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The End of the Tolent Clause?

For the last ten years it has been possible for a Main Contractor to include a clause in their subcontracts making the party referring a dispute responsible for all costs regardless of the outcome of the adjudication.

In the Bridgeway Construction v Tolent Construction [2000] CILL 1662 case, Bridgeway accepted a subcontract which had a clause requiring the referring party in any forthcoming adjudication to pay the costs of the responding party even if the referring party won. Bridgeway, the referring party, did win and had to pay for Tolent's legal costs – the judge having decided that the subcontract clause was lawful.
This ruling has remained unchallenged for 10 years…. until now.
In the case of Yuanda (UK) Co Ltd v WW Gear Construction Ltd, the contract included a form of “Tolent Clause”. Nevertheless, when the parties came to a dispute Yuanda took it to the courts to ask for a declaration whilst at the same time arguing that the Tolent decision had been incorrect. Mr Justice Edwards-Stuart agreed with Yuanda that the Tolent decision had been wrong and found that the clause was unenforceable on the basis that a provision of this nature allowed the employer to avoid an adjudicator’s award in favour of the contractor, thus conflicting with the requirements of section 108 of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) and the Scheme for Construction Contracts. As Mr Justice Edwards-Stuart concluded, such a clause would have “in practice limited [a party’s] freedom to refer a dispute to adjudication at any time and, in some circumstances – to deprive it of a remedy altogether”.
This new ruling has the potential to affect the pace at which a party will proceed to refer a dispute to adjudication since the judgement has effectively removed the obstacle of cost from the pathway of adjudication. A provision within a contract which provided for all legal costs to be paid by the referring party irrespective of the outcome of the adjudication has, undoubtedly, acted as a preventive in pursuing commercial disputes particularly those of a less significant amount.
Subcontractors wishing to refer a dispute to adjudication in the future will welcome this decision and, indeed, subcontractors who have shelved potential adjudication claims in the last 10 years may now wish to pursue them in light of this ruling.
 If you would like any further information on this change in adjudication law, or if you would like to discuss how the change may affect your particular circumstances, please do not hesitate to contact one of our consultants for specific advice.
 
The information provided in this article is not a comprehensive analysis of the law and must not be treated as a substitute for legal or professional advice.  To the extent permitted by law, Kerrigans will not accept or otherwise be held liable for any loss or damage incurred in relying upon the contents of this article. Should you require any legal or professional advice about any of the topics covered in this article we recommend that you contact Kerrigans.

04/12

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