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No implied term extending limitation period following adjudicator’s decision

Last week, Akenhead J handed down judgment in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc. As he noted, it:

“…raises an interesting and important issue as to when in terms of limitation of action a party which is dissatisfied with the substance of an adjudicator’s decision needs to issue its proceedings or to raise any counterclaim in those proceedings to challenge and seek to overturn that decision.”

Adjudication is designed to aid cash-flow and a party seeking payment does not often wait until the end of the limitation period to commence an adjudication. In most cases, the dispute is referred early and well within the limitation period. Whatever the outcome of the adjudication, either party is then usually able to refer the underlying dispute to a court or arbitrator for final determination without questions of limitation arising.

However, is it necessary for a paying party to refer the dispute to court within the limitation period applicable to the underlying dispute, or does it have a separate right to seek repayment that accrues only on payment of the adjudicator’s award, with six years from payment to bring its claim to court?

Aspect Contracts (Asbestos) Ltd v Higgins Construction plc

In Aspect v Higgins, Aspect asserted that, in addition to any rights in respect of the underlying dispute, it could also rely on an implied term in the construction contract with Higgins that a paying party could seek recovery of a sum paid, and that this cause of action accrued on payment. It argued that it could bring its claim for a negative declaration that it was not liable many years after the limitation period applicable to the underlying dispute had expired. The benefit to Aspect of doing this was that by then Higgins’ counterclaim was statute barred.

Aspect relied on the only prior decision on the issue, Jim Ennis v Premier Asphalt. In that case, the court had held that there was such an implied term. However, it had proceeded on the basis of crucial concessions and without oral argument. Aspect v Higgins is the first occasion when the court has heard full argument and the judgment is a full and authoritative analysis.

Higgins argued that such a term should not be implied into the contract:

  • It contended that the parties’ rights to have a dispute determined by the court are preserved by, but do not stem from, the Construction Act 1996. The Act and the Scheme for Construction Contracts 1998 do not alter or extend the limitation periods for bringing a dispute before the court.
  • There is no basis for implying such a term as both parties are adequately protected by existing rights in relation to the underlying dispute.
  • There was no gap in the contract to be filled and that, in any event, such a term was not “obvious” or “necessary” and did not accord with business common sense, fairness or wider policy considerations (see Lord Hoffmann’s judgment in Attorney General of Belize v Belize Telecom Ltd).

Court finds no implied term

The court agreed with Higgins. Akenhead J held that:

  • There was no gap in the contract. Aspect could have sought a negative declaration at any stage after purported performance of the contract.
  • Aspect could have brought the dispute to court for final resolution within the limitation period. It was not necessary to imply a term to ensure that it could do so.
  • Such a term did not satisfy the criteria for implying a term into a contract: it was not:

    “reasonable, equitable or necessary to make the contract work (business efficacy) and it does not go without saying.”

  • Having regard to the Parliamentary debates there was nothing to suggest that:

    “Parliament meant in effect to create in every construction contract incorporating the Scheme an implied term along the lines suggested … I can not see any overriding policy reason why such a term should be implied.” (Paragraph 45, judgment.)

Not the same as enforcing an adjudicator’s decision

The court also held that the situation was quite different from that where a successful party sought to enforce an adjudicator’s decision. In that case there was a new cause of action in favour of the successful party to compel the losing party to comply with the decision. Akenhead J held that it did not follow that a new cause of action arose in favour of the losing party.

Issues of fairness

In considering issues of fairness, the court noted that Higgins did not refer the matter to adjudication at the end of the limitation period and Aspect paid the sum that the adjudicator, Rosemary Jackson QC, found due in full.

At that stage, there were still some months until the limitation period for both contract and tort claims expired, but Aspect took no action to bring the matter to court. Aspect “chose not or otherwise failed to initiate court proceedings” for a further two and a half years. By that time, limitation in respect of the underlying contract and tort claims had expired.

Aspect contended that, as a result, although it could bring proceedings to recover the amount that it had paid Higgins, it could not counterclaim for the balance between the sum ordered and sought in the adjudication. The court noted that such a situation could arise relatively commonly and questioned whether parties must be taken to have agreed such consequences.

The court also noted that if such a term were implied, in theory a claim could be brought more than 12 years after the original cause of action arose (depending on the date of payment) with, on Aspect’s case, the burden of proof nonetheless on the defendant. It noted Higgins’ argument that an adjudication would have the effect of potentially postponing final determination of a dispute, contrary to the intent and policy of the Construction Act 1996.

No breach of ECHR or claim in restitution

The court also rejected Aspect’s argument that:

  • Such a term was necessary to protect Aspect’s human rights. Article 6(1) of the European Convention on Human Rights requires the state to provide a right to challenge an adjudication decision before a judicial body with full jurisdiction. The court held that there was sufficient access, as both parties were, before limitation expired, free to bring the dispute to court for final resolution.
  • It was entitled to repayment on the basis of restitution. The court rejected this claim, accepting Higgins’ argument that any right to repayment could only arise if and when the court had determined the dispute in Aspect’s favour. To do so, the court needed to be seized of the claim. If there was no implied term it could not make this determination. The restitutionary claim simply fell away.

Significance of the judgment

This is a significant judgment because Aspect did not argue that the term should be implied due to any facts specific to this case. Therefore, if the term had been implied, it would not just apply to Aspect and Higgins’ contract, but to every construction contract.

The court has confirmed that both parties can bring a dispute to court for final determination (without limitation defences being raised) only within the currency of the limitation periods applicable to the underlying dispute. By paying an adjudicator’s award, a losing party does not obtain a further six years in which to do so.

Given the significance of the judgment, the court has granted leave to appeal.

Isabel was counsel for Higgins Construction plc.

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