The rough and ready process of adjudication often produces results which are viewed differently by the courts months or years later. But what happens if the losing party has paid up following an adjudicator’s decision in the meantime? Do they have a right to recover what they have “overpaid”? How long do they have to do that? A recent Supreme Court decision has addressed these questions.
Aspects Contracts (Asbestos) Limited v Higgins Construction Plc
In 2004 Higgins contracted with Aspect to carry out an asbestos survey at a block of flats ahead of re-development. During the re-development works in early 2005, Higgins found more asbestos than Aspect had identified, increasing Higgins’ costs. Higgins took Aspect to adjudication claiming damages of £822,482. The adjudicator awarded £490,627 to Higgins which Aspect duly paid.
Things went quiet until April 2012 when Aspect asked the court for its money back, claiming that the adjudication had been incorrectly decided. Higgins counterclaimed for the balance that the Adjudicator had failed to award it.
The court had to decide (1) was Aspect entitled to challenge the adjudicator’s decision and get back what it had “overpaid”? (2) given the delay in Aspect going to court, was such a claim time barred? and (3) if Aspect’s claim was not time barred, was Higgins also able to seek to challenge the Adjudicator’s decision and seek to improve on the amount original awarded to it?
Aspect argued for an implied term entitling a party who has paid out in respect of an adjudicator’s decision to have the dispute finally determined by the court and its monies repaid, if the court finds in its favour.
1 first instance decision, 2 appeals and 3 years later, the Supreme Court agreed. It emphasised that the decision of an adjudicator is binding and enforceable “for the time being”. That is until the dispute is finally determined by court, arbitration (if the contract says so or parties agree), or by agreement of the parties. However, neither party is obliged to ask for a final determination and if they do not, the adjudicator’s decision continues to bind.
The court went on to say it is a “necessary legal consequence” of the Scheme for Construction Contracts implied by the Housing Grants Construction and Regeneration Act 1996 (the “1996 Act”) that if there is such a final determination, the parties must have a directly enforceable right to recover any overpayment which the adjudicator’s decision can be shown to have led to. The adjudicator’s decision ceases, retrospectively, to bind. The particular parts of the Scheme relied upon by the court are required by the 1996 Act to be included within all construction contracts and the court’s decision on this point is likely therefore to be of general application.
To be clear, this did not mean the adjudicator in this case had made a wrong decision. Rather, the court was confirming if Aspect re-ran the dispute in court, it would have a right to have the money it had paid out repaid, should the court find in its favour.
The court next considered how long Aspect had to make its claim? Aspect issued its asbestos report in April 2004. Applying the usual contractual limitation period of 6 years, Higgins’s claim would have expired in April 2010. So Higgins claimed that the same limitation period applied to Aspect’s claim.
The Supreme Court disagreed. It said that Aspect’s payment of the adjudicator’s decision in 2009 had to be taken into account. The court distinguished between the different causes of action which start the limitation clock ticking. Aspect’s right of action arose from the time of the alleged overpayment, not the date of its alleged breach of contract.
The court also refused Higgins’s claim to improve on the original sum awarded by the Adjudicator. If Higgins had wanted to challenge the amount awarded, it should have done so by going to final determination within 6 years of Aspect’s alleged breach. This original limitation period could not be extended just because Aspect had made payment or decided to challenge the adjudicator’s decision. However, in defending Aspect’s claim for repayment of the sums awarded by the Adjudicator, Higgins would not be limited to the adjudicator’s reasoning and would be entitled to rely on the full extent of its £822,482 claim original referred to adjudication.
What this means for the adjudication industry
This decision is a logical, perhaps unsurprising one, which sits well with the principles and practice of adjudication. Although it proved a long road for Aspect, many will welcome having a Supreme Court decision which brings clarity to these important questions.
For those involved in adjudications it means:
- Consider carefully whether you want to have a dispute finally determined following an adjudicator’s decision;
- There is an implied term under the 1996 Act meaning payment made to comply with an adjudicator’s decision can be recovered if that final determination makes a different decision resulting in an “overpayment”;
- The time to bring a claim for recovery of an “overpayment” following an adjudicator’s decision will be 6 years, running from the date of payment.
- If you are the successful party in the adjudication you do not get a fresh right to re-visit what you claim to be due because the other party pays up. The usual time bar rules apply to the original claim you made;
- These principles will always be subject to what your contract says – watch out for bespoke terms which make an adjudicator’s decision final and binding for example within a certain time or if no notification is given otherwise.