Confact Core Construction CC v JLK Construction (Pty) Ltd

The Western Cape High Court handed down judgement in the matter of Confact Core Construction CC v JLK Construction (Pty) Ltd on 25 November 2020. Confact had applied for an order giving effect to an adjudication award. JLK alleged that the referral to adjudication was not competent. Failing such a finding, JLK counter applied for an order suspending the implementation of the adjudication award on the grounds that it would suffer substantial injustice should the award be given effect.

The agreement between Confact and JLK was governed by the JBCC Edition 5.0 N/S subcontract agreement. If a disagreement arises, Clause 40 thereof requires the aggrieved party to give notice to the other to resolve the disagreement. If the disagreement is not resolved within 10 working days of this notice it is deemed to be a dispute and the aggrieved party has the option to refer it to either adjudication or arbitration. The adjudication is governed by the JBCC Adjudication Rules which stipulate that the parties must appoint the adjudicator by mutual agreement within 5 days of the disagreement being deemed a dispute. Where an appointment is not made in that period, either party may request the nominating body to appoint an adjudicator. The adjudicator’s decision is binding on the parties who must give effect to it without delay unless and until it is subsequently revised by an arbitrator.

The Principal Building Agreement between the Employer and JLK was terminated in December 2018, which resulted in the termination of the subcontract agreement between JLK and Confact. In January 2020 Confact demanded payment of sums due in respect of work done and the return of retention. JLK did not respond and Confact gave notice to JLK to resolve the disagreement in February 2020. The disagreement was not resolved within 10 working days, was deemed to be a dispute and Confact elected to refer it to adjudication. JLK and Confact were not able to agree on an adjudicator and Confab requested the nominating body to appoint an adjudicator in March 2020. Confact made submissions to the adjudicator in May 2020, but JLK failed to respond. The adjudicator delivered a decision in favour of Confact in June 2020. Despite demand, JLK failed to make payment in terms of this award.

1. The dispute arose in 2018 when Confact requested (and JLK refused to make) payment on termination of the agreement. JLK argued that the dispute should have been referred to adjudication in 2018 and that as it was not, an adjudicator had not been appointed within the 5 days stipulated in the Adjudication Rules, and arbitration was the only competent option left available to Confact. The court rejected this argument on the following grounds:
   1. It flies in the face of the stipulation in Clause 40 of the agreement that a disagreement is deemed to be a dispute only once a notice to resolve disagreement has been given, and such disagreement hasn’t been resolved within 10 working days thereof. It would also mean that every time a subcontractor made application for payment, the date of this application would determine the date of a dispute even as the subcontractor remained unaware whether or not the contractor intended to make payment. The court concluded that it is absurd to contend that an application for payment would have the same effect as a notice.
   2. Clause 40 also clearly provides for an election between adjudication and arbitration and on a plain and straightforward reading of this provision, JLK’s contention was misplaced.
2. Adjudication is a specific process which caters for specific time frames, the aim and purpose for which is quick and immediate resolution whilst the agreement still endures. If the agreement is terminated then the parties should use arbitration and they will effectively be barred from adjudication. In support of this argument JLK relied upon obiter in the matter of Radon Projects (Pty) Ltd v NV Properties (Pty) Ltd and Another. As the court rightly pointed out, however, the underlying agreement in Radon was different to the agreement between Confact and JLK. In Radon, the agreement specifically stipulated that prior to practical completion disputes were to be referred to adjudication and after practical completion disputes were to be referred to arbitration. This didn’t have any application to the agreement between Confact and JLK because their agreement did not include such a provision.

JLK also argued against the implementation of the award on the grounds that it still had the right to refer the dispute to arbitration and had, in fact, done so. The court rejected this argument on the grounds that there are numerous authorities that support the proposition that a party to a construction contract is obliged to give effect to the terms of an adjudication award, including payment, until it is set aside (See Esor Africa (Pty) Ltd/Franki Africa (Pty) Ltd joint Venture v Bombela Civils Joint Venture, Case 2012/7442, para13; Tubular Holding (Pty) Ltd v DBT Technologies (Pty) Ltd 2014 (1) SA 244 (GSJ) para 40; Basil Read (Pty) Ltd v Regent Devco (Pty) Ltd [2011] JOL 27946 (GSJ)). Regardless of whether JLK exercises its contractual right to refer the dispute to arbitration, it is bound by the adjudicator’s decision and must give effect to it without delay, unless and until the adjudicator’s decision is set aside by an arbitrator.

In its counter application JLK argued that the implementation of the adjudicator’s award should be suspended pending the outcome of the arbitration process because the adjudication process was unnecessary, JLK did not have an opportunity to challenge Confact’s claim, and JLK had been indicating since June 2020 that it intended to refer the adjudication award to arbitration. For these reasons JLK alleged that it would suffer substantial prejudice if the suspension was not granted and that it was in the interests of justice to suspend the implementation of the adjudicator’s award. The court found that it was Confact who would suffer real and substantial prejudice should the adjudicator’s award not be implemented. The court has a discretion to grant a suspension of an order where real and substantial injustice will otherwise be done, but JLK had wilfully refused to pay Confact for some 18 months, refused to agree on an adjudicator and refused to participate in the adjudication process. It was not, therefore, open for it to complain that it had not been afforded the opportunity to challenge Confact’s claim. The court also pointed out that despite JLK’s assertion that it required the dispute to be ventilated by arbitration, there was no evidence before the court that JLK had referred the matter to an arbitrator. JLK had, therefore, dismally failed to reach the threshold of exceptional circumstances required to satisfy the granting of a suspension order.