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Matthew_Perry_phBackground

On 17 June the Supreme Court handed down its judgment in the case of Aspect Contracts (Asbestos) Limited v Higgins Construction Plc. A summary of the facts of the case can be found in the Case Preview, but can be briefly restated as follows.

There was a contract between Aspect and Higgins whereby Aspect agreed to carry out an asbestos survey and provide a survey report. Higgins alleged that Aspect’s report was inaccurate, leading to Higgins incurring additional costs in asbestos removal. Around four years later, Higgins referred a dispute to adjudication, claiming £822,482.67, where it was found that there were breaches of contract on the part of Aspect and a substantial sum was awarded in favour of Higgins (albeit some £200,000 less than what was being claimed). Aspect subsequently paid Higgins.

Around two and a half years later, Aspect issued legal proceedings against Higgins,seeking a declaration that it was not liable to pay damages and/or interest to Higgins as awarded by the adjudicator and repayment, or alternatively restitution, of the sum it had previously paid. .  By this time, the six-year contractual limitation period had expired.  Aspect, however, relied particularly upon the decision in Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 (TCC), where it was found that there was an implied term that an unsuccessful party to adjudication was entitled to have the dispute finally determined by legal proceedings and to have the money repaid to it (in the event of a favourable outcome). As such, Aspect argued that its cause of action arose from the date of payment in compliance with the adjudication award and therefore its claim was not time-barred. Higgins, on the other hand, denied the existence of such an implied term and also denied Aspect’s claim in restitution. It maintained that although the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts 1998 (the “Scheme”) entitled a party to final determination by legal proceedings, they did not extend the limitation periods applicable; the limitation period still ran from the date of breach, which meant that Aspect’s claim was time-barred. Higgins also counterclaimed for the difference between the figure it had claimed at the adjudication and the figure it was awarded.

Appellate History

First Instance

In the High Court, Akenhead J dismissed Aspect’s claim. Akenhead J was not convinced that it was appropriate to imply a term into the contract which would go so far as to allow Aspect to have a cause of action arising from the date of payment. He placed emphasis on the ability of a party found in breach of contract by an adjudicator to seek a negative declaration (through legal proceedings) that it was not in breach, which Aspect could have done at any time before the end of the limitation period.  Akenhead J also considered that the term suggested by Aspect could not be implied because it failed to satisfy the criteria for implying a term: it was not reasonable and equitable or necessary to give business efficacy to the contract and it did not “go without saying”. Hence, the limitation period ran from the date of breach and not the date of payment and the claim and the counterclaim were time-barred. The claim for restitution was also dismissed.

Court of Appeal

In a short judgment, the Court of Appeal overturned the lower court’s decision. Longmore LJ held that it was plainly obvious that the proposed implied term suggested by Aspect “says no more and no less” than what was contained within the Scheme. He also doubted the reasoning of the trial judge regarding negative declaratory relief being an appropriate remedy. Nor did he think it was clear on what juridical basis a declaration of non-liability would automatically carry with it a right to claim repayment of what had been overpaid. He also expressed concern as to whether a declaration of non-liability was in any way time-barred but that, in any event, such difficulties were avoided by the fact that the term suggested by Aspect could be clearly implied, meaning that its claim fell within the limitation period. Longmore LJ did, however, hold that the limitation period for Higgins’ counterclaim still ran from the date of breach, with the effect that it was time-barred.  He disagreed with Higgins’ objection that this would mean the parties were not on a level playing field. Higgins appealed the Court of Appeal’s decision and the key issues before the Supreme Court were:

  1. Was it an implied term of the parties’ contract that an unsuccessful party to adjudication would be entitled to seek a final determination by litigation and, if successful, recover payment made?
  2. If there was such an implied term, what was the applicable limitation period for a claim seeking to enforce it?
  3. What was the limitation period applicable to Higgins’ counterclaim in respect of amounts in excess of the amount it received through adjudication?

Supreme Court Decision

The Supreme Court dismissed the appeal unanimously.  It agreed with the Court of Appeal that an implied term arose from the 1996 Act and the Scheme.

Focusing on the fact that adjudication was always intended to be a provisional measure, Lord Mance (giving the sole judgment on behalf of the court) declared that the inability of an unsuccessful party to recover such a payment made “no sense”. An adjudication was only binding and the obligation to comply with it only lasted “until the dispute is finally determined” by court proceedings, arbitration or agreement, as provided for by the Scheme and the 1996 Act.

The court disagreed with Higgins’ argument (accepted by trial judge at first instance) that Aspect’s only entitlement was to seek declaratory relief, holding that it was “artificial” to treat Aspect’s claim to recover payment  as arising from the breach, when the true trigger of the claim was the large payment it was ordered to make by the adjudicator. The court also addressed the concern expressed in the Court of Appeal by holding that it was not correct that a claim for a declaration “could be accompanied by consequential relief ordering a payment to which there was no independent right”.

Aspect had an independent right to have the dispute finally determined and to recover payment.  That right arose from the payment and was based on either a term implied into the parties’ contractual relationship as a result of the 1996 Act and the Scheme or, alternatively, restitution.  It was therefore an implied term that Aspecthad an enforceable right to recover any overpayment once there has been final determination of the dispute. In addition to the implied term, it was possible for the claim to arise by virtue of an independent restitutionary obligation where the final determination of the dispute established that an overpayment had been made. Whether framed as a claim on contractual or restitutionary terms, the cause of action would accrue at the date of payment.  Aspect therefore had six years from the date of payment to bring its claim.

The court rejected Higgins’ argument that this gave Aspect a “one-way throw” and undermined finality.  It was a consequence of Higgins’ own decision not to commence legal proceedings within the limitation period to confirm the adjudication award it had received.  As such, Higgins took upon itself the risk of having to make repayment.

The court held that Higgins was time-barred from pursuing its counterclaim for the balance of the sum originally claimed in the adjudication.  In addition, it did not have a fresh cause of action by virtue of receiving the payment from Aspect; the implied term only applied to the paying party.  Higgins could have pursued its claim within the original limitation period if it wished to challenge the adjudicator’s decision.

On a separate note the court also decided that, in finally determining the dispute for the purpose of deciding whether Higgins should make repayment to Aspect, a court had to be able to look at the whole dispute.  Higgins would be able to rely on all heads of its claim and would not be confined to the points the adjudicator had decided in its favour.  This followed from the fact that the adjudicator’s actual reasoning had no legal or evidential weight.  All that mattered was that a payment had been ordered and made, the justification for which would be determined finally by a court.

Comment

This decision has a great impact upon the status of adjudicatory decisions. Successful parties will now need to be aware of the susceptibility of a decision by adjudication pending “final determination” by a court or arbitral tribunal, and that sums awarded in adjudication may be repayable up to six years following the adjudicator’s decision.  To this end, parties seeking more finality could seek to include wording in their adjudication clause to confirm that an adjudicator’s decision will be final and binding unless challenged within a specified period.