Choose your contract adjudicator wisely

Choose your contract

adjudicator wisely

Adjudication is a regular clause in construction agreements or contracts. This is an aspect of construction contracts that is often neglected and when the clause is invoked, the parties involved in a dispute find themselves in the hands of the wrong adjudicator.

Advocate Bryan Hack

What is adjudication?

Industry body, the ICE-SA, a joint division of the Institution of Civil Engineers and the South African Institution of Civil Engineering defines adjuducation in the context of the South African construction industry as follows:

Adjudication may be defined as an accelerated and cost effective form of dispute resolution that, unlike other means of resolving disputes involving a third party intermediary, the outcome is a decision by a third party which is binding on the parties in dispute and is final unless and until reviewed by either arbitration of litigation.

Adjudication is not arbitration or litigation. Arbitration is a method of resolving disputes between two or more parties by reference to one or more persons appointed for that purpose, typically in accordance with procedures laid down in the Arbitration Act 42 of 1965. Litigation is the system by which the advocates representing each side adduce arguments in a Court of law to persuade the tribunal (judge, jury or assessors) that they have the better legal case.

All the standard forms of contract supported by the Construction Industry Development Board contain adjudication procedures. For reference purposes, see CIDB Best Practice Guideline #C3 Adjudication.

The title of this article could also read “chose a wise adjudicator” because a party to a construction agreement will more likely than not be obliged to follow the adjudicator’s decision regardless of how unhappy or aggrieved the party might be.

The Gauteng Division of the High Court1 has recently had cause to consider whether an adjudicator’s decision can be reviewed and found it could not and gave the following reasons at paragraph [44]2 of the judgment: “I further take notice of the fact that the very nature of the adjudication process carries with it a risk of unfairness, either in the way the adjudication is conducted, or in the result, or both. The need to speedily resolve the dispute and the parties’ entitlement to an answer, increases the risk compared to a hearing, arbitration proceedings, and/or court proceedings. I further take into account that the adjudicator is entitled to take the initiative in ascertaining the facts and the law necessary to determine the dispute. Having regard to the fact that adjudicators are experts in their own field and probably not qualified lawyers increases the risk that they may adopt a procedure that is or might be seen to be unfair. I also accept that our courts are of the opinion that as long as the adjudicator acted generally in accordance with the usual rules of natural justice and without bias and within his terms of reference, his decision is likely to be enforced. “

Adjudication is a regular feature of construction agreements. The Joint Building Contracts Committee Principal Building Agreement is such an example and was the contract used by the parties in the above quoted case.

The purpose of adjudication is to resolve an interim dispute in the course of the execution of the building works. The purpose is to allow a speedy and relatively inexpensive procedure to ensure that the work can continue and not be delayed because of the dispute.

However, if recourse is handed to an arbitrator at such an interim stage, the works are likely to come to a halt for many months to allow the formal procedures and the hearing in arbitration to take place. As the court said in the quoted paragraph a dispute in the course of the work requires a quick decision which may ultimately be shown not to have been the correct decision, but that risk is outweighed by the advantage of not having the work delayed. The court expressed this at paragraph [24] as follows : “The adjudication rules describe adjudication as an accelerated form of dispute resolution in which a neutral third party determines the dispute as an expert and not as an arbitrator, and whose determination is binding unless and until varied or overturned by an arbitration award.”

Advice to contracting parties

The advice I would give is that when entering into a contract, which provides for adjudication, as much care and consideration should go into the choice of adjudicator as is done with price and scope work.

Too often, in my experience, the decision of who to appoint as adjudicator is left to the draftsperson of the contract, without the parties each being certain that they have adequate knowledge of the person nominated and have that they are satisfied that the person has the necessary independence, experience and ability to make a fair and correct decision.

The parties will both be equally bound by that decision and the court is not likely to review any decision taken unless it is satisfied of the existence of very narrow criteria. Primarily, that the adjudicator went outside and beyond the terms of reference, i.e. the exact dispute which the parties had referred for a decision.

Even if the decision is incorrect, either on the facts or the law, a court will not interfere if it is a decision made by the adjudicator. Questions? Drop Adv. Bryan Hack an email on hack@capebar.co.za

References

1 In FRAMATOME v ESKOM HOLDINGS SOC LTD 2021 (2) SA 494 (GJ) which cited with approval the unreported judgment of EKURHULENI WEST COLLEGE v SEGAL which can be found at [2018] ZAGPPHC 662, 29 August 2018; or online at http://www.saflii.org/za/cases/ZAGPPHC/2018/662.html 2 The EKURHULENI WEST COLLEGE v SEGAL judgment