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The “not so great” section 108A debate

Over the last couple of weeks Jonathan Cope has looked at what he dubbed “the great section 108A debate”. In one sense this title is very apt – the substandard drafting in new section 108A of the Construction Act 1996 is certainly generating a great deal of debate in the industry. However, I wonder if we should instead call this the “not so great section 108A debate”. Not because the concoction of rhymes in that phrase is a bit of an awkward mouthful, but because it is not so great, in fact it is ridiculous that we even have to have this debate in the first place.

I guess the name of the new Act gives us a clue that things might not be that straightforward. The oddly named Housing Grants, Construction and Regeneration Act 1996 is now amended by the implausibly entitled Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act 2009).

Alright – hang fire, I know both Acts do more than just deal with important issue of payment and adjudication in the construction industry, but perhaps the location of these important provisions indicates the level of government interest in them. They are, after all, tucked away at the back of hundreds of sections dealing with such matters of state as the provision of a right to deliver electronic petitions to the Council of the Isles of Scilly (section 10(1)), the presentation of caskets to honorary alderwomen (section 29(6)), and the regulation of basket weaving in Clitheroe (OK, I made that one up).

A finger of fudge

Anyway, I digress. My point is this: it is ridiculous that the industry has to have this debate. It is appalling that time and money will, without doubt, be wasted in asking the TCC to interpret section 108A, and it is regretful that BIS believes that the wording is fine.

I agree with Jonathan’s conclusion that, if section 108A comes before the TCC, the court will find a way to adopt the narrow interpretation (and outlaw a Tolent-type clause). He lists five reasons why he believes this will be the case, and it would not surprise me if some or all of those reasons form part of a judgment on the matter. However, I can’t help but feel that this would end up being a bit of a “fudge”, and that the reasons given are ultimately quite weak. This view intends no disrespect to Jonathan, in fact I think it supports his position. The wording of section 108A is poor and to get to a narrow interpretation, an element of “barrel scraping” is required.

Ambiguity, absurdity?

Many of the reasons put forward by Jonathan concern the ambiguous wording of section 108A. While there is no doubt that the parliamentary draftsmen have made a “pig’s ear” of this, I don’t agree that the wording they have created is ambiguous.

I accept that it has created ambiguity and uncertainty in the construction industry, certainly amongst those who believed that the wording would do one thing but, on reading it, are concerned that it might do something else. However, I believe the wording itself is clear.

That might seem like a paradox, but look at the wording: it is really ambiguous or obscure, or would its literal meaning lead to an absurdity? (this is the test in Pepper v Hart, governing the grounds when the Rt Hon Rosie Winterton’s statement in Hansard could be used to aide interpretation).

Section 108A applies to any contractual provision that concerns the allocation of adjudication costs. It requires that such a provision:

(i) is in writing;

(ii) is contained in the contract; and

(iii) confers power on the adjudicator to allocate his fees and expenses as between the parties.

So long as the provision in question satisfies those three requirements, it should be effective. If it does not, then it will be ineffective.

That seems clear enough to me, and while a literal interpretation may result in an unusual situation, it would not be absurd. Certainly no more absurd, dare I suggest in the current economic climate, than a statutory provision permitting a local council to spend “such reasonable sum as they think fit for the purpose of presenting a casket containing an address, to [an] honorary alderman“. In fact, you could argue that a literal interpretation of section 108(2)(a) offers an entirely sensible result in that, if the parties agree a means of sorting out their own costs as between themselves, the Act provides that they should also give the adjudicator power to allocate his costs between them. It may not have been quite what we were expecting, but the result is not absurd.

One clause, two provisions?

So what of a contractual provision that satisfies the three requirements of section 108A(2)(a), but which does something else as well?

If I understand it correctly, the “narrow view” would be that it is ineffective because it does more than satisfy the three requirements. In other words, a provision is effective only if is satisfies the three conditions in s.108A(2)(a) alone, and does not do anything else concerning the allocation of costs. If the provision included Tolent-type wording (such as a requirement that one of the parties pays the other party’s costs), the provision falls foul of the Act and is ineffective.

There is wide support for this view, as evidenced in John Redmond’s comment on Jonathan’s blog last week. John notes that:

“a complex clause that says that an adjudicator can allocate his costs as between the parties and also says that one party will have to pay the other party’s costs may be one clause but it is two provisions. One is permitted under the new Section 108A and one is not”.

Can this be right? It is easy to understand the desire behind the view that a Tolent-type provision should be outlawed whereas the provision dealing with the adjudicator’s own costs should not. The latter provision is specifically required by section 108A, whereas Tolent-type provisions are not and are patently unfair (and one would hope that the industry will move on from them).

If the Tolent-type provision is not permitted, what of other provisions which (to quote section 108A) “concern the allocation of costs relating to an adjudication”? Would a provision that, for example, requires the adjudicator to explain the reasons why he has allocated his costs in a particular manner fall foul of the Act?  Surely this would be a provision which “concerns” (that is, “is related to”; “affects”; “is about”; “is connected with”) the allocation of costs. This example, on the narrow interpretation, would be ineffective, but why should this be so?  Was it the intention of Parliament, or the industry, that provisions other than Tolent-type clauses that concern the allocation of costs should not be enforceable?

If the narrow interpretation is preferred, where does the TCC draw the line?  Perhaps the question is actually, why should the TCC draw the line? It is not the job of the courts to “rewrite” statute or to mop up Parliament’s mess, nor should the courts do so. Judges are not elected. They are not accountable to Joe Public in the way that politicians are.

Where do we go from here…?

So which view is right? Who knows. I can’t say I disagree with Jonathan and John’s conclusions. If push comes to shove, my money is on the TCC taking the narrow view. However, what is clear is that there are alternative views and arguments favouring both the wide and narrow interpretations. Because of this, some clients will continue to take advantage of Tolent-type clauses where they can. They may be “chancing their arms”, but there will be those who will consider it worth it, and who will benefit until the matter gets taken to the TCC. Even then, there is no certainty that their clause will be found to be ineffective.

Dear Vince…

There appears to be universal consensus that BIS should take another look at the wording of section 108A. I thought about setting up an electronic petition to BIS or even No. 10, but there appears to be no such facility to do so. Perhaps this is a privilege reserved for the inhabitants of the Isles of Scilly and their local council.

Anyway, I have instead taken advantage of the “email the Secretary of State” facility on the BIS website to tell him about the debate and to ask if he wouldn’t mind putting a stop to it. Perhaps if enough of us do likewise, he might do something about it. Click here for the web address.

If you want to see what I have written to Vince – or the Right Honourable Dr Vince Cable MP Secretary of State for Business, Innovation and Skills, to give him his proper title, as I should – feel free to email me at chris.hallam@pinsentmasons.com.

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