During Percy’s mentoring journey he has continued in his LLB studies at Stadio University. He has now successfully passed his RICS diploma in adjudication. In the coming months he will complete his membership applications at the Chartered Institute of Arbitrators and the Chartered Institute of Building.
Percy has applied his understanding of both good faith and alternative dispute resolution for this insightful commentary of the intertwined nature of the two topics.
Aspects of good faith in construction adjudication.
Construction contracts, like all contracts, are agreements between two or more parties. Parties enter construction contracts with the aim of creating legal obligations. Hutchison (2018) states that the fundamental concepts of the law of contract are consensus and reliance.
Other fundamental principles include:
- Freedom of contract,
- Sanctity of contract,
- Good faith, and
- Privity of contract.
The aspect of good faith as stated by Hutchison above is an important foundational principle of the law of contract. In the case of Everfresh Market Virginia v Shoprite Checkers, the importance of good faith during formation of contracts was emphasised by the Constitutional Court. The Constitutional Court held that “contracting parties certainly need to relate to each other in good faith”.
In construction disputes, adjudication is used as an alternative dispute resolution mechanism. It produces a binding decision by an independent third party to resolve disputes. The decision is binding and final unless reviewed by arbitration or litigation.
Different construction contracts provide for different adjudication procedures and timelines. Managing disputes during construction is crucial to ensure projects complete on time, within budget, and safely. To achieve such objectives conflict between parties must be resolved as quickly as possible. At the very least, an attempt to resolve disputes by parties should take place.
The aspect of good faith is essential when resolving construction disputes. Parties should be honest with each other, and negotiate with the spirit of finding a solution. At the earliest opportunity, a party must inform the other party of any event that may cause delay to the work. A party should not wait until the last minute to inform the other party of potential delays.
Pre-adjudication.
Before a matter can crystallise into a dispute, parties should use the earliest opportunity to attempt to resolve the disagreement amicably. When parties attempt to resolve the disagreement, they should act in ‘good faith’ and without ulterior motives.
One party should not enter the discussions with an intention to investigate the strength of the case of the other party or to ‘buy’ more time. Such conduct by the party goes against the ethos of good faith and may prolong the process unnecessarily.
Good Faith During adjudication.
Upon issue of a notice of adjudication, parties may invite each other for talks to settle the matter. Should the attempt to settle the matter fail, parties should continue to act in good faith during the adjudication process. A party should not flood the adjudicator or other party with piles of documents which are irrelevant to the dispute, with the intention of frustrating the process. Submission must be as clear and concise as possible. It must always be borne in mind that adjudication should be interim and a quick dispute resolution tool. The decision may, in certain circumstances, be for review purposes, but is generally subject to enforcement.
After an adjudication decision, parties should take time to cool off. They may also attempt amicable settlement. The time provided for parties to reach an amicable settlement is an important tool to manage conflicts. During this period, the parties have time to consider the potential delays and costs should the matter be prolonged further.
Good faith is important when attempting an amicable settlement. It is human nature to retaliate. But when parties act in good faith and without ulterior motives, amicable settlement is possible.
It is important for parties in a construction contract to act in good faith for the purpose of completing projects on time and within budget. It is expected that conflicts between the parties will arise, however, when parties approach matters in good faith, the conflicts may be resolved quickly and cost efficiently.
Good faith is something we’ve considered at length on occasion – for more detail, check this article out.
Post adjudication decision.
Good faith in dispute resolution does not end after delivery of an adjudication decision. Both parties need to show good faith in implementing the decision of the adjudicator. It should not be normal for a party aggrieved by an adjudication’s decision to refuse to implement the decision. They should not refuse only because they do not agree with it. A party acting in good faith will implement the decision of the adjudicator irrespective of which way the decision went. The main aim of adjudication is to provide an interim dispute resolution. That decision may be overturned by arbitration or litigation.
The current adjudication landscape in South Africa.
In the case of Framatome v Eskom the Supreme Court of Appeal (SCA) had to decide whether a decision of the adjudicator should be enforced until such a decision is set aside by a tribunal. The SCA held that adjudication must be complied with, and a party cannot decide not to comply with a decision of the adjudicator. The court held that the “decisions of adjudicators are to be enforced pending the final determination of disputes by arbitration”.
Similarly, in the case of Murray & Roberts v Sasol, the SCA also stressed that a party cannot ignore the decision of the adjudicator on the basis that the party considers the decision of the adjudicator to be invalid[4].
Thoughts?
From entering into a construction contract to the moment when the parties find themselves in a dispute decided by an adjudicator (and beyond!), parties should act in good faith.
A disagreement with an adjudication decision does not prohibit a party from continuing in the dispute process. In most contracts, a provision for the dispute to be finally decided by arbitration or litigation exists.
The purpose of a further dispute resolution clause is not to allow the parties to avoid the adjudication process and wait for a final decision. The interim measure of an adjudication decision allows parties to move forward from a dispute and works to proceed without the encumbrance of a dispute.
In the event of a party failing to comply with a decision, it would be a manifest validation of their intentions to not act in good faith. This in turn may cause irreparable damage to the parties’ relationship.
Should you need more help on adjudication or good faith, please get in touch today, we’ll be delighted to help.