First Supreme Court decision on construction adjudication

In Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc1  the UK Supreme Court considered its first ever construction adjudication case. Specifically, it considered the interaction between the statutory adjudication provisions contained in the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”) and the statutory law of limitation.

As Martin Ewen explains, understanding the principles set out by the Supreme Court is important for all those who enter into construction contracts.

The facts

In March 2004 Higgins Construction Plc (“Higgins”) entered into a contract with Aspect Contracts (Asbestos) Limited (“Aspect”) for an asbestos survey and report on several blocks of maisonettes in Hounslow. Aspect carried out the survey during March 2004 and issued a report dated 27 April 2004.

During 2005, Higgins found asbestos containing materials in the blocks which had not been identified in the report and had to pay for its removal.

Aspect denied any negligence and in 2009 Higgins commenced adjudication under the Scheme claiming £822,482 damages plus interest. On 28 July 2009, the adjudicator issued a decision in favour of Higgins and ordered that Aspect pay to Higgins £490,627 in damages, £166,421.05 in interest and the adjudicator’s fees of £8,750 plus VAT.

On 6 August 2009 Aspect paid the total sum of £658,017, a sum which included further interest from the date of the decision. The decision was not agreed as final and binding.

Higgins did not issue any further proceedings to recover the balance of its claim. The contractual limitation period expired on or about 27 April 2010 and the tortious limitation period in early 2011.

On 3 February 2012 Aspect commenced proceedings for recovery of the £658,017 paid in the adjudication on the grounds that no sum was due on a proper examination of the merits of Higgins’ claim. Aspect’s case relied upon an implied term that:

“in the event that a dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme, that party remained entitled to have the decision finally determined by legal proceedings and, if or to the extent that the dispute was finally determined in its favour, to have the money repaid to it.”

Aspect argued that it had six years from the date of payment to enforce this entitlement and in the alternative claimed in restitution.

Aspect also opposed Higgins’ counterclaim for the balance of its original claim for £822,482 on the grounds that the contractual and tortious limitation periods had expired, Aspect further argued that the court could only determine the dispute to the extent that the adjudicator had upheld Higgins’ claim.

Decision at first instance

At first instance in the Technology and Construction Court Akenhead J held that there was no such implied term as alleged, that Aspect could have claimed a declaration of non-liability at any time within six years after performance of the contract, but that such a claim was now time-barred.

Aspect’s claim in restitution also failed on the basis that a right to repayment was secondary, and could only arise if and when the court determined the dispute in Aspect’s favour. Since the court found there was no implied term, no repayment was due and the restitutionary claim fell away.

Court of Appeal decision

The Court of Appeal reached an opposite conclusion to the Technology and Construction Court and found that the Scheme did imply that an overpayment could be recovered.

Higgins appealed to the Supreme Court.

Supreme Court decision

The key question for the Supreme Court was how far Aspect is entitled to disturb the provisional position established by an adjudicator’s decision by itself commencing proceedings after the time had elapsed when Higgins could bring any claim founded on the original breach of contract or in tort?

Agreeing with the Court of Appeal, the Supreme Court held that it was a necessary legal consequence of the Scheme, as implied by the 1996 Act into the parties’ contractual relationship, that the paying party should have a directly enforceable right to recover any overpayment made in consequence of the adjudicator’s decision, once there had been a final determination of the dispute.

The Supreme Court characterised this right as a term arising by implication arising from the Scheme provisions that was underpinned by restitutionary considerations, so that the Court would also have the power to award interest on any overpayment subsequently found to have been made.

Where Aspect’s claim arose out of the payment made on 6 August 2009 (and was for repayment only of this sum) the Supreme Court found that whether considered in implied contractual or restitutionary terms, Aspect’s claim could be brought at any time within six years after 6 August 2009, given that an independent restitutionary claim was to be treated as a claim “founded on simple contract” within section 5 of the Limitation Act.

The Supreme Court concluded that the act of receiving payment on 6 August 2009 did not give rise to a fresh six-year period for Higgins to bring proceedings for the balance of its claim for £822,482. There was no legal basis upon which a payee could acquire by virtue of the receipt of a payment a fresh right to claim any further balance allegedly due.

Commentary

The Supreme Court’s decision freed Aspect to pursue its claim, on the merits, for the £658,017 paid in the adjudication. However, due to the fact the limitation period for Higgins’ claim had expired, the court would be unable to order Aspect to pay any more than that awarded by the adjudicator.

In this first adjudication dispute that it has been called upon to consider the Supreme Court has confirmed what many regarded as the unfair position reached by the Court of Appeal i.e. that if a party in receipt of a payment following a Scheme adjudication holds on to payment and allows the relevant limitation periods to expire, it could still be faced with proceedings for recovery of that sum six years after the date of payment, but will be unable to bring a counterclaim for the balance of any sum it was not awarded in the adjudication – what Higgins called “a one-way throw”.

Practical tips

Following this decision, it may be possible for a party to seek repayment of sums paid pursuant to an adjudicator’s decision which is up to six years old. A successful party in adjudication will therefore need to give careful consideration as to whether to seek a final determination of the dispute within the limitation period applicable to its own claim.

If a party in receipt of a payment in an adjudication simply holds on to payment and allows the limitation period for its claim to expire it could still be faced with proceedings for recovery of that sum for six years from the date of the decision, by which time the limitation period in its own claim could have expired and it will be unable to bring a counterclaim for the balance of any sum it was not awarded in the adjudication.

Those entering into construction contracts may wish to do so under seal as this will extend the limitation period for the underlying dispute to 12 years thereby potentially avoiding completely the issue which arose in the present case.

Alternatively, try to agree that the adjudicator’s decision is conclusive unless it is challenged in litigation or arbitral proceedings within a specific time frame, e.g. within 28 days.

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  • 1. [2015] UKSC 38

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