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Adjudication: Were the Tolent style clauses incompatible with the Act?

Citation: Profile Projects Ltd v Elmwood (Glasgow) Ltd [2011] CSOH 64

Keywords: Adjudication, jurisdiction, Tolent clauses

The Facts

PPL (C) were design and build sub-contractors of works at NHS Lothian for EGL (D). A dispute arose on C’s interim application 3 and C referred the dispute to adjudication.  The Adjudicator appointed by the Scottish Building Federation found that payment was due to C. C applied to the Court for enforcement. D argued that the Adjudicator had no jurisdiction because he was not appointed in accordance with the contract, which required the appointment to be by the RICS. C, relying on Yuanda (UK) Ltd v WW Gear Construction Ltd [2010] EWHC 720, argued that the contract was incompatible with the Act because (i) it contained a Tolent clause (referring party to pay the costs) and (ii) it purported to exclude ‘financial charges’ from any award. Consequently, C said, again relying on Yuanda, that the whole contractual adjudication provisions were replaced in their entirety by the Scheme and therefore there was no longer any contractual requirement for RICS to be the nominating body and the jurisdictional challenge should fall away.

Held (Lord Menzies)

(1) The Tolent clause was not incompatible with the Act. Section 108 of the Act requires a contract to comply with specific requirements, and if it does not do so, the Scheme will apply. The Act does not make any requirements as to how costs should be dealt with and therefore the courts should not interfere on that basis. The costs provision does not prevent a party from referring a dispute at any time, even if it may be a discouragement and the Act does not preclude a contract from providing a discouragement from referring a dispute to adjudication, of which the costs position may only be one of many. Although not necessary for that reasoning, Parliament, who must be assumed to know the law, would not have enacted the provision regulating Tolent clauses in the 2009 Act if, as C asserted, they were already impermissible. Yuanda can be distinguished because that clause was not reciprocal (the contractor was to pay the costs whether they referred the dispute or not) and it entitled the employer to all their costs irrespective of whether they were reasonable.

(2) However, the exclusion of financing charges from any award was incompatible with the Act as it restricts C’s right to refer such a dispute.

(3) Following the comments of May LJ in Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd rather than Yuanda and the line of cases it relied upon, the effect of a non-compliant term is that the Scheme will apply only in relation to that term and not ‘lock, stock and barrel’.

(4) Even if the Scheme applied in its entirety, the clause as to the agreed nominating body would only be ineffective; it would not cease to exist. Consequently, paragraph 2(1)(b) of the Scheme applied and C needed to apply to the RICS in order to comply with the Scheme. For the above reasons enforcement of the adjudicator’s decision was refused.