Court of Appeal changes course on adjudication limitation periods

Out-Law News | 13 Feb 2014 | 3:17 pm | 3 min. read

Judges in the Court of Appeal have found that an unsuccessful party to an adjudication does not have the benefit of a new six-year limitation period in which to challenge that decision – weeks after a different panel of judges in the same court ruled the opposite.

Construction disputes expert Michael Hopkins of Pinsent Masons, the law firm behind Out-Law.com, said that although comments made by the judges did not strictly overturn the findings of the Court of Appeal in the recent Aspect v Higgins case, it would seem "unwise" for contracting parties to rely on the previous decision until the Supreme Court had the chance to rule on the issue. The losing party in that case has applied to the Supreme Court for permission to appeal the ruling; however, there is no guarantee that permission will be granted.

"If ever there was a situation where the Supreme Court needs to hear an appeal on an issue then this, clearly, is it," Hopkins said. "Interested parties should therefore watch this space. In the interim, and although it would seem that Aspect v Higgins remains 'good law' for the time being, it would seem unwise to rely upon it as an unsuccessful party for limitation purposes on the basis that the unsuccessful party has six years from payment to litigate."

"Further, there is of course at same time no guarantee that the Supreme Court will look at the issue and resolve it once and for all, nor is there any answer as to how the Supreme Court might decide the matter. Accordingly, those that do wish to achieve certainty of formal dispute resolution within a certain timeframe would be well advised to stipulate in their construction contracts that the decision of the adjudicator shall become final and binding unless challenged within a specified time period," he said.

Ruling on the most recent dispute, between Walker Construction and Quayside Homes, the Court of Appeal had to address the same limitation issues that were addressed by a different panel of judges in the Aspect v Higgins appeal judgment. Walker, a civil engineering firm, had successfully tendered in 2004 to construct drainage and highway works at a residential development owned by Quayside. After the work was completed, a dispute arose in respect of the final payment sought by Walker as Quayside alleged that parts of it were defective and it had incurred rectification costs. An adjudicator rejected Quayside's claim in 2008.

Changes to the Construction Act, which took effect from 1 October 2011 in England and Wales, required parties to a construction contract to make adequate provision for adjudication, which is a speedy and less formal means of dispute resolution. If parties do not do so, then the adjudication provisions within the Scheme for Construction Contracts, which supplements the Act, will be inserted as implied terms, as happened here.

In an earlier High Court case, the judge inserted an additional implied term into the Scheme giving the losing party the right to have any money awarded by an adjudicator repaid if subsequent court proceedings found that the money had been incorrectly awarded. The challenging of this incorrect award would essentially give rise to a new 'cause of action', from which the usual six year limitation period would run, rather than having the limitation period run from the date of the initial dispute. However, in his original High Court decision in the Aspect case, Mr Justice Akenhead rejected this argument. He said that there was no implied term giving rise to a "new right to the losing party ... to sue as from the date of payment for the recovery of the sums paid".

Although ultimately finding the question of limitation irrelevant to the Walker case, Lady Justice Gloster said that she preferred Mr Justice Akenhead's approach to the question.

"I agree that, for limitation purposes, no new cause of action arises either as a result of an implied contractual term, or on the basis of a restitutionary claim, and that, when an unsuccessful party to the adjudication subsequently brings court proceedings, it is doing so on the basis of its original rights under the construction contract to claim payment under the contract, damages for breach of contract or a negative declaration that it is not in breach," she said.

Construction disputes expert Michael Hopkins said that as the case was ultimately decided on another point, Aspect v Higgins remained "good law".

"Strictly, the decision of the Court of Appeal in Walker was 'obiter' – the case did not turn on the issue since no issue of limitation was found to exist in any event," he said. "Further, the latest decision was made without the Court of Appeal having the benefit of the Court of Appeal's decision in Aspect, as for whatever reason it did not appear to have been informed of the decision in the period between when it was handed down on 29 November 2013 and its latest judgment."

Commenting on the Aspect decision in December, Hopkins said that it avoided the "potential injustice" of a contractor having to pay out on a wrongly-decided adjudication commenced before the six-year limitation period expires under the construction contract, but decided by the adjudicator after that period expired. However, it also gave the losing party up to six years to challenge the adjudicator's decision, knowing that any cross-claim by the other party would be time-barred.