Finality in construction adjudication
12 January 2016
Author: Paul Hughes, PhD, Barrister-at-Law, MRICS, MSCSI
The Construction Contracts Act 2013 will give a party to construction contract the right to refer a payment dispute to adjudication. The Irish legislation is largely modelled on similar UK legislation. In particular, as the adjudicator’s decision is final and binding the parties must comply with it until the dispute is finally determined by legal proceedings, by arbitration or by agreement.
Challenged for up to six years
A recent case in the UK Supreme Court highlights the protracted length of time the adjudication process can take if challenged. A party to a construction contract needs to be aware that the adjudicator’s decision can be challenged for up to six years after it is given. Consequently, if satisfied with the decision it is in that party’s best interest to try and agree with the other party that the decision is to be regarded as final.
This should be done sooner rather than later. Otherwise, with a late challenge the successful party in the adjudication may well become time barred from questioning the substantive matter in the dispute. Consequently, a situation may arise where one party to the contract is time barred from challenging the substantive matter in the dispute while the other party is not time barred from challenging the adjudicator’s decision. This is what happened in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc  UKSC 38.
In this case, Higgins a building contractor, contracted with Aspect to carry out an asbestos survey. Aspect prepared a report in April, 2004. Relying on the report, Higgins commenced the removal of the asbestos but encountered more than was indicated in the report.
Consequently, a dispute arose and was referred to adjudication where Higgins sought substantial damages. In 2009 an adjudicator found in favour of Higgins but awarded a lesser sum than was claimed. In April, 2009, Aspect paid that amount to Higgins. Higgins was content to let matters rest and did not commence further proceedings to recover the balance of the amount claimed. Higgins did not seek to have the decision treated as final by Aspect. Subsequently, the six-year limitation period elapsed for Higgins to recover the balance of the money.
Expiry of limitation period
In 2012 after the expiry of Higgins’ limitation period, Aspect commenced court proceedings seeking to recover the amount it had paid in 2009 on the bases that there was an implied term in the construction contract which required the repayment of sums overpaid following adjudication. Higgins then tried to counter-claim for the balance of the money it originally claimed.
Higgins complained that Aspect had an unfair advantage in that by delaying the commencement of proceedings Aspect could recover all or part of the money paid over without having the risk of ending up worse off, as Higgins was barred from pursing the balance of the money it had originally claimed.
Higgins argued that Aspect was outside the six-year limitation period to start legal proceedings as the time period started to run from the date of Aspect’s report in 2004. Aspect contended the six-year period started to run from the date on which it made payment in 2009 and was well within the limitation period.
The Supreme Court agreed with Aspect and held that the limitation period began to run from the date on which Aspect made payment to Higgins in 2009. The court held that the UK legislation implied a term into the construction contract that a party could recover any overpayment resulting from the adjudicator’s decision. Without the ability to recover such overpayment the adjudication process did not make any sense.
Adjudication conceived as provisional mechanism
Adjudication was conceived as a provisional mechanism, pending the final determination of the dispute by arbitration, court proceedings or agreement between the parties. However, it did not mean that Aspect would automatically recoup the payment made in 2009. The court or arbitral tribunal would have to consider the substantial merits of the original dispute. The court held that Higgins was time barred from trying to recover the balance of the money not awarded by the adjudicator.
If Higgins wanted to pursue that balance it should have done so within six years of the original dispute which happened in 2004. It was Higgins’ own decision not to pursue the balance within the six-year period and it took the risk of not confirming with Aspect the finality of the adjudicator’s award.
This case highlights how protracted an adjudicated dispute can be if challenged in the courts. The original dispute arose in 2004 with the Supreme Court’s decision coming in 2015. Of course the matter has not reached finality yet as the matter will be redirected back to the trial court in order to determine the amount of overpayment, if any, by Aspect in 2009.
Important lessons can be learnt from this case when adjudication is introduced in Ireland. Parties to construction contracts should avoid being in the situation which Higgins found itself in. Therefore, after adjudication, if a party is satisfied with the adjudicator’s decision, it should make every effort to agree the finality of it with the other party.
If agreement cannot be reached it may be worthwhile considering having the matter finalised in the court or arbitration. Another approach which might help in this regard would be to include a term in the contract along the lines that the adjudicator’s decision is final unless challenged within a specific period of time.http://www.engineersjournal.ie/2016/01/12/finality-in-construction-adjudication/http://www.engineersjournal.ie/wp-content/uploads/2016/01/aacons1-1024x683.jpghttp://www.engineersjournal.ie/wp-content/uploads/2016/01/aacons1-300x300.jpgCivilconstruction,Ireland,legislation,United Kingdom