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It's Not Over Until It's Over

A recent Supreme Court case illustrates the risks of not formally 'closing down' construction disputes, but simply sitting on your hands after an arbitration settlement that seems acceptable.

A developer retained a contractor to carry out an asbestos survey of various properties it was considering developing. After the redevelopment was started, the developer claimed that it had found and had to remove asbestos which had not been revealed by the survey report and a dispute arose as a result.

After an unsuccessful attempt to resolve the matter by negotiation, the dispute went to adjudication and the contractor who carried out the survey was ordered to pay the developer more than £650,000 in compensation and interest. The sum paid was approximately £300,000 less than the original claim.

There matters rested for some time. The limitation period that applied to bringing any further claim under the contract for breach of contract expired in April 2010 and the limitation period imposed under the Limitation Act 1980, for an action based on the law of tort (damages), ended in early 2011.

In 2012, the contractor sought to reclaim the sum it had paid to the developer. It alleged that there should have been no claim against it on the merits of the evidence put before the adjudicator. The developer then demanded the balance of its original claim plus interest. The contractor claimed that this counterclaim was 'out of time'.

The Court of Appeal ruled that the terms agreed between the parties allowed any overpayment to be recovered. The crux of the issue was whether it would be fair to have a limitation period that related to the date on which the contract was performed determine the date on which the right to make a claim expired and whether a declaration of non-liability by a court (i.e. a decision that there should have been no award against the contractor in the first place) was time-barred.

The case then went to the Supreme Court, where the key question was considered to be how far the contractor would be able to disturb the provisional position established by the adjudicator's decision, by itself commencing proceedings after the time had elapsed when the developer could bring any claim based on the original breach of contract or tort.

In essence, the contractor was claiming that it should have the money it had paid refunded but the developer had lost the right to pursue its claim for the balance of the sum it originally sought.

Lord Mance commented that 'adjudication was conceived...as a provisional mechanism, pending a final determination of the dispute'. Whilst it might well have suited the developer to let matters lie as they were, the contractor's right to repayment of an overpayment once the original dispute had been settled was clear.

However, in the final resolution of such a claim, the judge stated that the hearing could 'not be confined to the points which the adjudicator in his or her reasons decided in its [the contractor's] favour' and that the developer would 'be able to rely on all aspects of its claim'.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.