Practical Law

Under section 108 of the Construction Act 1996, parties to a construction contract have the right to refer a dispute to adjudication “at any time”. Over the years, much has been written about the meaning of “at any time”, but I think its meaning is relatively clear.

Liability for the costs of an adjudication is another issue that has exercised considerable column inches, particularly in recent times, with the amendments to the Construction Act 1996 on the horizon. Generally, for the adjudicator, this issue is very straightforward.

Just occasionally, these two issues collide.

A number of potential permutations can arise, such as:

• The parties pay their own costs, and split the adjudicator’s fees.
• The parties pay their own costs, and the adjudicator determines who pays his fees.
• The adjudicator has an express power (in the construction contract or the adjudication agreement) to decide which party will pay the costs of the adjudication, including his fees.
• The referring party is liable for all the costs of the adjudication, including the adjudicator’s fees.

It’s the bottom one that I’m interested in, the so called Tolent clause. In Bridgeway Construction Ltd v Tolent Construction Ltd (2000) CILL 1662, the contract said that the referring party would be responsible for both parties’ costs and the court upheld this term, observing that contracting parties could agree to whatever terms they like. The court rejected an argument that the clause was contrary to section 108: it found that it applied equally to both parties because it applied to whichever party started the adjudication. It did not restrict either party from referring a dispute “at any time”.

Like it or not, over the last 10 years, Tolent clauses have persisted within the industry and adjudicators have made costs orders based on them. Given their unpopularity, amendments to the Construction Act (if they ever come into force) should make them unenforceable. In the meantime, Edwards-Stuart J’s judgment in Yuanda v WW Gear may have changed all this. In Yuanda, the contract said that the trade contractor would be liable for the costs of an adjudication, regardless of which party referred the dispute to the adjudicator.

I wrote about Yuanda at the time. It is an important judgment because Edwards-Stuart J said that clauses like the one he was looking at do inhibit a party’s right to refer a dispute “at any time”. I can see the sense in that. If a party has to think about whether it can afford to refer a dispute to adjudication because of the costs liability of doing so, that has fettered its right to refer.

So, following Yuanda, I expected to receive submissions on Tolent clauses. I wasn’t disappointed, although I was a little surprised recently that I was asked to look at a contract clause that didn’t go as far as either Tolent or Yuanda, it simply said the referring party would be solely liable for the adjudicator’s fees and expenses. A sort of watered-down version of a Tolent clause.

I was asked to determine that because of Yuanda, this clause was a nullity and the adjudication provisions of the Scheme for Construction Contracts 1998 should apply to the contract.

I decided the clause wasn’t a nullity. Some may be surprised that I didn’t follow Yuanda, and preferred to follow Tolent, but I had two conflicting first instance decisions to consider. On the facts, I was able to distinguish Yuanda, finding that the clause I was looking at was more analogous to a Tolent clause. In fact, the clause in Tolent was more restrictive than the one I was asked to look at, hence my decision.

I’m sure the debate on costs will continue, not least because there is already a debate raging as to the meaning of section 108A. If that section was intended to end the debate, I don’t think the parliamentary draftsmen have succeeded. Equally, while the decision in Yuanda may be welcome, I’m not the only one who thinks it leaves Tolent clauses intact and enforceable. It may have opened, rather than closed, a can of worms.