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Cite as: [2014] CILL 3449, 151 Con LR 72, [2014] BLR 79, [2013] EWCA Civ 1541, [2014] 1 WLR 1220, [2013] 49 EG 77, [2014] Bus LR 367, [2013] 2 CLC 1019, [2013] WLR(D) 463, [2014] WLR 1220

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		Neutral Citation Number: [2013] EWCA Civ 1541
		Case No: A1/2013/1588 & A1/2013/1579

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY & CONSTRUCTION COURT
THE HONOURABLE MR JUSTICE AKENHEAD

Royal Courts of Justice
Strand, London, WC2A 2LL

29th November 2013

B e f o r e :

THE RIGHT HONOURABLE LORD JUSTICE LONGMORE
THE RIGHT HONOURABLE LORD JUSTICE RIMER
and
THE RIGHT HONOURABLE LORD JUSTICE TOMLINSON
____________________

Between:

	ASPECT CONTRACTS (ASBESTOS) LIMITED	Appellant
	- and -
	HIGGINS CONSTRUCTION PLC	Respondent

____________________

(Transcript of the Handed Down Judgment of
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____________________

Ms Fiona Sinclair QC & Mr Richard Liddell (instructed by Mills & Reeve LLP) for the Appellant
Ms Isabel Hitching (instructed by Silver Shemmings LLP) for the Respondent
____________________

HTML VERSION OF JUDGMENT
____________________

Lord Justice Longmore:

Introduction

Before 1996 it was a common complaint of contractors (and sub-contractors) in building contract cases that employers or developers would attempt to set off debatable cross-claims (e.g. in relation to the quality of work) against legitimate claims for interim payment during the progress of the work. This tactic was given considerable impetus by the decision of the House of Lords in Gilbert-Ash v Modern Engineering [1974] A.C. 689 which overruled a series of decisions of the Court of Appeal which had assimilated architect's interim certificates to bills of exchange and required immediate payment regardless of set-off. Contractors continued to complain that there was serious interference with their cash-flow. Parliament intervened in the Housing Grants Construction and Regeneration Act 1996 ("the 1996 Act") by creating the concept of "adjudication" which was intended to be a temporary procedure by which an "adjudicator" made a speedy "adjudication", often without disclosure and while the contract was still on foot, which all parties accepted was not intended to be final but gave a contractor interim cash in appropriate cases. In Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93, 97 (approved by this court in Levolux v Ferson [2003] 1All ER (Comm) 385) Dyson J described adjudication as "an intervening provisional stage in the dispute resolution process". The final rights of the parties can still be determined by arbitration, legal proceedings or agreement after the dust has settled. The parties can make their own adjudication provisions in the contract but otherwise the Scheme for Construction Contracts is to apply.

Section 108 of the 1996 Act (as amended) provides:-

"(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 include provision in writing so as to-

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

(3) The contract shall provide in writing 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 is scheduled to Regulations made pursuant to the 1996 Act and paragraph 23 of the Schedule provides:-

"23. (1) …

(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."

The question that has arisen in this case is whether a claim by the losing party to the adjudication for repayment of sums paid over to the successful party is subject to a time bar accruing at the time of the (supposed) original breach of contract or duty or only from the date of the (supposedly) unnecessary payment made as a result of the adjudication. It may be noted at once that this is a somewhat one-sided question. If the successful party in the adjudication wishes to sue for the amount adjudicated in his favour he sues on the adjudication and his cause of action accrues at that time; if he wishes to sue for more than the amount adjudicated, he will be subject to the ordinary rules relating to the accrual of his original cause of action (namely 6 years from the breach of contract or duty, as the case maybe). The unsuccessful party is in a different position. He has no readily discernible cause of action at the time of his supposed breach of contract or duty, unless it be for a declaration that he is not liable. But his main wish is to sue for the return of money which he contends was never due in the first place. To the extent that he has a cause of action for the return of the money, a natural reaction might be that the cause of action accrued at the time he made the (assumedly unnecessary) payment.

In Jim Ennis Construction Ltd v Premier Asphalt Ltd [2009] EWHC 1906 (TCC) HHJ Stephen Davies held that there was an implied term of the construction contract that an unsuccessful party to an adjudication was entitled to be repaid all sums paid by it in compliance with an adjudication if they were subsequently decided or agreed not to be due and that the cause of action for such sums accrued at the date of the original payment. In the present case Akenhead J has held [2013] B.L.R. 417 that the cause of action accrued "whenever it otherwise did before the decision was issued" (last sentence of para 1 of the judgment). The judge declined to follow the Jim Ennis case and we must decide if he was right so to do.

The Facts

These are comparatively straightforward. The claimants Aspect Contracts (Asbestos) Ltd ("Aspect") are specialists in providing asbestos surveys. The defendants, Higgins Construction Plc ("Higgins") specialise in the construction and refurbishment of community housing, education and healthcare properties. In March 2004 Higgins asked Aspect to conduct an asbestos survey of the Ivybridge Estate in Hounslow. On 27^th April 2004 Aspect sent their survey report to Higgins who paid Aspect's invoice on 24^th June 2004. Higgins then made a contract with the Notting Hill Housing Trust for the demolition and redevelopment of the Ivybridge Estate and made a sub-contract with Falcon Refurbishment and Demolition Ltd for asbestos removal and demolition. It is said by Higgins that there was more asbestos containing material ("ACMs") than discovered by Aspect and Falcon had to be paid more than originally agreed to remove those ACMs. According to Higgins that caused 17 weeks of critical delay by 27^th September 2005. Rather surprisingly Higgins (to whom cash-flow does not seem to have been critical) took no steps to recover their loss until 26^th June 2009 when they served notice referring the dispute to an adjudicator. With commendable speed Ms Rosemary Jackson QC decided on 28^th July 2009 that Aspect should pay to Higgins the sum of £658,017, which Aspect paid on 6^th August 2009. Aspect (to whom cash-flow does not seem to have been critical either) only began proceedings to recover this sum on 3^rd February 2012 (much more than 6 years after their supposed breach of contract or duty in 2004 but less than 6 years after making the payment). Aspect's claim was met by a defence and counterclaim, claiming the amount claimed in the adjudication. If therefore one reproduces the critical dates in a tabular form the result would be:-

March 2004 Aspect carried out their survey

27 April 2004 Aspect sent survey report to Higgins

24 June 2004 Higgins paid Aspect's invoice

February 2005 Alleged discovery of additional ACMs

July 2005 Additional ACMs removed by Falcon

27 September 2005 Quantification of delay attributable to ACMs

26 June 2009 Higgins refers dispute with Aspect to adjudication

6 August 2009 Aspect pay £658,017 by reason of adjudicator's decision

3 February 2012 Aspect issue Claim Form

4 May 2012 Higgins' Defence and Counterclaim served.

Ironically, it was only when a limitation defence was pleaded by Aspect in their Reply and Defence to Counterclaim that Higgins sought and obtained permission to plead that Aspect's claim was itself barred by lapse of time.

The Issues

The parties agreed to ask the court to decide 4 preliminary issues:-

i) Was it an implied term of the parties' contract that an unsuccessful party to adjudication would be entitled to seek a final determination by litigation and, if successful, recover payment made?

ii) If there was such an implied term, what was the applicable limitation period for a claim seeking to enforce it?

iii) What was the limitation period applying to Higgins' counterclaim?

iv) Did Aspect have a claim in restitution?

The answers given by the judge were (1) No (2) not applicable but (if applicable) 6 years from payment (3) 6 years from breach (4) No. The main reason why the judge decided that there was no implied term was that it was unnecessary. It was unnecessary because the unsuccessful party in the adjudication could always sue for a declaration that he was not liable (as Aspect had done in the Claim Form in this case). That gave rise to the further question whether a traditional 6 year time bar applies to a declaration of non-liability. Although that question was not formally one of the preliminary issues, the judge decided that a declaration of non-liability was an assertion of a cause of action and was time-barred on the facts of the case because the claim form was issued more than 6 years after the alleged breach of contract or duty. He therefore dismissed the claim.

Submissions

Ms Fiona Sinclair QC for Aspect submitted:-

i) the true question was how the contract, subject as it was to the Scheme for Construction Contracts scheduled to the relevant Regulations, should be construed;

ii) on its true construction the contract provided for the parties' contractual rights to be revisited after the adjudication had completed; if on assessment of those rights, either party had paid too little or too much, that could be decided and any over-payment should be returned;

iii) if it was right to base this conclusion on an implied term, such a term was to be implied because that was how the statutory scheme worked;

iv) in any case the various tests for implication of terms were all satisfied;

v) it followed that Aspect's claim to repayment accrued on payment of the sum assessed by the adjudicator and was well in time;

vi) if there was no such claim and Aspect's only claim was for a declaration that they were not liable to Higgins, such claim had been made and was subject to no time-bar because the Limitation Act 1980 had no application to negative declarations; and

vii) Higgins were in a different position since they always had a claim for negligent work done by Aspect; that claim could not be brought more than 6 years after the alleged breach of contract or duty and was now accordingly time-barred, as the judge had rightly held.

Ms Isabel Hitching submitted:-

i) any term entitling Aspect to be repaid sums paid by them pursuant to the adjudication could only be an implied term;

ii) none of the tests for implied terms could be satisfied on the facts of the case; it was, in particular, unnecessary to imply any such term because Aspect had always had the alternative remedy of issuing proceedings for a declaration that they were not liable to Higgins (as they had in fact done in February 2012);

iii) there was no defect or disadvantage in that remedy because it was always open to the court to order money to be re-paid as part and parcel of its jurisdiction to grant a declaration of non-liability if it was just and convenient to do so;

iv) such declaration did, however, have to be claimed within 6 years from the supposed breach of contract or duty; since it had been claimed more than 6 years after that date it was now time-barred and the judge was right to dismiss the claim; and

v) (by way of cross-appeal) if Aspect did have a good claim which was not time-barred, then any implication must work in favour of both parties; Higgins' counterclaim for sums additional to those awarded by the adjudicator was not therefore time-barred and should be allowed to proceed.

Construction of the Contract

It is instructive to compare the terms of paragraph 23(2) of the Scheme and the terms which Aspect submits should be implied into the contract. The Schedule provides:-

"The decision of the adjudicator shall be binding until the dispute is finally determined by legal proceedings by arbitration … or by agreement between the parties."

It is thus clear that the binding nature of the adjudication is intended to be temporary and is liable to be displaced by subsequent legal proceedings, arbitration or agreement. It is, however, to be binding and, if money is decided to be payable, it has to be paid. If such payment is made but subsequent proceedings, arbitration or agreement decide that it should not have been paid, there must be some mechanism whereby it can be recovered. Although paragraph 23(2) does not say, in actual words, that any overpayment is recoverable, that seems to me to be the true intent of the provision and is inherent in the words used.

The term which Aspect seek to imply into the contract is set out at para 10 of the judgment:-

"… 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."

Up to the words "legal proceedings" the proposed implied term says no more and no less than paragraph 23(2) of the Scheme. The following phrase spells out, in actual words, what I have said is already inherent in the words used and to be the true intent of paragraph 23(2).

It does not matter much whether one calls this a process of construction or a process of implication because one is only trying to decide what the words mean. In Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988; [2009] UKPC 10 Lord Hoffmann in tendering the advice of the Privy Council made some general observations about the process of implication. He said (in paras 16-17):-

"16. …The court has no power to improve upon the instrument which it is called upon to construe … It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or the 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 … 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 …"

In the present case the contract incorporating the Scheme expressly provides that the adjudication is only to be binding until the dispute is finally determined. That of itself contemplates that the final determination may be different from the adjudication and that it is the final determination which is to be determinative of the rights of the parties. If the final determination decides that a particular party has paid too much, repayment must be made. To the extent that there is no reference to such repayment in paragraph 23(2) of the Scheme it is implicit. But it is as close to being explicit as it is possible to be.

Ms Hitching submitted that such a construction would be "to improve upon the instrument". I can only say that to my mind it is the meaning of the instrument not an improvement upon it.

She also says that there is no need to construe the contract as saying that any overpayment is repayable because the losing party in the adjudication can always take proceedings for negative declaratory relief and as part and parcel of that claim can ask the court for an order for repayment. But negative declaratory relief is, at best, an ungainly remedy. It has a number of potential disadvantages. First, it is counter-intuitive to expect a person who says he is not liable to have to take the initiative and himself start legal proceedings. If a wily claimant begins an adjudication (as he is apparently entitled to do) shortly before any relevant 6 year period of limitation expires and himself issues (but does not serve) precautionary proceedings for the full amount of his claim in case he does not get all he wants from the adjudicator, it is asking a lot to expect a perhaps less wily defendant to appreciate that he must immediately himself issue proceedings claiming he is not liable to the claimant, if he wishes to preserve his own position.

Secondly it is not at all clear (at least to me) on what juridical basis it can be said that a declaration of non-liability will automatically carry with it a right (on this view not given by the contract) to claim repayment of what he has overpaid.

Thirdly the difficult question is raised whether a declaration of non-liability is liable to be time-barred at all. The judge has held that it is time-barred because Aspect have a cause of action of "non-liability" which accrued when they supplied their report to Higgins. This is at best controversial since a cause of action is usually an assertion of entitlement. As Diplock LJ said in Letang v Cooper [1965] 1 QB 232, 242-3:-

"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."

None of these difficulties arise if the contract is construed in accordance with what it appears to say namely that any overpayment can be recovered. The accrual of that cause of action is the date of overpayment since the losing party is (on this hypothesis) "entitled" to have the overpayment returned to him.

Ms Hitching submits that the playing field is, on this view, not a level playing field because the unsuccessful party in the adjudication has 6 years from the overpayment while the successful party (unless she succeeds on her cross-appeal) must sue within 6 years of the breach of contract or duty. This is a difficulty more apparent than real because the successful party always knows he has a claim and can easily issue proceedings any time he chooses. There is thus no real unevenness in the playing field and her cross-appeal must fail on the conventional ground that more than 6 years have elapsed from the breaches of contract and duty relied on.

The court wishes to make clear that we received no argument to the effect that Aspect could recover their overpayment by relying on the law of unjust enrichment.

Conclusion

But on the arguments we have received, I would allow this appeal and answer the first preliminary issue in the affirmative, the second issue by saying 6 years from payment, the third issue by upholding the judge's decision and saying 6 years from alleged breach and the fourth issue by saying "not argued".

Lord Justice Rimer:

I agree.

Lord Justice Tomlinson:

I also agree.