Aspect v Higgins: A welcome return to orthodoxy

Given Mills & Reeve’s successful involvement in the case, it may come as no surprise that I consider the result reached by the Supreme Court in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc (vindicating the unanimous decision of the Court of Appeal) to be undoubtedly right. The reasoning given is compelling and the decision provides the clarity and certainty needed by businesses who enter into construction contracts.

The issue

The difficult and important issue at the heart of the case was a deceptively simple one: on what (legal) basis can a losing party in a Scheme adjudication recover money paid out to the other side following an adverse decision of an adjudicator for the purposes of a final determination? Depending on the answer to this question, when does the limitation period run for the purposes of the losing party’s remedy: is it from the successful party’s original cause of action or when the adjudicator’s decision is complied with?

Lacuna in the statutory regime

The difficultly is that while the Housing Grants Construction and Regeneration Act 1996 (as amended) (the Act) and the Scheme for Construction Contracts (the Scheme) expressly provides the dispute to be finally determined, it is curiously silent as to the legal route which a losing party takes to obtain that final determination and importantly the recovery of the money paid out that, following a final decision, ought never to have been paid (eg, because the adjudicator failed to accept a valid defence by the losing party or simply made non-impeachable errors of fact and law, beneficial to the receiving party).

As the experienced judge of the Technology and Construction Court observed when giving judgment in the case:

“It is abundantly clear that Parliament and the drafters of the Scheme did not actually apply their minds to whether or not a new cause of action arose for either party following the honouring or observance of a valid adjudicator’s decision in relation to the recovery in any later proceedings of a Court or arbitrator which was to be the tribunal charged with the final resolution of disputes between the parties.”

Instinctively, most people would think that the losing party must be able to sue for the return of money paid to the winner which, on closer or proper analysis by a court/arbitrator, was never due in the first place. If such a right exists, where is it to be found (because the Act and Scheme are silent) and how long does the losing party have, and from when, to seek the final determination of a claim brought by another party, which might have been founded upon a claim many years after the alleged breach of duty in law? In other words, does the decision of the adjudicator ordering the losing party to “pay now, argue later” create a fresh cause of action for the benefit of the paying party ie, a new right and if so, does time start to run for the purposes of limitation from the underlying cause of action (ie, the claim brought for breach of duty by the successful party) or from payment of money in compliance with an adjudicator’s decision?

The unusual facts in Aspect v Higgins

The basic facts in Aspect v Higgins illustrates the issues well. By way of simple agreement Aspect provided Higgins with an asbestos report. This was a construction contract but as the agreement did not provide for adjudication, the Scheme was imported by operation of the Act.

Some five years after the supply of the report, Higgins commenced an adjudication against Aspect alleging various breaches of duty in the provision of the report (it was said Aspect failed to identify all the asbestos containing materials in a building that Higgins was the contractor on) and claimed losses of c. £800,000 (being the extra costs it incurred on the development). This was Higgins’s cause of action against Aspect – a conventional claim for breach of duty in contract and tort, with a limitation period of six years from breach/damage.

Aspect defended itself in the adjudication arguing that it was not liable to Higgins as alleged but it lost, albeit not quite on everything. Of the c. £800,000 claimed by Higgins, the adjudicator found Aspect liable for c. £600,000, and ordered it to pay up. Aspect, in compliance with this, paid Higgins the money.

Evidently content with its lion’s share victory in the adjudication, Higgins did not seek to recover the balance of c. £200,000 that it was unsuccessful on; it was willing to let matters rest. The six year limitation period for Higgins’s original cause of action based upon breach of duty in the provision of the report shortly expired.

About three years after the conclusion of the adjudication, Aspect decided it wanted a court to reopen the dispute because it wanted its c. £600,000 returned. The case is slightly unusual because of the periods of time between the performance by Aspect of its contractual obligations (which created Higgins’s cause of action) and the timing of the adjudicator’s decision (five years after contractual performance) which obliged Aspect to pay-up. Aspect sought a final determination to recover the money paid out about three years later.

Aspect’s cause of action for repayment

In view of the lacuna in the Act and Scheme, Aspect’s solution was to say that there was a term to be implied into the parties’ agreement whereby an unsuccessful party to an adjudication was entitled to be repaid all sums paid by it in accordance with an adjudicator’s decision thereby giving it a fresh cause of action arising at the date of payment if and to the extent that the court decided it was not liable to pay out originally. This solution relied upon the 2009 decision in Jim Ennis Construction v Premier Asphalt. Alternatively, if Aspect was not liable to Higgins as alleged, it was entitled to restitution of the money paid out on conventional principles.

Higgins objected saying Aspect had always had (since the report was provided) a right to obtain declaratory relief from the court (ie, a declaration of non-liability with an order for repayment) but because it had not instigated proceedings within six years from performance of the contract, this relief was now time-barred. An implied term was therefore not necessary and would in any event be contrary to statutory intention.

The courts’ decisions

In an admirably concise speech, Lord Mance JSC (unanimously supported by the other Justices) emphatically rejected Higgins’s arguments and held that a loser in adjudication proceedings has a right, whether by virtue of an implied term or on a restitutionary basis, to seek repayment after final determination, saying:

“it is a necessary legal consequence of the Scheme … that Aspect must have 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 … the obvious basis of recognition of this right is by way of implication arising from the Scheme provisions.”

As for whether Aspect’s cause of action was time-barred as Higgins had claimed, Lord Mance found the limitation period for a claim to enforce the implied term to be six years from the date of payment, so that Aspect’s claim was in time:
“Since Aspect’s cause of action arise from payment and is only for repayment, it is … a cause of action which could be brought at any time within six years after the date of payment to Higgins.”

The decision in the Court of Appeal, where Longmore LJ was equally emphatic, was held to be correct. The decision of Akenhead J (where he decided there was no implied term and Aspect’s remedy of a declaratory relief was time-barred) was wrong. In closing remarks, the SC confirmed that a differently constituted Court of Appeal, which has indicated in obiter statements that it would follow the decision of the first-instance judge, was also wrong and was overruled.