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This case provides useful insight to some of the complexities and difficulties which exist in multi-tiered dispute resolution clauses commonly found in construction contracts. Furthermore, contractor’s should be mindful of the dangers of prescription – particularly where they are involved in long term construction projects.
In this case before the North Gauteng High Court, Group Five claimed payment from the Minister of amounts arising from a written construction contract for the construction of the Injaka Dam. The contract was based on the general conditions of contract for civil engineering works, 6th edition, 1990.
Clause 61 of the contract provided for the reference of disputes to mediation. On 14 November 2000 and during March 2004, the parties entered into written amendments to the effect that disputes would be referred to a Dispute Review Board (‘DRB’) created by Amendment 1 (‘DRB1’).
The Minister raised a special plea of prescription of the basis that certain claims (A to D) were referred to the DRB under the first addendum, that Group Five did not accept the recommendations of the DRB, that Group Five gave notice to the Minister that it intended to refer such claims to court, that each claim fell due in terms of section 12(1) of the Prescription Act 68 of 1969 (‘the Act’) on the date on which Group Five gave notice of its intention to refer the matter to court, that the dates were all more than three years before Group Five served its summons on the Minister and, accordingly, that such claims had prescribed in terms of s 11 of the Act.
In reply, Group Five argued that the three-year period for prescription only commenced on the date of completion under the contract. This date was 4 March 2003 as reflected in the final approval certificate issued in accordance with clause 55(1) of the contract. Using this date for the purposes of calculating prescription, Group Five’s position was that their summons had been served in time (summons was served on 2 December 2005).
S 12(1) that prescription shall commence to run as soon as the debt is due.
The issue which the court was required to decide was effectively the date upon which the debts became due. If they became due on the dates upon which the Group Five gave notice that it intended to refer them to court they clearly prescribed as the summons was served more than three years after the last of these dates.
Claim A was a claim for additional payment occasioned by adverse physical conditions or artificial obstructions which could not have been reasonably foreseen by an experienced contractor at the time of submitting his tender. In the performance of the contract Group Five encountered circumstances and conditions in respect of the quantity, quality and suitability of rock for use as concrete aggregates different from the technical data provided in the tender documentation and/or which constituted adverse physical conditions as a result of which Group Five became entitled to payment of the amount claimed. Group Five gave notice to refer this claim to court on 6 September 2001.
Claim B was a claim for additional payment and extension of time arising from an engineer’s instruction to suspend concreting activities. Group Five gave notice to refer this claim to court on 30 October 2001.
Claim C was a claim for additional payment and extension of time arising from (i) the engineer’s instruction to suspend earthworks activities and (ii) vary the works. Group Five gave notice to refer this claim to court on 22 February 2002
Claim D was a claim for contract price adjustment. Group Five gave notice to refer this claim to court on 20 March 2002.
At no time had there been any ruling on claims A-D in favour of Group Five. They were not accommodated in any later certificate and were not incorporated in the engineer’s final payment certificate.
All of the procedural requirements relating to the submission of the claims and the declaration of disputes had been complied with by Group Five.
In considering the parties’ respective cases, the court set out the legal position regarding the payment of the contract price under a construction contract – that in the absence of contractual provisions to the contrary, the remuneration is due and payable only when the contractor has completed the entire work. The court cited an example of a contractual stipulation providing for payment of remuneration before the contractor has completed his performance in terms of the contract as the provision for interim payments. Incorporating such a provision in the contract is standard practice and is done to enable the contractor to finance the work. The incorporation of such a provision does not make the contract divisible. Before the contractor will be entitled to the final payment he must complete the work in terms of the contract.
In line with this legal position, Group Five contended that the amounts claimed fell within the definition of the contract price whilst the Minister contended that the amounts fell due as per the various claims and dispute resolution provisions.
These contentions were clearly based on two opposing interpretations of the contract.
The court set out the scheme for the determination of claims under the contract (as amended) as follows:
Provided the contractor complied with the time limits the contractor was entitled to proceed from one step to the next to have a dispute about a claim determined. In setting out this scheme, the court found that before instituting court proceedings the contractor was obliged to go through the dispute resolution procedure, but, having done so this impediment to litigation was removed and the contractor was entitled to institute legal proceedings forthwith as soon as he had given notice. Accordingly, prescription began to run no later than the giving of notice.
But did prescription commence earlier? In this regard Group Five had contended that the submission of claims under the contract interrupted prescription.
In this regard, the court held that the wording of section 15 of the Act did not support Group Five’s contention. S 15(6) clearly provides that the process which interrupts the running of prescription must be a document whereby legal proceedings are commenced
Since submission of a claim to the engineer clearly does not constitute service of a legal process whereby legal proceedings are commenced, delivery of the claims to the engineer did not interrupt the running of prescription.
The court held that Group Five’s claims had prescribed.
Group Five appealed this judgment but were unsuccessful.
