Tubular Holdings (Pty) Ltd and DBT Technologies (Pty) Ltd

The essence of the disputes in these matter was about the interpretation of clause 20 of the Standard FIDIC conditions of contract which deals with a dispute resolution procedure.

Background

DBT Technologies is the main subcontractor to one of the main contractors to Eskom on the Kusile Project. Part of this subcontracted project was in turn subcontracted by the Respondent to the applicant – Tubular Holdings.

1.1.     The relationship between the Applicant and the Respondent is for present purposes, that between a Contractor and Employer in a construction contract. Their contract is under the Standard FIDIC Conditions of Contract. Clauses that are of particular relevance to this High Court application are sub – clauses 20.4 and 20.6.

1.2.     The clauses provide that disputes between the parties are in first instance, to be referred to a Dispute Adjudication Board (DAB) for a decision on that dispute. A party that is dissatisfied with that decision may give notice of its dissatisfaction after which it is to be referred to Arbitration (if not settled by adjudication) but the decision of the DAB in the interim remain binding on both parties who shall promptly give effect to it.

The dispute

2.1.     A dispute arose between the parties and it was referred to DAB and DAB made a decision on the matter. The Respondent was dissatisfied with the merits of the decision. There was no suggestion to nullify the decision on jurisdictional or other grounds.

2.2.     The Respondent gave notice of its dissatisfaction with the decision.

2.3.     In this application, the Applicant demands, in the interim, compliance with the decision as the Respondent refuses to so comply.

2.4.     The Applicant submitted that the parties are required to give prompt effect to the decision by the DAB which is binding unless 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 undo the effect of the decision.

Determination by the court

The Court was called upon to decide on the correct interpretation and make a determination which to it seemed appropriate.

Analysis of evidence by the court

As the real dispute was about the interpretation of clauses 20.4 and 20.6, the Court began by quoting the relevant provisions of these clauses and then turned to a discussion of them.

4.1.     Clause 20.4 (4)

‘The decision shall be binding on both Parties who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below. Unless the contract has already been abandoned, repudiated or terminated, the contractor shall continue to proceed with the Works in accordance with the Contract.’

4.2.     Clause 20.4 (5)

‘ If either party is dissatisfied with the DAB’s decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction. If the DAB fails to give its decision…….

4.3.     Clause 20.4 (7)

‘If the DAB has given its decision as to the matter in dispute to both parties and no notice of dissatisfaction has been given by either Party within 28 days after it received the DAB decision, then the decision shall become final and binding upon both parties.’

4.4.     Clause 20.6 (10

‘Unless settled amicably or otherwise agreed by the parties in writing, any dispute in respect of which the DAB decision (if any) has not become final and binding shall be finally settled by arbitration in accordance with this sub – clause 20.6.

The effect of these provisions is that the decision shall be binding unless and until it has been revised as provided. The moment the decision is made, the parties are required to promptly give effect to it. Given that the a dissatisfied party has 28 days within which to give its notice of dissatisfaction, it follows that the requirement to give prompt effect will precede any notice of dissatisfaction.

The last sentence of clause 20.4 (4) requiring the contractor to continue to proceed with the Works, presupposes that work is not interrupted by a notice of dissatisfaction with a decision.

The Court cited an unreported decision of Esor Africa ( Pty) Ltd / Franki Africa (Pty) Ltd JV and Bombela Civils JV (Pty) Ltd SGHC case no. 12/7442, where the parties referred a dispute to DAB in terms of clause 20.4 of the FIDIC Conditions of Contract. The DAB gave its decision which was in favour of the Contractor. The employer refused to make payment in terms of the decision relying, inter alia, on the fact that it had given a notice of dissatisfaction. The Contractor approached the Court for an order compelling compliance with the decision.

The Court in Bombela found that the intention and purpose of the DAB process was the fact that neither payment nor performance could be withheld when the parties are in dispute pending the outcome of Arbitration. Upon determination of the dispute by the Arbitrator a reconciliation or adjustment in payment will then be put into effect.

Decision of the court

The Court in casu concurred with the decision in Bombela as it is supported by a number of judgements, both here and abroad, dealing with similar provisions in different standard forms of construction contracts. The Court cited among others, Stocks and Stocks ( Cape) ( Pty) Ltd V Gordon and others NNO 1993 (1) SA 156 (T), Freedman NO and another V Eskom Holdings Limited, SGHC case no. 4336/09, 23 April 2010 unreported, Basil Read (Pty0 Ltd v Regent Devco (Pty) Ltd, SGHC case no. 41108/09 in paragraphs (51) and (56) unreported. The Court also referred to the United Kingdom where the matter is dealt with by statute but has the same effect as the clauses referred to in the present case.

The Court found therefore that the terms of the relevant contractual provisions were perfectly clear; the parties were obliged to promptly give effect to a decision by the DAB. The issue of a notice of dissatisfaction does not in any way detract from this obligation. Until revised, the decision binds the parties and they must give prompt effect thereto.

The finding of this court has far reaching consequences for both contractors and employers in standard form of contracts, where a determination has been made by the adjudicator, same must be adhered to by the unsuccessful party despite a pending referral of the dispute for arbitration.

By John Letsoalo
johnl@dyason.co.za