If an adjudicator makes a decision in a construction dispute, is that decision suspended if one of the parties refers the matter to arbitration? This question comes up surprisingly often (see previous article). On 23 October 2013, the Stefanutti Stocks (Pty) Ltd v S8 Property (Pty) Ltd judgement was handed down.
The case involved a standard written agreement used in the building industry, namely, the JBCC Principal Building Agreement. Clause 40 of this agreement deals with dispute resolution. It provides that in the event of a disagreement a party can give notice to the other party to resolve the disagreement. If the matter is not resolved within the prescribed time it’s deemed to be a dispute and an adjudicator is appointed. The adjudicator’s decision ‘shall be binding on the parties who shall give effect to it without delay unless and until revised by an arbitrator ... should notice of dissatisfaction not be given within the (prescribed) period ... the adjudicator’s decision shall become final and binding on the parties’. If notice of dissatisfaction is given the dispute will be ‘finally resolved by the arbitrator’.
In this case, Stefanutti, the contractor, referred a dispute to an adjudicator, who decided that S8, the employer, was required to pay Stefanutti certain amounts - the ‘full original preliminaries value’ of R2,4339,677.98, a further R94 000 that had been unlawfully deducted, and interest on amounts owing. S8 filed a notice of dissatisfaction, which meant that the matter would go to arbitration. It also took the view that it didn’t have to pay the amounts ordered by the adjudicator as the matter hadn’t been finalised.
The judge looked at the history of adjudication and noted that it had first been introduced in the UK through the Housing Grants Construction and Regeneration Act of 1996 . This act, the judge said, creates ‘an accelerated process for deciding disputes’, one that provides that ‘an adjudicator’s decision may be rejected and submitted to arbitration but is provisionally binding on the parties unless and until overturned in the subsequent arbitration.’ In the UK decision of Carillon Construction Ltd v Davenport Royal Dock Yard the court explained that the purpose of adjudication was to ‘introduce a speedy mechanism for settling disputes in construction contracts on a provisional basis and requiring the decisions of adjudicators to be enforced pending final determination of disputes by arbitration, litigation or agreement.’ The UK court went on to say that even errors of procedure, fact or law by an adjudicator do not constitute a defence to the enforcement of the adjudicator’s decision.
The judge then looked at how adjudication found its way into construction contracts in South Africa such as the JBCC agreement. He pointed out that in a book entitled ‘The Building Contract – A commentary on the JBCC Agreements’ the author, Eyvind Finsen, says this: ‘The purpose of adjudication being the quick, if possible temporary, resolution of a dispute and the granting of interim relief to the successful party, the whole purpose of adjudication would be frustrated if the successful party was unable to enforce the determination against the other party.’
The judge quoted liberally from a recent decision of the Gauteng High Court, the case of Tubular Holdings (Pty) Ltd v DBT Technologies (Pty) Ltd (discussed in our last article) which itself made reference to a number of South African decisions. The judge in the Tubular Holdings case said that ‘the moment the decision is made the parties are required to “promptly” give effect to it...the requirement to give prompt effect will precede any notice of dissatisfaction.... (the notice of dissatisfaction) ‘will have no effect on his obligation to give effect to the decision... the binding effect of the decision endures, at least, until it has been revised.’ So the decision of the adjudicator is binding on the parties even if a notice of dissatisfaction is filed, and if no notice of dissatisfaction is filed the adjudicator’s decision becomes ‘final and binding’.
The judge in the Stefanutti case agreed with the Tubular Holdings decision and said this: ‘The words “without delay” and “unless and until” reflect an intention that effect be given to the adjudicator’s decision until it is set aside by an arbitrator.’ The judge also pointed out that the terms of the Rules for Adjudication, to which both parties were bound, read as follows: ‘The adjudicator’s written determination shall... be binding on the parties unless and until such determination is overturned or reviewed in whole or in part by arbitration ... either party may apply to court for the enforcement of the determination as a contractual obligation.’
The judge rejected S8’s argument that a decision of an adjudicator, which is interim in nature, cannot be enforced by a court. S8 relied on the earlier decision of Blue Circle Projects (Pty) Ltd v Klerksdorp Municipality, where the court held that only a final award can be enforced by a court. But, as the judge pointed out, the Blue Circle decision had been rejected in the later case of Stocks & Stocks (Cape) (Pty) Ltd v Gordon and others NNO, where the court said this rule did not apply where the parties had expressly agreed that an amount would become due and payable immediately . The judge in the Blue Circle case said that there was nothing wrong with giving effect to an agreement in terms of which interim payments were made which might later be followed by an adjustment of accounts and a claim for repayment. As the judge in the Stefanutti case said: ‘ The doors are not closed for the respondent (S8) who can take whatever steps may be necessary, should it be successful in the arbitration proceedings.’
The judge therefore held that S8 was required to make various payments to Stefanutti despite the fact that arbitration was to follow. It is clear from this case, the Tubular Holdings case and the recent cases quoted in both judgments that parties to construction contracts are increasingly relying on adjudication as a legitimate form of dispute resolution. The enforceability of an adjudicator’s decision, however, remains the main obstacle for the successful party. Both employers and contractors should ensure that the adjudication clauses are practical and effective.