Brief Summary

Arbitration — Enforcement of arbitral award — Application to make arbitration award an order of court — Respondent does not challenge validity of award but claims amount due extinguished by subsequent adjudication decision — Court finds arbitration award final and binding, unimpeachable and unassailable — Respondent's claims regarding set-off and payment in final account do not preclude enforcement of award — Court grants application to make award an order of court and orders payment of specified amounts.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an opposed motion application in the Gauteng Division, Johannesburg, in which Seventy-Five on Maude (Pty) Limited sought an order in terms of section 31 of the Arbitration Act 42 of 1965 making an arbitration award an order of court. The respondent, Aveng Africa (Pty) Limited t/a Aveng Grinaker-LTA, did not challenge the validity of the arbitration award but resisted the application on the basis that subsequent contractual payment mechanisms and an adjudication decision meant that the award debt was allegedly no longer due and payable.

The procedural history relevant to the court’s decision was that the parties’ construction contract contained a tiered dispute-resolution regime (adjudication followed by arbitration). An earlier adjudication had led to payment that was later reversed by an arbitration award issued by retired Judge TD Cloete (published 29 March 2022 and amended and signed on 5 May 2022). After the arbitration award, a further adjudication decision concerning an interim payment certificate (IPC50), issued by Adv Trisk SC on 24 June 2022, produced a materially different payment position between the parties and became central to the respondent’s opposition.

The dispute concerned the intersection between (i) the enforceability of a final arbitration award and (ii) the contractual effect of an adjudicator’s decision and a corrected interim payment certificate under a JBCC building contract, including the respondent’s reliance on set-off and the contention that the award should be accommodated in the final account process rather than enforced through court.

2. Material Facts

On 1 December 2015, the applicant (as employer) and the respondent (as contractor) concluded a written construction contract for the development known as the Leonardo in Sandton. The contract was the JBCC Edition 6.1 Standard Form Agreement, as amended, and provided for payment through Interim Payment Certificates (IPCs) issued periodically by the principal agent, culminating in a final payment certificate.

The contract also provided a dispute-resolution process for IPC disputes, requiring referral to adjudication and thereafter (as a final stage) to arbitration. In one such arbitration, retired Judge TD Cloete issued an award directing the respondent to repay to the applicant R23 642 336.13 (the “R23 million”), being an amount which, on the arbitrator’s findings, had been incorrectly ordered in a preceding adjudication to be paid to the respondent and had in fact been paid to the respondent. The respondent accepted the validity of this arbitration award and accepted liability in terms of it, with the opposition directed not to validity but to enforceability in the light of subsequent events.

The agreement between the parties was terminated on 6 January 2020. The parties were in dispute as to whether termination occurred at the instance of the applicant or the respondent, and that broader termination dispute (and related disputes) had been referred to arbitration before retired Justice Southwood. The court treated the termination dispute as disputed but did not decide it, as it was not determinative for the present application.

After termination, and on 15 December 2021, the applicant claimed damages allegedly suffered due to termination and instructed the principal agent to make provision for recovery of those damages in a recovery statement accompanying an IPC. The principal agent issued IPC50 on 28 December 2021. IPC50 then became the subject of adjudication before Adv Trisk SC, whose decision on 24 June 2022 corrected IPC50. The corrected IPC50 reflected that approximately R417 257 758.01 was payable by the applicant to the respondent. When the corrected IPC50 was reconciled with unpaid earlier IPCs (IPCs 47 to 49), the adjudicator recorded a net amount of R81 429 911.93 payable by the applicant to the respondent.

The applicant disputed Adv Trisk SC’s adjudication decision and referred it to arbitration before Adv Eloff SC. There was also an application issued out of the High Court to enforce Adv Trisk SC’s adjudication decision. The respondent’s factual contention in the present matter was that the corrected IPC50 (and the adjudicator’s decision underpinning it) effectively accounted for, and thereby neutralised, the R23 million award; alternatively, that the parties’ mutual indebtedness resulted in set-off, extinguishing the respondent’s obligation under the award; alternatively, that the R23 million should be dealt with in the final account and final payment certificate process.

3. Legal Issues

The central legal questions were whether the respondent’s reliance on (i) a subsequent adjudication decision and corrected interim payment certificate, (ii) set-off between alleged mutual debts, and (iii) the final account/final payment certificate process, constituted valid grounds to resist an application under section 31 of the Arbitration Act 42 of 1965 to make a valid arbitration award an order of court.

The dispute primarily concerned the application of law to largely common-cause facts, together with an evaluative question about the proper relationship between a final arbitration award and a contractually binding but non-final adjudication determination pending arbitration. To the extent that set-off was invoked, the dispute also required the court to consider whether (and in what way) the doctrine of set-off could operate as a bar to the procedural relief of having an arbitration award made a court order.

4. Court’s Reasoning

The court approached the matter from the premise that the arbitration award was valid, binding, and unchallenged. It considered that, in the ordinary course, an application to make such an award an order of court should be granted once the statutory requirements are met. The respondent’s opposition did not attack the award’s validity; instead, it argued that the award debt was no longer due because the subsequent adjudication-corrected IPC50 created an opposite payment obligation, and that this situation either superseded the award, extinguished it by set-off, or required postponement to the final account stage.

In addressing the adjudication component of the respondent’s case, the court accepted that the contractual provisions relied upon by the respondent—particularly clauses requiring payment of amounts certified in an issued payment certificate and requiring adjudicator determinations to be immediately binding and implemented—indicated a clear intention that adjudication outcomes should be complied with promptly. Relying on authority cited to it, the court accepted the proposition that an adjudicator’s decision is not final, but the obligation to pay or perform under it is immediately enforceable, even if later susceptible to reversal in arbitration. The court also accepted that courts do not enjoy an appellate power over adjudicators and should only rarely interfere with adjudicators’ decisions.

However, the court drew a critical distinction between the status of the arbitration award and the status of the adjudication decision. It regarded the arbitration award (in the absence of a challenge to validity) as final and enduring, whereas the adjudication decision underpinning the corrected IPC50 was expressly still subject to challenge in pending arbitration. The court reasoned that, because the adjudication decision might be overturned in arbitration, the applicant’s entitlement to rely on the arbitration award could revive in practical terms, whereas the arbitration award itself remained unimpeached and effective. On this basis, the court concluded that no harm would be done by making the arbitration award an order of court, given that it would remain in force indefinitely, while the adjudication position was inherently provisional pending arbitration.

The court then considered the respondent’s reliance on set-off, with reference to the principle articulated by the Supreme Court of Appeal that set-off occurs where two parties owe each other liquidated debts that are payable, in which event one debt extinguishes the other pro tanto as effectually as payment. The court’s reasoning did not treat this doctrine as irrelevant; rather, it held that even if one accepted, for purposes of argument, that the award debt had been extinguished through set-off given the larger amount claimed under corrected IPC50, that did not mean the applicant was thereby disentitled from the procedural relief contemplated by section 31.

The court located the decisive answer in the text and function of section 31 of the Arbitration Act 42 of 1965, which authorises a court of competent jurisdiction, on application, to make an award an order of court. It held that the statutory entitlement to have a valid award made an order of court was not displaced merely because a later adjudicator’s decision (pending arbitration) allegedly produced a contrary payment outcome. The court characterised the respondent’s defences (including reliance on the adjudication outcome and set-off) as potentially relevant to the execution of a court order, including a possible stay of execution, or as grounds for separate relief capable of negating practical enforcement. They were not, on the court’s reasoning, a bar to the making of the award an order of court itself.

A further reason given for granting the application was that the arbitration award included components for interest and costs, which required quantification and were considered by the court to be appropriately underpinned by a court order. This supported the conclusion that the situation was not capable of being resolved merely by “netting off” the award amount against the corrected IPC50 as the respondent suggested.

On costs, the court applied the general rule that costs follow the result, finding no basis to depart from it. The court considered the matter sufficiently complex to justify the costs of two counsel, including senior counsel where employed.

5. Outcome and Relief

The court granted the application and made the arbitration award (published on 29 March 2022 and amended and signed on 5 May 2022) an order of court.

The respondent was ordered to pay the applicant R23 642 336.13, together with VAT at 15% on that amount, and interest at 10.25% from 19 July 2019 to date of payment. The respondent was also ordered to pay the costs of and incidental to the arbitration on the High Court tariff (party and party), including the costs of senior and junior counsel where employed.

The respondent was further ordered to pay the applicant’s costs of the opposed application, including the costs of senior counsel.

Cases Cited

Basil Read (Pty) Ltd v Regent Devco (Pty) Ltd (41109/09) [2010] ZAGPJHC 75 (9 March 2010).

Esor Africa (Pty) Ltd / Franki Africa (Pty) Ltd JV v Bombela Civils JV (Pty) Ltd 2014 JDR 1824 (GJ).

Siltek Holdings (Pty) Ltd (in liquidation) t/a Workgroup v Business Connexion Solutions (Pty) Ltd [2009] 1 All SA 571 (SCA).

Schierhout v Union Government 1926 AD 286.

Myers v Abramson 1951 (3) SA 438 (C) at 455.

Legislation Cited

Arbitration Act 42 of 1965, section 31.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that where an arbitration award is valid, binding, and unchallenged, the statutory requirements of section 31 of the Arbitration Act 42 of 1965 entitle a party to have that award made an order of court. The existence of a later adjudication decision and corrected interim payment certificate—although contractually binding and enforceable on an interim basis and even if capable of giving rise to set-off—did not preclude the court from making the arbitration award an order of court, particularly where the adjudication outcome remained subject to pending arbitration and the award’s interest and costs components required proper enforcement architecture.

LEGAL PRINCIPLES

The judgment applied the principle that, under section 31 of the Arbitration Act 42 of 1965, a court may make an arbitration award an order of court where the award is valid and binding and the procedural requirements for the application have been met. The court treated the arbitration award as final and unimpeachable in the absence of any validity challenge, and therefore capable of being converted into a court order notwithstanding later contractual developments.

The judgment applied and accepted the contractual and jurisprudential principle that an adjudicator’s determination under a construction contract dispute-resolution mechanism is immediately binding and enforceable pending final determination in arbitration, even though it is not final in the sense of being immune from later revision.

The judgment applied the common-law doctrine of set-off (compensatio) as articulated in authority, namely that set-off operates where there are mutual liquidated debts that are due, and that compensation extinguishes obligations pro tanto as effectually as payment. However, the court treated the possibility of set-off, and the interim binding nature of adjudication outcomes, as matters potentially bearing on execution or other ancillary relief rather than as a substantive bar to the grant of relief under section 31 in the circumstances presented.

The judgment further applied the costs principle that costs follow the result, absent good grounds for departure, and recognised that complexity may justify the employment of two counsel, including senior counsel.

Seventy Five on Maude (Pty) Limited v Aveng Africa (Pty) Limited t/a Aveng Grinaker LTA (003754/2022) [2023] ZAGPJHC 564 (26 May 2023)