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How long do I have?

Until recently it was unclear how long a party who lost in an adjudication, and had to pay money to the winning party, had to bring a subsequent claim for recovery of those monies. The position has recently been resolved by the Court of Appeal in the case of Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2013] EWCA Civ 1541 but the discussion had started earlier with the case of Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 (TCC).

Jim Ennis Construction Ltd v Premier Asphalt Ltd

In this case, HHJ Stephen Davies had to determine a preliminary issue as to whether or not the Claimant’s claim was statute barred under the Limitation Act 1980. He formulated that issue, upon which he noted there was no previous authority directly on point, as being:

“the nature and date of accrual of the cause of action where a losing party to an adjudication brought under Part II of the Housing Grants, Construction and Regeneration Act 1996 ("HGCRA") subsequently commences court proceedings to seek a final determination of the matters decided by the adjudicator with a view to recovering monies paid to the winning party in compliance with the adjudicator’s decision.”

The facts in brief were that Jim Ennis Construction Ltd (“ENNIS”) refused to pay the sum of £16,821.94 for the cost of certain replacement works included within the final application for payment submitted by Premier Asphalt Ltd (“Premier”) on 17 December 2002. Ennis also claimed to be entitled to deduct from the final account certain cross-claims for loss and damage in the sum of £38,647.22 for defective works carried out by Premier. Almost 6 years later, on 15 September 2008, Premier referred the dispute about the deduction to adjudication. The breach of contract claim for the non-payment of the final application was within the applicable 6 year limitation period. However, Ennis could not bring any breach of contract claim against Premier in relation to the alleged defects in the original works as the works had occurred more than 6 years previously.  An adjudicator was appointed and gave his decision on 13 November 2008; he found in favour of Premier and required Ennis to pay the principal sum of £38,647.22 together with interest. Ennis recognised that it had to pay that sum because it had to comply with the decision until the dispute was finally determined by legal proceedings, arbitration or agreement pursuant to paragraph 23(2) of the Scheme. It therefore duly paid the monies to Premier.  On 18th December 2008 Ennis sent a letter of claim to Premier advising of its intention to seek a final determination of the dispute by legal proceedings and on 15th April 2009 Ennis issued proceedings in the Manchester TCC.

Premier made an application to strike out the claim on the ground that it was statute barred under the Limitation Act 1980.  The Judge summarised the parties’ respective submissions in the Judgment and Premier’s main submissions were that:

(1) Ennis’ claim was one for damages for breach of contract occurring before 29th May 2002, to which section 5 of the Limitation Act applied;

(2) insofar as there was any alternative claim in restitution, since the adjudicator decided that Premier was entitled to have been paid its December 2002 application in January 2003, any cause of action ran from that date; and

(3) Ennis was not compelled by law to comply with the adjudicator’s decision, and did so voluntarily, as opposed to awaiting enforcement proceedings in the TCC.

Ennis’ first submission in response was that the adjudicator’s decision gave rise to an independent cause of action, separate and distinct from the underlying cause of action in respect of the dispute submitted adjudication.  Ennis relied section 108(3) HGCRA and paragraph 23(2) of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”), which provide that the decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings.  According Ennis said that when a successful party seeks to enforce a decision its cause of action arises from the decision itself, not the underlying cause of action in the dispute. 

The Judge followed the analysis of HHJ Hicks QC, HHJ Thornton QC and Akenhead J. in VHE Construction v RBSTB Trust Co [2000] 70 ConLR 51 (at paragraphs 51-54), Bovis Lend Lease v Triangle Development [2002] EWHC 3123 (TCC) and Ringway Infrastructure Services v Vauxhall Motors (No. 2) [2007] EWHC 2507 (TCC) respectively and concluded that the obligation to comply with the decision did give rise to a new cause of action in favour of the successful party to compel the losing party to comply with the decision. The Judge recognised that that was not sufficient for Ennis to succeed on its case but stated:

“It does however provide the platform for the Claimant’s second submission that there is additionally an implied term that an unsuccessful party is entitled to bring court proceedings to have the dispute referred to the adjudicator finally determined and, if successful in persuading the court to reach a conclusion different to that reached by the adjudicator, to be repaid all sums paid by him in compliance with that decision.”

It was common ground that neither the HGCRA nor the Scheme gave an express right to a losing party to bring legal proceedings finally to determine the dispute referred to adjudication and, if successful, to recover sums paid to the winning party in compliance with the decision. However, Ennis argued that there was a contractual implied term to that effect which ousted the provisions of the Limitation Act by agreement or created a new cause of action arising at the time of payment in compliance with the decision. Premier denied that there was such a right and maintained that the only legal basis for relief was a claim brought on the underlying cause of action, being the dispute referred to the adjudicator, so that if a claim found on the underlying cause of action is statute barred then so too is any action finally to determine the dispute in order to obtain repayment. However, Premier did not advance any positive case as to why the requirements for implication of the term were not met. The Judge was satisfied that the implied term contended for satisfied the five requirements identified in the BP Refinery v Shire of Hastings (1978) ALJR 20 case upon which Ennis relied, namely that:

(1) it was reasonable and equitable: it applied equally to both parties to the contract;

(2) it was necessary to give business efficacy to the contract: it was essential to give effect to the reasonable expectation of the parties that a losing party would have the right to recover such payment by legal proceedings finally determining the dispute;

(3) it was so obvious that it went without saying;

(4) it was capable of clear expression; and

(5) it did not contradict any express term of the contract.

The Judge was therefore satisfied that in a contract to which the adjudication provisions of the Scheme apply there is to be implied a term that where one party has paid monies to the other party in compliance with the decision of an adjudicator that party is entitled to have that dispute fully determined by legal proceedings and, if or to the extent that the dispute is fully determined in his favour, to have those monies repaid to him.  The Judge considered that implied term was “necessary to make fully workable the concept of the temporary finality of the adjudicator’s decision which lies at the heart of the policy behind the adjudication provisions of the HGCRA.”  The cause of action under the implied term could only arise when the losing party paid monies to the winning party in compliance with the decision and, as a result, a losing party has 6 years from the date of payment in which to bring legal proceedings to recover that payment under section 5 of the Limitation Act 1980.

The Judge did recognise that the result could be criticised for allowing unacceptable delay to occur because a party might refer a dispute to adjudication shortly before the expiry of the 6 year limitation period and then be met by a claim for repayment nearly 6 years from the date of the decision, so that the court would have to adjudicate on a stale claim 12 years old.  However, the Judge considered that that should not militate against the outcome because (1) the initial delay could not be the fault of the losing party, and (2) it was still a fairer result than contended for by Premier. The Judge in any event considered that to be an extreme example, unlikely to arise in practice because of the employment of adjudication as a quick remedy. 

Ennis had also argued that, if there was no implied term, it had a cause of action in restitution which did not arise until the date of payment, or to which there was no applicable limitation period.  By way of obiter, the Judge considered that in addition to the cause of action founded on the implied term there would be a cause of action in restitution to recover the monies, although he expressed no concluded view as to whether the claim in restitution was subject to any limitation period.

Asphalt Contracts (Asbestos) Limited v Higgins Construction Plc

The basic facts of this case was that the Claimant (“Asphalt”) was engaged by the Defendant (“Higgins”) to conduct an asbestos survey of an estate in Hounslow. Asphalt completed its survey report and Higgins subsequently entered into a contract with the Notting Hill Housing Trust for the demolition and redevelopment of the estate and a sub-contract with another company for asbestos removal and demolition. Higgins claimed that there was in fact more asbestos containing material at the property than discovered by Asphalt and the sub-contractor had to be paid more than originally agreed to remove that material, which caused 17 weeks of critical delay. Higgins referred the dispute to an adjudicator, who determined that Asphalt should pay Higgins the sum of £658,017, being a lower sum than Higgins claimed, which Asphalt duly paid.  On 3rd February 2012 Asphalt issued proceedings to overturn the adjudicator’s decision and recover the monies paid to Higgins. The proceedings were issued more than 6 years after Asphalt’s supposed breach of contract or duty in 2004 but less than 6 years after making payment. Higgins counterclaimed for the difference in sums between that which it claimed it was owed in the Notice of Adjudication and that determined by the adjudicator. A limitation defence was pleaded by Asphalt and Higgins sought and obtained permission to plead that Asphalt’s claim was itself barred by lapse of time.

It was Asphalt’s case, relying on Jim Ennis Construction Ltd, that the contract contained an implied term that it had a right to seek repayment which would arise on payment and that it could therefore bring a claim to enforce that right within 6 years from the date of payment. Higgins’ position was that there was no such implied term and Asphalt’s claim was therefore statute barred.  It argued that there was no basis for implying a term because the parties’ had sufficient existing rights and the requirements for the implication of a term as stated by Lord Hoffmann in Attorney General of Belize v Belize Telccom Ltd [2009] UKPC 10 were not met.

The parties agreed to ask the court to decide 4 preliminary issues:

(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?

(4) Did Asphalt have a claim in restitution?

First instance

Akenhad J. handed down judgment on 23 May 2013 and observed that the case “raises an interesting and important issue as to when in terms of limitation of action a party which is dissatisfied with the substance of an adjudicator’s decision needs to issue its proceedings or to raise any counterclaim in those proceedings to challenge and seek to overturn that decision.”

Akenhead J. found in favour of Higgins and declined to follow the decision in Jim Ennis Construction Ltd on the existence of an implied term. The principal reason was that the Judge considered such an implied term was unnecessary because it was open to the losing party to sue for a declaration that he was not liable (as Asphalt had done in their Claim Form) at any point in time after the works had been carried out and prior to the date of any decision or payment.  The Judge decided that a declaration of non-liability was an assertion of a cause of action and was time barred on the facts because the claim was issued more than 6 years after the alleged breach of contract or duty by Asphalt. He therefore dismissed the claim. On the third issue, the Judge unsurprisingly determined that the limitation period on Higgins’ counterclaim was 6 years from Asphalt’s alleged breach of contract in conducting the survey.  He also held that Asphalt did not have a claim in restitution.

Court of Appeal

By their judgment handed down on 29 November 2013, the Court of Appeal reversed the first instance decision and unanimously held that in construction contracts incorporating the adjudication provisions in the Scheme, there was an implied term that the unsuccessful party was entitled to seek a final determination by litigation.  It referred to the fact that pursuant to paragraph 23(2) of the Scheme, it was clear that the binding nature of the adjudication was intended to be temporary and was liable to be displaced by subsequent legal proceedings, arbitration or agreement.  If payment was made but it was subsequently decided that it should not have been, there had to be some mechanism whereby it could be recovered.  It therefore considered that the implied term contended for was “inherent in the words used and to be the true intent of paragraph 23(2).”

The Court rejected the argument that there was no need to construe the contract as saying that any overpayment is repayable because the losing party could always take proceedings for negative declaratory relief and as part and parcel of that claim ask the court for an order for repayment. In the Court’s view negative declarative relief was, at best, an ungainly remedy with a number of potential disadvantages.  In particular, it remarked that the remedy is counter-intuitive because it expects a person who says he is not liable to have to take the initiative himself and start legal proceedings.

The Court determined that the applicable limitation period for a claim seeking to enforce the implied term was 6 years from payment.  In respect of Higgins’ cross-appeal to recover additional sums from Asphalt than those awarded by the adjudicator, it upheld the first instance decision that the limitation period was 6 years from the alleged breach and therefore statute barred.

The restitution claim was not argued.

The current position

For the first time there is clear Court of Appeal authority on this limitation issue and a losing party can confidently rely on having 6 years from the date of making payment pursuant to an adjudication decision to bring a claim for its repayment.  It must be remembered however that Asphalt is limited to the position where adjudication terms are implied into contracts by the Scheme.  It is open to parties to contracts to which the Scheme does not apply to provide that an adjudication decision will be finally binding unless a claim is brought by a losing party within a specific time period.  It remains to be seen whether parties will adopt that approach in their drafting.