Out-Law Guide 5 min. read
03 Sep 2021, 8:25 am
Most construction contracts make provision for dispute resolution mechanisms which result in either temporary or final and binding determination through adjudication, arbitration or even litigation.
However, it is often the case that successful parties in adjudication have to take steps to enforce the determination because the opposing party refuses to comply with the decision or delays in its compliance.
There are several recent cases in South Africa where the courts have considered this issue, particularly under FIDIC forms of contract.
The 1999 FIDIC suite of contracts make provision for adjudication under standard clauses 20.2-20.4. Of particular importance when it comes to the enforceability of decisions issued pursuant to those clauses are the terms of clause 20.4 and clause 20.6, which state the following:
The ordinary sequence of events, therefore, is that a dispute, once referred by either party under the contract, is heard before an adjudicator or DAB, whose decision is binding on both parties unless or until it is revised by settlement or an arbitration award. On the face of the wording, the decision remains binding on the parties until such time as the dispute may be referred to arbitration.
Where a clause 20.4 notice of dissatisfaction has not been served, the disputes will never reach arbitration. In that case, the adjudicator's decision becomes final and binding.
This issue was considered in a 2020 High Court judgment in the case of Tension Overhead Electrification (Pty) Ltd v Ircon International Limited and others.
This case was an appeal heard before the full bench of the High Court against the initial High Court decision handed down by a single judge , who refused to enforce a contractually agreed dispute board decision. A number of disputes between Tension and Ircon were referred to the dispute board who found in favour of Tension. Ircon paid a portion of the claim but failed to pay the outstanding amount, arguing that the remaining claims had to be referred to arbitration and therefore that the dispute board's award was not yet final and binding and could not be enforced.
When considering the merits of the matter, the court contemplated whether “the [dispute board’s] decision is binding on Ircon and as such enforceable despite Ircon's intention to have its dissatisfaction therewith referred to arbitration”. In coming to its decision, the court considered several prior decisions, which according to the court were “overwhelmingly harmonious”.
The court saw the matter as one principally of contractual interpretation and held that the dispute board’s decision was to be enforced.
In its main finding in this regard, the court said: “Irrespective of the issue of finality of the determination and until finality occurs, the parties have expressly agreed with each other that they ‘. . . shall promptly give effect . . .’ to the determination. To ‘give effect’ to a determination sounding in money, means to pay whatever the adjudicator has determined. The corollary of this obligation is the right of the innocent party to enforce it.”
In reaching its finding, the court had regard to the 2013 case of Tubular Holdings (Pty) Ltd v DBT Technologies (Pty) Ltd which considered clause 20.4(4) of the standard FIDIC form. In this case the High Court found that parties are obliged to promptly give effect to an adjudicator’s decision, and that a notice of dissatisfaction does not detract from this obligation. In reaching its decision, the court placed great emphasis on the wording in clause 20.4 which expressly obliges the parties to give effect to the adjudicator's award unless and until it is revised in arbitration.
The Tension case therefore reaffirms and makes clear the approach of the court in relation to the enforcement of DAB awards.
The logic applied in the Tension ruling has been subsequently followed by the South African Supreme Court of Appeal in a 2021 case between Sasol South Africa and M&R Limited, albeit under an NEC3 engineering construction contract. Again, in this case the court had regard to the express wording of a clause under that contract, W1.3 (10), which provides that the adjudicator's decision is binding on the parties and "enforceable as a matter of contractual obligation between the Parties".
This consistent bank of case law highlights that, where there is a contractually binding requirement on the parties to give effect to an adjudicator's decision, the decision will – absent procedural and jurisdictional challenges – be upheld by the courts, is enforceable, and the parties will be obliged to give effect to it without delay.
Moreover, this obligation to comply arises even if a notice of dissatisfaction has been served and regardless of any intention of a party to refer the dispute to arbitration – i.e. the decision has not become final and binding under the contract.
Unlike in England and Wales, there is no separate procedure for the enforcement of DAB awards in South African courts. Enforcement proceedings would have to be brought in terms of ordinary motion proceedings.
South African courts provide for two options in terms of motion proceedings: unopposed motion proceedings; and opposed motion proceedings. Both forms of motion proceedings are regulated by the Uniform Rules of the High Court which includes the respective timelines associated with each motion proceeding.
More often than not, a party that refuses to implement the award of a DAB is likely to oppose any enforcement action.
Assuming the proceedings are opposed, the process in overview would be:
In our experience, the allocation of a hearing date for an opposed application is likely to take on average between six to eight months after proceedings are instituted.
This is a far cry from the expedited process in the English and Welsh courts, however South Africa does not yet have the benefit of statutory regulation in this area.
In the meantime, parties to construction contracts in South Africa can be comforted that the decisions of adjudicators are, in the presence of a binding obligation to comply in the contract, enforceable in South African courts, albeit they may have to wait a little longer for their money than they would like.
Co-written by Brendan Whyte and Chantel Carreira of Pinsent Masons.