Today, there is no doubt that disputes are a common occurrence in the mining, engineering and construction industries. To mitigate the effects of drawn-out traditional court matters, almost all of the standard-form construction contracts include a dispute resolution clause to resolve disputes through the Alternative Dispute Resolution (ADR) mechanisms of either mediation, adjudication, and/or arbitration. The most frequently used standard-form construction contracts in South Africa are the FIDIC, JBCC, and NEC suites, all of which include an adjudication or arbitration clause to assist disputing parties to achieve timely and cost-efficient resolution methods when disputes arise.
The ADR provisions in these contracts impose binding obligations on the parties, including their adherence to adjudication determinations and arbitration awards. Despite this, it is frequently observed that the successful party in an adjudication is faced with a non-compliant opposing party, meaning that the former is saddled with the task of forcing the compliance of the latter. To do so, the aggrieved, successful party must bring an ordinary application before the court.
The Process of Enforcing Adjudication Determinations
Applications to enforce determinations can progress in one of two ways: as an unopposed application, where the opposition, known as the ‘respondent’ either fails or actively decides not to challenge the application, or as an opposed application, where the respondent chooses to contest the allegations made by the aggrieved party, which is known as ‘the applicant’. Enforcement applications are usually opposed.
Applications are unique in that the matter is argued entirely ‘on paper’. This entails the parties exchanging their respective pleadings in the lead up to a court hearing which contain the sum total of all the allegations they wish to make in the matter. The first pleading comprises the initiating application made by the applicant, inclusive of a motion of notion and a founding affidavit, which sets out, at the very least, three core allegations. Firstly, the determination resulted from a contractual adjudication process. Secondly, the determination is binding upon the parties. Finally, the opposition has failed to abide by the determination. The founding affidavit must also include the relief the applicant seeks, being the enforcement of the determination.
The next pleading will be an answering affidavit delivered by the respondent. This affidavit includes the respondent’s factual allegations regarding why the determination should not be enforced. It may also include new averments not made by the applicant in its founding affidavit. In contrast to the applicant’s case, the respondent is required to argue why the court should not order it to abide by the determination. It may argue that the determination is not binding when the dispute subsequently becomes the subject of an arbitration. It may also argue that the adjudication process itself was flawed in some manner.
The applicant must be permitted a chance to respond to new averments raised by the respondent, which it can do in a replying affidavit. No new allegations may be raised by the applicant in the reply.
At this point, the parties have both had an opportunity to plead their cases on paper submitted to court. The date for the actual hearing of the matter by the court is then obtained. The very final submission by the parties are their respective heads of argument, which contain all of the legal arguments, including case law, that they wish to rely on in support of their versions.
South African courts have heard and ruled on numerous cases dealing with whether the determination of an adjudicator is enforceable. It is evident that, to date, the courts have repeatedly ruled that determinations of adjudicators and enforceable, notwithstanding the finalization of the dispute being referred to arbitration.
The Standard Forms of Contract and How South African Courts Have Interpreted Them
The FIDIC suite of contracts includes provisions for adjudication, which are outlined in clauses 20.2-20.4. These clauses establish the binding nature of the adjudicator’s decision and provide guidance on the enforcement process.
Clause 20.4 highlights the enforceability of the adjudicator’s decision, even if a notice of dissatisfaction has been served:
“The decision shall be binding on both parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award”
A FIDIC contract was the centre of the case of Tension Overhead Electrification (Pty) Ltd v Ircon International Limited and Others, in which the High Court contemplated the enforceability of the decision, despite the respondent’s intention to refer the dispute to arbitration. The court held that parties are obligated to promptly give effect to the adjudicator’s decision, regardless of any notice of dissatisfaction or intention to seek arbitration.
The principles established in the Tension case were reaffirmed in subsequent cases, such as Sasol South Africa v M&R Limited, in which the contract between the parties was governed by the NEC3. The Supreme Court of Appeal emphasized that when a contract includes a binding obligation to comply with an adjudicator’s decision, the decision should be upheld by the courts unless there are procedural or jurisdictional challenges.
The fact that an adjudicator’s determination is enforceable, notwithstanding that the determination might subsequently be revised through arbitration, was further emphasised in Zingwazi Contractors CC v Eastern Cape Department of Human Settlements and Others. The contract was based on the JBCC Principal Building Agreement. A dispute between the parties was referred to adjudication and the adjudicator made a determination in favour of Zingwazi, being that the Department was to pay Zingwazi the sum of some R12m. The Department was dissatisfied with the determination and elected for the matter to be referred to arbitration. It also decided not to abide by the determination and it failed to pay Zingwazi the amount due.
Zingwazi approached the High Court on an urgent basis, applying for an order that the Department proceeds with the arbitration but abides by the determination and pays the amount owing to Zingwazi in the interim. Zingwazi was successful but not entirely so; the order was suspended pending the determination of the Department’s counter-application on the basis of the applicable rules for adjudication being contrary to public policy, in that they impose an immediate binding nature of the adjudicator’s decision, which the Department argued was effectively fluid because of the potential that it could be set aside by virtue of the arbitration proceedings.
In considering the Department’s counter-application, the court found that a party which is aggrieved due to a breach on behalf of the adjudicator him/herself will have grounds to both oppose an application to enforce the determination and refer the dispute to arbitration. However, the adjudicator had not breached the applicable rules and the counter-application was dismissed, with the result that the adjudicator’s determination was binding and enforceable.
Simply put, an adjudication determination is enforceable unless the parties agree otherwise. South African courts are reluctant not to enforce such a determination where an adjudicator has conducted him/herself properly, considered the merits of the dispute and determined an appropriate remedy. However, there are occasions when a determination may not be enforceable, such as procedural irregularities during the adjudication itself. It may even be the case that a court will postpone or even refused to enforce a determination when the publication of an arbitration award dealing with the same dispute is imminent.
It is abundantly clear that a successful party in adjudication proceedings will not be left high and dry when faced with a non-compliant opposition but it must take steps to enforce its rights, along with having a deep understanding of the South African legal frameworks and mechanisms available.
By Ryan du Preez | Director