TOOLS OF THE TRADE – AUGUST 2021

CONSTITUTIONAL CHALLENGE
TO THE ADJUDICATION PROCEDURE

Zingwazi Contractors CC v Eastern Cape Development of Human Settlements
and Others [2021] ZAECGHC 50 (11 May 2021) (the judgment)

1. Zingwazi Contractors CC (Zingwazi Contractors) applied to the High Court for an order enforcing an adjudicator’s determination against the Eastern Cape Department of Human Settlements (the Department). A dispute had arisen between Zingwazi Contractors and the Department arising out of Edition 6.1 of the JBCC Principal Building Contract (the JBCC Contract).^[1]
2. The appointed adjudicator made a determination in favour of Zingwazi Contractors. The Department was dissatisfied with the determination and referred the matter to arbitration.  It also did not make a payment in terms of the adjudicator’s determination.^[2]
3. The MEC of the Department (the MEC) brought a counter application and sought an order declaring certain clauses of the JBCC Contract and the JBCC Adjudication Rules (the Rules) to be unconstitutional and invalid (the impugned provisions). The Joint Building Contracts Committee (the JBCC) and Zingwazi Contractors opposed the counter application.^[3]
4. The MEC raised two fundamental rights which were allegedly infringed, namely: the right to a fair and public hearing in terms of section 34 of the Constitution (the section 34 argument) and the right not to be deprived of property in terms of section 25 of the Constitution.^[4]
5. The MEC did not persist in relying on an infringement of section 25 of the Constitution, and relied only on section 34 of the Constitution.^[5] Section 34 of the Constitution provides:

‘Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.’

6. A number of grounds were raised in support of the section 34 argument,^[6] namely that:
   1. the impugned provisions are in conflict with the rule that a judgment is usually suspended pending an appeal or review;
   2. the adjudication process does not adhere to the principles of natural justice, because:
      1. the adjudicator, in his sole discretion, may meet jointly with the parties;
      2. the adjudicator may adopt an inquisitorial procedure and shall observe procedural fairness, but shall not be obliged to comply with the rules of evidence;
      3. the parties are not entitled to be represented by lawyers at a hearing; and
      4. the adjudicator may conduct a hearing but is not obliged to do so.
   3. an adjudicator’s determination could destroy a party, even if that party is eventually successful in arbitration;
   4. there is no guarantee that the adjudicator’s decision is correct; and
   5. a party who is obliged to pay in terms of an adjudicator’s decision may struggle to recover monies which were overpaid.

1. In the JBCC’S answering affidavit, the introduction of adjudication followed by arbitration as a two stage dispute resolution process was discussed and explained. It was stated that it is of paramount importance in the construction industry that projects be completed on time with as little delay as possible.  The adjudication process was described as essentially a cash-flow measure intrinsically linked to the requirements of the construction process.  It grants interim protection to the interests of both parties to the contract.  It was contended further that serious harm would follow if parties were deprived of the option to agree to dispute resolution in the form of adjudication.  Absent adjudication, in the event of a dispute, the works might be suspended until the dispute is resolved, and delays would ensue with severe financial implications for the employer and the contractor.^[7]
2. The court considered various authorities and pointed out that it was held that section 34 of the Constitution does not apply directly to private arbitration.^[8] The judge found that adjudication is, like arbitration, consensual and private, which in turn removes it from the direct application of section 34.^[9]
3. The court proceeded to consider whether the impugned provisions are contrary to public policy as informed by constitutional values.
4. The first complaint concerned the immediate binding nature and enforceability of an adjudicator’s decision.^[10] The judge pointed out that if an adjudicator breaches his terms of appointment and deviates from his mandate, the aggrieved party will have grounds to oppose an application to enforce the adjudicator’s decision.  Furthermore, that the immediate enforceability of the adjudicator’s decision does not prevent the aggrieved party from proceeding to arbitration.^[11]
5. The judge then addressed the argument that immediate enforceability might destroy a party, in that such party may have difficulties in its case of recovering monies overpaid but not due.^[12] The court held that even in cases where the adjudicator’s decision is overturned and a successful party is unable to recover what it has paid, this argument does not go to the heart of the constitutional challenge.  Inability to recover is a relative and shifting side-effect, dependent on the facts of each case.^[13]
6. Consideration was then given to the criticism levelled against the Rules. The most fundamental criticism was that the procedure did not adhere to the principles of natural justice.  The judge stated that the twin principles of natural justice are the audi alterem partem (let the other side be heard as well) and nemo iudex in causa sua (no one should be a judge in his own cause).^[14]
7. It was found that the Rules comprehensively comply with the rules of natural justice. The court referred to the following:^[15]
   1. The adjudicator must at all times act impartially and independently (Rule 3.1);
   2. the parties may make their respective written submissions to the adjudicator (Rules 5.2 and 5.3);
   3. the adjudicator must furnish each party with a copy of any written communication sent or received (Rule 5.4.2);
   4. the adjudicator may conduct a hearing or meet jointly with the parties where he must observe procedural fairness (Rules 5.5.1 and 5.5.2); and
   5. where the adjudicator decides to conduct a hearing or to meet jointly with the parties, he must give notice to both parties (Rule 5.4.3).
8. The MEC contended that where no hearing is held, the parties are denied a hearing. The judge rejected this argument because the patties are treated equally.  The details of their respective cases in the form of the written submissions are considered by the adjudicator, who must be fair and impartial.^[16]
9. The court also rejected the criticism concerning the inquisitorial nature of the adjudication process, and that the adjudicator is not obliged to comply with the rules of evidence or procedures of any court. It was pointed out that the parties agreed to this manner of adjudication, and that if courts are too quick to find fault with an agreed procedure, the goals of adjudication may well be defeated.^[17]  The judge added that the parties agreed that the adjudicator would determine the dispute as an expert and not as an arbitrator.  This, according to the judge, is for the benefit of both parties and contributes to speedy resolution of the dispute.^[18]
10. Finally, the court considered the complaint that parties are not entitled to legal representation in adjudications. It referred to the fact that hearings where parties who are not legally represented are not uncommon.  To this end, it referred to matters heard before the Commission for Conciliation, Mediation and Arbitration (CCMA).  It was found that the lack of legal representation does not in itself exclude procedural fairness, because procedural fairness is embodied in the Rules.^[19]
11. The court declined to strike down the impugned provisions. It held that the difficulties in the various grounds for a constitutional challenge are that if the procedure were to be struck down, the purposes of a speedy dispute resolution would be negated.^[20]
12. In conclusion, I am of the view that the adjudication process complies with the fundamental principles of natural justice. The adjudicator must discharge his or her duties honestly and impartially and must make a decision/determination fairly and in good faith, having ‘heard’ both parties.  After all, if parties agree to resolve their dispute by way of adjudication, courts should be slow to disregard this agreed procedure.

ADV K BAILEY SC FA Arb (SA)

Member of the Johannesburg Bar

Sandton

9 July 2021

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^[1]       The judgment: para [1].

^[2]       Ibid., paras [3] and [4].

^[3]       Ibid., para [5].

^[4]       Ibid., para [7].

^[5]       Ibid., para [21].

^[6]       Ibid., para [8].

^[7]       Ibid., para [17].

^[8]       Ibid., paras [22] – [27].

^[9]       Ibid., para [26].

^[10]      Ibid., para [29].

^[11]      Ibid., para [30].

^[12]      Ibid., para [38].

^[13]      Ibid., para [40].

^[14]      Ibid., paras [40] – [44].

^[15]      Ibid., para [45].

^[16]      Ibid., para [47].

^[17]      Ibid., paras [49] and [50].

^[18]      Ibid., para [51].

^[19]      Ibid., para [52].

^[20]     Ibid., para. [53].