The Supreme Court has been required to determine a dispute relating to adjudication, For the first time since the introduction of adjudication by the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (“the Scheme”).
In Aspect Contracts (Asbestos) Limited v Higgins Construction plc  UKSC38 the Supreme Court had to consider what limitation period applied for bringing court proceedings to recover a sum which had been paid pursuant to an adjudicator’s decision.
Higgins engaged Aspect to carry out an asbestos survey and report on blocks of maisonettes which it was considering developing. The survey was carried out in March 2004 and the report was dated 27 April 2004. In early 2005, during the redevelopment work, Higgins allegedly found and had to remove asbestos which had not been identified in the report. The parties were unable to resolve their differences and Higgins referred the dispute to adjudication seeking £822,482 plus interest claiming breach of contract and/or the tortious duty to exercise reasonable skill and care.
The adjudicator decided that Aspect was in breach of the duties but did not accept all of the losses and so ordered that Aspect pay Higgins £490,627 plus interest of £166,421.05 and her fees of £8,750 plus VAT. That sum was paid on 6 August 2009.
Higgins did not take any further action, seemingly content to let matters rest. The limitation period for their claim expired on 27 April 2010 in respect of the contractual claim and in early 2011 at the latest in respect of any tortious claim.
On 3 February 2012 Aspect issued proceedings seeking to recover the sum it had paid pursuant to the adjudicator’s decision on 6 August 2009. Higgins sought to counterclaim the balance of its claim that had not been awarded by the adjudicator. Aspect raised a limitation defence in respect of this element of the claim.
Aspect’s claim rested on 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 that money repaid to it.”
The court proceedings
The matter came before Akenhead J who ordered a preliminary issue trial. He found that there was no such implied term. He found that Aspect could have claimed a declaration of non-liability at any time within six years after performance of the contract but having failed to do so, that claim was now time-barred.
The Court of Appeal disagreed with the decision at first instance and found that the Scheme for Construction Contracts implied that any overpayment made pursuant to an adjudicator’s decision could be recovered. The Court of Appeal held that the limitation period for any such claim was six years from the date of payment rather than from the breach of contract.
The Supreme Court decision
In the Supreme Court, the court allowed Aspect to rely on a restitutionary claim (which had formed part of its case at first instance but which was not pursued in the Court of Appeal) as an alternative to its implied term claim.
Lord Mance gave the leading judgment and concluded that it was a necessary legal consequence of the Scheme implied into the parties’ contractual relationship that Aspect must have a directly enforceable right to recover any overpayment, once the dispute has been finally determined. He therefore found there was an implied term but not that argued by Aspect.
As Aspect’s cause of action arose from the payment and was only for repayment, Lord Mance decided that the claim could be brought at any time within six years after the date of payment.
Higgins argued that this analysis led to Aspect having the advantage of being able to bring proceedings to try to recover all or part of the money paid pursuant to the adjudicator’s decision but that left Higgins disadvantaged because it could not pursue the balance of its original claim. Higgins’ argued that it should have a fresh limitation period for bringing a claim in respect of the balance which the adjudicator refused to award but that argument was rejected. Lord Mance found that this result arose because of Higgins’ failure to seek to have the claim finally decided by legal proceedings in the six year period since the claim first arose. If it had wanted to ensure finality then it was open to it to start such proceedings or to obtain Aspect’s agreement that the decision was to be treated by the parties as final and binding.
In bringing a claim for recovery of an overpayment Lord Mance confirmed that the court would look at the substantive merits of the whole dispute. The parties are not confined to those matters which the adjudicator decided in their favour and the responding party is entitled to ask the court to reconsider and determine the justification for its defence on its merits.
In summary, there is an implied term allowing an unsuccessful party to recover a payment made pursuant to an adjudicator’s decision. That right gives rise to a fresh six year limitation period from the date of payment. The right only allows the unsuccessful party in the adjudication to seek to recover the sum paid – it does not extend to allowing the successful party to seek to recover more than was awarded by the adjudicator.
Points to note
The implications of the case for parties taking part in adjudication are significant. Successful parties will need to consider carefully whether to seek the agreement of the unsuccessful party that the adjudicator’s decision should be binding once and for all. If not, then careful consideration needs to be given as to whether to issue court proceedings within the limitation period applying to the original claim in order to achieve finality or alternatively, attempt to a seek a standstill agreement with the paying party that that has the effect of extending the limitation period until 6 years from payment of the adjudication award. If it fails to do so it leaves open the possibility of the unsuccessful party recovering some or all of the sums that have been paid whilst losing the opportunity to improve on the amount it was awarded by the adjudicator.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.