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Aspect v Higgins: where do we go from here?

The outcome of Aspect v Higgins case may cause some old files to be dusted off. Most employers will have instituted proceedings to recover an adjudication over-payment within six years of the date of payment, but contractors may have left in abeyance their claims to sums over and above those that the adjudicator awarded. Like Higgins, they may find that they are now too late to claim these extra sums.

Inevitably, consideration will turn to whether it is possible to contract out of the effect of the Aspect decision. Any party to a construction contract may find itself on one or other side of this argument so there may be a mutual interest in making alternative provision.

The implied term

To recap, the implied term gives the paying party in an adjudication under the Scheme for Construction Contracts 1998 a six or twelve year period (depending on whether the contract is in a simple form or a deed) to claim for the repayment of sums paid out, if its subsequent proceedings succeed. This period runs from the date of payment.

What approach do the parties consider is appropriate?

It may be that the parties consider a shorter period is appropriate and there are a number of approaches that they could adopt, which can be summarised as:

  • Taking a step to prevent the adjudicator’s decision becoming final by giving a notice of dissatisfaction.
  • Taking a step within the underlying limitation period applicable to the contract.
  • Specifying a specific limitation period for an overpayment.

Give a notice of dissatisfaction.

One approach would be to adopt the wording of the FIDIC contracts (such as the Red Book) so that an adjudicator’s decision becomes final unless some action, like a notice of dissatisfaction, is given within a set period. In that contract, the period is brief, only 28 days. A similar provision also appears in Option W2 of the NEC ECC.

However, this is likely to be a controversial amendment since it places a positive obligation on the paying party to take action and short time limits are often missed.

Take another step

Another approach would be to provide that the adjudicator’s decision becomes final unless further action, such as the commencement of proceedings, is taken within the underlying limitation period applicable to the contract. This might be a set period from practical completion or making good of defects under the contract.

If this approach is taken, then the trap for the receiving party (which caught Higgins) should not arise as any further referral of an adjudicator’s decision would have to be made within the relevant limitation period.

However, it is unlikely to be prudent for the receiving party to wait until the underlying limitation period has nearly expired before seeking to recover the outstanding balance. In contrast, it might be tempting for the paying party to leave the referral until the last minute in the hope that the receiving party would not spot the problem.

Neither of the above approaches are like to offend against the Construction Act 1996 which, in section 108(3), provides that an adjudicator’s decision is binding until the dispute is finally determined by (among other things) agreement. Here, the parties have agreed in advance as to how an agreement may be reached.

Specify a specific limitation period

Finally, the parties could simply provide for a specific applicable limitation period in respect of proceedings to recover an overpayment. Clear words will be needed if this approach is adopted and the judgment in The Oxford Architects Partnership v The Cheltenham Ladies College indicates that mere reference to a date by which proceedings are to be commenced does not of itself lengthen the limitation period, although it may shorten it.

In summary

The approach the parties adopt will depend on their negotiating positions and their overall intentions as to what they want to achieve. Different sides of the industry may have different views and we may also see changes from the standard form producing bodies. As ever, time will tell how the market reacts.

Herbert Smith Freehills LLP Michael Mendelblat

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