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Tolent 1 – 0 Yuanda

My last post was all about the “great” section 108A debate (or the “not so great” section 108 debate as one of my fellow PLC bloggers put it!). I’m back again to talk about it, or at least the subject of Tolent clauses, which section 108A was intended to banish from our world of adjudication.
Section 108A is not even in force yet, but it has already been considered in the Scottish case of Profile Projects v Elmwood. Not in the context of the debate over the narrow or wide interpretation that I talked about previously, but rather when considering whether a Tolent clause (that is, a clause requiring the referring party to pay all the costs of the adjudication), is contrary to the provisions of section 108, and in particular a party’s right to “…give notice at any time of his intention to refer a dispute to adjudication” (section 108(2)(a), Construction Act 1996).

Tolent, Yuanda and Profile

In Bridgeway Construction Ltd v Tolent Construction Ltd [2000] CILL 1662, HHJ Mackay QC found that the clause in the parties’ contract was not contrary to the provisions of section 108. However, 10 years later, in Yuanda v WW Gear, Edwards-Stuart J reached the opposite conclusion.

In Profile v Elmwood, Lord Menzies decided that the offending Tolent clause was not contrary to the provisions of section 108. He therefore followed the decision in Bridgeway v Tolent, albeit that, as the matter was heard in Scotland, Lord Menzies wasn’t obliged to follow either case.

Lord Menzies distinguished Yuanda v WW Gear on the ground that the Tolent clause in that case differed in two material respects from the clause he was considering in Profile v Elmwood. In Yuanda v WW Gear the clause:

  • Was not reciprocal but one sided.
  • Placed no limit on the amount of expenses that the referring party might incur.

Lord Menzies said that, while a Tolent clause might act as a discouragement or disincentive for a party to refer a dispute to adjudication, it did not amount to a disablement. Indeed, Lord Menzies made the point that the referring party in this case clearly did not consider itself disabled because it had referred the dispute to adjudication. Lord Menzies likened the disincentives of adjudication to those that arise in litigation, for example the risks for a litigant of paying his opponent’s costs, the cost of enforcing a judgment and so on, but said that such practical considerations do not extinguish the litigant’s right to litigate.

Finally, Lord Menzies considered section 108A. He accepted the responding party’s argument that, if Tolent clauses are contrary to the requirements of section 108 (as the referring party argued), then “…it is difficult to understand why parliament enacted section [108A]…” when it is clearly intended to banish Tolent clauses, subject to certain conditions.

Why I disagree with Lord Menzies

While Lord Menzies’ reasoning is sound, on balance I respectfully disagree with him.

Firstly, in my view Yuanda v WW Gear cannot be distinguished on the ground that its Tolent clause was not reciprocal. While counsel in Yuanda v WW Gear may have referred to the lack of reciprocity, this is not mentioned in Edwards-Stuart J’s reasoning on why he found the clause to be contrary to section 108.

Secondly, although it is arguable that Yuanda v WW Gear can be distinguished because the Tolent clause placed no limit on the amount of expenses the referring party might incur, it is clear that Edwards-Stuart J’s decision would not have differed if there had been such a limit. Rather, Edwards-Stuart J found that the mere fact that a referring party could be deprived of its remedy in the event that it had to pay the responding party’s costs “…is directly contrary to the purpose of the Act”.

Thirdly, I agree with Edwards-Stuart J that the disincentive created by Tolent clauses is enough to result in such clauses being contrary to section 108 and, in particular, a party’s right to “…give notice at any time of his intention to refer a dispute to adjudication”.

While there will always be disincentives to both adjudicating and litigating, these disincentives exist for any party in any case, whereas Tolent clauses are expressly added as a further disincentive aimed specifically at deterring a referring party from commencing an adjudication.

Fourthly, Lord Menzies’ point about parliament enacting section 108A does not appear to acknowledge the fact that section 108A was introduced in 2009, before the judgment in Yuanda v WW Gear. Coulson J certainly makes the point in paragraph 4.13 of Coulson on Construction Adjudication (Oxford University Press, second edition, 2011) that the issues concerning Tolent clauses have:

“…now been resolved by the decision of Edwards-Stuart J in Yuanda…,  which arguably renders the need for [section 108A] redundant”.

In any event why shouldn’t parliament enact a provision confirming the common law position in a similar manner as it has done with the slip rule?

What next?

If Tolent clauses come before the TCC in England or Wales again, my guess is that the court is likely to follow Edwards-Stuart J’s decision in Yuanda v WW Gear rather than Bridgeway v Tolent, or indeed Profile v Elmwood, but let’s wait and see.

Perhaps the answer to the “great” section 108A debate is simple: we should scrap section 108A altogether and just rely on Yuanda v WW Gear instead.

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