Pay now, argue later: The two narrow doors out of an adjudicator’s decision

If an adjudicator of a construction dispute issues a determination in your favour, the other side must pay you now and argue about it later. If you lose, you must do the same. South African courts have enforced adjudicators’ decisions for fifteen years, and a party who resists has only two real arguments: that the adjudicator had no authority to decide the dispute, or that the agreed procedure was not followed. Both options are limited. In practice, no South African court has yet refused to enforce a decision, bar one, and that refusal lost on appeal.

The rule: an adjudicator’s decision binds you at once

Adjudication is a fast, interim step in the dispute resolution process. It is often called “quick and dirty”. The point is to keep cash flowing and work moving while the parties fight the merits out later in arbitration or litigation. The adjudicator’s decision is binding and must be given effect as a matter of contract, unless and until it is revised by an arbitrator or a court. The Supreme Court of Appeal has described adjudication as a mechanism for settling construction disputes on a provisional interim basis, with the decisions enforced pending final determination.

Two consequences follow. First, serving a notice of dissatisfaction preserves your right to go to arbitration, but it does not suspend your duty to comply in the meantime. A losing party who files a notice of dissatisfaction and withholds payment is still in breach. Second, the fact that the adjudicator got the facts or the law wrong is not a defence to enforcement. An error is something to correct in arbitration, not a reason for a court to step in.

That leaves only two grounds on which enforcement can be resisted. Neither is about whether the decision was right.

Ground one: the adjudicator had no jurisdiction
An adjudicator’s authority comes from the referral notice. The adjudicator may decide only the dispute that was properly notified and referred under the contract. If the adjudicator strayed outside that mandate, there is no binding decision to enforce. The test the courts apply is whether the adjudicator confined himself to the issues the parties put before him. If he did, the parties are bound even if he erred; if he did not, the decision is a nullity.

This ground has a few forms:

• Deciding the wrong dispute. The adjudicator answered a question that was not referred or decided a matter the parties never put to him.
• No valid reference. The dispute was never notified, or it was not notified and referred within the time limits the contract sets. Those time bars are jurisdictional.
• Rewriting the contract. The adjudicator purported to vary the terms of the agreement rather than apply them, which is beyond an adjudicator’s power.

There is an important practical limit. A party who wants to rely on jurisdiction must raise the objection during the adjudication, not save it for the enforcement application. In Framatome v Eskom, the employer participated in the adjudication without ever contending that the dispute was outside the adjudicator’s jurisdiction and could not raise the point for the first time when resisting payment. The most recent High Court authority restates the same test: a jurisdiction challenge succeeds only where the adjudicator clearly strayed from the mandate in the referral notice.

Ground two: the agreed procedure was not followed
The second door is procedural fairness. An adjudicator must act impartially and must follow the process the contract lays down. A decision reached through bias, or in breach of the contract’s procedural requirements, is open to challenge.

Here, South African law takes a distinctive turn. Because adjudication in this country is a creature of contract, not of statute as in the United Kingdom, our courts have declined to import free-standing common-law rules of natural justice into the process. A party resisting enforcement on procedural grounds must point to a breach of an express procedural term of the contract. Vague complaints that the process felt unfair will not succeed if the adjudicator did what the contract required. The Supreme Court of Appeal confirmed this in Ekurhuleni West College v Segal. The adjudicator’s powers and procedure are set by the contract, and where the express provisions were followed, there was no room for a natural-justice complaint.

So, the procedural ground, in practice, comes down to two things:

• Partiality. A reasonable apprehension that the adjudicator did not bring an impartial mind to the dispute.
• Breach of the contractual procedure. The adjudicator ignored a step the contract required, for example a right to make representations that the rules expressly provide.

Has a South African court ever refused to enforce? Not really

The grounds exist in principle, but the bar is set so high that no party has met it. The one time a court declined to enforce, the Gauteng High Court held that an adjudicator had answered the wrong question and so exceeded his jurisdiction. The Supreme Court of Appeal reversed that finding and enforced the decision, holding that the adjudicator had in fact decided the dispute referred to him and that isolating a few words from his reasons was the wrong approach.

Every procedural challenge has met the same fate. Attempts to resist enforcement by invoking natural justice have failed because the adjudicator followed the contract. The result is that, to date, no refusal to enforce an adjudicator’s decision has survived appeal in South Africa. The message from the courts is consistent. Adjudication is meant to be quick and provisional, and a party who scrabbles for an argument to avoid paying will not be indulged.

Why it matters, and what to do

If you have won an adjudication:

• Move to enforce without delay. Bring an application on motion. The courts will back you, and a notice of dissatisfaction by the other side is no answer.
• Do not accept partial compliance. A losing party cannot pick which parts of a money decision to honour. Full effect must be given pending arbitration.

If you have lost an adjudication:

• Separate “wrong” from “unenforceable”. Disagreeing with the outcome is not a defence. Your only routes are a genuine lack of jurisdiction or a breach of the contract’s procedure.
• Raise jurisdiction at the adjudication itself. If you think the referral is defective or out of time, say so on the record during the adjudication. Silence now will cost you the point later.
• Pay, then pursue arbitration. If neither narrow ground applies, comply with the decision and take the merits to arbitration, where the account can still be adjusted in your favour.

Adjudication clauses are in every major standard-form construction contract we use in South Africa. Before you sign one, before you engage in the adjudication process, and BEFORE deciding to withhold payment on the strength of an adjudicator’s decision, contact Nikita Lalla or Ricardo Pillay so that your position fits the two narrow grounds the courts actually recognise.

Written by Nikita Lalla, Ricardo Pillay, and Palesa Dube. This article is general information and reflects the law at the time of writing. It is not legal advice. For advice on a specific matter, please speak to us.