LJR Interiors Ltd v Cooper Construction Ltd [2023] EWHC 3339 (TCC)

On 11 January 2023, the High Court handed down its decision inLJR Interiors Ltd v Cooper Construction Ltd [2023] EWHC 3339 (TCC), which found that an adjudicator had incorrectly ignored the limitation defence that the responding party raised.

The Facts

On 26 August 2014 the parties entered into a written contract under which LJR Interiors Limited (“LJR”) agreed to undertake the dry lining, plastering and screed works for Cooper Construction Limited (“Cooper”) at a development property in the village of Minster Lovell, Oxfordshire. The contract comprised LJR’s letter and revised quotation dated 9 July 2014 and Cooper’s purchase order dated 26 August 2014 (“the Contract”).

LJR’s quote was £18,675 plus VAT, which was based on the measurements and prices detailed within it. Cooper’s purchase order stated “All quantities and work is subject to remeasurement”. LJR’s payment terms included the following:

“a) Our rates make allowance for 2.5% mcd, based on payment to be made 28 days from Invoice / Valuation, based on an Invoice being submitted on the last day of each month. We reserve the right to recover any costs incurred as a result of late payment”

The works under the Contract were completed on 19 October 2014. On 31 July 2022, LJR submitted to Cooper Application No.4 in the sum of £3,256.58 excluding VAT. Cooper did not respond to Application No.4 nor did they pay the requested sum.

The adjudication

On 9 September 2022, LJR gave Cooper a notice of intention to refer a dispute under Application No.4. As the Contract did not contain a provision for the reference of disputes to adjudication, Part I of the Scheme for Construction Contracts was implied into it by section 108(5) of the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”).

LJR stated in their notice that the dispute arose when the notified sum was not paid by the final date for payment on 28 August 2022. Interest on the sum claimed was sought for the period commencing 28 July 2022. In Cooper’s Response to the referral, the question of limitation was raised on the basis that Application No.4 was issued outside the limitation period of six years. Cooper argued that the limitation period was initiated following LJR’s Application No. 3, which LJR issued on 31 October 2014. However, LJR’s position was that the limitation period commenced from 20 December 2016 pursuant to an email received from Cooper.

The adjudicator held that Application No.4 constituted a valid application for payment pursuant to s110A(3) of the 1996 Act. When reaching their decision, the adjudicator rejected Cooper’s argument that section 5 of the Limitation Act 1980 (“the 1980 Act”) applied as the breach occurred on 28 August 2022 when Cooper failed to make payment of a sum claimed by the final date for payment. As the Contract did not contain any provisions regarding a delay in applying for payment, the adjudicator stated that the relevant provisions for the Scheme for Construction Contracts (England and Wales) 1998 (“the Scheme”) applied. LJR were found to have been entitled to the sum of £3,256.58 by the final date for payment.

The claimant, LJR, sought enforcement of the adjudicator’s decision through the grant summary judgment against the defendant, Cooper (“Part 7 Claim”). In response, Cooper launched a cross-claim seeking a declaration that the adjudicator’s decision was void and unenforceable on the basis that the sum awarded in LJR’s favour was barred by limitation (“the Part 8 Claim”).

Hutton Construction Ltd v Wilson Properties (London) [2017] EWHC 517 (TCC)

In resisting the Part 7 Claim, Cooper argued that their Part 8 Claim fell squarely within the challenge of Hutton v Wilson, in which the judge said that to successfully resist summary judgment of an adjudication enforcement application the defendant must be able to show:

1. That there is a short and self-contained issue which arose in the adjudication and which the defendant continues to contest;

2. That the issue requires no further evidence beyond that which can be provided at the hearing to determine the enforcement; and

3. That it would be unconscionable for the court to ignore the issue in question.

HHJ Russen KC highlighted that notwithstanding the Hutton test, the inherent principle of “pay now and argue later” usually renders irrelevant whether an adjudicator’s decision is incorrect. Nonetheless, the Court recognised that Application No.4 did not constitute a typical application for the purpose of the provisions under Part II of the Scheme. The Court considered that the first two elements of the Hutton test were satisfied due to procedural considerations that underpin the cash-flow objective of the Scheme.

An erroneous approach

HHJ Russen KC stated that the adjudicator wrongly gave no consideration to the terms of the Contract regarding when the right to payment of the balance sought by Application No.4 accrued and the adjudicator seemingly assumed that it was unnecessary to consider whether the application was timely enough given the lack of a pay less notice. Whilst it was agreed that the Contract did not equate to a standard form contract, Cooper relied on the fact that Application No.4 concerned sums which fell due on 28 November 2014 following completion of the works and submission of Application No.3.

The Court stressed that it was an erroneous approach for the adjudicator not to address that a limitation period cannot be refreshed simply by making a claim for payment of sums already demanded, which would otherwise operate as a bar to recovery on limitation grounds. Further, the Judge held that under section 38 of the 1980 Act, the term “action” should be interpreted as including adjudication proceedings.

On the evidence presented to the adjudicator the works were completed on 19 October 2014. This supported the conclusion that a claim for payment of the retention made seven and a half years after completion of the works was statute barred. Therefore, the adjudication decision was wrong and the Court concluded that it would be unconscionable to ignore the limitation defence available in adjudication enforcement, to the extent that it fell within the guidance of Hutton v Wilson.

Consequently, the Part 7 Claim was dismissed, and the Court granted the declaratory relief sought by Cooper to the effect that the claim under Application No.4 was statute barred. Therefore, the adjudication decision requiring payment of the requested sum was unenforceable against Cooper.

Comment

This case is the first reported instance where the Court has considered not enforcing an adjudication decision due to limitation and it raises a few interesting points.

Firstly, this judgment serves as the first authority to confirm the point raised by Dyson LJ in Connex South Eastern Ltd v M J Building Services Group plc [2005] EWCA Civ 193 that a party runs the risk that limitation will be considered a defence when bringing a late claim, which could result in an adjudication decision that favours the respondent. Further, the Court was able to demonstrate how summary judgment enforcement can be resisted using the guidance of Hutton v Wilson in the context of limitation.

Secondly, this case 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 1980 are not in conflict. However, parties should consider whether their claim might be time barred before commencing and incurring the costs of an adjudication to assess the possibility of whether any adjudication decision granted in their favour may not be enforceable due to expiry of the limitation period.