The English Supreme Court has ruled that losers in adjudications have six years to challenge an adjudicator’s decision from the payment date, while winners' rights to seek improvement end with the original claim's limitation period. This article considers the implications.

How long do you have to challenge an adjudicator’s decision?

Controversially, the English Supreme Court has now ruled as follows:

• If you were the loser and required to pay monies, you will have the full limitation period, typically six years, to bring your claim to recover those monies starting from when you were required to make payment to the winner; whereas

• If you were the winner, your right to seek an improvement of the result will come to an end at the same time as the limitation period for the original claim.

In our last issue we discussed the background to the then forthcoming Supreme Court’s decision in the Aspect v Higgins case (“the Decision”).

If I had been forced to lay my cards on the table then about which way the Decision might go, I would have predicted that Aspect would succeed and the Court of Appeal’s decision would be upheld. That would have been a fairly unpopular opinion since many considered this would be not just an unfair result but one that would seriously undermine the adjudication process.

We are now going to see how prophetic those views turn out to be because the five members of the Supreme Court, with Lord Mance delivering the single judgment, have unanimously found in favour of Aspect. [1]

The Key Facts

The rather complicated factual background of this case can be summarised as follows:

• In April 2004 Higgins engaged Aspect to provide asbestos advice on a project;
• In July 2009 Higgins obtained an adjudicator’s decision condemning Aspect’s advice and awarding damages of approximately £658,000 which Aspect duly paid in August 2009;
• By August 2010 the six-year limitation period had expired for any claim that Higgins might have brought against Aspect;
• Subsequently, Aspect issued proceedings at first instance in the Technology and Construction Court to recover the full £658,000 which it had paid to Higgins in complying with the adjudicator’s decision, claiming it had been an over-payment;
• Higgins defended the proceedings by arguing that Aspect’s claim was time-barred;
• At first instance, before Akenhead J, Aspect’s claim was indeed held to be time-barred [2];
• That decision was overturned by the Court of Appeal. [3]

The nature of Aspect’s Case for Recovery of the Monies

Readers will recall that, both at first instance and in the Court of Appeal, Aspect had pursued a two-pronged case against Higgins.

Firstly, Aspect had based its claim upon a term which should be implied into the Scheme for Construction Contracts (which itself takes effect as a series of implied terms), giving a party who is required to pay monies under an adjudication decision the right to recover any over-payment (“the Contract Argument”).

Secondly, Aspect pursued an alternative claim based upon restitutionary principles and more specifically unjust enrichment (“the Restitution Argument”).

The Nature of Higgins’ Case Against Aspect

Before examining how the Supreme Court approached these two arguments, it is worth reminding ourselves of the thrust of Higgins’ case against Aspect at first instance and before the Court of Appeal because it was here that the battle-lines for the Supreme Court were really drawn.

It was central to Higgins’ case that Aspect’s position was inherently unfair and, if supported by the courts, would seriously undermine adjudication as we have come to know it. Higgins contended that the facts of this case showed precisely why that was so.

Instead of seeking a final determination of the underlying dispute, as it had been entitled to, Aspect had just sat back and done nothing until the limitation period had expired for any claim that Higgins might have wished to advance. This meant that, in any subsequent action for recovery of monies which Aspect might pursue, Higgins would be unable to pursue any set-offs or counterclaims in relation to these matters.

Such a result, Higgins contended, was clearly unfair and, by potentially doubling the limitation period for such claims, would undermine the intended finality and therefore the efficacy of the adjudication process itself. Those propositions have received much support from commentators ahead of the Supreme Court’s judgment in this matter.

In the Decision, Lord Mance described Higgins’ complaint about the Court of Appeal’s approach to limitation as being that it “gives Aspect a one-way throw and undermines finality”.  However, he had a simple but, in his view, complete answer to that complaint:-

“That consequence follows, however, from Higgins’s own decision not to commence legal proceedings within six years from April 2004 or early 2005 and so itself to take the risk of not confirming (and to forego the possibility of improving upon) the adjudication award it had received. Adjudication was conceived, as I have stated, as a provisional mechanism, pending a final determination of the dispute. Understandable though it is that Higgins should wish matters to lie as they are following the adjudication decision, Higgins could not ensure that matters would so lie, or therefore that there would be finality, without either pursuing legal or arbitral proceedings to a conclusion or obtaining Aspect’s agreement.”

One gets the feeling that if ever there was a case where the merits, whichever way they are perceived, seem to be dictating both popular opinion and judicial outcome, then this is surely that case.

In any event, having reached that view on the “merits” of this case, the precise route that the Supreme Court adopted to arrive at the appropriate conclusion almost seems superfluous. Nevertheless, in summary, we explore below how the Supreme Court arrived at its conclusions.

The Contract Argument

Their Lordships had no real hesitation in deciding the following, which was central to Aspect’s arguments:

“[I]t is a necessary legal consequence of the Scheme implied by the 1996 Act into the parties’ contractual relationship that Aspect must have a directly enforceable right to recover any overpayment to which the adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute.”

In reaching that conclusion, the Supreme Court agreed with the Court of Appeal’s analysis that the legal basis for that right is an implied term arising from the Scheme which provided a positive “right to recover an alleged over-payment”.

Furthermore, since the right was in essence a right to recover an over-payment that had been made, their Lordships considered that it was obvious that the right would accrue as and when the payment in question had taken place.  It followed that, for limitation purposes, a claim based upon that right could be brought at any time within six years from that date.

It also followed from that relatively straightforward analysis of the situation that Aspect had been perfectly within its rights to bring the claim when it had done.

Readers will recall that the contractual analysis advanced by Higgins, with which Akenhead J at first instance had agreed, was very different. There was no room or necessity, Higgins had argued, to imply a term of the sort accepted by the Court of Appeal and now also the Supreme Court.

Instead, Higgins argued, Aspect did have an appropriate right, which it should have exercised within six years from when the contract had been performed, and that was to obtain a negative declaration confirming that it was not liable for the monies which Aspect claimed.

The Supreme Court had little hesitation in rejecting this “negative declaration” approach, Lord Mance commenting:-

“It ignores a core ingredient of and the immediate trigger to Aspect’s current claim, which is that it has been ordered to make and has made a large payment in 2009. It is artificial to treat a claim to recover that sum as based on an alleged cause of action accruing in 2004 or early 2005. To treat Aspect’s remedy as being to seek a declaration, and then to invite the court to use its alleged consequential powers in order to grant relief which is the true object of the proceedings, is equally artificial.”

Lord Mance helpfully clarified that, in providing for the final determination of matters decided in adjudication, “what the Scheme contemplates is the final determination of the dispute referred to the adjudicator, because it is that which determines whether or not the adjudicator was justified in his or her assessment of what was due under the contract”.

This process will involve the court or tribunal in reviewing the “substantive merits of the original dispute”, in his Lordship’s words, although limitation will be irrelevant. The Decision is not entirely clear regarding the extent to which matters occurring after the adjudicator’s decision can be relied upon in the final determination process and this will need clarification in future court decisions.

Lastly, in the context of final determination, Lord Mance confirmed that, in defending its position, Higgins would be entitled to advance all matters upon which it relied in the adjudication, including any set-offs which the adjudicator may have rejected, given that the adjudicator’s reasoning would have “no standing” in the process. This softens the blow somewhat for successful parties facing final determination in these circumstances.

The Restitution Argument

The Restitution Argument had been raised, without really going anywhere, at first instance. The Court of Appeal disposed of the appeal from Akenhead J’s decision on the basis of the Contract Argument without feeling it necessary to look into restitutionary issues.

However, in giving Higgins permission to appeal, the Supreme Court went to the lengths of stating that it might require the parties to address it on “the legal position regarding restitution”.

As it happens, the Supreme Court, like the Court of Appeal before it, felt it unnecessary to look into the Restitution Argument in any great detail in the Decision.  What Lord Mance did say, in considering the limitation position, was the following:

“Since Aspect’s cause of action arises from payment and is only for repayment, it is, whether analysed in implied contractual or restitutionary terms, a cause of action which could be brought at any time within six years after the date of payment to Higgins, i.e. after 6 August 2009. For this purpose an independent restitutionary claim falls to be regarded as “founded on simple contract” within section 5 of the Limitation Act…”

The fate of the Restitution Argument therefore remains slightly unclear. However, the reality is that it would only really have come into play had Aspect failed on the Contract Argument or if there had been limitation issues about it in circumstances where the position in restitution would have been more favourable for Aspect.

The Consequences of the Decision

Much has already been made about the damaging effect that the Decision will have on the adjudication process. My own view is that these concerns are exaggerated and that the Decision’s future impact on a user can be summarised as follows:

• The law is now settled regarding the steps that a party must take if he believes that the adjudicator has required him to make an over-payment; he should commence proceedings to seek final determination of the matters in issue; he will have six years to do so from when the payment was actually made;

• In the final determination proceedings, although the successful party will be able to defend itself by relying on all matters that it raised in the adjudication, what it will not be able to do is to counterclaim in respect of any of its own claims if they have become time-barred on the basis of the application of the normal rules;

• It may be that a losing party in adjudication who has been required to pay out monies to the successful party will seek to “do an Aspect” by deliberately holding off from taking any steps to recover an over-payment; however, this would only make any sense where the successful party has its own claims which might become time-barred by the time the final determination proceedings have to be commenced; such cases are going to be relatively rare;

• We may well see a number of cases where successful parties in adjudication do take pre-emptive action to prevent themselves from falling into the same position in which Higgins has ultimately found itself but I think those cases are also going to be rare; I suspect it is more likely that in such cases a deal will be done to achieve finality, but successful parties would be well-advised to consider the limitation position in any cases where they have been paid monies on the back of an adjudicator’s decision;

• It would be prudent for professional advisers who have assisted parties in such cases also to address the potential implications of the Decision in the context of the matters with which they were involved.

[1] Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2015] UKSC 38 (17 June 2015) http://www.bailii.org/uk/cases/UKSC/2015/38.html

[2] Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2013] EWHC 1322 (TCC) (23 May 2013) http://www.bailii.org/ew/cases/EWHC/TCC/2013/1322.html

[3] Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2013] EWCA Civ 1541 (29 November 2013)  http://www.bailii.org/ew/cases/EWCA/Civ/2013/1541.html

How long have you got to challenge the adjudicator’s decision? The English Court of Appeal has decided: 1) the claimant who considers the adjudicator awarded too little must challenge before the original limitation period for his claim expires; and 2) the defendant who considers he paid too much has a new limitation period starting on the day he paid the adjudicator’s decision. Is it unfair that the loser may have years longer than the winner? That question will soon be answered by the Supreme Court of the United Kingdom. Their decision will be of interest to anyone involved with FIDIC DABs anywhere in the world.

How long have you got to challenge the adjudicator’s decision? The English Court of Appeal has decided that:

• The claimant who considers the adjudicator awarded too little must challenge before the original limitation period for his claim expired.
• The defendant who considers he paid too much has a new limitation period starting on the day he paid the adjudicator’s decision.

Is it unfair that the loser may have years longer than the winner? That question will soon be answered by the Supreme Court of the United Kingdom. Their decision will be of interest to anyone involved with FIDIC DABs anywhere in the world.

Introduction

In a couple of months, the highest court in the land, the Supreme Court, will for the first time be wrestling with the complexities of adjudication law. The case in question is Aspect Contracts (Asbestos) Ltd v Higgins Construction Ltd[1] (“Aspect“). The Supreme Court’s judgement will hopefully dispel much of the confusion surrounding the Court of Appeal’s controversial decision on the application of limitation rules to matters decided by an adjudicator.

The concept of “temporary finality”, as it has become known, is a central feature of UK statutory adjudication. Although an adjudication decision is binding, either party can later seek a final determination of the matters to which it relates. This will be done either through the courts or arbitration, depending upon the parties’ agreement.

In cases involving payment of money, such as an award of damages for breach of contract, either party might invoke the final determination option. The party receiving payment might consider that the amount awarded by the adjudicator was inadequate. Conversely, for the paying party, the issue might be that the sum awarded by the adjudicator was excessive, in which case the claim would involve recovery of the amount of the perceived over-payment.

The Aspect case concerned a claim for recovery of a perceived overpayment. It arose out a dispute between a contractor, Higgins, and its specialist consultant, Aspect, which it engaged to carry out an asbestos survey to determine the amount of asbestos on a site that was to be redeveloped.

The Facts

First, it should be mentioned that the limitation period for claims in this case was six years, running from the date of the relevant breach of contract. Otherwise, the facts of the Aspect Case are refreshingly straightforward:

In April 2004 Aspect carried out its survey and reported to Higgins.

Higgins then entered into the development contract with the housing authority and engaged a subcontractor, Falcon, for asbestos removal and demolition.

Falcon encountered a much higher volume of contaminated material than was identified in Aspect’s report. Higgins maintained that it therefore had to pay much more than anticipated to Falcon and there were 17 weeks of critical delay to the project.

It was not until June 2009 that Higgins commenced adjudication proceedings against Aspect, claiming damages representing the losses which it suffered as a result of Aspect’s failure to provide an accurate survey.

In July 2009, the Adjudicator awarded Higgins over £650,000 as damages, which was duly paid by Aspect in the following month.

Three years later, in February 2012, Aspect commenced court proceedings in the Technology and Construction Court in England (TCC) for the final determination of its liability to Higgins.

In May 2012, Higgins served its defence and counterclaim in the court proceedings in which it sought to offset further losses against Aspect’s claim, which it now said it had suffered as a result of Aspect’s breaches. However, its right to do so was challenged by Aspect, who contended that Higgins’ counterclaim was time-barred.

One of the puzzling features of this case was the remarkably slow speed at which the dispute unfolded. Indeed, it is an object lesson in the perils of leaving disputes to fester. For instance, why did it take Higgins approximately four years to starts an adjudication to recover the substantial losses it had suffered? Even more oddly, having had to pay such a substantial sum to Higgins, why did Aspect then leave it another three years to take the necessary steps to recover what it claimed was a substantial over-payment?

How the limitation issue arose

Perhaps unwittingly, and somewhat ironically, it was Aspect’s challenge to Higgins’ defence and counterclaim on limitation grounds that precipitated Higgins’ application for permission to amend its case by introducing a limitation argument regarding Aspect’s own claim for recovery of the alleged over-payment.

If the date when time began to run for Aspect’s claim was the date when it advised Higgins about asbestos on the site – and it was that advice that had led to Higgins’ claim and the resulting award against Aspect – then Aspect’s court proceedings would be time-barred. Conversely, if, as Aspect alleged, time ran from when it had complied with the adjudicator’s decision by making the alleged over-payment, then the court proceedings would have been commenced well within the six-year limitation period.

It was those matters relating to limitation on which Higgins asked the court to issue a binding declaration. At first instance in the TCC, Akenhead J decided the matter in Higgins’ favour, declaring that Aspect’s claim was indeed time-barred and that both Aspect’s claim and Higgins’ counterclaim should be dismissed. Aspect took the case to the Court of Appeal and Longmore LJ delivered a unanimous judgment overturning Akenhead J’s decision.

How the limitation issue arose

As one might expect, the contract contained no express obligation upon a successful party in adjudication proceedings to repays monies awarded where it is later shown in final determination proceedings that it was not entitled to those monies. Therefore, the central issue, both at first instance and in the Court of Appeal, revolved around defining that obligation.

Central to Aspect’s position was the argument that, because of the absence of any such duty in either the primary or secondary legislation which imposed adjudication in construction contracts,[2] or in contracts such as the one in this case, it was clearly appropriate for the court to imply a term to that effect. If such a term were to be implied, it would follow that the relevant duty to repay would arise when the losing party paid the monies pursuant to the adjudication decision. Crucially, for Aspect’s purposes, it would then follow that the relevant breach would in this case have occurred well within the six-year limitation period.

Akenhead J had not been impressed by Aspect’s arguments for the implication of this sort of term into the contract. In dismissing those arguments, he applied the long-established rule governing the implication of terms – which is whether it is necessary to imply the term relied upon in order to make business sense of the agreement. He decided that the test had in this case not been satisfied.

Akenhead J departed from the earlier TCC decision of HHK Stephen Davies in Jim Ennis Construction Ltd v Premier Asphalt Ltd,[3] in which the judge held that a term should be implied in these circumstances. Akenhead J considered that not only was it not necessary to imply a right into the contract to recover over-payment resulting from compliance with an adjudicator’s decision, but that it would be positively undesirable to do so. This is because the resulting cause of action would in practice considerably extend the amount of time during which the underlying dispute could be litigated or arbitrated, and then only by the party who had made the over-payment.

In rejecting the necessity argument advanced by Aspect, the Judge also relied heavily on the fact that Aspect could, at any time after it had provided its report, have made an application to the court seeking a “negative declaration” of liability to Higgins for the work carried out.

As regards the all-important limitation question, it would follow from Akenhead J’s findings on the legal issues that the cause of action available to the paying party (Aspect) arose all the way back when it provided its report in 2004. The limitation period had therefore expired approximately two years before Aspect commenced the court proceedings which were time-barred.

However, the Court of Appeal fundamentally disagreed with both the Judge’s approach and his conclusion. Longmore LJ delivered the unanimous judgement of the three-man appellate tribunal. Firstly, and most importantly, Longmore LJ observed that it did not really matter whether one classified the task here as implication of terms or construction of the contract. What was crucial was the fact that the contract incorporated the statutory Scheme for Construction Contracts which clearly envisaged the possibility of an over-payment. Although the Scheme does not expressly require the over-payment to be repaid, in Longmore LJ’s mind, “it is as close to be explicit as it possible to be.”

Nor was the Court of Appeal persuaded by the argument that, in order to avoid the complications that had arisen in this case, the paying party could at any time have applied to the court for a negative declaration confirming that it was not liable to pay further monies. Longmore LJ considered firstly that the juridical basis of such a step was questionable. Secondly, he thought it was unrealistic and counter-intuitive to expect a party who denies liability to take the initiative and himself start legal proceedings. These departures from Akenhead J’s approach to the problem, although not entirely convincing in a number of respects, were fatal to Higgins’ case, and Aspect’s appeal was allowed.

The restitution issue

One of the most tantalising features of the Aspect case is the treatment by both Courts of the alternative claim advanced by Aspect for repayment of the monies based on the law of restitution and, more specifically, the principle of unjust enrichment. Aspect argued that the circumstances of this case were comparable to a case where a court judgement requiring the payment of monies is overturned on appeal. In that situation, the law of restitution imposes an equitable duty upon the recipient of those monies to pay them back and gives rise to an enforceable cause of action against him.

Akenhead J was not impressed by this argument and held that no claim in restitution could lie in these circumstances. He also commented upon the fact that it was unclear how UK legislation on limitation applies to restitution.

It appears from the Court of Appeal’s judgement that Aspect’s alternative claim in restitution was not argued at that level, possibly due to Aspect’s success on its primary claim based upon the law of contract. However, as we understand it, the judges of the Supreme Court have rather surprisingly stipulated that the restitution point should be argued before them when they hear the Aspect Case. It may be dangerous to reading anything into this. It may be that the Supreme Court simply wishes its review of the law in this area to be as comprehensive as possible. But it is also possible that the Supreme Court will decide that the answer lies in the application of restitutionary principles. We shall soon see.

Conclusion

Right now, English law says that a claim for a refund arises when the adjudicated amount is paid. A new limitation period starts on the date of payment.

Advantage now lies with the original paying party. He may leave taking steps to recover his alleged over-payment until as late as possible and certainly long after any claim relating to the parties’ performance would be time-barred by limitation. All cross-claims may thus be shut out and this opens the door to potential unfairness.

Review by the Supreme Court is, however, imminent. It is likely that if the Supreme Court does reinstate Akenhead J’s approach, it will precipitate a number of cases being launched in the courts or arbitration for final determinations to avoid the limitation risk in the circumstances similar to the Aspect Case.

Please get in touch at joanne.clarke@howardkennedy.com or victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] At first instance the reference is [2013] EWHC 1322 (TCC). For the Court of Appeal, the reference is [2013] EWCA Civ 1541.

[2] The primary legislation that applied to this case was the Housing Grants, Construction and Regeneration Act 1996 and the secondary legislation was the Scheme for Construction Contracts.

[3] [2009] EWHC 1906 TCC.