ADJUDICATOR'S AWARD – IS IT WORTH THE PAPER IT’S WRITTEN ON?

article 54: Adjudicator’s Award – Is it worth the paper it’s written on?

 

 

This magazine has, during the last few months, carried a number of articles in regard to the process of adjudication. All four forms of contract approved by the CIDB make provision for adjudication. As most readers would know adjudication is a method of resolving disputes by the use of a third party neutral or neutrals whereby the outcome is an immediately binding decision but which decision is not final. Following the decision itself a window opens which permits either party or perhaps both parties to give a notice of dissatisfaction. This notice however does not interfere with or affect the immediately binding nature of the decision but merely opens the door to permit the dispute to proceed to the next level, arbitration or court. If no notice of dissatisfaction is given within the time period provided then after the expiry of that period the decision is final and binding and not subject to further dispute resolution procedures although there could still be a challenge to the decision based upon procedural irregularities by the adjudicator.

The purpose of this article is not to traverse ground which has previously been discussed in these pages but to pose the question whether the adjudicator’s award is worth the paper it is written on. On the face of it a decision which is immediately binding must be beneficial to the successful party. However this success will be completely negated in the event that the unsuccessful party does not honour the decision and especially where the decision involves the payment of money, fails to make payment. The fact that the contract provides an obligation to honour the decision does not, of itself, provide a great deal of comfort. Parties to a contract regularly breach their obligations. Many disputes themselves arise out of allegations of breach of contractual obligations leading to and cost consequences.

Where a substantial amount of money is awarded and where the unsuccessful party has lodged a notice of dissatisfaction, notwithstanding the contractual agreement that the decision shall be immediately binding, the probability is that the unsuccessful party will be most reluctant to make payment. The question then is what must the successful party do in these circumstances.

In the United Kingdom under the Housing Grants Construction and Regeneration Act of 1996, statutory enforcement of an adjudicator’s award is provided through the Act and the courts, particularly the Technology and Construction Courts, have been very supportive in this regard. It is possible in the United Kingdom to get a court order enforcing the adjudicator’s award within a matter of a few weeks, sometimes in less than four weeks. No such equivalent statutory scheme exists in South Africa. Accordingly, following breach the successful party would be obliged to approach the High Court for an order of specific performance to enforce payment. Whether South African courts will enforce an adjudicator’s decision, until very recently, has remained questionable. There is no doubt that our courts have regularly granted orders for specific performance but an order for specific performance in relation to an adjudicator’s award has the potential problem that it is not final and where notice of dissatisfaction has been given, may already be heading towards a further dispute settlement process such as arbitration.

It is however surprising that, to date, we have not seen a reported judgment on this issue more particularly since adjudication was first introduced into South Africa through the NEC suite of contracts when Eskom, during 1996, decided to use the NEC suite. In the fourteen years which have elapsed there must have been several hundred adjudicator’s decisions handed down and yet we have not seen any reported judgment confirming the court’s support for this potentially cost effective mechanism of dispute resolution.

To the contrary we have in fact seen conflicting judgments in regard to clauses in construction contracts which provided for a similar outcome through a mediation process namely where a mediator’s opinion was, in terms of the relevant contract, to be binding until overturned by arbitration. The similarity to the provisions in the modern forms of contract regarding the binding nature of adjudicator’s decisions makes these earlier judgments of considerable interest.

In 1990 this question was posed in the matter of Blue Circle Projects (Pty) Ltd v Klerksdorp Municipality. The contract was carried out under the old 1982 5th Edition Blue Book which provided in clause 69 (2) that:

“The opinions that are expressed by the mediator shall be final and binding upon the employer and the contractor unless or until otherwise ordered in arbitration proceedings under sub-clause (3) of this clause”.

Sub-clause 3 provided for reference to a single arbitrator where either party was dissatisfied with the opinion expressed by the mediator.

Blue Circle Projects had undertaken works for the Klerksdorp Municipality. Disputes arose which were eventually referred to a mediator in terms of clause 69 (2). The mediator gave a final opinion to the effect that the employer was obliged to pay the contractor R1,471,690.00. The Employer was dissatisfied with the mediator’s opinion and required the matter to be referred to arbitration under clause 69 (3). The contractor brought an application to court for an order directing the employer to pay the amount due in terms of the mediator’s final opinion. So far of course the procedure is very very similar to adjudication.

The court came to the conclusion that in terms of the General Conditions of Contract the “final opinion” of the mediator was not a final award. It was in fact subject to revision by the arbitrator and then would become final and binding upon the parties as a consequence of an award by an arbitrator under clause 69 (3). As such the court found that the mediator’s final opinion could not be enforced by an order of the court and the application was dismissed.
As a consequence the court refused to enforce the specific terms of the agreement which effectively rendered the mediation process, save where the parties were willing to accept the opinion, meaningless.

Three years later in the same court, the Transvaal Provincial Division, Judge van Dijkhorst, came to a different conclusion in the matter of Stocks and Stocks (Cape) Pty) Ltd v Gordon and Others 1993 (1) SA156.

The contract between the parties was the old white form of building contract which provided in clause 26.2 for mediation. This clause also stated that the opinion of the mediator “shall be final and binding on the parties unless either within fourteen days of receipt thereof dispute the same by written notice to the other”.

Clause 26.3 provided:

The opinion of the mediator shall be binding upon the parties and shall be given effect to by them until the said opinion is overruled in subsequent arbitration or litigation”.

An almost identical clause to that which had been the subject matter in the Blue Circle case.

In this application the contractor asked for three opinions of three mediators to be made orders of the Court in order that payments be effected in terms of such mediator’s opinions. The three opinions each provided for awards of money in the sums of R480,000.00, R318,061.00 and R83,500.00 respectively.
The employer gave notice of dispute in respect of each of the three opinions and required the disputes to be resolved by arbitration. Judge van Dijkhorst was clear when he said in respect of the mediator’s opinions:

“There can be no doubt that these then become payable”.

His attention was drawn to the Blue Circle Projects judgment. He distinguished that judgment highlighting the fact that the contract between the parties clearly stipulates [following the mediator’s opinion in favour of the contractor] that an amount is due and payable. He therefore concluded that the decision in Blue Circle Projects was clearly wrong and declined to follow it. This was clearly a judgment of importance in so far as the enforcement of adjudicator’s decisions are concerned.

Fast forward to 2010. The contract for the upgrading of the Free State Stadium for the 2010 Fifa World Cup was awarded to the RMIP Joint Venture as contractor by the Mangaung Local Municipality as employer. During the course of construction disputes arose which were submitted to adjudication before the vice chairman of the Association of Arbitrators (Southern Africa) a retired judge of the Zimbabwe High Court. The adjudicator awarded approximately R26 million in favour of the contractor and the employer declined to pay and gave notice of dissatisfaction in accordance with the provisions of the contract. The contractor launched a semi urgent application to the Free State High Court for an order of specific performance to enforce the contract and hence enforce the adjudicator’s decision. In what is currently an unreported judgment the court granted the contractor’s application and issued an order to enforce payment of the amount awarded by the adjudicator. Whilst this judgment might be subject to an appeal, it is very good news for the process of adjudication, and no doubt very good news for the contractor on the Free State Stadium!

What is also encouraging is that the matter was allowed to be heard on a semi urgent basis thus jumping the queue and resulting in a judgment within a matter of weeks of the application rather than months or years. Of course this depends upon the specific court and the motivation for urgency. Regrettably in some of our courts the delays before a matter can be heard are now so long the probability exists that where an adjudicator’s decision is referred onwards to arbitration the arbitration may well be completed before the court orders an enforcement of the decision. If that is the case then the adjudicator’s decision will certainly not be worth the paper it is written on. However it is to be hoped that the majority of unsuccessful parties in an adjudication will cooperate and will honour the obligation that they entered into in terms of the contract to the effect that the decision is binding until overturned in arbitration.

Notwithstanding these question marks we are firmly convinced that adjudication is the only sensible way to resolve disputes in construction and properly used provides a cost effective mechanism to the parties.

 

C D Binnington Pr Eng
Managing Director
Binnington Copeland and Associates (Pty) Ltd