13 May 2020 by and Dispute Resolution Alert

The setting aside of an adjudicator’s determination: Is the court hamstrung?

The rise of alternative dispute resolution (ADR) in the last decade or so cannot be overstated. The plethora of ADR institutions and a quick survey of general commercial and service level agreements prove this to be the case. Stripped to its bare bones, ADR refers to any means of settling disputes without reference to litigation i.e. the courtroom. This typically takes the form of negotiation, conciliation, mediation, adjudication, arbitration (or a combination of any of these). In most cases it’s voluntarily and in some instances it is obligatory.

With ever-rising costs of litigation and the time delays occasioned by litigation, ADR offers an attractive offering in that it is suitable for multi-party disputes; the costs are lower (and in many cases free when involving consumers or employees); it produces relatively speedy settlement of disputes; there is flexibility in the process; the parties are generally in control; the parties chose a forum; it can offer practical solutions; a wide range of issues can be considered; shared future interests may be protected; it is generally private and confidential; and it is a less confrontational alternative to the court system.

With more and more parties resorting to ADR as a means to settle their disputes, the courts are often inundated with applications to either enforce or review and set aside awards and/or determinations arising from ADR proceedings. It is trite that parties to an agreement are bound by the provisions contained therein including the dispute resolution clause. As a result and in relation to dispute resolution clause/s, the parties often waive their rights to approach the courts until the dispute resolution mechanisms provided for in the agreement have been exhausted and even then they can only approach the courts on a limited basis. A question that has troubled legal practitioners for some time is whether a party unsatisfied with the outcome of an ADR process can and should challenge that outcome and what form that challenge should take. Even though it only was in the context of an adjudication, the Supreme Court of Appeal (SCA) recently grappled with some of these issues in Ekurhuleni West College v Segal and Another (1287/2018) [2020] ZASCA 32 (2 April 2020). In Segal, the SCA was called upon to adjudicate an appeal on two interrelated issues. Firstly, whether an adjudicator’s determination in unterminated proceedings was reviewable. Secondly, whether the rules of natural justices applied to adjudication proceedings.

First the facts: Ekurhuleni West College (College) entered into an agreement for the construction of a conference centre on its premises with Trencon Construction (Pty) Ltd (Trencon). Various disputes arose between the parties upon completion of the project. As per the provisions of the agreement, Trencon referred these disputes to adjudication. Having considered the submissions by the parties and without requiring appearance, the adjudicator made a determination in favour of Trencon. Aggrieved by it, the College exercised its right in terms of the agreement and gave a notice of dissatisfaction and thus referred the dispute to arbitration. In addition, the College launched an application to review and set aside the determination, which application was dismissed by the High Court.

Did the notice of dissatisfaction and the pending arbitration, on their own, preclude the review application?

The construction agreement contained a provision stating that should either party be dissatisfied with the decision given by the adjudicator, such party may deliver notice of dissatisfaction to the other party and to the adjudicator within a specified period and refer the dispute to arbitration. The arbitrator would then have the power to revise the adjudicator’s determination as if it had not been issued or given.

The SCA held that the central issue in this question was the nature and purpose of the adjudication in terms of the agreement. Adjudication was designed for the summary and interim resolution of disputes expeditiously and inexpensively as possible. However, the adjudicator’s determination was not exhaustive of the disputes, as it may be overturned during the final stage of the dispute resolution process. This meant that the determination could be revisited during a further step in the agreed procedure. The court therefore concluded that the College’s review application was premature as the ADR proceedings had not terminated and there were no grounds warranting judicial interference, at least at that stage.

Were the rules of natural justice applicable to the adjudication proceedings?

In deciding this issue, the court referred to the generally accepted ratio that in the case of a statutory tribunal its obligation to observe the elementary principles of justice derives from the expressed or implied terms of the relevant enactment, while in the case of a tribunal created by contract, the obligation derives from the expressed or implied terms of the agreement between the persons affected. A statutory tribunal would for example be the housing tribunal established terms of the Rental Housing Act 1999; the Commission for Conciliation, Mediation and Arbitration established in terms of the Labour Relations Act, 1995; the Competition Tribunal established in terms of the Competition Act, 1998; the National Consumer Tribunal established in terms of the National Credit Act, 2005; the Water Tribunal established in terms of the National Water Act, 1998 etc.

In this instance, the matter concerned a tribunal created by greement (i.e. adjudication) and the court readily accepted that courts should be very slow to import a tacit term into an agreement particularly where the parties have concluded a comprehensive written agreement that deals in great detail with the subject matter of the agreement and it is not necessary to give the agreement business efficacy. This is of course subject to the express terms of the agreement by which any or all of the fundamental principles of justice may be excluded or modified. Consequently, the court found no merit in the College’s reliance on procedural unfairness and the rules of natural justice and held that the adjudicator conducted the proceedings as per the agreement. This was so because the adjudicator operated as a tribunal created by contract and the express contractual provisions regulated the procedure that he had to follow. The College did not challenge any of these provisions as being contrary to public policy and nor show that the express contractual provisions were breached. As a result, the SCA dismissed the appeal with costs and upheld the decision of the High Court.

With the growing popularity of ADR as a means of resolving disputes, this decision adds to the rising body of jurisprudence demonstrating the judiciary’s deference to the ADR process. The matter is also important in that it demonstrates that parties should always be aware that provisions agreed upon in an agreement will trump any rules of natural justice unless such rules are expressly included. Lastly, parties should seek guidance, not only in the enforcement of obligations by means of an ADR process but at the contracting stage to ensure that their rights are sufficiently protected.

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