Validity of provision requiring one party to bear the costs of adjudication

In Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720, the adjudication clause in a trade contract provided that if the contractor referred a dispute to adjudication, it would be liable for its own legal and professional costs and those of the employer, regardless of the eventual decision. Edwards-Stuart J in the Technology and Construction Court concluded that this clause was in conflict with the requirements of section 108 of the Construction Act (the Act) and of the Scheme for Construction Contracts and was therefore unenforceable.

In the judge's view, the clause allowed the employer to avoid an adjudicator's award in favour of the contractor (save to the extent the award exceeded the employer's legal and professional costs). This, in the judge's view, did not comply with the Act since it was in express conflict with the requirement for parties to comply with adjudicators' decisions.

Edwards-Stuart J's conclusion is in direct conflict with Judge Mackay’s decision in Bridgeway Construction v Tolent Construction [2000] CILL 1662 that a provision that any party referring a dispute to adjudication was liable to pay the responding party’s legal costs (as well as its own) was valid. Tolent clauses are generally considered to be unfair and the present judgment sets out useful guidance on the requirements of section 3 of the Unfair Contracts Terms Act 1977 (UCTA) and the factors to take into account when determining whether the parties have contracted on one party's written standard terms of business.

This is an important decision dealing with a party's liability for costs of an adjudication and has the potential to overturn ten years of adjudication practice on such clauses. The amendments to the Act contained in the Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act 2009) will in any event prohibit them by statute when those amendments come into effect and the judge may have been influenced by this.