Adjudication paying party can seek repayment where no follow-up court action

A contractor that paid an adjudicator's award, a decision that was not agreed to be final, has been held entitled to seek repayment of the sum in a court action, where the original claimant took no further action – and its counterclaim for the balance of its original claim was at the same time held to have become time barred.

The UK Supreme Court gave the ruling today, affirming the decision of the Court of Appeal in an action by Aspect Contracts (Asbestos) Ltd against Higgins Construction plc.

Higgins had engaged Aspect in 2004 to survey a block of maisonettes it wished to develop. In 2005 it found asbestos which Aspect's report had failed to identify. Higgins' claim for £822,482 for breach of contractual and/or tortious duties was referred to an adjudicator, who awarded £490,627 plus interest. Aspect paid this sum in August 2009.

Section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 applied, so that the adjudicator's decision was binding until the dispute was finally determined by legal proceedings or otherwise. Higgins brought no further proceedings. After the limitation period for its claim expired, Aspect began proceedings to recover the sum it had paid. Higgins sought to counterclaim for the balance of its original claim. 

The Court of Appeal allowed Aspect's claim to proceed on the basis of an implied contractual term for repayment of any sum that Aspect could show had not been due on the merits. The limitation period for Aspect's claim ran from the date of payment; but Higgins' counterclaim remained time barred. Higgins argued on appeal that Aspect's claim for relief was time barred in the same way as Higgins' own claim.

Lord Mance, Lord Wilson, Lord Sumption, Lord Reed and Lord Toulson unanimously refused Higgins' appeal. Speaking for the court, Lord Mance said that adjudication was intended to be a speedy provisional measure, the decision of an adjudicator lasting only “until the dispute is finally determined” in terms of the Act and associated regulations. Aspect’s claim was not simply for declaratory relief and consequential orders, as argued by Higgins: it had an independent basis, arising on an implied contractual or restitutionary basis. That right arose on Aspect’s payment: it then had a directly enforceable right to recover such payment if, on a final determination on the merits of the original dispute, those sums were shown not to have been due to Higgins.

Aspect could require repayment by reference to a determination of the parties’ original rights and liabilities as they stood when they were adjudicated on. Higgins on the other hand was time-barred from pursuing its counterclaim, as the consequence of Higgins’ own decision not to commence legal proceedings to have the dispute finally determined within the limitation periods applicable to its claims.

"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", Lord Mance said.

However the decision did not mean that Aspect could automatically acquire a right to recover any sum it had paid under the adjudicator’s award, without the court or arbitration tribunal having to consider the substantive merits of the original dispute; and in finally determining the dispute, the court had to be able to look at the whole dispute – Higgins would not be confined to the points which the adjudicator in his or
her reasons decided in its favour.

Click here to view the judgment.