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The New Engineering Contract (NEC) of which the Engineering and Construction Contract forms part, makes provision for the referral of disputes ensuing under the contract to an adjudicator. This is provided in clause W1 of the contract, which sets out the process for referring a dispute to adjudication. In terms of clause W1.3(8) the adjudicator has four weeks after the end of the period for receiving information within which to make their decisions and notify the parties of their decision and the reasons thereof. The four-week period may be extended if the parties agree. Clause W1.4(3) sets out that if the adjudicator does not notify their decision within the time provided for in the contract, a party may notify the other party that they intend to refer the dispute to the tribunal. Such a party needs to give its notification within four weeks of the date by which the adjudicator should have notified their decision. The Engineering and Construction Contract does not stipulate whether an adjudicator’s decision is valid and enforceable if issued after the expiry of the prescribed time period of four weeks.
As such, the Gauteng Local Division of the High Court in Gauteng, Johannesburg was faced with the question of whether an adjudicator’s decision is valid and enforceable if issued after the expiry of the prescribed period of four weeks. In this article we explore the decision of the High Court in two matters dealing with the same question.
In Freeman NO and Another v Eskom Holdings Ltd [2010] JOL 25357 (GSJ) the High Court had to determine whether an adjudicators decision is valid and enforceable where it is issued after the expiry of the date within which it was supposed to be issued. The facts of this matter are as follows:
Freeman was the joint liquidators of Transdeco GTMH (Pty) Ltd (Transdeco) a company under liquidation. Freeman in their capacity as liquidators of Transdeco brought a claim against Eskom for the payment of money due to Transdenco payable by Eskom. Transdeco and Eskom entered into an Engineering and Construction Contract on 14 May 2004 (the Contract). Disputes arose between Transdeco and Eskom during the course of the Contract and was referred to adjudication and in each of the disputes the adjudicator held that Eskom should pay Transdeco a certain amount. The liquidators of Transdeco brought a claim before the High Court for the payment of the money, as determined by the adjudicator. Freeman subsequently instituted an application for summary judgment. In its affidavit setting out its defences Eskom submitted ‘that the adjudicator’s decisions are only binding if given in the four-week time period stipulated in the contract, and that because they were late, they are not binding on the defendant’. In respect of the first dispute ‘the adjudicator had until 30 October 2006 to deliver his decision, in order to comply with the provisions of the contract and to render the decision binding on the parties’. But the adjudicator notified the first decision on 3 November 2006. In relation to the second dispute, the adjudicator had until 15 November 2006 to notify his decision, but the adjudicator notified his decision on 19 November 2006, out of time.
The following contract clauses were applicable in this dispute. In terms of core clause 90.2 of the Contract:
‘The Adjudicator settles the dispute by notifying the Parties and the Project Manager of his decision together with his reasons within the time allowed by this contract. Unless and until there is such a settlement, the Parties and the Project Manager proceed as if the action, inaction or other matter disputed were not disputed. The decision is final and binding unless and until revised by the tribunal.’
In terms of core clause 91.1 of the Contract:
‘The Party submitting the dispute to the Adjudicator includes with his submission information to be considered by the Adjudicator. Any further information from a Party to be considered by the Adjudicator is provided within four weeks from the submission. The Adjudicator notifies his decision within four weeks of the end of the period for providing information. The four-week periods in this clause may be extended if requested by the Adjudicator in view of the nature of the dispute and agreed by the Parties.’
The court held that although the Contract set out time within which the adjudicator is to notify its decision, it does not state that a late adjudicator’s decision is invalid. Furthermore, there is no clause in the Contract, which states that ‘unless the decision is made within a certain time it shall not be binding or of any force and effect’ thereby making time of the essence of the contract. The court further held that the adjudicator settles the dispute as an independent adjudicator and not as an arbitrator. As such their ‘decision is enforceable as a matter of contractual obligation between the parties and not as an arbitral award’. Thus, 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 arbitrations, 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 or of any effect’. There is accordingly no basis in law for treating the adjudicator’s delayed award as invalid.
The court further considered clause 93.1 of the Contract which set out that:
‘If after the adjudicator notifies his decision or fails to do so within the time provided by this contract and a Party is dissatisfied, that Party notifies the other Party of his intention to refer the matter which he disputes to the tribunal.’
In considering this clause, the court held that the remedy for dealing with a late adjudicator’s decision, is for the party who is dissatisfied with the adjudicator notifying its decision late. Such a party is to issue its notice to the other party of its dissatisfaction and intention to refer the matter, which it disputes, to the arbitral tribunal. The court found that Eskom did not issue such notice of dissatisfaction either before or after the issue of the adjudicator’s decision to Transdeco. As such the court found that ‘in terms of Core Clauses 91.1 and 90.2 of the Contract, even a belated decision of the adjudicator, i.e. one that is made after the expiry of the time provided for in the contract, is contractually binding and enforceable unless and until revised by an arbitration tribunal.’ Eskom’s defence was, therefore, dismissed on the basis that its defence would not constitute a bona fide defence that is good in law.
The same court was again faced with the same question in Group Five Construction (Pty) Ltd v Transnet SOC Limited [2019] JOL 45795 (GJ). The facts of the matter were:
In January 2011, Group Five Construction (Pty) Ltd (Group Five) and Transnet SOC Limited (Transnet) entered into a written engineering and construction contract (the Contract). A dispute arose pertaining to Transnet’s issuance of a final payment certificate. After Group Five notified Transnet of the dispute, in April 2018, the matter was referred for adjudication. The present application was for an order directing Transnet to give effect to the decision of the adjudicator handed down in September 2018. On 19 July 2018, the adjudicator requested further information from Group Five and same was provided on the same day. On 30 July 2018 the adjudicator requested that the parties allow him an additional seven days to finalise his request for further information, after which he would be in a position to finalise his award within four weeks. On 31 July 2018 Transnet refused to grant the adjudicator the extension requested and on the same date it gave notice to Group Five to refer the dispute to the tribunal. On 6 August 2018, Transnet indicated that its notice to refer the dispute to the tribunal shall stand and that the adjudicator’s intention to proceed was at his peril. Despite refusal to grant the adjudicator the extension as requested, the adjudicator continued to communicate and received certain information from Group Five without any further contribution and participation from Transnet and published his decision on 18 September 2018.
Group Five brought this application to enforce the decision of the adjudicator. In considering whether the decision of the adjudicator is binding and enforceable even though Transnet had refused consent to extend the time of publication of the adjudicator’s decision which decision was ultimately published long after Transnet had served Group Five with the notice to refer the dispute to the tribunal in terms of clause W1.4.3 of the agreement, the court held that:
‘In terms of clauses W1.3.3 and W1.3.8 of the agreement between the parties the time period for the publication of the adjudicator’s decision is [four] weeks from the date when he receives the last submissions from the parties, unless the parties agree to grant him an extension of time. These clauses do not state what should happen when a party does not grant the consent to extend the period. I am of the respectful view that the intention of the parties to make the requirement of consent from the parties to afford the adjudicator more time is meant to give the parties control over the process of the adjudication. It is meant to give the parties some power to deal, should they find themselves in that situation, with a recalcitrant adjudicator. The ineluctable conclusion is therefore that, absent such consent to the extension of time, the adjudicator should publish his report on due date failing which his mandate is terminated. I am therefore unable to disagree with Counsel for the respondent that, from the plain wording of these clauses, the adjudicator is not competent to proceed and act beyond the time period set by the agreement if he is unable to secure the necessary consent from both parties. No other meaning can be ascribed to these provisions for they are not at all ambiguous.’
The court held that time is of the essence in adjudication matters and that the adjudicator’s mandate in this regard was terminated by Transnet when Transnet refused to consent to the extension of time as requested by the adjudicator. Thus, the decision of the adjudicator was published late and in breach of the terms of the agreement of the parties and is therefore not binding and enforceable against Transnet.
– the court held that time was not of the essence;
– there is no clause in the Contract which invalidates the decision of the adjudicator where it is issued after the prescribed four weeks;
– the adjudicator did not request any extension within which to issue its decision; and
– the remedy for a party wanting to deal with a late adjudicator’s decision, is for the party who is dissatisfied with the adjudicator notifying its decision late to issue its notice to the other party of its dissatisfaction and intention to refer the matter, which it disputes, to the arbitral tribunal. Eskom did not issue such a notice.
– the court held that time was of the essence in adjudication matters;
– the adjudicator requested consent to issue its decision later, which consent was withheld by Transnet;
– the notification to refer the matter to an arbitral tribunal by Transnet rendered the adjudicator incompetent to continue with the matter; and
– Transnet complied with the requirements of clause W1.4.3 and issued its notice within the four-week period within which the adjudicator should have issued its decision.
As such it is vital for parties in contracts to ensure that their intentions are clear regarding the status and enforceability of an adjudicator’s decision.
Nomthandazo Sihlalo LLB (UJ) is a legal practitioner at Bowman Gilfillan Inc in Johannesburg.
This article was first published in De Rebus in 2022 (April) DR 12.
