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Adjudication and limitation: adjudication unlimited? (Part 2)

Recently, I had reason to think about whether the Limitation Act 1980 applies to adjudication. Is it possible that there is no time limit for bringing an adjudication? If it doesn’t, and there is no limit, that would enable a party to refer a dispute to adjudication years or even decades after the accrual of a cause of action.

I split my thoughts into two parts – this post is part two (I published part one last month). I concluded part one by suggesting that, if a court was asked to decide whether the law of limitation applied to adjudication, it might leave no stone unturned in search of a reason to apply limitation to adjudication. As promised, this post suggests some arguments why the law of limitation might apply.

Argument 1: the elapse of the limitation period for bringing an action in court is equivalent to the matter being finally decided

On the face of it, this argument has some merit. However, the Limitation Act 1980 does not extinguish the parties’ rights and liabilities, only the ability to bring an action for a remedy. The court cannot be deemed to have decided an issue simply because it is prevented by statute from considering it. In addition, if a defendant does not raise the limitation defence, a court will hear an otherwise time-barred action and will issue an enforceable judgment.

Argument 2: it doesn’t matter anyway: if the losing party does not comply with an adjudicator’s decision, the winning party has no recourse in the court because any action would be time-barred

This argument does not work. In Jim Ennis Construction v Premier Asphalt, HHJ Davies QC held, having reviewed the authorities, that an adjudicator’s decision gives rise to a new cause of action in favour of the successful party to compel the losing party to comply with that decision. This is based on section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) and paragraph 23(2) of the Scheme for Construction Contracts 1998. The Scheme requires, and any construction contract must require, that the adjudicator’s decision is binding until decided otherwise. As such, there is a contractual requirement, whether express or implied by statute, to comply with an adjudicator’s decision. A party who does not comply with the adjudicator’s decision breaches that contract and so a fresh cause of action accrues.

Argument 3: it was Parliament’s intention in the Construction Act 1996 that adjudication should not be finally binding, and should not outlast the ability to bring an action in court to challenge the adjudicator’s decision

Again, the court in the Ennis case put paid to this argument. HHJ Davies QC held that a term should be implied into the contract between the parties (which incorporated the Scheme for Construction Contracts 1998) that when a losing party in an adjudication pays money to a winning party in compliance with the adjudicator’s decision, the losing party has a right to recover such payment by legal proceedings finally determining the dispute, even after the expiry of the limitation period. He held that such a term was necessary to “make fully workable” the concept of the temporary finality of the adjudicator’s decision.

(Interestingly, he did not see the need for an implied term to the effect that a referring party who brought an unsuccessful adjudication should thereafter be allowed to challenge the adjudicator’s decision after the expiry of the limitation period.)

Argument 4: adjudication proceedings are “actions”

The dictionary definition of “action” is wide enough to include adjudications (see my first post). Although my first post points against adjudication being classed as an “action” in the stricter legal sense, this is not conclusive. It may be that arbitration would have been caught by the Limitation Act 1980 even in the absence of express wording, that expert determinations are qualitatively different from adjudications (or that Ramsey J erred in assuming that expert determinations are not caught by the Act) and that Dyson LJ (as he was then) in Connex South Eastern v MJ Building Services was correct to assume the limitation defence applies to adjudication proceedings.

The future

It may be that parties are reluctant to test the point by bringing an adjudication that risks being struck out on limitation grounds. Nevertheless, one can imagine situations (for example, in which millions of pounds are at stake) where the cost/benefit analysis points strongly in favour of taking a punt. In any event, unless a party brings an adjudication outside the relevant limitation period under the Limitation Act 1980, the enforceability of which is then challenged on grounds of limitation, there will be no conclusive answer.

(For an extended version of my thoughts, see our Constructive blog.)

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