Profile Projects v Elmwood (Glasgow)

[2011] ScotCS CSOH 64

It is still not known for sure when the changes to the adjudication legislation are due to come into force, although 1 October 2011 is currently the date most people favour. One of the clauses of the 2009 Act seeks to outlaw so-called Tolent clauses which require a party to pay both parties’ costs of the adjudication, win or lose. In England & Wales, the 2009 Act was followed by the case of Yuanda v Gear Construction (see Issue 119) where Mr Justice Edwards-Stuart held that Tolent clauses served to discourage adjudication and so accordingly were contrary to the requirement of the HGCRA that parties should be able to refer a dispute to adjudication at any time. However in Scotland there is no such symmetry between the forthcoming legislation and the courts. Profile Projects’ contract included a clause which said that:

"the referring party shall bear the whole costs of the adjudication including, but not limited to, the Adjudicator’s fees and costs in their entirety and both parties’ legal expenses (on a solicitor client basis and upon the scale of charges applicable to Court of Session business) in and incidental to the adjudication..."

The view of Lord Menzies was that this clause was not incompatible with the HGCRA. He said that if Parliament had wanted to make provisions regarding the allocation of costs in adjudication, it could have done so. The clause here was not identical to the Yuanda version requiring the referring party to pay the costs, and so was not as one-sided as the Yuanda contract where the contractor had to pay regardless as to whether they were the referring party or respondent. In addition, here, there was a clause limiting costs to a figure based on the Court of Session scale. However, Lord Menzies went further and also commented upon the likely meaning of the new Act. He reviewed the Parliamentary debates and noted that the "mischief" that Parliament was seeking to address was to prevent the "party with greater clout" from using the costs of the adjudication process as a barrier. The judge was of the view that the effect of the new S108A would be to render a "Tolent" clause ineffective unless it was made in writing, was contained in the construction contract and conferred power on the adjudicator to allocate his fees and expenses as between the parties, or was made in writing after the giving of notice of intention to refer the dispute to adjudication. In other words the Judge thought that the new Act does not prevent the enforcement of "Tolent" clauses, as parties will still be entitled to agree such clauses in some circumstances.

This lead the Judge to comment that if the decision in Yuanda was correct and Tolent clauses had been nullified then the new Act will "actually have a liberalising effect" by allowing agreements as to allocations of costs which, on the reasoning of Yuanda were already banned. As the Judge noted this was precisely the opposite of what Parliament thought it was doing. So the law on adjudication cases diverges between England and Scotland and a surprising question mark has seemingly been raised about a clause many had previously thought was pretty straightforward.