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Adjudication in construction contracts: What next for relief?

Updated: Sep 8

Author: Kyle Bowles – Associate


Multi-level dispute resolution mechanisms are common in construction contracts today, and a recent decision in the Supreme Court of Appeal (SCA) sounds a note of caution on applying to the courts for relief whilst still pursuing these contractual mechanisms.


In the recent case of Ekurhuleni West College v Segal and Another (1287/2018) [2020] ZASCA 32, the SCA was required to decide on the appropriateness of launching an application to review and set aside the determination of an adjudicator, where the underlying dispute had also been referred to arbitration in terms of the contract. The SCA was also required to consider the principles of justice as they apply to tribunals created by contract, such as adjudications.

The multi-level dispute resolution mechanisms in modern construction contracts may require the parties to first engage with each other at management or board level, or embark on mediation, to try to resolve the dispute amicably before referring it to adjudication and then, if unresolved, to arbitration.

Adjudications are an accelerated form of dispute resolution, designed for the summary and interim resolution of disputes, where parties make submissions to a neutral person tasked with determining a dispute. Where there is dissatisfaction with the determination of an adjudicator, certain construction contracts may allow for the dispute to be referred to arbitration, where the dispute is decided upon by an arbitrator following a formal hearing and presentation of evidence.

The facts


The appellant, Ekurhuleni West College, had entered into a written building contract with Trencon Construction (Pty) Ltd to build a conference centre on its premises. During the project various disputes arose between the parties, which were referred by Trencon for adjudication.

In terms of the contract between the parties, unresolved disputes between them were to be referred to either adjudication or arbitration. Where disputes were referred to adjudication, the adjudicator’s written determination would be binding on the parties unless and until it was later overturned or revised by an arbitrator.

The rules governing the adjudication between the parties allowed three sets of submissions – a statement of claim (by Trencon in this case, as the referring party), a statement of defence by the College, and a reply by Trencon. The adjudicator was empowered to require a party to submit any further information, documents or evidence which s/he might reasonably require to make a determination. The adjudicator could also hold a formal hearing, as with an arbitration, but was not obliged to do so.

Following Trencon’s submission of their reply, the College sought to file a further response (a rejoinder). The adjudicator advised that he would not consider the further response, nor any other subsequent submission by the parties, and further advised that he did not believe that a hearing was required. He later requested further information from Trencon, but not from the College. The adjudicator’s written determination found in favour of Trencon in respect of five of the thirteen claims referred to adjudication and determined that an amount was payable by the College to Trencon.

The College gave notice of its dissatisfaction with the adjudicator’s decision and referred the disputes to arbitration. It also made an application to the Gauteng High Court to review and set aside the determination on the grounds that (1) the adjudicator had failed to comply with the rules of natural justice (as he had ignored the rejoinder, not convened a hearing and only requested further information from Trencon); and (2) objecting to the substantive merits of the claims that had been allowed by the adjudicator. Trencon filed a counter-application for the enforcement of the determination.

The High Court dismissed the review application with costs and granted Trencon’s counter-application with costs on the attorney and client scale. The College was, however, granted leave to appeal to the SCA.

The principles of justice


The High Court, in dismissing the review application, agreed with the dictum in Sasol Chemical Industries Limited v Odell and Another* that an adjudication of this nature was not subject to the common law and that therefore the principles of natural justice were not applicable in this matter.

The SCA went further and, relying on the decision in Turner v Jockey Club of South Africa**, found that, whilst in the case of a statutory tribunal the obligation to observe the elementary principles of justice is derived from the expressed or implied terms of the relevant legislation, in the case of a tribunal created by contract (such as this adjudication), the obligation derives from the expressed or tacit terms of the agreement between the parties. The SCA emphasised that the test for determining whether the fundamental principles of justice can be implied as tacit (the unexpressed intention of the parties) terms of the contract is always subject to the express terms of the agreement, by which any or all of these principles of justice may be excluded or modified.

Since the College did not challenge the express contractual provisions as being contrary to public policy, there was no room to imply that any rule of natural justice was a tacit term of the agreement. The SCA found that express contractual provisions had regulated the procedure and were strictly followed by the adjudicator, thus there was no merit in a claim of procedural unfairness.

Arbitration and Review


The main reason for the review application being dismissed by the High Court was that the delivery of the notice of dissatisfaction and pending arbitration, precluded the review application. By proceeding to arbitration, the College had exercised one of two mutually exclusive remedies, resulting in it waiving the right to take the adjudicator’s determination on judicial review.

Whilst confirming that the above ground was sufficient to dismiss the review application, the SCA did not agree with the High Court’s view that proceeding to arbitration and applying for judicial review were mutually exclusive remedies. In this regard, review of a determination is relevant and appropriate where there has been alleged procedural unfairness in the conduct of the proceedings by an adjudicator, whereas referring the dispute to arbitration would bring about a fresh hearing of the merits of the claims in terms of the contract.

Notwithstanding, the SCA found that the above ground was still relevant, on a “different but very firm foundation”, as the arbitrator would be entitled to revise the adjudicator’s determination as if it had not been issued or given. Thus, the determination would be revisited during a further step in the agreed procedure for the settlement of disputes in the contract. The College, by launching the review proceedings, had therefore required the High Court to review unterminated proceedings.

The SCA confirmed that whilst a court may, when appropriate, grant relief by way of review, interdict or mandamus (judicial order) against a decision in unterminated proceedings, such power may only be exercised in rare cases where grave injustice might otherwise result or where justice might not be attained by other means.

According to the SCA this was not one of the rare cases which required the court’s intervention. The adjudicator’s determination was not exhaustive of the disputes, as it could be overturned during arbitration. The College had agreed to be bound by the adjudicator’s determination and its remedy if dissatisfied was to refer the matter to arbitration. This remedy was invoked and could have been pursued expeditiously. Therefore, holding the College to the contract in these circumstances would not cause grave injustice nor irreparable harm.

The appeal was accordingly dismissed.

Conclusion


The above case indicates that where a dispute is referred to arbitration following an adjudication, a dissatisfied party’s ability to approach a court to obtain relief in respect of the adjudicator’s determination is limited. This should be kept in mind when choosing an appropriately qualified adjudicator, especially where an adjudicator’s determination becomes immediately enforceable. A dissatisfied party may, to its detriment, be forced to comply with a defective, irregular or unfair determination, until such time as the determination is set aside in arbitration.



* [2014] ZAFSHC 11 para 18.

** 1974 (3) SA 633 (A) at 645H-646B.

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