Wright Hassall’s Stuart Thwaites on a key decision that gives parties longer to reopen disputes that were previously subject to adjudication.
Stuart Thwaites
From time to time, disputes arise, and where those disputes cannot be resolved by negotiation, the default option tends to be adjudication.
Adjudication is based on the principle of “pay now, argue later”. This essentially means that a party has to comply with the adjudicator’s decision, but has the right to subsequently have the dispute decided afresh by litigation or arbitration.
However, the law imposes strict time limits for bringing claims, normally six years from the date on which the right to bring the claim arose, where the contract in question is not executed as a deed. This is known as the “limitation period”, and any claim brought after expiry of that period gives the defendant a complete defence to the claim.
Supreme Court judgment
On 17 June 2015 the Supreme Court, the highest Court in the land, gave its judgment on the key issue of the date from which the limitation period runs in relation to a claim for repayment of monies paid under an adjudication.
The case in question was Aspect Contracts (Asbestos) Ltd (Respondent) v Higgins Construction plc (Appellant). It is an important decision because it clarifies when someone will be out of time for bringing a claim for repayment following an adjudicator’s decision.
The case concerned an adjudication between Aspect and Higgins. Higgins referred the dispute to adjudication, and in 2009 was awarded just under £500,000 plus interest. It had claimed more than that but, as often happens, it did not subsequently pursue the balance of its claim after the adjudication.
Matters then went quiet – no doubt Higgins thought that was the end of the matter. The limitation period in relation to contractual claims between Aspect and Higgins expired in April 2010, and in early 2011 the limitation period for bringing claims in tort (for negligence) also expired.
After both those limitation periods had expired, Aspect commenced court proceedings against Higgins in April 2012. Aspect sought repayment of the monies it had paid to Higgins under the adjudication, asking the court to decide the dispute afresh, and contending that no sum at all was due to Higgins.
Higgins then counterclaimed for the balance of the sum it was not awarded in the adjudication.
Aspect said that it had six years from the date on which it paid the monies to Higgins under the adjudicator’s decision to bring its claim, and therefore the limitation period had not expired on its claim. It said there was an implied term of the contract to that effect. By contrast, it argued that Higgins was out of time, and so was too late to pursue its claim.
At the High Court, the judge held that contrary to Aspect’s claim, the contract did not contain the implied term relied on by Aspect. The matter then went to appeal.
On appeal the Court of Appeal reversed the trial judge’s decision, holding that the contract did contain that implied term, which meant Aspect could pursue its claim.
There was then a further appeal, to the Supreme Court. That court gave its judgment on 17 June 2015.
“A paying party has a directly enforceable right to recover any over-payment to which the adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute.”
The Supreme Court held that there was indeed an implied term, but it was different to the one claimed by Aspect. It held there was an implied term under the Scheme for Construction Contracts that “a paying party has a directly enforceable right to recover any over-payment to which the adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute”.
The Supreme Court has also held that the limitation period for seeking a final determination of a dispute following an adjudication, and therefore to recover any overpayment, is six years from the date on which the monies were paid under the adjudicator’s decision.
That meant that Aspect had commenced proceedings in time to recover the monies it had paid to Higgins in 2009, but Higgins was too late to bring its claim.
Important implications
The implications of this case can be summarised as follows:
- The winning/receiving party in adjudication either needs to make sure that the paying party then agrees that the adjudicator’s decision is finally binding (which seems unrealistic unless that is already written into the contract), or make sure it commences proceedings seeking a final determination of the dispute within the relevant limitation period applicable to its claim.
- The paying party in an adjudication has six years from when it makes payment following the adjudicator’s decision to seek recovery of the monies paid to the winning party. This may mean the paying party has more time to bring its claim than the receiving party.
This is an important decision and is likely to be subject to detailed consideration in future court cases. Very often if a party succeeds in adjudication, it is content with the outcome even though it does not recover the full amount of its claim, and often does not go on to commence proceedings to seek the remaining balance.
The Supreme Court’s decision means that winning parties need to give careful consideration to whether to pursue the balance of their claim, which is likely to turn on the unrecoverable amount, or risk being unable to do so if the losing party commences recovery proceedings some years later. Otherwise the danger is that as with Aspect and Higgins, the successful party in adjudication could lose the ability to counterclaim for the balance of the monies it did not win at adjudication.
