The importance of serving a termination notice correctly
7 December 2022
This update covers the latest Manor Co-Living v RY Construction Ltd case where Manor Co-Living (the Employer) was held in repudiatory breach by failing to serve a termination notice correctly.
The Employer, Manor Co Living Ltd (“Manor”) entered into a JCT Standard Building Contract 2016 edition without quantities incorporating bespoke amendments with the Contractor, RY Construction Ltd (“RY”) made on or around 30 October 2020 to carry out works described as ‘form 38 no. 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 was £2,018,014.35.
Manor intended to terminate RY’s employment under the Contract by serving a termination notice under clause 8.1. A second notice was then served under clause 8.42 by the Contract Administrator, by email on 11 November 2021. The email was not sent in hard copy by post until six days later, received by RY on 19 November 2021.
Under the terms of the contract, the Contract Administrator is able to serve the first notice under clause 8.1, but the Employer (Manor) is to serve the second notice under clause 8.42.
Manor subsequently locked the site and RY was unable to enter after the second notice was served.
RY challenged the legitimacy of the second notice on the grounds that, as noted above; the Employer was to serve the second notice, not the Contract Administrator.
RY argued that because Manor had not served the notice in accordance with the Contract, and that they had been locked out of site which prevented them from carrying out the works, this amounted to a repudiatory breach of the Contract by Manor.
Manor’s counterargument was that they were always entitled to terminate the Contract and they would have terminated it in any event. Therefore, RY had suffered no loss because of the termination at common law.
The dispute was then referred to adjudication, where the Adjudicator rejected Manor’s argument that RY was in repudiatory breach in common law.
Manor issued Part 8 proceedings against RY seeking declarations that the adjudicator’s decision declined to consider, and excluded from his consideration, that Manor had a lawful right to terminate the Contract and that the adjudicator deprived Manor from a potential defence, therefore breaching the rule of natural justice.
Mr Adam Constable KC upheld the Adjudicator’s decision that he had considered Manor’s common law termination defence and confirmed that he had not breached the rules of natural justice.
The case highlights the importance of checking what the contract says and serving notices in accordance with the relevant clauses. Getting it wrong could have disastrous effects of failing to meet the contractual requirements and creates uncertainty and financial consequences for the defaulting party. If Manor had only followed the contractual process, and served the second notice direct; as opposed to via their Contract Administrator; the Contract would have been terminated correctly; thereby avoiding not only the costs of the adjudication; but also RYs claim for damages incurred through Manor’s repudiatory breach of contract.
If you require any advice regarding termination of contracts, or in interpreting your obligations under any construction contract; please contact a member of the Construction and Engineering Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2022.