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The Supreme Court is due to hand down a decision tomorrow which will give clarification to the legal position regarding the ability of parties to seek final determination by litigation following adjudication.

Background

The facts of the case are that there was a contract between Aspect Contracts (Asbestos) Ltd and Higgins Construction PLC whereby Aspect agreed to carry out an asbestos survey and provide a survey report, which was duly provided. Higgins later entered into a design and build contract with for the demolition and redevelopment of the estate, and subsequently hired a subcontractor to carry out asbestos removal, demolition and site clearance. Upon carrying out this work, the subcontractor allegedly discovered additional asbestos beyond that which was mentioned in the report, causing Higgins to incur additional expenditure and delay. 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 (the reasons for such delay following the adjudicator’s decision being unclear), Aspect issued legal proceedings against Higgins.

At trial, Aspect sought a declaration that it was not liable to pay damages and/or interest to Higgins as decided by the adjudicator, and therefore repayment, or alternatively restitution, of the sum it had previously paid. It sought, in particular, to rely 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”) entitle a party to final determination by legal proceedings, they do not extend the limitation periods applicable. The limitation period still ran from the date of breach, it contended. Higgins then continued to challenge the remainder of the particulars of claim and in doing so counterclaimed for the difference between the figure it had claimed at the adjudication and the figure it was awarded.

Case History

In the High Court, Akenhead J dismissed the claim. He held the contract was clearly a construction contract for the purposes of the Construction Act and therefore the adjudication provisions of the Scheme were incorporated, in spite of the fact that there were no express adjudication provisions in the contract. However, 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 date of payment. The judge had regard to a number of matters as to whether it was appropriate to imply such a term into the contract. In particular, he placed emphasis on the ability of the unsuccessful party to seek a negative declaration (through legal proceedings) that it was not in breach of contract. He also considered the two Privy Council decisions of BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1997] UKPC 13  and Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, the effects of which meant that to imply a term, it must be reasonable and equitable, be necessary to give business efficacy to the contract and effectively be a term that ‘goes without saying’. Akenhead J disagreed with the view expressed by HHJ Stephen Davies in Jim Ennis, that the Scheme provided a platform for the implication of a term as suggested by Aspect, nor was there any commentary from Parliament that suggested such a reading of the legislation. Therefore, in absence of an implied term as suggested by Aspect, 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 (as well as a separate argument which was predicated on art 6 ECHR) was also dismissed.

Court of Appeal

In a short judgment, the Court of Appeal overturned the lower court’s decision. Longmore LJ disagreed with the trial judge’s reading of the Scheme; he 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 and was “as close to being explicit as it is possible to be”.  He also doubted the reasoning of the trial judge regarding negative declaratory relief being an appropriate remedy, stating that it is “at best, an ungainly 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 these 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. He did, however, hold that the counterclaim of Higgins would still run from the date of breach, disagreeing with Higgins’ objection that this would mean the parties were not on a level playing field.

Supreme Court

Thus, the key questions that came 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 applying to Higgins’ counterclaim in respect of amounts in excess of the amount it received through adjudication?