Practical Law

In last week’s post, I outlined the views of the two camps in the “great section 108A debate”, namely:

• The narrow interpretation camp, which considers that section 108A of the Construction Act 1996 (as amended) will banish Tolent clauses, but permit clauses allowing adjudicators to allocate their fees and expenses.
• The wide interpretation camp, that argues that section 108A allows Tolent (and more onerous) clauses to survive.

So where do I stand on this?

Narrow or wide interpretation?

I certainly have sympathy with both camps and there is no doubt that section 108A could have been more clearly drafted in order to avoid any ambiguity. It is clear to me that, with its current wording, the Technology and Construction Court (TCC) will have to interpret this provision and that is both a waste of public money and that of the parties involved.

The need for TCC interpretation could be avoided altogether if subsection (2)(a) was unambiguous, for example by using the words “…is limited to conferring…” instead of “…confers…”. For that reason, I agree with the wide interpretation camp that section 108A requires amendment before it comes into force.

However, if section 108A is left unamended and the matter comes before the TCC, my guess is that it will adopt the narrow interpretation. I think there are five reasons for this.

Reason 1: read the clause as a whole

On balance, I agree with the narrow interpretation camp that, when section 108A is objectively read as a whole, subsection (2)(a) sets out the only contractual provision that will be effective. Any attempt to widen the provision to include a Tolent clause therefore goes beyond subsection (2)(a).

Reason 2: rely on the mischief rule of interpretation

Given that the TCC will be interpreting a section of a statute that was passed to remedy a defect in the common law, the TCC should be able to rely on the mischief rule of interpretation. Section 108A was intended to remedy the mischief of Tolent clauses, and the TCC can give effect to this by adopting the narrow interpretation. The same conclusion could be reached by taking the purposive approach to interpretation.

Reason 3: expressio unius est exclusio alterius

The TCC may rely on the expressio unius est exclusio alterius rule of language (the expression of one thing is the exclusion of another). Therefore, the mention of the adjudicator’s power to allocate his fees and expenses in section 108A may exclude a wider contractual provision such as ones including a Tolent clause.

Reason 4: Pepper v Hart

The TCC may rely on Pepper v Hart in order to refer to parliamentary material as an aid to interpretation of section 108A. To do so:

• The statute must be ambiguous, obscure or its literal meaning leads to an absurdity; and
• The parliamentary material must include clear statements by a Minister.

Some in the wide interpretation camp argue that Pepper v Hart cannot be relied on because section 108A is not ambiguous, but surely that is the very reason this debate has arisen?

If the TCC accepts the ambiguity, then Hansard provides a clear statement from the Minister responsible for the Bill, Ms Rosie Winterton. The following extract from Hansard on 13th October 2009 records an exchange between Ms Winterton and Mr Nick Raynsford:

“Winterton: Clause 137 inserts new section 108A into the 1996 Act, preventing parties to construction contracts from entering into agreements before a dispute has arisen about who should pick up the costs of an adjudication. As a consequence of this broad and simple prohibition, pre-dispute agreements between parties, to the effect that an adjudicator can allocate fees and expenses as part of his decision, will also be caught. Allowing the parties to agree in their construction contract that the adjudicator has this power is current good practice, which we would like to preserve. [Subsection (2)(a)] achieves that by carving out such agreements from the general prohibition.

…

Raynsford: On the surface, [subsection (2)(a)] seems to achieve the desired effect and I welcome it. I have heard some representations made that it could still leave a lacuna whereby a contract could be devised that included exactly such a provision for the adjudicator to be entitled to payment of reasonable expenses but that might separately seek to impose a condition about other costs, including the legal costs of the parties – if they incurred such costs – being met by one party. I am assured that that is not the case, but I would welcome reassurance from the Minister that there is no scope for such a lacuna in the provisions which would allow the good intentions of the Government’s provisions to be bypassed.

…

Winterton: Only this morning, I was discussing with officials the fact that the ideas advanced by [Mr Raynsford] were the inspiration for [subsection (2)(a)]. But, I want to assure him that there will not be a lacuna. We will allow a particular type of pre-dispute agreement, regarding costs -a clause in the parties’ construction contract to the effect that an adjudicator will be able to allocate his own costs as part of his decision.”

Reason 5: Yuanda v WW Gear

The TCC may rely on Edwards-Stuart J’s judgment in Yuanda v WW Gear, where he held that a clause more onerous than a Tolent clause was contrary to the requirements of the Construction Act 1996.

While I appreciate that this case did not concern section 108A (and some have argued that it can be distinguished from Tolent), I nevertheless consider that it could add a helping hand to the narrow interpretation camp.

On balance, the narrow interpretation will win

My bet is that if section 108A comes before the TCC in its current form, then the TCC will adopt the narrow interpretation. However, I agree with the wide interpretation camp that section 108A should be amended before it comes into force because:

• It is a waste of money to leave a situation where the TCC will be called upon to interpret section 108A when this can be easily avoided.
• Until the TCC interprets section 108A, contract drafters may rely on section 108A to justify the inclusion of Tolent (or even more onerous) clauses in contracts, creating a deterrent to adjudication.

This is not what was intended.