Framatome v Eskom Holdings SOC Limited

Framatome (as contractor) and Eskom (as employer) entered into a NEC3 Engineering and Construction Contract on 5 September 2014 for the replacement of steam generators at Koeberg Nuclear Power Station. The contract was based on standard NEC3 ECC conditions and provided for dispute resolution through adjudication. Disputes arose regarding compensation events - specifically relating to changes to key dates 2, 14 and 24. On 11 December 2018, Framatome referred Dispute 7 to adjudication. The adjudicator issued Decision 7 on 26 February 2019, finding that the Project Manager's instruction of 29 May 2017 was a compensation event. Eskom did not give notice of dissatisfaction. Following Decision 7, the Project Manager failed to assess the compensation event despite Framatome's notification under clause 64.4. Framatome referred a further dispute (Dispute 11) to the adjudicator on 23 April 2019. In Decision 11 (23 July 2019), the adjudicator found that Eskom had failed to make a full assessment in due time and that Framatome's quotation was deemed accepted. Eskom notified dissatisfaction with Decision 11 and refused to give full effect to it. Framatome instituted enforcement proceedings in the High Court, which dismissed Framatome's application. Framatome appealed to the Supreme Court of Appeal with leave of that Court.

• Whether the adjudicator's Decision 11 should be enforced despite Eskom's contention that it exceeded the adjudicator's jurisdiction
• Whether Decision 11 was invalid because it was predicated on Decision 7, which Eskom alleged was outside the adjudicator's jurisdiction
• Whether the adjudicator decided the dispute that was notified and referred to him under the contract
• Whether an adjudicator's decision in construction contracts is final and binding pending final determination by arbitration
• Whether courts should intervene in adjudicators' decisions under construction contracts
• Whether the quotation submitted by Framatome was valid under the contract and properly deemed accepted under clause 64.4

The appeal was upheld with costs, including costs of two counsel. The High Court's order was set aside and replaced with an order: (1) declaring Eskom in breach of the contract; (2) directing Eskom to adhere to and implement the adjudicator's Decision 11; (3) declaring the revised contractual key dates 15-19 for Units 1 and 2; (4) declaring the revised sectional completion dates; (5) declaring the revised contractual completion date as 22 June 2021; (6) ordering Eskom to pay Framatome additional costs totaling EUR 6,765,365.00 and R 91,489,027.00 with interest calculated according to specific contractual provisions; and (7) ordering Eskom to pay costs including costs of two counsel.

An adjudicator's decision in construction contracts is final and binding on the parties unless and until revised by arbitration tribunal, and must be enforced as a contractual obligation pending final determination. Courts should only interfere with adjudicators' decisions in rare circumstances. A party that participates in adjudication proceedings without objecting to the adjudicator's jurisdiction cannot subsequently challenge that jurisdiction to resist enforcement. The provisional nature of adjudication as an interim dispute resolution mechanism means that issues regarding the merits of the decision, including whether proper procedures were followed and whether quotations were valid, are matters for the arbitration tribunal and not grounds for refusing enforcement. An adjudicator who formulates and decides the dispute in accordance with what the parties contemplated and referred does not exceed jurisdiction merely because a party later disagrees with the formulation or outcome. The binding nature of interim payment obligations in construction contracts reflects the policy of maintaining cash flow to ensure project completion.

The Court observed that adjudication has become common internationally as a "quick and dirty" cash flow measure implementing provisional determinations pending definitive resolution. The Court cited with approval the principle from Hudson's Building and Engineering Contracts that courts should give no encouragement to parties "simply scrabbling around to find some argument, however tenuous, to resist payment." The Court noted that the contract recognizes that project management and other costs will be incurred by the contractor during the course of works and throughout the project duration, and that interim payments must be made subject to revision by the tribunal in due course. The Court commented that refusing to comply with payment awards while accepting other aspects of an adjudicator's decision is disingenuous. The judgment reinforced that the purpose of construction adjudication is to introduce a speedy mechanism for settling disputes on a provisional basis as an intervening stage in the dispute resolution process, without abolishing parties' rights to arbitration or litigation.

This case is significant in South African construction law as it clarifies the binding and enforceable nature of adjudicator's decisions in construction contracts pending final arbitration. The judgment reinforces the policy of "pay now, argue later" in construction adjudication, emphasizing that adjudication is designed as a provisional interim mechanism to maintain cash flow and avoid delays. The Court emphasized that courts should rarely interfere with adjudicators' decisions and should not entertain attempts to resist payment through tenuous jurisdictional arguments. The case provides important guidance on the interpretation and application of NEC3 contract provisions, particularly regarding compensation events and deemed acceptance of quotations under clause 64.4. It confirms that parties who participate in adjudication without objecting to jurisdiction cannot later challenge the adjudicator's authority. The judgment upholds the effectiveness of the adjudication scheme by preventing parties from undermining provisional awards through technical jurisdictional challenges while arbitration is pending.