Pause … to the Tolent clause !?

Yuanda (UK) Co. Ltd-v-WW Gear Construction Ltd [2010] EWHC 720 (TCC)

Most subcontractors have entered into contracts having not negotiated or considered the impact of the bespoke amendments imposed upon them. The current climate may have also further negated the bargaining power of the subcontractor and most would have heard the dreaded words “the other party are willing to accept the clause” or “if you want the job, you need to accept the conditions”. Harsh perhaps, but unfortunately a reality in a number of current tenders in the construction market. But fear not, I hear Subcontractors interject, the Construction Act will come to our rescue once more.

True enough the Construction Act and its provisions cannot be disregarded by some cunningly worded amendment and the statutory right to adjudication for construction contracts remains a powerful weapon. Nevertheless, since Bridgeway Construction Ltd -v- Tolent Construction Limited [2000], whereby the provision included in contracts that the Referring party would always be liable for the parties’ costs and adjudicator’s fees and expenses irrespective of the award, was held not to offend the Construction Act, it had presented an opportunity for some observers to erode this opportunity. This decision remained intact and unchallenged for almost 10 years, which is why the current case is of such significance.

In Yuanda the adjudication provisions of the JCT contract were deleted in their entirety and a new clause 9A was introduced, incorporating the TeCSA rules. The latter part of the clause also contained a form of “Tolent Clause”, however, in this instance, it would only apply if Yuanda were the Referring party in which case they would be liable for both parties legal and expert’s costs. The liability for both parties costs did not apply if WW Gear Construction had referred the matter to adjudication.

When a dispute arose, off went Yuanda to the courts to ask for a declaration, amongst other matters, that the latter part of clause 9A was non compliant with the Act as it restricted their right to adjudicate at any time. Interestingly, unlike the Tolent case, the clause in question was not reciprocal upon the parties and Yuanda contended in any event that the decision in Tolent was effectively wrong.

In the decision handed down in April 2010, Mr Justice Edwards-Stuart ruled that a “Tolent Clause”, especially one that was not reciprocal, was not compliant with the Construction Act and therefore agreed with Yuanda that the Tolent case had been incorrectly decided.

It will be interesting to see in the coming months whether this judgement will be challenged, however, in the meantime, a number of contractors who sought a degree of comfort regarding adjudication costs contained within their “Tolent clauses” will be sleeping a little less easily from now on.