Construction – Adjudication – Payment – Limitation of action – Respondent subcontractor making payment to appellant contractor pursuant to adjudication award – Respondent later seeking final and binding resolution of dispute by the court and declaration of non-liability – Appellant counterclaiming for difference between sum originally claimed and lesser amount awarded by adjudicator – Para 23(2) of Scheme for Construction Contracts – Whether respondent entitled to recover any overpayment under terms of contract – Limitation period applicable to such claim – Appeal dismissed
In March 2004, the respondent carried out an asbestos survey at a housing estate pursuant to a contract with the appellant, which had been engaged as the contractor for the demolition and redevelopment of the estate. In February 2005, the appellant alleged that additional material containing asbestos had been found, resulting in delay and increased costs. In June 2009, it referred that dispute to adjudication under the Scheme for Construction Contracts pursuant to the Housing Grants, Construction and Regeneration Act 1996. The adjudication resulted in an award dated July 2014, pursuant to which the respondent paid £658,017 to the appellant.
In February 2012, the respondent brought proceedings for a final and binding resolution of the dispute and a declaration that it was not liable to pay damages to the appellant in the amount decided by the adjudicator or at all. Those proceedings were commenced more than six years after the respondent’s supposed breach but less than six years after it made its payment. The appellant counterclaimed for £331,855, plus interest, as the difference between the sum that it had claimed as damages in the adjudication and the lower sum awarded by the adjudicator.
Both the claim and the counterclaim were dismissed by the judge at first instance, who held that any claim for repayment was time-barred because the claim form had been issued more than six years after the respondent’s alleged breach. He found that the appellant’s counterclaim was time-barred for the same reason: see [2013] EWHC 1322 (TCC); [2013] PLSCS 119.
The respondent’s appeal against that decision was allowed in the Court of Appeal, which held that: (i) it was implicit in para 23(2) of the Scheme for Construction Contracts that any overpayment made pursuant to an adjudicator’s decision could be recovered; (ii) the cause of action for repayment of that money accrued on the date of the overpayment; and, consequently (iii) the respondent’s claim for repayment was not time-barred. The appellant’s counterclaim was however held to be time-barred because the relevant time limit for that claim ran from the date of the alleged breach: see [2013] EWCA Civ 1541; [2014] 1 EGLR 5; [2014] EGILR 6. The appellant appealed.
Held: The appeal was dismissed.
By providing that the decision of an adjudicator was binding and that the parties should “comply with it”, para 23(2) of the Scheme for Construction Contracts made the adjudicator’s decision enforceable for the time being, with enforcement founded on the contractual obligation to comply with the decision combined, in a normal case, with an application for summary judgment. However, the decision was only binding, and the obligation to comply with it only lasted, “until the dispute was finally determined” in one of the ways identified. Since adjudication was conceived as a provisional measure, the Scheme made no sense unless a paying party could recover sums provisionally paid under an adjudicator’s decision. At a cash flow level, the appellant remained entitled to the payment unless and until the outcome of legal proceedings, arbitration or negotiation led to a different outcome. But, at the deeper level of the substantive dispute between the parties, there might be rights and liabilities which differed from those identified by the adjudication decision and on which the party making a payment under an adjudication decision had to be entitled to rely in the legal proceedings, arbitration or negotiations in order to make good a claim to repayment.
At any time after the original dispute arose in early 2005, the respondent could have asked the court to declare that it had not committed any breach of contract or incurred any tortious liability to the appellant. However, that was not the only route by which the respondent could and should have pursued the claim which it now brought. A core ingredient of the respondent’s claim, and the immediate trigger for it, was the fact that it had been ordered to make, and had made, a large payment in 2009. It would be artificial to treat the claim to recover that sum as based on an alleged cause of action accruing in 2004 or early 2005. Moreover, the court could not, on making a declaration of non-liability, make consequential orders for the payment of any sums which the recipient would not have a right to claim on some independent juridical basis.
Instead, the respondent’s claim to repayment arose by way of implication from the Scheme provisions, which were themselves implied into the construction contract. It was a necessary legal consequence of the Scheme, implied by the 1996 Act into the parties contractual relationship, that, once there had been a final determination of the dispute, the paying party should have a directly enforceable right to recover any overpayment to which the adjudicator’s decision had led. A claim for repayment would involve the court considering the substantive merits of the original dispute to which the adjudicator’s decision was directed. The court’s decision would be a final determination, as contemplated by the Scheme, of the dispute referred to the adjudicator. In making its determination, the court could look at the whole dispute and the payee would not be confined to the points which had led the adjudicator to order payment in its favour.
The right to repayment was underpinned by restitutionary considerations. To the extent that the basis on which the payment fell away as a result of the court’s determination, an overpayment was retrospectively established. Whether by contractual implication or by virtue of an independent restitutionary obligation, repayment to that extent was required. Moreover, the court had to have power, whether by way of further implication or to give effect to an additional restitutionary right existing independently as a matter of law, to order the payee to pay appropriate interest in respect of the overpayment: Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34; [2008] 1 AC 561 applied. That conclusion followed from the fact that, once it was determined that an adjudicator’s decision involved the payment of more than was actually due in accordance with the parties’ substantive rights, the adjudicator’s decision retrospectively ceased to bind.
Since the respondent’s cause of action arose from payment and was only for repayment, it was a cause of action which could be brought at any time within six years after the date of payment to the appellant in August 2009. However, the appellant’s own claim, for the £331,855 balance of its original claim based on the respondent’s original breach, was now time-barred. The fact that the respondent had six years from the making of the payment did not mean that the appellant, as a corollary, should also be given a fresh six-year period from that date in which the bring proceedings for any balance which the adjudicator refused to award. Although that meant that the respondent could bring its claim for repayment without risk of ending up worse off, that consequence flowed from the appellant’s own decision not to commence legal proceedings within the six-year time limit and so take the risk of not confirming the adjudication award that it had received. Adjudication was provision and, while it was understandable that the appellant should wish to let matters lie as they were, it could not ensure that they would do so, or that there would be finality, without either pursuing legal or arbitral proceedings to a conclusion or obtaining the respondent’s agreement.
Andrew Bartlett QC and Isabel Hitching (instructed by Silver Shemmings LLP) appeared for the appellant; Fiona Sinclair QC and Richard Liddell (instructed by Mills & Reeve LLP) appeared for the respondent.
Sally Dobson, barrister
