The compulsory effect of an adjudicator in construction disputes

In Transnet Soc. Ltd v Group Five Construction (Pty) Ltd and others (9 February 2016), the court dealt with the interpretation of the provisions of a NEC Building and Construction Contract, particularly the clause dealing with dispute resolution.

This contract governed the design, supply, erection and testing of accumulators by Group Five Construction Company at a specific terminal of a pipeline that formed part of the so–called New Multi Products Pipeline Project (NMPP) project.

At the center of the dispute was the Transnet that contended the proper interpretation of the contract. This contract provided that the adjudicator was appointed as the adjudicator for all disputes arising under, or in connection with the contract, in terms of the contract. Transnet accordingly sought an order declaring (legally confirming) this provision.

Group Five Construction, on the other hand, contended that it was impermissible for Transnet to approach the court for the said declaration order because the contract provided for an arbitration process of all disputes between the parties, and that on proper interpretation of the contract, the parties contemplated the appointment of multiple adjudicators or ad hoc adjudicators for each dispute that may arise during the course of the project.

Group Five Construction further applied for an order to estopp Transnet from contending that the contract provided for the appointment of only one adjudicator because of its post–contractual conduct in actively participating in the appointment of different adjudicators. Group Five Construction opined that this was consistent with the interpretation that multiple ad hoc adjudicators were contemplated by the parties.

Contract

Within the optional provisions of a general NEC contract, parties select option W1, which comprises a form relating to dispute resolution procedures, including the appointment of an adjudicator and an arbitration process in the event of a party being dissatisfied with a decision of the adjudicator.

The Adjudicator

The adjudicator played a mediation role and if any party was dissatisfied with the decision of the adjudicator, it will then invoke an arbitration process.

The adjudicator is chosen by the parties and if parties have not selected an adjudicator, either party may ask the Association of Arbitrators of South Africa (AASA) to allocate one.

The adjudicator’s decision is binding on the parties unless, and until revised by the tribunal and is enforceable as a matter of contractual obligation between the parties and not as an arbitration award.

A party that is dissatisfied with the decision of the adjudicator may refer the dispute to the tribunal:

  • within 4 (four) weeks of being notified of the adjudicator’s decision; or
  • within 4 (four) weeks of the date by which the adjudicator should have given notice of his decision, provided that the aggrieved party also notified the other party of its intention to refer the dispute to the tribunal.

Tribunal

The Chairman of the AASA chooses the arbitrator if parties cannot agree on the choice of an arbitrator.

Jurisdiction – Point in limine

Group Five Construction raised a point in limine that the court should decline to determine the issue at hand, and refuse the application because the Transnet has not complied with the agreed dispute resolution process by following the arbitration process.

Group Five Construction argued that the question was whether or not Transnet should be permitted to bypass the arbitration process to which it had agreed to in the contract and referred to Zhongi development Construction Engineering Co. Ltd v kamota Copper Co.SARL 2005 (10 SA 345 SCA where the applicant in the cited case was not permitted to do so and this court should similarly refuse the application.

The Court held that our courts are generally not entitled to determine issues that fall within the province of an arbitrator in terms of that process unless an order has been granted in terms of section 3(2)(b) of the Arbitration Act No. 42 of 1965.

The Court subsequently refused the above application

Interpretation of the contract relating to the appointment of an adjudicator

The court applied the principles of interpretation to the disputed provisions of the contract, in particular clauses 11 and 12.

The Court found that clause 11 W1.1 of the contract provided that “The adjudicator is to be appointed….. if and when a dispute arises”. Clause 11 W1.2 provided that “A dispute arising under or in connection with this contract it is to be referred to and decided by the Adjudicator”.

The Court held that although these clauses refer to the Adjudicator in the singular, clause 12.1 contemplated the plural as well. This clause provided that “In this contract, except where the context shows otherwise, words in the singular also mean in the plural and the other way around.”

The Court further held that the words “…if and when a dispute arises” may be ambiguous. The words could mean that an adjudicator is appointed initially “if and when a dispute arises” and then retains such appointment throughout the period of the project, as the applicant contended in this matter.

The words could equally mean that an ad hoc  adjudicator is appointed “if and when a dispute arises” for that dispute only and another ad hoc adjudicator may be appointed “if and when”‘ each subsequent dispute arises.

Construed in the context of the contract as a whole that provided for the design, supply, erection and testing of accumulators, the parties, as rational businessmen are likely to have intended that multiple disputes could have arisen during the course of the project and that the determination of these disputes would have required  the expertise of ad hoc adjudicators from different disciplines or experience or, depending upon the number of disputes at any given time, more than one ad hoc adjudicator. This intention would be sensible, practical and businesslike and would have ensured that the dispute is resolved as expeditiously as possible so that the project is not held back by the existence of the dispute.

In addition, the subsequent conduct of the parties underscores the parties’ intention that ad hoc adjudicators could be appointed. Advocate Lane SC was appointed to adjudicate the “tank dispute” only and not to adjudicate every dispute that subsequently arose. Transnet’s Project Manager also suggested that an alternative adjudicator be chosen for the “radii dispute”.

The Court dismissed the application with costs and found it unnecessary to decide the third point on estoppel raised by Group Five Construction.

The adjudicator is therefore a third-party intermediary appointed to resolve a dispute between the disputants. The decision of the adjudicator is binding and final, unless it is later reviewed by either arbitration or court proceedings, whichever the parties selected at the time of formalising the contract.

Adjudication is intended to be a condition precedent to either arbitration or litigation. Where the contract explicitly requires this, the parties cannot directly approach a court of law for any relief. This is a fundamental rule in construction disputes where the parties have expressly subjected all their disputes to adjudication.

A Defendant/Respondent will most likely be successful with a point in limine where an applicant who approached a court of law has not complied with the agreed dispute resolution.

by John Letsoalo
johnl@dyason.co.za