Adjudication and Tolent Clauses

When the construction sections of the Housing Grants Construction and Regeneration Act 1996 were introduced in 1998, subcontractors gained the right to refer disputes to adjudication with very little risk to themselves. They had the risk that they would lose but they would not have to pay the costs of the other party. Furthermore, if they were not substantial companies, they might even avoid paying the adjudicator’s fees. In that situation, the successful party would end up paying their own legal costs and the adjudicator’s fees.

To avoid this situation and, in truth, to try to put off subcontractors from referring disputes to adjudication, many large companies introduced clauses into their contracts that meant that the party referring a dispute to adjudication would be liable to pay all of the costs of the adjudication, including the adjudicator’s fees and the legal costs of the responding party. As in most circumstances the adjudication would be started by the subcontractor claiming for monies due to it from the contractor, this meant that the subcontractor was going to end up paying the cost.

If the subcontractor had a claim of £30,000 it might be that it would be uneconomic to refer the dispute to adjudication because even if it won the whole of its claim, the costs it would have to pay would exceed the amount awarded to it. Unfortunately, such clauses were held to be valid in the case of Bridgeway Construction Limited v Tolent Construction Limited and hence the expression “Tolent clauses” came into existence in 2000.

This remained the position until 2010 when the point was challenged once more in the courts. In this case, it was held that Tolent clauses conflict with Section 108 of the Act and therefore they would be unenforceable and would be replaced by the Scheme for Construction Contracts.

Subcontractors should therefore no longer fear such clauses and should feel free to refer disputes to adjudication once more, knowing that they will not be liable for the other party’s costs, whether unsuccessful or not.