Tony Bingham Tolent clauses, which make the party that refers an adjudication pay all the legal costs, are to be outlawed by the Construction Act … but a judge has just got there first

If there is one adjudication case that sticks out in my mind, it is Bridgeway vs Tolent from April 2000. It even attracted the attention of parliament, so much so that it outlawed “Tolent clauses” in the new Construction Act. All a waste of time! All that was needed was the case of Yuanda (UK) vs WW Gear Construction last month. The senior judge said of Bridgeway: “I find the judges’ reasoning in that case difficult to understand.” And I tell you this: future adjudicator decisions will not follow Tolent.

WW Gear is a main contractor. It is building a luxury hotel in Westminster. Yuanda is the curtain walling specialist and its subcontract began in 2007. Getting into contract with WW Gear is not that slick. True, it uses the standard JCT form of subcontract, which is sensible. Mind you, the judge took a swipe at the JCT’s 100 pages of closely typed text, which he said “doesn’t make easy reading”. But, blow me – WW Gear then attached another 40 pages of “amendments”. Seemingly, all 30 subcontractors, and Yuanda, wriggled and beefed about all that. Most said no to the Tolent clause, but Yuanda missed it. The term said: ”Regardless of the eventual decision in the adjudication or in any subsequent litigation the trade contractor agrees that should he make a reference to adjudication under the terms of this contract then he will be fully responsible for meeting and paying his own and the employer’s legal and professional costs in relation to the adjudication.”

To be fair, this amendment was pretty easy to spot. As the judge said: “This was not a case of some onerous term tucked away in small print.” He rejected the idea that more could have been done to draw this clause to the subcontractor’s attention. But Yuanda’s counsel didn’t need that argument. All he had to do was point out what has been obvious to all of us for 10 years, that the Tolent clause placed a “very real fetter on Yuanda’s ability to refer a dispute to adjudication”.

“Well,” said the opponent, repeating the argument in Bridgeway vs Tolent, “there should be no interference with this contract.” If you think about it, there may have been good reason for Yuanda to accept the deal. Its competitors may, for all we know, have said “on your bike” to WW Gear, and Yuanda, for all we know, may well have loaded the price to account for the onerous clause.

Credit: Simone Lia

Mr Justice Edwards-Stuart took no notice of this. Instead he recapped parliament’s adjudication rules. First, there is nothing in the act to override a party and party agreement in a contract that allows an adjudicator to award party and party costs. So, if that is a plain agreement, why not allow the parties to make an unambiguous agreement that lumbers one party with paying all the costs, win or lose? After all, an adjudication need not involve lawyers.

But what if there is a relatively modest sum in dispute and Tolent or WW Gear engages solicitors and barristers? It’s not as though the referring subbie can guess what those opponent costs will be, so it can’t calculate whether adjudication would be worthwhile.

Alternatively, what if the subbie waits until the dispute is big enough to be worthwhile? The act says either party can refer the dispute to an adjudicator “at any time”. So, if a clause in a contract discourages a party from exercising its right to do so, it sets off an alarm bell. The judge had no doubt. The WW Gear and Tolent clause limits a party’s freedom to refer a dispute to adjudication.

The difference between Bridgeway and Yuanda is that, in Yuanda, the judge was asked if the Tolent clause was compliant with the act. It wasn’t. And since Yuanda has a statutory right to adjudicate, the clause is defeated. In Bridgeway, the judge decided the parties had elected to use a non-compliant adjudication system. Then the loser complained. So, on that basis he was right. There is no reason why a contract should not contain non-compliant machinery with whatever rules takes their fancy. But, but nobody can thereafter deprive either party of statutory adjudication if either party insists on it instead. In the original Tolent case nobody shouted for Construction Act adjudication, so they got exactly what they bargained for. It can easily happen again.