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On 28 June 2021, the SCA handed down judgment in which it dismissed an appeal by Sasol South Africa (Pty) Ltd to a judgment by the South Gauteng High Court where the court held that a party to a contract is not entitled to ignore the adjudicator’s decision on the ground that it considers it to be invalid.
The Facts
Murray & Roberts Limited (the “Respondent”) was contracted in terms of the NEC Engineering and Construction Contracts by Sasol South Africa (Pty) Ltd (the “Appellant”) to render certain engineering and construction services at its Secunda plant. The Contract provided for the appointment of a Project Manager (the “PM”) to perform certain functions and duties. In addition, it provided for a dispute resolution procedure in terms of Option W1 of the NEC ECC.
Various disputes arose during the execution of the contract relating to the correctness of the PM’s assessments on payment claims made by the Respondent in terms of the Contract. Ten disputes related to the application of PMC200: The PM’s instructions. Pursuant to the contract, two of the ten disputes were referred to adjudication and later arbitration. The eight others arose after the referral. The arbitrator decided in favour of the Respondent and requested the PM to implement the terms of the arbitral award by adjusting payments to all ten disputes. On the Appellant’s instructions, the PM selectively applied the terms of the award. Dissatisfied by this, the Respondent notified Dispute 16 (“D16”).
During the adjudication of Dispute 16, the appellant argued that the Respondent sought the adjudicator to revisit and reconsider a decision in respect of which he had
already issued an award, and the adjudicator lacked jurisdiction in this regard. This was rejected by the adjudicator, who then decided on D16. The Respondent applied to the High Court for an enforcement order to which the Appellant counter-applied for a review of the adjudicator’s decision. The High Court dismissed the counter-application with costs. The Appellant appealed the decision of the High Court.
The Appellant arguments
In the SCA, the Appellant made submissions regarding the procedural aspects and, in the alternative, the merits of the adjudicator’s decision. In respect of the procedural aspects, the Appellant made three submissions. It contended firstly that the adjudicator decided on the same matters twice which is something he was contractually prohibited from doing. Secondly, the adjudicator received information after the expiry of the period within which he was allowed to do so. And lastly, the Adjudicator’s decision was issued when his jurisdiction had ceased.
In the alternative, the Appellant contended that the adjudicator erred in deciding that the arbitral award applied to all payment assessments. It argued that the award was only applicable to disputes referred to arbitration and not all ten disputes due to the hierarchy in the dispute resolution process, which it asserted would have been rendered useless by the application of the award to all ten disputes.
The SCA’s decision
The court held that the Arbitration Tribunal determined certain principles which had to be applied by the PM in terms of the contract. On the contention that the adjudicator decided on the same dispute twice, the court stated that D16 related to whether the PM was incorrect in withholding payment in the face of the arbitrator’s findings as a
result of PMC200. In this regard, the court looked at Clause 50.5 of the contract which provided as follows:
“The Project Manager corrects any wrongly assessed amount due in a later payment certificate”
and 51.3 which provided as follows:
“If an amount due is corrected in a later certificate either
Interest on the correcting amount is paid. Interest is assessed from the date when the incorrect amount was certified until the date when the correcting amount is certified and is included in the assessment which includes the correcting amount.”
On this basis, the court held that the contract obliged the PM to consider and give regard to the contractual entitlements determined by the arbitrator. It further found that Clause W1.3(5) of the Contract empowered the Adjudicator to “review and revise any action or inaction of the PM”. It held that when acting under this clause, the adjudicator is not reconsidering a decision but simply performing a contractual function the adjudicator failed to perform and applying the award.
On the contention that the adjudicator’s jurisdiction had ceased when the decision was issued, the court found that the adjudicator’s contract and the construction contract allowed for the request and provision of “additional information” and place no limitation on the request and provision. The court held that the adjudicator acted pursuant to the contracts, which allowed and required him to gather sufficient facts to enable him to
make a decision, and within the framework provided. Consequently, the contention was rejected.
Regarding non-performance on the basis of invalidity, the court found that the contract required a party to notify its intention to refer a dispute to arbitration in the event that an adjudicator does not notify his decision within the prescribed period. The Court held that consequent the Appellant’s failure to comply with the procedural requirements to challenge the adjudicator’s decision, the decision remained binding and enforceable as a matter of contractual obligation between the parties.
In its order, the court dismissed the appeal and amended the High Court’s order to reflect the true position as per the draft order provided by the Respondent, in acknowledgement of payments that had already been made by the Appellant.
The Importance of the case
In the first instance, the case confirms the importance of challenging the validity of an adjudicator’s decision(s) due to the consequences that may emanate from failing to perform in its terms. It cautions parties who agree on adjudication to appreciate the binding nature of the decisions that stem from the proceedings and ensure compliance with procedural requirements should a question of validity arise. A party who has agreed to adjudication cannot unilaterally refuse to perform in terms of an adjudicator’s decision simply because they think it is invalid without following due process.
Further, the court clarified the position regarding the existence of a hierarchy between the contracts: the construction contract and the adjudicator’s contract. The court stated that the adjudicator’s contract prevails over the contract between the parties when determining questions relating to the performance of the adjudicator’s functions and duties, and such hierarchy also must be appreciated by the parties
