A CASE IN POINT – RECENT CASE REPORTS – October 2021

CASE IN POINT – OCTOBER 2021

Sasol South Africa (Pty) Ltd v Murray & Roberts Limited
2021 JDR 1328 (SCA)

INTRODUCTION AND FACTUAL BACKGROUND

The parties

The appellant is Sasol South Africa (Pty) Ltd (Sasol) and the respondent is Murray & Roberts Limited (M & R).  Sasol was the employer and M & R the contractor in terms of a construction contract they concluded on 15 March 2015 in terms of which M & R undertook to render certain engineering and construction services to Sasol at the latter’s Secunda plant.[1]

The contract

The contract thus concluded between them was an NEC3 Engineering and Construction Contract (the contract) – comprising various parts of the standardised contract version of June 2005 (with amendments until June 2006) – for structural, mechanical, electrical instrumentation and piping work related to phase 1 of the volatile organic compound abatement project (the project) at Secunda.  It was a time charge contract which meant that Sasol would bear the risk of overruns.[2]

The project manager

The contract provided for the nomination of the project manager (PM), who was required to perform certain prescribed functions and duties.  At the heart of the disputes that arose between the parties, was a project manager’s communication (PMC) – referred to as ‘PMC 200’ – issued on 1 March 2017 in which the PM instructed M & R to demobilise with immediate effect and advised that, if it failed to do so, he would disallow the costs of the resources in terms of clause 11(25) of the contract.

The dispute resolution regime

The contract’s dispute resolution regime was contained in so-called ‘Option W1’,[3] being the dispute procedure the parties opted for in conjunction with the Core Clauses and Secondary Clauses they had selected under the contract.  Option W1’s envisaged the following three step procedure:

(a) The notification of a dispute (clause W1.3(1));
(b) The referral of the dispute to adjudication (clause W1.3(1); and
(c) The referral of the dispute to an arbitral tribunal in the event that a party is dissatisfied with the adjudicator’s decision (clause W1.4(2)) or if the adjudicator does not notify his decision within the agreed time (clause W1.4(3)).

Unless and until revised by the arbitral tribunal, the adjudicator’s decision is final and binding on the parties and, in terms of clause W1.3(10), therefore enforceable as a matter of contractual obligation between them.  Moreover, the adjudicator’s decision would remain  final and binding if neither party notified the other – within the stipulated times required by the contract – that he or she is dissatisfied with the adjudicator’s determination and intends to refer the matter to the arbitral tribunal.[4]

The facts

PMC 200 was issued after Sasol, during February 2017, had become concerned about budget constraints and time overruns.  It decided to appoint a team to reassess the amounts due to M & R.  The reassessment of past payments and the disallowance of the resources referred to in PMC 200 were reflected in the PM’s payment advices no’s 27 and 28 for the months of March and April 2017.  These related to M &R’s payment applications no’s 35 and 36.  The application of PMC 200 by the PM in the reassessment process resulted in an amount of about R42 million being deducted from the payments due for those months.[5] 

(a) Reference to adjudication:

M & R was aggrieved by this and, after duly notifying Sasol of the disputes that had arisen in respect of the PM’s payment advices no’s 27 and 28, it proceeded to refer such disputes to the adjudicator.  These disputes are referred to as ‘Disputes 1 and 2’ (Disputes 1 and 2).[6]  M & R’s approach was that the timesheets it presented for payment to Sasol (the timesheets), which had been ‘signed off’ on a daily by Sasol, bound Sasol contractually to make those payments.  Sasol, in turn, took the view that PMC 200 should be applied, which meant that the hours worked by M & R were not dispositive of its entitlement to payment.  They were only a record and the PM was entitled to deduct costs arising from a failure to remove resources upon the request of the PM pursuant to PMC 200.[7]

On 20 October 2017 the adjudicator issued a decision upholding the PM’s assessments, which prompted M & R to refer Disputes 1 and 2 to the arbitrator.[8]

In the meantime, while the arbitrator’s award was still being awaited in respect of Disputes 1 and 2, the PM continued assessing further payment applications submitted by M & R.  In each case the terms of PMC 200 were applied.  This resulted in certain amounts being disallowed in the PM’s payment advices.  On each occasion M & R disputed the disallowed payments and referred them to adjudication as ‘Disputes 3, 5 and 6’ (Disputes 3, 5 and 6), and ‘Disputes 8 to 12’ (Disputes 8 to 12).[9] 

Just as he had done in respect of Disputes 1 and 2, the adjudicator upheld the PM’s assessments and found in favour of Sasol in respect of Disputes 3, 5 and 6 and Disputes 8 to 12.[10]

(b) The arbitrator’s award on Disputes 1 and 2:

On 9 October 2018 the arbitrator made an award in favour of M & R in relation to Disputes 1 and 2.  In this regards, the arbitrator determined that PMC 200 was not contractually binding and that the timesheets M & R had submitted to Sasol for payment, were contractually binding on the latter.[11]  

(c) Sasol’s application for review of the arbitrator’s award:

Sasol then brought an application for the review and setting aside of the arbitration award, but its application was dismissed by the high court; and its petition for leave to appeal was also dismissed by the Supreme Court of Appeal.[12]

(d) The emergence and subsequent referral of Dispute 16 to adjudication:

Armed with the arbitrator’s award, M & R approached the PM and requested him to give effect to the legal and factual position between the parties resulting from that award.  This necessitated the PM to revise his assessments of the amounts:

  • due in respect of Disputes 1 and 2; and
  • contained in a number of other payment advices and certificates relative to the remaining eight disputes.[13]

On 23 November 2018 the PM issued a revised assessment in which he, under the directions of Sasol, disregarded certain portions of the award that Sasol considered ‘invalid’ and which it had undertaken to take on review.  The portions so disregarded by the PM related to the arbitrator’s findings that (i) the timesheets were contractually binding; and (ii) PMC 200 was not valid.[14]

M & R was dissatisfied with the PM’s revised assessment and, on 16 January 2019, referred the dispute that had thus arisen as ‘Dispute 16’ (Dispute 16) to the adjudicator.[15]

(e) Sasol’s contentions in respect of Dispute 16:

Sasol contended before the adjudicator that:

  • M & R had sought the adjudicator to revisit and reconsider his earlier decisions; and
  • the dispute relating to the PM’s payment advice no. 38 was not a new dispute, but was an attempt by M &R to again refer the disputes relating to payment advices no’s 27 to 37 for decision to the adjudicator;[16] and
  • the adjudicator did not have jurisdiction to, and thus was expressly precluded from, reconsidering those parts of the disputes in respect of which the arbitrator had already issued an award.
(f) The adjudicator’s determination of Dispute 16:

On 12 May 2019 the adjudicator rejected Sasol’s jurisdictional challenges and proceeded to consider the dispute.[17]  The adjudicator’s reasoning was articulated as follows in paragraphs 32 and 33 of his determination:[18]

‘… I cannot see any reason why, if an arbitrator gives an award which overturns an adjudicator’s decision, other decisions of the adjudicator which were made on the same principle as the overturned decision, cannot be changed to conform with the arbitrator’s award, but can only be overturned in a further arbitration.  Apart from that fact that that will put the Contractor to unnecessary expense, it also files in the face of the underlying practicalities and principles of the contract.

I accordingly find that, to the extent that the arbitrator’s award establishes principles that are applicable to the other disputes, I may revise any of my prior decisions based on new information.’

(Emphasis added).

The adjudicator accordingly ‘reviewed’ the PM’s refusal to pay on the basis of the arbitrator’s decision, viz., that costs should not be deducted pursuant to PMC 200, and he ordered Sasol to pay the disallowed payments.[19]

(g) The High Court is requested to enforce the adjudicator’s determination of Dispute 16:

On 16 May 2019 M & R demanded that Sasol complies with the terms of the adjudicator’s determination.  Sasol refused to do so, which resulted in M & R launching application proceedings in the High Court of South Africa (Gauteng Division, Johannesburg) (the court a quo).  The relief it sought was to enforce the adjudicator’s determination in respect of Dispute 16.[20]

Sasol opposed the application and justified its refusal to comply with the adjudicator’s determination on the basis that it was of no force or effect.  Sasol, in turn, launched a counter-application in which it sought an order declaring that the decisions previously made by the adjudicator in respect of Disputes 3, 5 and 6 and Disputes 8 to 12 were enforceable as contractual obligations.

The court a quo (per Weiner J) upheld M & R’s claim and dismissed Sasol’s counter-application.  It granted Sasol leave to appeal to the SCA.

THE SCA’s JUDGMENT ON APPEAL

The essence of Sasol’s submissions

On appeal, Sasol’s principal contentions were the following:

(a) First, that the adjudicator had decided a dispute which was the same or substantially the same as the ones that he had previously decided which, so it was argued, was something that he was not permitted to do under the adjudicator’s contract.[21] (Sasol’s first point);
(b) second, the adjudicator had received information after the time allowed for him to do so had expired.[22] (Sasol’s second point);
(c) third, that the adjudicator had given his decision ‘outside the time period’ allowed for him to do so.[23] (Sasol’s third point); and
(d) fourth, as far as the merits of the adjudicator’s determination are concerned, Sasol contended that (i) the adjudicator had failed to consider the dispute before him, in particular the timesheets that had formed basis of M & R’s claims; and the effect of such failure by the adjudicator, so it contend, prevented it from making submissions on those timesheets.[24] In this regard, Sasol relied on the principle endorsed in Carillion Construction v Devonport Royal Dockyard Ltd [220] EWCA Civ 1358[25] to the effect that: ‘where an adjudicator has acted in excess of his jurisdiction or in serious breach of the rules of natural justice, the court will not enforce his decision.’ (Sasol’s fourth point).

Ad (a): Sasol’s first point

Sasol’s submissions in support of its first point can be summarised thus, viz., that:[26]

  • The adjudicator erred in holding that the arbitration award applied to all other payment assessments or his previous decisions;
  • the arbitration award applied only to the disputes that were referred to arbitration and it did not apply to all other payment assessments disputes. This was because, so it submitted, the hierarchy of dispute resolution processes in the contract required that all steps should be followed before the dispute was referred to the arbitrator;
  • to hold that the arbitrator’s award established a principle to be applied to all other payment assessments would render dispute resolution processes meaningless as this would mean that the arbitrator’s award was to be applied to all previous assessments and decisions, even if no notice of dispute had been given or if no referral to the adjudicator had been made in relation to a particular project manager’s assessment;
  • relying on Graham v Park Mews Body Corporate and Another2012 (1) SA 355 (WCC) at par [61], the fact that the arbitrator came to a particular finding in relation to PMC 200 in relation to Disputes 1 and 2 was inadmissible in another arbitration about any other dispute;[27]
  • in terms of clause 2.1 of the adjudicator’s contract the adjudicator is precluded from deciding ‘… any dispute that is the same or substantially the same as one that he or his predecessor has previously decided.’, which meant, according to Sasol’s submissions, that the disputes in respect of the previous assessments of the PM had already been decided by the adjudicator; that such assessments had therefore become adjudicator’s decisions and were contractually binding on the parties; and that the PM was no longer entitled to change them.

The SCA (per Zondi JA, with whom Saldulker JA and Ledwaba, Gorven and Potterill AJJA concurred), rejected Sasol’s abovementioned submissions.  In doing so, the SCA held that:

  • The arbitration award determined certain principles, which the PM was contractually obliged to apply in terms of clauses 50[28] and 51.3[29] of the contract when assessing payment advice no. 38;[30]
  • in respect of Dispute 16 the adjudicator had, as it were, proverbially ‘stepped into the shoes’ of the PM – as he was contractually entitled to do – and reviewed and revised the latter’s (PM’s) failure by finding that he should have applied the principles determined by the arbitration tribunal and that, if he had done so, he would have assessed payment advice no. 38 in the amounts set out in the adjudicator’s decision;[31] and
  • the interpretation of clause 2.1 contended for by Sasol is in any event incorrect. I point out, in parenthesis, that in the SCA’s judgment this rubric is, with respect, somewhat confusingly denoted as ‘the second point taken by Sasol’, while it merely comprises a second facet of Sasol’s submissions under its first point identified above.  In rejecting Sasol’s submissions, the SCA emphasised that:[32]
(i). Dispute 16 related to the question whether the PM was correct to withhold payment in the face of the arbitrator’s finding that he had been incorrect to do so as a result of PMC 200;
(ii). In terms of the contract, the PM was obliged – in terms of clauses 50.5 and 51.3 thereof[33] – to consider and to take into account contractual entitlements determined in favour of M & R in the arbitrator’s award;
(iii). In the process of making an assessment and on the instruction of Sasol the PM, contrary to his aforesaid contractual obligations, refused to comply with certain portions of the award;
(iv). Upon a referral to the adjudicator – as was the case with the referral of Dispute 16 to him in this instance – of the PM’s refusal to comply with the terms of the arbitrator’s award, the adjudicator had the power in terms of clause 3(5) of the contract to ‘review and revise any action or inaction of the Project Manager … related to the dispute …‘ (Emphasis added);
(v). When the adjudicator acts under this latter clause (i.e. W1.3(5)), he does not reconsider a prior decision which he himself had made, but he simply does what the PM was supposed to have done in terms of the contract in accordance with the principles established in the arbitration award;
(vi). The adjudicator therefore was entitled to act in circumstances where the PM had, on Sasol’s version ‘declined to apply the part of the arbitration award that is subject of the review application’; and
(vii). It was thus never in dispute that the PM was obliged to apply the award and Dispute 16 was only about the manner in which the PM applied it.

Ad (b) and (c): Sasol’s second and third points

Sasol’s submissions in support of the latter two points essentially boil down to this, namely that:

  • The adjudicator should have issued his determination by 12 March 2019, and not only on 12 May 2019 when he eventually did so;
  • when the adjudicator issued his decision he no longer had jurisdiction to do so, because it ceased on 12 March 2019;
  • on 16 January 2019 Dispute 16 was referred to adjudication by M & R and that the contractually ordained four-week period, as provided for in clause W1.3(8), for receiving information terminated on 12 February 2019;
  • consequently, the further four-week period for the adjudicator’s decision expired on 12 March 2019 as the parties had not agreed to extend it; and
  • the judgment in Group Five Construction (Pty) Ltd v Transnet SOC Limited[2019] ZAGPJHC 11; 2019 JDR 1756 (GJ) (Group Five) at para [21], supported its aforegoing submissions.

The SCA also rejected Sasol’s submissions in support of its second and third points.  In doing so, the SCA proceeded as follows:

  • In the first instance, it embarked on a careful analysis of the judgment in Group Five[34] and, after also comparing the facts therein with those in the present matter, it then concluded that:[35]

‘The Group Five case is distinguishable on the facts from the present case in that in that case the court did not consider the implication of additional clause 2.5 of the adjudicator’s contract which gives the adjudicator the right to request and to receive additional information, after the four-week period for his decision commences.  The contention that the decision is invalid because of the adjudicator’s failure to deliver his decision within four weeks of the end of the period for receiving information, must therefore be rejected.’

  • In reaching the latter conclusion, it referred to the following facts and contentions, as well as the relevant contractual framework contained in the contract’s terms, and those contained in the adjudicator’s contract, and within which the adjudicator’s determinations had to be made, viz:
(i). Clause W1.3 (3) of the contract, which stipulates that:[36]

‘The Party referring the dispute to the Adjudicator includes with his referral information to be considered by the Adjudicator.  Any more information from a Party to be considered by the Adjudicator is provided within four weeks of the referral.  The period may be extended if the Adjudicator and the Parties agree’;

(Emphasis added)

The SCA agreed with M & R’s submission to the effect that this clause allows both parties to provide further information or to reply to further information until the last day of the four-week period, and that only after such last day, the adjudicator would be in a final position to consider whether, based on the information already received, additional information would ‘… enable him to carry out his work …’;[37]

(ii). cIause W1.3 (5) of the contract, where the third and fourth bullet points thereof stipulate as follows:[38]

‘The Adjudicator may…

              • instruct a Party to provide further information related to the dispute within a stated time and
              • instruct a Party to take any other action which he considers necessary to reach his decision and to do so within a stated time.’

(Emphasis added)

The SCA held that the provision of such ‘further information’ necessarily indicates that it applies to information provided after the four-week period referred to in clause W1.3 (3) and that the clause placed no limitation on the extent of the ‘stated time’;[39]

(iii). clause 3 (8) provides as follows:[40]

‘The Adjudicator decides the dispute and notifies the Parties and the Project Manager of his decision and his reasons within four weeks of the end of the period for receiving information.  The four-week period may be extended if the Parties agree.’

(Emphasis added)

The SCA held that, in the context of the subsequent agreement in the adjudicator’s contract, the phrase ‘… the end of the period for receiving information …’ in clause W1.3 (8) meant that an additional two weeks could be added after a request for ‘additional information’ by the adjudicator.[41]  The SCA consequently also held that Sasol’s argument to the effect that the four-week period in clause W1.3 (3) had not been extended by agreement between the parties, was undermined by clause 2.5 of the adjudicator’s contract (referred to in subparagraph (iv) immediately below) in which the parties expressly agreed to extend the period by giving the adjudicator the contractual power to ask for additional information to be provided to him within two weeks;[42]

(iv). clause 2.5 of the adjudicator’s contract stipulates as follows:[43]

‘The Adjudicator may ask for any additional information from the Parties to enable him to carry out his work.  The Parties provide the additional information within two weeks of the Adjudicator’s request.’

(Emphasis added)

The SCA agreed with M & R’s submission to the effect the phrase ‘… any additional information …’ in clause 2.5 of the adjudicator’s contract logically refers to information over and above that which the adjudicator received in the four-week period, as referred to in clause W1.3 (3), and which the adjudicator started to consider after that period, resulting in his decision that additional information was required to ‘enable him to carry out his work’;[44]

(v). cIause 1.7 of the adjudicator’s contract, which regulates the position where there is a conflict between the provisions of the contract and the adjudicator’s contract, stipulates:[45]

‘If a conflict arises between this [adjudicator’s] contract and the contract between the Parties then this [adjudicator’s] contract prevails.’

(Emphasis added)

In the light of this provision the SCA held that since the adjudicator’s contract allows an entitlement to more information and more time than that provided for in the contract between the parties, the adjudicator’s contract must prevail to the extent that there is a conflict between the two contracts;[46] and

(vi). in the result, the SCA concluded that:

‘From these events, it must be accepted that the date of hearing constituted ‘the end of the period for receiving information’.  The adjudicator was therefore obliged in terms of clause W1.3 (8) to deliver his decision and his reasons within four weeks of the end of the period for receiving information (being 16 April 2019), which he did on 12 May 2019.’

  • It next considered Sasol’s alternative argument, which was to the effect that when Sasol gave its three (3) notices of dissatisfaction in terms of clause W1.4 (3) of the contract on each of the occasions referred to in, respectively, (i) paragraphs [42] to [44] in respect of the first occasion; (ii) paragraph [45] in respect of the second occasion; and (iii) paragraph [46] on the third occasion, the adjudicator’s jurisdiction had ceased. The SCA made short shrift of these submissions and pointed out, as far as the first and second notices of dissatisfaction are concerned, they had both been given prematurely and at a time or times when the adjudicator was still at large to issue his determination in respect of Dispute 16.[47]  As far as the third notice of dissatisfaction is concerned, the SCA pointed out that Sasol had failed to proceed to arbitration to have the adjudicator’s determination set aside, with the inevitable consequence that ‘[i]t remained binding and was enforceable as matter of contractual obligation between the parties’.[48]

Ad (d): Sasol’s fourth point

With regard to this point, Sasol contended that:

  • M & R’s failure to place the timesheets, on which its claims were based, before the adjudicator deprived it (i.e. Sasol) of the opportunity to consider them in addressing the adjudicator;
  • the adjudicator therefore failed to afford it a right to be heard before he took a decision on timesheets; and
  • the adjudicator consequently breached the audit alteram partem

The SCA found that these contentions must fail, because: (i) Sasol had not squarely raise this before the adjudicator; (ii) Sasol’s refusal to pay M & R was not based on the ground that the timesheets were incorrect, but rather based on the PM’s reliance on clause 11.2(25) in disallowing the costs of resources; and (iii) the calculation and quantum of the amounts reflected in the timesheets were never in dispute between the parties.[49]

Conclusion and SCA’s order

The SCA therefore dismissed Sasol’s appeal with costs, including the costs of two counsel where so employed, but it varied the amounts the court a quo had ordered Sasol to pay to M & R to reflect the true position as to the amounts it still had to pay, because of payments it had made since the court a quo’s judgment and order.[50]

Eric Dunn SC

18 September 2021

[1]       Judgment, para [1], p. 4.

[2]       Ibid., paras [6] and [7], pp. 5 and 6.

[3]       Ibid., paras [7] and [8], p. 6.

[4]       Ibid., para [8], p. 6.

[5]       Ibid., para [9], p. 6.

[6]       Ibid., para [10], p. 7.

[7]       Ibid., para [2], p. 4.

[8]       Ibid., para [10], p. 7.

[9]       Ibid., para [11], p. 7.

[10]      Id.

[11]      Ibid., para [12], p. 7.

[12]      Id.

[13]      Ibid., para [13], pp. 7 and 8.

[14]      Id.

[15]      Id.  It should be understood that this was not a referral of the balance of the ten disputes to the adjudicator, since he had previously decided Disputes 3, 5 to 6 and Disputes 8 to 12 against M & R prior to the award made by the arbitrator (Cf. Judgment: para [4], p. 5).

[16]      Although not fully contextualised in the judgment, the reader at least can gather that the arbitration tribunal had at that time only resolved Disputes 1 and 2 by the award it had issued on 9 October 2018.  Those two disputes related to the PM’s payment advices no’s 27 and 28, which, in turn, related to M & R’s payment applications no’s 35 and 36.  Payment advices no’s 27 and 28 are therefore also included in the broader reference to payment advices no’s 27 to 37.

[17]      Ibid., para [5], p. 5, and para [15], p. 8.

[18]      Ibid., para [15], p. 8.

[19]      Ibid., para [4], p. 5, and para [15], p. 8.

[20]      Ibid., paras [4] and [5], p. 5, and para [16], p. 8.

[21]      Ibid., para [17], p. 9.

[22]      Id.

[23]      Id.

[24]      Ibid., para [18], p. 9.

[25]      Carillion Construction at para 52.

[26]      Ibid., para [19], p. 9.

[27]      In other words, Sasol endeavoured to rely on the rule established Hollington v F Hewthorn & Co Ltd [1943] 2 All ER 35, [1943] KB 587, in which a criminal conviction for careless driving was held inadmissible as evidence of negligence in a subsequent civil action, to support of its contention that the judgment, verdict or award of another tribunal is not admissible evidence to prove a fact in issue or a fact relevant to the issue in other proceedings; or at least on the basis that the arbitrator’s opinion was irrelevant to the determination the adjudicator was required to make.

[28]      Clause 50.5 of the contract provides: ‘The Project Manager corrects any wrongly assessed amount due in a later payment certificate’.

[29]      Clause 51.3 of the contract provides:

‘If an amount due is corrected in a later certificate either

        • by the Project Manager in relation to a mistake or a compensation event or
        • following a decision of the Adjudicator or the tribunal,

interest on the correcting amount is paid. Interest is assessed from the date when the incorrect amount was certified until the date when the correcting amount is certified and is included in the assessment which includes the correcting amount’.

[30]      Judgment, para [21], pp. 10 and 11.

[31]      Id.

[32]      Ibid., paras [23] and [24], pp. 11 and 12.

[33]      See, in this regard the wording of these clauses as quoted in footnotes 28 and 29 above.

[34]      Ibid., paras [29] and [30], pp. 13 and 14.

[35]      Ibid., para [40], p. 16.

[36]      Ibid., para [32], p. 14.

[37]      Ibid., para [33], p. 15.

[38]      Ibid., para [34], p. 15.

[39]      Id.

[40]      Ibid., para [35], p. 15.

[41]      Id.

[42]      Id.

[43]      Ibid., para [36], p. 15.

[44]      Ibid., para [37], p. 16.

[45]      Ibid., para [38], p. 16.

[46]      Ibid., para [39], p. 16.

[47]      Ibid., paras [43], [44] and [45], pp. 17 and 18.

[48]      Ibid., para [46], p. 18.

[49]      Ibid., para [47], p. 18.

[50]      Ibid., paras [48] and [49, pp. 18 and 19.

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