Over the last decade, numerous novel arguments have been raised to limit the common law position that an adjudicator’s decision is enforceable pending an arbitral decision. The recent judgement of Rodpaul, which used the defence of public policy, confirmed the South African courts approach that it will not easily be persuaded to alter this established common law position (other than perhaps on the very narrow grounds found in English law). Our courts were previously asked to deal with this issue and they have opted not to develop the common law when it comes to standard form contracts.    

In Rodpaul Construction v MEC, the adjudicator in this matter directed the KZN: Department of Public Works, the employer, to make payment to its contractor.  The Employer’s defence was that the Contractor would not be able to repay the amounts if an arbitrator overturned the decision. That would mean a risk that state funds used to pay an adjudication award may not be recovered and that such a risk would render the enforcement of the adjudication award against public policy. against public policy  

On the facts, the Court found the NEC3 terms are not contrary to public policy. The contract was concluded freely and voluntarily. It was concluded at the request of the Employer, who was free to negotiate the terms and amend the standard form terms before it went out to market. 

The Department of Health envisaged using public funds to comply with its payment obligations under the contract and that included any dispute that obliged it to pay the Contractor. If the Department wanted to stay the enforcement of the adjudication award pending the outcome of the arbitration, it could have but chose not to amend the standard form to do so.  

Public policy, for the Court, in fact, dictated that the  NEC3 terms  must followed.

In our experience, we often find that parties commit to the NEC3 without truly adopting the spirit of mutual trust and collaboration. This ends up in project delays and cost overruns into billions of rands. 

Public policy arguments are not new. Courts often deal  with the balance between freedom to contract and public policy. Terms must be enforceable and should not offend public policy – this is no different for the NEC3 Contract.

This is another lesson learned for parties agreeing to the NEC3. 

At LnP Beyond Legal we say that it is imperative to ensure that business and policy objectives are adequately addressed before you issue your RFP. The only way to cater for this risk is to take a proper multi-disciplinary advice at the initiation stage of the project life cycle, or simply use an agreement that is fit for your project. This will save time and costs of running disputes which impact on the progress of the project, that could have been alleviated with proper transaction support early on.