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Supreme Court: losing party to adjudication has six years to challenge that decision in the courts


A party seeking repayment of sums paid following an adjudication award against it has six years from the date of payment to do so, the UK's highest court has confirmed.

The Supreme Court upheld a decision by the Court of Appeal last year in favour of Aspect Contracts (Asbestos) Ltd, the losing party to adjudication under the Scheme for Construction Contracts. It also rejected a cross-appeal from Higgins Construction, the successful party to the adjudication, which had claimed that it should be given a full six years from the date of adjudication to recover the balance of its claim.

"There were some concerns in the industry when the Court of Appeal overturned the judge at first instance, because the decision means that it may take far longer to close out contracts," said construction disputes expert Alastair Walls of Pinsent Masons, the law firm behind Out-Law.com. "Given that adjudication is intended to be a speedy form of dispute resolution, it is ironic that the shelf life of construction disputes may now extend well beyond the limitation period for claims under the contract."

"That said, what the industry needs more than anything is certainty and the Supreme Court has now decided the point. We will probably see a period where parties work out just what the implications of the decision are. The decision may also lead more and more parties to amend the dispute resolution provisions in their contracts to provide that an adjudication decision will be rendered final and binding unless challenged within a relatively short specified period of time," he said.

The case was the first to be heard by the Supreme Court since changes to the Construction Act, which took effect from 1 October 2011 in England and Wales, inserted the adjudication provisions within the Scheme for Construction Contracts into any such contracts that did not make adequate provision for adjudication as implied terms. Adjudication is a speedy and less formal means of dispute resolution than litigation or arbitration. Adjudication decisions are only binding on parties until there is "final determination" of the dispute in court or arbitration.

Higgins Construction commissioned Aspect to carry out an asbestos survey of the Ivybridge Estate in Hounslow. The adjudication provisions in the Scheme applied to this contact. In 2009, a dispute between the two parties over whether Aspect had failed to spot additional asbestos and so caused critical delay to a building project was referred to adjudication by Higgins, and the adjudicator found in its favour.

Aspect paid the award, but in 2012 began its own proceedings to overturn the adjudicator's decision. This was more than six years after its alleged breach of contract, but less than six years after the adjudication and Aspect's payment. The Court of Appeal, overturning a High Court ruling by Mr Justice Akenhead, implied an additional term into the contract giving the unsuccessful party to adjudication the right to seek a final determination by legal proceedings and, if successful, recover any over payment made. A new six-year limitation period applied to this right, it said.

Issuing the judgment of a unanimous Supreme Court, Lord Mance said that adjudication was intended to be a speedy method of dispute resolution intended to be binding "until the dispute is finally determined" by litigation or arbitration. He said that this rule, which is set out in the Scheme, would be more realistic if it stated that adjudication was binding "unless and until" one of the parties decided to pursue legal proceedings, as they were not required to do so.

"In this respect, an adjudication cannot be equated with an interim payment ordered by the court in the course of court proceedings," Lord Mance said.

"Just as Higgins has a right to enforce payment pursuant to an adjudicator's decision, so Aspect must on some basis be able to recover such a payment, if it is established, by legal proceedings, arbitration or agreement, that such sum was not due in respect of the original dispute. Without the ability to recover such a payment, the scheme makes no sense," he said.

The judge said that it was "artificial" to treat Aspect's claim as stemming from the original breach of contract in 2004 and not from the 2009 adjudication. Responding to criticism from Higgins that this gave the company a "one-way throw" and undermined the "finality" of the adjudicator's decision, he said that this was only the case as a result of Higgins' own decision "not to commence legal proceedings within six years from April 2004 or early 2005 and so itself to take the risk of not confirming (and to forego the possibility of improving upon) the adjudication award it had received".

"Adjudication was conceived, as I have stated, as a provisional mechanism, pending a final determination of the dispute," he said. "Understandable though it is that Higgins should wish matters to lie as they are following the adjudication decision, Higgins could not ensure that matters would so lie, or therefore that there would be finality, without either pursuing legal or arbitral proceedings to a conclusion or obtaining Aspect's agreement."

The Supreme Court also took the opportunity to reject some comments made by a differently constituted panel of Court of Appeal judges a few weeks after the Aspect decision. The panel in this case had been wrong to indicate that it would have followed the High Court decision in the Aspect case had it been asked to rule on the point, Lord Mance said.

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