CASE IN POINT – DECEMBER 2023

THE ENFORCEMENT OF ADJUDICATORS’
DECISIONS BY THE COURTS^[1]

1. The Supreme Court of Appeal (SCA) on 12 June 2023 handed down a very important judgment concerning the enforcement of decisions by adjudicators.  Two important questions were considered, namely, whether enforcement would be contrary to public policy and whether an order for payment of a money debt is a discretionary remedy.
2. The judgment was handed down in the case of Ethekwini Municipality v Coopepativa Muratory & Cementisti – CMC Di Ravenna Societa Cooperativa (the judgment).^[2]  Olsen AJA wrote for the court.^[3]
3. Ethekwini Municipality, as the employer, concluded a construction contract with Coopepativa Muratory & Cementisti – CMC Di Ravenna Societa Cooperativa, as the contractor.  The form of contract was the General Conditions of Contract for Construction Works (second edition, 2010) (the contract).  In this article, the parties will be referred to as employer and contractor respectively.
4. The parties concluded the contract during 2015.  It was cancelled in December 2018 by the contractor.  The employer did not challenge the cancellation.  The contract provided for the referral of disputes between the parties to adjudication.  Certain disputes were referred to adjudication.  The adjudicator delivered two decisions on 8 and 10 August 2019 respectively.
5. The adjudicator found that the employer must pay the amounts of R2 049 130.48 and R8 129 492.42 to the contractor together with interest.  The major portion of the latter sum of R8.12 million is the total of five monthly interim certificates issued for payment by the employer to the contractor prior to cancellation of the contract.  The contract was cancelled due to the non-payment of the interim certificates.
6. The employer did not comply with the adjudicator’s decisions.  This was followed by the contractor’s application to the High Court for the enforcement of the decisions.  The High Court granted the orders and gave the employer leave to appeal to the SCA.
7. An important feature of the case is that the contractor, an Italian entity, is subject to a regime under Italian law established for the benefit of distressed companies and their creditors.  The business and affairs of the contractor are managed with the aim to recover what is owed to the company and to achieve its long-term survival.  However, bankruptcy is a potential outcome of the process.
8. The employer notified the contractor that the adjudicator’s decisions are disputed.  It commenced action in the High Court to have the decisions revised.
9. At the centre of the employer’s arguments before the SCA was the proposition that there is a risk that if it pays in accordance with the adjudicator’s decisions and afterwards succeeds in its action to have the adjudicator’s decisions overturned, it may not recover its money.  This was not disputed by the contractor.
10. Olsen AJA mentioned that the validity of the referral of the disputes to adjudication was not challenged by the employer, there was no challenge to the validity of the adjudicator’s decisions and that the decisions were legitimate, but that might, in due course, be revised.^[4]  The employer accepted that ordinarily, decisions by adjudicators are binding which meant that the contractor would, in the normal course, be entitled to payment.^[5]
11. The employer’s argument was that a court has a discretion to exercise when asked to grant money judgments, either because it is an order for specific performance or that, in this case, they would be contrary to public policy.^[6]
12. Olsen AJA dealt first with the argument, that enforcement would be contrary to public policy.  He mentioned that the contractor contended that the parties had willingly agreed to the process of adjudication, the outcome of which would determine the existence of enforceable obligations^[7].
13. The employer’s case rested upon the contention that the Constitutional Court’s judgment in Beadica 231 CC and Others v Trustees of the Oregon Trust and Others^[8] established that even in cases for claims for money judgments, a court has a discretion to grant or refuse the judgment on public policy grounds.^[9]  Central to the argument was that the principle of ‘pacta sunt servanda’ (agreements are to be observed) should not apply in this case.^[10]
14. The learned judge held that the party opposing the enforcement of an obligation to pay money due in terms of a contract, must place the relevant facts before the court.  It is then for the court to determine whether enforcement would be contrary to public policy.  If the court were to determine the answer in the affirmative, there is no question of a discretion at all.  Contractual obligations may not be enforced if it would be contrary to public policy to do so.^[11]
15. In the context of the contractor’s financial distress and the risk of liquidation, the employer argued that it would be against public policy for it to be subjected to the risk that it might not be able to recover some or all of its money because:
    1. The contract had been cancelled at the time the adjudication took place, therefore the monetary awards would not serve the purpose of ensuring cashflow for the contractor, to enable it to continue working; and
    2. it would not be appropriate for scarce public funds to be put at risk.^[12]
16. Olsen AJA swiftly disposed of the two abovementioned arguments because the first ignored the express provisions of the contract and the second offends the principle that contractual relations are the bedrock of economic activity.^[13]
17. The SCA finally dealt with and disposed of the public policy argument by pointing out that:^[14]
    1. The parties concluded the contract on an equal footing;
    2. the constitutional values involved in the case support the enforcement of contracts;
    3. the proposal by the employer that it should be released from its obligation to pay because the contractor may in future not be able to make repayment is, on the face of it, not equitable when one considers that the contractor’s major claim is in fact the sum of five monthly interim certificates issued for payment by the employer;
    4. adjudication post termination of the contract, in terms of the contract’s provisions, is in itself not unreasonable;
    5. the risk of insolvency is an ordinary commercial one.  The only objective assessments as to whether or not the money is owned by the employer, are to be found in the adjudicator’s reports and in the payment certificates issued in terms of the contract.
18. Olsen AJA then turned to consider the employer’s argument that the case was about specific performance and that the court therefore had a discretion to grant or refuse specific performance.  The learned judge mentioned that the parties had agreed that three issues should be decided.  The first was whether the enforcement order sought by the contractor was one for specific performance.  The second was whether the court had a discretion to grant or refuse the order for payment sought by the contractor.  The third was whether, if the discretion exists, relief should be granted or refused.^[15]
19. Olsen AJA extensively reviewed and considered South African legal authorities in his judgment.^[16]  He found only one judgment that recognised a discretion to refuse an order for specific performance of a money claim but held that the judgment should not be followed because it does not provide authority for such discretion.^[17]
20. The learned judge pointed out that the SCA (previously known as the ‘Appellate Division’) had, for more than a century, held that the discretion to grant or refuse an order for specific performance arises when a claim ad factum praestandum is made and the alternative of an award of damages is awarded.  A claim ad factum praestandum is a claim that seeks an order for performance of an act.  Olsen AJA mentioned that where a claimant has the right to claim specific performance of an act, as opposed to damages for non-performance, the court, in an appropriate case, may exercise its discretion to refuse enforcement of specific performance, leaving the claimant with a claim for damages.  Past cases where courts refused orders for specific performance are, for example, where damages would constitute adequate compensation and where enforcement would cause unreasonable hardship or where it would cause injustice or be inequitable.^[18]
21. Olsen AJA pointed out that the exercise of the discretion, which is involved in deciding whether or not to grant specific performance, is in reality a choice between permissible alternatives.  If there are no alternatives, no discretion exists.  A contractual claim for payment of money has no alternative and because there is no choice, the court cannot exercise a discretion.  An order for the payment of money arising out of a contractual obligation is therefore not a discretionary remedy.^[19]
22. Finally, Olsen AJA held that to allow courts a general discretion to decline claims for contractual money debts ‘in the interests of justice’ or ‘to avoid undue hardship’ will get dangerously close to rendering judicial enforcement dependent on the idiosyncrasies of individual judges.  He stated:^[20]:‘Allowing the courts to refuse such a judgment in the exercise of a discretion may disturb the vital balance set in our public policy rules which are designed, inter alia, to ensure that the public interest in the values underlying the doctrine of pacta sund servanda are adequately served and protected.’
23. The importance of Olsen AJA’s judgment in the context of the enforcement of decisions by adjudicators cannot be over-emphasised.  Recalcitrant debtors in terms of adjudication decisions have, in the past, frequently raised the ‘defence’ that a court has a discretion not to enforce an adjudicator’s decision for whatever reasons may be proffered in the particular case.^[21]  Raising such ‘defence’ almost as a last resort, undermines adjudicators’ decisions and operates against the very purpose of adjudication, namely, to arrive at a speedy resolution of disputes arising out of construction contracts.
24. The judgment is also of much wider import.  It makes it clear that in all cases where payment of a contractual money debt is claimed, a court has no discretion to refuse such claim unless it would be contrary to public policy to grant it.

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^[1]

Authored by Adv K Bailey SC FA Arb (SA).

^[2]

(Case No. 181/2022) [2023] ZASCA 95 (12 June 2023).  Also now reported at 202 JDR 2053 (SCA).

^[3]

With Van der Merwe, Mocumie, Matojane and Weiner JJA concurring.

^[4]

Judgment: para [6].

^[5]

Ibid., para [8].

^[6]

Ibid., para [10].

^[7]

Ibid., para [11].

^[8]

2020 (5) SA 247 (CC).

^[9]

Judgment: para [15].

^[10]

Ibid., paras [18] and [19].

^[11]

Ibid., para [15].

^[12]

Ibid., paras [16] and [17].

^[13]

Ibid., paras [16] and [17].

^[14]

Ibid., para [21].

^[15]

Ibid., para [24].

^[16]

Ibid., paras [23] and [26] to [33].

^[17]

Ibid., paras [37] and [39].

^[18]

Telcordia at para [155].

^[19]

Ibid., para [38].

^[20]

Ibid., para [40].

^[21]

See, in this regard, Qualelect Investment Holdings (Pty) Ltd v Belo and Kies Construction (Pty) Ltd, Gauteng Local Division, Johannesburg (case number 2021/3529), 22 June 2022, paras [41] to [44]; and Murray & Roberts Ltd v Alstom S & E Africa (Pty) Ltd, Gauteng Local Division, Johannesburg (case number 21041/2018), 2 September 2019, paras [10] to [13] and [76].