Legal issues:limitation periods and adjudication

Rob Palles-Clark of Brewer Consulting considers limitation periods and adjudication.

The case:

Jim Ennis Construction Limited -v- Premier Asphalt Limited [2009] EWHC 1906 (TCC), 24 July 2009.

The issue:

The impact of the Limitation Act 1980 on adjudication decisions.

The implication:

There is an implied term that the losing party to an adjudication may subsequently bring proceedings to have a dispute finally determined by arbitration or litigation as appropriate, notwithstanding the fact that that limitation period applicable to the cause of action referred to the adjudicator had expired; that the new cause of action in relation to this term arises at the date of payment pursuant to the adjudicator's decision, and that the losing party has six years to commence proceedings thereafter.

It is well understood that the Limitation Act 1980, in circumstances where it applies, provides a complete defence to a claim where proceedings are commenced outside the limitation periods.

In the absence of any other provision in the contract, an action based on a simple contract must be brought within six years of the date on which the cause of action accrued and a claim upon a deed must be brought within 12 years. In contracts, the cause of action accrues at the date of the breach, but under a construction contract this may not necessarily be the same as the date upon which the acts complained of were carried out.

A key question that, until now, has not been directly answered is whether an adjudicator's decision that is delivered close to or after the expiry of the limitation period effectively becomes final by virtue of the fact that it is not then possible to commence proceedings in relation to that dispute within the applicable limitation period.

This important question has now been considered in the case of Jim Ennis Construction Ltd -v- Premier Asphalt Ltd (2009). The claimant was employed as a subcontractor to construct road works to the entrance of a supermarket in Lancashire. They sub-subcontracted the macadam surfacing works to the defendant under a simple contract to which the six-year limitation period applied. On 29 May 2002, the engineer under the main contract wrote to the main contractor complaining about the base course laid by the defendant. The claimant removed it and, on 18 June 2002, the defendant replaced it. There was no agreement as to who was liable for the costs of replacement and, on 17 December 2002, the defendant made its final application for payment, which included the cost of replacing the base course. The claimant refused to pay this sum and made further reductions amounting to a total deduction from the defendant's application of £38,647.22.

Almost six years later, on 15 September 2008, the defendant referred the matter to adjudication. This was within the limitation period for a claim in contract founded on the non-payment of the defendant's application for payment but outside the limitation period for the claimant to make a claim against the defendant for breach of contract in relation to the alleged defects in the work.

The adjudicator gave his decision on 13 November 2008, requiring the claimant to pay the defendant the sum of £38,647.22 with interest. The claimant did not accept the decision, but made the required payment. On 18 December 2008, the claimant sent a letter of claim, and then issued proceedings on 15 April 2009 in the Manchester Technology and Construction Court.

Limitation period

The first question before the court was therefore whether the defendant could use the defence that the limitation period had expired in relation to the proceedings commenced on 15 April 2009.

The defendant principally argued that the claim was one for a breach of contract that must have occurred before 29 May 2002 when the engineer wrote complaining about the base course, with the result that the proceedings had been commenced out of time.

The claimant principally argued that the decision of the adjudicator gave rise to an independent cause of action separate and distinct from the underlying cause of action in respect of the dispute referred to the adjudicator; that there was an implied term of the contract that the losing party in an adjudication who pays the sums directed has the right to reclaim those sums in proceedings or re-argue the dispute in court; and if successful be entitled to repayment of the sums paid, and that the implied term either ousts the provisions of the Limitation Act or gives rise to a new cause of action at the time of the payment in accordance with the adjudicator's decision.

Consistent with a number of previous cases, HHJ Stephen Davies decided that the obligation to comply with the adjudicator's decision does give rise to a new cause of action in favour of the successful party to compel the losing party to comply with that decision. This was not a complete answer for the claimant as it was not seeking to enforce the decision, but to have the court finally determine the dispute decided by the adjudicator.

The second argument (that there was an implied term) is the point of particular interest in this case. The judge agreed that it was appropriate to imply the term contended for by the claimant and indeed found that it was necessary to make fully workable the concept of the temporary finality of the adjudicator's decision that lies at the heart of the policy behind the Act and the court's preference to enforce adjudicator's decisions in a manner consistent with this policy.

Thus a cause of action can only arise when the losing party pays the winning party pursuant to the adjudicator's decision, and because this claim is founded on a simple contract, the losing party has six years from the date of payment to bring proceedings to recover the payment.

It will be interesting to see to what extent this judgment is followed in future cases, since although the result is understandable from a policy point of view, the effect of the decision may be that in order to stall a limitation defence, all you need to do is to commence adjudication.