Ethekwini Municipality v Cooperativa Muratori & Cementisti - CMC Di Ravenna Societa Cooperativa
| Jurisdiction | http://justis.com/jurisdiction/166,South Africa |
| Judge | Van Der Merwe JA, Mocumie JA, Matojane JA, Weiner JA and Olsen AJA |
| Judgment Date | 12 June 2023 |
| Citation | 2023 JDR 2053 (SCA) |
| Hearing Date | 10 March 2023 |
| Docket Number | 181/2022 |
| Court | Supreme Court of Appeal |
Olsen AJA (Van der Merwe, Mocumie, Matojane and Weiner JJA concurring):
Ethekwini Municipality, the appellant before us, concluded a written contract with the respondent for the construction by the latter of the 'C9-Cornubia interchange to Meridian Drive'. The form of contract employed by the parties was the 'General Conditions of Contract for Construction Works (Second Edition, 2010)'. I will refer to the parties as they were in the contract, namely as 'employer' and 'contractor' respectively.
Something must be said at the outset about the identity of the respondent. The respondent was the applicant in the court a quo where it was described as 'CMC Di Ravenna South Africa Branch (in business rescue)', a company registered under South African law as an external company. In later court documents the epithet 'in business rescue' became 'in liquidation'. The employer raised an issue as to the locus standi of the named party. In the result an application for the amendment of the contractor's name to Cooperativa Muratori & Cementisti - CMC di Ravenna Societa Cooperativa' was made and granted
2023 JDR 2053 p4
Olsen AJA (Van der Merwe, Mocumie, Matojane and Weiner JJA concurring)
without opposition. The case was argued before the court a quo, and in this Court, on the basis that the contractor was the company bearing the amended name. It is an Italian company, registered as such in that country. For no disclosed reason the court papers which have been delivered since the amendment was granted continue to use the name in which the contractor was originally cited. This has been corrected in this judgment, inter alia to avoid confusion, especially in Italy, where the use of the original incorrect citation may not be easily explained.
The contract between the parties was a fairly substantial one, judging from the figures mentioned in the papers. Expenditure on it exceeded R300 million. It was concluded in 2015, but cancelled by the contractor in December 2018. The cancellation of the agreement was not challenged by the employer.
The contract allowed for the submission of unresolved disputes between the parties to adjudication, a common feature of construction contracts. Three referrals to adjudication made by the contractor gave rise to the present litigation. The referrals were in each case to a Mr K B Spence. He delivered two decisions on 8 August 2019 and one on 10 August 2019. The contentious elements of the decisions from the perspective of this litigation are the findings that the employer must pay the contractor the sums of R2 049 130.48 and R8 129 492.42, together with interest thereon as stipulated in the contract.
The employer failed to comply with the decisions of the adjudicator. The contractor applied to the high court for orders making the decisions orders of court, and for an order directing the employer to pay the amounts just mentioned to the contractor. The high court granted that relief, and subsequently granted the employer leave to appeal to this Court.
2023 JDR 2053 p5
Olsen AJA (Van der Merwe, Mocumie, Matojane and Weiner JJA concurring)
The validity of the referral to adjudication of the disputes is not challenged by the employer. The decisions of the adjudicator are not challenged on the basis that there was any deviation from what was required and permitted to be done by the adjudicator. The employer approached the case in the high court, and before this Court on appeal, on the basis that the decisions are legitimate, but may nevertheless in due course be revised .
The provisions of the contract which operate in such circumstances are the following.
Either party shall have the right to disagree with any decision of the Adjudication Board and refer the matter to arbitration or court proceedings, whichever is applicable in terms of the contract;
Provided that:
The decision shall be binding on both parties unless and until it is revised by an arbitration award or court judgment, whichever is applicable in terms of the contract.'
A further proviso regulates the timing and manner of notification of any dispute raised by a party with regard to the adjudicator's decisions. Compliance with those provisions is on the face of it mandatory. The employer has notified the contractor that the decisions are disputed, and commenced action in the high court to have them revised. The contractor contends that the employer's notification of the dispute was not in compliance with the provisions of the contract, as a result of which the adjudication decisions have become final. In the view I take of the matter there is no need for that issue to be decided in this appeal. We were advised during argument that the issue features in the pleadings in the action.
The employer accepts that in the ordinary course the fact that the decisions are binding on the parties, as they have been since they were made, means that the contractor would ordinarily be entitled to its money now; which means that the order the contractor sought in the high court would have been properly
2023 JDR 2053 p6
Olsen AJA (Van der Merwe, Mocumie, Matojane and Weiner JJA concurring)
granted. But the employer contends that given the particular circumstances which prevail in this case, relief should not have been granted.
The business and affairs of the contractor are presently conducted subject to the provisions of a regime established under Italian law for the benefit of distressed companies and their creditors, and in this case imposed under that law by Italian courts on the application of the contractor. The regime is described in an affidavit of an Italian lawyer who is a specialist in corporate bankruptcy law. His affidavit is not challenged. Under the regime to which the contractor is subjected, the directors continue to perform their functions as such, with a specific emphasis on the recovery of what is owed to the company. The position appears to be that an arrangement with creditors with a view to achieving the long-term survival of the contractor is planned, but bankruptcy is clearly another potential outcome. These facts or circumstances lie at the centre of the employer's arguments, which rest in the main upon the proposition that there is a risk that if it pays in accordance with the adjudicator's decisions, and then succeeds in its action to have the awards overturned, it may not get its money back. This is not disputed by the contractor. The risk of liquidation occurring, according to the contractor's reply, is 'an unknown at this stage'.
The employer argues that the high court had a discretion to exercise when asked to grant the money judgments, either because what the contractor asked for was an order for specific performance; or because the enforcement of the decisions would in this case be contrary to public policy. (A contention that a discretion to stay execution exists in terms of rule 45A of the uniform rules was rightly not pressed before us, as no question of execution arises until after an order for payment of money has been granted.) The proper exercise of that discretion, the employer argues, ought to have resulted in the dismissal of the application.
2023 JDR 2053 p7
Olsen AJA (Van der Merwe, Mocumie, Matojane and Weiner JJA concurring)
It is convenient first to deal with the contention that in the particular circumstances of this case, the enforcement of the adjudication decisions would be contrary to public policy. The contractor disputes this contention. It points out that the parties willingly agreed to a process of adjudication for the interim and preliminary resolution of disputes between them, the outcome of which would affirm or deny the existence of immediately enforceable obligations. Being the beneficiary of such obligations, and the employer having failed to discharge the obligations, the contractor was entitled to approach the court for the relief which it sought in the high court in order to secure the benefit of the provisions of our law relating to the enforcement of judgments of our courts. The high court was relieved of the usual obligation of establishing the existence of the obligations in question. That had already been done through the process of adjudication agreed upon by the parties in the contract. [1] All of this is common cause between the parties.
The principal authority relied upon by the employer in support of its contention that the orders granted by the high court offend public policy is Beadica 231 CC and Others v Trustees of the Oregon Trust and Others [2] (Beadica). The facts before the court in Beadica bear no resemblance at all to those of this case. They did, however, afford an opportunity for the Constitutional Court to clarify the proper approach to determining:
whether contractual provisions are in themselves contrary to public policy and therefore unenforceable; and
when a term itself is unobjectionable, whether its enforcement in particular circumstances would be contrary to public policy.
2023 JDR 2053 p8
Olsen AJA (Van der Merwe, Mocumie, Matojane and Weiner JJA concurring)
The employer's case involves the second of these enquiries, there being no dispute over the proposition that the regime of adjudication established under the contract is not offensive to public policy.
With specific reference to Barkhuizen v Napier [3] and Botha and Another v Rich N.O. and Others, [4] the majority judgment in Beadica explained that the perception that there is a divergence between the jurisprudence of the Constitution Court and this Court on the subject of public policy in the contractual context is misconceived. The judgment continued, at para 80, as follows:
'It emerges clearly from the discussion above that the divergence between the jurisprudence of this Court and that of the...
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