UK: Yuanda (UK) Co Limited v WW Gear Constructon Limited case Insight

Last Updated: 22 June 2010
Article by James Worthington

A recent decision in the TCC has addressed a number of important issues, including: "Tolent" clauses; what happens when contractual adjudication provisions are found to be non-Act compliant; whether joinder provisions in adjudication clauses are permissible and the minimum rate of interest for late payments.

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Yuanda (UK) Co Limited v WW Gear Construction Limited

The dispute arose out of the construction of a new hotel in the old GLC building by Westminster Bridge. Gear was the client and Yuanda was the trade contractor responsible for the glazed curtain walling.

"Tolent" clauses

The relevant clause provided that "...regardless of the eventual decision in the adjudication ... the Trade Contractor agrees that should he make a reference to Adjudication ... he will be fully responsible for ... the Employer's legal and professional costs in relation to the Adjudication".

A similar (but not identical) provision had been considered permissible since the case of Bridge Construction v Tolent Construction in 2000. However, these clauses are regarded by many as particularly unfair on sub-contractors and are to be out-lawed when the new Local Democracy, Economic Development and Construction Act 2009 comes into force.

In this case, the Court decided to pre-empt the new Construction Act by reversing the decision in Tolent, although it made it clear that the spectre of the new Act had not influenced the decision.

The Court decided that this particular "Tolent" clause was non-compliant with the Housing Grants, Construction and Regeneration Act (HGCRA) 1996 because it effectively deprived the referring party of its remedy up to the costs of the responding party, over which it had no control. The clause also acted as a real restriction on a party's ability to commence an adjudication "at any time" because it discouraged disputes being referred until the sum in dispute was sufficiently large, bearing in mind the likely costs of the responding party.

So what adjudication provisions applied?

Based upon the wording contained in section 108(5) of the HGCRA 1996, it was held that if one part of the adjudication provision was non-compliant then all the adjudication provisions in the contract were replaced in their entirety by the Scheme. The Scheme did not merely plug the gaps in any non-compliant aspects of the contractual adjudication provisions.

This can be contrasted with the position with payment provisions.  In that situation, the Court indicated that clauses from the Scheme would only replace specifically non-compliant clauses in the contractual provisions. The remainder of the payment provisions agreed by the parties would remain in force – unless the only feasible solution was to replace the contractual provisions in their entirety with the Scheme.

Do joinder provisions in adjudication clauses comply with the HGCRA 1996?

The Court held such provisions could be compliant with the HGCRA 1996.

For example, the question whether a defect was down to bad workmanship or negligent design was one dispute that may involve a number of parties. It would therefore not fall foul of the rule that only one dispute can be adjudicated at one time (without the consent of the other party). However, it would be a separate dispute to determine the liability of the contractor as opposed to the liability of, say, the architect. Therefore, joinder provisions could only be valid insofar as they were limited to making the adjudicator's decision binding on the joined party and did not extend the scope of the original adjudication.

Late Payment of Commercial Debts (Interest) Act 1998

The statutory rate of interest for late payment of commercial debts is 8% over base.

However, if the contract specifies "a substantial contractual remedy for late payment of the debt", then the contractual rate will take precedence.

The Joint Contracts Tribunal (JCT) standard forms contain an interest rate of 5% over base for late payment. However, in this case, this had been amended to only 0.5% over base.

The Court held that this was not a "substantial remedy" and therefore the applicable rate of interest would be 8% over base.  However, it is interesting to note that the Court indicated that it could see no reason why the rate of 5% above base in an unamended JCT would not be a "substantial remedy"; and would therefore oust the statutory rate. The Court also considered it likely that a rate of 3-4% above base would be a "substantial remedy".


This decision puts into serious doubt the efficacy of any Tolent clause. The particular clause in question only enabled one side (the Employer) to recover all its costs. The clause in Tolent obliged whoever was the referring party to pay. Whilst it could be argued that such reciprocity makes the clause fairer, it is generally accepted that the responding party is likely to be the paymaster so the effect is to all intents and purposes, the same. Such a clause is still a real restriction on a party's ability to commence an adjudication "at any time".

Even watered down Tolent clauses that only require the referring party to pay the adjudicator's costs (and not the other party's legal costs) notwithstanding the outcome of the adjudication, are likely to be held to be non-compliant with the HGCRA 1996 following this decision because they still act as a restriction on a party's ability to adjudicate "at any time".

Once a non-compliant adjudication provision has been identified, the whole adjudication procedure goes (no matter how easy it is to have severed provisions) and is replaced in its entirety by the Scheme. Thus, other provisions that may have been beneficial to the smooth running of the process or are to the benefit of one of the parties (such as a preferred nomination body) are lost and the parties could end up with a dispute resolution clause different to the one they had originally agreed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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