TOOLS OF THE TRADE – DECEMBER 2021

ADJUDICATOR’S JURISDICTIONAL POWERS TO AWARD COSTS

1. Adjudicators normally have very limited, if any, power to decide on the liability for costs of adjudication proceedings. For instance, in the case of adjudications arising out of JBCC Principal Building Agreements, the fees and disbursements due to an adjudicator are shared equally by the parties, unless directed otherwise by the adjudicator.
2. A recent judgment by the Western Cape Division in the High Court in the matter of Tempani Construction (Pty) Ltd v The City of Cape Town^[1] (the judgment) raises interesting questions. The Court (per Slingers J) delivered the judgment in a case where two applications were consolidated and heard together.  The first application was brought by Tempani Construction (Pty) Ltd (Tempani) against the City of Cape Town (the City) to have an adjudicator’s determination made an order of court.  The second application was brought by the City to have the adjudicator’s costs award set aside.^[2]
3. Briefly, the background facts are as follows:
   1. A dispute arose between Tempani and the City out of a JBCC Principal Building Agreement Series 2000 Edition (July 2007) (the PBA). The dispute was referred to adjudication and the JBCC 2014 Adjudication Rules (the Rules) applied;^[3]
   2. a hearing was conducted in the adjudication proceedings and the parties agreed that legal representation would be allowed. The parties were represented at the hearing by practising lawyers;^[4]
   3. before the adjudicator made his determination, the City contested the adjudicator’s jurisdiction to award costs other than his own costs;^[5]
   4. in his determination the appointed adjudicator directed the City to pay Tempani the capital amount of R5 844 200,13, as well as Tempani’s legal costs and disbursements in the adjudication on a party and party scale, which costs would be taxed by the adjudicator upon request;^[6]
   5. the City took no issue with the decision that it had to pay the amount of R5 844 200,13;^[7]
   6. however, the City launched an application for the variation of the adjudicator’s determination to have the adjudicator’s costs award set aside on the basis that he had exceeded his jurisdiction by the making of such an order;^[8] and
   7. the main question the Court had to answer was whether or not the adjudicator had the authority to make such costs award. It was common cause that there was no express provision empowering the adjudicator to make a costs award pertaining to legal costs and disbursements.
4. In the High Court, Tempani relied on three grounds to claim that the adjudicator was authorised to make the costs award. First, it contended that when the parties agreed that legal representation would be allowed, they also tacitly agreed that the adjudicator would have the power to award costs to the successful party.  Second, that the Rules allowed the adjudicator to determine his own jurisdiction.  Third, that the adjudication proceedings had been converted into quasi-arbitration proceedings.^[9]
5. The Court dismissed the argument that the proceedings had been converted into quasi-arbitration proceedings because the mere fact that a hearing had been conducted, did not change the nature of the proceedings. The Court also added that adjudication is governed by a contractual relationship, while arbitration proceedings are subject to the Arbitration Act 42 of 1965 (the Act).^[10]
6. The importation of a tacit term into the adjudication agreement to the effect that the adjudicator would have the power to determine the legal costs, including liability for payment thereof, was similarly rejected by the court.^[11] In my view, the court’s reasoning in this regard is interesting, because it is relevant to the adjudicator’s power to determine his or her own jurisdiction in the context of the court’s finding on this issue as set out below.
7. The Court mentioned that it was common cause that the question of legal costs in the adjudication did not arise and it was not discussed.^[12] In this regard the Court stated that the express terms of the adjudication agreement did not exclude the importation of the proposed tacit term.^[13]  The Court considered whether the importation of the proposed tacit term would be appropriate, but found that it was not necessary to do so in order to render the adjudication agreement functional.^[14]  The Court was not satisfied that the parties intended to contract on the basis that legal costs would follow the result.  In this regard it concluded that:

‘It cannot be said that the adjudication agreement contained a tacit term, implied or actual, which authorised the adjudicator to make the impugned costs award.’^[15]

1. The Court then proceeded to consider the question of the adjudicator’s jurisdiction in the context of his impugned costs decision. The Court stated that the adjudication agreement is a contract between the parties.  It quoted the wording of Rule 5.5.5 which provides that an adjudicator may decide on his or her own jurisdiction.^[16]
2. As part of the factual matrix, the Court observed that a preliminary meeting was held where both parties were legally represented and that they agreed to allow for legal representation at the adjudication hearing. Thereafter a hearing was held where the parties were again legally represented.^[17]  The Court stated that the surrounding circumstances and the factual matrix did not reflect an intention by the parties to limit the adjudicator’s jurisdiction to the merits of the dispute.^[18]
3. The Court stated that legal costs are a natural consequence that flows from legal representation and that the aspect of costs associated with legal representation became part of the dispute to be determined by the adjudicator.^[19] In the result the Court held that the adjudicator had the authority to decide on the costs and disbursements of the adjudication proceedings, and that this determination is binding on the parties.^[20]
4. I turn to make a few observations:
   1. An adjudicator operates as a tribunal created by contract. Express contractual provisions regulate the procedure;^[21]
   2. if it is found that an adjudicator did not have the requisite jurisdiction, his or her decision will not be binding or enforceable;^[22]
   3. in terms of Rule 2.5, an adjudicator’s appointment is limited to ‘the current dispute’;
   4. in terms of Rule 4.3, read with Rule 5.4.5, fees and disbursements due to the adjudicator are to be shared equally by the parties unless the adjudicator decides to apportion the liability otherwise;
   5. an adjudicator acts as an expert and not as an arbitrator in terms of Rule 5.4.1;
   6. in terms of Rule 5.4.5, an adjudicator may decide on his or her own jurisdiction; and
   7. it has been held that, in general, an adjudicator has no jurisdiction to decide that one party’s costs of the adjudication should be paid by the other party, but that the adjudicator certainly can be granted such jurisdiction by agreement between the parties.^[23]
5. In my respectful view, the Court erroneously found that the adjudicator could decide on the question of costs, as he did, because the adjudicator could determine his own jurisdiction. I say this for the following reasons:
   1. The adjudicator’s appointment and hence, his or her jurisdiction, is limited to the dispute referred for determination. An adjudicator can decide that he or she does not have the necessary jurisdiction by virtue of the applicable contractual provisions read together with the Rules;
   2. in the matter under discussion, the express contractual provisions and the Rules did not allow for the adjudicator to decide on the question of legal costs as he did. In fact, the City expressly disputed the adjudicator’s jurisdiction in this regard before the adjudicator published his determination;
   3. had the parties agreed that the adjudicator could decide the question of the costs associated with legal representation, it would have been a different matter. They did not so agree.  This is highlighted by the fact that the Court found that a tacit term, which would have authorised the adjudicator to make the impugned costs decision, did not form part of the adjudication agreement between the parties; and
   4. in the present matter, the adjudicator, being a tribunal created by contract, exceeded his jurisdiction by making a decision on costs as he did, and this unfortunately received judicial approval.
6. The Rule which provides that an adjudicator can determine his or her own jurisdiction does not give carte blanche to an adjudicator to act outside the ambit of the applicable agreement and Rules, and to appropriate to himself or herself powers that the adjudicator does not otherwise have. The Court’s judgement by sets a dangerous precedent because it opens the door for a party to claim the costs for legal representation in an adjudication where legal representation was allowed – and that despite the absence of an agreement between the parties that the costs of legal representation should fall within the adjudicator’s jurisdiction for determination.

ADV K BAILEY SC FA Arb (SA)

Member of the Johannesburg Bar

1 November 2021

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^[1]      Case No. 21288/2018 and Case No. 12918/2019, 2 November 2020.
^[2]      The judgment:  paras [3] and [4].
^[3]      The judgment: para [1].
^[4]      The judgment: paras [24], [25] and [29].
^[5]      The judgment: para [33].
^[6]      The judgment: para [2].
^[7]      The judgment: para [14].
^[8]      The judgment: paras [4] and [16].
^[9]      The judgment: para [24].
^[10]     The judgment, para [25].
^[11]     The judgment: para [35].
^[12]     The judgment: para [27].
^[13]     The judgment: para [29].
^[14]     The judgment: paras [30] and [31].
^[15]     The judgment: para [35].
^[16]     The judgment: paras [37] and [38].
^[17]     The judgment: paras [39] and [40].
^[18]     The judgment: para [41].
^[19]     The judgment: para [43].
^[20]     The judgment: para [44].
^[21]     Ekurhuleni West College v Segal and Another (1287/2018) [2020] ZASCA 32 (2 April 2020), para [15].
^[22]     Framatome v Eskom Holdings SOC Ltd (357/2021) [2021] ZASCA 132 (1 October 2021).
^[23]     Northern Developments (Cumbria) Ltd v J & J Nicol [2000] EWHC Technology 176, paras 45 and 46.