Facts
Cooper Construction contracted with LJR Interiors to perform dry lining, plastering and screed works at a development property in Oxfordshire. The parties did not adopt a standard form contract, and instead reached agreement through letter and purchase order on 26 August 2014. The agreement did not include an adjudication clause, so the Scheme for Construction Contracts applied by virtue of the Housing Grants, Construction and Regeneration Act 1996.
The works were completed on 19 October 2014. LJR submitted three payment applications. Cooper paid the sums due minus £1,900, which was a portion it disputed. The parties exchanged emails between 2015 and 2016, ending in an email from LJR on 20 December 2016 purporting to request payment. 6 years later, on 31 July 2022, LJR sent to Cooper Payment Application No. 4 for £3,257. Cooper neither paid nor responded, leading LJR to raise an adjudication on 9 September 2022.
Adjudication
LJR argued it was entitled to payment under the contract, since the final date for payment had passed for Application No. 4 on 28 August 2022. Cooper responded that Application No. 4 was time-barred as it had been submitted outside the 6-year limitation period, which it claimed ran from 31 October 2014 when LJR issued Application No. 3. Cooper contended that Application No. 4 was simply a restatement of No. 3. LJR pointed to its email in December 2016 as the starting point for limitation.
The adjudicator decided that Application No. 4 was a valid payment notice, with the limitation period running from 28 August 2022 when Cooper failed to make payment. LJR raised a Part 7 claim to enforce the adjudicator’s decision, while Cooper lodged a Part 8 claim to have the decision declared void.
Court’s decision
The judge began by recounting that adjudication decisions are designed to be enforced (bar very limited circumstances), as the primary principle is to “pay now and argue later”. Hutton Construction Ltd v Wilson Properties (London) [2017] EWHC 517 (TCC) explained what a party resisting enforcement through a Part 8 claim must show to succeed. It needs to demonstrate that there is a clear-cut issue, not relating to a matter of fact, in which the adjudicator’s decision was wrong to the extent that it would be “unconscionable for the court to ignore”. This is a high bar, beyond an adjudicator simply reaching the wrong decision. There must have been some obvious error, misconstruction or irrationality for this threshold to be met.
In this case, the court had to decide whether the adjudicator was wrong in considering Application No. 4 to be within the limitation period, and whether this was significant enough to pass the Hutton test.
On the first point, the court applied s.5 of the Limitation Act 1980 to determine the date on which the cause of action began. The adjudicator had believed that a right to payment could arise years after contractual completion of the works, since the Scheme for Construction Contracts did not specify a time limit for raising payment applications.
However, the court rejected this interpretation. Application No. 4 was close to a duplication of No. 3, and the limitation period could not be renewed simply by repeating a claim for sums previously demanded. The right to payment for Application No. 4 was connected to works covered by Application No. 3, which were works completed 7.5 years before LJR issued Application No. 4 to Cooper. Nor did LJR’s December 2016 email restart the limitation period, as the email exchange did not relate to the whole claim – Cooper had only acknowledged a debt of £9.84, a fraction of the £3,257 claimed by LJR. Accordingly, Application No. 4 was time-barred.
Given that the adjudicator had made a clear error in law, with the effect of depriving Cooper of a complete defence to LJR’s claims, the court ruled that the Hutton threshold had been met. It was also relevant that LJR had decided to sit on its claim for years; this defied the purpose of adjudication, which is to dispense efficiently with disputes. The judge therefore granted Cooper declaratory relief and refused to enforce the adjudicator’s decision.
Key takeaways:
- As noted in Breakshore v Red Key Concepts, Part 8 challenges against adjudication decisions are often misplaced and lead to adverse cost awards; however, this case shows they can succeed where there was a serious error of law that is a self-contained issue and which would be unconscionable for the court to ignore.
- Adjudications should not be held off but raised promptly – businesses that wait for years run the risk of their claims becoming time-barred, with potentially significant consequences.
Click here for a link to the full decision in LJR Interiors Ltd v Cooper Construction Ltd.