TOOLS OF THE TRADE – APRIL 2021

INTERESTING POINTS CONCERNING ADJUDICATIONS:
THE RECENT JUDGMENT IN CONFACT CORE CONSTRUCTION CC V JLK CONSTRUCTION (PTY) LTD^[1]

1. Confact Core Construction CC (Confact), as sub-contractor, and JLK Construction (Pty) Ltd (JLK), as contractor, concluded a Nominated/Selected subcontract agreement (the N/S agreement)^[2] on 28 March 2017.
2. On 27 January 2020, Confact wrote to JLK and recorded that the N/S agreement had been terminated, demanded payment of amounts due in respect of work done, the return of retention money held by JLK and interest.^[3] No response was received to the demand.  On 17 February 2020, Confact addressed another letter to JLK.^[4]  In this letter it recorded the existence of a dispute as contemplated in clause 40.1 of the N/S agreement, stated that the disagreement related to the non-payment of retention monies, as well as for work done and not certified.  In its letter it gave notice in terms of clause 40.2 of the N/S agreement that should the disagreement not be resolved within ten working days, such disagreement would be deemed to be a dispute.
3. The disagreement was not resolved within ten working days.^[5] The parties were unable to agree on the appointment of an adjudicator.^[6]  The Association of Arbitrators (Southern Africa) was requested to appoint an adjudicator, and did so.^[7]
4. On 18 May 2020, Confact delivered its submissions to the adjudicator in which it set out its claims. JLK did not respond.  The adjudicator published his determination on 15 June 2020, and made certain determinations in favour of Confact.^[8]
5. JLK ignored the demands for payment pursuant to the adjudicator’s determination.^[9] Confact applied to the Western Cape High Court to give effect to the adjudicator’s determination.^[10]
6. JLK raised a number of defences, which will be discussed below. It also brought a counter-application seeking the suspension of the implementation of the adjudicator’s determination.^[11]
7. First, JLK averred that the adjudication process was void. It contended that paragraph 2.1 of the JBCC Adjudication Rules (the Rules) provides that the parties shall appoint an adjudicator by mutual agreement at any time, but not later than five days after the date on which the disagreement is deemed to be a dispute.^[12]  According to JLK, the issue of non-payment arose as long ago as 2018.  JLK contended that Confact requested payment during August 2018, that it refused to pay and that this resulted in the dispute arising on 5 September 2018.  Consequently, it was argued that Confact had to refer the matter to adjudication by 12 September 2018, and because Confact failed to do so, it was compelled to refer the matter to arbitration.^[13]
8. The presiding judge, Kuvetisky J, rejected this argument. She stated that such an approach presupposes that any time a subcontractor submits an application for payment, that such date of submission could be used to determine the date of the dispute by the defaulter.^[14]  The learned judge also held that JLK’s argument is contrary to the provisions of clause 40.1 of the N/S agreement, which provides that notice of disagreement may be given by either party and that such notice was duly given on 17 February 2020.^[15]  According to the learned judge, the contention that the submission of an account can have the same effect as a notice of disagreement, is absurd.^[16]
9. A further reason why the court rejected JLK’s contention that the adjudication process was void, is because it found that on a plain reading of clause 40.2 of the N/S agreement, it is clear that a party can choose between adjudication in terms of clause 40.2.1 of the N/S agreement, or arbitration in terms of clause 40.2.2 thereof.^[17]
10. Second, it was argued for JLK that the matter should not have proceeded by way of adjudication because the N/S agreement had already terminated in 2018. As adumbrated above, notice to proceed by way of adjudication was given during February 2020.^[18]
11. JLK relied upon the judgment in the case of Radon Projects (Pty) Ltd v NV Properties (Pty) Ltd and Another^[19] (Radon).
12. Counsel for JLK – relying on Radon – submitted that the parties were obliged to go to arbitration because the work had been completed and the contract had come to an end. It was further argued that adjudication was a time-specific process, in that it provides a quick remedy while a contract still exists.^[20]
13. The learned judge rejected JLK’s argument on the basis that there were material differences between the contract in Radon and the N/S agreement.^[21] In Radon the contract provided for referral to adjudication or arbitration, based upon the phase of completion of the project.  The provisions of the N/S agreement had no such conditions and, as such, the two contracts differed materially.^[22]
14. Although it is not mentioned in Kuvetisky J’s judgment, I am of the view that the reason why the adjudication provisions of the N/S agreement survived the completion of the works, and the termination of the N/S agreement is because it is provided in clause 40 of the N/S agreement that the dispute resolution clause shall exist independently, to the extent necessary to fulfil its purpose. I say so because adjudication, being a contractual dispute resolution mechanism, does not necessarily survive the termination of an agreement.  The position is different in the case of arbitrations because section 3 (1) of the Arbitration Act^[23] provides that an arbitration agreement shall not be capable of being terminated, except by consent of all the parties.
15. Third, it was contended for JLK that the claim for the enforcement of the adjudicator’s determination was incompetent because Confact had the right to refer the matter to arbitration, and had done so.^[24] The learned judge also rejected this argument, stating that it was clear in terms of copious amounts of authority that JLK was obliged to make payment and give effect to the determination unless and until such decision is set aside.^[25]
16. In its counter-application, JLK claimed that it would suffer an injustice should a stay of the adjudicator’s determination not be granted.^[26] The learned judge dismissed this argument. She pointed out that JLK refused to make payment to Confact, refused to agree to an adjudicator and refused to participate in the adjudication process.  Moreover, by the time the matter was argued before the learned judge, there was no indication that JLK had referred the matter to arbitration.^[27]
17. In conclusion, I am of the view that what is especially noteworthy from the judgment is that in the context of adjudication:
    1. A disagreement only exists once proper notice is given;
    2. disputes that may arise during the course of a project do not in themselves constitute disagreements as contemplated in the dispute resolution clause of the relevant agreement; and
    3. whether or not adjudication is an appropriate dispute resolution mechanism, will in every case depend entirely on the wording of the contract between the parties to a dispute.

ADV K BAILEY SC, FAArb (SA)
Sandton
8 March 2021

---

[1]         2020 SACLR 501 (WC).

[2]         JBCC (Joint Building Contracts Committee) Series 2000, Edition 5.0.

[3]         Judgment, para [4].

[4]         Judgment, para [5].

[5]         Judgment, para [6].

[6]         Judgment, para [7].

[7]         Ibid.

[8]         Judgment, paras [9] and [10].

[9]         Judgment, para [11].

[10]       Judgment, para [1].

[11]       Judgment, para [26].

[12]       Judgment, para [12].

[13]       Judgment, para [13].

[14]       Judgment, para [13].

[15]       Judgment, para [14].

[16]       Judgment, para [15].

[17]       Judgment, paras [16] to [18].

[18]       Judgment, para [19].

[19]       [2013] 3 All SA 615 (SCA).

[20]       Judgment, para [19].

[21]       Judgment, paras [22] and [23].

[22]       Judgment, para [22].

[23]       42 of 1965.

[24]       Judgment, para [24].

[25]       Judgment, paras [24] and [25].

[26]       Judgment, paras [27] and [28].

[27]       Judgment, para [30].