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[2023] ZAKZPHC 84
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Rodpaul Construction (Pty) Ltd t/a Rods Construction v MEC: KwaZulu-Natal Provincial Department of Public Works (599/2023P) [2023] ZAKZPHC 84 (18 August 2023)
FLYNOTES:
ARBITRATION – Adjudication –
Award
–
Department
resisting making payment – NEC3 contract and engineering
projects – Department contending for “developed”
public policy ground – Contract freely and voluntarily
entered into – Public policy demands that the terms of
the
contract must be honoured – Since arbitration has not been
concluded, granting the relief would offend the general
rule of
discouraging piecemeal litigation – The adjudicator's
determination is made an order of court.
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE
NO: 599/2023P
In
the matter between:
RODPAUL
CONSTRUCTION (PTY) LTD
APPLICANT
T/A
RODS CONSTRUCTION
and
MEC:
KWAZULU-NATAL PROVINCIAL
RESPONDENT
DEPARTMENT
OF PUBLIC WORKS
JUDGMENT
Nicholson
AJ:
Introduction
[1]
The applicant seeks to make an adjudicator's determination dated 30
August 2022 an
order of court, together with ancillary relief,
directing the respondent to make payment of various amounts in terms
of the adjudicator's
determination (for convenience, the
adjudicator's determination will be referred to as 'the adjudicator's
determination' or 'the
Award').
[2]
It is common cause that:
(a)
the parties bound themselves to the terms and conditions in the NEC3
Engineering and Construction
Contract, Option E: Costs Reimbursable
Contract of April 2013 ('the NEC3');
(b)
the parties referred disputes to the adjudicator for determination in
terms of the NEC3;
(c)
the various monies to be paid in terms of the adjudicator's
determination are sought
to be made an order of court;
(d)
the adjudicator's determination has not been set aside by a tribunal;
and
(e)
the adjudicator's determination has not been paid.
[3]
While the respondent advanced other grounds in its answering
affidavit,
[1]
such as the
adjudicator's lack of jurisdiction to entertain the contra charges
and penalties; in its oral argument before me, it
abandoned these
grounds, and in its heads of argument, it abandoned the issue of the
contra charges, and instead relies on two
arguments for resisting
making payment in terms of the Award, which can be summarised as
follows:
(a)
In
considering the wording of clauses W1.3 and W1.4 of the NEC3, the
award is only enforceable, final, and binding, as a contractual
obligation, if neither party notified the other of a dissatisfaction
of an award. Considering that the respondent has notified
the
applicant of its dissatisfaction of the award, and has referred the
award to a tribunal, the award is not enforceable at this
point;
[2]
and
(b)
Considering
that the award has been referred to the tribunal in an attempt to
have it overturned, it fears that the applicant will
not be in a
position to repay the monies already paid by the respondent, should
the tribunal overturn the adjudicator's determination.
This is so
because the applicant is indebted to the respondent in an amount of
R690 346.46 and if the applicant is unable to pay
that debt, it would
unlikely be able to repay the adjudicator's determination, should the
tribunal overturn it.
[3]
[4]
It is instructive that the relevant portions of the NEC3 read as
follows:
'W1.3(10)
The adjudicator's decision is binding on the Parties unless and until
revised by the tribunal and is enforceable as a
matter of contractual
obligation between the Parties and not as an arbitral award. The
Adjudicator's decision is final and binding
if neither Party has
notified the other within the times required by this contract that he
is dissatisfied with a decision of the
Adjudicator and intends to
refer the matter to the tribunal.
.
. .
W1.4(2)
If, after the Adjudicator notifies his decision, a Party is
dissatisfied, he may notify the other Party that he intends
to refer
it to the tribunal. A Party may not refer a dispute to the tribunal
unless this notification is given within four weeks
of notification
of the Adjudicator's decision.'
[4]
[5]
Regarding the second ground, which is argued in the alternative, the
respondent asserts
that should this court be of the view that when
payments are directed in terms of an adjudicator's determination,
payment must
be made, having regard to the circumstances in this
matter, the respondent may nonetheless resist payment pending the
outcome of
the tribunal's findings.
[6]
These circumstances include: the use of public funds, particularly
funds from the
Department of Health that services the most indigent
among us, together with its fear that the applicant may not be able
to repay
the monies in terms of the determination, if the tribunal
overturns the Award. So, argues the respondent, on the grounds of
public
policy, which I am asked to develop the common law to include
'just and equitable' considerations, the respondent may resist
payment.
[7]
It is apposite to mention at this point that the adjudicator's
determination directs
that the various monies be paid by the
applicant to the respondent, with the highest amount therein being R7
747 736.57 excluding
VAT, which is less than one tenth of the amount
owing by the respondent to the applicant. Further, in its replying
affidavit, the
applicant directs that the amount may be set off
against the amounts directed in the determination. It is noted that
while this
is a new legal issue brought up in reply, the respondent
has not rejoined to provide facts why the amount should not be set
off.
In the circumstances, should I find in favour of applicant, I
see no reason why the amount of R690 346.46, should not be set-off
against the award.
[8]
The respondent does not provide any authority for its first
contention, but in support
of its argument on the second ground, the
respondent relies on Murray &
Roberts
v Alstom
,
[5]
where the court held the following:
'[39]
This distinction does not mean that this court is placed in the
position it would be if impossibility of performance was raised
to
resist an award in an arbitration being made an order of court. There
the courts are constrained by the Arbitration Act. I allow
that, in
circumstances where the parties to a contract have agreed to have
their disputes decided by an adjudication that is not
an arbitration,
the courts are not required to make the decision an order of court,
absent some challenge akin to s 33 of the Arbitration
Act. The courts
have an inherent power to regulate their own process and develop the
common law by virtue of s 173 of the Constitution.
One incident of
that power is the competence to decide whether to make an
adjudicator's decision, arising from an agreement, enforceable
by
order of court. The courts' remedial competence is not constrained by
the strictures of the Arbitration Act. It is exercised
upon just and
equitable considerations which take account of the fact that parties
agreed to repose in an adjudicator remedial
decision-making power.
[40]
The considerations relevant to the exercise of this discretion will
be different to the exercise
of discretion when the court is deciding
de nova whether to refuse the specific performance of a party's
obligations.
[41]
Where, as in this case, an adjudicator has decided upon the remedy,
by reason of a competence
the parties to the contract have given him,
the following will be relevant. First, did the adjudicator decide the
dispute now raised
before the court? If not, could the party
contending for impossibility have raised the issue before the
adjudicator, and if so,
did the party do so, and if not, why not?
Second, why should the party contending for impossibility escape its
obligations to be
bound by the outcome of the adjudication, to treat
it as final and give effect to it? Third, what are the consequences
of permitting
a party to escape the enforcement of the decision? In
the standard case, a refusal of specific performance simply requires
the
wronged party to seek damages or some other appropriate remedy.
But in the case where the enforcement of the decision of an
adjudicator
is in issue, it is the adjudicator that has determined
the merits of the case and decided upon a remedy. Here the decision
of the
court is binary: enforce the decision or leave the applicant
without the benefit of the decision. The equities of such an outcome
require careful consideration. Fourth, what are the systemic risks if
agreed procedures for dispute resolution that are intended
to be
quick and avoid disruption to large construction projects,
nevertheless give rise to lengthy litigation before the courts.
Fifth, is there a risk that the impossibility relied upon will
indeed, if an order is made, require what cannot be done and expose
the defaulting party to the risk of contempt proceedings? This is by
no means a closed list.
[69]
Turning to other considerations relevant to the discretion I have to
exercise. there are systemic
matters of some moment. The scheme of
adjudication agreed by the parties is intended to yield an
expeditious resolution of disputes.
This means that a court, while
enjoying a supervisory jurisdiction over the orders it will issue, as
I have recognised, will be
careful not to subvert the very point of
expedited adjudication by the adjudicator. This court should not act
as a court of appeal
to determine the correctness of the decision.
Yet in a number of passages in the answering affidavit, that is
precisely what Alstom
invites me to do. The deponent says that the
adjudicator wrongly found in the decision that Alstom had obligations
to perform that
it now contests. But that is an invitation to
consider the correctness of the decision and not its enforceability,
and it is an
invitation I decline because it would prise open the
merits of the decision which the parties agreed the adjudicator
should determine.
[70]
Furthermore, I am alive to the danger that enforcement proceedings
should not become a means
to use the courts to delay the
implementation of a decision, given the scheme of adjudication to
which the parties agreed. Consequently,
my discretion should be
exercised so as to avoid depriving a successful party of any benefit
of the decision taken in its favour,
unless there are compelling
reasons to do so.'
[9]
In
Alstom
, the court observed that while there may be occasion
to decline making an award an order of court, or staying compliance
therewith;
it nonetheless directed the offending party to give effect
to the adjudicator's determination. The dictum in Alstom suggests
that
the court appears to favour the view that, while the high court
has inherent jurisdiction to develop the common law to make an
adjudicator's determination an order of court on 'just and equitable
grounds', the courts are not constrained by the
Arbitration Act 42 of
1965
and retain their common law right to exercise a discretion on
whether or not to make the adjudicator's decision an order of court.
[10]
On the other hand, in opposing the argument of the respondent, the
applicant relies on
Ethekwini
Municipality v Cooperativa Muratori & Cementisti-CMC Di Ravenna
Societa Cooperativa
,
[6]
where the SCA held that when parties enter into a contract, there is
always a possibility that a party may not recover its debt,
or part
thereof, in terms of a contract. In the circumstances, considering
public policy, the fear of non payment of a debt
cannot be used
as a ground not to comply with a contract.
[11]
The applicant avers that Alston was overturned by
Cooperativa
Muratori
. I do not agree. While the facts in
Cooperativa
Muratori
appear to be consistent with the facts in the present
matter, different questions were asked and consequently answered. I
hasten
to add, however, that
Cooperativa Muratori
is authority
for the proposition that a fear that a party will not be in a
position to repay an award if such award is overturned
at
arbitration, is not a ground to resist paying the award. In this
matter, the respondent contends that public policy be developed
to
make allowance for the proposition. This question was not decided in
Cooperativa Muratori
.
Discussion
Enforceability
of adjudication awards pending arbitration
[12]
In commenting on adjudications within the NEC3 framework, the court
in
Framatome
v Eskom Holdings SOC Ltd
[7]
stated that:
'It
is plain that the purpose of adjudication was to introduce a speedy
mechanism for settling disputes in construction contracts
on a
provisional interim basis, and requiring the decisions of
adjudicators to be enforced pending the final determination of
disputes by arbitration.'
[13]
In dealing with the considerations applicable to adjudication, the
court in
Freeman
NO and Another v Eskom Holdings Limited
[8]
commented as follows:
'The
adjudicator's decision, therefore, remains binding and enforceable
until revised in the final determination by an arbitrator.
Mr Kemack
referred me to the United Kingdom case of Bouygues (UK) Limited v
Dahl-Jensen (UK) Limited
[2000] BLR 49
[TCC] at 55, para. 35, which
bears out this conclusion. This matter, of the Queen's Bench
Division, Technology and Construction
Court ("TCC"),
concerned a dispute arising from a sub-contract, which provided for
dispute resolution by adjudication
pursuant to the Rules of the CIC
Model Adjudication Procedure (2nd edition) which provided that:
"1.The
object of adjudication is to reach a fair, rapid and inexpensive
decision upon a dispute arising under the contract
and this procedure
shall be interpreted accordingly.
…
4.
The Adjudicator's decision shall be binding until the dispute is
finally determined
by legal proceedings, by arbitration (if the
contract provides for arbitration or the parties otherwise agree to
arbitration) or
by agreement.
5.
The parties shall implement the Adjudicator's decision without delay
whether
or not the dispute is to be referred to legal proceedings or
arbitration.
Having
regard to these Rules, Justice Dyson held as follows:
"the
purpose of the scheme is to provide a speedy mechanism for settling
disputes in construction contracts on a provisional
interim basis,
and requiring the decisions of adjudicators to be enforced pending
final determination of disputes by arbitration,
litigation or
agreement, whether those decisions are wrong in point of law and
fact.
It is inherent in the scheme that injustices will occur,
because from time to time, adjudicators will make mistakes. Sometimes
these
mistakes will be glaringly obvious and disastrous in their
consequences for the losing party. The victims of mistakes will
usually
be able to recoup their losses by subsequent arbitration or
litigation, and possibly even by a subsequent arbitration."
(See also:
C&B Scene Concept Design v Isobars Limited
[2002] SLR (CA) 93 at 98, para. 23)' (Formatting as in the original
judgment, underlining is my emphasis.)
[14]
In
Ekurhuleni
West College v Segal and another
,
[9]
the SCA observed that:
'[19]
In
Wahlhaus and Others v Additional Magistrate, Johannesburg and
Another
1959 (3) SA 113
(A) at 119H-120B, this court held that by
virtue of its inherent power to restrain illegalities in inferior
courts, the high court
may, in a proper case, grant relief by way of
review, interdict or mandamus against the decision of a magistrates'
court given
before conviction. This power, said Ogilvie Thompson JA
for the court, must be sparingly exercised. The court said that it
was
impractical to attempt any precise definition of the ambit of
this power, for each case must depend on its own circumstances. The
court, however, laid down the general rule that the power should be
exercised only "in rare cases where grave injustice might
otherwise result or where justice might not by other means be
attained".
[20]
These principles have been approved and followed on countless
occasions. Their purpose is to
limit piecemeal litigation in the
interests of justice. They are not limited to criminal proceedings.
See Anglo American Corporation of SA Ltd v Sierzputowski
1973
(3) SA 709
(T) at 714C-H and Magistrate, Stutterheim v Mashiya
2004
(5) SA 209
(SCA) paras 13-14. They have been applied to the
proceedings of statutory and non-statutory tribunals. See, for
instance,
Brock v SA Medical and Dental Council
1961 (1) SA
319
(C) at 3248-E and
Laggar v Shell Auto Care (Pty) Ltd and
Another
2001 (2) SA 136
para 14.
In my view, the principles
laid down in Wahlhaus are equally applicable to the present matter.
[21]
Did the College place its case for the review of the adjudicator's
determination within the ambit
of these principles? I think not.
Central to the answer to this question is the nature and purpose of
the adjudication in terms
of the building contract and the rules. It
was designed for the summary and interim resolution of disputes.
Tne
adjudicator was given wide inquisitorial powers to resolve the
disputes as expeditiously and inexpensively as possible. But
the
adjudicator's determination was not exhaustive of the disputes, as it
may be overturned during the final stage of the dispute
resolution
process.
See, in respect of similar provisions,
Radon Projects
(Pty) Ltd v NV Properties (Pty) Ltd and Another
(2013) ZASCA 83
;
2013 (6) SA 345
(SCA) paras 7-9.
(22)
The College agreed to be bound by the adjudicator's determination.
Its remedy was to refer the matter to arbitration. It invoked
that
remedy and could have pursued it expeditiously. In these
circumstances holding the College to its contract would not cause
grave injustice nor irreparable harm.
(23)
It follows that the review application had to fail and the
counter-application for enforcement of the
determination was
correctly allowed... ' (My emphasis.)
[15]
Having regard to the authorities referred to as far as the NEC3 is
concerned, the following principles
may be extrapolated:
(a)
Adjudication and arbitration is part of the same dispute resolution
process.
(b)
The general
rule of discouraging 'piecemeal litigation', save in 'rare cases
where grave injustice might otherwise result or where
justice might
not by other means be attained',
[10]
is applicable to the dispute resolution process under the NEC3.
(c)
The dispute resolution process provides for a speedy mechanism for
settling
disputes in construction contracts on a provisional and
interim basis, and requires the decisions of adjudicators to be
enforced
pending the final determination of disputes by arbitration.
(d)
An adjudication determination is binding and enforceable pending
arbitration.
(e)
A high court may be approached to declare an adjudication
determination
an order of court and/or to enforce the award.
(f)
In enforcing the determination, a court should not act as a court of
appeal to
determine
the correctness of the determination.
(g)
Good prospects of success at arbitration is not a defence against
payment of an adjudication determination, as the relief of
a
dissatisfied party lies in expeditiously prosecuting an arbitration.
[16]
The NEC3 is a contract widely used within engineering projects. These
projects are usually characterised
by very tight deadlines and
progression payments in order to ensure cashflow to contractors for
operating costs, which are regulated
by the NEC3. Due to the tight
deadlines, it is not feasible to stall the project while attempting
to resolve disputes regarding,
inter alia, progression payments.
Accordingly, dispute resolution mechanisms with rigid timeframes are
incorporated in the contract.
Adjudication is one such mechanism.
[17]
Having regard to the authorities in the preceding paragraphs, it is
apparent that it is settled
law, notwithstanding the wording of
clause W1.3 and W1.4 of the NEC3, and a referral to a tribunal by any
party, that an adjudicator's
determination must be actioned.
Accordingly, the respondent's contention that, on the interpretation
of those clauses, the adjudication
determination is not enforceable
because of the referral to a tribunal, is not sustainable.
Public
policy and sanctity of contracts
[18]
I now turn to consider the issue of public policy, where on the one
hand, the respondent contends
that public policy must be developed to
incorporate just and equitable considerations, and on the other hand,
the applicant contends
that public policy favours the implementation
of the award. A convenient starting point in considering public
policy, is the understanding
of the principle of sanctity of
contract.
[11]
[19]
In
Beadica
231 CC and others v Trustees, Oregon Trust and others
,
[12]
the Constitutional Court observed:
'[83]
The first is the principle that '(p)ublic policy demands that
contracts freely and consciously entered into must be honoured'.
This
court has emphasised that the principle of pacta sunt servanda gives
effect to the "central constitutionalvalues of freedom
and
dignity". It has further recognised that in general public
policy requires that contracting parties honour obligations
that have
been freely and voluntarily undertaken. Pacta sunt servanda is thus
not a relic of our pre-constitutional common law.
It continues to
play a crucial role in the judicial control of contracts through the
instrument of public policy, as it gives expression
to central
constitutional values.
[84]
Moreover, contractual relations are the bedrock of economic activity
and our economic development
is dependent, to a large extent, on the
willingness of parties to enter into contractual relationships. If
parties are confident
that contracts that they enter into will be
upheld, then they will be incentivised to contract with other parties
for their mutual
gain. Without this confidence, the very motivation
for social coordination is diminished. It is indeed crucial to
economic development
that individuals should be able to trust that
all contracting parties will be bound by obligations willingly
assumed.
[85]
The fulfilment of many of the rights promises made by our
Constitution depends on sound and continued
economic development of
our country. Certainty in contractual relations fosters a fertile
environment for the advancement of constitutional
rights. The
protection of the sanctity of contracts is thus essential to the
achievement of the constitutional vision of our society.
Indeed, our
constitutional project will be imperilled if courts denude the
principle of
pacta sunt servanda
.
[86]
However, the pre-constitutional privileging of
pacta sunt servanda
is not appropriate under a constitutional approach to judicial
control of enforcement of contracts. Prior to our constitutional
era,
in
Wells
, the Appellate Division cited an English authority to
the effect that
-
"(i)f
there is one thing, which more than another, public policy requires,
it is that [individuals] of full age and competent
understanding
shall have the utmost liberty of contracting, and that their
contracts, when entered into freely and voluntarily,
shall be held
sacred and enforced by courts".
[87]
In our new constitutional era,
pacta sunt servanda
is not the
only, nor the most important principle informing the judicial control
of contracts. The requirements of public policy
are informed by a
wide range of constitutional values. There is no basis for
privileging
pacta sunt servanda
over other constitutional
rights and values. Where a number of constitutional rights and values
are implicated, a careful balancing
exercise is required to determine
whether enforcement of the contractual terms would be contrary to
public policy in the circumstances.'
(Footnotes
omitted.)
[20]
The principle of sanctity of contract thus incorporates the following
principles:
(a)
Public policy demands that contracts must be entered into freely and
voluntarily,
and must be honoured.
(b)
Certainty in contractual relations creates
a fertile environment for the advancement of
constitutional rights because it is important to economic
development
that parties trust that the person with whom they are contracting,
will voluntarily honour the contract.
(c)
Sanctity of contract and freedom to contract go hand in hand because
freedom
of contract means the parties are free to both enter into a
contract, and to decide on the terms of the contract.
(d)
In light of the Constitution, sanctity of contract is neither the
only,
nor the most important principle in the judicial control of
contracts, and need not be ranked above other constitutional rights
and values.
(e)
Pacta Sunt Servanda
continues to play a role in the judicial
control of contracts and is essential for a constitutional democracy.
[21]
In
Mohamed's
Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Pty)
Ltd,
[13]
the SCA summarised the authorities relevant to the balancing of
sanctity of contract with public policy as follows:
'[21]
What must be decided in this case is whether the implementation of
clause 20 is manifestly unreasonable or unfair to the extent
that it
is contrary to public policy. To answer that question the enquiry
must be directed at the objective terms of the agreement,
in the
light of the relative situation of the parties. This, without doubt,
calls for a balancing and weighing up of two considerations,
namely the principle of
pacta sunt servanda
and the
considerations of public policy, including of course constitutional
imperatives.
[22]
Before these arguments are considered, it is necessary to place the
issue in its proper perspective
with regard to the legal principles
governing contractual obligations. This court in
Sasfin (Pty) Ltd
v Beukes
1989 (1) SA 1
(A) ([1988] ZASCA 94) said at 9B:
"The
power to declare contracts contrary to public policy should, however,
be exercised sparingly and only in the clearest
of cases, lest
uncertainty as to the validity of contracts result from an arbitrary
and indiscriminate use of the power. One must
be careful not to
conclude that a contract is contrary to public policy merely because
its terms (or some of them) offend one's
individual sense of
propriety and fairness."
[23]
The privity and sanctity of contract entails that contractual
obligations must be honoured when
the parties have entered into the
contractual agreement freely and voluntarily. The notion of the
privity and sanctity of contracts
goes hand in hand with the freedom
to contract. Taking into considerations the requirements of a valid
contract, freedom to contract
denotes that parties are free to enter
into contracts and decide on the terms of the contract. This court in
Wells v South African Alumenite Company
1927 AD 69
at 73 held
as follows:
"If
there is one thing which, more than another, public policy requires,
it is that men of full age and competent understanding
shall have the
utmost liberty of contracting, and that their contracts, when entered
into freely and voluntarily, shall be held
sacred and enforced by the
courts of justice."
[24]
Parties enter into contractual agreements in order for a certain
result to materialise. The fact
that parties enter into an agreement
gives effect to their constitutional right of freedom to contract,
however, the carrying out
of the obligations in terms of that
contractual agreement relates to the principle of
pacta sunt
servanda
. In
Brisley v Drotsky
2002 (4) SA 1
(SCA)
(2002
(12) BCLR 1229
;
[2002] 3 All SA 363
;
[2002] ZASCA 35)
Cameron JA held
that judges must exercise "perceptive restraint" (para 94)
lest contract law becomes unacceptably uncertain.
Cameron JA noted
that the judicial enforcement of terms, as agreed to, is underpinned
by "weighty considerations of commercial
reliance and social
certainty" (para 90). In the majority judgment in Barkhuizen,
Ngcobo J endorsed Cameron JA's broader conception
of the law of
contract as reflected in Brisley and affirmed that the Constitution
requires parties to honour contractual obligations
that were freely
and voluntarily undertaken. The court further went on to say:
"[70]
While it is necessary to recognise the doctrine of pacta sunt
servanda, courts should be able to decline the enforcement
of ... a
clause if it would result in unfairness or would be unreasonable
"
[25]
In
Bredenkamp and Others v Standard Bank of South Africa Ltd
2010 (4) SA 468
(SCA) Harms DP interpreted Ngcobo J's reference to
public policy importing notions of "fairness, justice and
reasonableness"
as not extending these notions beyond instances
in which public policy considerations found in the Constitution or
elsewhere would
be implicated:
"[47]
This all means that, as I understand the judgment, if a contract is
prima facie contrary to constitutional values questions
of
enforcement would not arise. However, enforcement of a prima facie
innocent contract may implicate an identified constitutional
value.
If the value is unjustifiably affected, the term will not be
enforced.
An
example would be where a lease provides for the right to sublease
with the consent of the landlord. Such a term is prima facie
innocent. Should the landlord attempt to use it to prevent the
property being sublet in circumstances amounting to discrimination
under the equality clause, the term will not be enforced."
Harms
DP went on to say:
"[50]
With all due respect, I do not believe that the judgment held or
purported to hold that the enforcement of a valid contractual
term
must be fair and reasonable even if no public policy consideration
found in the Constitution or elsewhere is implicated. Had
it been
otherwise I do not believe that Ngcobo J would have said this (para
57):
"Self-autonomy,
or the ability to regulate one's own affairs, even to one's own
detriment, is the very essence of freedom and
a vital part of
dignity. The extent to which the contract was freely and voluntarily
concluded is clearly a vital factor as it
will determine the weight
that should be afforded to the values of freedom and dignity. The
other consideration is that all persons
have a right to seek judicial
redress."
[26]
Davis J made a similar point in Mozart Ice Cream Franchises (Pty) Ltd
v Davidoff and Another
2009 (3) SA 78
(C) at 85A, when he held that
"(m)anifestly, without this principle, the law of contract would
be subject to gross uncertainty,
judicial whim and an absence of
integrity between the contracting parties". And in the same vein
Brand JA remarked in F
ourway Haulage SA (Pty) Ltd v SA National
Roads Agency Ltd
[2008] ZASCA 134
;
2009 (2) SA 150
(SCA) ([2009)
1 All SA 525
;
[2008) ZASCA 134) at 158E - F that "(a) legal system in which
the outcome of litigation cannot be predicted with some measure
of
certainty would fail in its purpose".
[27]
In
Barkhuizen
, Ngcobo J said:
"If
it is found that the objective terms [of the contract] are not
inconsistent with public policy on their face, the further
question
will then arise which is whether the terms are contrary to public
policy in the light of the relative situation of the
contracting
parties."
He
goes on to say that where the enforcement of a time-limitation clause
on the basis that non-compliance with it was caused by
factors beyond
his or her control, it is inconceivable that a court would hold the
claimant to such a clause. Ngcobo J considered
the principle of
lex
non cogit ad impossibilia
to be relevant in this regard.
[28]
The following facts are critically relevant in the present case in
applying the judgment of the
Constitutional Court in
Barkhuizen
:
(a) the terms of the contract are not, on their face, inconsistent
with public policy; (b) the relative position of the parties
was one
of bargaining equality; the parties could have negotiated a clause in
terms of which the respondent was given notice to
remedy a breach
before the contract was cancelled; and (c) the performance on time
was not impossible because the respondent could
have diarised well
ahead of time to monitor this important monthly payment and it could
have effected other means of payment such
as an electronic funds
transfer. Against this background, it cannot be against public policy
to apply the principle of
pacta sunt servanda
in this case.
[29]
. . .
[30]
The fact that a term in a contract is unfair or may operate harshly
does not by itself lead to
the conclusion that it offends the values
of the Constitution or is against public policy. In some instances
the constitutional
values of equality and dignity may
prove to be decisive where the issue of the party's relative power is
an issue. There
is no evidence that the respondent's constitutional
rights to dignity and equality were infringed. It was impermissible
for the
high court to develop the common law of contract by infusing
the spirit of ubuntu and good faith so as to invalidate the term or
clause in question.
[31]
...
[32]
The result may well be unpalatable to the respondent. It must
therefore bear the consequences
of its agent's (bank) failure in
paying the October rental on due date. Its defence was clearly to
restrict the lawful reach of
the contract and to limit what can be
regulated by way of a contractual agreement between parties, in
circumstances where the terms
of the contract were clear and
unambiguous. In this case the parties freely and with the requisite
animus contrahendi
agreed to negotiate in good faith and to
conclude further substantive agreements which were renewed over a
period of time. It would
be untenable to relax the
maxim pacta
sunt servanda
in this case because that would be tantamount to
the court then making the agreement for the parties.' (Footnotes
omitted.)
[22]
In considering
Mohamed's Leisure Holdings
, with regard to
public policy, the following principles emerge:
(a)
The power to declare a contract or term of a contract contrary to
public
policy must be exercised sparingly to avoid uncertainty in the
validity of contracts.
(b)
If a term is manifestly unreasonable or unfair, it may be contrary to
public policy.
(c)
It is not for the court to infuse fairness and good faith into
contracts
that are clear and unambiguous and entered into freely and
voluntarily.
(d)
A clause to the detriment of one of the parties or which is unduly
harsh or unfair, is not per se contrary to public policy
because
persons are free to regulate their own affairs.
(e)
To determine if a clause or term is manifestly unreasonable or unfair
to the extent that it vitiates public policy, an objective
assessment
or enquiry into the objective term of the agreement must be
conducted. This is to be done in light of the relevant situation
of
the parties, and public policy, which includes constitutional
principles, and the principle of sanctity of contract are weighed
against each other.
(f)
If a term of a contract is found to be consistent with public policy,
a further question is whether the term is
contrary to public policy
in light of the relevant situation of the contracting party, because
in some instances, the constitutional
values of equality and dignity
may prove to be decisive where the issue of the parties' relative
power is an issue.
[23]
On the facts before me, the NEC3 is not contrary to public policy
because it is either common
cause or not disputed that: (a) the
contract was entered into freely and voluntarily; (b) the contract
was entered into at the
behest of the respondent who, although was
free to negotiate and amend the terms of the contract at the onset,
did not do so; and
(c) it does not impugn a constitutional principle.
Accordingly, public policy demands that the terms of the contract
must be honoured.
[24]
The next question is whether the principle of public policy should be
developed to incorporate
just and equitable considerations, which
will allow the respondent, who is a government department, to resist
paying over public
funds as directed in terms of the Award.
[25]
As already mentioned, Alston is authority for the view that in very
limited deserving cases,
an adjudication determination may be stayed,
pending the outcome of the arbitration
. Cooperativa Muratori
is authority for the proposition that the possible inability to repay
all or part of an award if such award is overturned at arbitration,
is not a ground to resist paying the award.
[26]
In agreeing to the terms in the NEC3, the applicant and the
respondent freely and voluntarily
agreed to a clause, which provided
that in the event of any disputes, they would be resolved by way of
an expeditious dispute resolution
process, which includes both
adjudication and arbitration. After concluding the contract, when the
clause operated to its disadvantage,
the respondent asserts that on a
'developed' public policy ground, the court should allow the
respondent to withhold payment in
terms of the Award.
[27]
The respondent has not made out a case that there was a change in the
manner in which the respondent
intended to service the contract prior
to contracting up until adjudication. Put differently, prior to
contracting, the respondent
would have serviced the contract with
public funds and that position has not changed. Yet, the respondent
did not see it necessary
to incorporate a clause in the contract that
stated, 'an arbitration determination is stayed pending the outcome
of the arbitration',
which would have protected public funds and
resolved this matter. The respondent now seeks that this be the
effect of the dispute
clause. In the premise, the facts do not
support the development of public policy to include the grounds
argued by respondent,
because should I allow the respondent to resist
payment on these grounds, it would be tantamount to ordering the
amendment of the
contract without the applicant's consent.
[28]
As has already been determined, a clause to the detriment of one of
the parties or which is unduly
harsh or unfair, is not per se
contrary to public policy because persons are free to regulate their
own affairs. Furthermore, since
arbitration has not been concluded,
granting the relief would offend the general rule of discouraging
'piecemeal litigation'.
Adjudicator's
lack of jurisdiction
[29]
Regarding the respondent's remaining two grounds for resisting the
award, namely, the adjudicator's
lack of jurisdiction to determine
penalties, and the contra charges, I would need to delve into the
merits to consider these. It
has already been established that this
court is not sitting as an appeal court, which was also observed in
Framatome
v Eskom Holdings SOC Ltd
[14]
where it was stated:
'What
Eskom is asking the court to do is to interrogate the merits, an
aspect which falls within the purview of the arbitrator.'
And
in
Raubex/Nodoli
Construction Joint Venture v MEG: Free State Department of Police,
Roads and Transport
,
[15]
the court observed:
'I
was not called upon to review the adjudicator's award and thus
refrain from any comments in respect of the wording of the order
and
the paragraphs relating to interest.'
[30]
In the circumstances, it would appear that the merits of the
respondent's prospects of success
before the tribunal are beyond my
purview and therefore, it would be unusual for me to have regard to
same.
Conclusion
[31]
In the premises, I am not convinced that the respondent has made out
a case to resist making
payment in terms of the adjudicator's
determination.
[32]
Lastly, it is apposite to mention that at various stages of the
prosecution of this matter, various
monies which were sought to be
paid have in fact been paid, and with the respondent consenting to
the amount being set off, this
necessitated a draft order being
presented with a corrected amount being sought. While the draft order
was not by consent, the
amounts herein were agreed too by the
parties.
Costs
[33]
With regard to costs, costs usually follow the result and no reasons
have been advanced why that
should not be the case in this matter.
Order
[34]
I accordingly make the following order:
1.
The adjudicator's determination dated 30 August 2022 is hereby
made
an order of court.
2.
The respondent is directed to certify and pay the applicant
the sum
of R8 219 550.63 within ten working days.
3.
The respondent is directed to pay the applicant the sum of R25
000
within ten working days.
4.
The respondent is directed to pay the applicant interest in
the sum
of R15 980.76 in respect of the interest on payment certificate 12.
5.
The respondent is directed to pay the costs of this application.
NICHOLSON
AJ
Date
heard: 26 July 2023
Judgment
handed down: 18 August 2023
Appearances
For
applicant: Mr Brester
Instructed
by: Cox Yeats Attorneys
c/o
Stowell and Co 295 Pietermaritz Street
Pietermaritzburg
For
respondent: Ms Rasool
Instructed
by: State Attorney, KZN
\Ref:
GJ Campbell/COX/0703/S-B
6th
Floor, Metropolitan Life Building
391
Anton Lembede Street
Durban
Ref:
289/15684/22/R/P9/ncm
[1]
Titled 'opposing affidavit', Vol 4, at pages 317-333.
[2]
Respondent's heads of argument paras 5-8.
[3]
Respondent's heads of argument paras 9-16.
[4]
Volume 2, NEC3 at page 104.
[5]
Murray
& Roberts Ltd v Alstom S&E Africa (Ply) Ltd
2020 (1) SA 204 (GJ).
[6]
Ethekwini
Municipality v Cooperativa Muratori and Cementisti - CMG Di Ravenna
Societa Cooperativa
[2023] ZASCA 95
para 16, read with para 21(e).
[7]
Framatome
v Eskom Holdings SOC Ltd
(2021] ZASCA 132;
2022 (2) SA 395
(SCA) para 23.
[8]
Freeman
NO and Another v Eskom Holdings Limited
[2010] ZAGPJHC 137para 17.
[9]
Ekurhuleni
West College v Segal and another
[2020] ZASCA 32.
[10]
Wahlhaus
and others v Additional Magistrate, Johannesburg and another
1959 (3) SA 113
(A) at 120A-B.
[11]
This principle is also known as pacta sunt servanda, which loosely
translates to ·agreement must be kept'.
[12]
Beadica
231 CC and others v Trustees, Oregon Trust and others
[2020] ZACC 13; 2020 (5) SA 247 (CC).
[13]
Mohamed's
Leisure Holdings (Pty) Ltd v Southern Sun Hotel Interests (Ply) Ltd
[2017] ZASCA 176; 2018 (2) SA 314 (SCA).
[14]
Framatome
v Eskom Holdings SOC Ltd
(2021] ZASCA 132;
2022 (2) SA 395
(SCA) para 23.
[15]
Raubex/Nodoli
Construction Joint Venture v MEG: Free State Department of Police,
Roads and Transport
[2023) ZAFSHC 56 para 11.