What happens if a construction contract fails to comply with the adjudication requirements of the Construction Act 1996 (as amended)?
In particular, what if a Tolent clause offends the Construction Act 1996 (as amended)? Will the Scheme for Construction Contracts 1998’s adjudication provisions replace all the contractual adjudication provisions?
Old regime was straightforward
Under section 108(5) of the Construction Act 1996 (as enacted), failing to comply with its statutory adjudication requirements meant that the entire contractual adjudication procedure was replaced by Part I of the Scheme for Construction Contracts 1998.
TCC authority suggested that this approach applied equally to Tolent clauses, to the extent that they offended the Construction Act 1996. For example, in Yuanda (UK) Co Ltd v WW Gear Construction Ltd, Edwards-Stuart J held that a Tolent clause conflicted with the right of a party to refer a dispute to adjudication “at any time” (section 108(2)(a), Construction Act (as enacted)), so Part I of the Scheme for Construction Contracts was “brought in – lock, stock and barrel”.
New regime is clear, but different
Section 108A of the Construction Act (as amended) ostensibly prohibits Tolent clauses, but there is some controversy about whether it actually does so. As such, many practitioners will avoid using Tolent clauses until section 108A has been tested in court.
What would happen if a court found that your Tolent clause offended the Construction Act 1996 (as amended)? Some commentators suggest that this would imperil all your contractual adjudication provisions, just as under the old regime. In fact, that is unlikely. This is because section 108(5) of the Construction Act 1996 (as amended) only replaces all the contractual adjudication provisions with the Scheme’s adjudication provisions if a contract fails to comply with sections 108(1) to 108(4). Section 108(5) does not apply to section 108A, which contains the anti-Tolent provisions. While there is no express provision stating what happens when section 108A is offended, this clearly implies a different effect to section 108(5), something that was confirmed by the government in July 2011.
It remains possible that a court would follow Edwards-Stuart J’s reasoning in Yuanda when considering this point in relation to the Construction Act 1996 (as amended). However, that would be a surprise given the wording of sections 108(5) and 108A, and the government’s comments during the legislative process.
Why is this important?
Practitioners should be aware of the relationship between sections 108(1)-(5) and 108A when drafting contractual adjudication provisions to comply with the Construction Act 1996 (as amended), especially if they are weighing up the risks of including a Tolent clause (or some similar provision). Equally, anyone advising on an executed contract that contains clauses which may offend section 108A needs to understand the consequences in order to advise their client properly.
