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The Facts

In March 2004 Higgins Construction plc (Higgins) entered into a contract with Aspect Contracts (Asbestos) Limited (Aspect) for an asbestos survey and report on several blocks of maisonettes in Hounslow. Aspect carried out the survey during March 2004 and issued a report dated 27 April 2004. During 2005, Higgins found asbestos containing materials in the blocks which had not been identified in the report and had to pay for its removal.

Aspect denied any negligence and in 2009 Higgins commenced adjudication under the Scheme claiming 拢822,482 damages plus interest. On 28 July 2009, the adjudicator issued a decision in favour of Higgins and ordered that Aspect pay to Higgins 拢490,627 indamages, 拢166,421.05 in interest and the adjudicator鈥檚 fees of 拢8,750 plus VAT. On 6 August 2009 Aspect paid the total sum of 拢658,017.

The contractual limitation period expired on or about 27 April 2010 and the tortious limitation period in early 2011.

On 3 February 2012 Aspect commenced proceedings for recovery of the 拢658,017 paid in the adjudication on the grounds that no sum was due on a proper examination of the merits of Higgins鈥� claim. Aspect鈥檚 case relied upon an implied term that:

鈥淚n the event that a dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator鈥檚 decision made pursuant to the Scheme, that party remained entitled to have the decision finally determined by legal proceedings and, if or to the extent that the dispute was finally determined in its favour, to have the money repaid to it.鈥�

Aspect argued that it had six years from the date of payment to enforce this entitlement and in the alternative claimed in restitution.

Aspect also opposed Higgins鈥� counterclaim for the balance of its original claim for 拢822,482 on the grounds that the contractual and tortious limitation periods had expired, Aspect further argued that the court could only determine the dispute to the extent that the adjudicator had upheld Higgins鈥� claim.

At first instance in the Technology and Construction Court Mr Justice Akenhead found that no such implied term existed and that no claim in restitution could arise.

The Court of Appeal thought otherwise holding that the contract did contain the implied term contended for by Aspect.

Higgins appealed to the Supreme Court.

The Issue

Was Aspect entitled to disturb the provisional position established by the adjudicator鈥檚 decision by commencing proceedings after the time had elapsed when Higgins could bring any claim founded on the original breach of contract or in tort?

The Decision

Agreeing with the Court of Appeal, the Supreme Court held that it was a necessary legal consequence of the Scheme, as implied by the 1996 Act into the parties鈥� contractual relationship, that the paying party should have a directly enforceable right to recover any overpayment made in consequence of the adjudicator鈥檚 decision, once there had been a final determination of the dispute.

The Supreme Court characterised this right as a term arising by implication arising from the scheme provisions that was underpinned by restitutionary considerations, so that the court would also have the power to award interest on any overpayment subsequently found to have been made.

Where Aspect鈥檚 claim arose out of the payment made on 6 August 2009 (and was for repayment only of this sum) the Supreme Court found that whether considered in implied contractual or restitutionary terms, Aspect鈥檚 claim could be brought at any time within six years after 6 August 2009, given that an independent restitutionary claim was to be treated as a claim 鈥渇ounded on simple contract鈥� within section 5 of the Limitation Act.

The Supreme Court concluded that the act of receiving payment on 6 August 2009 did not give rise to a fresh six-year period for Higgins to bring proceedings for the balance of its claim for 拢822,482. There was no legal basis upon which a payee could acquire by virtue of the receipt of a payment a fresh right to claim any further balance allegedly due.

Commentary

The Supreme Court鈥檚 decision freed Aspect to pursue its claim, on the merits, for the 拢658,017 paid in the adjudication. However, due to the fact the limitation period for Higgins鈥� claim had expired, the court would be unable to order Aspect to pay any more than that awarded by the adjudicator.

In this first adjudication dispute that it has been called upon to consider the Supreme Court has confirmed what many regarded as the unfair position reached by the Court of Appeal 鈥� that if a party in receipt of a payment following a scheme adjudication holds on to payment and allows the relevant limitation periods to expire, it could still be faced with proceedings for recovery of that sum six years after the date of payment, but will be unable to bring a counterclaim for the balance of any sum it was not awarded in the adjudication - what Higgins called 鈥渁 one-way throw鈥�.

This decision may therefore encourage parties to propose express terms in adjudication clauses to the effect that in the absence of any challenge to an adjudicator鈥檚 decision within a stipulated time, the decision will be deemed as final and binding.

Martin Ewen
Fenwick Elliott LLP