Delay a final determination at your peril…

22 June 2015

The Supreme Court has just given judgment in the first case it has considered arising out of statutory adjudication pursuant to the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996).
There was an adjudication in 2009 in a dispute between Aspect (Asbestos) Ltd (Aspect) and Higgins Construction Plc (Higgins) about Aspect's failure to identify asbestos containing materials in a survey it undertook for Higgins before Higgins carried out a redevelopment. Higgins claimed £822,482 damages plus interest. The adjudicator decided that Aspect should pay Higgins the sum of £490,627 plus interest together with her own fees. Aspect complied with the decision and paid £658,017 to Higgins.

An adjudicator's decision is of "temporary finality" and, unless agreed otherwise, it is open to either party to the decision to refer the dispute to litigation or arbitration for a final determination. Such has been the success of adjudication that only a relatively small number of disputes proceed to a final determination as the parties decide to live with the decision.

In Aspect v Higgins, neither party sought a final determination of the dispute within the relevant limitation period for commencing court proceedings. It was not until after the expiry of the limitation period for Higgins to bring a claim (in this case, 2010 for a action for breach of contract and early 2011 for an action founded on tort) that Aspect commenced proceedings to recover the sums it had paid to Higgins. Higgins submitted that Aspect's ability to bring a claim for repayment was time-barred (as was its own ability to bring claims).

In a unanimous judgment, the Supreme Court decided that in an adjudication under the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme), the losing party's cause of action for a final determination of the dispute through litigation arises on the date of payment of sums awarded by the adjudicator. It is then subject to a limitation period of six years from the date of payment, rather than the limitation period running from the original breach of the construction contract.

For the successful party in an adjudication, this judgment means that it may be faced with recovery proceedings at any time within six years from the date payment is made.

In the event that the construction contract was a simple contract (not executed as a deed) by the time the losing party starts proceedings for a re-hearing of the issues/repayment of the sums paid, the successful party may have left it too late. It could then be prevented from bringing proceedings to affirm the decision or from lodging a counterclaim (for example, for the payment of the further sums claimed but not awarded by the adjudicator) as the limitation period for its claims may have expired.

So what does this mean for the parties following an adjudication?

This judgment means that the successful party runs the risk of having to repay the sums received, subject to the losing party proving its claim on the merits in court or arbitral proceedings where the adjudicator's actual reasoning has no legal or evidential weight. It also means that if the primary limitation period under the contract and/or in tort has expired, the successful party will not be able to claim any sums it did not recover in the adjudication or which it did not claim before the applicable primary limitation periods expired.

If there is a risk that a primary limitation period for bringing a claim might expire before the limitation period for a losing party to recover the sums paid pursuant to an adjudicator's decision expires, then the successful party in the adjudication has three options, namely to:

  1. agree with the losing party that in relation to the matters referred to adjudication the decision is final and binding; or
  2. agree a standstill agreement with the losing party in order to equal out the limitation periods applicable to claims for repayment/recovery proceedings and for a final determination of claims referred to adjudication; or
  3. (if the losing party will not agree to one of the options above) commence court or arbitral proceedings within the relevant limitation periods.

Action

Have you won an adjudication in the last six years which might still be challenged by the losing party?

If you have, you need to identify the primary limitation periods relating to your claim and, if you consider it appropriate, take one of the actions set out above.

If you do not, you could find yourself in Higgins' position with nowhere to turn!

Finally, although the judgment is made in the context of an adjudication under the Scheme, it makes clear at paragraph 25 that the same result could be achieved by way of a restitutionary claim as well as by an implied term. It is arguable that the judgment decides that a term giving a paying party a cause of action for repayment can be implied into all contracts which provide for interim dispute resolution by adjudication, and not just those which provide for adjudication under the Scheme.

Presumably the usual rules on the implication of terms in English law apply. Therefore it may be the case that the judgment still leaves scope for the parties to agree expressly in their contracts a bespoke limitation period for a paying party to make any claims for repayment of sums paid pursuant to an adjudicator's decision. If that can be done, then very precise and clear words in the contract would be required given that such a clause would effectively be excluding a implied contractual and restitutionary right that has been confirmed by the Supreme Court in Aspect v Higgins.

A successful party to an adjudication should therefore consider either obtaining the unsuccessful party's agreement to the fact that the adjudicator's decision is binding, or ensuring that it commences final determination proceedings within the original limitation period.


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