Practical Law

The Supreme Court has handed down judgment in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc, determining by what cause of action and by what date a paying party that is dissatisfied with the substance of an adjudicator’s decision needs to issue proceedings to seek to recover that payment.

The issues

In most cases a dispute is referred to adjudication well within the limitation period. Adjudication is designed to aid cash-flow and a party seeking payment rarely waits until the end of the limitation period to commence an adjudication. Nor does a paying party usually wait many years to recover a payment that it has made following an adjudication. However:

• Is it necessary for a paying party to seek a final determination of the dispute within the limitation period applying to the claim, or does it have six years from payment to bring its claim to court?
• If the paying party seeks a final determination and loses can the party that was only partially successful in the adjudication recover more than has already been paid?

Aspect v Higgins: the facts

Higgins (the party appealing to the Supreme Court) is a building contractor. Aspect is an asbestos specialist.

In 2004 Higgins was considering a project to redevelop some blocks of maisonettes in Hounslow. In March 2004, Aspect entered into a contract with Higgins to carry out an asbestos survey and report. Aspect carried out the survey the same month and provided a report on 27 April 2004.

The redevelopment began in late 2004. In February 2005, asbestos containing materials (ACMs), which had not been identified in the survey report, were discovered in the demolition rubble. These additional ACMs were removed by Higgins’ sub-contractor in July-August 2005. The parties were in dispute from 2005 as to whether Aspect had been in breach of its contractual obligations and duty of care to Higgins in failing to identify the additional ACMs. Higgins contended that Aspect’s breach had caused critical delay to the project and additional costs.

The provisions of Part II of the Construction Act 1996 applied to the contract. These incorporated into the contract the adjudication provisions of the Scheme for Construction Contracts 1998.

The adjudication

On 26 June 2009, after negotiation and mediation had failed to resolve the matter, Higgins referred the dispute to adjudication, claiming £822,482 in damages, plus interest.

On 28 July 2009, the adjudicator’s decision awarded to Higgins principal damages of £479,491, plus damages of £11,136 for an admitted breach, plus interest. On 6 August 2009, Aspect paid this sum to Higgins.

At the time of payment, nearly nine months remained of the limitation period applicable to Higgins’ claim for breach of contract. The same or a longer period remained in respect of Higgins’ claim in tort.

Neither party took steps to seek a final determination of the dispute within the limitation periods.

It was not until 3 February 2012 that Aspect commenced the recovery proceedings, after the limitation periods applicable to Higgins’ claims in contract and tort had expired. It did so without having given any notice to Higgins, during the remainder of the limitation periods or at all, that it was dissatisfied with the adjudicator’s decision.

Aspect’s case

Aspect pleaded that the contract contained an implied term that a paying party:

“remained entitled to have the [adjudicator’s decision] finally determined by legal proceedings and, if or to the extent that the dispute was finally determined in its favour, to have that money repaid to it.”

It argued that it had six years from the date of payment to enforce this contractual right.

Aspect further argued that it had a restitutionary claim arising on payment.

It contended that by waiting to issue proceedings until the limitation period applying to Higgins’ claim had expired, it could ensure that Higgins could not bring a counterclaim for the balance of the sum it had sought in the adjudication. Aspect also argued that the court could only finally determine the dispute to the extent that the adjudicator had upheld Higgins’ claim.

The judgments below

At first instance, Akenhead J (the then presiding judge of the TCC), held that no such term existed: it was unnecessary. He also rejected an argument that a restitutionary claim could arise before the court had finally determined the dispute. A restitutionary claim could not itself be a way of bringing the dispute to court for final determination.

The Court of Appeal, in a brief judgment, reversed Akenhead J’s decision, holding that the contract did contain the implied term pleaded. The implication was not based on any facts specific to the parties, but on a reading of the terms of the Construction Act 1996 and the Scheme for Construction Contracts 1998. Therefore, the term was to be implied into all construction contracts to which the Act and the Scheme applied.

The Supreme Court’s analysis

In a unanimous judgment handed down on 17 June 2015, the Supreme Court held that the pleaded implied term did not exist but that there was a different implied term:

“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.”

Although the right to recovery was enforceable only “once there has been a final determination of the dispute”, the Supreme Court also found that this right to recovery enabled the paying party to obtain a final determination of the dispute. The right to recover was itself the route to the court determining whether the paying party was entitled to any recovery.

A paying party might have other means of seeking a final determination of the dispute, such as a claim for a negative declaration. However, in addition the paying party could seek a final determination by suing on the implied term.

The Supreme Court held that the right to seek a final determination by suing on the implied term arose on payment. A paying party therefore had six years from the date of payment to seek final determination and recover any overpayment. As such, Aspect had been entitled to wait until the limitation period for Higgins’ claim had expired before seeking recovery of the sum paid. Thus, it was able to prevent Higgins obtaining a greater sum than had been awarded by the adjudicator.

However, the Supreme Court rejected Aspect’s submissions that a court could not in such circumstances finally determine the whole dispute. The Supreme Court held that the dispute as referred to the adjudicator was finally to be determined. The court would therefore finally determine both the elements of the claim that the adjudicator had upheld and those that she had rejected. However, because the limitation period for bringing Higgins’ claim had expired, a court could not order Aspect to pay Higgins any more than it had received under the adjudicator’s decision.

Implications of the decision

The implications of this decision are significant and will need fully to be worked out both in this and future cases. A number of points are already apparent:

• A successful party in an adjudication will either need to obtain the paying party’s agreement that the adjudication decision is binding or will need to commence proceedings seeking a final determination of the dispute within the limitation period applying to its claim.
• The implied term only applies to a paying party. Where a dispute concerns claims and cross-claims, the term operates only in favour of the party that the adjudicator found liable to pay the balance. The paying party has six years from payment to seek recovery of the balance paid. However, the receiving party has only the remainder of the limitation period applying to its claim to seek any greater sum. If the paying party itself wishes to seek payment, the limitation period applying to its cross-claim applies.
• A court finally determining a dispute will not be limited to finally determining that element of the claim on which the paying party was successful in the adjudication. It will consider the entire dispute, determine the sum that would be due and then determine if the sum paid represents an overpayment to the receiving party. The payment may be a small percentage of a claim. If repayment is sought the entire claim will be finally determined, which may be costly and time consuming for the parties.

Andrew Bartlett QC and Isabel Hitching appeared for Higgins Construction plc, the appellant.

Isabel also represented Higgins at first instance and in the Court of Appeal, and discussed both judgments in Blog posts, No implied term extending limitation period following adjudicator’s decision and Court of Appeal finds implied term in construction contract.

Andrew Bartlett QC and Isabel Hitching are due to deliver the joint TECBAR/SCL lecture on 1 December 2015, speaking on “The implications of Aspect v Higgins”.