Adjudicators’ awards are final and binding

• South Africa

• Litigation and dispute management

09-12-2021

In Framatome v Eskom Holdings SOC Ltd (357/2021) [2021] ZASCA 132 (1 October 2021), the Supreme Court of Appeal (“SCA”) determined that adjudication awards are final and binding on parties in circumstances where they have been disputed but not properly taken on appeal or review.

In the Framatome matter, Eskom (the employer) and Framatome (the contractor) concluded a standard form NEC3 Engineering and Construction Contract (“the contract”) for the replacement of steam generators at Koeberg Nuclear Power Station.

In agreeing to the contract’s terms, the parties selected adjudication as their dispute resolution mechanism because litigation often takes a significant period of time to resolve, ultimately resulting in delays in the construction work. The parties also made provision in the contract for “compensation events” which entitled the contractor to be compensated for any material effect an event might have on the prices, contractual completion date(s) or key date(s).

A dispute arose between the parties when the Project Manager notified Eskom of a compensation event. Framatome referred the dispute to adjudication as contemplated in the contract and the adjudicator delivered an order with which Eskom failed to comply in that it failed to propose an assessment of costs. Upon Eskom’s failure to comply, Framatome referred the matter back to adjudication for a second determination in which it proposed that its assessment of costs be applied. The adjudicator delivered a further order that Framatome’s assessment of costs be applied and interim payments be made in accordance therewith. Eskom refused to give effect to the order and, to make payment of the interim amounts ordered.

As a result, Framatome brought an application to enforce the adjudicator’s award before the High Court. The High Court dismissed Framatome’s application and instead held for Eskom’s argument that the interim payments were not enforceable until determined by a tribunal at the end of the contract. Framatome appealed the decision to the SCA which held in Framatome’s favour.

The SCA had to determine whether the adjudicator’s award was final and binding on the parties.

In order to do so, the SCA first examined whether the adjudicator dealt with the real dispute between the parties – i.e. did the adjudicator address the question put to him by the parties?

The SCA held that the adjudicator had dealt with the real dispute between the parties and had not exceeded the scope of the issues referred to him. The adjudicator’s award was therefore final and binding on the parties.

Second, the SCA considered the circumstances in which the adjudicator’s award would not have been binding on the parties. The SCA noted that, if a party to an adjudication was not satisfied with the order made by the adjudicator, that party would have to (within the prescribed period) refer the appeal or review of the adjudicator’s award to a tribunal, arbitration, or court (as the case may be) in order to have the award set aside.

In Framatome, the SCA held that the award by the adjudicator remained final, binding and enforceable on the parties “until and unless” set aside on review or appeal. The practical implication of this is that, in the absence of Eskom having taken the adjudicator’s award on appeal or review, it was required to make payment of the interim payments due to Framatome in accordance with the adjudicator’s award in order to ensure completion of the project within the specified period. Mere dissatisfaction with the adjudicator’s award did not enable Eskom to circumvent making payments in compliance therewith.

In conclusion, parties to contracts which make provisions for adjudication should always ensure that they understand the appeal or review mechanisms available to them if they are dissatisfied with an adjudicator’s award as such awards are binding.

Co- authored by: Thabile Mfusi, Candidate Attorney