Practical Law

Aspect v Higgins is the first case relating to adjudication or the Scheme for Construction Contracts 1998 to reach the Supreme Court. Indeed, so far as I am aware, it is the first case to reach the highest court since the House of Lords decided Melville Dundas v Wimpey in 2007. Accordingly, adjudication practitioners have been eagerly awaiting the decision, which was issued on 17 June 2015.

Summary

Isabel Hitching summarises the facts and the Supreme Court’s decision in more detail in her Blog post, Supreme Court rules on limitation period for challenging adjudicator’s decision. However, in very simple terms, the court held that:

• A party seeking to recover sums paid out by it following an adjudication can rely on an implied term that it can recover any overpayment which the adjudicator’s decision can be shown to have led to, once there has been a “final determination” of the dispute.
• The right of action arises when payment was made pursuant to the adjudicator’s decision, so the unsatisfied party has six years (under the Limitation Act 1980) within which to raise proceedings to recover any over-payment.
• The usual rules of limitation apply to the original claim made in adjudication, so any claims under the contract (other than in relation to the implied term) must be made within the usual period. (The “winning” party in the adjudication cannot seek payment of additional sums as a counter-claim in any action to recover re-payment, if the original claim has become time barred.)

Discussion

Given that the courts at first instance and the Court of Appeal reached different conclusions on the same point, the Supreme Court decision offers a degree of much needed clarity. However, somewhat ironically, we now know that despite the universally held view that adjudication is intended to result in speedy resolution of disputes, a party has six years to seek repayment of sums paid under an adjudication award. Although the circumstances of this case are relatively unusual (at least in relation to the time periods allowed to pass before a “final determination” was sought) this significantly extends the potential shelf life of a typical construction dispute.

In addition, the judgment has other, potentially more significant, implications.

Final determination

The Supreme Court seems to be saying that when a court finally determines the dispute, it does so in respect of the parties’ rights and liabilities as they stood at the time of the original adjudication and “the dispute referred to the adjudicator.” The whole dispute is looked at afresh, so the party resisting repayment is not limited to those aspects of the dispute decided in its favour. (In Aspect, this means that Higgins could defend its position by arguing that it was entitled to the full £822,000 claimed by it, even though the adjudicator awarded less, the caveat being that, as the limitation period for pursuing its claim had expired, recovery of any sum in excess of the adjudication award was time barred.)

However, what is meant by “the dispute as referred to the adjudicator?” Lawyers have been arguing for years about what is a “dispute” and this may be further fertile ground for argument. For example, can the successful party in the adjudication bolster its position with reference to fresh evidence and expert reports? If it tries to do so, then it may be met with the argument that the “new” material is inadmissible because it was not part of the “dispute” that existed at the time of the adjudication (which could have been over six years ago).

This is an important point, because as the courts consistently remind us, the 28 day adjudication process is not the same as court litigation. It is a rough and ready process designed to reach a binding, but provisional, decision. The adjudicator can take the initiative in ascertaining the facts and the law, whereas a judge officiates over what is essentially an adversarial process, with each party proving each element of its case. The two processes are very different. Arguably, most claimants who are forced into simply re-packaging their original adjudication claim would fail before a court, because the demands of adjudication and litigation are very different.

Onus or burden of proof

In City Inn v Shepherd Construction, Lord Macfadyen had this to say about the effect of an adjudication decision on the onus of proof in relation to “final determination” of the dispute:

“It is, in my view, no part of the function of an adjudicator’s decision to reverse the onus of proof in any arbitration or litigation to which the parties require to resort to obtain a final determination of the dispute between them. It is reading too much into the reference…in section 108(3).. to the adjudicator’s decision being binding ‘until the dispute or difference is finally determined’ to construe it as affecting the burden of proof in the arbitration or court proceedings. The burden of proof in any such action lies where the law places it, and is unaffected by the terms of the adjudicator’s decision.”

In other words, the “final determination” proceeds as if there had been no adjudication decision at all and so the claimant has to prove its case all over again. In City Inn, no issue of limitation (prescription in Scotland) arose, and Shepherd made a counterclaim seeking more than had been awarded in adjudication, so the facts were different. However, the reasoning is clear and, in my view, compelling. (It is also supported by Coulson on Construction Adjudication (OUP, 3rd edition, 2015), paragraph 14.48.)

In Quayside v Walker, the Court of Appeal considered issues very similar to those raised in Aspect, although they did so in ignorance of the fact that the first instance decision in Aspect had been overturned by a differently constituted Court of Appeal. In that context, the Court of Appeal in Quayside discussed Lord Macfadyen’s comments and appeared to take a different view. However, the Court of Appeal’s comments were obiter and made without the benefit of argument and although the Supreme Court did not discuss questions of onus, it expressly stated that the obiter comments in Quayside were wrong.

The Supreme Court does not discuss onus at all in its decision, but it is an important issue for any repayment proceedings that may follow on from Aspect. There are many who would regard it as unfair that after a period of potentially as long as six years, a claimant could be forced to prove its case all over again, while the party seeking repayment sits back and has what is, in essence, a second attempt at defending it.

It will be interesting to see how a party pleads the Supreme Court implied term in a future action, because the term which the Supreme Court has implied (that “..a paying party has 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”) brings in repayment after final determination. In other words, the paying party does not, apparently, have the burden of demonstrating that the adjudication decision was wrong. Rather, once there has been a final determination of the dispute, the paying party has a right to recover any overpaid sums.

Practical steps

The facts of Aspect are relatively unusual. In most construction disputes there may be claims and counterclaims. In some, there will be multiple adjudications. It will often be in both parties’ interests to either reach a final “agreement” or have court or arbitration proceedings that are finally determinative.

However, following this decision, in every construction contract where the unamended provisions of the Scheme apply (and perhaps in others, given the similarity between the Scheme, the Construction Act 1996 and many other adjudication rules), it may be possible for a party to seek repayment of sums paid under an adjudication decision which is up to six years old. Leaving aside the possible complications regarding burden of proof and the like, this is surely an unappealing prospect.

Many standard form contracts have provisions whereby adjudication decisions are rendered final and binding unless challenged within a specified period of time. In view of this decision, it is likely that more parties will seek to include similar provisions in their contracts to give more certainty on when they can confidently archive their adjudication papers and move on.