UK: Tolent Contest Fails To Remove X-Factor


In what may be regarded as a blow to referring parties in adjudications, the Court of Session in Scotland has ruled in the case of Profile Projects v. Elmwood (Glasgow) (April 2011) that so called "Tolent clauses" which provide for the referring party to pay both parties' costs of the adjudication, win or lose, will be upheld.

This has long been a controversial issue. The first case on it was Bridgeway Construction v. Tolent Construction in 2000, where such clauses were approved on the basis they were not contrary to the provisions of the Housing Grants, Construction and Regeneration Act 1996 (the "1996 Act").

That was followed more recently by Yuanda v. Gear Construction in 2010. In that case, the judge considered these clauses were ineffective. Tolent clauses were considered to act as such a disincentive to going to adjudication that they were contrary to the 1996 Act's provision which allows parties to refer a dispute to adjudication at any time.

The issues and the decision in Profile Projects case

The provision in Profile Projects' contract stated that

"the referring party shall bear the whole costs of the adjudication including, but not limited to, the Adjudicator's fees and costs in their entirety and both parties' legal expenses (on a solicitor client basis and upon the scale of charges applicable to Court of Session business) in and incidental to the adjudication..."

The judge considered that this clause was not incompatible with the 1996 Act. He considered that had Parliament wanted to make provisions regarding allocation of costs in adjudication, it could have done so. In fact, it had since done just that in the new Local Democracy, Economic Development and Construction Act 2009 (the "2009 Act") (which is likely to come into force from 1 October 2011).

The clause in the Profile Projects case provided for the referring party to pay the costs, whereas in Yuanda the contractor was to pay whether they were referring party or respondent. Further, the Yuanda clause placed no limit on costs payable, whereas the Profile Projects clause limited costs to a reasonable figure determined on the Court of Session scale.

The judge considered there were many factors which may play a part in a decision of whether or not to adjudicate, including commercial considerations such as diversion of resources and a wish to maintain relationships. A clause like this does not deprive a party of a remedy, although it does undoubtedly mean a party has to incur costs to secure the remedy.

Interestingly, although this particular point did not appear to be strictly necessary for the purposes of his decision in Profile Projects, the judge commented on his interpretation of the 2009 Act, even though the 2009 Act is not yet fully in force.  The 2009 Act, the judge noted, makes it a requirement that if a contract makes provision for allocation of costs in an adjudication, this must meet certain conditions. Tolent clauses will be ineffective unless (i) made in writing, contained in the contract and allowing the adjudicator to allocate his own fees and expenses between the parties or (ii) agreed in writing after the notice of adjudication is served. The judge appeared to agree with the defenders' submission that, as long as these conditions are met, parties would remain free to provide for the referring party to pay both parties' legal and other costs.

The judge considered the aim of the 2009 Act was to prevent the party with greater clout from using the costs of the adjudication process as a barrier. It was intended to improve the lot of referring parties by only allowing such clauses in certain circumstances. If the Yuanda position was correct and such clauses were already banned entirely under the 1996 Act, then the 2009 Act would be a backward step for referring parties which was the opposite of what Parliament intended.  The current law, he considered, was that such clauses were allowable.


It is perhaps a quirk of timing, but many commentators consider that the intention of the 2009 Act was to ban Tolent clauses in their entirety. At the time of the 2009 Act, however, the law was based on the Tolent case which allowed such clauses unconditionally. An Act allowing them only in certain circumstances did, therefore, constitute an improvement.  However, the Yuanda case followed (after the 2009 Act) in 2010.  It went to the other extreme and found such clauses to be unacceptable. 

What we have now ended up with in the 2009 Act, if the above interpretation is correct, is a better position for referring parties than under the Tolent case in 2000, but a step backwards from the Yuanda case in 2010. It remains to be seen whether the Profile Projects approach will be followed by the courts, given that some legal commentators are of the view that Parliament intended to ban Tolent clauses outright, with the unusual wording of the 2009 Act being the result of a drafting anomaly.

Whatever the explanation, there is no doubt that a clause like this will make a party (most likely to be a contractor or subcontractor seeking payment) think twice before raising an adjudication given the increased costs this will involve. In the current economic climate, with cash flow being even more of a concern than ever, that can only be regarded as unwelcome.

© MacRoberts 2011


The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.

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