Limitation in adjudication

United Kingdom

The six-year itch

Six years means different things to different people.

After six years of marriage, spouses can expect a gift of iron - the metal not the domestic appliance. For astronomers, six years is how long it takes light from Barnard's Star (a relatively nearby star) to reach Earth. This means that when the star is observed it is seen where it was six years ago. For those involved in construction disputes, six years evokes the limitation period for claims under "simple contracts". Simple contracts are contracts not executed by deed (for which the limitation period is twelve years).

It is now over six years since the statutory adjudication regime came into force. Consequently limitation issues may soon begin to crop up in adjudications. No doubt most claims referred to adjudication will continue to be for unpaid monies during or immediately after the project and limitation issues will not arise. However, the success of adjudication amongst the industry suggests that, unless changes are made to the regime, it will continue to be used for all sorts of other construction disputes, such as defects claims.

Generally speaking a party who claims under a simple contract (whether for a breach or a debt) has six years to commence legal proceedings before his claim becomes time-barred. The catch is that time runs even if a wronged party is unaware of his contractual rights or a breach. For example a latent defect might only become apparent more than six years after the breach that caused it occurred. The Latent Damage Act 1986 tries to protect claimants alleging negligence against such injustice. However, it does not apply to contractual claims, which are invariably the only claims that adjudicators are asked (or possibly have jurisdiction) to address.

Although limitation periods seem like an unjust time limit on claims, they seek to protect defendants from being vexed by stale claims relating to long past incidents about which their records no longer exist and witnesses' memories have faded. They also allow parties involved in projects after a certain time to treat the project as closed and recycle that demi-rainforest of records that they have been expensively archiving. Final certificates usually provide some closure to a project but do not usually prevent all future claims, such as claims for latent defects.

The law is tolerably clear regarding whether contractual claims are time-barred in court or arbitration proceedings. However, the position is more complicated for adjudication.

In the recent TCC case of Connex South Eastern Ltd v MJ Building Services Group plc the Judge stated that: "Whilst no limitation period is laid down for instituting an adjudication, a limitation defence must be taken into account by the adjudicator."

This suggests that if an adjudication is not commenced within six years of a claim arising under a simple contract, the claim will be time-barred. However, limitation is technically speaking a procedural defence. It is unclear whether adjudicators are empowered to dismiss claims on procedural grounds. Under the Scheme the adjudicator's only recourse seems to be to resign. This is not particularly helpful where only part of the dispute is time-barred.

Another issue is: what happens if the claim advanced in the adjudication is not time-barred but any subsequent enforcement proceedings are commenced after the limitation period has expired? This raises the much-debated question of the status of an adjudicator's decision. Some consider that an adjudicator's decision merely expresses liability and quantum in the dispute that arose under the contract. When the decision is enforced it is the original claim (so far as the adjudicator upheld it) that is enforced and not the adjudicator's decision. On this basis any enforcement proceedings would presumably be time-barred because the right to claim would have occurred more than six years previously. If this analysis is correct, even if an adjudication is started on time, an adjudicator might consider resigning (to avoid wasting time and costs) if any enforcement proceedings to enforce his decision would be time-barred.

Others say that it is the adjudicator's decision itself that is enforced. On this basis, it is unclear what the limitation period is for enforcing an adjudicator's decision – although it is likely to be academic if enforcement proceedings are brought (as they are likely to be) soon after the decision is made.

At the moment, so far as adjudication is concerned, there are a number of limitation issues still to be ironed out. Like Barnard's Star, the position looks the way it did six years ago. That may change, but do not expect lawyers to resolve the current uncertainties at the speed of light.

For further information please contact Rupert Choat via email at [email protected]