The Aspect v Higgins trap: how should you amend your contracts?

Briefly referred to in the Aspect v Higgins judgment, and discussed in some detail during the hearing, was the fairness of the court’s eventual judgment for a party, like Higgins, who is partly successful in an adjudication. This is one of the issues which lawyers are grappling with post-judgment because the limitation period on Higgins’ claim for the sums it did not receive was shorter than Aspect’s limitation period to recover the sums paid out in the adjudication. So post-Aspect, there is a risk period when the successful party can only be worse off, and the risk period can last a considerable time.

The court considered the potential unfairness and decided that this “consequence follows … from Higgins’s own decision not to commence legal proceedings within six years … and so itself to take the risk of not confirming (and to forego the possibility of improving upon) the adjudication award it had received”.

Towards the end of the hearing, the court asked about the approach taken by standard form contracts across the UK. Not only were they interested in the immediate impact of the decision they were making, they were looking at how parties would draft their contracts to manage the “red” risk period, or the “one way bet” as their Lordships described it.

NEC’s UK adjudication wording is helpful, as if a party wants to contest an adjudicator’s decision in court, that party must give notice to the other party within four weeks of the adjudicator’s decision. This doesn’t prevent a red risk period from arising, but it does mean that if the paying party notifies that it is dissatisfied with the decision, the successful party can choose to start a claim in the courts before its own limitation period runs out. FIDIC takes a similar approach.

JCT relies on the Scheme for Construction Contracts at present, and is therefore silent on this point. You may therefore wish to amend the JCT suite to deal with this risk.

It is hard to see how a clause could be worded to limit the time period for contesting an adjudication decision to the same period as for an underlying claim. Most versions of this I have seen use a limitation date of six years from practical completion, which matches the limitation period for breaches of contract. To my mind, this does not resolve the issue.

The reason for this is that the six years from practical completion for a breach of contract claim is a longstop. The actual limitation period will be six years from the breach (unless the longstop kicks in first). The Supreme Court wasn’t prepared to say that the paying party’s limitation period could run from the date it was alleged to have committed a breach. After all, how is a defendant supposed to know when it was that it didn’t commit a breach of contract? So, for the repayment claim, the limitation date will be six years from practical completion.

So I’ll be sticking to an NEC approach for now, and at least my clients should be pre-warned that they might fall into the red risk period trap, and can take proactive steps to deal with it.

Alex was part of the successful team representing Aspect at the Supreme Court with partner Nicolas Oldham and associate Jacqui King from our Construction and Engineering Risks team.