The Great* Tolent Clause Debate

United KingdomScotland

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

*Ok, maybe it’s not that “great”, but the debate surrounding the effectiveness of Tolent clauses rolls on, even after parliament tried to get rid of them once and for all in the updated Construction Act. I had a go at adding some lucidity (if not quite clarity) to the debate in this recent article for Construction News:

Judge Mackay in Bridgewater Construction v Tolent Construction caused a stir among contractors when he held that the Housing Grants, Construction and Regeneration Act 1996 had nothing to say about clauses requiring the referring party in an adjudication to bear the other party’s legal costs. Their complaint was that such clauses (Tolent clauses) discouraged contractors from bringing meritorious actions in view of the prohibitive costs they could face.

The 2009 re-write of that Act provided the perfect opportunity to put paid to such clauses. Cue new section 108A which renders ineffective all clauses purporting to allocate (prior to a notice of adjudication) liability for the parties’ costs.

Well, that was the idea. But what the section actually does is render ineffective all clauses allocating (prior to a notice of adjudication) liability for costs unless such clauses “confer power on the adjudicator to allocate his fees and expenses as between the parties“. Read literally, this could mean that a clause can allocate liability for the parties’ costs as long as it also allows the adjudicator to allocate his own fees and expenses as between the parties. Not ideal.

What’s a judge to do if presented with a Tolent clause in the era of the new Act? It seems to me that he has four options:

  1. Take section 108A at face value. Tolent clauses are ineffective unless they include provision for an adjudicator to allocate his fees and expenses between the parties;
  2. Seize upon the ambiguity of the drafting and mould his decision to what he considers the merits of the particular case;
  3. Import the melange of past Tolent clause case law. The judge in Yuanda (UK) v WW Gear Construction held a Tolent clause to be contrary to the 1996 Act, and might be seen as Tolent’s death knell. However, the judge’s reasoning was not crystal clear. What is more, the Scottish Court of Session came to the opposite conclusion in the case of Profile Projects v Elmwood (Glasgow). Indeed, the judge in that case endorsed the face value approach to section 108A. In short, the message from the case law is far from certain; or
  4. Accept that section 108A is ambiguous and look to the parliamentary record Hansard (as permitted by Pepper v Hart). Members of parliament sought and gained an assurance that only provisions dealing pre-Notice of Adjudication exclusively with an adjudicator’s fees survive the effects of section 108A.