The Supreme Court has just delivered its first judgment in an adjudication case, confirming that the cause of action arising from a payment made pursuant to an adjudicator's decision is a fresh cause of action generated by the payment itself and independent of any contractual limitation period regarding the underlying claim. Paying parties on the wrong end of an adjudicator's decision may therefore challenge the decision in court proceedings even if the original contractual limitation period has expired. The decision in Aspect Contracts (Asbestos) Limited v Higgins Construction Plc, had initially been decided by Akenhead J in the TCC (who found the claim to be time-barred) before the decision was reversed by the Court of Appeal. The Supreme Court agreed with the Court of Appeal.
Facts of the case
Aspect was originally retained by Higgins in 2004 to carry out an asbestos survey on a block of maisonettes which Higgins hoped to redevelop. The report was delivered in April 2004 howver during the redevelopment in early 2005, Higgins found unexpected asbestos containing materials which required removal. Unsurprisingly, a dispute followed.
After failed attempts at negotiation and mediation, and a considerable period of time had elapsed, Higgins referred the dispute to adjudication, claiming over GBP 800,000 plus interest. The claim was for breach of contract and/or a tortious duty to exercise reasonable skill and care. The adjudicator was Rosemary Jackson QC, who issued her decision on 28 July 2009, ordering Aspect to pay Higgins GBP 490,000 in damages plus interest amounting to just over GBP 166,000 and her fees of GBP 8,750 plus VAT. Aspect duly paid Higgins GBP 658,017 on 6 August 2009.
Although Higgins had not recovered the entirety of its claim, it did not commence proceedings for the balance, and the limitation period expired in April 2010 for any contractual claim, and at the latest by the beginning of 2011 for a claim in tort. However, Aspect did subsequently issue proceedings in February 2012 to recover the sum paid pursuant to the adjudicator's decision. The basis of its claim was that no sum was due to Higgins and thus the GBP 658,017 was repayable. Higgins counterclaimed for the balance of GBP 331,855 owing under its original claim.
At first instance
Aspect's claim relied on an implied term that a party which had paid money pursuant to an adjudicator's decision remained entitled to have the decision finally determined by legal proceedings, and to have the money repaid if the dispute was finally determined in its favour.
Akenhead J in the TCC ordered a trial of a preliminary issue as to:
- the existence of the implied term, and any limitation period applicable to it; and
- the limitation period applicable to the counterclaim and the existence of a claim for restitution.
Akenhead J found there was no such implied term and any claim was time-barred. He further found in the absence of mistake or duress or a right to have the adjudicator's decision set aside there could be no claim in restitution.
The Court of Appeal then reached the opposite conclusion, and in particular that the Scheme implied that any overpayment relating to an adjudicator's decision could be recovered. In so doing, it noted that Higgins' case faced certain difficulties, such as the fairness of a conclusion requiring a claim for repayment to be made within six years of the original contract performance. Aspect did not pursue its claim for restitution in the Court of Appeal.
Confirmation by the Supreme Court
In the Supreme Court, permission was granted for Aspect to rely on restitution as an alternative claim to its primary claim for an implied term. The Court noted that adjudication is perceived as a provisional measure, and as such an inability to recover a payment made pursuant to an adjudicator's decision would make no sense. Higgins argued that Aspect could only seek declaratory relief which had become time-barred in contract in April 2010, and slightly later in tort.
In considering the case, Lord Mance noted:
"In my view, it 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."
He went on to note that Aspect's cause of action arose from the payment to Higgins, and as such a claim could be brought at any time within six years from the date on which the payment was made. The court noted that Higgins was time-barred from pursuing its counterclaim, but that this was a consequence of Higgins' own decision not to commence legal proceedings within the relevant limitation periods. It rejected an argument that Higgins had a fresh six-year period following receipt of the payment to bring any proceedings claiming the balance, noting there was no legal basis upon which it could be recognised that a payee acquired on receipt of a payment a right to claim any further balance due.
The Supreme Court therefore concluded the Court of Appeal's approach was the correct one.
As a result of this decision referring parties in adjudications which do not succeed with the whole of their claims will have to consider carefully whether they wish to bring Court or arbitration proceedings for the balance of their claims. If they let those claims "wither on the vine" and become time barred, they may still face claims from responding parties for recovery of the sums of money that they have paid, because fresh causes of action accrue in favour of the respondents on the dates when they make their payments.