MDA Law
Rodpaul construction (Pty) Ltd V MEC Kwazulu-Natal Provincial Department of Public Works
On 18 August 2023, the High Court delivered a judgment in the matter between Rodpaul Construction (Pty) Ltd t/a Rods Construction and the MEC: KwaZulu Natal Provincial Department of Public Works. Rods Construction sought to have an adjudicator’s determination dated 30 August 2022 made an order of court.
FACTS OF THE CASE
Rodpaul Construction (Pty) Ltd (“the Applicant”) and the KwaZulu-Natal Provincial Department of Public Works (“the Respondent”) entered an NEC3 Engineering and Construction Contract, Option E: Costs Reimbursable Contract of April 2013 (“the NEC3”). Disputes arose under the contract and the parties participated in adjudication proceedings. The adjudicator made a determination in terms of which various monies were to be paid between the Applicant and the Respondent. The respondent resisted to comply with the determination. In terms of the adjudicator’s determination, the Applicant was directed to pay inter alia an amount of R7 747 736.57 to the Respondent which was less than a tenth of the amounts owing to the Applicant by the Respondent. The Applicant proposed that the Respondent set-off the amount due to it from the amounts payable to the Applicant in terms of the determination.
ISSUES BEFORE THE COURT
The court had two issues to adjudicate on, the first issue was whether an adjudicator’s determination remains final and binding despite the other party having notified its dissatisfaction therewith and referred the decision to an arbitral tribunal for review. The second issue before the court was whether a party should be precluded from making payment in terms of an adjudicator’s determination on the basis of public policy consideration as they apply to the use of state funds (i.e., can a party who is a state organ be precluded from paying the other party simply on the basis that the funds used are state funds?), the court was required to adjudicate on the development of public policy to incorporate just and equitable considerations, alternatively put, the court was required to adjudicate on whether the enforcement of the adjudicator’s determination as a term of the contract would be contrary to public policy particularly in relation to the use of public funds as raised by the Respondent in its refusal to make payment as directed by the determination.
THE RESPONDENT’S ARGUMENT
The Respondent’s argument in disputing the making of the determination to be a court order was premised on that the NEC3 clauses W1.3 and W1.4 which state that an adjudicator’s determination is only enforceable if neither party has notified the other party of a dissatisfaction. The Respondent had notified the Applicant of its dissatisfaction and referred the determination to a tribunal which, in its view, rendered the determination unenforceable. The Respondent further argued that it was of the belief that the Applicant will not be able to repay the monies that had already been paid to it by the Respondent, as the Applicant was at the time of the proceedings indebted to the Respondent in the amount of R690 346.46. The Respondent further submitted that If the applicant cannot pay the debt, it would unlikely be able to repay the adjudicator’s determination if the tribunal overturns it, to add concrete to its argument, the Respondent argued that in the event of the Applicant failing to pay the amount it was directed to pay to it by the determination, this would constitute a misuse of the public funds which would in turn have a negative impact on public policy.
THE COURT’S DECISION
The court considered authorities relating to the enforcement of an adjudicator’s decision. The court held that the adjudicator’s determination was binding and enforceable despite the wording of clauses W1.3 and W1.4. It found that good prospects of success in arbitration proceedings do not constitute a defence against payment of an adjudicator’s determination as the expeditious prosecution in arbitration proceedings provided relief to the dissatisfied party.
In considering whether public policy should be developed to incorporate just and equitable considerations which allow a government department to resist making payment as directed by an adjudicator, the court considered the principle of sanctity of contracts. The court held that the NEC3 is not contrary to public policy as it was freely and voluntarily entered into, the Respondent chose these conditions to be applicable to the agreement and the conditions are not contrary to a constitutional principle. In the circumstances, the court held that public policy demands that the parties be bound by the terms of the agreement. The court held further that the facts of the matter did not support the development of public policy to include the grounds advanced by the Respondent and a finding in its favor would be tantamount to ordering an amendment to the contract which was not agreed by the parties.
The court emphasized that in very limited instances pending the outcome of the arbitration, an adjudicator’s determination may be stayed. The court relied in the case of Murray & Roberts Ltd v Alstom S&E Africa, where it was ruled that although there may be circumstances to decline making a determination an order of court, it nevertheless still directed the offending party to follow the adjudicator’s decision. The court held that while the High Court has the authority to make an adjudicator’s determination an order of court on ‘just and equitable grounds’, courts are not limited by the Arbitration Act 42 of 1965 and can still exercise their common law right on whether to make the adjudicator’s decision an order of court.
In adjudicating on the Respondent’s fear of the Applicant being unable to repay it in the event of the determination being overturned, the court referred to the case of Ethekwini Municipality v Cooperativa Muratori and held that the possibility of a party’s inability to make payment is not a ground to resist paying the award or to resist complying with an award.
IMPORTANCE
It is crucial to note that in agreeing to the terms in the NEC3 contract, the parties freely and voluntarily agree to a clause i.e., the dispute resolution clause, which provides that in the event of any disputes, such disputes would be resolved by way of an expeditious dispute resolution process and the parties are bound by the determination made in the dispute resolution process – adjudication. It is very clear that Adjudication is incorporated in the NEC3 to provide a speedy dispute resolution mechanism without stalling the progress of the project, this is to the effect that an adjudicator’s determination must be actioned and parties to the NEC3 should not then attempt to use courts as a mechanism to escape from being bound by such determinations when they are not in their favor as decided by AJ Nicholson in the case of Rodpaul Construction (Pty) Ltd v MEC: KwaZulu-Natal Provincial Department of Public Works.
