I can’t say that I recall Dyson LJ’s judgment in Connex South Eastern Ltd v MJ Building Services Group being handed down back in 2005 but I do know it is the case that told us that the phrase “at any time” means exactly that. It’s like Ronseal’s famous phrase, “Does exactly what it says on the tin”. With the Court of Appeal giving the words their literal and ordinary meaning, it was plain speaking at its best!
It has also meant that for as long as I can remember, we have all assumed that there is no time limit on when a party can start an adjudication. (In Connex, the court was dealing with a situation where the notice of adjudication was issued after practical completion and after repudiation of the contract.) Consequently, the only limitations (if there are any) are the ones we find in the Limitation Act 1980, which doesn’t prevent a party from starting an adjudication but may provide the responding party with a defence (if taken), which means the adjudicator’s decision will be in their favour. (The same applies in court proceedings and, if the defence is successful, the claim may be struck out.)
If this is all so well-established, you might wonder why I’m bothering to mention it. The answer is, because of HHJ Russen KC’s judgment in LJR Interiors Ltd v Cooper Construction Ltd, which he handed down last month.
LJR Interiors Ltd v Cooper Construction Ltd
The parties entered into a contract under which LJR agreed to carry out dry lining, plastering and screed works for Cooper at a development property in Minster Lovell, a village in Oxfordshire. LJR’s quote was dated 9 July 2014 and Cooper’s purchase order was dated 26 August 2014. The contract sum was £18,675 plus VAT. The contract did not have any adjudication provisions, so the Scheme for Construction Contracts 1998 applied. Works were completed by 19 October 2014 and LJR’s third application for payment (IA3) was made on 31 October 2014.
In July 2022, almost eight years later, LJR issued a further interim application for payment (IA4) for £3,256 plus VAT. Cooper did nothing and, on 9 September 2022, LJR referred the matter to adjudication. It seems it was a typical smash and grab type adjudication and, in the absence of a pay less notice, the adjudicator awarded LJR the sums it claimed.
Cooper argued that the cause of action had accrued no later than completion of the works (October 2014), which meant that by the time of the adjudication in September 2022, IA4 was statute barred under section 5 of the Limitation Act 1980. Cooper also took the point that IA4 was a resubmission of IA3, with the addition of a £750 admin charge (although this point may be something it only argued in the court proceedings).
The adjudicator rejected Cooper’s limitation defence. He accepted that IA4 was valid and, in the absence of a pay less notice, he found the cause of action accrued on 28 August 2022 (seven days before the final date for payment). This meant section 5 was “not relevant” and could not bar LJR from a remedy. He awarded LJR the sums claimed.
Section 5 of the Limitation Act 1980 provides that simple contract claims should be brought within six years of the cause of action accruing. In an action for payment for works or services, the cause of action arises on completion of the work.
As well as limitation, the judge looked at a number of other issues, such as the use of Part 8 in adjudication enforcement (think Hutton Construction Ltd v Wilson Properties (London) Ltd) and whether using Part 8 was an abuse of process (it wasn’t). However, it is the limitation aspects that I find the most interesting.
Turning to limitation, the judge looked at Dyson LJ’s Connex judgment before referring to the judgment in Aspect v Higgins, where the Supreme Court held that the limitation period for challenging an adjudicator’s decision starts to run from the date of payment of the sums awarded by the adjudicator. He picked out one particular quote from Lord Mance:
“If there is an adjudication award within 6 years of performance, without any further proceedings being commenced, both sides are after the six year period time-barred in respect of any claim to any balance which they originally contended to be due to them. Any further proceedings would be limited to a claim for repayment by the party required to pay a net balance to the other.”
As HHJ Russen KC said:
“This observation underpinned the conclusion that Higgins’ counterclaim for the balance allegedly due to them was barred by limitation but, although it contained an assumption that the adjudication process … would be completed within 6 years from contractual performance … it was directed only to the barring of legal proceedings which are brought too late.”
“Nevertheless, the Supreme Court’s recognition of a limitation period of 6 years for the commencement of legal proceedings to enforce an adjudicator’s decision provides, in my judgment, a further reason why the decision itself should recognise any limitation defence that operates to defeat the claim advanced under the referred dispute.”
This is important because, as HHJ Russen KC noted:
“Otherwise, a contracting party would, through the grafting on of the discrete limitation period which applies to any action to enforce the decision, benefit from a much longer limitation period than section 5 of the 1980 Act contemplates for the bringing of legal proceedings. As Mr East submitted, the powers conferred upon an adjudicator by the 1996 Act and the Scheme should not be read as permitting this. The fact that the enforceability of the decision rests upon a contractual (and statutorily-backed) obligation to comply with it, when its provisional nature distinguishes it from a judgment or arbitral award, in my view instead points to the conclusion that the limitation period applicable to contract claims under section 5 (or under section 8 for those made by deed) should be treated as the operative one at both levels of the dispute resolution process identified in paragraph 23(2) of Part I of the Scheme.”
All this led to the judge’s “statement of the obvious” that limitation “does not extinguish the right but in certain types of legal proceedings operates to bar the remedy”.
Applying this to what actually happened, the judge concluded that it was clear the adjudicator was persuaded by the idea that the Scheme for Construction Contracts 1998 does not impose a time limit on when an application for payment should be made. Consequently, as far as the adjudicator was concerned, limitation wasn’t an issue as the cause of action under IA4 arose in August 2022. That meant there were no circumstances in which section 5 could “operate to bar the remedy of payment”.
The judge described the adjudicator’s approach as “erroneous” and “paid no regard to the terms of the Contract”. It seems that the absence of a pay less notice meant the adjudicator did not consider whether the “application itself was timely enough”. Also:
“… no consideration was given to the objection that … a limitation period cannot be ‘renewed’ simply be making a claim for payment of sums previously demanded and otherwise barred from recovery on limitation grounds.”
There is much more in the judgment on limitation than these extracts but the important point for me is that limitation can be used as a defence in adjudication and, if an adjudicator is faced with a limitation defence, it is important to consider everything in the round. If limitation is raised, it should set alarm bells ringing.
Limitation issues are likely to be more prevalent in adjudication going forwards. I am seeing more and more historic claims, some arising from PFI deals and others because of everyone’s concerns regarding building safety post-Grenfell. As well as adjudicator’s having to dealing with limitation as a defence, it is also relevant to jurisdictional challenges.
In my view, as it is a substantive issue, I think it is sensible to address it up front and, if appropriate, publish a conclusion (is it a decision?) that a claim is time barred and resign on account of it. The alternative is to proceed and deal with it as part of the main decision, which will not save the parties time and money, but does provide them with a temporarily binding decision and may prevent one of them having another bite of the cherry.
Either way, it is good to be reminded of the rules as they apply in adjudication.