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Isabel Hitching in Aspect v Higgins – headed to Supreme Court?

Aspect Contracts (Asbestos) Ltd v Higgins Construction PLC [2013] EWCA Civ 1514

This case, in which the judgment of the Court of Appeal was handed down on 29 November 2013 determines by what cause of action and by what date a paying party which is dissatisfied with the substance of an adjudicator’s decision needs to issue proceedings to seek to recover that payment.

The issues

In most cases a dispute is referred to adjudication well within the limitation period. Adjudication is designed to aid cash-flow and a party seeking payment does not often wait until the end of the limitation period to commence an adjudication. Whatever the outcome of the adjudication either party is usually able to refer the underlying dispute to a court or arbitrator for final determination without questions of limitation arising.

Is it necessary however for a paying party to do so or does a paying party in any event have a separate right to seek repayment which accrues only on payment? Does it have six years from payment to bring its claim to court? Or can it, to avoid limitation defences being raised, only seek a final determination within the limitation period applying to the underlying dispute?

The parties’ positions

Aspect asserted that it could, in addition to any rights in respect of the underlying dispute, rely on an implied term in the construction contract with Higgins that a paying party could seek recovery of a sum paid, and that this cause of action accrued on payment. The benefit to Aspect of doing so was that it could wait to issue such proceedings until any counterclaim by Higgins would be statute barred.

Higgins argued that such a term should not be implied into the contract. It contended that the parties’ rights to have a dispute determined by the court are preserved by but do not stem from the Housing Grants Construction and Regeneration Act 1996 (and The Local Democracy, Economic Development and Construction Act 2009) and that the Acts and the Scheme do not alter or extend the limitation periods for bringing a dispute before the Court. Further there is no basis for implying such a term as both parties are adequately protected by existing rights in relation to the underlying dispute. It argued that there was therefore no gap in the contract to be filled and that in any event such a term was not ‘obvious’ or ‘necessary’ and did not accord with business common sense, fairness or wider policy considerations (the considerations set out by Lord Hoffmann in the seminal judgment of Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10).

Aspect relied on the only prior decision on the issue, Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906. In that case the court held that there was such an implied term. However it proceeded on the basis of crucial concessions and without oral argument. Aspect v Higgins is the first occasion when the court has heard full argument.

The decision of Akenhead J – [2013] BLR 417

Akenhead J agreed with Higgins. Akenhead J held that there was no gap. Aspect could have sought a negative declaration at any stage after purported performance of the contract. It could therefore have brought the dispute to court for final resolution within the limitation period. It was not necessary to imply a term to ensure that it could do so. Further such a term did not satisfy the criteria for implying a term into a contract: it was not ‘reasonable, equitable or necessary to make the contract work (business efficacy) and it does not go without saying’ (Judgment paragraph 45). Having regard to the Parliamentary debates there was nothing, the court held, to suggest that ‘Parliament meant in effect to create in every construction contract incorporating the Scheme an implied term along the lines suggested … I can not see any overriding policy reason why such a term should be implied’ (Judgment paragraph 45).

Akenhead J held that the situation was quite different from that where a successful party sought to enforce an adjudicator’s decision. In that case there was a new cause of action in favour of the successful party to compel the losing party to comply with the decision. Akenhead J held that it did not follow that a new cause of action arose in favour of the losing party.

In considering issues of fairness the court noted that in this case Higgins did not in fact refer the matter to adjudication at the end of limitation period. Aspect paid the sum which the adjudicator, Rosemary Jackson KC, found due in full. At that stage there were still some months until the limitation period for both contract and tort claims expired. Aspect however took no action to bring the matter to court at that stage. As the court noted, Aspect ‘chose not or otherwise failed to initiate court proceedings’ for a further 2 1/2 years. By that time limitation in respect of the underlying contract and tort claims had expired. Aspect contended that, as a result, although it could bring proceedings to recover the amount which it had paid Higgins could not counterclaim for the balance between the sum ordered and sought in the adjudication. The court noted that such a situation could arise relatively commonly and questioned whether parties must be taken to have agreed such consequences.

The court also noted that if such a term were implied a claim could in theory be brought more than 12 years after the original cause of action arose (depending on the date of payment) with, on Aspect’s case, the burden of proof nonetheless being on the defendant. It noted Higgins’ argument that an adjudication would have the effect of potentially postponing final determination of a dispute, contrary to the intent and policy of the HGCRA.

The court rejected Aspect’s argument that such a term was necessary to protect Aspect’s Human Rights. Article 6(1) of the European Convention on Human Rights requires the state to provide a right to challenge an adjudication decision before a judicial body with full jurisdiction. The court held that there was sufficient access, as both parties were, before limitation expired, free to bring the dispute to court for final resolution.

Aspect in the alternative sought repayment on the basis of restitution. The court rejected this claim, accepting Higgins’ argument that any right to repayment could only arise if and when the court had determined the dispute in Aspect’s favour. To do so the court needed to be seised of the claim. If there was no implied term it could not make this determination. The restitutionary claim simply fell away.

The decision of the Court of Appeal

Aspect appealed the decision as to the existence of an implied term. In a short judgment the Court of Appeal allowed the appeal. The Court suggests that the term may be express. However there is no clear finding to that effect. The reading of the Scheme also relied on a misquotation of paragraph 23(2). The Court considered that three matters pointed to the implication of a term despite the existence of a right to a negative declaration:

1. The onus on a potentially defending party to claim against a possibly ‘wily’ Claimant.

There is no apparent recognition that a referring party cannot commence an adjudication without a dispute existing. For a dispute to exist the other party must be at the least aware of it. There is no opportunity for a ‘wily’ Claimant to ambush a defending party as the Court of Appeal supposed. Further the term implied would be far wider than necessary to address any such very narrow gap.

2. Apparent uncertainty as to whether the Court had a remedial jurisdiction to order repayment.

Akenhead J had found that such a jurisdiction existed and there was no appeal on that point. The Court of Appeal did not proceed to decide whether or not there was such a jurisdiction or what its juridical basis might be but rested its decision on the position that the matter was uncertain.

3. Lack of clarity over the applicable time limit.

The Court did not reach a decision on the applicable time limits but assumed the position was uncertain. Notably the Court in its discussion of time limits referred to causes of action accruing on breach, whereas a cause of action in tort would accrue on the occurrence of damage. It did not address any of the authorities cited on the limitation periods applying to declarations.

Given these matters the Court found the term was sufficiently ‘necessary’ to satisfy the Belize test.

The Court did not address what the precise nature of the dispute before a court brought under such an implied term would be or which party would bear the burden of proof.

Significance of the decision

Aspect did not argue that the term should be implied due to any facts specific to this case. The term will therefore be implied not just into the contract between Aspect and Higgins but into every ‘construction’ contract to which the HGCRA applied. This decision on the existence of the implied term is therefore of significance for every construction contract.

Appeal to the Supreme Court?

Given the reasoning of the Court of Appeal it is anticipated that the issues in this case will need to be revisited either in the Supreme Court or in another case.

Isabel Hitching acted for Higgins Construction, instructed by Silver Shemmings LLP.

Click here for the judgment.

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