Yuanda (UK) Co Ltd v WW Gear Construction Ltd

Contractual adjudication provisions which materially fetter a party’s statutory right to refer a dispute at any time, including by imposing liability for the other party’s costs, conflict with section 108 of the Housing Grants, Construction and Regeneration Act 1996. Where the adjudication provisions do not comply, Part I of the Scheme for Construction Contracts replaces them in their entirety.

A contract is made on written standard terms only where the terms of the contract actually concluded remain standard. Material negotiated alterations prevent that characterisation. A contractual late-payment rate of 0.5% above base did not provide a substantial remedy under the Late Payment of Commercial Debts (Interest) Act 1998; the statutory rate therefore applied.

Yuanda supplied and installed curtain walling for a hotel project under a trade contract with Gear. The contract incorporated a JCT Trade Contract subject to a Schedule of Amendments.

Yuanda sought declarations concerning an adjudication clause requiring it to pay both parties’ adjudication costs, a contractual interest rate of 0.5% above base, and the application of section 3 of the Unfair Contract Terms Act 1977. The principal questions were whether Yuanda dealt on Gear’s written standard terms, whether the adjudication clause complied with section 108 of the Housing Grants, Construction and Regeneration Act 1996, what should replace any non-compliant provision, and whether the contractual interest rate was a substantial remedy.

1. Written standard terms. Yuanda did not deal on Gear’s written standard terms for section 3 of the Unfair Contract Terms Act 1977. Negotiations themselves were not decisive, but the material alterations obtained by Yuanda meant that the terms actually agreed were not Gear’s standard terms. The fact that nearly all trade contractors negotiated different amendments reinforced that conclusion.
2. Adjudication costs. The second part of clause 9A required Yuanda to pay its own and Gear’s legal and professional costs, regardless of outcome. That obligation would deter referrals, particularly for smaller disputes, and could deprive Yuanda of an effective remedy. It therefore conflicted with the statutory entitlement to refer a dispute to adjudication at any time and with the requirement that adjudicators’ decisions be complied with pending final determination. The judge respectfully disagreed with Bridgeway Construction Ltd v Tolent Construction Ltd (2000) CILL1662 on the wording before him.
3. Replacement mechanism. Under section 108(5), non-compliance with any requirement in subsections (1) to (4) caused the contractual adjudication provisions to be replaced wholesale by Part I of the Scheme for Construction Contracts. The position was regarded as settled. The judge expressed only a provisional view that payment provisions under Part II might ordinarily be replaced only to the extent necessary to fill contractual gaps.
4. Joinder and certainty. Although not necessary to the result, the first part of clause 9A was capable of operation. It could permit joinder of a professional team member where an issue required resolution as between that member and the employer, without referring a separate dispute about the member’s liability.
5. Late payment interest. The 0.5% rate was not a substantial remedy under sections 8 and 9 of the Late Payment of Commercial Debts (Interest) Act 1998. It had effectively been imposed, was materially below the rate in the standard JCT form, and no special circumstances justified relying on it. The clause was void to that extent and the statutory rate was substituted. Any remission under section 5 could be considered only after a qualifying debt and the supplier’s conduct were known.
6. Declarations were granted accordingly. Gear was entitled in principle to a declaration that section 3 of UCTA did not apply. The parties were to address the precise relief and costs.