Pushing the limits: limitation period for challenging adjudication awards clarified

If you have taken a dispute to adjudication and have been awarded most, but not all, of the amount claimed, you may justifiably have little appetite to reopen the same dispute in Court. However, following a judgment by the Supreme Court, you may need to do this if you want to avoid facing a one-way challenge in the future, which could see the amount of the award decrease but not increase.

In a judgment handed down on 17 June 2015, the Supreme Court
held that a party paying an adjudication award has six years from payment of
the award to challenge that award, rather than being bound by the limitation
period for the original claim. 

This decision will have important implications for disputes
adjudicated under the Scheme for Construction Contracts 1998 (the Scheme) and
is therefore potentially relevant to every construction contract which is
subject to English law.

Aspect Contracts
(Asbestos) Limited v Higgins Construction Plc: The facts

In 2004, Higgins engaged Aspect to undertake an asbestos
survey at a site in Hounslow. However, the asbestos removal contractor engaged
by Higgins allegedly found additional asbestos containing material that had not
been identified in Aspect’s survey.

In 2009, Higgins commenced adjudication against Aspect under
the Scheme, claiming £822,482 plus interest for delay and additional cost.  The adjudicator decided that Aspect had been
in breach of contract and awarded Higgins £490,627 plus interest and his costs.
 Aspect duly paid £658,017 in August
2009. 

In February 2012, more than 6 years after Aspect undertook
the asbestos survey but less than 6 years from its payment of the adjudication
sum, Aspect commenced legal proceedings against Higgins to recover that payment. 

Implied adjudication
terms

The dispute centred on the nature of the contractual
adjudication provisions that are implied into construction contracts under the
Housing Grants, Construction and Regeneration Act 1996 (the Act), where the
contract does not contain express adjudication provisions.

Aspect argued that the implied provisions include a term
that an unsuccessful party in adjudication is entitled to seek a final
determination of that decision and, if successful, recover some or all of the payment
made.  Crucially, Aspect argued that this
entitlement constituted a separate cause of action, which accrued on payment,
rather than the date of the underlying breach of contract or tort.  

Higgins argued that the relevant limitation period is that
of the underlying dispute. Alternatively, Higgins wanted to also be able to
take advantage of any extended limitation period, to improve upon the amount it
was awarded at adjudication.

TCC and Court of
Appeal: contrasting approaches

Akenhead J in the Technology and Construction Court (TCC) held
that the payment of an award following adjudication did not give rise to a
separate cause of action, and therefore a new limitation period.  He therefore found that both Aspect’s claim
and Higgins’ counter-claim were time-barred.

That decision was overturned by the Court of Appeal.  It took the view that if a dispute that has
been adjudicated is then finally determined by a court, a party that has
“overpaid” is entitled to recover that overpayment.  It held that that right accrues only when the
overpayment is made, so the limitation period runs from that date.

The Court of Appeal’s judgment attracted some criticism at
the time.  Higgins’ complained that this
decision would give Aspect, and any other parties in a similar position, a
“one-way throw”.  Higgins
appealed the decision to the Supreme Court.

Supreme Court upholds
Court of Appeal decision

The Supreme Court dismissed Higgins’ appeal.  It agreed with the Court of Appeal that a
party that has paid out following adjudication has a directly enforceable right
to recover any overpayment revealed by final determination of the dispute.  It held that this right arises when the
overpayment is made, so the limitation period for recovery of any overpayment
would be six years from the date of that payment. 

By contrast, the Court held that Higgins had not acquired any
fresh rights when it received payment.  Its
counterclaim was therefore out of time.

Looking a gift horse
in the mouth

The Supreme Court’s decision will come as a surprise to
many, who viewed Akenhead’s judgment in the TCC as the more commercial and
workable approach.  Practitioners will
have been aware that in the separate Court of Appeal judgment in Walker Construction (UK) Ltd v Quayside
Homes Ltd & Ors [2014] EWCA, the Court agreed with Akenhead’s
decision.  However, as the Supreme Court
noted, those comments were obiter and
the Court of Appeal’s decision in Aspect had not been brought to its attention.

As a result of this decision, following adjudication parties
will need to think carefully about what to do with the award:

• A party which is due payment will clearly want to enforce that award, as usual.  As a by-product of this judgment, they will have six years from the date of award to do that.  This will make little difference for
  most, who will look to enforce immediately, but may prove useful if the
  adjudication is brought towards the end of the limitation period for the
  underlying dispute.
• However, if they leave it there, there will be a risk that the other side could wait until the limitation period for the dispute has passed, and then reopen the dispute
  in Court.  The parties would be free
  to raise any arguments, claims or counterclaims which formed part of the
  original dispute, but the amount of the award could only go down, not up.
• This leaves the unpalatable option of bringing fresh proceedings after receiving a favourable award.  The successful
  party at adjudication could improve on its quantum in those proceedings,
  but could also end up with a less favourable decision, having spent
  considerable time and cost to get there.
• Alternatively, if the parties agree to treat the adjudication decision as final and binding (which Aspect and Higgins did not do), this removes the need or risk of
  fresh proceedings.  The parties
  could also agree to preserve the successful party’s rights with a
  standstill agreement.  An
  unsuccessful party in adjudication may be reluctant to agree to either of
  these options, but the threat of being drawn into further proceedings may
  be persuasive.

Does this matter?

As the Courts at all levels noted, adjudication is intended
by statute to be a temporary remedy to keep cash flowing and projects moving,
so that limitation issues should be rare. 
However, in practice, a large proportion of adjudications are brought
after completion, as a faster and lower cost way to resolve disputes than
litigation or arbitration. 

Disputes can be reopened to get a final determination.  But in a typical case, where both parties
have something to lose and the costs of doing that will be high, it is
understandable that adjudication decisions can be left to stand, without being
expressly approved by the parties.

Where this happens, parties will need to take careful advice
on their options following this decision.