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[2020] ZAGPJHC 415
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Sasol South Africa (Pty) Ltd v Murray and Roberts Power and Energy and Another (42863/18; 41910/18) [2020] ZAGPJHC 415 (14 January 2020)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 42863/18
41910/18
REPORTABLE:
NO
OF
INTEREST TO OTHER JUDGES: NO
REVISED.
14.01.2020
In
the matter between:
SASOL
SOUTH AFRICA (PTY) LTD
APPLICANT
And
MURRAY
AND ROBERTS POWER AND ENERGY
FIRST RESPONDENT
(A
TRADING DIVISION OF MURRAY AND ROBERTS LTD)
LTC
HARMS
N.O.
SECOND RESPONDENT
JUDGMENT
WINDELL
J:
INTRODUCTION
[1]
The present proceedings involve two independent applications: an
application by Sasol South Africa Pty Ltd (“Sasol”)
for
the partial review and setting aside of the second respondent’s
(“the arbitrator”) award and an application
by the first
respondent, Murray and Roberts Limited, to enforce the arbitrator’s
award. If the review application succeeds,
the enforcement
application must fail.
[2]
The subject of the arbitrator’s award was an NEC 3 engineering
and construction contract related to a project at Sasol
in Secunda.
The contract was concluded on 15 March 2015, between Sasol as
Employer and Murray and Roberts Limited, as the contractor
(hereinafter referred to as the Contractor). The contract provided
for the nomination of a Project Manager (“PM”) who
had
certain circumscribed functions and required that disputes relating
to an “action” or “inaction” of
the PM be
notified, thereafter referred to adjudication and then on to
arbitration; all within prescribed timeframes.
[3]
At the heart of the review is “
Project Manager’s
Communication 200”
(“PMC200”) a written
notification issued by the PM to the Contractor on 1 March 2017.
PMC200 concerned the reduction
of resources engaged on the project.
In the communication the PM warned the Contractor that manpower not
reduced in accordance
with PMC200 would not be paid for. The
Contractor did not reduce manpower and Sasol continued to sign off
the timesheets which
included the resources requested to be removed.
In due course the matter of payment arose. On 20 April 2017 and 1
June 2017 respectively,
the PM issued payment advices no 27 and 28,
disallowing amounts claimed by the Contractor in respect of resources
that were the
subject of PMC200.
[4]
The Contractor notified and referred a dispute relating to the PM’s
certificates 27 and 28 (which recorded the disallowance)
to
adjudication. In the dispute referral the Contractor claimed under
various heads a total amount of R46 885 337.34.
This
included a claim for R23 587 548.00 for the cost of
resources which the PM had disallowed as a consequence of the
Contractor’s failure to comply with PMC200 (Claim 3), and in
addition thereto, amounts claimed for overtime (Claim 4) as
well as
preliminary and general items (Claim 6) and interest relating to the
cost disallowed pursuant to PMC200.The adjudicator
found in favour of
Sasol. Dissatisfied with the outcome of the adjudicator’s
decision, the Contractor referred the dispute
for arbitration.
The arbitrator found in favour of the Contractor
and ordered Sasol to pay. Sasol failed to adhere to the award and the
Contractor
launched the enforcement application. Sasol, in turn, then
issued review proceedings.
[5]
The arbitrator in coming to his award
inter
alia
considered and determined the
validity of PMC200. He found that PMC200 was not an instruction in
accordance with the contract and
concluded that it was not possible
to comply with PMC200. Sasol contends that the arbitrator was not
entitled to consider the validity
of PMC200 as the Contractor never
informed or referred a dispute in relation to PMC200 for
adjudication. The arbitrator therefore
did not have jurisdiction to
consider the validity of PMC200 and exceeded his powers. The
Contractor on the other hand contends
that the jurisdiction of the
arbitrator to consider the validity of PMC 200 was never disputed.
Sasol instead pleaded, for the
first time, a “time bar defence”
in the arbitration which necessitated a prior consideration by the
arbitrator whether
PMC200 was valid. The Contractor further submits
that the
pleadings in the adjudication and
arbitration proceedings in any event broadened the scope of the
dispute and permitted the arbitrator
to determine whether PMC 200 was
a valid instruction.
THE
CONTRACT AND PMC 200
[6]
On 1 March 2017, the PM issued PMC200 to the Contractor. As stated
earlier, PMC200 concerned the reduction of resources engaged
on the
project. It stated as follows:
“
Project
Manager’s Communication.
The Contractor is to
refer to the attached revised manpower plan for immediate
implementation. Should the Contractor be in disagreement
with any of
the planned demobilisations or work hours, the Contractor is to
formally communicate the recommendation with motivations
for the
Project Manager’s consideration. The Contractor may use its own
discretion on which persons to keep in approved positions
per
period…..
Resources not
reflected in the manpower plan for a particular period, will not be
paid for that period. The Contractor is to also
take note of the work
hours listed per approved position……..
If the Contractor
fails to remove the abovementioned resources as requested by the
Project Manager, the Project Manager will disallow
costs of these
resources in terms of clause 11.2(25).”
(C
lause
11.2(25) provides,
inter alia,
for the disallowance of costs by the PM of the resources “
not
used to Provide the Works or not taken away from the Working Area on
the PM’s request”)
[7]
The Contractor responded and further communications from the PM
followed on 6 April 2017 and 12 April 2017 on the demobilisations
in
response to the Contractor’s inputs. In the PM’s
communication of 6 April 2017 the PM advised the Contractor that
he
had considered the Contractor’s feedback and had incorporated
some of the Contractor’s requests. He also informed
the
Contractor that if it decides not to demobilise resources as
requested, the PM will disallow the costs of these resources in
terms
of clause 11.2.25.
[8]
On 19 April 2017, the Project Manager issued an early warning
notification to the Contractor. It recorded as follows:
“
The
Project Manager is aware of the Contractors decision to retain
resources which the Project Manager has requested to be demolished
as
per demobilisation plan issued under 638-IMT-MRPE-PMC-200. The
Employer reiterates that costs of resources which the Contractor
has
decided to demobilise as the Project Manager requested, will be
disallowed for payment in terms of Clause 11.2(25), as resources
were
not taken away from the working areas when the Project Manager
requested.
The Contractor is
reminded that should he be in disagreement with any of the planned
demobilisation or work hours, the Contractor
is to formally
communicate the recommendation with motivations for the Project
Manager’s consideration”.
[9]
In response to the early warning notification, the Contractor issued
a formal communication to the PM on 20 April 2017, wherein,
after
raising a number of misgivings about the content of PMC200 stated the
following:
“
With
reference to the Project manager’s correspondence re: 200,
dated 1 March 2017, and early warning, dated 19 April 2017,
the
Contractor herewith notified the Project Manager as follows:
The Contractor is not
in agreement with the Project Manager’s planned demobilizations
and work hours as the planned demobilisations
and work hours will
considerably affect the agreed Key dates, Completion Date and
Contractor’s ability to execute the works.
The Contractor
proposes that all resources remain as previously approved by the
Project Manager prior to the issuing of Project
Manager’
Communication number 200.
However,
the Contractor will obey the Project Manager’s instruction in
terms of Core Clause 27.3, as given in the above reference
Project
Manager’s correspondence [PMC200], and continue with the
instructed demobilisations and work hours. The Project Manager
is to
note that this will increase the total of the Prices, delay
Completion and delay meeting Key Date.…” (
Core
Clause 27.3 states that the contractor obeys an instruction which is
in accordance with this contract and is given to him by
the PM or the
Supervisor).
[10]
It is common cause that the Contractor did not reduce demobilisations
and work hours and that Sasol continued to sign off on
timesheets
which included the resources requested to be removed. It is further
common cause that none of the parties notified or
referred a dispute
in relation to PMC 200 for adjudication. It was only when the PM
disallowed certain costs in relation to payment
certificates 28 and
29 that the Contractor notified and referred a dispute to the
adjudicator.
[11]
The contract provides that in the event of a dispute arising in
connection with an action or inaction of the PM or supervisor
it must
be referred to and decided by an adjudicator. The dispute resolution
procedure takes place within strict timeframes. The
Contractor must
refer the dispute to the adjudicator between two and four weeks after
the Contractor notified the employer and
the PM of the dispute. If
the dispute matter is not notified and referred within the times set
out in the contract, neither party
may subsequently refer it to the
adjudicator or tribunal. Sasol contends that PMC 200 constituted an
“action” by the
PM and because the Contractor did not
notify and referred PMC 200 to the adjudicator, the “action”
of the PM became
final and is no longer susceptible to challenge.
[12]
The contract further provides that the arbitrator has no power to
consider a dispute as the dispute resolution of first instance
and a
“
party does not refer any dispute under or connection with
this contract to the tribunal unless it has first been referred to
the
adjudicator in accordance with this contract”.
Sasol
contends that the effect of this provision is that it therefore did
not fall within the arbitrator’s powers to determine
a dispute
of which timeous notice had not been given and which had not been
referred to the adjudicator.
THE
PLEADINGS
[13]
The dispute notified and referred by the Contractor for adjudication
is the PM’s Payment Assessment no 27 and 28, in
its entirety.
The dispute was further defined in the pleadings exchanged between
the parties. In the “
Contractor’s Referral of a
Dispute
” the Contractor set out the material facts of the
dispute. In paragraph 43.2.1 and 44.2.1 the following was stated:
“
43.2.1.The
Project Manager’s deduction was for resources allegedly not
taken away from the Working areas when the Project
Manager
requested-Including overtime worked. (See Annexure L -
Project
Manager’s Communication No: 200).
44.2.1. The referenced
request by the Project Manager to remove resources from site was
dated 1 March 2017. However the Project
Manager disregarded its own
instructions to the Contractor for the execution of works, which also
constituted changes to the Works
Information as follows:
44.2.1.1 Project
Manager’s Instruction no 316 and 338 dating from 9 March to 28
June 2017…..
44.2.1.2 Site
Instructions issued……
44.2.2 The above
mentioned changes to the Works Information could not have been
completed with the remaining resources (and/or the
resources sought
to be removed by the Project Manager). By issuing the instruction,
the Project Manager represented to the Contractor
that it was
requires to employ (and/or keep in employ) resources to execute such
works and that it would be paid for such works
in accordance with the
contract. The Contractor acted upon such instructions and kept the
resources in its employment for the execution
of such works for the
benefit of the Employer.
44.2.3 The Employer
and/or Project Manager approved the resources, which he previously
requested to be removed, utilised to complete
the work by signing off
the timesheets as per the Works Information Item…..
44.2.4 It is to be
noted that all hours worked (including overtime) has been approved by
signing off the timesheets as stipulated,
no other method was
utilised or procedure specified in the conditions of contract.
44.2.5 The Parties
agreed that any and all changes to the Works information will be
assessed and paid based on actual hours worked,
verified and agreed
on the timesheets signed by the Contractor and the Employer’s
Construction Management….”
[14]
It is clear from the above that the Contractor raised at least five
factual disputes in relation to PMC200: (1) The PM disregarded
PMC200; (2) This constituted changes to the Works Information; (3)
PMC200 was impossible to comply with; (4) The PM or Employer
approved
the resources by signing off on the timesheets; and (5) The parties
agreed that the Contractor would be paid based on
actual hours
worked.
[15]
Sasol responded by relying on PMC200 as an instruction in the
following manner:
“
9.3
On the 1
st
of March 2017 the Project Manager issued an instruction to the
Contractor under Project Manager’s Communication 200…..
These instructions were issued to the Contractor to instruct him to
immediately implement the revised resource plans.
9.7 The Contractor did
not comply with the various requests from the Project Manager and
accordingly in terms of Clause 11.25 the
Defined Costs of the
resources not taken away and non-compliance with the resource plan
are disallowed costs.
9.8 The Employer
accordingly submits that the Project Manager was correct in
disallowing the costs as the contractor did not comply
with the
request of the Project Manager.”
[16]
On a fair reading of the referral and responses of the parties the
dispute referred to the adjudicator was the disallowance
of certain
costs as a result of
inter alia
PMC200. Although the validity
of PMC200 was clearly raised and disputed by the Contractor, Sasol
did not raise any jurisdictional
point or time bar defence in
relation to PMC 200. (Sasol did however raise these issues in
relation to the disallowance of historical
costs. See for example
“
Employer’s Response”
paragraph 14.5 –
14.14). In the “
Employer’s response to the
Contractor’s responding submission relating to the Project
Manager’s Certificates no.27
and No.28
,” Sasol in
fact stated that the underlying cause of the dispute does not relate
to calculations, but “
whether or not the calculations were
based on a correct interpretation of the Contract”
and “
if
the Adjudicator finds that the Contractual provisions as pleaded by
the Employer entitled the Project Manager to make the deductions
as
it did, then the calculations would be a non-issue as the
calculations were based on the Project Manager’s exercising
its
rights under the contract”.
[17]
In terms of the contract the adjudicator may review any action or
inaction of the PM related to the dispute. In its decision
the
adjudicator therefore made reference to various documents, amongst
others PMC200. After considering the documents he then found
that he
agreed “
with the Employer’s interpretation of the
documents”
and found in favour of Sasol.
[18]
There is, therefore, no doubt that the validity of PMC200 was raised
and considered in the adjudication proceedings.
[19]
The Contractor’s claim, relating to the amount disallowed by
the PM in giving effect to PMC200, featured in the arbitration
as
Claim 3. The Contractor, in its statement of claim, contended that
Sasol was not entitled to make the deductions, alternatively,
that
the deductions were made contrary to the terms of the contract
governing the relationship between the parties. The Contractor
further dealt extensively with the validity of PMC 200 in the
statement of claim. Sasol, in the statement of defence, did not
object to the Contractor disputing the validity of PMC200, but
challenged the Contractor’s claim 3
inter alia
on the
basis that the Contractor had been time barred from disputing PMC200
by virtue of its failure to notify and/or refer a dispute
relating
thereto within the strict timeframes prescribed by the dispute
resolution process of the contract.
[20]
The arbitrator rejected this point and held that the question before
him and the adjudicator was whether the Employer could
rely on
PMC200. He concluded that he therefore had jurisdiction to consider
the issue. He found that PMC200 was not an instruction
in accordance
with the contract and that it was not enforceable. In dealing with
Claim 3 the arbitrator said the following:
“
Claim
3:
PMC200,
according to its name and number, is a PM communication and not a PMI
(a PM instruction). However, the parties dealt with
it as an
instruction to demobilise-all equipment had to be removed from site
as well as certain resources as per category.
The
Contractor did not comply because it was not feasible to do so. For
example, one cannot remove a crane which is required to
lift pipes
for several meters and one cannot dig a hole without civils. The
undisputed evidence was that it was not possible to
comply with the
instruction. It is not necessary to deal with the evidence in this
regard save to remark that the Employer did
not present any evidence
vindicating the content of PMC200.
Claim 3 relates to the
resources properly utilised despite PMC200. The PM decided to
disallow them, relying on core clause 12(25)
quoted above, more
particularly the seventh bullet point:
“
Disallowed
cost is cost of resources not taken away from the Working Areas when
the Project Manager requested”
Request by the PM must
be requests in terms of the contract and not request to satisfy a
whim or convenience or wish of the PM or
the Employer. Such a
“request” must, in the context of the contract, be by way
of an instruction, and an instruction
must be one in accordance with
the contract:
27.3
The Contractor obeys an instruction which is in accordance with this
contract and is given to him by the Project manager or
the
Supervisor.
The Employer justified
the instruction with reference to core clause 24.2:
………
.
Counsel’s
fall-back position, if I understood him, was that an instruction was
an instruction and had to be obeyed. This he
said, was an instruction
to demobilise and had to be complied with. That again raises the
question whether an instruction to demobilise
is an instruction in
accordance with the contract.
WI 3.3.4 prescribes
the procedure that must be followed to demobilisation:
3.3.4 Demobilisation
During
the latter stages of accomplishing the works, and prior to delivering
notice of Completion of the works, The Contractor submits
its plans
for demobilization from jobsite to the Project manager for approval
and complied with such demobilization plan as approved
by the Project
manager.
The
PM is not entitled to circumvent this provision by means of an
instruction because such an instruction would not be in accordance
with the contract.
Finally,
on this claim, it was submitted that the Contractor had failed to
declare a dispute under PMC200 in good time and that
the adjudication
and this review were consequently time barred and that I do not have
jurisdiction to consider the claim. During
argument, counsel for the
Employer conceded that the point had no merit, but it was raised
again in a written submission filed
after conclusion of the
proceedings. I therefore deal with it. The argument is based on a
misconception of the nature of the dispute.
The Contractor raised its
dispute in relation to the two mentioned payment advices. Its case
was that it had done the work and
supplied the equipment and that the
Employer accepted it all by signing of the time sheets. The employer
sought to justify the
deductions with reference to PMC200,
and
the question before me and the adjudicator was consequently whether
the Employer could rely on PMC200. I therefore conclude
that I do
have jurisdiction to consider the issue”
(Emphasis
added).
EVALUATION
[21]
Sasol submits that having not previously validly disputed PMC200 or
referring it to the adjudicator, that instruction was no
longer a
matter in dispute between the parties and was not open for
consideration or determination by the arbitrator. It is submitted
that the arbitrator had to accept PMC200 as fact and considered, not
its lawfulness and correctness, but only its effect on the
Contractor’s entitlement to payment. The arbitrator’s
findings and his award in respect of Claim 3, and Claim 4 and
Claim 6
(to the extent that they are affected by the award in respect of
Claim 3), should therefore be reviewed and set aside in
terms of
section 33 (1)(b) of the Arbitration Act
[1]
[22]
The Contractor submits that PMC200, which is expressly labelled as a
demobilisation plan with an invitation to engage with
Sasol if the
Contractor disagreed with it, did not constitute an instruction and
Sasol’s own conduct affronts any notion
that the Contractor
became bound to it. It is contended that when the Contractor referred
the dispute for adjudication it was not
common cause that PMC200
constituted an instruction. PMC200 was a communication labelled
‘Manpower Plan’ which the
PM invited the Contractor to
communicate its disagreement and recommendations to the PM for
consideration. The PM nonetheless relied
on it for the first time in
making the deductions.
[23]
Evidence was led during the arbitration proceedings about the
validity of PMC200 and whether it was an instruction or not.
Counsel
for Sasol cross-examined the witness who testified on behalf of the
Contractor who maintained that it was not an instruction.
No
objection was made to the evidence led. The procedure applicable to
the arbitration is set out in the Rules for the conduct
of
Arbitrations
[2]
. Rule 12.2
states that “
A
party to the reference wishing to challenge the jurisdiction of the
arbitrator or who avers that the arbitrator is exceeding his
jurisdiction shall raise the jurisdictional issue at the first
available opportunity, failing which he shall be deemed to have
consented to the arbitrator’s jurisdiction.
”
The jurisdictional point was only raised during argument and counsel
appearing on behalf of Sasol conceded that the point
had no merit.
The arbitrator however dealt with it and found that he had
jurisdiction to deal with the validity of PMC200.
[24]
But, although PMC200 featured during the proceedings it was always
the case of the Contractor that PMC200 was irrelevant due,
to
inter
alia,
the contractual nature of the
timesheets signed off daily by Sasol in line with the various
instructions by Sasol’s representatives
that directly
contradicted PMC200. The arbitrator considered the evidence and made
a factual finding. He found that the signed
off timesheets were
binding between the parties in light of the intricate involvement of
representatives for both parties on site
during the so-called
‘demobilization period’. This was when representatives of
both parties realised the obvious unworkability
and unfeasibility of
PMC200. Sasol approved the timesheets on a daily basis in line with
the undertaking given by the Project manager
on 3 March 2017 (two
days after the issuing of PMC200) that the demobilisation plan would
be reviewed on a daily basis. The correctness
of the arbitrator’s
finding that PMC200 is invalid is therefore irrelevant as the
liability for claim 3 (that Sasol seeks
to review) is not dependent
on whether the arbitrator had such jurisdiction or not. Over and
above the validity of PMC200, the
arbitrator found that Sasol
approved and signed off the claimed resources in the timesheets and
that cl 11.2(25) (relied upon for
the deduction in claim 3) was not
“
in accordance with the contract
”.
This finding in itself automatically renders all deductions made by
the PM unjustified.
[25]
In any event, the question whether the contractor had to dispute
PMC200 in time only arises once Sasol proved that PMC200 constituted
a valid
instruction in terms of the
contract. The invalidity of PMC200 (as the basis for deductions) had
been raised expressly as an issue
in the adjudication papers and thus
found its way into the arbitration papers as a dispute, hence the
repeated reference to PMC200
in the adjudicator’s decision. It
is trite that any dispute that is raised as a defence to a claim
becomes part of the arbitrator’s
jurisdiction. It is clear from
a proper reading of the pleadings as well as the evidence and
arguments presented that, in order
to determine the dispute, the
adjudicator and the arbitrator had to consider whether PMC200 was an
instruction and if it was a
valid instruction in accordance with the
contract. The arbitrator therefore did not exceed his powers in
determining the validity
of PMC200.
[26]
In the result the following order is made:
1.
The application for the partial review of
the arbitrator’s award is dismissed with costs.
2.
The enforcement application is granted with
costs;
2.1
The award of the arbitrator dated 9 October
2018 is made an order of court in terms of
Section 31(1)
of the
Arbitration Act 42 of 1965
.
3.
The costs include the costs of senior
counsel.
L.
WINDELL
JUDGE
OF THE HIGH COURT
GAUTENG
LOCAL DIVISION, JOHANNESBURG
APPEARANCES
Applicant’s
Attorneys:
Cliffe Dekker Hofmeyer
Counsel
for Applicant:
Adv. PHJ Van Vuuren SC and Adv HM Viljoen
Respondent’s
Attorneys:
Tiefenthaler
Attorneys
Counsel
for Respondent:
Adv. LJ van Tonder SC
Date
of hearing:
10 September 2019
Date
of judgment:
14 January 2020
[1]
Act
42 of 1965.
[2]
The
Association of Arbitrators (Southern Africa), Sixth Edition.