Category Archives: restitution

Adjudication payment triggered implied contractual right to recover overpayment

Adjudication in construction disputes is designed to provide provisional resolution of disputes to preserve cash flow but the outcome is subject to final determination in later legal proceedings.

Provisions are implied into a construction contract under section 108(5) of the Housing Grants, Construction and Regeneration Act 1996, read with the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”).

By providing that the decision of an adjudicator is binding and that the parties shall “comply with it”, paragraph 23(2) of the Scheme makes the decision enforceable for the time being. It is enforceable by action founded on the contractual obligation to comply with the decision combined, in a normal case, with an application for summary judgment.

The limitation period for enforcement will be six years from the adjudicator’s decision. But the decision is only binding and the obligation to comply with it only lasts “until the dispute is finally determined” in one of the ways identified.

By use of the word “until”, paragraph 23(2) appears to contemplate that there will necessarily be such a determination. The short time limits provided by paragraph 19(1) also indicate that adjudication was envisaged as a speedy provisional measure, pending such a determination.

But there is nothing to prevent adjudication being requested long after a dispute has arisen and without the commencement of any proceedings.

Also its unlikely that the Scheme imposes on either party any sort of obligation to start court or arbitration proceedings in order to confirm its entitlement.

Either or both of the parties might understandably be content to let matters lie.

The Supreme Court in Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc (2015) has now provided some guidance as to when those proceedings must be brought and has come to some conclusions which could have bizarrely inconsistent results.

In that case Aspect had failed to pick up some asbestos on a survey which later impeded and added cost to Higgins’ contruction work. Higgins were awarded over £600,000 adjudication which was 75% of their claim. Aspect paid.

The contract was not entered into as a deed so the limitation period for bringing proceedings for breach of it was 6 years rather than 12 years from breach.

More than 6 years after their breach of contract Aspect sought recovery of monies they had paid Higgins under that adjudication award. However they issued proceedings for it within 6 years of paying it.

Aspect rested its claim on an implied term, alternatively in restitution.

The implied term was that:

“in the event that a 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 decision 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.”

The court said it was a necessary legal consequence of the Scheme implied by the 1996 Act into the parties’ contractual relationship that Aspect must have a directly enforceable right to recover any overpayment to which the adjudicator’s decision had led to, once there had been a final determination of the dispute.

The obvious basis for recognising that right was by way of implication arising from the Scheme provisions which were themselves implied into the construction contract.

If and so far as the court’s decision abolishes the basis on which the payment was made an overpayment is, retrospectively, established. Repayment must then be required either by contractual implication or, if not, then as an independent restitutionary obligation.

Since Aspect’s cause of action arose from payment and was only for repayment, then whether it was analysed as in implied contractual terms or restitutionary terms, it was a cause of action which could be brought at any time within six years after the date of payment to Higgins on 6 August 2009.

Higgins complained that this gave Aspect a one-way throw and undermined finality. By delaying commencement of the present claim until 2012, Aspect can sue to recover all or part of the £658,017 paid to Higgins, without having the risk of ending up worse off, since Higgins was barred by limitation from pursuing the £331,855 balance of its original claim.

That, however, resulted from Higgins’s own decision not to commence legal proceedings within six years from April 2004 or early 2005 and |Higgins has assumed the risk of not confirming (and foregoing the possibility of improving upon) the adjudication award it had received.

Adjudication had been conceived as a provisional mechanism, pending a final determination of the dispute.

Though it was understandable that Higgins should wish matters to lie as they were following the adjudication decision, Higgins could not ensure that matters would so lie without either pursuing legal or arbitral proceedings to a conclusion or obtaining Aspect’s agreement. In the absence of Higgins doing that there would be finality.

This post is made out of general interest. It does not replace the need to get bespoke legal advice in individualcases.

Construction companies appeal rights excluded judicial review and restitution of penalties

After the following cases the Office of Fair Trading (“the OFT”) had functions taken over by the Competition and Markets Authority (“the CMA”). and the Competition Act 1998 (“the 1998 Act”), was amended accordingly.

References to the OFT below would, for subsequent, current and future cases, be to the CMA instead.

The 1998 Act conferred upon the OFT a power to investigate, and to decide, whether a person has committed an infringement of the 1998 Act.

The OFT had power to impose a monetary penalty on the infringer.

The 1998 Act permits the person penalised to appeal to a specialist tribunal against the imposition of the penalty and/or the amount of the penalty. The rules lay down time limits for such an appeal.

What if the person penalised does not appeal but instead pays the full penalty? Can they, within six years of paying the penalty, sue to recover the penalty, on the ground that the penalty should not have been imposed? Or if the person penalised does not appeal but does not pay the penalty, can it then defend a claim by the OFT to recover the penalty on the ground that the penalty should not have been imposed?

In Lindum Construction Co Ltd & Others v The Office of Fair Trading (OFT) [2014] the majority of those infringements were “simple” cover pricing, which occurs where one of those invited to tender for a construction contract (Company A) does not wish to win the contract, but does not want to show its lack of interest to the client, whose work it may wish to be invited to tender for in the future. So Company A requests a cover price from another company that is tendering for the same contract (Company B). Company B will want the contract and will have decided a tender price and may already have tendered. The cover price it provides to Company A would be high enough to ensure that Company A doesn’t win. Company A submits this price to the client as though a genuine tender. Company B would not reveal its own tender price to Company A – the cover price would be an inflated price.

The High Court asked whether Parliament would have contemplated that a statutory challenge permitting a full appeal on the merits, created by the 1998 Act, should co-exist with the Claimants’ version of a non-statutory challenge with narrower grounds of challenge which required them to show that the imposition of the penalty or the amount of the penalty were unlawful, on “judicial review grounds”. Although in all but exceptional circumstances, the court would refuse permission for a judicial review where the applicant had a right of statutory appeal which, had it been used, would have been appropriate to deal with the applicant’s complaint.

The Claimants were instead advancing the judicial review grounds as the basis of a common law claim for restitution or by way of a defence to a claim for an unpaid penalty.

Dismissing the application the court said it was highly improbable that, in addition to creating a right to a full merits statutory appeal, subject to controls and limitations, Parliament would have left open the possibility of:

1. a person defending a claim for the penalty on the ground that the unappealed penalty was not in fact due; and

2. a person who had paid the unappealed penalty later claiming restitution of it.

So, the 1998 Act should be construed as providing that the statutory appeal provided by the 1998 Act is the exclusive remedy for challenging a penalty.

If there was no successful appeal against a penalty:

1. the party which was affected by the penalty was bound by it; and

2. the OFT would not be acting unlawfully in receiving payment of such a penalty or taking proceedings to recover an unpaid penalty.

Accordingly, those Claimants who had paid the penalty imposed on them were not able to challenge that penalty by making a common law claim for its restitution. Lindum, which had not paid the full amount of the penalty, remained liable to pay the balance.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.