The purpose of the Limitation Act 1980 is to ensure that potential Defendants to litigation are not faced with the risk of litigation in perpetuity, and to recognise the risks to a fair trial if witness evidence has faded or documentary evidence is no longer available.
Section 5 of the Limitation Act states that “An action founded on simple contract shall not be brought after expiration of the 6 years from when the cause of action accrued”.
In the case of LJR Interiors v Cooper Construction , the Court considered whether “an action” includes adjudication proceedings.
In 2014, Cooper Construction Limited (“Cooper”) appointed LJR Interiors (“LJR”) to carry out works at a development property. The agreement comprised of a letter, quotation and purchase order.
In the adjudication, the adjudicator had concluded that the adjudication provisions were those contained in Part 1 of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”) were implied into the contract, and that the payment provisions set out in Part 2 of the Scheme also applied.
The works were completed in late 2014. However, nearly 8 years after completion, LJR submitted a payment application (“Application No. 4”) to Cooper. Cooper failed to acknowledge the application and so LJR brought an adjudication on the basis that Cooper had failed to provide a pay less notice within the prescribed timescales.
In defence, Cooper relied on section 5 of the Limitation Act and argued LJR’s claim was time-barred: Cooper’s position was that the action accrued when it had failed to pay the invoice in 2014.
In turn, LJR relied upon the fact that section 108(1)(a) of the Housing Grants, Construction and Regeneration Act 1996 states that a construction contract shall enable a party to refer a dispute to adjudication “at any time”.
The adjudicator, agreeing with LJR, found that the Limitation Act had no bearing on the validity of the claim, and awarded LJR the sum claimed.
Following LJR commencing enforcement proceedings, Cooper sought a declaration from the Court that the claim was time-barred.
The Court noted that section 38 of the Limitation Act, which provides a definition of “an action”, does not expressly refer to adjudication. The Judge was wary of this and provided a health warning that the judgment “should be read with the caution they are largely the product of my own thoughts and therefore lack the firmer footings usually provided by full adversarial argument”.
Nevertheless, the Court noted the following:
- The significant delay by LJR in bringing Application No. 4. The Judge noted that, in light of the delay, the adjudication by LJR should be viewed less as a “smash and grab” and more as a “return to an otherwise cold contractual scene long after the time when any appropriate investigations into it might be expected to have concluded”. The Judge noted that the Scheme is designed to support cash flow, but in this case the construction works had long since been completed;
- In Connex South Eastern Limited v M J Building Services Group PLC , the Court of Appeal had stated:
“. . . the phrase “at any time” means exactly what it says . . . There is . . . no time limit. There may be circumstances as a result of which a party loses a right to refer a dispute to adjudication: the right may have been waived or the subject of an estoppel. But subject to considerations of this kind, there is nothing to prevent a party from issuing Court proceedings after the expiry of the relevant limitation period. Just as a party who takes that course in court proceedings runs the risk that, if the limitation defence is pleaded, the claim will fail (and indeed may well be struck out), so a party who takes that course in an adjudication runs the risk that, if the limitation defence is taken, the adjudicator will make an award in favour of the respondent”.
- Further, in the Supreme Court decision of Aspect Contracts (Asbestos) Limited v Higgins Construction plc , the Supreme Court had determined that limitation did apply to adjudication enforcement proceedings;
- The Judge also noted that paragraph 12 of Part 1 of the Scheme required the adjudicator to reach his decision “in accordance with the applicable law in relation to the contract”: the Judge concluded that must include the Limitation Act 1980.
On that basis, the Court concluded that limitation did apply to both adjudication proceedings and to the enforcement of adjudication proceedings.
Whilst instinctively it seems correct that limitation must apply to adjudication, the Judge’s caution reflects the risks around the silence of the Limitation Act on this point, and the lack of case law specifically addressing this point to date.
Further, there is potentially argument not only on the applicability of the Limitation Act, but also when the cause of action accrues. In this case, the Court concluded that time ran from when invoices were submitted; in Hirst v Dunbar , the Court concluded that a contractor’s right to payment arises on the date of completion of the works.
For contractors, the safest course of action is to seek payment promptly.
This article was co-written by Stephanie Atkins, Trainee Solicitor.