On 17 June 2015 the Supreme Court gave judgment in the case of Aspect Contracts (Asbestos) Limited v Higgins Construction Plc. The decision is important as it confirms that a party who loses an adjudication has a right to seek a repayment up to 6 years later, by having the original dispute finally determined in legal proceedings. Although the decision brings clarity in some respects, it is surprising in that it recognises that it may create inconsistent rights for the parties, should a repayment be subsequently claimed.
Aspect Contracts (Asbestos) Ltd (Aspect) were engaged to carry out an asbestos survey and report on blocks of maisonettes in Hounslow, which the building contractor, Higgins Construction Plc (Higgins), was considering redeveloping.
The survey was conducted in March 2004 and the report was dated 27 April 2004. During the redevelopment in early 2005, Higgins allegedly found and removed asbestos containing materials which had not been identified in the report. A dispute consequently arose with Aspect.
Negotiation and mediation having failed, Higgins referred the dispute to adjudication, claiming £822,482 damages, plus interest. The claim was for breach of contractual and/or tortious duties to exercise reasonable skill and care. By a decision dated 28 July 2009, the adjudicator concluded that Aspect had been in breach of such duties causing Higgins loss in various, though not all, respects alleged by Higgins. The adjudicator ordered that Aspect pay £658,017 for damages and interest. On 6 August 2009 Aspect paid Higgins the sum.
Higgins did not commence any proceedings, whether to recover the balance of its claim, £331,855 plus interest, or otherwise. The limitation period expired on the face of it on or about 27 April 2010 for any action by Higgins founded on breach of the construction contract and at the very latest by early 2011 for any action founded on tort. Higgins was evidently content to let matters rest. It did not ask Aspect to agree, and Aspect did not agree, to treat the adjudicator’s decision as final.
On 3 February 2012, after the expiry of both the above limitation periods Aspect commenced Court proceedings seeking to recover the sum it paid on 6 August 2009. In doing so Aspect gave no prior notice to Higgins of its dissatisfaction with the adjudicator's decision.
Aspect's argument was that no sum was due to Higgins on an examination of the merits of the original dispute, regarding the alleged failure to identify and report the existence of asbestos containing materials beyond those mentioned in its report. It claimed that the sum of £658,017 was repayable
accordingly. Higgins however then counterclaimed for the £331,855 balance of its claim and interest.
In relation to this balance, as counterclaimed, Aspect raised a limitation defence under sections 2 and 5 of the Limitation Act. These sections provide that any action founded on, respectively, tort or simple contract “shall not be brought after the expiration of six years from the date on which the cause of action accrued”. In so far as Aspect's claim for repayment was concerned it argued that there was an implied term, or alternatively it had a claim in restitution permitting a claim for repayment (assuming the proceedings are finally determined in its interests).
At first instance the Court held that Aspect has no claim based on an implied term or restitution. This decision was reversed at the Court of Appeal. The Supreme Court has now given its Judgment.
The issue and decision of the Supreme Court
The key issue identified by the Supreme Court was: Is a paying party (Aspect) able to disturb the provisional position established by an adjudicator’s decision and seek repayment, by commencing proceedings after the time has elapsed when Higgins could bring any claim founded on the original breach of contract or tort?
The short answer is "Yes"; a paying party (i.e. the loser in an adjudication) has 6 years from payment to seek recovery of the amount paid by having the dispute finally determined. This right is based on an implied term or a right in restitution. Interest on the sums paid may also be claimed.
In contrast the receiving party (i.e. the winning party in an adjudication) may only bring a claim within the relevant limitation period for the breach; it cannot raise a counterclaim thereafter.
Observations on the Judgment
In the Judgment it was recognised that its ruling may grant an advantage to Aspect, it was described as being "a one-way throw"; i.e. Aspect couldn't lose on its claim and be made to pay more to Higgins as the limitation period had expired on Higgins counterclaim but not on Aspect's claim for repayment.
The Supreme Court's verdict on this argument is essentially "too bad"; If Higgins did have a counterclaim and/or consider it was owed more, then it should have brought that claim before the limitation period expired rather than assume the matter is now closed.
It does not follow that Aspect will succeed with its claim for repayment. The Court will have to determine that claim afresh. In doing so Higgins may not raise a counterclaim for payment but may raise a defence of set-off even if the adjudicator initially rejected the argument.
Inconsistencies will no doubt arise with this approach. The Supreme Court noted that final determination of the dispute might be affected by changed circumstances occurring since the adjudicator's decision; e.g. new facts emerge that may favour the party seeking repayment.
However, the position is not the same for the party resisting a claim for repayment; the Supreme Court restricted any defence that can be made to those arguments that it originally raised in the adjudication; no new claims for set-off can be made as these will be time barred.
Overall while the decision of the Supreme Court offers clarity, it does not remove uncertainty and potentially creates injustice. It also results in claims being "finally determined" much later than they might be otherwise and this conflicts with the rationale and policy reasons for having a limitation period.
What does this mean in practice?
- Don't assume that a dispute that was adjudicated some years ago necessarily means it is the end of the matter simply because it has all since gone quiet from the other side.
- Parties need to think carefully about limitation. The period for any claim under a contract and separately for any claim for repayment of an adjudicator's awards – they are likely to be different and this may give rise to inconsistent rights for the parties.
- If you were a paying party on an adjudication which is not final and binding you have 6 years from the date of payment in which to bring legal proceedings seeking repayment. This may be an attractive proposition to a paying party who now knows that any claim for repayment does not risk a counterclaim where the counterclaim is now time barred.
- The Supreme Court has recognised that situation does present an advantage to a paying party seeking repayment. The message is simple: if you do not bring a claim within the limitation period it cannot be later relied upon to defeat a claim for repayment; a call to parties to assert rights when they can and to litigate.
- When drafting adjudication provisions parties should consider if to automatically make the adjudicator's decision final and binding to bring finality to the matter (one option), would be to introduce wording to the effect that an adjudicator's decision is automatically final and binding when the limitation period for the underlying claim under a contract expires.
- Alternatively, the parties should consider post an adjudication, whether or not to agree if the decision of the adjudicator should be final and binding to remove any uncertainty.