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limitation - does adjudication restart the clock?

16 August 2013

In the recent case of Aspect Contracts (Asbestos) Ltd v Higgins Construction PLC [2013] EWHC 1322 (TCC), Aspect had made a payment in accordance with an adjudicator's award and later sought to challenge that decision. A question arose with regard to limitation periods - was Aspects right of action calculated by reference to the underlying dispute, or was there a separate right arising by reference to the adjudicators award?

The arguments

Aspect sought a declaration that it was not liable to pay damages to Higgins. However, this cause of action was barred by limitation. Accordingly, Aspect claimed that there was an implied term in the construction contract between the parties that an unsuccessful party in adjudication was entitled to have the dispute determined by litigation and to a repayment of monies paid, if those proceedings were successful (in part, this was based on a claim in restitution). Aspect relied on the only prior decision on the issue, Jim Ennis v Premier Asphalt, in which the court had held that there was such an implied term.

Higgins denied the existence of the alleged implied term, arguing that the Construction Act 1996 and the Scheme for Construction Contracts 1998 may entitle a party to go to court to have a dispute finally determined, but they do not alter the length of the limitation periods. It denied the consultant was entitled to a claim in restitution and counterclaimed for the balance of the monies it had claimed in the adjudication.

The decision

The court held that there was no basis on which to imply the term suggested by Aspect, since it was not "reasonable, equitable or necessary to make the contract work (business efficacy) and it does not go without saying." There was no gap in the contract. The court distinguished the Jim Ennis decision since that case had proceeded on the basis of crucial concessions and without oral argument.

In coming to its decision, the court noted that Parliament had not addressed the question of whether a new cause of action arose when a party complied with an adjudicators decision, giving it a right to recover any monies paid over in later court or arbitration proceedings. The court held that the situation was quite different from that where a successful party sought to enforce an adjudicators decision - In that case there was a new cause of action in favour of the successful party to compel the losing party to comply with the decision. It did not follow that a new cause of action arose in favour of the losing party.

The court acknowledged that it would be undesirable for parties to have to pursue claims for negative declarations to avoid the possibility of a limitation defence (as here). It also acknowledged that, when it comes to dealing with limitation issues, adjudicators may get it wrong (in law or fact) and their decisions may close the door to responding parties because, for example, the claim was already out of time, although it did not give any indication as to how a court would deal with that apparent injustice. However, it did note that Aspect could have sought a negative declaration at any stage after purported performance of the contract (Aspect had delayed some two and a half years before doing so).

Comment

Had Aspect been successful in arguing for the implied term, this term would have been implied into all construction contracts (Aspect did not contend that there were any relevant specific facts). Given the significance of the judgment, the court has granted leave to appeal.

In the meantime (and in any event unless the decision is overturned), parties who are nearing the end of limitation periods must remember the obvious - in order to protect your position, you must commence formal proceedings (whether in court or arbitration). Adjudication is designed to allow the speedy recovery of costs, but does not stop the clock ticking for limitation purposes.

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