Sums paid under an adjudicator’s decision can be recovered for six years after payment

The Court of Appeal held that there is an implied term allowing a paying responding party under an adjudication award six years from the date of payment to challenge the adjudicator’s decision. The successful referring party in the adjudication does not benefit from the extended time period, and must bring any subsequent court proceedings within the original limitation period. The Court upheld the judgment in Jim Ennis v Premier Asphalt (2009) EWHC 1906.

The Adjudication
Aspect is an asbestos consultant and removal contractor, retained by Higgins to inspect and report on the presence of asbestos containing material (ACM) in certain buildings on a development for the Notting Hill Housing Trust. Aspect inspected and a report was provided in April 2004. In March 2005, Higgins found ACM in the rubble of a demolished building that it alleged should have been, but was not, identified in Aspect’s report. Aspect denied liability.

Higgins referred the dispute to adjudication in 2009 under the adjudication rules set out in the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme). In July 2009 the adjudicator, Rosemary Jackson QC, awarded to Higgins around 75 per cent of sums claimed. Aspect promptly paid the award.

Aspect brought proceedings in the Technology and Construction Court (TCC) for the repayment of the 75 per cent awarded in the adjudication. Higgins filed a counterclaim for the 25 per cent that it was not awarded.

The Proceedings and Jim Ennis
Proceedings were issued in February 2012, which was more than six years after the alleged breaches of contract and tort, but well within six years after making payment in the adjudication. Aspect relied on the decision, in the case of Jim Ennis v Premier Asphalt (2009) EWHC 1906, to argue that Aspect’s claim was in time, but Higgins’ counterclaim was time barred.

The wording of paragraph 23(2) of the Scheme, provides that:

“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 […] or by agreement between the parties.”

The judge in Jim Ennis, Davies J, decided that because of the above wording, there must be an implied term in the contract that adjudications would be subject to final determination by the courts (“a Jim Ennis implied term”). He concluded that payment of an adjudication award must create a new cause of action in contract, to exercise that right to seek final determination and the return of monies paid. The judge concluded that there was no need for an implied term for the successful party, because they were in control of when they brought their initial claim.

Did a Jim Ennis implied term form part of the parties’ contract? What was the limitation period for a claim seeking to enforce it? What was the limitation period applying to Higgins’ counterclaim for the balance of sums not awarded in the adjudication? These were all questions heard as preliminary issues before Akenhead J in the TCC.

Akenhead J found that there was no implied term. It was not necessary as the unsuccessful party in an adjudication could always sue for a declaration of non liability. In Aspect’s case, that assertion was made too late; ie, more than six years after the alleged breaches.

The Appeal
Aspect appealed the decision of Akenhead J and argued that the Jim Ennis implied term was necessary to give effect to the parties’ rights to obtain final determination of the dispute in the courts.

Higgins argued that the implied term would improve the rights of the losing party under the contract, and was beyond what was intended by Parliament. If the Court decided that Aspect’s claim was not time barred, Higgins argued this would lead to inequality between the parties and therefore their counterclaim should not be time barred.

In a unanimous decision, the Court of Appeal found that the Jim Ennis implied term was “inherent in the words used and to be the true intent of paragraph 23(2).”

As the sums awarded by an adjudicator must be paid, there must be a mechanism by which the dispute can be finally determined and any overpayment returned. Without the Jim Ennis implied term, this would not be possible if the original limitation period has expired by the time the adjudication decision is reached. The Court approved the Jim Ennis decision that the paying party would have six years from payment of the adjudication award to recover the sums paid. Aspect’s claim was in time.

As to Higgins’ argument that this created unequal rights between the parties, the Court found that the successful referring party to an adjudication is in control of the timing of his claim and can issue proceedings at any time he chooses. The implied term was therefore not necessary for the referring party. Higgins’ counterclaim was time barred.

Comment
The Court of Appeal described negative declaratory relief as advocated by Akenhead J, as “at best, an ungainly remedy”. The Court considered it “counter-intuitive to expect a person who says he is not liable to have to take the initiative and himself start legal proceedings”. The Court’s decision also closed an opportunity opened by Akenhead J for a “wily claimant” to ambush a less wily defendant by both serving a Referral Notice and issuing (but not serving) protective court proceedings at the end of a relevant limitation period. This would have made the binding nature of adjudication temporary for the referring party, but permanently binding on a paying, responding party.

Employers, contractors, consultants and sub-contractors will be concerned that as a result of this case, they may be liable to repay the sums awarded to them in adjudication for six years after payment following the adjudicator’s decision.

The facts of this case were based on adjudication terms implied into contracts by the Scheme. However, parties expressly incorporating adjudication into their contracts can amend the adjudication clause to state that an adjudication decision will be finally binding unless a claim is brought within a finite period, say 28 days, after the adjudicator’s decision.

Aspect Contracts (Asbestos) Limited v Higgins Construction Plc (2013) EWCA Civ 1541