In a recent UK High Court case it was noted that the presence of a Tolent clause in a contract persuaded the claimant to litigate a dispute in court, rather than submit it to adjudication as provided in the contract.
Adjudication is a form of statutorily-based alternative dispute resolution which has been prevalent in the UK over the last twenty years in relation to construction contract payment disputes. Tolent clauses provide that the party serving the dispute notice under the contract should bear all of the costs of both parties incurred by the adjudication, regardless of whether they win or lose.
Legislation was introduced in the UK in 2009 which provided that Tolent clauses are ineffective unless they are made in writing after the giving of notice of intention to refer the dispute to adjudication. In this case, which is the first to be decided upon since the introduction of the new legislation, the Court noted that now such a clause would be automatically deemed invalid in light of the 2009 legislation. It was also noted that there had been judicial recognition in previous case law of the fact that such clauses had the effect of “discouraging a party from exercising its right to refer disputes to adjudication”.
Draft legislation has been introduced in Ireland which, if passed, will address payment issues arising in construction contracts through a fast track adjudication system. The current draft Irish legislation follows the approach of the UK legislation, in that each party must bear his or her own legal or other costs incurred in connection with the adjudication. The parties must then pay the amount of fees, costs and expenses of the adjudicator in accordance with the decision of the adjudicator. So it would seem for now that the draft Irish legislation follows the UK approach to outlawing Tolent clauses, thus freeing up access to adjudication procedures.
Observations in cases such as this, in relation to adjudication costs and Tolent clauses, will arguably shape the case-law which emerges on this area when the legislation is introduced here.