26/11/2015
One of the most significant construction law cases of 2015 was the Supreme Court decision of Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38, [2015] All ER (D) 185 (Jun).
The Supreme Court was asked to decide on issues under the Housing Grants, Construction and Regeneration Act 1996 namely the cause of action and limitation periods for a party’s claim to recover sums paid pursuant to an adjudicator’s decision.
It was held that a paying party has a directly enforceable right to recover any overpayment made pursuant to an adjudication decision. The limitation period for a losing party in adjudication to sue to have the dispute finally determined by a court or tribunal and to recover any overpayment will, therefore, run for six years from the date the payment was made.
The Facts of the Case
Higgins Construction Plc (Higgins) and Aspect Contracts (Asbestos) Ltd (Aspect) entered into a contract in 2004. Aspects were charged with carrying out an asbestos survey and issuing a report on the Ivybridge Estate in Hounslow.
The construction contract provided for disputes to be referred to adjudication, and the Adjudicator’s decision would only become binding when the dispute was settled by either:
In 2004, after the survey had been carried out, Higgins discovered asbestos which had been missed by Aspect. They claimed damages of £822,482 plus interest for breach of contract and negligence.
Following adjudication proceedings, Higgins was awarded £658,017 for breach of contract and negligence which was paid in 2009.
There was no formal agreement between Higgins and Aspect to treat the Adjudicator’s decision as final.
No attempt was made to recover the monies that were not awarded, and the limitation periods for the claim in contract and tort expired in 2010 and 2011 respectively.
In 2012, Aspect, commenced proceedings against Higgins, demanding repayment of the £658,017 on the grounds that it was implied in the original contract that if a party was ordered to pay damages after adjudication, they were entitled to have the decision finally determined by one of the three methods described above, and have any overpayment returned to them.
Aspect argued that the cause of action arose from the payment of the Adjudicator's Award, (three years before). They, therefore, had from 2009 to 2015 to make a claim.
Higgins counter-claimed for the £321,885 it had not been awarded, an action which Aspect argued was barred because the limitation period had expired.
The lower courts all held Higgins claim was time-barred. The High Court rejected Aspects claim; however, this was subsequently overturned by the Court of Appeal, who held that there was an implied term within the contract that the Adjudicators decision had to be finally determined.
The Significance of the Scheme for Construction and Regeneration Act 1996 (the Scheme)
In upholding the Court of Appeal’s decision, the Supreme Court stated that the Scheme gave Aspect the right to have the dispute finally determined by litigation, Arbitration or agreement between the parties. If this was not the case and there was no ability for the paying party to seek repayment, then the Scheme would make no sense.
The Supreme Court also agreed that Aspect was not time-barred from bringing its claim, as the limitation period began to run from the date of the payment.
Precautions Companies Need to Take Following Adjudication
This decision highlights the need for a number of precautionary measures parties to adjudication need to take to avoid either having to repay money awarded in the past, or being taken to Court for further payments many years after the dispute was apparently ‘settled’.
To avoid either of these situations occurring, it is pertinent too:
1. Always insist on a final determination of an Adjudicator's decision, either by agreement or further legal methods such as Arbitration. The reason the Supreme Court held that it would make no sense if there was no ability to seek repayment was because adjudication was seen by the Judges as a "speedy, provisional measure”, pending a final decision.
2. Add a provision in the construction contract that an Adjudicator's decision is final after a certain date.
This was the first decision handed down by the Supreme Court on an adjudication matter, and the lower courts are obliged to follow its findings. Therefore, it is imperative that you seek professional legal advice when drafting adjudication provisions for a construction contract, to ensure you do not receive any unpleasant surprises with regards to repayments of Adjudicator's Awards.
Fisher Scoggins Waters are a London based law firm who are experts in construction, manufacturing and engineering matters. If you have any questions regarding Adjudication or require legal advice in some other area, please phone us on 0207 993 6960.