There has been considerable debate over the meaning of section 108A of the Construction Act 1996 (as introduced by the LDEDC Act 2009). Most of that debate has centred on the interpretation of section 108A(2) and whether imprecise drafting means that something like a Tolent clause may still be permitted in certain circumstances. However, some in the industry are beginning to raise concerns about whether a number of well-known adjudication rules comply with section 108A(1). Part of this concern relates to the meaning of “allocation”.
What does section 108A say?
“This section applies in relation to any contractual provision made between the parties to a construction contract which concerns the allocation as between those parties of costs relating to the adjudication of a dispute arising under the construction contract.”
“The contractual provision referred to in subsection (1) is ineffective unless (a) it is made in writing, is contained in the construction contract and confers power on the adjudicator to allocate his fees and expenses as between the parties, or (b) it is made in writing after the giving of notice of intention to refer the dispute to adjudication.”
What do adjudication rules say about costs?
First the good news. The Scheme for Construction Contracts 1998 doesn’t mention the parties’ costs at all (only the adjudicator’s costs). TECBAR‘s adjudication rules refer back to and rely on the Scheme. TeCSA has introduced a clause in version 3.2 of its adjudication rules that addresses the parties’ costs, which expressly refers to the parties’ agreement being post-notice (to comply with section 108A(2)(b)).
So far, so good. No issues here with whether these adjudication rules comply with section 108A(1).
However, the ICE has released a 2011 version of its adjudication rules, which includes the following provision (emphasis added):
“The Parties shall bear their own costs and expenses incurred in the adjudication. The Parties shall be jointly and severally responsible for the Adjudicator’s fees and expenses… in his decision the Adjudicator may direct a Party to pay all or part of his fees and expenses. If he makes no such direction the Parties shall pay them in equal shares.”
The CIC has also released a 2011 version of its adjudication rules, with the parties bearing their own costs (paragraph 29) and giving the adjudicator power to apportion his fees and expenses (paragraph 30). Interestingly, if the adjudication does not proceed, the referring party will be liable for these fees (paragraph 30). The CIC rules then go further, and address section 108A(2)(b): they reflect the fact that the parties can agree post-notice who will be liable for the parties’ costs (paragraph 31).
CEDR‘s September 2008 rules also refer to each party bearing its own costs (paragraph 22) and then, separately, give the adjudicator the power to apportion his fees and expenses (paragraph 24).
What does this all mean?
On the face of it, the ICE, CIC and CEDR adjudication rules look like they could fall foul of section 108A(1). After all, they state who bears each party’s costs. But do they break the rules? And (most importantly) if they do, does it matter?
When the controversies about section 108A(2) were on peoples’ minds, one way of categorising the arguments was into two different camps of interpretation. In summary, the narrow camp argued that Tolent clauses were now prohibited by section 108A(2) and the wide camp argued that they could continue (contrary to the generally understood intention of the legislation).
Keeping those same descriptions, the answer may again depend on whether you fall into the narrow or wide intepretation camp:
- The “narrow” camp could argue that an express statement that the parties pay their own costs constitutes a “contractual provision” that concerns the “allocation as between those parties of costs relating to the adjudication”. That is because the clause is allocating the costs of party A to party A and the costs of party B to party B. (Of course, there is a countervailing argument that a restatement of the common law position that each party will bear its own costs is not an “allocation” at all…)
- A clause allocating costs is ineffective unless it complies with section 108A(2). The “wide” camp could argue that the second part of the clause “saves” it and prevents the clause from falling foul of section 108A(1) (although this may not help CIC or CEDR, who spread the provisions across two rules: that depends on how you interpret “contractual provision”).
But isn’t it all circular?
It is arguable that this isn’t something that lawyers and their clients should get too worried about.
As drafted, the clauses make each party liable for their own costs. If you adopt the narrow view, and that bit of the clause is deemed ineffective, that is the position at common law anyway. (If section 108A means that a provision is ineffective, it is just that provision that is affected, not the rest of the contract’s adjudication clause. The whole of the Scheme does not automatically apply.) After all, that’s where we start with the Construction Act 1996, which always envisaged each party bearing its own costs.
The parties may be more concerned if the whole of the clause is deemed to fall foul of section 108A(1), because they may want the adjudicator to have an express right to apportion his fees and expenses as he sees fit. Even that hurdle could be overcome by giving the adjudicator the express right to apportion, either in the contract or in the adjudication (in the notice, referral and response), to support the intention of the adjudication rules.
Finally, if you are in the wide camp, it doesn’t matter as the issue doesn’t arise. You think the clause complies anyway!