Biggart Baillie Solicitors

Does the 2009 Act really seal the fate of the "tolent" clauses?

Thursday, August 11, 2011

by Isobell Reid

Section 108A of the 2009 Act was intended to rid the construction industry of the well known “tolent” clauses (i.e. clauses requiring the referring party in an adjudication to bear the other party’s legal costs).  On the face of it section 108A renders ineffective all clauses (made prior to the issuing of a notice of adjudication) purporting to allocate liability for parties’ costs. 

Or does it?  Section 108A read on face value renders these so called “tolent” clauses ineffective unless (a) made in writing, contained in the construction contract and confers powers on the adjudicator to allocate his fees and expenses as between the parties; or (b) is made in writing after the giving of a notice of intention to refer a dispute to arbitration.  It appears, therefore, that rather than banishing “tolent” clauses, as the 2009 Act intended to do, it has actually made it clear that these clauses will be permissible provided that they also provide the adjudicator with power to allocate his fees.  In other words, a clause could state that the referring party must bear the other party’s legal costs as long as it goes on to provide that the adjudicator can allocate his fees and expenses as between the parties. 

This is not what was intended by Parliament but is what the 2009 Act actually says.  Only time will tell how section 108A will be applied and whether it will be accepted that the clause is ambiguous and, as such, the parliamentary record Hansard ought to be looked at to see what was actually intended (as allowed by the case of Pepper v Hart).  However, that can only be the case where the section is ambiguous and arguably there is no ambiguity in section 108A at all!

Furthermore, the recent Scottish case of Profile Projects v Elmwood (Glasgow) Ltd, [2011] CSOH 64 seems to add weight to the argument that whatever the intention of Parliament section 108A permits “tolent” clauses in certain circumstances. 

Given the provisions of section 108A (along with the other amendments to the 1996 Act) are intended to come into force in England and Wales in October 2011 and a month later in Scotland this issue is unlikely to disappear and it will not be long before the courts are asked to decide whether the 2009 Act does, indeed, seal the fate of the “tolent” clause. 

For more information email Isobell Reid or call 0141 228 8000.