The claimant MCL had appointed RYC to carry out extensive works to property in South Mimms pursuant to an amended JCT SBC 2016 Contract. In November 2021, the Contract Administrator (CA) issued a notice of default to RYC by email. In December the CA issued a letter purporting to terminate RYC’s employment for failure to remedy the specified breaches including failure to proceed regularly and diligently and to remedy defaults, pursuant to clause 8.4.2.

RYC responded that MCL was in repudiatory breach because the termination was not given by the employer (as opposed to the CA), it was not properly served (via delivery by hand or by recorded, signed for or special delivery) and because MCL had previously locked RYC out of the site. MCL denied being in repudiatory breach.

RYC referred to adjudication a dispute as to whether MCL had correctly served the termination notice and or complied with the requirements for termination of clause 8.4 of the contract. In the referral RYC said the question whether MCL had substantive grounds for terminating was not part of the dispute referred. In its response MCL wanted to raise precisely that issue, arguing it was entitled to terminate at common law and that the termination notice constituted acceptance of RYC’s prior repudiatory breach.

The adjudicator found for RYC, deciding that in preventing them from entering the site, MCL committed a repudiatory breach. He decided he had no jurisdiction to decide whether MCL had substantive grounds on which to terminate but that in any case the termination notice could not amount to acceptance of any repudiatory breach.

MCL issued Part 8 Proceedings for a declaration that the decision was invalid.

The court held:

1. A referring party could define the limits of the dispute to be referred, but could not thereby circumscribe the matters that the responding party could rely on in defence.

2. The referring party could not unilaterally withdraw issues from the adjudication. Thus, RYC could not prevent the adjudicator from considering whether MCL had a substantive right to terminate the contract.

Whilst it was unfortunate the adjudicator had wrongly accepted RYC’s submission on this point, as he had considered MCL’s case on the issue and rejected it, there was no breach of the rules of natural justice. The court added its own expansion of the principles set out by O’Farrell J in Global Switch . When considering what would constitute the scope of the adjudication and what degree of failure on the adjudicator’s part to consider an issue would amount to a breach of natural justice, the court said:

• The court must assess the ‘correct level of abstraction’ at which to consider what the adjudicator was required to decide
• Failure to consider a critical or fundamental element of a defence might make the decision unenforceable
• There was a distinction between the failure to consider a defence (which might be a breach) and considering but rejecting it (which was unlikely to be a breach)
• The distinction between a deliberate or conscious decision to exclude a defence from consideration and its inadvertent omission was relevant, but not a determinative factor. The gravity of the omission was of more importance.
• Tactical manoeuvring that led to an omission might be relevant but unlikely to be important
• The court must look at the substance of the decision rather than its form.

The court decided that it had been necessary for the adjudicator to determine whether or not MCL had successfully terminated the contract at common law in order to decide the dispute. That issue had two parts: whether RYC was in repudiatory breach; and whether MCL validly communicated its acceptance of the repudiation to MCL. It was perfectly permissible for the adjudicator to begin his determination with the second part, for if there was no acceptance then there was no need to consider the first part.

MCL had not actually advanced a case in the adjudication that its prevention of RYC’s return to site by barring access was an acceptance of RYC’s repudiatory breach; thus there was no obligation to consider that question. The case MCL did advance was that its termination notice was a valid acceptance of RYC’s breach. The adjudicator had dealt “head on” with that question and concluded the notice was not a valid acceptance. In the absence of a valid acceptance, MCL’s case on repudiation failed on the merits.

Even though the adjudicator was wrong to conclude that the question of RYC’s repudiatory conduct was outside his jurisdiction, this ultimately had no bearing on his decision. There had been no breach of natural justice.

Comment

As always, each case turns on its own facts. Principles derived from previous cases may need to be refined to cover new situations, as here. It may be necessary to descend into more or less detail. Sometimes even the consideration of sub-issues can be important to the outcome. In the end, it all depends on what is necessary to determine the dispute. Once again parties are reminded that the referral notice can cut down the scope of the dispute but cannot cut out what the responding party may raise in defence.

This article was originally written and published on the internet by Kenneth Salmon MCIArb, consultant solicitor at Slater Heelis LLP,

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