Yuanda, a UK subsidiary of a Chinese curtain walling contractor had been engaged by Gear on the Westminster Bridge Park, Plaza Hotel project. The contract was a JCT Trade Contract which contained two significant amendments in relation to adjudication and interest on late payment.

The clause in relation to adjudication permitted the joining of members of the professional team (who were not parties to the Contract) in what was described as a “multi-party dispute situation” and required that Yuanda was to meet Gear’s legal and professional costs of any reference Yuanda made to adjudication, regardless of the outcome.

The clause in relation to interest on late payment was amended by Gear from the JCT standard of 5% to just 0.5% above the base rate. Yuanda considered that this level of recovery could not be regarded as a substantial remedy or incentivise prompt payment by Gear to Yuanda.

As both clauses had extreme commercial implications for Yuanda it sought a CPR Part 8 declaration that the clause on adjudication should be ousted and replaced wholesale by the Scheme because it was incompatible with the HGCRA 1996. It also sought that, in the alternative, the multi-party dispute situation was void for uncertainty and the whole clause should be struck out and replaced by the Scheme. A further alternative declaration was sought that the requirement to meet Gear’s costs was an unreasonable contract term and void as defined by s3 UCTA 1977. Yuanda also sought a declaration that the clause relating to interest should be declared void in accordance with s 8 and s9 of the Late Payment of Commercial Debts (Interest) Act 1998 (“LPCD”) as it submitted that 0.5% could not be regarded as a substantial remedy.

Mr Justice Edwards-Stuart held that the adjudication provision was not compliant with HGCRA 1996. The judge found that the practical effect of the amended adjudication clause was that in the event Yuanda were to win an adjudication and proceed to enforce the decision, it could be met with a counterclaim for Gear’s costs which equalled, if not exceeded, the sum being sought at enforcement. Therefore, Yuanda would be deprived of the benefit of adjudication up to the amount of Gear’s costs which were, by the terms of the adjudication provision, unrestricted.

The judge emphasised that the commercial effect of such a provision would be that Yuanda would have to wait until the sums at stake were very high to make any referral worthwhile and that would naturally fetter its right to adjudicate at any time, in contravention of s108 of HGCRA. As the provision was not in accordance with the intentions of Parliament the judge held that it should be replaced in its entirety by the Scheme.

The judge held that the multi-party dispute clause was operable and not uncertain but this was of no significance due to his finding on the lack of compliance with HGCRA.

The judge also indicated that the contract would not be caught by the terms of s3 UCTA as the Parties did not deal on Gear’s standard terms and as it was an international supply contract it would was exempted by s26 of UCTA.

The judge further held that the rate of interest was not the subject of any pre-contractual discussions between the parties and that the rate was effectively imposed on Yuanda. As such, it would not be fair or reasonable to allow Gear to take advantage of the fact that during the pre-contract negotiations Yuanda failed to spot this amendment. Given the wording of the LPCD, in the absence of special circumstances, 0.5% could not be regarded as a “substantial remedy” and it should be replaced with the statutory rate of 8% over the reference rate.