TOLENT CLAUSES - GONE FOREVER?
30 January 3012

First, it appeared that the courts had decided any such clauses were inconsistent with the Housing Grants, Construction and Regeneration Act 1996 (“the Old Act”) in Yuanda (UK) Ltd v W W Gear Construction Ltd [2010] EWHC 720 (TCC) as it discouraged a party from referring a dispute ‘at any time’ (S.108 (2)(a)). Then the Scottish case of Profile Projects Ltd –v- Elmwood (Glasgow) Ltd [2011] CSOH 64 seemingly reversed the decision in Yuanda, finding as it did that whilst such a costs clause may discourage a referral, it did not ‘prevent’ the same.

Many believed that the Local Democracy, Economic Development and Construction Act 2009 (“the New Act”) would address this debate and extinguish Tolent clauses once and for all. However S.108A, which provides that costs clauses must confer power on the adjudicator to allocate his fees and expenses as between the parties, led some commentators to suggest that the door may have been accidentally left ajar by Parliament, so that parties may be able to allocate the costs so long as they allowed the adjudicator to allocate his fees and expenses between the parties, similar to that expressed by Nigel Davies in his article on our website back in February 2011.

The Honourable Mr Justice Coulson’s obiter comments in Leander Construction Ltd –v- Mulalley and Company Ltd [2011] EWHC 3449 (TCC), 21 December 2011 may provide an indication as to the way attempts to circumnavigate the apparent bar on Tolent clauses introduced by S.108A the New Act may be treated by the courts, following some speculation that it may be possible to maintain Tolent-like clauses:

“I note in passing that Clause 13 of the sub-contract terms set out detailed provisions relating to adjudication. Clause 13.9 required the claiming party in any adjudication to "bear all of the costs and expenses incurred by both parties". Although it has been held that such a clause is valid (see Bridgeway Construction Limited v Tolent Construction Limtied [2000] CILL 1662), in the more recent case of Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC), Edwards-Stuart J noted that such a clause would discourage a party from exercising its right to refer disputes to adjudication and that, in consequence, the clause was contrary to the Housing Grants (Construction and Regeneration) Act 1996. Now, such a clause would automatically be invalid pursuant to section 141 of the Local Democracy, Economic Development and Construction Act 2009” [emphasis added].

Whilst no such argument appears to have been made in connection with contracts entered into since the New Act came into force, this most recent observation appears to demonstrate that any possible future attempt to make such argument is likely to be frowned upon by the court. If the argument presented is looked upon too dimly, it may potentially even have a bearing upon the court's allocation of costs.