Kicking the Dying Star - Abusing the Adjudication Process in South Africa

The South African construction industry is on life support. The litany of challenges that the industry is facing are unprecedented. A global pandemic, corruption, economic collapse, construction mafias, professionals who serve only employer’s interests, soaring inflation, lack of skills. The list is endless.

?Adjudication is a dispute resolution process developed and designed to serve the construction industry. In jurisdictions such as United Kingdom, Malaysia, the European Union, Australia, New Zealand and many others, the process has been proven to be enormously successful. In the David and Goliath scenario that contracting often is, the adjudication process has enabled contractors to take up a stone and to fight the giants when necessary. In an industry plagued by disputes, the leveling of the playing field has been reported to have had a major positive effect on both sides of the table. Adjudication has forced professional teams to improve their performance rather than relying on the common practice of selling out the contractor to cover mistakes and missteps.

In South Africa, the adjudication process has been the difference between survival and bankruptcy for many firms. However, being South Africa, the inevitable scourge of corruption has now begun to clasp its boney fingers around the adjudication process. A core aspect of adjudication is that the decision must be implemented immediately. The JBCC agreements, as with most construction contracts, make compliance with an adjudication decision mandatory. The failure to comply with the contractual conditions to give immediate effect to the decision, is a material breach of the agreement. Despite this, parties in default still refer matters to arbitration without making payment in respect of the adjudication decision.

Over the past two years, it has become commonplace that parties who have had an award against them in adjudication, refer the dispute to arbitration, whilst refusing to make payment of the adjudication award. When the successful party applies to the High Court to enforce the adjudication decision, parties oppose the application. They use the congested Court system to circumvent and/or defer payment of the adjudication decision.

Parties believe that they may get an outcome in arbitration that will overturn the decision before they are finally required to pay the award. This inevitably leads to significant additional legal costs. This was clearly demonstrated in the recent case of Qualelect Investment Holdings (PTY) Ltd v Belo Kies Construction (PTY) Ltd (2021/3529) [2022] ZAGPJHC 430 (22 June 2022).

It is common knowledge that when a party is in breach of the agreement, the innocent party is relieved of its obligations under that agreement, until the breach is remedied. Where a contract makes compliance with an adjudication decision mandatory, the dissatisfied party may not breach the agreement by refusing of pay the adjudication award, yet still refer the matter to arbitration whilst in breach.

Doing so forces the innocent party to prejudicially perform under the agreement, when the other party is in breach of the agreement. The current unsavory practice is becoming more prevalent, in part, due to the fact that parties know that they can have an arbitrator appointed despite breaching the underlying agreement and refusing to pay the adjudication award. It is also becoming routine that parties with deeper pockets apply this practice with the intention of exhausting the opposition’s financial capacity to litigate. They are often successful in this regard.

When Sir Michael Latham established the modern adjudication process, he did so with the intention that it enabled cash flow, which he termed the ‘lifeblood of the construction industry.’ The practice of delaying payment of decisions goes against everything that the process was designed to counter.

In South Africa, corruption is a cancer that eats at the fabric of our society. It is the degrading of our moral standards that allows lawyers, advocates and other such professionals, to become comfortable in their support and enabling of actions which abuse the Courts, and which leave the construction industry worse off.

Advocates and attorneys who enable the process of using the Courts to disrupt the payment of adjudication awards, are knowingly abusing the Courts and their position of trust, in doing so.

The message to these “professionals”, is that we cannot protest corruption, whilst being selective as to what we identify as corruption within our own industries. Access to the Courts is an inalienable right. Abuse of the Court system by the wealthier to override the rights of less fortunate, is not.

The benefit of the adjudication process to our struggling construction industry cannot be overstated.?To smaller firms, which are prevalent in the industry, access to the adjudication process is often the difference between survival and bankruptcy.

There must be accountability for those who have elected to knowingly and purposefully abuse the process.