Adjudication – Final determination – Limitation – Defendant carrying out work for claimant under sub-subcontract – Claimant deducting sums from defendant’s final account on ground of defective work – Defendant not challenging deduction until after expiry of limitation period for claimant’s claim for breach of contract regarding alleged defective work – Adjudicator ordering claimant to pay outstanding sum – Claimant paying – Whether claimant entitled to bring court proceedings for final determination of dispute and return of sum paid – Whether such claim time-barred – Preliminary issue determined in favour of claimant
The claimant was employed as a subcontractor to construct the entrance road to a new supermarket. It sub-subcontracted the supply, laying and rolling of the road surface to the defendant by a subcontract. That contract incorporated the adjudication provisions of Part I of the Scheme for Construction Contracts by virtue of sections 108(5) and 114(4) of the Housing Grants, Construction and Regeneration Act 1996. In May 2002, the main contractor criticised the base course laid by the defendant; the claimant removed the base course and the defendant subsequently replaced it. In December 2002, the defendant submitted a final application for payment under the sub-subcontract, including a claim for £16,821 in respect of the replacement works. The claimant refused to pay the claim on the ground that those works had been necessary to remedy the defendant’s original defective work. It also deducted further sums in respect of alleged loss and damage arising from the laying of the original base course; the total deducted was £38,647.
The defendant did not challenge the deduction until September 2008, when it referred the dispute to adjudication. By then, any claim that the claimant might have had for breach of contract following from the alleged defects in the defendant’s original work occurring before May 2002 had become time-barred upon the expiry of the six-year limitation period under section 5 of the Limitation Act 1980. The adjudicator upheld the defendant’s claim and ordered the claimant to pay the outstanding sum with interest.
The claimant paid but brought court proceedings seeking a final determination of the dispute. A preliminary issue was tried as to whether the claim was statute-barred as being based on the time-barred cause of action for breach of contract. The claimant contended that it had a separate cause of action, for a final determination and recovery of moneys paid in compliance with the adjudicator’s decision, that had not arisen until the date of payment. In the alternative, it argued that it was entitled to restitutionary relief.
Held: The preliminary issue was determined in favour of the claimant.
(1) By virtue of section 108(3) of the 1996 Act and para 23(2) of the scheme, an adjudicator’s decision was binding on the parties only until the dispute was finally determined by legal proceedings, arbitration or agreement. Neither the 1996 Act nor the scheme conferred an express right on the losing party to an adjudication to bring legal proceedings for a final determination and recovery of sums paid in compliance with an adjudicator’s decision. However, it was necessary to imply such a term to give effect to the parties’ reasonable expectations and to make fully workable the concept of the temporary finality of an adjudicator’s decision that lay at the heart of the adjudication provisions of the 1996 Act. The implied term was to the effect that where one party paid moneys to the other in compliance with the decision of an adjudicator, that party was entitled to have the dispute finally determined by legal proceedings and, to the extent that the dispute was finally determined in its favour, to have those moneys repaid.
(2) The cause of action under the implied term could arise only when the losing party paid moneys to the winning party in compliance with the adjudicator’s decision. This was a claim in simple contract, to which section 5 of the 1980 Act applied, such that the losing party had six years from the date of payment in which to bring legal proceedings to recover the moneys. The claimant’s claim was not statute-barred.
Per curiam: If no cause of action under an implied term had been found, the claimant would none the less have had a claim in restitution on the ground that it had been required to pay moneys under compulsion as a result of a decision of a decision-maker with jurisdiction to rule on the dispute, which decision had subsequently been set aside. If any limitation period applied to that claim, it would run from the date of the payment.
Alice Sims (instructed by Halliwells LLP, of Liverpool) appeared for the claimant; Charles McDermott, solicitor, at Bermans LLP, of Liverpool, appeared for the defendant.
Sally Dobson, barrister
