Aspect Contracts (Asbestos) Limited (Respondent) v Higgins Construction Plc (Appellant) [2015] UKSC 38

Aspect Contracts (Asbestos) Limited (Respondent) v Higgins Construction Plc (Appellant) [2015] UKSC 38

Judgment date: 17 June 2015

(1) Where the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the “Scheme”) applies to a construction contract there is an implied term which provides that if a dispute between the parties is referred to adjudication and one party has paid money to the other in compliance with the Adjudicator’s decision, that party remains 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.

(2) In such a scenario the limitation period applying to the paying party’s cause of action arising from this payment is six years from the time of payment (or potentially twelve years in the case of a contract executed as a deed). By contrast, the period the payee has to challenge an Adjudicator’s decision is six years (or twelve years in the case of contractual claims made under a contract executed as a deed) and this period runs from the date of the alleged breach of contract or tort which led to the adjudication.

(3) Adjudication is a provisional mechanism, pending a final determination of a dispute. As such, in order to prevent a paying party later challenging an award after the payee’s right to challenge has become statute barred, the payee should promptly pursue legal or arbitral proceedings to a conclusion or obtain the other party’s agreement to treat the decision as final.

Supreme Court, Lord Mance (with whom Lord Wilson, Lord Sumption, Lord Reed and Lord Toulson agreed)

Background

Higgins Construction Plc (“Higgins”) appealed the Court of Appeal decision [2013] EWCA Civ 1541 on which we reported here.

Higgins instructed Aspect Contracts (Asbestos) Limited (“Aspect”) to carry out an asbestos survey and report on blocks of maisonettes in Hounslow which Higgins, a contractor, was considering redeveloping (the “Contract”). As there was no express provision for adjudication in the Contract the Scheme for Construction Contracts applied.

The survey was conducted in March 2004 and the report was dated 27 April 2004. During redevelopment in early 2005, Higgins allegedly found asbestos containing materials which had not been identified in the report. A dispute arose and Higgins referred it to adjudication, claiming £822,482 in damages plus interest on the basis of contractual and/or conterminous tortious duties to exercise reasonable skill and care. The Adjudicator awarded Higgins £490,627, plus interest and her fees plus VAT, which Aspect paid on 6 August 2009.

Higgins did not commence proceedings, whether to recover the balance of its claim or otherwise. The parties did not agree to treat the Adjudicator’s decision as final and Higgins seemed content to let matters rest.

Higgins’ initial rights of action against Aspect became statute barred in around 2010 and 2011. On 3 February 2012 Aspect commenced proceedings seeking to recover the sum of £658,017 it paid on 6 August 2009. It did so without giving prior notice that it was dissatisfied with the decision or complying with pre-action protocol procedure. It argued that no sum was due to Higgins on an examination of the merits of the original dispute and claimed that the sum was repayable accordingly. Aspect rested its claim on an implied term that the unsuccessful party to an adjudication remains entitled to have the dispute finally determined by legal proceedings and, if successful, to recover the money it had paid, or alternatively in restitution.

Higgins counterclaimed for the balance of its claim that did not form part of the adjudication award, a total of £331,855. In relation to this, Aspect raised a limitation plea under sections 2 and 5 of the Limitation Act.

Issues

The Court decided the following issues:

• Whether Aspect was entitled to challenge the Adjudicator’s decision and recover what it had “overpaid”.
• Whether the claim was time-barred given the delay in Aspect bringing proceedings.
• If Aspect’s claim was not time-barred, whether Higgins was also able to challenge the Adjudicator’s decision and claim the balance of the sum originally sought.

Decision

The Court held:

1. It is a necessary legal consequence of the Scheme implied into the parties’ contractual relationship by the Housing Grants, Construction and Regeneration Act 1996 that Aspect must have a directly enforceable right to recover any overpayment to which the Adjudicator’s decision can be shown to have led, once there has been a final determination of the dispute. The Court agreed with the Court of Appeal that the obvious basis for recognition of this right was by way of an implication arising from the Scheme provisions which are themselves implied into the Contract.
2. The Court did not agree with Higgins’ argument that Aspect’s remedy was to seek a declaration and then to invite the Court to use its consequential powers in order to grant repayment. The Court found that it did not have the power to make orders consequential upon a declaration of non-liability for the payment of any sums which the recipient would not have a right to claim on some independent juridical basis. Furthermore, a claim for a declaration that a person has not committed a tort of breach of contract does not fall within either section 2 or 5 of the Limitation Act, and neither section applies by analogy.
3. It would be artificial to treat Aspect’s claim as based on an alleged cause of action accruing in 2004, at the time of the report, or 2005. The cause of action arose from payment of the Adjudication award, and as such could be brought at any time within six years after the date of payment to Higgins, i.e. after 6 August 2009.
4. Higgins could not seek to improve on the Adjudicator’s decision at this stage. The limitation period that applied to Higgins’ counterclaim ran six years from the date of the alleged breach of contract by Aspect, expiring on or about 27 April 2010 for any action by founded on breach of the construction contract and at the very latest by early 2011 for any action founded on tort. In receiving payment following the award Higgins did not acquire a fresh right to claim any further balance allegedly due. However, Higgins was still entitled to challenge the Adjudicator’s decision in defence of Aspect’s claim so that, for example, if it could show that the Adjudicator ought to have awarded money for a part of the claim which she had rejected, Higgins was entitled to set-off such a finding from any finding in Aspect’s favour that other parts of the claim originally awarded by the Adjudicator were not due to Higgins.

For the full judgment, please click here.