Construction and engineering law (adjudication)

N & P is a firm of Lawyers specialising in Alternative Dispute Resolution, mainly in the Construction and Engineering disputes.

Construction & Engineering Disputes are regulated by various Construction & Engineering contracts. These various contracts could be Bespoke Contracts or Standard form Contracts.

Bespoke contracts are specifically drafted to suit the specific requirements of a particular project (Construction & Engineering).

Standard form contracts are contracts where terms and conditions are put forward by one party and the other party is not given an opportunity to negotiate or amend those terms and conditions.

In South Africa, the Construction industry is regulated by the Construction Industry Development Board Act 38 of 2000, herein after referred to as (“CIDB”).

In summary, this CIDB Act empowers the Board to do the following:

• Register contracts/construction projects
• Encourages consistency in the Government Supply Chain Management Practice(s)
• Encourages best practice
• Supports emerging contractors

Construction Contract is defined as an agreement (in general) between the Employer or Client and a Contractor to do the following:

• Construct
• Repair
• Renovate
• Modify
• Demolish
• Supply professional service etc.

The Employer agrees that the above-mentioned services shall be rendered by contractor for a specific period of time (duration) and for an agreed amount of money.

In Construction & Engineering fraternity, a contract may take different form, for example:

• FIDIC Contract
• GCC
• JBCC
• NEC
• CIDB

These Contracts would have clear terms and conditions and upon the parties signing these contracts, (Employers or Clients and Contractors) would be bound by the provisions of these contracts.

These Contracts would have provisions dealing with Alternative Dispute Resolution “(ADR”) mechanism in case of a dispute(s) between the parties.

Disputes between the parties could be caused by a number of issues. These issues could include, inter alia, failure to make payments timeously by the Employer. Failure by the Agent of the Employer to approve payment or payment certificate, compensation events, time related matters, instructions, delays, suspension of works etc.

Construction & Engineering Contract would articulate how should these disputes be resolved. They can be resolved through mediation, adjudication, arbitration and or Court processes.

Mediation is defined as a flexible process conducted confidentially in which a neutral person actively assists parties in working towards a negotiated agreement of a dispute or difference, with the parties in ultimate control of the decision to settle the terms of resolution.^[1]

Adjudication is defined as an accelerated form of dispute resolution in which a neutral person decides the dispute as an expert (and not as an Arbitrator) and whose determination is binding on the parties for immediate compliance, and which shall remain in force until varied or overturned by an Arbitration Award.^[2]

The England Statutory Adjudication defines adjudication as a speedy mechanism for settling disputes in construction contracts on a provisional interim basis and requiring the decision of adjudicator to be enforced pending final determination of dispute by arbitration or agreement or litigation.^[3]

The Authors of Hudson’s Building and Construction Contracts observe that under New Zealand Construction legislation adjudication “is regarded as essentially a cash flow measure implementing what has been colloquially described as a “quick and dirty” exercise to avoid delays in payment pending definitive determination.”

Arbitration is defined by Gary Born as a process by which parties consensually submit a dispute to a non-governmental decision maker, selected by or for the parties, who renders binding decision finally resolving the dispute in accordance with neutral, adjudicative procedures affording the parties an opportunity to be heard.^[4]

Court process / judicial process is defined as the series of steps in the cause of the administration of justice through the established system of Courts.^[5]

Adjudication Awards / Adjudication decisions.

Framatome judgment, Supreme Court of Appeals Judgment (“SCA”).^[6]

NEC 3 ENGINEERING & CONSTRUCTION CONTRACT. The SCA answered the following question: Is the adjudicator’s award binding and enforceable?

This matter relates to the issue of compensation events where these events were brought to the attention the Agent of the Employer (Project Manager) as per the terms and conditions of the contract. There was no consensus between the parties in respect of these compensation events.

This matter escalated to the adjudication process where the contractor sought the adjudicator award in respect of these compensation events. The adjudicator issued an award against the Employer confirming the compensation events. The Employer refused and or resisted to honor the adjudication award.

The contractor took this adjudication award to High Court for the purposes of the enforcement the award. The High Court ruled that the Adjudicator answered the wrong question during the adjudication process and held that the Adjudicator’s decision or award was not binding to the parties and unenforceable.

The contractor was not pleased with the High Court judgement and appealed the High Court decision to the SCA.

Judges at the SCA ruled that the High Court judgement was wrong that the adjudication award of the Adjudicator was not binding and unenforceable. The SCA held that the adjudicator’s award is binding and enforceable. The SCA held that it is only the tribunal (arbitration) that can revise and or overturn the adjudication award.

The SCA answered the question, whether the adjudication award is binding and enforceable in para 29 of its judgment, as follows: -

“The answer to that question turns on whether the Adjudicator confined himself to a determination of the issues that were put before him by the parties. If he did, then the parties are bound by his determination, notwithstanding that he may have fallen into error.^[7] The finding of a High Court that the Adjudicator answered the wrong question is NOT borne out by the facts. The Adjudicator formulated the dispute as it was referred to him.  At no stage did he depart from the real dispute between the parties.

Adjudicator decided the dispute in accordance with what the parties had contemplated and appreciated. It would seem to me that the High Court focused its attention on the words “timeously or in due course” in the Adjudicator’s Award and concluded that the Adjudicator exceeded his jurisdiction. This approach was wrong.^[8]

SCA held further that, before the High Court was an enforcement of a provisional or interim payment due to Framatome, this was in terms of the contract. The provision that payment must be made even before arbitration is a STRONG indication of the ousting of a Court’s jurisdiction to review the award.^[9]

Conclusion
The adjudication award is binding and enforceable. It cannot be reviewed by Court. It can only be revised and overturned by the Arbitration. Eskom was ordered to pay all the amounts together with interest as per adjudicator’s award.

Strict time frames for adjudication / construction and engineering disputes

The Court in the matter of Group Five Construction dealt with the strict compliance to time frames in referring and dealing with the adjudication of construction disputes.^[10]The Court held that clauses W1.3(3) and W1.3(8) of the written engineering and construction contract (“ECC”) required Adjudicator’s decision to be published in four weeks from the date when he receives last submission from the parties, unless, the parties agree to grant him an extension of time.  The ineluctable conclusion is therefore that, absent such consent to the extension of time, the Adjudicator should publish this report or award on due date failing which, his mandate is terminated. The Adjudicator is not competent to proceed and act beyond the time period set by the agreement if he is unable to secure the necessary consent from both parties.

Failure by the adjudicator to deal with the merit of the matter at hand

It is important at all times for the adjudicator to deal with the matter before him. Should the adjudicator fail to deal with the dispute before him, this could render the award issued by him not enforceable.

In the Carillion Construction case, the Court endorsed the correctness of the principle that “where the adjudicator has acted in excess of his jurisdiction or in serious breach of the rules of neutral justice, the Court will not enforce his decision or his adjudication award.”^[11]

What happens in a case where there is a conflict between the adjudicator’s contract and the contract between the Employer and the Contractor. This question was addressed by the case of SASOL South Africa (Pty) Ltd.^[12]The adjudicator’s contract allows an entitlement to more information and more time than that provided for in the construction contract between the parties and to the extent that there is a conflict between the adjudicator’s contract and the construction contract, the adjudicator’s contract must prevail.

This decision confirmed the point that, once the adjudication award is issued, it is binding and enforceable as a matter of contractual obligation between the parties.^[13]

Does the filing of notice of objection or notice of dissatisfaction with the adjudicator’s award suspend the operation or enforcement of the award?

This question was adequately answered by the following passage:

In Tubular Holdings Case, the Court concluded that notice of dissatisfaction does not suspend the obligation to give effects to the Adjudicator’s decision.^[14] The applicable clause in Tubular Holdings that the adjudication award of the Dispute Adjudication Board is binding on the parties and should be promptly given effect to.

In the Steffanuti Stocks (Pty) LTD v S & Property (Pty) LTD 2014 SA 244(GSJ), this case stated that the applicable dispute resolution clause included the wording “Without undue delay”

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