Construction – Adjudication – Final determination – Limitation of action – Appellant making payment to defendant pursuant to adjudication award made under construction contract – Appellant later seeking final and binding resolution of dispute by the court and declaration of non-liability – Respondent counterclaiming for difference between sum originally claimed and lesser amount awarded by adjudicator – Whether appellant entitled to recover any overpayment under terms of contract – Whether relevant claim time-barred as accruing more than six years previously at date of alleged breach – Claim and counterclaim held to be time-barred – Appeal allowed – Cross-appeal dismissed
In March 2004, the appellant carried out an asbestos survey at a housing estate pursuant to a contract with the respondent, which had been engaged by a local authority as the contractor for the demolition and redevelopment of the estate. In February 2005, the respondent alleged that additional material containing asbestos had been found, resulting in delay and increased costs. In June 2009, the respondent referred that dispute to adjudication under the Scheme for Construction Contracts made pursuant to the Housing Grants, Construction and Regeneration Act 1996. By an award made in July 2009, the adjudicator found that the appellant was in breach of contract and awarded £658,017 in favour of the respondent, which the appellant duly paid.
In February 2012, the appellant brought proceedings for a final and binding resolution of the dispute and a declaration that it was not liable to pay damages to the defendant in the amount decided by the adjudicator or at all. Those proceedings were commenced more than six years after the claimant’s supposed breach but less than six years after it made its payment. The defendant counterclaimed for the difference between the sum that it had claimed as damages in the adjudication and the lower sum awarded by the adjudicator.
The claimant contended that the contract between the parties contained an implied term that an unsuccessful party to adjudication would be entitled to seek a final determination by litigation and, if successful, recover any payment made. In the court below, the judge held that no such term was to be implied. Although he held that an unsuccessful party in the adjudication could sue for a declaration that it was not liable, he took the view that such a claim raised a cause of action which was time-barred on the facts of the case because the claim form had been issued more than six years after the alleged breach of contract or duty. He held that the defendant’s counterclaim was time-barred for the same reason: see [2013] EWHC 1322 (TCC); [2013] PLSCS 119. The appellant appealed and the respondent cross-appealed.
Held: The appeal was allowed; the cross appeal was dismissed.
(1) By the express terms of para 23(2) of the Scheme for Construction Contracts, the binding nature of the adjudication was intended to be temporary and was liable to be displaced by subsequent legal proceedings, arbitration or agreement. However, since the adjudicator’s decision was binding in the meantime, any money that the adjudicator decided was payable had to be paid. If it was later decided, in subsequent proceedings or arbitration or by agreement, that that money should not have been paid, there had to be some mechanism by which it could be recovered. Although para 23(2) did not actually say that any overpayment was recoverable, that was the true intent of the provision and was inherent in the words used. Where the contract incorporating the Scheme expressly provided that the adjudication was only to be binding until the dispute was finally determined, that of itself contemplated that the final determination might be different from the adjudication and the final determination was to be determinative of the rights of the parties. If the final determination decided that a particular party had paid too much, repayment had to be made. To the extent that there was no reference to such repayment in para 23(2) of the Scheme, it was implicit and represented the proper meaning of the instrument: Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 (TCC); [2009] 3 EGLR 7; [2009] 41 EG 116 considered.
(2) That construction of the contract was not rendered unnecessary by the fact that a losing party to an adjudication could bring proceedings for a negative declaration that it was not liable and, as part and parcel of that claim, ask the court for an order for repayment. Negative declaratory relief was an ungainly remedy at best and had a number of potential disadvantages. First, it was counter-intuitive to expect a party that said it was not liable to have to take the initiative and itself start legal proceedings. If a party began an adjudication shortly before any relevant six-year period of limitation expired, and also issued, but did not serve, precautionary proceedings for the full amount of its claim in case it did not get all that it wanted from the adjudicator, it was asking a lot to expect the other party to appreciate that it should immediately have to issue its own proceedings, claiming that it was not liable, in order to preserve its own position. Second, it was unclear on what juridical basis a declaration of non-liability could be said automatically to carry with it a right to claim repayment of what had been overpaid. Third, there was a difficult question as to whether a declaration of non-liability was liable to be time-barred at all. The conclusion of the judge below, holding that it was time-barred because the claimant had a cause of action of “non-liability”, which accrued when it supplied its report to the defendant, was at best controversial since a cause of action was usually an assertion of entitlement: Letang v Cooper [1965] 1 QB 232 applied. None of those difficulties arose if the contract was construed in accordance with what it appeared to say, namely that any overpayment could be recovered. That cause of action accrued, and the limitation period began to run, on the date of the overpayment, since the losing party was, on that hypothesis, “entitled” to have the overpayment returned.
(3) The respondent’s cross-appeal failed on the conventional ground that more than six years had elapsed since the breaches of contract and duty relied on. So far as there was any unevenness in the position of the parties, arising from the fact that the unsuccessful party in the adjudication had six years from the overpayment while the successful party had to sue within six years of the breach of contract or duty, that difficulty was more apparent than real since the successful party would always know that it had a claim and could easily issue proceedings any time that it chose.
Fiona Sinclair QC and Richard Liddell (instructed by Mills & Reeve LLP) appeared for the appellant; Isabel Hitching (instructed by Silver Shemmings LLP) appeared for the respondent.
Sally Dobson, barrister
