The latest decision in the long running debate of whether Tolent clauses are effective was issued by the Court of Session in April 2011. This time last year we wrote about the case of Yuanda (UK) Limited v WW Gear Construction Limited. To view the Adjudication - he who refers pays article, please click here
In Yuanda, an English case, the court determined that a clause in the contract between the parties obliging the contractor to meet the expenses of both parties in an adjudication was contrary to the provisions of the HCGRA and therefore unenforceable.
The Local Democracy, Economic Development and Construction Act 2009 was thought to have the effect of outlawing the majority of so called Tolent clauses. The case which lead to the requirement for legislation on this point was Bridgeway Construction v Tolent Construction, back in 2000.
The 2009 Act introduces a new section to the HGCRA as follows:
Section 108A Adjudication costs: effectiveness of provision
- This section applies in relation to any contractual provision made between the parties to a construction contract which concerns the allocation as between those parties of costs relating to the adjudication of a dispute arising under the construction contract;
- The contractual provision referred to in subsection (1) is ineffective unless-
(a) it is made in writing, is contained in the construction contract and confers power on the adjudicator to allocate his fees and expenses as between the parties, or (b) it is made in writing after the giving of notice of intention to refer the dispute to adjudication.”
The Act therefore seeks to limit the use of Tolent clauses to certain circumstances. Yuanda (which came after the Act) seemed to say that Tolent clauses are always unacceptable.
So what now? In April of this year the Court of Session issued its decision in the case of Profile Projects Limited v Elmwood (Glasgow) Limited . The clause in the contract between the parties in this case obliged the referring party to bear the costs of the adjudicator and both parties’ legal expenses. This can be distinguished from Yuanda where the contractor was obliged to pay irrespective of whether it was the referring party or not. Lord Menzies, in his decision, determined that the contractual provisions in Profile were not at odds with the 2009 Act (notwithstanding that the 2009 Act is yet to come into force). He opined that, had Parliament intended clauses related to the apportionment of costs to be outlawed in their entirety, the Act would have provided for that.
Profile has the effect of watering down the position from Yuanda. A contract term might appear to be innocuous but could ultimately prevent a cost effective mechanism for dispute resolution due to the imposition of costs which otherwise parties would require to bear themselves. I suspect this is not the last we have heard of Tolent.