A Sting in the Tale...

It is very tempting for a party to a construction contract to seek to amend the clauses of a standard form of contract in order to shift the commercial balance of the agreement in its favour. Tolent Construction, who by the way is not alone, did just this in its amendments to the Construction Industry Council Model Adjudication Procedure which Tolent incorporated into its "non-standard" standard sub-contract (if you see what I mean) when it introduced the following amendments to clauses 28 and 29 of the CIC rules to read...
 
 
 

It is very tempting for a party to a construction contract to seek to amend the clauses of a standard form of contract in order to shift the commercial balance of the agreement in its favour. Tolent Construction, who by the way is not alone, did just this in its amendments to the Construction Industry Council Model Adjudication Procedure which Tolent incorporated into its “non-standard” standard sub-contract (if you see what I mean) when it introduced the following amendments to clauses 28 and 29 of the CIC rules to read...

 

Clause 28: The party serving the notice to adjudicate shall bear all of the costs and expenses incurred by both parties in relation to the adjudication including but not limited to all legal and expert's fees.


Clause 29: The party serving notice to adjudicate shall be liable for the adjudicator's fees and expenses.

 

Let’s not beat about the bush. The effect of these clauses is crystal clear. They are designed to make a claimant pick up all the costs of both parties in an adjudication and in reality frighten off sub-contractors from adjudicating with Tolent.

 

In 2000 Bridgeway Construction fell foul of these provisions and, in an ensuing court action, attempted to have Tolent’s adjudication cost provisions declared illegal or non-binding. Bridgeway failed in its attempts, the court at that time upholding the long established principle that (and this is an important point), if a party fails to read or understand the terms of a contact it has entered into, then the starting position is that the offended party is stuck with the bargain it has signed up to whether it likes it or not!

 

Fast forward 10 years. A lot of proverbial water has passed under the adjudication bridge since the Bridgeway -v- Tolent case. We now have an impressive bank of case law to help guide us through the adjudication minefield.

 

Take the case of Yuanda (UK) Co Ltd -v- WW Gear Construction Ltd (“Yuanda -v- Gear”) handed down by Edwards-Stuart J in the Technology and Construction Court on 13 April 2010. This case is a prime example of just how far things have developed in the last ten years.


There are lots of interesting legal principles that can be gained from reading Yuanda -v- Gear but probably the most important point revolves around Gear’s attempt to follow Tolent’s example and to introduce adjudication cost provisions which would transfer all costs arising during an adjudication to a referring party.


Gear’s proposed contract was based on the JCT Trade Contract with a substantial number of proposed amendments set out in a separate schedule. These documents were prepared to be used as the starting point in negotiations with the various trade contractors Gear was proposing to contract with. In nearly every case the ensuing negotiations with each trade contractor resulted in changes to the proposed amendments.


The proposed amendments included a revision to the adjudication provisions of the JCT standard form providing that…


"The adjudication procedure will be the TeCSA Adjudication Rules (amended to require nomination by the RICS and joining of the members of the professional team in a multi-party dispute situation).
Notwithstanding the provisions of the above procedure and 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 both his own and the Employer's legal and professional costs in relation to the Adjudication."


Amazingly, Yuanda did not insist on having these clauses deleted in the ensuing contract between it and Gear and so in April 2010 sought, amongst many other things, a declaration from the court to the effect that clause 9A was contrary to the Housing Grants Construction Regeneration Act 1996 (“the Act”) and should be declared as null and void.


The judge in the case, Edwards-Stuart J, held that the reality of clause 9A meant that having to settle both parties’ legal and professional costs in an adjudication would act as a deterrent to a party contemplating adjudication and thus ran contrary to the statutory right of that party to refer a dispute to adjudication at any time.


And the sting in the tale......?


Having found that clause 9A failed to comply with the Housing Grants Construction Regeneration Act 1996, Edwards-Stuart J decided that on a strict reading of section 108 of the Act even one offending provision in a set of adjudication rules would be enough to oust the entire adjudication rules, leaving The Scheme for Construction Contracts (England and Wales) Regulations 1998 to operate, and I quote, “lock stock and barrel” in place of the entire offending adjudication rules.


Peter Vinden is a practising adjudicator, mediator, expert and conciliator. He is Managing Director of Vinden and can be contacted by email at pvinden@vinden.co.uk