A Mills & Reeve team, led by partner Nicolas Oldham, has successfully argued in the Supreme Court that a responding party to a construction adjudication claim has six years following payment of an adjudicator’s award to contest that award in the courts, even if the underlying limitation period has expired.
The Supreme Court has today handed down its judgment in Aspect Contracts (Asbestos) Limited v Higgins Construction Plc (2015) which unanimously upheld the Court of Appeal’s ruling that a paying responding party under an adjudication award should have six years from the date of payment to challenge the adjudicator’s decision.
The successful referring party in the adjudication does not benefit from the extended time period, and must bring any court proceedings within the original limitation period.
Aspect is an asbestos consultant and removal contractor, retained by Higgins to inspect and report on the presence of asbestos containing material (ACM) in certain buildings on a development. Aspect inspected and a report was provided in April 2004. In March 2005, Higgins found ACM in the rubble of a demolished building that it alleged should have been, but was not, identified in Aspect’s report. Aspect denied liability.
Higgins referred the dispute to adjudication in 2009 under the adjudication rules set out in the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme). In July 2009 the adjudicator, Rosemary Jackson QC, awarded Higgins around 75 per cent of sums claimed. Aspect promptly paid the award.
Aspect brought proceedings in the Technology and Construction Court (TCC) for the repayment of the 75 per cent awarded in the adjudication. Higgins filed a counterclaim for the 25 per cent that it was not awarded.
The Proceedings and the implied term
Proceedings were issued in February 2012, which was more than six years after the alleged breaches of contract and tort, but well within six years after making payment in the adjudication, a new limitation period established in the first instance judgment of Jim Ennis v Premier Asphalt (2009).
The existence of the implied term was based upon the wording of paragraph 23(2) of the Scheme, which provides that:
“the decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings […] or by agreement between the parties.”
On this basis, Aspect argued that there must either be an implied term in the contract that adjudications would be subject to final determination by the courts or an equivalent restitutionary right. Payment of an adjudication award must therefore create a new cause of action in contract, to exercise that right to seek final determination and the return of monies paid. Conversely, there was no need for an implied term for the successful party, because they were in control of when they brought their initial claim.
In a preliminary issue hearing in the TCC, Akenhead J found in Higgins’ favour that there was no implied term or restitutionary right. Aspect appealed, and the Court of Appeal (Longmore, Rimer and Tomlinson LJJ) reversed the decision of the TCC. Higgins appealed to the Supreme Court.
The Supreme Court consisting of Lords Toulson, Sumption, Mance, Wilson and Reed heard Higgins’ appeal on 14 and 15 April 2015.
Aspect argued that, just as Higgins has the right to enforce payment pursuant to an adjudicator’s decision, the provisional nature of the adjudication must entitle Aspect to some independent right to recover payment, either by way of an implied term owing to the wording of paragraph 23 of the Scheme, or on restitutionary arguments based on the law of unjust enrichment.
Higgins argued that the implied term caused an imbalance between the rights of the parties regarding limitation because Aspect could seek a negative declaration (of non-liability) from the Court within six years of the date of Aspect’s alleged breach and no implied term was therefore needed. It argued, in the alternative, that if the Court of Appeal’s decision in relation to the paying party was upheld, Higgins’ counterclaim should also be allowed.
In today’s unanimous decision, the Supreme Court dismissed Higgins’ appeal.
Their Lordships rejected the idea that issuing proceedings for a negative declaration was a complete analysis of Aspect’s rights. The true relief sought by Aspect is the repayment of the adjudication award and the cause of action therefore arises from the date of payment either “by contractual implication or by virtue of an independent restitutionary obligation”. Any claim for final determination (and consequential repayment) of an adjudication award can therefore be brought within six years from the date of payment.
It also found that there was no basis upon which to recognise a payee as acquiring a new cause of action by virtue of receipt of a payment. Higgins could and should have pursued its claim within the original six years if it was not happy with the adjudicator’s award.
The Supreme Court rejected Higgins’ argument that this gave Aspect a “one way throw”. Higgins could have asked Aspect to agree that the adjudicator’s decision was final. Instead, it chose to let matters lie, knowing that the adjudicator’s decision was capable of challenge.
As to Higgins’ argument that this created unequal rights between the parties, the court found that the successful referring party to an adjudication is in control of the timing of his claim and can issue proceedings at any time he chooses. The implied term was therefore not necessary for the referring party. Higgins’ counterclaim was time barred.
Aspect can therefore bring a claim for repayment with no counterclaim. Their Lordships also confirmed that the court must be able to look at the whole dispute when considering the sums paid, not just the issues raised in the adjudication.
The Supreme Court analysed in detail Higgins’ argument that Aspect’s claim was time barred based on Higgins’ argument that time should run from the date that “non-liability” occurred. It said that “a claim that a person has not broken a contract could not be a claim of which it could sensibly be said that any ’cause of action’ had accrued, still less accrued on any particular date”.
It was, however, the tortious position that was most convincing to their Lordships. They said that, for the purpose of applying section 2 Limitation Act 1980, “a claim that a person had not committed a tort could not in any circumstances sensibly be regarded as a claim founded on tort, quite apart from the impossibility of identifying any ‘date on which the cause of action accrued’”. Also, the right to bring a tortious claim within three years of knowledge of damage (section 14A Limitation Act 1980) was impossible to apply to a declaration for non-liability and Higgins’ argument that such a claim “ceases to be a tort claim for limitation purposes” was rejected.
Employers, contractors, consultants and sub-contractors will be concerned that as a result of this case, they may be liable to repay the sums awarded to them in adjudication for six years after payment following the adjudicator’s decision.
The facts of this case were based on adjudication terms implied into contracts by the Scheme. However, parties expressly incorporating adjudication into their contracts can amend the adjudication clause to state that an adjudication decision will be finally binding unless a claim is brought within a finite period, say 28 days, after the adjudicator’s decision.