Tolent clauses (following the decision in Bridgeway Construction v Tolent Construction) are the ones which require one party to pay both parties costs of an adjudication regardless of the outcome. They will be outlawed once the amended Construction Act comes into force.
The decision in Yuanda (UK) Co Ltd v WW Gear Construction Ltd expressly disagreed with the Tolent decision. Here, the contract included the following clause: “[Yuanda] agrees that should he make a reference to Adjudication under the terms of this contract then he will be fully responsible for meeting and paying both his own and [WW Gear’s] legal and professional costs in relation to the Adjudication”
The judge noted that both the Construction Act and the Scheme were silent on the issue of costs, but that an adjudicator could be given jurisdiction to deal with the parties’ costs either by a contractual term or by consent during the adjudication proceedings. However, he stated that a Tolent clause had the effect that the paying party would only have to comply with an adjudicator’s decision to the extent that it exceeded its costs. This, he thought, deprived the referring party of a statutory remedy and was therefore contrary to the Construction Act. In reaching this conclusion he considered that where a contract includes a Tolent clause:
- there was no point referring a dispute to adjudication unless the referring party expected to recover a substantial sum;
- the referring party would be unable to anticipate the extent of the other party’s costs;
- there was no incentive on the other party to limit it costs (subject to the argument that there would be an implied term that such costs should be “reasonable”); and
- as there would be no effective remedy until the disputed amount was sufficiently large this prevented a party from referring a dispute to adjudication “at any time”.
The result was that this particular clause was contrary to the Act, and so the Scheme Adjudication provisions applied in their entirety.
COMMENT
This can be seen as a groundbreaking decision and effectively prevents parties from seeking to scupper adjudication proceedings. Although the decision gives practical effect to the amended Construction Act, the judge stated categorically that this did not influence his decision. The judge also considered 2 other important issues:
1. that a contractual interest rate of 0.5% over base rate was not a “substantial remedy” for the purposes of the Late Payment of Commercial Debts (Interest) Act 1998; and
2. that it may be possible to amend the adjudication rules to give effect to multi-party adjudications, and that this proposition was not contrary to the Construction Act.
