City of Cape Town’s non-payment threatens survival of construction company

City paid R5m - despite adjudicator and high court agreeing that a corrected amount of R11.5m applies. Cape-based construction company Baseline Civil Contractors, which is in financial distress and business rescue, has warned that a prolonged dispute over an outstanding final payment of about R10 million from the City of Cape Town could threaten its survival and the employment it provides in the Western Cape. The dispute relates to the Macassar housing project contract, which ran for about five years and ended in June 2024. Baseline director DC Geldenhuys said adjudication is part of the process the company and the city agreed to in the contract. “That means complying with the adjudicator’s decision, including making any payment due, while retaining the right to pursue further proceedings,” he said. “Contractors depend on that process working as intended so they can meet their commitments and continue operating while disputes are resolved.” A disagreement over the final account was referred to an independent adjudicator under the contract’s dispute-resolution provisions. Baseline subsequently approached the high court to enforce the adjudicator’s decision, with the court ruling in Baseline’s favour in August 2026 and dismissing the city’s counter-application and awarding costs to Baseline. City appeal pending, extending uncertainty The city applied and has been granted leave to appeal the judgment, extending the uncertainty over when the payment dispute will be resolved. The city has refused to make the payment allegedly due while its appeal is pending. Geldenhuys maintains the city’s appeal against the high court judgment does not remove this separate contractual payment obligation. However, City of Cape Town spokesperson Luthando Tyhalibongo said the city paid the amounts that were due. Tyhalibongo said the dispute concerns a second ruling of the adjudicator, which the city says is not enforceable because the adjudicator acted outside of his powers. “The city was granted leave to appeal to the Supreme Court of Appeal (SCA) against the High Court judgment on 20 October 2026, and the operation of the order is suspended pending the appeal,” he said. Tyhalibongo said the SCA has not yet set a date for the appeal to be heard. Initial payment award amount corrected The independent adjudicator’s first decision awarding Baseline R5 148 094.32 was published on 6 May 2025, with the adjudicator also stating: “Having issued the decision, my task as adjudicator ends as I am Functus Officio.” ‘Functus officio’ refers to a person who has discharged their duty and whose authority is at an end. Baseline claimed the award wrongly stated the company did not provide any supporting documents and the adjudicator had missed a 8 April 2025 email. This resulted in the adjudicator issuing a corrected decision on 22 May 2025 awarding Baseline R11 549 644.10, which was payable within 14 days. The city on 13 June 2025 paid Baseline the first lower amount of R5 148 094.32, arguing that the adjudicator had no power to correct his first decision. Baseline approaches high court Baseline applied to the Western Cape High Court in July 2025 for: Enforcement of the corrected decision; The subsequent Contract Price Adjustment (CPA) determination; and Payment for materials on site. The city opposed the application and was seeking, by way of counter-application, to have the corrected decision and CPA determination declared invalid and set aside. The high court on 14 August 2026 rejected the city’s arguments. It declared the corrected decision valid and enforceable, and ordered the city to comply with its order within 10 days and pay Baseline’s costs. ‘Stalingrad approach’ hampering business rescue Geldenhuys said the city’s pursuit of every available legal avenue amounts, in their view, to a Stalingrad approach. “While proceedings continue, Baseline remains without much-needed funding. “The financial pressure could sound the death knell for a business that provides much-needed employment in the Western Cape. “Employees, suppliers and subcontractors still need to be paid while proceedings continue. “We must also fund the legal costs of pursuing payment. The consequences extend well beyond one completed contract.” Geldenhuys said the continuing uncertainty has immediate commercial consequences for Baseline. He said the payment has been outstanding for more than a year and adds to existing cash flow pressures and hampers the company’s ability to exit business rescue and resume bidding independently for government work, historically an important part of its business. Geldenhuys said Baseline entered business rescue because of broader financial pressures that preceded its dispute with the city but resolving the outstanding payment remains important to its recovery. What the high court ruling found Acting Judge Veronique Barthus said when handing down judgment in the Western Cape High Court in August that the adjudicator did not introduce a new dispute or decide a claim outside the referral but considered the same valuation dispute in light of material that had been submitted before the original decision but overlooked. She said the adjudicator’s email stating he was “functus officio” is not determinative. She added that contractual powers override subjective statements and Rule 6.4.10 expressly authorises post-decision correction. “The adjudicator’s correction of an admitted oversight falls squarely within the contractual powers conferred upon him, and the functus officio doctrine, developed in the context of final judicial or arbitral decisions, does not apply to adjudication with the same rigidity,” said Barthus. “The city’s argument therefore demonstrably conflates two distinct dispute resolution roles.” ‘Contract Price Adjustment’ issue Barthus said the CPA issue arises from the adjudicator’s corrected decision of 22 May 2025 – in which he awarded Baseline an amount of R11 549 644.10 and directed that the parties determine the additional CPA amount, failing which he would do so. She said the CPA component was not determined in the original decision and was triggered only because the corrected decision expressly required it. The city argued the CPA determination is invalid because the adjudicator was functus officio after issuing the original decision, and because the CPA claim did not form part of the original referral. It further argued that having paid the amount awarded in the original decision, it was under no obligation to participate in the CPA process. Barthus said the city’s jurisdictional objections cannot be upheld, adding that once the corrected decision replaced the original decision, the CPA component became part of the adjudicator’s mandate. The adjudicator was therefore empowered, indeed obliged, to determine the CPA amount if the parties could not agree on it, she added. Barthus said the city’s refusal to participate does not invalidate the adjudicator’s jurisdiction, but it does mean the CPA determination was made in circumstances where one party did not advance its position. “In the interests of fairness, and to ensure that the CPA amount is determined on a proper evidential foundation, I am of the view that the CPA issue should be remitted to adjudication for reconsideration,” she said. The city was directed to participate in the CPA process and to deliver its submissions to the adjudicator within 10 days of the order. The adjudicator was ordered to determine the CPA amount after receiving submissions from both parties, or upon expiry of the submission period should either party fail to deliver submissions. Baseline’s ‘materials on site’ claim and the city’s counter-application were both dismissed. This article was republished from Moneyweb. Read the original here.