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The interpretation of clause 20.4

24 June 2018

In Salz-Gossow (Pty) Ltd v Zillion Investment Holdings (Pty) Ltd, a matter heard in the Namibian High Court in 2016. The court was called upon to consider the interpretation of clause 20.4 of the Standard FIDIC Conditions of Contract (“Clause 20.4”). This Clause provides that, inter alia, a decision by a Dispute Adjudication Board (“DAB”), pursuant to a dispute referred to the DAB by a party, is binding on both parties and must be given effect to, unless and until revised by agreement or an arbitration award.

The facts in this case were that a dispute had been referred to the DAB by the Applicant. In the dispute, the Applicant claimed payment in the sum of N$3,246,792.71 (“Debt”) for work completed. In its decision the DAB had upheld the Applicant’s claim, directing the Respondent to pay the Debt. The Respondent delivered its notice of dissatisfaction to the DAB’s decision and refused to comply with the DAB’s decision that it must pay the Debt, alleging that, the notice suspended the operation of clause 20.4 and as such, it was not obliged to pay the Debt. In addition, the Respondent alleged that paying the Debt would be unreasonable as it would impact it financially, which a later arbitration could reverse. In this regard, the court should exercise its discretion and suspend the operation of Clause 20.4. The Applicant had approached the court to make the DAB’s award an order of court, and force payment from the Respondent.

The interpretation of clause 20.4 has previously come before a South African court in the Tubular Holdings case (“Tubular”). The facts of the Namibian case were similar to those of the Tubular case, except for the additional legal point of exceptional circumstances raised by the Respondent, as a ground on which the court could exercise its discretion and refuse to enforce clause 20.4 – setting aside the DAB’s decision pending the arbitrator decision. In the Tubular matter the court accepted the interpretation of Clause 20.4, which directed the Respondent in that matter to pay the amount owed to the Applicant, following a DAB decision directing it to do so.

In the Namibian case the court confirmed this approach and interpretation adopted in the Tubular case, that Clause 20.4 is binding on both parties. In the circumstances, both parties must comply with the decision by the DAB, irrespective of whether a party delivers a notice of dissatisfaction against the decision. When considering the circumstances on which it could exercise a discretion not to enforce Clause 20.4, the court confirmed, the court’s discretion not to enforce an award of specific performance. This discretion was to be exercised in light of the prevailing circumstances of each case. In the Court’s view, an uncertain, future event which may or may not have a financial impact on the Respondent, did not demonstrate exceptional circumstances to exercise this discretion.

The South African high courts too, are empowered to exercise their inherent discretion when determining a matter. It is unclear from this judgement, what constitutes exceptional circumstances. However, each allegation of an exceptional circumstance is decided on its own merits. What is clear from this judgment is that the accepted view on the interpretation of Clause 20.4 remains.

Contractors and employers alike, can rest assured that courts in multiple jurisdictions accept the interpretation that Clause 20.4 is binding on both parties. These decisions provide certainty on the dispute resolution procedure and to not leave the successful party vulnerable to the other party delaying payment of monies due, by litigating for no bona fide reason other than to frustrate him.