Charles Edwards, Barrister and TECBAR Adjudicator reviews a decision of the Supreme Court which raises important issues about the effect of Adjudicators’ decisions pursuant to the provisions implied into construction contracts under section 108(5) of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998 No 649) (“Scheme for Construction Contracts”). The judgment of the Supreme Court in 2015 (Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc  UKSC 38) upholds the judgment of the Court of Appeal in 2013 (Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc  EWCA Civ 1541) which reversed the judgment of the High Court in 2013 (Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc  EWHC 1322 (TCC)).
The Respondent, Aspect Contracts (Asbestos) Ltd (“Aspect”) and the Appellant, Higgins Construction Plc (“Higgins”) entered into an agreement for Aspect to conduct an asbestos survey of Ivybridge Estate in Hounslow. Following the conduct of the surveys, Higgins then entered into an agreement with the Notting Hill Housing Trust for the demolition and redevelopment of the Ivybridge Estate and also entered into a sub-contract with Falcon Refurbishment and Demolition Ltd for asbestos removal and demolition works. Higgins submitted that there was more asbestos containing material than Aspect had discovered and as a consequence, Falcon its subcontractor had to be paid more than original agreed. This led to a dispute between the parties. According to Higgins this caused 17 weeks of critical delay by 27 September 2005. The parties attempted negotiation and mediation which failed; following which Higgins served a notice referring the dispute between the parties to Adjudication claiming £822,482.00 damages plus interest. On 28 July 2009, the Adjudicator decided that Aspect had been in breach of duty and ordered Aspect to pay Higgins the sum of £490,627.00 plus interest in the sum of £166,421.05. On 6 August 2009, Aspect paid Higgins £658,017.00 which included further interest which had accrued since the date of the Adjudicator’s decision. Higgins did not commence any proceedings thereafter whether to recover the balance of its claim (in the sum of £331,855 plus interest) or otherwise. The limitation period expired on or about 27 April 2010 for Higgins to commence any action based on a breach of contract and at the latest by early 2011 for Higgins to commence any action based on tort (Limitation Act 1980, sections 2 and 5).
However, on 3 February 2012, following the expiry of the limitation periods stated above with regard to Higgins commencing any action founded on breach of contract or tort, Aspect began proceedings to recover the sum paid to Higgins which was more than 6 years beyond the alleged breach of contract or duty in 2004 but less than 6 years after it had made payment to Higgins. Aspect’s claim was based on an implied term, alternatively in restitution. The implied term which Aspect’s claim was based on was follows:
“in the event that a dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme, that party remained entitled to have the 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.”
The Supreme Court set out by way of background that the Court (TCC) at first instance ordered the trial of preliminary issues as to:
“…(a) the existence of the implied term, (b) the limitation period applicable to any such implied term, (c) the limitation period applicable to the counterclaim, and (d) the existence or otherwise of a claim for restitution. By a clear and comprehensive judgment dated 23 May 2013, he held that there was no such implied term as alleged, that Aspect could have claimed a declaration of non-liability at any time within six years after performance of the contract, upon the grant of which declaration the court would then have had ancillary and consequential power to order repayment, but that any such claim was now time-barred. He also held that there was, in these circumstances and in the absence of any recognised basis like mistake or duress and of any right to have the adjudicator’s decision set aside, no claim in restitution…”.
The Court of Appeal succinctly summarised the question to be addressed as follows:
“…the question that has arisen in this case is whether a claim by the losing party to the adjudication for repayment of sums paid over to the successful party is subject to a time bar accruing at the time of the (supposed) original breach of contract or duty or only from the date of the (supposedly) unnecessary payment made as a result of the adjudication. It may be noted at once that this is a somewhat one-sided question. If the successful party in the adjudication wishes to sue for the amount adjudicated in his favour he sues on the adjudication and his cause of action accrues at that time; if he wishes to sue for more than the amount adjudicated, he will be subject to the ordinary rules relating to the accrual of his original cause of action (namely 6 years from the breach of contract or duty, as the case maybe). The unsuccessful party is in a different position. He has no readily discernible cause of action at the time of his supposed breach of contract or duty, unless it be for a declaration that he is not liable. But his main wish is to sue for the return of money which he contends was never due in the first place. To the extent that he has a cause of action for the return of the money, a natural reaction might be that the cause of action accrued at the time he made the (assumedly unnecessary) payment…”.
The Court of Appeal overturned the High Court’s judgment and reached an opposite conclusion, holding that the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998 No 649) implied that any overpayment could be recovered. The Court of Appeal stated that Higgins’s contrary case faced a number of difficult questions, such as, first, the fairness of a conclusion that required any claim for repayment to be made within six years of the original contractual performance, second, the juridical basis for a conclusion that a declaration of non-liability would carry with it a right to order repayment and, third, the correctness of the judge’s conclusion that a declaration of non-liability was liable to be time-barred.
Permission by the Supreme Court to appeal the judgment of the Court of Appeal informed the parties that:
“…without prejudging whether it would be open to [Aspect] to raise any positive point on restitution, the Supreme Court may wish as part of the context to have explained the legal position regarding restitution…”
The Supreme Court reviewed the relevant legislation applicable in the appeal which included:
“108.- Right to refer disputes to adjudication.
(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.
For this purpose ‘dispute’ includes any difference.
(2) The contract shall –
(a) enable a party to give notice at any time of his intention to refer a dispute to adjudication;
(b) provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice;
(c) require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred;
(d) allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred;
(e) impose a duty on the adjudicator to act impartially; and
(f) enable the adjudicator to take the initiative in ascertaining the facts and the law.
(3) The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.
The parties may agree to accept the decision of the adjudicator as finally determining the dispute.
(5) If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply”
- Section 108 of the Housing Grants, Construction and Regeneration Act 1996 (in its original form, as in force before its presently immaterial amendment by the Local Democracy, Economic Development and Construction Act 2009) provides:
“(1) The Minister shall by regulations make a scheme (‘the Scheme for Construction Contracts’) containing provision about the matters referred to in the preceding provisions of this Part.
(4) Where any provisions of the Scheme for Construction Contracts apply by virtue of this Part in default of contractual provision agreed by the parties, they have effect as implied terms of the contract concerned.”
- Section 114 provides that:
“1(1) Any party to a construction contract (the ‘referring party’) may give written notice (the ‘notice of adjudication’) at any time of his intention to refer any dispute arising under the contract, to adjudication. …
(3) The notice of adjudication shall set out briefly –
(a) the nature and a brief description of the dispute and of the parties involved,
(b) details of where and when the dispute has arisen, …
19(1) The adjudicator shall reach his decision not later than –
(a) twenty eight days after receipt of the referral notice mentioned in paragraph 7(1), or
(b) forty two days after receipt of the referral notice if the referring party so consents, or
(c) such period exceeding twenty eight days after receipt of the referral notice as the parties to the dispute may, after the giving of that notice, agree.
23(2) The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties…”
- The Scheme contained in the Schedule to the Regulations is in parallel terms to those indicated in section 108(1) to (4), with slight differences which no-one suggests are significant. It provides:
The Supreme Court in reviewing the relevant legislation stated amongst other things that:
By providing that the decision of an adjudicator is binding and that the parties shall “comply with it”, paragraph 23(2) of the Scheme makes the decision enforceable for the time being. It is enforceable by action founded on the contractual obligation to comply with the decision combined, in a normal case, with an application for summary judgment. The limitation period for enforcement will be six years from the adjudicator’s decision. But the decision is only binding and the obligation to comply with it only lasts “until the dispute is finally determined” in one of the ways identified. By use of the word “until”, paragraph 23(2) appears to contemplate that there will necessarily be such a determination. The short time limits provided by paragraph 19(1) also indicate that adjudication was envisaged as a speedy provisional measure, pending such a determination. But there is nothing to prevent adjudication being requested long after a dispute has arisen and without the commencement of any proceedings. Further, it seems improbable that the Scheme imposes on either party any sort of obligation to start court or arbitration proceedings in order to confirm its entitlement. Either or both of the parties might understandably be content to let matters rest.
…Section 108(3) of the Act and paragraph 23(2) of the Scheme might in the above circumstances have been more realistic if they had expressed the binding nature of an adjudicator’s decision as extending “unless and until”. As already explained, it seems clear that neither party is obliged ever to commence legal proceedings, and that if neither does the adjudicator’s decision continues to bind. In this respect, an adjudication cannot be equated with an interim payment ordered by the court in the course of court proceedings. The recipient of such an interim payment cannot discontinue the proceedings without the payer’s consent or the court’s permission, and is therefore at risk of being ordered to make repayment as a condition of discontinuance: see CPR 25.8(2)(a) and 38.2(2)(b)…”.
The Supreme Court stated that the key question in this matter was how far a paying party (in this case Aspect), was able to disturb the provisional position established by an Adjudicator’s decision, by itself commencing proceedings after the time had elapsed when Higgins could bring any claim founded on the original breach of contract or tort. The Court’s view was that, that depended upon the basis of any claim by Aspect to recover the sum it has provisionally paid under the Adjudicator’s decision. The Court was of the view that just as Higgins had a right to enforce payment pursuant to an Adjudicator’s decision, so Aspect must on some basis be able to recover such a payment, if it is established, by legal proceedings, arbitration or agreement, that such sum was not due in respect of the original dispute.
The Supreme Court further stated that without the ability to recover such a payment, the Scheme for Construction Contracts made no sense. Adjudication is conceived as a provisional measure and as such at a cash flow level, Higgins remained entitled to the payment unless and until the outcome of legal proceedings, arbitration or negotiations, led to a contrary conclusion. However, with regard to the substantive dispute between the parties, the parties have rights and liabilities, which may differ from those identified by the Adjudicator’s decision, and on which the party making a payment under an Adjudicator’s decision must be entitled to rely in legal proceedings, arbitration or negotiations, in order to make good a claim for repayment on some basis.
The Court summarised the parties’ respective positions as follows: with regard to Aspect’s case, this entitlement arises from the payment, to the extent that this is subsequently shown not to have been due, and is based on an implied term or alternatively restitution. Whereas as stated by the Supreme Court, according to Higgins’s, Aspect’s only entitlement was to seek declaratory relief, and, after obtaining a declaration, to rely on a power in the court to grant consequential relief by way of an order for repayment. Higgins submitted that any such claim to declaratory relief became time-barred in contract in April 2010 and in tort at the same date (or at latest by early 2011), so that there was now no way in which Aspect could in the proceedings ask the Court to order repayment. This view corresponds with the High Court’s judgment in this matter.
The Supreme Court took the view that it was a necessary legal consequence of the Scheme for Construction Contracts implied by the Housing Grants, Construction and Regeneration Act 1996 into the parties’ contractual relationship that Aspect must have a directly enforceable right to recover any overpayment to which the Adjudicator’s decision could be shown to have led to, once there had been a final determination of the dispute. The Supreme Court agreed with the Court of Appeal that the obvious basis for recognition of this right was by way of implication arising from the Scheme for Construction Contracts provisions which were themselves implied into the construction contract. The Supreme Court further stated that on whatever basis the right arises, the same restitutionary considerations underlie it and if and to the extent that the basis on which the payment was made falls away as a result of the Court’s determination, an overpayment is, retrospectively, established. Then either by contractual implication or, if not, then by virtue of an independent restitutionary obligation, repayment must to that extent be required. Also the Court made it clear that it seems inconceivable that any such repayment should be made in a case such as the present, years later without the payee also having a potential liability to pay interest at an appropriate rate, to be fixed by the Court, if not agreed between the parties. What the Scheme for Construction Contracts contemplates according to the Court is the final determination of the dispute referred to the Adjudicator, because it is that which determines whether or not the Adjudicator was justified in his or her assessment of what was due under the construction contract.
The Court was of the view that the Scheme for Construction Contracts could not plausibly mean that, by waiting until after the expiry of the limitation period for pursuit of the original contractual or tortious claim by Higgins, Aspect could automatically acquire a right to recover any sum it had paid under the Adjudicator’s award, without the Court or arbitration tribunal having to consider the substantive merits of the original dispute, to which the Adjudicator’s decision was directed, at all.
The Supreme Court also stated that in finally determining the dispute between Aspect and Higgins, for the purpose of deciding whether Higgins should repay all or any part of the £658,017 received, the Court must be able to look at the whole dispute between the parties. Higgins would not be confined to the points which the Adjudicator in his or her reasons decided in its favour. It would be able to rely on all aspects of its claim for £822,482.00 plus interest. The key point here is that a payment was ordered and made, the justification for which could and must be determined finally by the Court. Similarly, if Aspect’s answer to Higgins’s claim to the £490,627.00 plus interest ordered to be paid had not been a pure denial of any entitlement, but a true defence based on set-off which the Adjudicator had rejected, Aspect could ask the Court to re-consider and determine the justification for that defence on its merits.
In conclusion, in the circumstances the Supreme Court upheld the Court of Appeal’s judgment which overturned the High Court’s judgment and stated amongst other things that:
- The adjudication provisions implied by the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998 No 649) into the construction contract entitled the unsuccessful party in adjudication to seek a final determination by litigation and, if successful, recover any payment made.
- Paragraph 23(3) of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998 No 649) made the adjudicator’s decision binding until the dispute was finally determined by litigation or arbitration or by agreement.
- The claim for a declaration for breach of contract or a tort was not a claim governed by Sections 2 and 5 of the Limitation Act 1980.
- The legal consequence of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998 No 649) was that Aspect had a directly enforceable right to recover any overpayment identified following final determination of the dispute by litigation.
- Since Aspect’s causes of action arose in contract and restitution with regard to payment, Aspect could bring proceedings within 6 years of the date of the payment and therefore the limitation period was 6 years from the date of payment.
- Higgins’s counter-claim, however, was time barred and any unfairness in that was due to Higgins’s decision not commence legal proceedings within the relevant limitation period.
- The Court in finally determining the dispute could look at the whole dispute between the parties and would not be confined in the circumstances to the points the Adjudicator decided in favour of Higgins.
- Similarly, if Higgins’s answer was a true defence based on a set-off which the Adjudicator had rejected, it could ask the Court to reconsider the justification for that defence on its merits.
- The Court of Appeal was correct in its disposal of the appeal.
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The above is for general information only and to encourage discussion and does not constitute legal advice. The author does not assume any responsibility for the accuracy of any statements made and appropriate legal advice should be taken in each instance and relied upon before taking or omitting to take any action in respect of any specific matter.
Charles Edwin Edwards MSt(Cantab) MSc(Lond) FCInstCES Barrister
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