The recent Judgment in Yuanda (UK) Co Limited v WW Gear Construction Limited provides useful guidance on several points of law.
However, it is the comments on ‘Tolent clauses’ (which impose significant costs burdens on referring parties in adjudication) which will attract most interest.
Yuanda and Gear entered into a JCT Trade Contract to install glazed curtain walling to a luxury hotel near Westminster Bridge. The contract contained substantial amendments prepared by Gear.
The standard adjudication provision in the contract was deleted entirely and replaced with a bespoke ‘Tolent clause’. This required Yuanda to pay Gear’s costs in any adjudication commenced by Yuanda, irrespective of the outcome. There was no reciprocal clause which would require Gear to bear Yuanda’s costs in any adjudication commenced by Gear.
Yuanda’s case was that the ‘Tolent clause’ fettered its ability to refer a dispute to adjudication. They argued that this was the clear intention of the clause as there was no reciprocal costs burden on Gear and that the clause was therefore invalid.
The Judge decided that the practical effect of the clause was to deprive Yuanda of its remedy were it to successfully obtain an adjudicator’s decision for a sum that did not exceed Gear’s costs, and it would not be worth Yuanda referring a dispute to adjudication unless the sum which it expected to recover significantly exceeded Gear’s costs.
The Judge decided that Bridgeway Construction Limited v Tolent Construction Limited was wrongly decided and that ‘Tolent clauses’ are a real fetter on a party’s right to adjudicate at any time. He concluded that they are invalid and “directly contrary to the purpose of the Act”.
The Judge then considered what should replace the offending clause.
He considered the wording of section 108 of the HGCRA, which provides that if an adjudication clause does not comply with the Act, “the adjudication provisions of the Scheme apply”. The conclusion was that the wording of section 108 was clear, and invalid adjudication clauses should be replaced wholesale by Part I of the Scheme. He noted that this interpretation was consistent with the case law on the point, and stated that “the position should now be regarded as settled”.
The long term significance of Tolent being overruled may not be great, as the amendments to the Construction Act will specifically prohibit ‘Tolent clauses’ in any event. However the Judgment gives certainty as to what will replace non-compliant contractual adjudication provisions.
Paul Scott is a solicitor in the construction team at HBJ Gateley Wareing