Adjudication and limitation defences

In LJR Interiors Ltd v Cooper Construction Ltd [2023] EWHC 3339 (TCC), the court decided that an adjudicator was wrong to reject a limitation defence raised by the responding party and that therefore his decision was void and unenforceable.

While many lawyers assumed the limitation defence could be used, where relevant, in adjudication proceedings, there was previously no judicial authority to confirm this. This case now provides that clear authority.

In August 2014 LJR Interiors Ltd (LJR) and Cooper Construction Ltd (Cooper) entered into a construction contract, in which LJR agreed to carry out dry lining, plastering and screed works at a property. The contract did not provide for an adjudication procedure and so the provisions of the Scheme¹ applied in default.

Works under the contract were completed by LJR on 19 October 2014.

On 31 July 2022, nearly eight years after completion of the works, LJR submitted Application No.4 to claim the amount of £3,256.58 due under the contract. This amount was small, but LJR had submitted several similar applications under several different contracts, therefore its enforceability was important to LJR.

Cooper did not respond to the application, pay the amount due or send a pay less notice and so LJR began adjudication proceedings.

The adjudication proceedings

LJR contended that the dispute between the parties arose ‘on or about 28 August 2022 when the sum due was not paid by the final date for payment’.

In defence, Cooper relied on Section 5 of the Limitation Act 1980 (Limitation Act), namely that the claim was time-barred because the time limit of six years had expired. Cooper’s position was that the relevant cause of action accrued on 28 November 2014 when they had failed to pay the invoiced sum or, in the alternative and at the latest, on 12 March 2015 when Cooper emailed LJR providing its reasons for non-payment.

The adjudicator addressed the limitation issue with reference to the general contractual principle that an action accrues when the breach takes place. He decided that the breach in this case was Cooper’s failure to make payment by the final date which he determined to be 28 August 2022. On this basis, he concluded that the relevant limitation period had not expired.

The adjudicator therefore awarded LJR the sum which it had claimed was due.

Subsequent proceedings

Cooper did not pay the adjudication award and LJR started Part 7 enforcement proceedings.

In response, Cooper launched Part 8 proceedings seeking a declaration that the adjudicator had been wrong to dismiss its limitation defence; LJR’s cause of action was in fact statute-barred; and the decision was therefore void and unenforceable.

The judge agreed with Cooper, deciding that the adjudicator had been wrong to conclude that section 5 of the Limitation Act was not relevant to the validity of Application No.4., finding that it would be unconscionable to ignore this error.

The judge stated that the definition of ‘action’ under section 38 of the Limitation Act should be read as including adjudication proceedings. The judge in support of this referred to a clause in Keating on Construction Contracts (11th edition):

“The Limitation Act 1980 and other enactments apply equally to adjudication in the sense that an adjudicator must treat the law of limitation as a substantive defence just as any other defence.”

The adjudicator, in determining the cause of action accrued on 28 August 2022, paid no regard to when the right to payment under Application No.4 accrued, as stated in the contract. The right to payment accrued on 28 November 2014. The unpaid balance did not simply become due again because it was demanded once more almost eight years later.

This gave Cooper a complete defence to LJR’s claim because it was statute-barred which meant the adjudicators decision was void and unenforceable.

Conclusion

This is the first reported case where the court has refused to enforce an adjudicator’s decision due to limitation and it raises some interesting points.

It acts as an important reminder that parties should always consider whether their claim might be time-barred before commencing, and incurring the costs of, an adjudication.  Getting this wrong can prove costly as demonstrated in this case.

Also, it highlights that the right to commence an adjudication at any time under the Housing Grants, Construction and Regeneration Act 1996 and the limitation defence provided by the Limitation Act are not in conflict.

¹The Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended)