Dispute resolution within construction and engineering: Adjudication

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Dispute resolution within construction and engineering: Adjudication

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Clive Rumsey: Good afternoon everybody and welcome to the CDH Conversations podcast. I'm Clive Rumsey. I head up the construction sector here at CDH. For my sins I've been doing this for over 30 years.

Sethu Khumalo: Thanks, Clive. Afternoon everyone. My name is Sethu Khumalo. I'm an associate in the Disputes department at Cliffe Dekker working with Clive Rumsey, specialising in construction and engineering.

Before we get into this episode, it might be worthwhile just to give an overview on the mini series that we'll be running over the next couple of weeks. Essentially what we'll be looking at is dealing with the different forms of dispute resolution, which are prevalent within the construction and engineering space. We see ourselves splitting this over three episodes. This episode being the first dealing with adjudication, second episode dealing with mediation, and the last one dealing with arbitration. Clive, if you're ready, maybe we can kick it off with you giving us an introduction into what adjudication actually is.

Clive Rumsey: Yeah, thanks Sethu. Adjudication, you'll find in most standard forms contracts that you as our listeners would use in the construction industry, and that involves the appointment of a third party adjudicator to preside over a matter where people put their submissions to the adjudicator and the adjudicator makes a decision. Different to mediation, which we'll deal with in the future podcast where there's no decision made by the mediator, or an arbitration, where witnesses would give evidence.

Sethu Khumalo: Right. That's perfect Clive. You mentioned the other forms of dispute resolution being mediation and arbitration. Could you possibly highlight for us what the real significant differential between your adjudication processes versus mediation and arbitration?

Clive Rumsey: Yeah, thanks Sethu. The main difference is between mediation is, a mediator appointed by the parties doesn't make a decision. The function of the mediator is to try and facilitate a resolution of the dispute between the parties. Whereas an adjudicator, both parties would appoint the adjudicator, the parties would then put their submissions to the adjudicator, usually in writing. There may or may not be a hearing, but no witnesses would give evidence. And the adjudicator then makes a final binding decision upon the dispute that has been put to him or her. Then opposed to arbitration where you would have like a trial in a high court, you would have witnesses actually giving evidence as opposed to it being decided on the papers before the adjudicator.

Sethu Khumalo: As you mentioned now, adjudication processes seem to be decided mainly on the papers. Are there any advantages to that, as opposed to running your trial-like arbitration processes?

Clive Rumsey: The main advantage is speed. It's supposed to resolve matters quickly. The time periods can be set for a statement of claim to be put in a statement of defence, setting out both parties's positions. There may be a reply to that and then that's what the adjudicator will decide upon. Sometimes adjudicators will ask for a short hearing, but a day or so, but there's no factual witnesses giving evidence, so you should have a speedy resolution. And what the courts have found when these matters have been looked at on enforcement, is that the courts have accepted this as a robust process where it's quick and some people call it quick and nasty, but that's the function of it, with always the backup that if it doesn't go one party's way, they can always serve a notice of dissatisfaction and the matter can then proceed to arbitration.

Sethu Khumalo: Clive, if I could just build on two things that you mentioned there. You said the main advantage of an adjudication is that it's meant to be speedy. We know, you and I of course know that in theory that's how it should work, but in your personal experience, have you found that adjudications do run in a quick and efficient manner?

Clive Rumsey: I think a lot depends on the adjudicator, who you appoint. If both parties are committed to getting a speedy resolution to a dispute, those time periods can be set quite tight time periods and an adjudicator runs the process effectively, should be able to make a decision within a relatively short period of time. Of course, relatively short is in the eye of the beholder. An arbitration from start to finish could take you a year. An adjudication if managed properly shouldn't take longer than about three months.

Sethu Khumalo: And then you mentioned as a precursor to enforceability, an aggrieved party with the outcome of an adjudication can deliver notice of dissatisfaction. I wondered if you could expand on what exactly that is and what that entails.

Clive Rumsey: Sure, Sethu. A decision that's handed down by the adjudicator is a final and binding decision. In other words that if one party doesn't deliver a notice stating that it's dissatisfied with the outcome of that decision, then it's binding on both parties and they must comply with their obligations. For example, if a contractor has sued an employer and the contractor's rewarded an amount of money, the employer would then be required to pay that amount of money, because it's final and binding and it's enforceable until such time as an arbitration process has overturned that decision. So in that particular example, a contractor would succeed for "X" rand, the employer says, "I'm dissatisfied with that outcome", would deliver a notice of dissatisfaction and the matter would then proceed to arbitration. But in the interim, the employer is required to pay the amount due to the contractor.

Sethu Khumalo: Sure. In terms of that decision by adjudicator hand?

Clive Rumsey: Correct. Both parties are bound by it until such time as they deliver a notice of dissatisfaction and an arbitrator sometime down the line either forces that decision or overturns that decision.

Sethu Khumalo: And just looking at enforceability of an adjudication award or decision by an adjudicator, how easily enforced are those decisions? I mean with a court order, you know you have that, now you can execute on that. Does a similar process apply to a decision by an adjudicator?

Clive Rumsey: It does, Sethu. What some people may not know is that an adjudication decision by itself is not enforceable to execute against the other party. So going back to the example of a contractor; a contractor receives an award of a million rands against the employer. The contractor can't enforce through as if a court order, to go make an attachment of the assets of that employer. So what they would need to do if the employer refuses to pay is then proceed to court to make that adjudication award an order of court. So you would then have to bring a formal application to court requesting the judge to then make it an order of court. Once you've made it an order of court, you could execute against the employer through the auspices of the sheriff of the court.

Sethu Khumalo: Alright. Unless there's anything else that you might want to discuss, Clive, on the enforcement aspect?

Clive Rumsey: No, I think it sometimes can delay the matter on enforcement. That is your remedy, unfortunately. It's not something that's automatically enforceable that you can execute on. There's quite a lot of case law that developed on the enforceability of the adjudicator's decisions in the interim. So initially there were arguments that were raised to say that, I don't have to pay until the matter's decided by arbitration.

The courts have clearly decided that an adjudicator's decision is enforceable and it doesn't have to wait for the outcome of an arbitration. And secondly, that you must pay in accordance with that adjudication decision.

So the courts have also found that it is a robust decision. So the fact that the adjudicator doesn't get it a hundred percent right, doesn't mean you could take the decision on appeal. The basis is that it is to regard it as a short, robust process.

And the main reason for that Sethu, is that during the course of contracts, you need matters to be resolved while the contract is ongoing. And very important that to keep the contract going, the decisions are made as you're going along, as opposed to waiting for an arbitration process to determine on each matter. So yeah, I think on adjudication you'll find provision for adjudication in terms of our JBCC contracts, in terms of the NEC forms of contract and in respect of the FIDIC forms of contract, which are sort of standard forms of contract that are used in the construction industry in South Africa.

Sethu Khumalo: Just another one I think we find a lot in litigation, clients concerned about the cost of litigating. Could you give us any insight as to what one could expect when it comes to costs and adjudication proceedings? And maybe as well, how that's shared by the parties.

Clive Rumsey: Yeah, it is an issue, but if you have a look, it depends on the nature of the contract and how you've structured the contract. So if it says that you'll go to adjudication before a single adjudicator and that adjudicator will make a final and binding decision, one can imagine that those costs are substantially less than if, for instance, in a FIDIC form of contract, you would have a dispute adjudication board, which may in certain instances consist of three individuals. So in preparing your contract initially, and our audience and those involved in these contracts must always keep in mind that it's very important that you deal with these issues upfront.

If there's a single adjudicator, make sure that that's dealt with upfront. It does limit the costs. Other people would argue that unfortunately you're then dependent on one individual's decision as opposed to if you have an adjudication process that has three individuals - one appointed by each of the parties and those two individuals appointing a chairperson - you may get a fairer decision.

That being said, the costs of that process can be high. Again, part of it, picking that panel, don't always depend on getting senior council or retired judges to be your adjudicators. Sometimes, and depending on the nature of the dispute, it's more appropriate not to have a sort of a retired judge to run it, but in certain instances have somebody who's more in touch with the construction industry or somebody at a more junior level who has the right experience.

The cost of sharing costs in certain instances, the adjudicator does not award costs in favour of one of the parties. So even though you may be successful, it doesn't mean that you get your costs ordered in your favour. So that is something to take into consideration.

Sethu Khumalo: Right. Clive, I don't have anything else on my end, unless there's anything else you can think about that you think is worth raising.

Clive Rumsey: No. What we're trying to do is canvas these and try and highlight some issues to our audience of when you enter into the contracts, when issues arising at that stage, dealing with the appropriate dispute resolution process, alternative dispute resolution process at that point. And then making sure that it's run properly and effectively at the time when a dispute does arise. And that's why as we mentioned in the beginning, we are doing over a period of time, we're doing adjudication in this afternoon, but we intend having a look at mediation and an arbitration process and really a refresher to be aware of the pros and cons of each of those processes. But thanks, Sethu, and thanks for raising the issues for discussion.

Sethu Khumalo: Thanks for your time, Clive, and for your insight and experience on it.

Clive Rumsey: Great, thank you.