Limitation period applies to claims made in adjudication

Adjudication is a form of dispute resolution that is often provided for, or otherwise implied, in many construction contracts. In its judgment, the High Court ruled that the right to adjudicate is subject to statutory limitation – time limits within which a party must bring a claim or give notice of a claim to the party it is raising a claim against.

The High Court considered that adjudication constitutes an ‘action’ under contract subject to the Limitation Act 1980, the legislation which governs whether claims are made in time or not. It confirmed that if adjudicators do not address limitation as a substantive defence in any relevant claim referred to them then a court may consider the defence during any subsequent proceedings relating to the enforcement of their decision.

The limitation defence was raised by Cooper Construction Limited (Cooper) in adjudication enforcement proceedings before the High Court brought by LJR Interiors Limited (LJR).

According to the High Court, on or around 26 August 2014, Cooper entered into a contract with LJR for LJR to carry out works on a development property in Oxfordshire in England. The contract comprised a letter and quotation from LRJ, and a purchase order issued by Cooper. There were no dispute resolution provisions in the contract, however adjudication was implied into the contract by the adjudicator on the basis of his reading of adjudication provisions contained in UK construction law.

The works were completed on 19 October 2014. Almost eight years later, on 31 July 2022, LRJ submitted a payment application to Cooper. Cooper did not pay the sum claimed nor submit a pay less notice. LRJ subsequently commenced adjudication proceedings. In adjudication, Cooper argued that the payment claim was time-barred, but the adjudicator disagreed on the basis that there was nothing in the governing regulations that placed a time limit on when payment claims could be submitted and that the Limitation Act had no bearing on the validity of the payment claim.

However, the High Court refused to enforce the adjudicator’s decision and held that LRJ’s claim for payment was time-barred under Section 5 of the Limitation Act 1980.

In its ruling, the court considered that the claim made on 31 July 2022 largely duplicated one already made eight years earlier, and it held that a party cannot restart the limitation period applying to a claim for payment just by including the same claim in a ‘new’ application.

His Honour Judge Russen KC said that, under Section 5 of the 1980 Act, a paying party may have a limitation defence to a claim set out in a payment application if the application was issued late. It said the question of when a payment application should have been issued – which will be the date on which the limitation period commences – will depend on the terms of the contract.

Katrina Preston McDermott of Pinsent Masons said: “The impact of this ruling is that adjudicators must address limitation as a substantive defence in any relevant claim referred to them. Alternatively, a limitation defence may come within the scope of matters which the court could determine in the course of enforcement proceedings.”

“The court also confirmed that a party cannot restart the limitation period applying to a claim for payment just by including the same claim in a ‘new’ application, and that a party may have a limitation defence to a claim set out in a payment application if the application was issued late – the key will be what the contract terms are,” she said.

“Parties should be very aware of what their payments terms are and what documents – which may include payment terms – may have been incorporated into the contract,” she said.