how matters develop, and in particular, how a responding party puts its defence to the matters alleged.

The Response ran to 32 pages. It is relevant to note that within the introductory paragraphs, MCL clearly raised its alternative claim on common law repudiation and (in light of the way RCL had sought to limit the scope of the adjudication) contended that it was not precluded from advancing such an argument by the way in which the Notice and Referral had been drafted. Paragraphs 5 and 6 say:

In the context of the arguments raised by the parties in the Part 8 Claim, Mr Frampton for RYC draws attention to the fact that the summary of the alternative case relating to common law termination relies upon, and only upon, ‘the same notice…as acceptance of a repudiatory breach’.

After referring to some authorities, the introduction concluded with para 9:

Sections B set out the issues, as follows:

Mr Frampton says that this framing supports the way the case was put at paragraph 5 of the Response, in that reference to ‘the termination’ in issue (3) refers back to what MCL had or had not done in an attempt to terminate under the contract, and in particular the service of the Termination Notice. In other words, the issue was: if the Termination Notice did not amount to proper termination under the Contract, did it nevertheless amount to an acceptance of a repudiatory breach?

Sections C to E then set out background and dealt with the question of contractual termination.

Section F was entitled ‘Renunciation/Repudiation at common law’. This section asserted that the existence of a contractual right to termination does not, unless clear words are used, exclude the common law right to terminate for repudiate. It then, at paragraph 66, stated (correctly):

Thus, in raising its alternative case, MCL explicitly accepted that it would need to establish both the substantive question of the RYC’s conduct (was it repudiatory?) and also that, if so, there had been an acceptance of the repudiation. It goes without saying that if MCL failed to establish that it had validly accepted the repudiation, the first question becomes irrelevant: whether or not RYC was in repudiatory breach alone would be insufficient to establish a valid, common law termination.

In section F2, MCL argued (at paragraph 70) that the substantive grounds which had been set out in its Notice of Default amounted to repudiatory breaches, and also asserted (at paragraph 71) that RYC’s response to that notice was itself repudiatory as it demonstrated an absence of intention to perform the work in accordance with the terms of the contract. Although not referred to as such in the Response, this latter argument came to be known as ‘the renunciation’ case, distinct from ‘the repudiation’ case’, contained in paragraph 70.

The Response concluded at paragraph 72, that MCL was entitled to, and did, terminate the Contract at common law.

As Mr Oram fairly accepted in oral argument, Section F2 did not engage explicitly in the question of by what means the repudiation was accepted; it was silent on the point. Mr Oram sought to argue that this silence left the question open. However, it seems to me clear that a fair reading of the Response read as a whole would leave the reader with the very clear impression that MCL’s case was on acceptance was that the Notice of Termination was the means of communication. Indeed, this is what paragraph 5 of the Response says in terms. No case was advanced in the Response which in any way suggested that MCL’s conduct in barring RYC from site could itself amount to conduct which accepted preceding repudiatory breaches.

RYC served a Reply. At paragraphs 2.2 and 2.3, RYC identified two of the issues in the following terms:

Thus, at paragraph 2.2 RYC appeared correctly to identify that it even if it succeeded on its case that the Termination Notice was invalid, it remained necessary for the Adjudicator to consider what is described as ‘the second issue’. This was whether the Termination Notice also amounted to an acceptance of repudiatory breaches at common law.

However, in the same breath, RYC went on to assert, at paragraph 2.3, that the substance of MCL’s contention that RYC was in repudiatory breach was not within the scope of the adjudication. Notwithstanding the submission to the contrary by Mr Frampton, this cannot be right. Clearly, as is common ground, the ‘common law repudiation’ defence had two limbs: (i) whether there were repudiatory breaches and (ii) whether acceptance of those repudiatory breaches had been properly communicated so as to effect a common law termination. Both elements of that defence were placed before the Adjudicator by MCL, as it was entitled to do. In order to grant the declarations sought, the Adjudicator would be required to reject the defence of common law termination. If it was necessary to consider both limbs of the defence to do so, that is what the Adjudicator should have done. It is not open to a referring party to pick and choose which elements of the defence advanced were within the jurisdiction of the Adjudicator. Mr Frampton accepted that there was no authority to suggest otherwise. In fairness to Mr Frampton, I recognize that these submissions were underpinned by the contention that ultimately the point is irrelevant in circumstances where (if RYC is correct) the Adjudicator rejected limb (ii) in clear terms, obviating the need to consider limb (i).

Having dealt with matters relating to contractual termination, the Reply addressed the question: ‘Can the purported Notice of Default of 11 November constitute acceptance of Repudiatory Breach’. This it called ‘The Second Issue’. Paragraphs 26 to 50 set out at length various authorities and a legal and factual analysis advancing the conclusion that the Termination Notice could not have constituted an acceptance of repudiatory conduct. In other words, this section substantively engaged with the second of the two elements of common law termination.

There then followed a short section on ‘Repudiatory Breach’, which was called ‘The Third Issue’. At paragraph 51, RYC contended that if the Adjudicator found that the purported notice of termination was premature and invalid (i.e. if its contention on the primary argument succeeded) and if the Adjudicator found that the notice was not an acceptance of repudiatory breach (i.e. if it also won on the substance of the argument on the Second Issue), then it followed that the Company was in repudiatory breach in serving the purported notice of termination. At paragraph 52, it was submitted that it was not necessary in these circumstances to consider the factual position as to whether RYC was in repudiatory breach. Assuming no other case existed as to the manner of acceptance of repudiatory breach, this was obviously logically correct.

At paragraph 53 onwards, RYC then set out submissions about what should happen if it did win on its primary case, but lost the Second Issue. It stated that in these circumstances, it would not be necessary to consider the substance of the allegations of repudiatory breach, and the Adjudicator could simply decline to make the relevant declarations (implicitly accepting that, having lost the Second Issue, it would not be possible to conclude that MCL was itself in repudiatory breach). It is this paragraph that MCL characterised in its Rejoinder, and in argument in Mr Oram’s skeleton submission, as RYC’s attempt to ‘withdraw issues’ from the Adjudication. As stated above, I do not consider it open to a referring party to pick and choose what elements of the responding parties’ defence are within jurisdiction, or withdraw issues from the Adjudicator as it chooses.

The Reply concluded with a section entitled ‘The Fourth Issue: Jurisdiction’. This sought to draw a distinction between issues related to termination of employment and termination of contract, and denied that the questions relating to repudiatory breach were a defence to the claim brought. Rather, it sought to characterise the argument raised regarding common law repudiation by MCL as one which went to the granting of declaration 42(c), but not a defence in respect of the dispute. Again, I do not regard this analysis as correct.

A Rejoinder was permitted. In this, MCL alleged that the attempt to withdraw part of the relief was an abuse of process (paragraph 3). At Section C, it asserted in paragraph 14 that the written response to the Notice of Default was a renunciation. At paragraph 15, it dealt with the law and argument relating to whether the 11 November letter could constitute a communication of acceptance of repudiatory breach at common law. At paragraph 16, it engaged with issues relating to the difference between termination of employment and of contract. Finally, at Section D, it denied that RYC had any right to withdraw relief, and contended that the question of its substantive entitlement to terminate for repudiatory breach was in issue.

At no point in Rejoinder did MCL suggest that if it was wrong about the Termination Notice being an acceptance of repudiatory breach, it had a further alternative case, namely, that its conduct in barring RYC from site would constitute such an acceptance. Nor did it engage with, let alone dispute, RYC’s analysis at paragraphs 51 and 52 of the Reply, in which RYC had spelt out in terms what it understood the consequences to be of winning on (a) the invalidity of contractual termination and (b) the Termination Notice not constituting a valid acceptance for the purposes of common law termination. MCL did not, for example, suggest that the analysis was incorrect because it had a further case relating to acceptance by conduct.

On 12 May 2022 the Adjudicator issued his decision (‘the Decision’).

After dealing with introductory matters, Section 3 dealt with Jurisdiction. Sub-section (a) related to a separate jurisdiction argument relating to the payment of fees of a previous adjudication, and is not relevant for present purposes. Sub-section (b) dealt with ‘RYC’s challenge as to my jurisdiction to decide MCL’s assertion that RYC was in repudiatory breach of contract’.

The Adjudicator then set out extracts from the parties’ submissions. In terms of legal approach, he set out the relevant sub-paragraphs from Global Switch Estates Ltd v Sudlows Ltd [2021] BLR 111 (TCC) referred to further below, and directed himself to sub-paragraphs 50(vi), (vii) and (viii).

The Adjudicator then said as follows:

The Adjudicator thereby directed himself to the summary of MCL’s alternative case, namely that if the Termination Notice was not effective as a contractual termination notice, the same notice operated as an acceptance of repudiatory breach. At paragraphs 40 to 51, he then goes on to deal with the substance of the debate about whether the Termination Notice could be construed as an acceptance of repudiatory breach so as to bring about a common law termination. He concludes:

In my view, it is clear that in this section of the Decision:

The Adjudicator then dealt with the primary case relating to contractual termination and returned to the question of repudiatory breach at paragraphs 79, particularly in the context of the argument that RYC’s response to the Notice of Default, as had been asserted at paragraph 71 of the Response.

I set the relevant paragraphs relied upon by MCL in full, given the importance they play in the way the case is put:

Mr Kemp says in his witness statement at paragraph 31 that, in this section, ‘the Adjudicator went on to consider whether there had been any other conduct that was capable of amounting to a common law acceptance (of a repudiatory breach by the Defendant). In paragraphs 86-88 of the Decision he determined that issue in favour of the Claimant. He accepted in those paragraphs that, even if (as he had found) the letter of termination could not be construed as a common law acceptance, the Claimant's conduct in terminating the Defendant's employment, would have amounted to a valid acceptance.’

Making the same point in a different way, Mr Oram in oral submissions placed particular emphasis on paragraph 95 of the Decision. He said this paragraph was ‘tantamount to finding that there had been a communication of acceptance for common law termination’. This is central to MCL’s case that the Adjudicator failed in breach of natural justice to consider their case on repudiatory breach. It is said that, having concluded that there had been a communication of acceptance for common law termination, it was incumbent upon the Adjudicator to consider the substantive case on repudiatory breach. He failed to do so because of his consideration of jurisdictional matters, and his conclusion at paragraph 58 of the Decision, quoted above.

At the end of his reasoning, the Adjudicator then decided, by reference to the relief requested (as set out in paragraph 14 above):

The argument advanced by MCL, deftly put by Mr Oram in oral submissions, can be summarised as follows:

Mr Frampton meets this by ably advancing, in summary, four main points:

Both parties refer to me to helpful observations set out in O’Farrell J’s judgment in Global Switch Estates Ltd v Sudlows [2021] BL111 (TCC). For the sake of convenience, I set these out here:

I emphasise in particular the fact that ‘a responding party is entitled to raise any defences it considers properly arguable to rebut the claim’, observation (iii). That is not widening the dispute, it is engaging with it. It is the principle which underlies observation (viii), namely that ‘if the adjudicator fails to consider whether the matters relied upon by the responding party amounts to a valid defence to the claim in law and on the facts, that may amount to a breach of the rules of natural justice’. By way of gloss, it seems to me that the use of the word ‘may’ in (viii) should not be taken to suggest that the enquiry into whether an adjudicator has asked the right question is somehow discretionary. Instead, it indicates that not all failures to have done so will be a breach of natural justice i.e. the point elucidated in (ix).

A number of other cases were cited by both counsel before me, which in the round demonstrated the range of different factual scenarios which have been presented to the Court in previous cases, which unsurprisingly demonstrate slightly different ways in which the observations identified by Mrs Justice O’Farrell have been applied in practice. I do not deal with all those authorities (whether cited in oral argument or counsels’ skeletons), as it is unnecessary to do so. However, I draw from them the following further observations that guide my judgment:

MCL’s starting point is that the relief sought by RYC required a determination of whether MCL was itself in repudiatory breach by its actions and that it was necessary in light of the defence raised to consider not just whether it had successfully terminated the contract under the contract provisions, but also whether it had successfully terminated the contract at common law. This contention is undoubtedly correct.

Mr Frampton contends that the Court need simply determine whether the Adjudicator asked and answered the question at this level of abstraction: ‘did MCL successfully terminate the contract at common law?’. I am not persuaded that this is so. As was common ground in the submissions before the Adjudicator, this question consists of two fundamental elements. MCL had to establish (i) that RYC was in repudiatory breach of the contract, and (ii) that MCL communicated its decision to bring the contract to an end, i.e. an acceptance of the repudiation. Both are critical elements of the defence. It was accepted, rightly, by Mr Oram that it was plainly permissible to deal with the second of these questions first, and if it was determined against MCL, it would make the first question irrelevant and unnecessary. Deciding not to deal with that first question in such circumstances would be unimpeachable. However, it is correct in my judgment that if the Adjudicator had in fact determined that there had been a valid acceptance of the repudiation, but then failed (deliberately or, indeed, inadvertently) to consider at all the other fundamental element of the defence – namely the existence of repudiatory conduct – that would likely have been a breach of natural justice.

However, it is not possible fairly to read the Decision as containing any such error. As Mr Frampton rightly points out, the starting point is to consider the case actually advanced in the adjudication. That case was that the Termination Notice constituted a valid contractual termination notice, and in the alternative the same letter constituted a valid communication which brought to an end the contract by common law termination, accepting RYC’s repudiatory breach. No part of the case in the Response or Rejoinder suggested that the conduct in refusing access to the RYC itself constituted a valid communication of acceptance of a repudiatory breach.

The case that was advanced by MCL was dealt with fully by the Adjudicator, albeit in the context of his consideration of the jurisdiction argument raised by RYC. It is very clear to me that 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, as they argued, MCL had validly terminated the contract. It is equally clear that 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, and in these circumstances (as was submitted to the Adjudicator by RYC, and as was not challenged at the time by MCL), it was unnecessary to consider the substantive question of repudiatory conduct.

It is perhaps unfortunate that the Adjudicator had succumbed to dealing with this question in the context of a misguided jurisdictional challenge, but this is no way detracts from the substance of his decision. Having decided that the only case explicitly advanced on acceptance of repudiatory breach failed on its merits, he was quite right to decide it was not necessary to consider the question of repudiatory conduct, because it was unnecessary to do so.

It may also be that the way in which he expressed himself also owes something to his identification of the way the case had been put in correspondence prior to the commencement of the adjudication, where it had not been said by MCL that there had in fact been common law termination, but merely that such a right would have existed, and that this would be relevant to the question of loss (see para 38 of his Decision in which he quotes from MCL’s letter). However, whatever the precise reason for articulating his conclusion in the way he did, having decided that the Termination Notice was not a valid acceptance of repudiatory conduct at common law it is plain that he did not need to consider the substance of the allegations of repudiation and his decision not to do so was in no way a failure, let alone one which constituted a breach of natural justice.

That also is sufficient to dispose of the MCL’s Part 8 Claim. The case that MCL’s conduct was capable of constituting acceptance of repudiatory breach was simply not put in the Adjudication, and it cannot have been a breach of natural justice for the Adjudicator to fail to deal with a case which was not advanced.

For the sake of completeness, however, I consider the case advanced by Mr Oram that (irrespective of the way the case was put by MCL at the time) the Adjudicator in fact found that there had been conduct capable of constituting acceptance of RYC’s repudiatory breach, and in these circumstances it was a failure not to deal with the substance of the alleged breaches.

This case is untenable. I do not accept, on a fair reading of the Decision, that Adjudicator did in fact find, as Mr Oram contends, that that there had been a communication of acceptance for common law termination. It is clear to me that in paragraphs 86 to 88 he finds that conduct could amount to acceptance of repudiatory breach, but importantly subject to “... words or conduct which [properly] amount to a renunciation”. In this context, he goes on to consider the renunciation case and rejects it expressly in paragraph 93. Nowhere does he say that MCL’s conduct in fact amounted to an acceptance of RYC’s repudiatory breach. Indeed, he had concluded that conduct could only amount to an acceptance of repudiatory breach in certain circumstances, which he considered and rejected. His decision is therefore entirely inconsistent with MCL’s contention that he had in fact decided that MCL’s conduct could and did constitute and acceptance of RYC’s repudiatory conduct. In these circumstances, nothing in these paragraphs should have led the Adjudicator to reconsider his earlier decision not to determine the question of repudiatory conduct, because to do so was unnecessary in light of his determination that there had been no valid acceptance. Paragraph 95 of the Decision does not add to the analysis. This part of the Decision was dealing with whether MCL’s actions rendered them in repudiatory breach, in light of MCL’s failure to have validly terminated the employment or contract either under the contract or at common law. The words cannot sensibly be read as a factual conclusion that MCL’s conduct amounted to an acceptance of RYC’s repudiatory breach. Again, nothing in this paragraph should have led the Adjudicator to reconsider his earlier decision not to determine the question of repudiatory conduct.

It is clear to me therefore that the Adjudicator did consider the substance of MCL’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 in these circumstances he concluded correctly that it was not necessary for him to consider the question of substantive repudiatory conduct. He also dealt with MCL’s renunciation case on its merits, and rejected it. There was no breach of natural justice.

Finally, although it is unnecessary to do so in light of my conclusion above, I observe (given the submission advanced by MCL) that although I do not consider RYC’s submissions seeking to limit the Adjudicator’s jurisdiction to have been analytically correct, I would not have regarded this as any sort of ‘tactical manoeuvring’ which would have been relevant to the determination of whether there had been a breach of natural justice. By definition, not every submission made by every party in a dispute is correct.

The Part 8 Claim for declarations fails.