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When the dust settles…

Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc [2013] [2013] EWCA Civ 1541

What happens when a party is dissatisfied with an adjudicator's decision, but nevertheless pays the successful party. Can they then litigate the dispute again; hopefully, with a different outcome? John Wevill considers the recent case of  Aspect Contracts (Asbestos) Ltd v Higgins Construction PLC where the Court deliberated this issue and when the original limitation period applied.

Background

In 2004, Higgins, a well-known community housing construction and refurbishment specialist, was considering taking on a project for the Notting Hill Housing Trust (“NHHT”) to demolish and redevelop a housing estate. In March 2004, Higgins engaged Aspect under a simple contract (not signed as a deed) to carry out an asbestos survey and, on 27 April 2004, Aspect’s survey report was sent to Higgins.

 Higgins subsequently entered into a design and construct contract with NHHT and commenced work, but, in February 2005, additional asbestos containing material, which had not been identified in Aspect’s report, was discovered within the housing blocks on the estate. Higgins engaged a further specialist to remove the additional material. During the course of 2005, Higgins and Aspect were in contact, through their solicitors, with Higgins claiming that a critical delay of 17 weeks was attributable to the failure by Aspect to pick up the presence of the additional asbestos, and with Aspect denying liability.

Several years later, in June 2009, Higgins served a referral notice referring the dispute with Aspect to adjudication, claiming £822,482.67 as damages for breach of contract. The adjudicator broadly agreed with Higgin’s claim and, ultimately found that Aspect was liable for £658,017, around 80% of the sum claimed. Aspect paid over this sum on 6 August 2009, in compliance with the adjudicator’s award.

First Instance

Two and a half years later, Aspect commenced proceedings in the High Court to obtain a declaration that it was not liable for the damages previously awarded by the adjudicator and paid by Aspect to Higgins in 2009. Aspect claimed that there is an implied term in every “construction contract” – as defined in the Construction Acts – that the losing party in any adjudication is entitled to have the dispute finally determined by litigation, and is entitled to repayment if successful. A new cause of action is created by the adjudicator’s award allowing the losing party to commence proceedings to recover the sums awarded against it by the adjudicator in its temporarily binding decision.

In its defence, Higgins said that Aspect’s claim was statute barred because the alleged cause of action in contract had, in fact, accrued long before the adjudication, at the latest in April 2004 when Aspect delivered its asbestos report. Higgins maintained that the equivalent limitation period for an action in tort had started to run no later than 22 June 2005, when work began again on site following removal of the asbestos which Aspect had not discovered. As the limitation period in both contract and  tort is 6 years, it was not possible for Aspect to commence its claim in February 2012.

Mr Justice Akenhead agreed with Higgins and rejected Aspect’s claim. There was no implied term in the contract between the parties, as had been claimed by Aspect, because there was no business need to imply such a term; the express terms of the contract were clear enough and free from ambiguity as they stood. Aspect had a cause of action, and could have sought a declaration from the Court that it was not in breach of its duty of care, at any time from the moment it provided its report in April 2004. The obligation to comply with the adjudicator’s decision does not give rise to a new cause of action in favour of the losing party to bring a claim to recover the sums it is obliged to pay out.

The Appeal

Aspect appealed the High Court’s decision.  The issues on appeal were (1) whether the existed in the parties’ contract; and, if so, (2) whether the judge ought to have found that the limitation period ran from the date of the claimed overpayment.

In a unanimous decision, the Court of Appeal allowed the appeal, finding that Aspect’s interpretation of the implied term was the “true intent of the provision and inherent in the words used”, and, the commencement of its cause of action was the date of overpayment, since the losing party is entitled to have the overpayment returned. 

The Court of Appeal held that the binding nature of the adjudication was intended to be temporary to allow subsequent proceedings, arbitration or agreement to achieve finality. Where money had been paid due to the binding nature of the adjudication, then there had to be some mechanism in place to allow recovery where such money had been wrongly paid beyond the limitation period. Higgins submitted that interpreting the contract to permit repayment was unnecessary, as the losing party could always take proceedings for negative declaratory relief.   However, the Court disagreed and viewed such relief as an “ungainly remedy”, stating it would be “counter-intuitive to expect a person who says he is not liable to have to take the initiative and himself start legal proceedings”. 

Comment

A partially successful party (in adjudication) must now bring proceedings within 6 years of the date of the breach to attempt full recovery. A wholly or partially unsuccessful losing party wanting to recover money paid, now has 6 years from the date of the payment under the adjudication to attempt final determination. 

The previous position allowed the referring party to be underhand.  They could commence adjudication immediately before limitation expired, issuing (but not serving) a Claim Form. If the responding party lost the adjudication, they had no means to challenge through litigation and undo the adjudicator’s decision; they would be time-barred.  Now, an unsuccessful responding party can attempt to recoup its money paid up to 6 years after the payment date and the successful referring party will be time-barred to counterclaim (if over 6 years from the breach).  Is this new position any fairer?  It seems not; the tables have simply been turned in terms of who the beneficiary is, rather than reaching an all-round fairer position.

There are likely be concerns that as a result of the Court of Appeal’s judgment, parties may be ordered to reimburse sums paid to them in adjudication 6 years after payment.  But, protection from this position, is possible.  Those who expressly incorporate adjudication into their contracts can avoid such a situation, by stating that adjudication will be binding and final, unless a claim is brought within for example, 28 days after the adjudicator’s decision.  However it remains to be seen whether, in reality, parties will agree to such amendments, given that it removes their future opportunity to potentially recoup money which they believe they were never liable to pay.

By John Wevill

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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