Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc

This case raises an interesting and important issue as to when in terms of limitation of action a party which is dissatisfied with the substance of an adjudicator’s decision needs to issue its proceedings or to raise any counterclaim in those proceedings to challenge and seek to overturn that decision. It is necessary to review the decision in Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 which decided that there was an implied term of the contract in that case that when a dispute was referred to adjudication pursuant to the Scheme for Construction Contracts ("the Scheme") and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme that party remained entitled to have the dispute finally determined by legal proceedings and if or to the extent that the dispute was finally determined in its favour to have that money repaid to it. Put another way, the issue is whether the paying party’s cause or right of action to recover money paid out pursuant to an adjudicator’s decision runs from the date of payment and therefore the six year limitation period runs from that moment. The alternative view is that the basic cause or right of action in relation to which the money was paid out commences whenever it otherwise did before the decision was issued.

Most of the facts have been agreed for the purposes of the determination of the preliminary issues which relate to the existence of the pleaded implied term, the limitation period applicable thereto, the limitation period applicable to the counterclaim and the existence or otherwise of a claim for restitution.

Aspects Contracts (Asbestos) Ltd ("Aspect”) is and was a company which specialises in the provision of asbestos management services including asbestos surveys. Higgins Construction PLC ("Higgins") is and was a substantial UK construction company which specialises in the construction and refurbishment of community housing, education and healthcare properties.

Higgins was considering in or about March 2004 whether to contract with Notting Hill Housing Trust for the demolition and redevelopment of the Ivybridge Estate, Hounslow, London. To that end, Higgins approached Aspect to carry out an asbestos survey.

The following are the agreed facts:

Although there is an issue between the parties as to the scope of the asbestos survey which Aspect was engaged to carry out, it is common ground that the contract between the parties incorporated the proposal or quotation submitted by Aspect to Higgins on 9 March 2004 and that this was accepted orally by Higgins. Neither party has suggested that there is anything in the documents forming the contract which particularly adds anything to the debate. There was no express adjudication clause or agreement.

It is clear that Aspect and Higgins and/or their solicitors were in contact with each other in 2005 with Higgins complaining in effect that Aspect had failed to pick up the presence of asbestos and with Aspect denying any responsibility. The first letter from Higgins complaining to Aspect was dated 21 March 2005 and claims were intimated as the months went on.

The adjudicator, Rosemary Jackson QC, set out in her decision that Higgins was claiming £822,482.67 as damages broadly for breach of contract for failing to conduct a proper and appropriate survey and failing to identify the presence of ACM’s. She set out the chronology and analysed what the contract was and what the report produced by Aspect addressed and did not address. She found that there were breaches of contract on the part of Aspect and that there were damages which together with interest produced a substantial award in favour of Higgins, albeit some £200,000 less than was being claimed.

It remains unclear why Higgins took some four years to proceed to adjudication and why Aspect did not issue proceedings for 2½ years after the adjudication decision.

In its Particulars of Claim, Aspect "seeks a final and binding resolution of a dispute which was referred to adjudication". It seeks a declaration that Aspect was not liable to pay damages and/or interest to Higgins in the amount decided by the Adjudicator or at all. It seeks repayment, or alternatively restitution, of the sum of £658,017 or such other sum as the Court shall determine. It asserts in Paragraph 3 that "the burden of proof upon all issues of liability and quantum (including the issues as to Aspect’s obligations, Aspect’s breach of obligation, causation of loss suffered by Higgins, and recoverability of damages in respect of that loss) is upon Higgins". It sets out at Paragraphs 6 to 10 what its obligations were pursuant to the contract. It asserts (which is admitted) that the contract did not comply with the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) and that the Scheme for Construction Contracts applied to it. At Paragraph 12, it pleads the implied term which has given rise to the preliminary issues:

“…that in the event that any dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme, that party remained entitled to have the dispute finally determined by legal proceedings and if or to the extent that the dispute was finally determined in its favour, to have that money repaid to it."

Paragraphs 13 to 15 address the performance by Aspect of its obligations with an assertion that the survey was carried out with reasonable care. Paragraphs 16 to 35 assert broadly that Higgins’ allegations in the adjudication about Aspect’s performance and on damages were wrong for a variety of reasons. So far as damages are concerned a number of the averments are that Aspect do not admit or put Higgins to proof on the issue of damages. There is then reference to the award of interest being for more than Higgins was entitled and to the adjudicator’s decision. At Paragraphs 40 and 41, it seeks a declaration as referred to above, repayment of the sum of £658,017 awarded against it by the adjudicator and the costs of the adjudication together with interest on any sums recovered by it. At Paragraph 42 it pleads:

“Further or alternatively, Aspect paid the said sum to Higgins under compulsion of law. That compulsion will be released upon judgement hearin Aspect’s favour. Aspect will be entitled to restitution of the sum paid.”

The Amended Defence and Part 20 Counterclaim denies the implied term saying that there is no necessity or room for the implication. It asserts that the parties’ rights to have a dispute determined by the Court "are preserved by but do not stem from the" HGCRA and that the HGCRA and the Scheme do not alter or extend limitation periods for bringing a dispute before the Court. It pleads a limitation defence and denies any entitlement to restitution. It denies that the onus of proof is on it. It then proceeds to challenge where necessary the remainder of the Particulars of Claim. Its Counterclaim is predicated on the basis that it is entitled to the full amount claimed before the adjudicator, namely £822,482.67 and it claims the balance, exclusive of interest, namely £150,776.98.

In its Reply, Aspect says that it "seeks a final and binding determination of the dispute which was referred to the Adjudicator save only” that it did not challenge one finding of breach of contract or negligence, albeit that it denies that such a breach caused loss. In its Defence to Counterclaim, it pleads at Paragraph 56 that the counterclaim is statute barred because the alleged cause of action in contract accrued at the latest in late April 2004 when Aspect delivered its asbestos report to Higgins and that the alleged cause of action in tort accrued when Higgins concluded its contract and sub-contract with its employer and with Falcon respectively alternatively that all of the damage had been suffered by 22 June 2005 when work recommenced on-site following the delay and disruption which Higgins claimed were caused by the discovery of ACMs and following its alleged agreement to pay an additional sum to Falcon.

The HGCRA provided by Section 108 as follows:

“(1)

A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.

For this purpose “dispute” includes any difference.

(2)

The contract shall—

(a)

enable a party to give notice at any time of his intention to refer a dispute to adjudication…

(3)

The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.

The parties may agree to accept the decision of the adjudicator as finally “determining the dispute…”.

(5)

If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply.”

The Scheme provided:

“2.

Where a construction contract does not comply with the requirements of section 108(1) to (4) of the Act, the adjudication provisions in Part I of the Schedule to these Regulations shall apply.”

The Schedule materially provided as follows:

“23.

—(1) In his decision, the adjudicator may, if he thinks fit, order any of the parties to comply peremptorily with his decision or any part of it.

(2)

The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties.”

There are various different areas of legal issue between the parties, mainly the implication of terms, what and when any cause of action arose and restitution and when any cause of action in restitution arose. I will consider these topics in that order but will address the adjudication aspects under the Discussion head of this judgment.

There are two Privy Council decisions of relevance in this context. The relevant dictum from the well known earlier case of BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 is set out in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, where Lord Hoffman dovetailed considerations relating to implied terms into the context of contractual interpretation:

“16.

Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society[1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.

17.

The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.

18.

In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.

19.

The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. In Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, 609 Lord Pearson, with whom Lord Guest and Lord Diplock agreed, said:

"[T]he court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves."

20.

More recently, in Equitable Life Assurance Society v Hyman[2002] 1 AC 408, 459, Lord Steyn said:

"If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting."

21.

It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?

22.

There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is "necessary to give business efficacy" to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word "business", is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman[2002] 1 AC 408 was decided. The second, conveyed by the use of the word "necessary", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.

23.

The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p. 459) when he said that in that case an implication was necessary "to give effect to the reasonable expectations of the parties."

24.

The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68:

"In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men"

25.

Likewise, the requirement that the implied term must "go without saying" is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world. Like the phrase "necessary to give business efficacy", it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean. But it carries the danger of barren argument over how the actual parties would have reacted to the proposed amendment. That, in the Board's opinion, is irrelevant. Likewise, it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander "Could you please explain that again?" does not matter.

26.

In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was "not…necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied:

"(1)

it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract".

27.

The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.”

I take the law relating to implication of the terms to be properly summarised in this dictum of Lord Hoffman and there is little that one needs to add. When it comes to interpretation of statute, there is little recognisable authority that there can in some way be an implied term of a statute. So far as statute is concerned, statutes and statutory instruments are to be interpreted primarily from the words used on the basis that Parliament can or should be taken to have meant that the words which had been brought into law broadly mean what they say. Where it is unclear what Parliament meant, the Courts can have regard to a purposive approach, along the lines of finding a meaning from the stated purposes and, in certain circumstances, regard can be had to the debates in Parliament to help determine what Parliament intended.

Next, one needs to consider what a cause of action is and when it arises in the context of this case. The real issue revolves around whether or not Aspect had a cause of action along the lines which it now puts forward which involves seeking a negative declaration that it was not liable to pay damages to Higgins in the amount decided by the adjudicator or at all. In his well-known dictum in Letang v Cooper [1965] 1 QB 232 at pages 242-3, Lord Justice Diplock (as he then was) said:

“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person."

Issues relating to the accrual of a cause of action often come up in cases involving limitation, amendments and res judicata. Section 5 of the Limitation Act 1980 states:

“An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued."

Most cases based in contract involve either debt, breach, termination or the accrual of other contractual rights. Authorities over many years have established that the cause of action arises in debt, when the sum first becomes due for payment, for breach of contract when the breach occurs, for or in connection with termination often when the termination is triggered and for other contractual rights when those rights have actually accrued.

One then gets on to a consideration about actions for negative declarations. There are numerous possibilities. Examples include in the construction or engineering field a threatened termination and a party wants to argue in court that the other party has no right to terminate at that particular time. One can also think of other examples where a party is said to be in breach of contract but wishes to have the Court confirm that it is not in breach of contract at a particular time. Another example is a case like Ericsson AB v EADS Defence and Security Systems Ltd [2009] EWHC 2598 (TCC), which was not referred to by the parties but which demonstrates that the Court can grant declarations as to rights or obligations which parties have. In cases such as Ericsson, parties and indeed the Court would be surprised by an argument that there was no cause of action enabling the Court to give relief where appropriate. Of course, the Court has a discretion whether to grant a declaration or not and there is much authority as to whether a declaration should be granted in academic or hypothetical circumstances. Thus, it would often be the case that the Court would refuse a declaration if there was no dispute at all between the parties but one party simply wanted a declaration that it had performed its contract perfectly and was not otherwise in breach of contract; the Court might simply say that it was a waste of court time and the other party’s expense to grant any declaration. That is to be distinguished however from whether there is any cause of action at all because the issue of whether one secures the relief one is claiming does not necessarily mean that there is no cause of action. I deal with this topic in further detail in the Discussion part of this judgment.

In tort actions, the quia timet jurisdiction particularly in the field of the law of nuisance is predicated on the basis that the tort in question has not yet been committed but is threatened. Similar considerations apply in relation to applications for interim injunctions where again it is rarely argued let alone accepted by the Court when granting the injunction that there is no cause of action because, presumably, a sufficient factual situation exists which entitles the applicant to a remedy, namely the interim injunction.

The question therefore arises as to whether a party to a commercial contract has a cause of action to seek a negative declaration that it is not in breach of contract. The answer to that question must be in the affirmative, albeit that the Court retains discretion as to whether to grant such a declaration. It is argued that if such a cause of action exists this would open the floodgates in the doubtless hundreds of thousands or millions of contracts which are made every day for the purchase of goods, services and other commodities for people to come to court for declarations that the goods or services which they have supplied have been provided in accordance with the contracts. Common sense however and the need and desire for most people to get on with their daily, professional or commercial lives would suggest that these particular floodgates are unlikely to be opened. The Courts can deal with purely speculative applications for such negative declarations through the discretion and powers which they already have.

Turning to restitution, one needs to consider the extent to which there is in law any cause of action for restitution or unjust enrichment. There are numerous ways by which the Court can order the return of money to a party which has been wrongly deprived of it. For instance, the law relating to mistake, fraud and trust can be deployed to secure this. If A receives a bill from B for a £1,000 debt and by mistake A pays £10,000 to B, A will be entitled by one means or another to recover the balance (subject to any specific defence) from B. One would say then that the cause of action for the return of the money runs from the time of payment because it has obviously not arisen until the payment is made; there is of course much authority as to the nature of the mistake sufficient to justify the return of the money. There are a score of grounds for restitution and it is unnecessary to analyse each and every one in this case.

The closest analogy is accepted by both Counsel to be repayments of sums ordered to paid by way of court judgments or orders that are later set aside or successfully appealed. There is no doubt that the Court has that power and it, almost invariably and uncontroversially, follows a successful appeal of a money judgement that the losing respondent on appeal will be required to repay the money paid pursuant to the earlier judgment or order. But this is addressed in Goff & Jones - The Law of Unjust Enrichment (8^th Ed) at Chapter 26 which considers the nature and extent of the principle which undoubtedly exists. The authors suggest that "successful litigants therefore commit no wrong when they win a court order that is later held to have been mistaken" (Paragraph 26-03). However they go on to say in Paragraph 26-04 that the "law of unjust enrichment therefore provides a better explanation of the claimant’s right of recovery” albeit that "some uncertainty attaches to the exact ground for recovery". The explanation preferred at Paragraph 26-05 "lies in the policy consideration…that the courts’ power to force litigants to transfer benefits to other litigants is partly justified by procedural mechanisms whose function is to reduce the risk of judicial error". It is, they say, a "policy-based consideration”. Reference is made to Lord Nicholl’s dictum in Nykredit Plc v Edward Erdman Ltd [1997] 1 WLR 1627 at 1637 where he proceeded on the basis that appellate courts have an inherent jurisdiction to order repayment as a means of:

“unravelling the practical consequences of orders made by the courts below and duly carried out by the unsuccessful party. The result of [a successful appeal] is… that, to the extent indicated, orders made in the courts below should not have been made. This result could, in some cases, be an idle exercise unless the [appellate court] were able to make consequential orders which achieve, as nearly as is reasonably practicable, the restitution which this result requires."

The analogy relating to the power of an appeal court or judge setting aside an earlier judgment or order is of relatively limited value in the context of the current case. If the underlying claim or defence as the case may be is found on the appeal or setting aside exercise to be a good one and that involves overturning the lower or previous judgment, then there is a jurisdiction and power for the Court, based primarily on policy grounds, to put right the consequences of that exercise, including the requirement that money paid pursuant to the earlier order or judgment be repaid. However, the exercise involves a determination of whether or not the basic case or defence is good in fact or in law and the repayment power is simply ancillary to and consequential upon that exercise. As detailed below, there is no appeal against an adjudicator’s decision as such.

I proceed upon the basis that the contract between the parties was a simple one, comprising a quotation by Aspect to carry out an asbestos survey at a particular site for a particular price which was orally accepted. Both parties have accepted that this was a construction contract for the purposes of the HGCRA. It then follows that, because the parties did not make their own contractual provisions for adjudication, the impact of Section 108 (5) of the Act was to incorporate the adjudication provisions of the Scheme. It is abundantly clear that Parliament and the drafters of the Scheme did not actually apply their minds to whether or not a new cause of action arose for either party following the honouring or observance of a valid adjudicator’s decision in relation to the recovery in any later proceedings of a Court or arbitrator which was to be the tribunal charged with the final resolution of disputes between the parties.

Over the 15 years in which the law relating to adjudication in construction contracts has developed, the following can now be said with confidence to be basic principles:

One then turns to the particular problem with which the current case is particularly concerned which relates to whether or not separately enforceable rights or causes of action arise out of an adjudication decision in effect and in particular which relate to the losing party in the adjudication. The current case is a perfect example. Higgins successfully secures an adjudicator’s decision 4 to 5 years after its adjudicated cause or causes of action (in contract or tort) have accrued; that decision requires money to be paid by Aspect and indeed it is paid by Aspect a few weeks later. Does Aspect then have a new cause of action against Higgins to recover the money which it had to pay out on the temporarily binding decision of the adjudicator or does its cause of action accrue back at the time when it was (or was not) in breach of its contractual duties or when damage arose caused by any breach of a duty of care? It has to be said that in all probability in the vast majority of cases it is simply not going to matter because there will be no limitation considerations; the adjudication will have been concluded and the losing party will, if it wants to, challenge within a relatively short time thereafter. The reality is that most adjudications are started whilst or fairly shortly after the construction project in question is being proceeded with. The problem however does arise in the current case because, if Aspect’s cause of action accrued in 2004 or 2005, its claim is barred by limitation. This problem, if such it is, has only risen in this case because Aspect or its insurers chose not or otherwise failed to initiate proceedings until some 2½ years after the adjudication.

Another factor to bear in mind is that of the many thousands of adjudications pursued over the last 15 years only a small percentage end up in the Courts on disputed enforcements. Although there are no statistics, it is not unreasonable to assume that many contractual parties either accept the adjudication decisions or negotiate their final accounting without any challenge through the final resolution tribunal. In this case, for instance, I assume that Higgins was content to accept its approximately 2/3rds recovery through the adjudication process with a view simply “to" let sleeping dogs lie".

There has only been one case on adjudication in which the current issue has been directly considered and decided. His Honour Judge Stephen Davies decided in Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 (TCC) that there was an implied term of the underlying construction contract whereby an unsuccessful party to an adjudication was entitled to be repaid all sums paid by it in compliance with an adjudication decision; there was therefore a new cause of action arising as at the date of payment if and to the extent that as a matter of fact or law that party was not liable to pay the sums decided as due by the adjudicator. This case is referred to and commented upon in Coulson on Construction Adjudication (2^nd Ed 2011) as such without approval or disapproval (Paragraph 2.142-3 and 14.21). The decision certainly merits respect. The real issue is whether the learned judge was right.

The facts in the Jim Ennisdecision were slightly different to the current case. The claimant sub-contractor had in 2002 withheld payment against the defendant sub-sub-contractor of some £16,000 claimed by the defendant for work done for replacing allegedly defective work done by the defendant and also deducted a further £38,000 for its own cross claims relating thereto. In the 2008 adjudication, the defendant commenced adjudication and secured a decision requiring the claimant to pay the £38,000 plus interest back to the defendant. The claimant sub-contractor issued proceedings in 2009 to recover those sums back. The case, which involved seeking to strike out the claimant’s claim as bound to fail by reason of limitation, was dealt with on written submissions.

HHJ Davies concluded at Paragraph 16 of his judgment following amongst others the VHE decision that “the obligation to comply with the adjudicator's decision does indeed give rise to a new cause of action in favour of the successful party to compel the losing party to comply with that decision”. I agree with this view as entirely logical and supported by authority.He went on to say in the next paragraph:

“Of course that conclusion is not in itself sufficient for the Claimant in this case, because the Claimant is seeking to have the court finally determine the dispute decided by the adjudicator, as opposed to seeking to enforce the adjudicator's decision. It does however provide the platform for the Claimant's second submission that there is additionally an implied term that an unsuccessful party is entitled to bring court proceedings to have the dispute referred to the adjudicator finally determined and, if successful in persuading the court to reach a conclusion different to that reached by the adjudicator, to be repaid all sums paid by him in compliance with the decision.”

There then follows the rationale of his decision:

It is clear that a number of concessions were made by the defendant in that case which are not made in the current case with little or no coherent argument or pleading in that case against the existence of an implied term. It appears also to have been conceded or never disputed by the defendant in that case that there was a “right…to challenge” the adjudication decision by legal proceedings and recover sums paid in compliance with a decision. (Paragraph 19).

It is legitimate to start consideration of whether or not there is an appropriate implied term by reviewing the nature of adjudication and an adjudication decision. It is legally and procedurally very different from the judgment of a court or an award from an arbitrator because they are final and binding, subject to any appeal, whilst the adjudication decision is only temporarily binding pending any final resolution. There is no appeal on fact or law from an adjudication decision. Furthermore, there is no suggestion (and rightly so) in the Scheme and most standard form contracts that adjudication is a compulsory step in the dispute resolution process: a party may choose to go to adjudication, usually if it wants a quick and enforceable decision, but it does not have to go down that route. Either party to a construction contract can go directly to the final dispute resolution tribunal, arbitrator or court as the case may be, to have its claims and disputes resolved. In arbitration, although an award is usually agreed to be final and binding, there is a right to seek to appeal laid down by statute in the Arbitration Act 1996 (Section 69); given the tight timetable required to seek permission to appeal, the reality is that a dissatisfied arbitration party will almost invariably not honour the award pending its application and any subsequent appeal. There is little or no jurisprudence about what the Court can do following a successful appeal, apart from confirming, varying, remitting or setting aside the award (Section 69(7)), although Section 69(8) says that the decision of the court on an appeal shall be treated as a judgment of the Court which might well let in the inherent jurisdiction of the Court as suggested by Lord Nicholl in Nykredit.

There undoubtedly is a jurisdiction available to parties to a contract to seek and to the Court to grant negative declarations. In Messier-Dowty v Sabena[2000] 1 WLR 2040, referred to by HHJ Davies, the Master of the Rolls, Lord Woolf said that the "use of negative declarations domestically has expanded over recent years", in "appropriate cases their use can be valuable and constructive" and there was "no valid reason for taking an adverse view of negative declaratory relief" (Paragraph 36). He refers to the fact that there were "numerous cases where without objection negative declarations have been granted". He went on to say at Paragraph 41 that the:

It follows that Aspect had a cause of action in effect for a negative declaration that it was not in breach of its contractual or tortious duty of care as from the time that it provided its report in April 2004. It is difficult to speculate without knowing what facts might have been deployed what a court might have decided for example in May 2004, albeit that, if there was no hint or suggestion at that stage from Higgins that it was in any way complaining about the report, the relevant court might well have dismissed a claim by Aspect for a negative declaration that Aspect was not in breach of contract, even if there was evidence of proper performance, simply by reason of the types of concern expressed by Lord Woolf in the Messier-Dowty case; it might well not be useful or sensible and it would be a waste of costs and court time to grant such a declaration. The position however is different on the facts of this case because complaints were clearly raised in 2005 by Higgins directed against Aspect and the Court may have been more disposed at that stage to grant a negative declaration (if factually justified). At least, Aspect could have made an informed decision, commercially and legally in conjunction with its lawyers and insurers, as to whether this was worthwhile.

One therefore needs to move on in the light of the matters raised in the three preceding paragraphs to consider whether there is an implied term. I take the considered wisdom on implied terms now to be encompassed by the Privy Council decision in the Attorney General of Belize case. The contract in this case is a simple one, albeit that it was a construction contract within the meaning of the HGCRA. The contract must be treated as having incorporated the Scheme. It is worth considering Paragraph 23(2) of the Schedule to the Scheme in a little detail:

“The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties.” (Emphasis added)

One needs to bear in mind what it is that the adjudicator is deciding: it is the dispute which has been referred to him or her. That dispute may be a contested claim for a debt, for damages or for a declaration (positive or negative). That claim will usually involve some sort of (at least alleged) cause of action which is said to have accrued before it has been disputed. Thus, in the current case, it was Higgins’ contested claim for damages for contractual negligence which was referred to adjudication. Such cause of action did not and does not disappear by reason of the adjudication process or decision; it existed and is as good before as it is after the decision.

All that Paragraph 23(2) provides is that the decision on the referred dispute shall be temporarily binding unless and until the dispute is finally resolved and that meanwhile the parties are to comply with the decision. There still remains a dispute between the parties until the final resolution. I disagree with the view expressed by HHJ Davies that Paragraph 23(2) in some way provides a "platform" for the implication of a term, if by that expression he meant that this opens the way to the implication.

It is helpful to consider the 5 point list set out in the BP Refinery case in the context of whether such an implied provision would spell out in express words what the contract between the parties incorporating the Scheme, read against the relevant background, would reasonably be understood to mean. The implied term relied upon is:

“that in the event that any dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme, that party remained entitled to have the dispute finally determined by legal proceedings and if or to the extent that the dispute was finally determined in its favour, to have that money repaid to it.”

I attach little importance to the fact that this implied term runs to 73 words because I have no doubt that it could be reduced verbally, although it is sometimes said that the longer the implied term the less likely it is that the term “goes without saying”. The five factors on the BP Refinery list are:

“(1)

it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract".

Unlike Counsel, I will not consider each of these separately. What one has to weigh up on each side of the argument for or against implication are primarily these factors:

The parties have argued respectively that there is or there is not a gap in what the parties via the Scheme must be taken to have agreed. I do not consider that there is in reality any real gap. Either party could go to the Court (as the final resolution tribunal) at any time (at least after performance) for a positive or negative declaration that it or the other was or was not in breach of contract; the fact that commercially it might not want to do this at a given stage or that it might want to wait to see what the other party did does not mean that there would not be a cause of action by which such a declaration was sought.

A factor to be borne in mind is how the proposed implied term would deal with a set-off and counterclaim arising on the dispute referred to adjudication or with a referring party which does not recover all of what it is claiming in the adjudication. One can take very typical building contract examples where a sub-contractor claims on an invoice for £50,000 which may or may not be challenged in itself but the main contractor raises a cross-claim for defects or delays for, say, £60,000; the adjudicator decides that the set-off is proved to the value either of £30,000 or £60,000 and awards the balance of either £20,000 to the sub-contractor or £10,000 to the main contractor. On the first example, the main contractor could pursue its counterclaim (and set-off) within six years (without fear of the limitation defence) from the time when it paid £20,000 to the sub-contractor, although any claim for a positive declaration that the sub-contractor had been in breach will run (limitation-wise) from the date of the original breach; any claim by the sub-contractor for the balance of its account will run from the date when the money was originally due. On the second example, the main contractor has no new cause of action because it has not paid any money but is restricted to a cause of action for a positive declaration that it was entitled to the damages which (limitation-wise) relates back to the date of the breach whilst the sub-contractor has two causes of action, the first being a claim on the invoice which dates back to when the money originally fell due and the second being for the recovery of the £60,000 paid pursuant to the adjudication decision. One can legitimately ask whether the parties must be taken to have agreed that this relatively common permutation is to produce these consequences, which could be said to be anomalous.

The reality is that, as here, the party ultimately found by the adjudicator to be in breach (Aspect) has to pursue a claim for what is in essence, practice and effect a claim for a negative declaration which it could have brought at any time after performance; it did not have to wait until the adjudicator issued his decision. When one looks at Aspect’s pleading, the fundamental claim is for a negative declaration that it was not in breach of contract and it relies on the fact that it performed the contract fully and properly at the time. The dispute is no different now in essence to what it was in this context in 2005 or at the time of the adjudication.

It could be said arguably that there are “pros” and “cons” when one looks at the various factors but at best or at worst they balance each other. It is, in my judgment, not possible to say that implication of the pleaded term is reasonable, equitable or necessary to make the contract work (business efficacy) and it does not go without saying. It is, however, just about capable of clear expression and, unsurprisingly in this simple contract, it does not contradict any express term. The only risk on analysis which theoretically exists is that, if a party like Aspect waits to see what the result of an adjudication started against it just before the expiry of a limitation period will be (which is not this case), its later claim for a negative declaration may well fail if the limitation defence is run against it. Of course, in the commercial world and in real life, as here, adjudications are started usually well within the limitation period and often close to the beginning of it so that the losing party will, almost invariably, be able well within the limitation period to initiate its own proceedings to put right any factual or legal error made by the adjudicator. The risk therefore is not only very small but is one for which each party to a contract does have a remedy, which is to commence its proceedings (within 6 or 12 years after performance) and even for a negative declaration within the limitation period. It must be a rare case in which a term will be implied to provide for a very small risk which is unlikely to and need not occur. Against that risk, one is seeking to imply a term in effect into statutory wording which Parliament either did not think about or, if it did, decided to do nothing about in terms of expressing such a term. If one was to ask the question: does the Scheme as a statutory instrument properly construed mean in effect that the losing party is to be given a new right to sue as from the date of payment of the adjudication decision for the recovery of sums paid, the answer would be in the negative. There is nothing in the Parliamentary debates (at all or certainly put before the Court) to suggest that Parliament meant in effect to create in every construction contract incorporating the Scheme an implied term along the lines suggested by Aspect in this case. I can not see any overriding policy reason why such a term should be implied.

It was argued that 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. Adjudication in itself is not as such subject to the fair trial requirement albeit that authorities have established that decisions will not be enforced where there has been a material or significant failure to comply with the rules of natural justice. However, this argument is somewhat circular because there is a right effectively to challenge an adjudication decision and the fact that there may be in rare circumstances be a limitation defence (if it is deployed) does not mean that the party can not seek to challenge it. The European authorities relied upon, Albert and Le Compte v Belgium (1983) 5 EHRR 533 and Crisan v Romania (27 May 2003) are two very different types of case not involving adjudication as such but respectively a challenge to a medical conduct tribunal and Romanian County Court’s finding that it had no jurisdiction to review the lawfulness of a particular Commission’s decision. Adjudication is the creature or consequence of a commercial or professional contract, voluntarily entered into by the parties. There is still access in any event following an adjudication decision (in this case) to the Court which will have the effect of deciding whether the adjudicator got it right or not. In this case, in any event, Aspect had 2½ years before the limitation period expired to go to the Court to have the dispute finally resolved without fear of any limitation defence being raised.

That then leaves the argument relating to restitution. Somewhat oddly (or perhaps unsurprisingly), the Limitation Acts do not identify a limitation period for a claim in restitution as such. That is most likely because restitution insofar as it gives rise to a cause of action in itself in reality arises under some other head of law like trust, conversion, tort or otherwise, which do attract limitation provisions. The payment following the adjudicator’s decision was not paid under any mistake but because the contract between the parties in effect required it to be made. It was not paid under duress. Indeed, it was not argued that, in terms of restitution, there is any other actual or analogous basis for recovery other than the appellate basis where restitution also is treated as arising, as indicated earlier in this judgment, as a policy consideration when judgments are successfully appealed or otherwise set aside. This latter analogy does not readily "work" in the context of adjudication because there is no appeal or judicial setting aside process as such. The underlying dispute is simply referred to the Court or to an arbitrator (as the case may be) for final resolution.

This is exactly what has happened here with Aspect seeking a negative declaration that some nine years ago it was not in breach of contract. If for any reason (limitation or on the merits), it loses, then it will not be entitled to the repayment which it seeks. If however it was to succeed, the primary and initiating relief would be the declaration and the secondary and consequential relief would be the return of the money, (as it might turn out) wrongly paid. Put another way, it could not get any money back unless and to the extent that it secured an appropriate negative declaration as to liability or quantum. It follows that one does not reach the analogous position which would follow from a successful appeal or setting aside of a judgment. There is no separate cause of action in restitution.

The cause of action for a negative declaration is in contract and tort and the limitation period or a cause of action based on a contract not under seal is six years from the latest date when the contract was performed because there could be no breach after performance (at least for a simple contract such as the current one).

It follows from the above that there is no implied term as pleaded and that the essential claimed cause of action relied upon by Aspect involving a negative declaration that it was not in breach of contract or duty and that Higgins did not incur the loss eventually found by the adjudicator to be due is barred by limitation. It also follows that Higgins’ counterclaim for the balance of its loss is also barred by limitation. In consequence, both claim and counterclaim should be dismissed.