19 SOUTH AFRICA
Contractual provisions prescribing adjudication
The Principal Building Agreement
Enforcement of adjudicators’ decisions
The institutional and legislative framework for adjudication
Towards statutory adjudication: The Prompt Payment and Adjudication Regulation
“Adjudication has found acceptance in the SA construction industry”,1 but “still has some way to go before its potential can be realised in full. Certain challenges need to be overcome to enable this to happen, which range from the contractual, institutional and legislative framework, to matters of skills and training.”2
19.1 Van der Merwe3 conducted a comparative study of the application of both mediation and adjudication across the South African construction industry to determine which of the two dispute resolution methods is, in the South African construction industry’s experience, better suited to resolve construction disputes in the South African construction industry. In concluding that adjudication is the better suited dispute resolution method, Van der Merwe states that:
“[I]t is found that both mediation and adjudication are effective alternative methods of dispute resolution as to litigation and arbitration. Although adjudication has a weakness in the enforceability of the decision of the Adjudicator, it still has an advantage over mediation.”4
19.2 Investigating adjudication practice in the South African construction industry, Maritz5 concludes that:
“[E]xperience in other countries who have introduced adjudication has shown that adjudication without the statutory force is not likely to be effective. Enforcement of the adjudicator’s decision is critical to the success of adjudication and before South Africa introduces an Act similar to Acts such as the Housing Grants, Construction and Regeneration Act 1996 (UK), the Construction Contracts Act 2002 (NZ) or Building and Construction Industry Security of Payment Act 2004 (Singapore) adjudication will remain largely ineffective and, therefore, underutilised in the South African context.”6
19.3 Gaitskill,7 echoing Maritz’s observations, submits that “[i]n order for adjudication to have any real impact it had to be compulsory so that powerful employers or main contractors could not simply strike such clauses out of contracts they made. This meant that there had to be legislation which simply imposed adjudication on all parties in the construction industry.”8
19.4 In this chapter, we consider adjudication practice in the South African construction industry under the following headings: (a) contractual provision prescribing adjudication; (b) enforcement of adjudicator’s decisions; (c) the institutional initiatives and legislative framework underpinning adjudication; and (d) the Construction Industry Development Boards Prompt Payment and Adjudication Regulations to determine the extent to which the challenges referred to by Maiketso and Maritz9 have been, or are being, overcome in the move from ad hoc to statutory adjudication.
Contractual provisions prescribing adjudication
19.5 Focus Group 6 of the Interministerial Task Team for Construction Industry Development recommended that:
“[T]he public sector should procure engineering and construction works in terms of a limited range of standard and approved procurement documents, and which, as far as possible, comply with the provisions of Best Practice Guide #2: Features of a modern form of engineering and construction contract. The use of “in house” documents and/or the incorporation of substantial variations to the standard forms of contract must be avoided.”10
19.6 In September 2005, the South African Construction Industry Development Board (the Board) issued Best Practice Guideline #C2: Choosing an appropriate form of contract for engineering and construction works,11 requiring that:
“[I]n order to make procurement reform effective in the manner intended, employers in the engineering and construction industry need, amongst others, to revisit the standard forms of contract which are in use. The current approach of having, probably, as many standard forms of contract as there are disciplines in the industry, together with a considerable number of in-house forms of contract, neither makes for efficiency nor does it enable a focussed approach to skills training necessary for development and growth. This applies to both private and public sector work.”12
19.7 Although the Board’s Best Practice Guidelines do not carry the force of law (as do the Board Notices published as such in the Government Gazette), each Best Practice Guideline is a critical component of the uniform standards, which the Board is mandated to develop and which (together with the ethical standards) “regulate the actions, practices and procedures of parties engaged in construction contracts”.13
19.8 Through the publication of Board Notice 86 of 2010 entitled Standard for Uniformity in Construction Procurement,14 these uniform standards (incorporating the obligation to comply with and implement the best practice guidelines when engaging in the construction process) have become firmly entrenched in South African construction practice.
19.9 Best Practice Guideline #C215 reduces the proliferation of various forms of both standard and in-house forms of construction contract employed across the South African construction industry to a choice (in particular for public sector employers) between the following four international and national standard form construction contracts:
- .1 The Fédération Internationale des Ingénieurs-Conseils 1999 first edition (FIDIC, first edition, 1999);
- .2 The General Conditions of Contract for Construction Works, first edition 2010 (GCC 2010) (now in the third edition published in 2015);
- .3 The JBCC Series 2000 (JBCC 2000) [Appendix 20.2]; and
- .4 The New Engineering Contract third edition (June 2005) family of standard contracts (NEC 3).
19.10 The Board has recommended that, as a matter of best practice, adjudication should be introduced as a mandatory means of dispute management in all the CIDB recommended forms of contracts (supplies, services and engineering and construction works) identified in Best Practice Guideline #C1, Preparing procurement documents,16 and in all the forms of subcontract identified in Best Practice Guideline #D1, Subcontracting arrangements.17
19.11 The dispute resolution management procedures, deployed in each of the four recommended standard form construction contracts, predominantly consist of multi-tiered processes, which overwhelmingly require the contracting parties to deploy “methods of resolving disputes spanning the area between the adjudicatory dispute resolution systems (including litigation, arbitration, adjudication, and expert determination) and simple negotiation … as an alternative or precursor to arbitration or litigation”.18
19.12 The GCC 2010 and JBCC 2000 series are home-grown South African standard form construction contracts, developed through consultative processes among constituent representative groups under the auspice of the South African Institution of Civil Engineering and the Joint Building Contracts Committee respectively. Both reflect current South African industry norms and practices with regard to (among other things) dispute management provisions specifically requiring adjudication as a component of the multi-tiered dispute management procedures.
19.13 The South African Institute of Consulting Engineers (SAICE) has for several decades developed, published and maintained conditions of contract for civil engineering works. Several editions of a document known as the General Conditions of Contract for Civil Engineering Works were published by SAICE culminating in a sixth edition published in 1990. The sixth edition of the General Conditions of Contract for Civil Engineering Works standard form construction contract was replaced in 2004 with the General Conditions of Contract for Construction Works, first edition, “to satisfy the Construction Industry Development Board’s requirements for standard conditions of contract”.19 Two subsequent editions of the General Conditions of Contract for Construction Works were published as editions two and three in 2010 and 2015 respectively.
19.14 After six years of application, primarily in civil engineering works, the General Conditions of Contract for Construction Works, first edition, 2004 was replaced with the General Conditions of Contract for Construction Works, second edition, 2010 [Appendix 20.1], which fundamentally revised the first edition:
“to clear up responsibilities and to provide for wider spectrum of construction works. In this regard the Second Edition is suitable for both construction and building works contracts and although its focal point is on the contracting strategy of design by the employer, it is also suitable for the design and built contracting strategy. Thus in addition to the traditional civil engineering construction work, it is also appropriate for mechanical and electrical work as well as building work. It is ideal to deal with civil, mechanical, electrical work as well as for building work. It is ideal to deal with civil, mechanical, electrical and building projects or a combination of these various types of projects.”20
19.15 Clause 10 (Claims and Disputes) of the General Conditions of Contract for Construction Works, second edition, 2010 details the applicable multi-tiered dispute management mechanism. The dispute management mechanism’s scope is extremely wide, incorporating “any dispute arising out of or in connection with the Contract”21 subject to the delivery by either the employer or contractor of a dispute notice22 and proviso that “the dispute arises from an unresolved claim”,23 “reference shall be made to this Clause in the Dispute Notice”,24 “a copy of the Dispute Notice is delivered to the Engineer”,25 “the nature of the dispute and the extent of the redress sought”26 is clearly stated and critically requires that “the Dispute Notice shall be delivered within 28 days of the event giving rise to the dispute has arisen. Failing such delivery, the parties shall have no further right to dispute the matter.”27
19.16 Provided that a compliant dispute notice is delivered timeously, there is a mandatory immediate referral of the dispute to either adjudication28 (which may itself either be by a standing adjudication board29 or ad hoc30 adjudication), or subject to the parties’ right to attempt to settle the dispute amicably at any time.31 Should an amicable settlement not be realised, or either party be dissatisfied with the adjudicator’s decision, or failure to furnish a decision, the dissatisfied party may refer the dispute to arbitration,32 or, if applicable in terms of the contract, to court proceedings.33
19.17 This practice of contract standardisation in the civil engineering industry is mirrored in other disciplines within the South African construction industry, including the building industry. In 2007, the suite of construction contract documentation, prepared under the auspices of the Joint Building Contracts Committee (JBCC), released its sixth edition, collectively titled the Series 2000 documents.
19.18 The JBCC is a non-profit organisation formalised in 1997 through the registration of a non-profit company. The JBCC concentrates on the compilation of current contract documentation with an equitable distribution of contractual risk in the building industry. The contract documentation is approved by the Board and used extensively in both the public and private sectors across the South African construction industry built environment.
19.19 The JBCC 2000 contract documentation is “compiled in the interests of standardisation and to portray the consensus view of the Joint Building Contracts Committee of good practice and an equitable distribution of contractual risk in the building industry. The suite is approved by the CIDB and has been selected for use by most of the state sectors. The primary documentation is supported by a set of standard forms that should significantly simplify the administration of the contract. JBCC documents are updated as and when necessary. Consequently users are advised to make use of the latest editions available.”34
The Principal Building Agreement
19.20 The Principal Building Agreement is the cornerstone of the JBCC Series 2000 and is designed to be used with, or without, bills of quantities, consists of nine sections, including the definitions of all the primary elements and phrases. The subsequent sections are ordered as closely as possible to the generic project execution sequence. The information required in the associated contract data forms must be fastidiously completed.
19.21 Section seven (dispute) of the Principal Building Agreement contains clause 40.0 (settlement of disputes), which details the applicable multi-tiered dispute management mechanism. The dispute management mechanism’s scope is extremely wide, incorporating “any disagreement arising between the employer, including his principal agent or his agents and the contractor arising out of or concerning this agreement or its termination”.35 This scope is extensive enough to include a dispute about any of the rights and obligations of party, whether or not either party had breached the agreement and whether a particular provision ought to be rectified.36
19.22 To fall within the scope of clause 40.0 (settlement of disputes), the disagreement must be genuine, involve contradictory and conflicting points of view maintained by either party, and not merely a failure by either to comply with a particular contractual obligation.37 Once such a disagreement subsists between the parties, “either party may give notice to the other to resolve such disagreement”.38 At this stage, no dispute between the parties has crystallised. A dispute only crystallises after a cooling-off period of 10 working days, calculated from the date of receipt of the notice of disagreement, has elapsed and the parties have not been able to resolve the disagreement. If not resolved after 10 days, such a disagreement is deemed to constitute a dispute.39
19.23 The dispute having crystallised “shall be referred by the party which gave such notice to either”40 adjudication,41 or arbitration,42 subject to the parties’ right to refer the dispute to mediation at any time.43 Should either party be dissatisfied with the adjudicator’s decision, the dissatisfied party may refer the dispute to arbitration.44
19.24 All too aware that “[t]he process of developing an adequate framework of new contracting systems should ideally be iterative and progressive”,45 the JBCC released the sixth edition of the Principal Building Agreement (edition 6.1) in 2014.
19.25 The persistent and wholesale application of the Board’s recommended standard form for construction contracts (with limited variations46), particularly by public sector employers consequent on Best Practice Guideline #C2,47 has reserved adjudication a front row seat in South African construction dispute management practice.
19.26 The single largest employer in the South African construction industry is the South African government, whose construction contracting component consists of the various organs of state, parastatal organisations and state-owned companies, registered and incorporated as such in accordance with the Public Finance Management Act 1999.48 Through consistent (and increasing) utilisation of the four standard form construction contracts, it has practically integrated ad hoc adjudication into its construction processes. This integration on an unprecedented scale in turn foisted ad hoc adjudication into a relatively unsuspecting and, indeed, largely unprepared construction industry.
19.27 Ad hoc adjudication is a process “whereby the parties agree to confer jurisdiction on an adjudicator to decide the particular dispute that has arisen between them”.49 As a matter of practice through the South African construction industry, the obligation to adjudicate only arises consequent on a specific agreement to adjudicate, which is recorded in the dispute management mechanisms captured in the construction contract. Recognising the validity of this procedure in producing a binding resolution of a dispute, HHJ Gilliland QC in Nordot Engineering Services Limited v Siemans plc50 remarked:
“I can see no reason, as a matter of law, why parties cannot agree to abide by the decision of a third party if they so wish. Clearly that is appropriate in the case of arbitration. Why should it not be appropriate in the case of adjudication? I ask?”51
19.28 The High Court of South Africa has recognised ad hoc adjudication, practised through the South African construction industry, as a distinct alternative dispute resolution procedure different to arbitration. In Freeman, August Wilhelm N O, Mathebula, Trihani Sitos de Sitos NO v Eskom Holdings Limited,52 a matter in which the parties had contracted under the New Engineering Contract second edition (June 1995), the joint final liquidators of Transdeco GTMH (Pty) Limited (In liquidation) sought to enforce an adjudicator’s decisions by summary judgment against Eskom Holdings Limited before Kathree-Setiloane JA. Katheree-Setiloane AJ found, inter alia, that, since the adjudication process “is not an arbitration and it is therefore not subject to the common law, or section 3 of the Arbitration Act 42 of 1965”,53 there is no statutory, or common law, basis for declaring an adjudicator’s decision invalid if that decision is delivered outside the specified period for delivery.54
Enforcement of adjudicators’ decisions
19.29 As Maritz correctly observes, “[e]nforcement of the adjudicator’s decision is critical to the success of adjudication”.55 Neither the Housing Grants Construction and Regeneration Act 1996 (the HGCRA) [Appendix 1.1], nor the Scheme for Construction Contracts [Appendix 1.2], enacted under the HGCRA, entrenched a procedure for enforcing adjudicators’ decisions.
19.30 The HGCRA simply provides that adjudicators’ decisions are binding unless and until overturned by agreement, arbitration or litigation.56 Paragraph 23(2) of the Scheme similarly provides that the decision is binding, pending final resolution by agreement, arbitration or litigation. Prior to the enactment of HGCRA, the approach of the English courts towards the enforcement of adjudicators’ decisions was mixed and even “hostil e”.57
19.31 The absence of an enforcement mechanism entrenched in the legislation itself was initially perceived as a critical flaw in the HGCRA. Fortunately, the English courts have consistently adopted a robust approach in the enforcement of adjudicators’ decisions58 through the statutorily regulated adjudication procedure, ensuring that Parliament’s intention in introducing the legislation was not thwarted.
19.32 In 2010, the South African High Court was first seized with the opportunity to consider the adjudication procedure as a first tier in construction dispute management practice and grapple with the question of enforcement of an adjudicator’s decision in Basil Read (Pty) Limited v Regent Devco (Pty) Limited59 and, shortly thereafter, in Freeman, August Wilhelm N O, Mathebula, Trihani Sitos de Sitos NO vs Eskom Holdings Limited.60
19.33 In Basil Read (Pty) Limited v Regent Devco (Pty) Limited,61 Basil Read applied to enforce an adjudicator’s determination made under the JBCC 2000 standard form, determining that an amount of R 29.554.941.97 was due and payable by Regent Devco. Dismissing Regent Devco’s defence and counterclaim, Mokgoatlheng J unequivocally recognised that an adjudicator’s determination is binding where “the contract and Adjudicator’s Rules state that the parties are bound to act in accordance with the adjudicator’s determination until such time as it is set aside by an arbitrator; Declaring a dispute in relation thereto does not relieve the respondent of its contractual obligation”.62
19.34 Initiating a tendency toward adopting a robust approach to enforcement of adjudicators’ determinations, Mokgoatlheng J held that “the vexed issues relating to the perceived misrepresentation by the applicant to the adjudicator, irregularities, bias, unfairness, partiality, irrationality and the purported flawed adjudicator’s determination, are issues which the respondent will have sufficient opportunity to fully ventilate at the arbitration”.63
19.35 In Freeman, August Wilhelm N.O, Mathebula, Trihani Sitos de Sitos NO v Eskom Holdings Limited64 the joint final liquidators of Transdeco GTMH (Pty) Limited (In liquidation) (Transdeco) applied to enforce four determinations made by an adjudicator against Eskom Holdings Limited under an NEC 2 (June 2005) standard form construction contract by summary judgment. Kathree-Setiloane JA awarded summary judgment against Eskom, enforcing the adjudicator’s determinations holding in each instance that the adjudicator’s decisions were enforceable as a matter of contractual obligation65 and that furnishing notice of dissatisfaction does not prevent enforcement.
19.36 Cementing the tendency toward adopting a robust approach to enforcement of adjudicators’ determinations initiated by Mokgoatlheng J, in Basil Read (Pty) Limited v Regent Devco (Pty) Limited,66 Kathree-Setiloane JA dismissed Eskom’s contention that an adjudicator’s determination furnished later than the contractually specified period was unenforceable. She held that the adjudicator’s “decision is enforceable as a matter of contractual obligation between the Parties and not as an arbitral award. Therefore, in the absence of a clause, which makes ‘time of the essence’ failure by an adjudicator, to deliver his or her award in the time stipulated in the contract cannot be rendered as binding on the parties or of any force and effect. Unlike in arbitration, there is no statutory, or common law contractual, basis for declaring the delivery of a late adjudication award invalid, particularly where there is no agreement between the parties that, unless the decision is made within a certain time, it shall not be binding of any effect. There is accordingly no basis in law for treating the adjudicator’s delayed award as invalid.”67
19.37 The South African High Court has persisted in adopting this robust approach to the enforcement of adjudicators’ determinations through several subsequent decisions in Tubular Holdings (Pty) Limited v DBT Technologies (Pty) Limited,68 Esor Africa (Pty) Limited / Franki Africa (Pty) Limited JV v Bombela Civils JV,69 Stefanutti Stocks (Pty) Limited v S 8 Property (Pty) Limited70 and in Sasol Chemical Industries Limited v Odell.71
19.38 In Tubular Holdings (Pty) Limited v DBT Technologies (Pty) Limited,72 disputes arising in connection with a subcontract between Tubular Holdings (Pty) Limited and DBT Technologies (Pty) Limited on the Kusile Coal Fired Power Station Project were referred to a Dispute Adjudication Board (DAB), consisting of a single member. Tubular Holdings (Pty) Limited made application to the South Gauteng High Court by motion application for an order compelling DBT Technologies (Pty) Limited to comply with the DAB’s decision.
19.39 The narrow issue between the parties before Du Plessis AJ related to the interpretation of the standard clause 20.4 of the FIDIC Conditions of Contract 1999 (first edition). Du Plessis AJ summarised the dispute as follows “[T]he applicant submits that the parties are required to give prompt to the decision by the DAB which is binding unless and until it is set aside by agreement or arbitration following a notice of dissatisfaction whereas the respondent says that the mere giving of a notice of dissatisfaction undoes the effect of the decision.”73 In granting Tubular Holdings (Pty) Limited an order for specific performance, compelling DBT Technologies (Pty) Limited to comply with the DAB’s determination, Du Plessis AJ, with regard to clause 20.4 of the FIDIC Conditions of Contract 1999 (first edition), specifically held that:
“[T]he scheme of these provisions is as follows: the parties must give prompt effect to a decision. If a party is dissatisfied he must nonetheless live with it but must deliver his notice of dissatisfaction within 28 days failing which it will become final and binding. If he has given his notice of dissatisfaction he can have the decision reviewed in arbitration. If he is successful the decision will be set aside. But until that has happened the decision stands and he has to comply with it.”74
19.40 In Esor Africa (Pty) Limited/Franki Africa (Pty) Limited JV v Bombela Civils JV,75 a dispute arose in connection with construction works executed by Esor Africa (Pty) Limited/Franki Africa (Pty) Limited JV, consisting in certain piling and lateral support work on the Gautrain rapid rail link project. Esor Africa (Pty) Limited/Franki Africa (Pty) Limited JV made an application for an order for specific performance, compelling Bombela Civils JV to comply with the DAB’s determination.
19.41 The dispute between the parties before Spilg J fell to be resolved by “a proper interpretation of the dispute resolution clauses dealing with the effect of a DAB decision”.76 The dispute resolution clauses referred to by Spilg J were the standard clauses contained under clause 20 (Claim, Disputes and Arbitration) of the FIDIC Conditions of Contract 1999 (first edition). In granting Esor Africa (Pty) Limited/Franki Africa (Pty) Limited JV an order for specific performance compelling Bombela Civils JV to comply with the Dispute Adjudication Board’s decision, Spilg J concluded that:
“[I]n order to give effect to the DAB provisions of the contract the respondent cannot withhold payment of the amount determined by the adjudicator, and in my view is precluded by the terms of the provisions of clause 20 (and in particular clauses 20.4 and 20.6) from doing so pending the outcome of the arbitration. In my view it was precisely to avoid this situation that the clauses were worded in this fashion.”77
19.42 Considering the benefits of adjudication, Spilg J held that:
“[T]he benefit gained by the [employer] was that the [contractor] could not withhold performance of its obligations but was obliged to carry on with the works even if a DAB finding was not in its favour. In the construction industry cash flow for the contractor and ensuring completion of the works for the employer are essential. The DAB provision is clearly intended to provide an expedited process of dealing with disputes as and when they arise, including the adequacy of interim payment certificates … In the most elementary way the DAB process ensures the interim solution of an issue which requires performance and requires that the decision is implemented. The parties’ position may be altered by the outcome of the eventual arbitration which is a lengthier process and there may be a refund ordered of monies paid or an interest readjustment if too little was decided by the DAB.”78
19.43 Since an application to the South African High Court for enforcement of an adjudicator’s determination is invariably founded on the provisions of the underlying contract, in the editorial team’s view, the Esor Africa (Pty) Limited/Franki Africa (Pty) Limited JV v Bombela Civils JV79 judgment correctly reflects the current South African jurisprudence with regards to enforcement of adjudicators’ determinations. The High Court’s concise summation of the primary purpose of adjudication sends a clear message to the South African construction industry that the High Court shall support adjudication, irrespective of the absence of legislation underpinning the adjudication procedure, through consistent enforcement of adjudicators’ determinations.
19.44 In Stefanutti Stocks (Pty) Limited v S 8 Property (Pty) Limited,80 Wepener J reiterated the South African High Court’s robust approach to the enforcement of adjudicators’ determinations, concluding that:
“[H]aving regard to the purpose of the provisions of the agreement by introducing a speedy settling of disputes in construction agreements on a provisional, interim basis, I can find no reason not to follow the judgment … in Bombela … The purpose of the policy to implement the adjudicator’s decision is also to obviate the tactical creation of disputes with a view to the postponement of liability.”81
19.45 In Sasol Chemical Industries Limited v Odell,82 (the first South African High Court case dealing with an application to set aside an adjudicator’s determination as opposed to enforcement of an adjudicator’s determination) Kruger J decided an urgent application by Sasol Chemical Industries Limited to set aside an adjudicator’s award on the basis that the adjudicator, Mr Odell (the first respondent), did not entertain a request by Sasol Chemical Industries Limited for an extension of time to furnish information. The adjudication had proceeded in accordance with the provisions of the New Engineering Contract (third edition) Engineering Construction Contract Option W1. Sasol, having failed to furnish information within the strict time limits prescribed in clause W1.3(3) and having failed to reach an agreement with E – Hel Civil Services (Pty) Limited (the second respondent) and the adjudicator to extend the time limits, applied to the adjudicator to consider a request for extension of time. The adjudicator refused to consider Sasol’s application and proceeded to furnish his determination on 3 February 2014.
19.46 In refusing Sasol’s application to set aside the adjudicator’s determination, Kruger J held that:
“[A]djudication is meant to be a speedy remedy to assist cash flow and not to hold up the contract. The finding of the adjudicator stands until it is set aside by the tribunal. The remedy of the applicant is to place its case before the tribunal. Even if in this case the adjudicator may have made a mistake by not entertaining the request of the applicant for an extension of time (and I do not think the adjudicator made a mistake) the adjudication stands.”83
19.47 In Radon Projects v N V Properties and Gary Stephen Myburgh,84 the South African Supreme Court of Appeal considered the lower court’s order that an appointed arbitrator had no jurisdiction to arbitrate the referred dispute as the dispute had arisen prior to practical completion and was as such required to be submitted to adjudication, in the first instance, in accordance with clause 40 of the JBCC (fourth edition March 2004).85
19.48 In reversing the lower court’s decision, Nugent JA (delivering a unanimous judgement) squarely confirmed adjudication’s front row seat in South African construction dispute management practice concluding that:
“[W]hen read together with the Rules, I think it is plain that, in keeping with modern practice internationally, adjudication under clause 40 is designed as a measure for the summary and interim resolution of disputes, subject to their final resolution by arbitration where appropriate.”86