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The “great” section 108A debate – part 1

The Society of Construction Law has hosted various “great” debates over the years, most memorably the Great Delay Analysis Debate. A new title the SCL may wish to consider is the “great section 108A debate”, as I seem to hear about little else at the moment.

What is the section 108A debate about?

Section 108A of the Construction Act 1996 (as amended) will come into force with the rest of the amendments in the LDEDC Act 2009. When that will be is currently unknown, but hopefully before the end of this year.

The relevant part of section 108A reads as follows:

“(1)  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.

(2)  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)  … .”

Section 108A was included in the amendments in an attempt to banish so-called Tolent clauses to the realms of history. (These are clauses that provide for the referring party to bear both parties’ costs and expenses of an adjudication and were found to be valid in Bridgeway Construction Ltd v Tolent Construction Ltd [2000] CILL 1662.)

However, as the draft Bill proceeded through parliament, many expressed concern that the original draft wording might prevent adjudicators from allocating their fees and expenses between the parties. Parliament therefore included subsection (2)(a) to expressly refer to the adjudicator’s right to determine liability for his fees and expenses. This is where the problem started.

Most people I have spoken to about the meaning of section 108A appear to be in one of two camps: the narrow interpretation camp or the wide interpretation camp.

The narrow interpretation camp

Those in the narrow interpretation camp consider that, when subsections (1) and (2)(a) are read together, they do “exactly what it says on the tin”. That is, they banish Tolent clauses but still permit clauses that allow adjudicators to allocate their fees and expenses.

This camp:

  • Maintains that subsection (2)(a) should be construed narrowly. The only contractual provisions that will be effective are ones that “…confer power on the adjudicator to allocate his fees and expenses as between the parties”.
  • Argues that any attempt to widen the provision to include a Tolent clause goes beyond subsection (2)(a) and would constitute a separate provision, which would be invalid.

The wide interpretation camp

Those in the wide interpretation camp point out that subsection (1) refers to:

“…any contractual provision… which concerns the allocation… of costs as between those parties” (my emphasis).

As such, the subsection should catch a Tolent clause (or even the more onerous type of clause found in Yuanda v WW Gear Construction).

Because subsection (2) states that such a contractual provision will only be ineffective if it does not comply with the provisions of subsections (2)(a) or (2)(b), the wide interpretation camp argues that any contractual provision on costs will be effective (regardless of whether it includes a Tolent clause or something more onerous) provided it is:

  • in writing;
  • contained in the contract; and
  • confers power on the adjudicator to allocate his fees and expenses as between the parties.

The wide interpretation camp has grave concerns that this apparent statutory approval of Tolent clauses will result in contract drafters including such clauses as a matter of course, resulting in a deterrent to adjudication.

They have been making representations to BIS, but I have been told that BIS is standing its ground and maintains that the narrow interpretation is correct.

It’s an interesting debate isn’t it? Next week I will tell you which camp I’m in and why.

3 thoughts on “The “great” section 108A debate – part 1

  1. At the recent SCL conference in Leeds, the ban on Tolent Clauses was discussed and it was confirmed by some speakers that the Judiciary favoured a narrow interpretation of Section 108A and that Tolent Clauses were no more. Other speakers including Sir Vivian Ramsey and His Honour Judge Akenhead did not dissent from this. I heard from one of the other speakers (Nerys Jefford QC no less) of a case in which the contract contained a clause which provided that if the Referring Party in Adjudication recovered less than 50% of the amount it claimed then it would be liable for the other side’s legal costs in the Adjudication. The case was not reported though I am hoping to get a copy of the Judgment. This was a matter before His Honour Mr Justice Edwards-Stewart and what I am given to understand is that the clause in this case was not regarded as being objectionable and was not going to be challenged or held unenforceable for the reasons that were applied in Yuanda.

    This may then become a question of where do you draw the line in terms of clauses that relate to costs. I tend to favour the wide interpretation but my concern is that BIS for whatever reason did not take proper account of the representations made during possibly one of the longest consultations in history. It surely would have been feasible to recognise and legislate the distinction between the allocation by an Adjudicator of his own fees and expenses and the separate question of allocation of legal costs. I would be very interested to hear any further debate for it seems to me that the problem we have is that the wording of new Section 108A does permit more than one interpretation so the Courts will be looking at this again in the future which surely cannot have been the intention of BIS.

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