Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC)

Judgment Date: 13.04.2010

Where the adjudication provisions in a contract state that the referring party will pay the legal fees of both parties and the adjudicator, irrespective of whether or not it wins or loses, then the provisions will be struck down and replaced by the whole of Part I of the Scheme for Construction Contracts (the “Scheme”). Where an adjudication clause provides for joinder of the members of the professional team in a multi-party dispute, then the Court will give effect to the provision (and not replace it with the Scheme) by limiting its application to the situation where there is an issue that needs to be resolved against the member of the professional team as well as against the contractor, but will not allow a referral to be extended to include the liability of the members of the professional team in question.

Technology and Construction Court, Mr Justice Edwards-Stuart

Background

The defendant (“Gear”) was a Cypriot company which employed the claimant (“Yuanda”) to supply Chinese-manufactured glazed curtain walling for a project to build a luxury hotel by Westminster Bridge. In the course of the project Gear prepared a standard package of contract documents to be issued to each trade contractor. The package was based on the JCT Trade Contract with a substantial number of amendments which were set out in a separate Schedule of Amendments. Gear alleged that this standard package was used as the starting point in negotiations with the various trade contractors and that in virtually every case terms were altered after negotiation. Gear prepared a standard package of this type for its dealings with Yuanda. This package contained a number of amendments, one of which deleted the adjudication provisions at clause 9A of the standard form and substituted new provisions which required (1) that the adjudication procedure would be the TeCSA Adjudication Rules “as amended to require nomination by the RICS and joining of the members of the professional team in a multi-party dispute situation” and (2) that Yuanda pay the legal fees of both parties and the adjudicator should it make a referral to adjudication, irrespective of whether it won or lost in the adjudication. Prior to entering into the contract, a meeting took place between Gear and Yuanda at which the standard package was discussed and some modifications to the Schedule of Amendments were agreed. However, the amendment to Clause 9A was not raised or discussed.

The parties subsequently fell into dispute. Yuanda sought declarations to the effect that the amended adjudication clause was void or invalid, and that the adjudication provisions should be replaced with the Scheme.

Issues

The Court addressed the following issues among others:

• When entering the Trade Contract did Yuanda deal on Gear’s written standard terms? (Section 3 of Unfair Contract Terms Act 1977 (“UCTA”) applies between contracting parties where one of them deals on the other’s “written standard terms of business”).
• If s.3 of UCTA did apply, were the amendments sufficiently brought to the attention of Yuanda? (Where s.3 applies, a party will only be allowed to rely on a contract term to limit its liability to the extent that the term satisfies the “requirement of reasonableness”. One of the ways that contribute towards the satisfaction of this requirement is to show that the term was sufficiently brought to the attention of the other party).
• Was part (1) of clause 9A void for uncertainty and/or inoperable and/or incapable of being performed and did it conflict with s. 108 of the Construction Act?
• Did part (2) of clause 9A comply with the requirements of s.108 of the Construction Act (which provides the right to refer a construction dispute to adjudication “at any time”)?
• If clause 9A did not comply with s.108 of the Construction Act, with what should it be replaced?

Decision

The Court held:

• This was not a case where Yuanda dealt on Gear’s written standard terms for the following reasons: Yuanda had negotiated some material alterations to Gear’s “standard” terms. Few, if any, of the 30 plus trade contractors engaged by Gear entered into contracts on the same terms. During the pre-contractual negotiations nearly all of them secured alterations to the Schedule of Amendments put forward by Gear.
• Accordingly, s.3 of UCTA did not apply. It was therefore academic whether or not the amendments had been sufficiently brought to the attention of Yuanda. Notwithstanding this, the Court held that the amendments had been sufficiently brought to Yuanda’s attention. The Schedule of Amendments showed very clearly which clauses of the standard form were to be amended and in what terms. It would not have been difficult for someone reasonably familiar with construction contracts to have gone through the Schedule and identified the significant changes.
• With reference to part (2) of amended clause 9A (the provisions relating to costs), the amendments would in practice limit Yuanda’s freedom to refer a dispute to adjudication at any time. In certain circumstances, such as a dispute involving a relatively small amount of money, clause 9A would deprive Yuanda of a remedy altogether (because the combined fees of the parties and the adjudicator would outweigh the sum recovered). Accordingly, clause 9A did not comply with the Construction Act.
• Where the adjudication provisions of a contract are non-compliant with s.108 of the Construction Act, then those provisions will be replaced in their entirety by the provisions in Part I of the Scheme (see Banner Holdings v Colchester Borough Council [2010] EWHC 139 (TCC)).
• Although it was not necessary to decide the case, the Court was of the provisional view that, in relation to payment and related notice provisions which failed to comply with the Construction Act, the Scheme should not be implied in its entirety, but only to fill in gaps in the express terms of the Contract. This was the approach taken in the Scottish case of Hills Electrical & Mechanical v Dawn Construction Ltd [2004] SLT 477. However, much will depend upon the facts.
• Having already decided that part (2) of the amended adjudication provisions in clause 9A were non-compliant with the Construction Act it was unnecessary for the Court to consider the issue of whether or not part (1) (i.e. the amendment to allow joinder of the professional team) lacked certainty and/or conflict with s. 108 of the Construction Act. However, the Court did express the view that clause 9A was not too uncertain to be implemented. The Scheme permitted only one dispute to be referred to adjudication at any one time. However, effect could be given to clause 9A by limiting its application to the joinder of members of the professional team to an adjudication where there was an issue that needed to be resolved against the member of the professional team as well as against the contractor. The referral could not be extended to include the liability of the members of the professional team in question, as this would constitute a separate dispute. Although the TeCSA Rules in their current form were incapable of providing a workable way of implementing clause 9A, it could be implemented if the Rules were amended slightly.
• Accordingly a declaration was granted to the effect that clause 9A conflicted with s.108 of the Construction Act and should be replaced with Part I of the Scheme .

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