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A decision was hand down in the Pietermaritzburg High Court recently in relation to the adjudication and arbitration proceedings contained in the General Conditions of Contract 2010 (GCC 2010) as published by the South African Institute of Civil Engineering (SAICE).

The Applicant was the Umgungundlovu District Municipality (the “Municipality”) and the First Respondent the MLO, New Boss & Zamisanani JV (the “JV”).

Briefly the facts of the matter are as follows:

The Municipality contended that the JV failed to re-establish on site on 18 November 2019, despite an undertaking to do so. The Municipality considered this to be a repudiation by the JV of its obligations, accepted such repudiation, and accordingly cancelled the contract on 22 May 2020.

The JV disputed the cancellation, claiming it was unable to recruit labour and that the Municipality should have given notice to remedy the breach. The JV gave a notice of dissatisfaction to the Municipality and Engineer in terms of clause 10.2 of the GCC on 18 June 2020, and placed the Municipality on terms to withdraw the letter of cancellation, failing which the JV would consider the Municipality to be in “persistent repudiation”.   

When the Municipality failed to respond the JV then sent notice of its termination of the contract, including a termination account, on 13 July 2020.

After receiving an email from the Engineer advising that the matter of repudiation was solely between the Municipality and the JV, by way of further correspondence dated 23 July 2020 the JV advised the Municipality that its dissatisfaction claim  remained unresolved  and delivered a dispute notice recording that:

  • The Municipality’s cancellation was unlawful
  • The Municipality did not comply with clause 9.2 and give the JV a period of not less than 14 days to remedy the breach.
  • The Municipality’s actions amounted to repudiation.
  • The JV will request the adjudicator to find that the Municipality repudiated the contract.

On 24 July 2020 the JV wrote to the Municipality and Engineer nominating 3 persons to act as adjudicator, and for the Municipality to confirm the appointment of the 2nd person.

Now the GCC 2010 provides for two types of adjudication – adjudication by a Standing Adjudication Board appointed by the parties within 56 days of the commencement date as per clause 10.5.1, alternatively ad-hoc adjudication appointed as and when a dispute arises as per clause 10.5.2.

In this instance the Contract Data made express provision for a Standing Adjudication Board. At the time of the dispute the parties had failed to appoint a Standing Adjudication Board.

The JV approached their choice of adjudicator to proceed with the adjudication. The adjudicator then corresponded with both parties, whereon the Municipality’s attorneys advised him that the notice of dissatisfaction and dispute notice were a nullity, and that the Municipality did not agree to adjudication.

In correspondence dated 4 September 2020 the JV stated that they did not agree that the non-implementation of clause 10.5.1 nullified the dispute resolution provisions, and they intended to proceed with the adjudication proceedings, with or without the Municipality’s participation.

The Municipality then brought an urgent application, heard on 8 September 2020, interdicting the JV and the adjudicator from proceeding with the adjudication pending the determination of the declaratory relief requested in Part B of the application. The temporary interdict was granted.

In Part B the Municipality sought an order that ‘It is declared that the adjudication process as set out in clause 10 of the GCC 2010 2nd edition, as amended by the Contract Data in respect of the contract for the upgrading of the Nkanyezini Water Supply Scheme, is invalid, alternatively unenforceable, and that any proceedings conducted in terms thereof shall be null and void.’

The JV filed a counter application asking the court to find:

‘1.  To declare that the appointment of XXXXX as adjudicator is valid and binding and that disputes raised are to be adjudicated before him;

2. In the alternative to prayer 1 above, to provide for the parties to appoint a member of the Adjudication Board within 1 week from the date of the order;

3. In the further alternative to prayers 1 and 2 above, that the dispute is referred to arbitration;

4. The applicant is to pay the costs;

5. Further and/or alternative relief.’

The adjudicator played no role in the proceedings and would abide by the decision of the court..

The findings of the court were:

[38] It is common cause that the applicant and the first respondent failed to appoint the member of the Adjudication Board within 56 days of the commencement date as required by clause 10.5.1 of the GCC 2020 contract, or at all for that matter. The contract data only provides for dispute resolution by standing adjudication

[39] Counsel for the applicant, submitted that there can be no adjudication process if a member to the Adjudication Board had not been selected and as a result of that, the matter can also not proceed to arbitration. He also submitted that although the first respondent conceded that the parties had failed to appoint a member to the Adjudication Board within 56 days, it nonetheless proceeded to appoint an adjudicator on what amounted to be an ad hoc basis, which the contract does not provide for.

[41] Counsel for the applicant also submitted that the dispute between the parties concerns a question of law, and that a court of law should determine which party was entitled to cancel the contract. This would have a bearing on what basis the final account will be prepared or how damages are determined, namely: termination due to contractor’s fault, termination due to employer’s fault or no-fault termination.

[42] I was also referred to the Adjudication Board Rules, and it was submitted that the standing Adjudication Board is supposed to deal with technical issues relating to ongoing works, and not disputes about who is entitled to repudiate or cancel the contract.

[50] It is in my view clear that the applicant is not agreeable to an ad hoc arbitration, and it is furthermore clear that the process embarked upon by the first respondent is not provided for in the contract. The first respondent is clearly attempting to force adjudication upon the applicant, whereas it is very clear that the parties have failed to comply with the requirements of clause 10.5.1. To ask me to direct that adjudication should in fact proceed is doing exactly what Innes CJ and Wallis JA referred to when they held that a court cannot make new contracts for parties. It would have been an entirely different issue if both parties realised that they had failed to comply with the requirements of clause 10.5.1, entered into an addendum in terms of which they agreed to vary the contract and to make provision for adjudication. This is not what has happened and I certainly cannot force the applicant to take such a step when the GCC contract does not allow for it.

[52] For the same reasons, and with reference to the counter-application, the appointment of the second respondent as adjudicator cannot be valid. It would also not be competent to now make an order that a member of the Adjudication Board be appointed as prayed for by the first respondent, or to refer the matter for arbitration. The motivation for the institution of the counter application is also unclear, especially in light of the applicant’s municipal manager’s undertaking in his founding affidavit that the applicant tenders to participate in the adjudication if the court finds the dispute resolution process to be in force.

[54] I do not deem it necessary to deal with the aspect of whether, on good cause shown, the court should order that an arbitration agreement shall cease to have effect with reference to any dispute referred  in detail, because of what I have found regarding the non-compliance with clause 10.5.1. But in the event that I am wrong in that regard, I am in any event of the view that due to the nature of the dispute and the facts surrounding the dispute as mentioned above, the matter should not be dealt with by way of arbitration, and is clearly best suited to be resolved by court proceedings.

So as a result of the parties failure to appoint a Standing Adjudication Board the dispute could not be adjudicated, and, because it had not been adjudicated it could not be referred to arbitration. I do not agree that a decision as to who correctly cancelled the contract is beyond the jurisdiction of a Standing Adjudication Board.

Remember the saying  “for want of a nail a kingdom was lost.” Something of great importance may depend on an apparently trivial detail.

Norman Milne

The reference to the full judgment is Case No 5831/2020P in the High Court of South Africa Kwazulu Natal Division Pietermaritzburg. Date of judgment 11 August 2021.