South African court enforces agreed adjudication timelines

When the drafters of several standard form construction contracts included contractual adjudication as a dispute resolution mechanism, it was envisaged as a ‘quick and dirty’ method to resolve disputes and allow the contracting parties to return to completing the project. This is why legal representation is generally not permitted in the adjudication process in South Africa under standard form contracts such as the Joint Building Contracts Committee (JBCC) suite.

What the drafters surely did not envisage, however, was an adjudication becoming bogged down by side skirmishes concerning the adjudicator’s jurisdiction, or the adjudicator, being compelled to dispense with the adjudication within a set timeframe, deferring to the results of those side skirmishes before concluding the adjudication.

A recently-published High Court judgment provided a demonstration of a court’s displeasure with a litigant interfering with the adjudication process. In the case, the court was faced with a crucial question: is an adjudicator prohibited from handing down a decision by an agreed date where his jurisdiction is the subject matter of an ongoing arbitration?

As in many jurisdictions, South African law gives contracting parties autonomy over the terms of a contract provided these terms are not contrary to public policy. Failure to adhere to the contractual terms may leave a party without any other recourse under that contract, since South African courts, in taking into account the principle of autonomy, will typically enforce the agreed terms unless there are compelling reasons not to do so. This includes a failure to adhere to contractual dispute resolution provisions.

There are parties that will seek to circumvent the dispute resolution mechanisms despite the autonomy principle, whether with the aim of delaying a matter from a strategic perspective, or to cause the other party such frustration that it elects not to pursue its claim. However, the courts are cognisant of such tactics.

Here, the parties referred an unresolved claim to adjudication. After the last submissions were filed, the decision on the merits was expected a month later. In the background, however, was an ongoing arbitration to decide a dispute over the jurisdiction of the adjudicator, Mr Sinkonde, which had been initiated by one of the parties, Slim B & D Construction Pty (Slim). Slim requested the adjudicator to hold back his determination despite the due date, citing the ongoing arbitration.

The adjudicator initially emphasised that he is bound to publish his determination on the said date unless the parties agreed to an extension. The adjudicator’s position was based on his contractual obligations. Slim, however, insisted that the publication of the determination be delayed, bringing an urgent application before the High Court to restrict the adjudicator from publishing his determination until the jurisdictional issue was decided in arbitration. Faced with what it believed would be an unfavourable determination by the adjudicator, Slim threatened him with an adverse order for costs should he continue with his decision.

The adjudicator, likely fearing the threatened costs order, changed his stance, stating that he would abide by the court’s decision. Slim then sought to remove the matter from the urgent court roll. This resulted in the opposing party in the adjudication – the second respondent in the High Court action, GVK-Siya Zama Building Contractors (Gauteng) (Pty) (GVK) – bringing an urgent counterapplication requesting the court to declare that the adjudicator was required to publish his determination on the specified date.

Slim argued that the urgency of the matter was no longer relevant because of the adjudicator’s undertaking to wait for the court’s decision, and that GVK had other available recourse. Slim also argued that the court should not entertain the counterapplication as the same matter with the same facts and that any relief sought was pending before the same court – the classic ‘lis pendens’ defence.

The court dismissed the argument on the basis that it was purely a delaying tactic that sought to obstruct access to relief, the fact being that Slim’s application, which it no longer apparently had a desire to move forward, would only be heard at some indefinite point in the future, leaving the adjudication process effectively in limbo.

GVK argued that the adjudicator ought to comply with the agreed contractual framework and that failure to do so would compromise the adjudication process, leading to unnecessary delays, increased costs and frustration of the agreed dispute resolution mechanism.

In its judgment, the court found that the adjudicator was appointed under the South African Institution of Civil Engineering (SAICE) rules, which provide for an extension of the agreed timeline provided there is agreement between the parties. Referring to case law on the topic, the court held that in lieu of consent to an extension, the adjudicator’s mandate is terminated on the date that the determination is due. This leaves the adjudicator without a contractual basis to act, including publishing his determination, beyond that date.

The court ultimately held that the referral to arbitration did not alter the timeframe for the adjudicator to deliver his decision on the merits of the case and ordered the adjudicator to give his determination in accordance with the contractual timeline. As a final mark of its displeasure in having to deal with the matter, the court saddled Slim with a punitive costs order, both in respect of the ill-fated urgent application and GVK’s counterapplication.

This decision demonstrates that South African courts are willing to enforce contractual adjudication timelines on the basis of the sanctity of contract – a cornerstone of contract law in South Africa. It also reinforces the notion that adjudicators are creatures of contract and must similarly abide by them. This translates into a warning that adjudicators are only permitted to act within the four walls of the contract.

Similarly, the case illustrates that South African courts will see through delay tactics employed by litigants, even if they do so surreptitiously. Punitive costs orders are relatively rare and have significant consequences for litigants. It was clear that the court was unimpressed with Slim’s actions, particularly the unwarranted threats made against the adjudicator, who was essentially attempting to comply with the contract. This created, in the court’s view, “unnecessary legal uncertainty”.

The court specifically noted that Slim had used “a tactical manoeuvre to delay and obstruct the adjudication process rather than [using] a legitimate legal argument”. This cumulatively, in the court’s view, warranted the punitive costs order.

Finally, and most importantly, the matter demonstrates that parties must be mindful not to lose out on their claims and to act quickly and effectively in the face of an obstructive opponent. Had GVK not acted with urgency in bringing its counterapplication once it became evident that Slim intended to frustrate the process, it appears viable that the adjudicator might not have published his determination on time or before his mandate terminated. Any determination he rendered after this point may well have been entirely invalid.

While the judgment does not specifically require parties to change their behaviour, it offers a stern warning to those who attempt to thwart adjudication proceedings by launching a purely dilatory court case. It reiterates that adjudication timelines are generally applicable regardless of ongoing arbitration and court action, and any attempts to interfere with the adjudication process may result in considerable costs.

Co-written by Siyabonga Machava of Pinsent Masons.