REUTERS | Yuriko Nakao

Yuanda followed in the TCC

We might have another 11 months until the Scottish referendum, but I’ll lay my cards on the table. I think partition of the UK would be a real shame so, if I had a vote (which I don’t), it would be “no”. While there are a variety of economic and political considerations, ultimately, it’s for purely selfish reasons. I love Scotland and its people, and am proud that we are part of the same united country. I would be sad to lose that.

I’m sure that civil servants and academics are currently considering the implications of independence on the Scottish legal system, particularly at Supreme Court level. However, my guess is that, at first instance and initial appeal levels, there are unlikely to be any differences. Scotland has its own legal system and, while judgments from England and Wales are persuasive, they are not binding.

In the field of construction law, we’ve seen Scottish and English judges taking different approaches to issues, for example concurrent delay and apportionment of global claims. Another area concerns the thorny subject of party costs in adjudications where the contract was entered into before the autumn 2011 amendments to the Construction Act 1996. That was highlighted again when Coulson J’s judgment in Pioneer Cladding v John Graham Construction was published earlier this month.

Pioneer Cladding v John Graham Construction

The majority of the judgment was concerned with Graham’s application for a stay of execution of the enforcement proceedings. For comment on the interesting points raised, I recommend you read Anna Laney’s excellent exposition.

With regard to the party costs issues, the only piece of background that you need to know is that the CIC Model Adjudication Procedure (MAP) applied to any adjudication and clause 21 of the parties’ contract provided that:

“(iii) Notwithstanding clause 29 of MAP the Adjudicator’s fees are to be borne by the Party which refers the adjudication…

(v) In the event that the decision of the Adjudicator is the making of a monetary award (“Adjudicator’s Award”) in favour of the Sub-Contractor, the following provision shall apply:-

(a) Graham shall place on deposit the amount of the Adjudicator’s award with Northern Bank Limited in the joint names of the solicitors acting for Graham and solicitors acting for the Sub-Contractor within seven days from the date of receipt by Graham of the Adjudicator’s decision.”

Pioneer argued that the escrow account referred to in clause 21(v) was contrary to the Construction Act 1996 and the principle of “pay now, argue later”. Unsurprisingly, Coulson J agreed with Pioneer, stating that he was:

 “…in no doubt that clause 21(v) is in breach of both the policy behind the 1996 Act and the Act itself… the clause is designed to discourage a party from exercising its right to take disputes to adjudication.”

Indeed, it is difficult to think of a clause that could do more to try and put a party off adjudicating; even if you are successful, you won’t get paid. I strongly suspect that Graham’s experienced legal team didn’t bank on winning this particular point.

Coulson J said that, given that he’d found clause 21(v) contrary to the Construction Act 1996, the contract’s adjudication provisions were ousted and replaced by the Scheme for Construction Contracts 1998. That included clause 21(iii) (the Tolent clause). However, he also said that, even if the Tolent clause could survive, it was also contrary to the Construction Act 1996.

Coulson J acknowledged that it was not as extreme as the costs clause in Yuanda v WW Gear, where the sub-contractor had to pay the costs of both the main contractor and the adjudicator in the event that it referred a dispute to adjudication (and there was no reciprocal clause applying to the main contractor), but said that clause 21(iii) was also designed to:

“…discourage a claiming party from commencing adjudication and is therefore unlawful.”

In my view, Coulson J’s conclusion must be correct. How can a provision requiring the referring party to pay the adjudicator’s fees and expenses be consistent with the Construction Act 1996 and/or the policy behind it?

Profile Projects v Elmwood

However, back to my original point that Scottish and English judges have taken different approaches.

Coulson J’s conclusion is the polar opposite of the conclusion reached by Lord Menzies in the Scottish case of Profile Projects v Elmwood. Lord Menzies distinguished Edwards-Stuart J’s decision in Yuanda v WW Gear and followed Bridgeway v Tolent, finding that the offending Tolent clause was not contrary to the requirements of the Construction Act 1996.

I hate to say I told you so. I wrote about Profile Projects v Elmwood at the time and disagreed with Lord Menzies’ conclusion. I also said that, if Tolent clauses came before the TCC again, my guess was that the TCC would follow Edwards-Stuart J’s decision in Yuanda v WW Gear (it was a pretty safe bet I admit).

What’s the position under the amended Construction Act 1996?

Obviously, if the parties in Pioneer Cladding v John Graham had entered into their contract after 1 October 2011, clause 21(iii) would have fallen foul of section 108A.

However, the amended Construction Act 1996 does not expressly prohibit the type of account referred to in clause 21(v), despite the recommendations of the industry during consultation on the amendments. Parties to post 1 October 2012 contracts will therefore have to rely on Coulson J’s helpful judgment. As we all know, the industry needs all the help it can get to maintain cash-flow, as a recent BBC Radio 5 investigation found.

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