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On 18 August 2023, the High Court delivered a judgment in the matter between Rodpaul Construction (Pty) Ltd t/a Rods Construction and the MEC: KwaZulu Natal Provincial Department of Public Works. Rods Construction sought to have an adjudicator’s determination dated 30 August 2022 made an order of court.
FACTS OF THE CASE
Rodpaul Construction (Pty) Ltd (“the Applicant”) and the KwaZulu-Natal Provincial Department of Public Works (“the Respondent”) entered an NEC3 Engineering and Construction Contract, Option E: Costs Reimbursable Contract of April 2013 (“the NEC3”). Disputes arose under the contract and the parties participated in adjudication proceedings. The adjudicator made a determination in terms of which various monies were to be paid between the Applicant and the Respondent. The respondent resisted to comply with the determination. In terms of the adjudicator’s determination, the Applicant was directed to pay inter alia an amount of R7 747 736.57 to the Respondent which was less than a tenth of the amounts owing to the Applicant by the Respondent. The Applicant proposed that the Respondent set-off the amount due to it from the amounts payable to the Applicant in terms of the determination.
ISSUES BEFORE THE COURT
The court had two issues to adjudicate on, the first issue was whether an adjudicator’s determination remains final and binding despite the other party having notified its dissatisfaction therewith and referred the decision to an arbitral tribunal for review. The second issue before the court was whether a party should be precluded from making payment in terms of an adjudicator’s determination on the basis of public policy consideration as they apply to the use of state funds (i.e., can a party who is a state organ be precluded from paying the other party simply on the basis that the funds used are state funds?), the court was required to adjudicate on the development of public policy to incorporate just and equitable considerations, alternatively put, the court was required to adjudicate on whether the enforcement of the adjudicator’s determination as a term of the contract would be contrary to public policy particularly in relation to the use of public funds as raised by the Respondent in its refusal to make payment as directed by the determination.
THE RESPONDENT’S ARGUMENT
The Respondent’s argument in disputing the making of the determination to be a court order was premised on that the NEC3 clauses W1.3 and W1.4 which state that an adjudicator’s determination is only enforceable if neither party has notified the other party of a dissatisfaction. The Respondent had notified the Applicant of its dissatisfaction and referred the determination to a tribunal which, in its view, rendered the determination unenforceable. The Respondent further argued that it was of the belief that the Applicant will not be able to repay the monies that had already been paid to it by the Respondent, as the Applicant was at the time of the proceedings indebted to the Respondent in the amount of R690 346.46. The Respondent further submitted that If the applicant cannot pay the debt, it would unlikely be able to repay the adjudicator’s determination if the tribunal overturns it, to add concrete to its argument, the Respondent argued that in the event of the Applicant failing to pay the amount it was directed to pay to it by the determination, this would constitute a misuse of the public funds which would in turn have a negative impact on public policy.
THE COURT’S DECISION
The court considered authorities relating to the enforcement of an adjudicator’s decision. The court held that the adjudicator’s determination was binding and enforceable despite the wording of clauses W1.3 and W1.4. It found that good prospects of success in arbitration proceedings do not constitute a defence against payment of an adjudicator’s determination as the expeditious prosecution in arbitration proceedings provided relief to the dissatisfied party.
In considering whether public policy should be developed to incorporate just and equitable considerations which allow a government department to resist making payment as directed by an adjudicator, the court considered the principle of sanctity of contracts. The court held that the NEC3 is not contrary to public policy as it was freely and voluntarily entered into, the Respondent chose these conditions to be applicable to the agreement and the conditions are not contrary to a constitutional principle. In the circumstances, the court held that public policy demands that the parties be bound by the terms of the agreement. The court held further that the facts of the matter did not support the development of public policy to include the grounds advanced by the Respondent and a finding in its favor would be tantamount to ordering an amendment to the contract which was not agreed by the parties.
The court emphasized that in very limited instances pending the outcome of the arbitration, an adjudicator’s determination may be stayed. The court relied in the case of Murray & Roberts Ltd v Alstom S&E Africa, where it was ruled that although there may be circumstances to decline making a determination an order of court, it nevertheless still directed the offending party to follow the adjudicator’s decision. The court held that while the High Court has the authority to make an adjudicator’s determination an order of court on ‘just and equitable grounds’, courts are not limited by the Arbitration Act 42 of 1965 and can still exercise their common law right on whether to make the adjudicator’s decision an order of court.
In adjudicating on the Respondent’s fear of the Applicant being unable to repay it in the event of the determination being overturned, the court referred to the case of Ethekwini Municipality v Cooperativa Muratori and held that the possibility of a party’s inability to make payment is not a ground to resist paying the award or to resist complying with an award.
IMPORTANCE
It is crucial to note that in agreeing to the terms in the NEC3 contract, the parties freely and voluntarily agree to a clause i.e., the dispute resolution clause, which provides that in the event of any disputes, such disputes would be resolved by way of an expeditious dispute resolution process and the parties are bound by the determination made in the dispute resolution process – adjudication. It is very clear that Adjudication is incorporated in the NEC3 to provide a speedy dispute resolution mechanism without stalling the progress of the project, this is to the effect that an adjudicator’s determination must be actioned and parties to the NEC3 should not then attempt to use courts as a mechanism to escape from being bound by such determinations when they are not in their favor as decided by AJ Nicholson in the case of Rodpaul Construction (Pty) Ltd v MEC: KwaZulu-Natal Provincial Department of Public Works
On 27 May 2022, the SCA handed down judgment (hereafter “the decision”) in the matter between Exxaro Coal Mpumalanga (Pty) Ltd (hereafter “Exxaro”) acting as the Applicant, TDS Projects Construction and Newrak Mining JV (hereafter “TDS”) acting as the First Respondent and Absa Bank Limited (hereafter “Absa”) acting as the Second Respondent.
The facts
During 2018, Exxaro and TDS entered into a written agreement (hereafter “the contract”) for construction and engineering works on Exxaro’s Matla Coal Mine North West Access Project. TDS procured a performance guarantee for due fulfilment of its obligations under the contract.
The guarantee was issued by ABSA in 2018 and was subject to the following material terms:
Exxaro terminated the contract on the basis that TDS had breached its obligations and had failed to remedy such breaches. Exxaro then sent a demand to ABSA claiming that the guaranteed amount had become payable due to TDS’s breach of contract. This demand was not honoured by Absa as it was deemed “unfit for processing”. Exxaro suspended the demand. Exxaro later retracted it’s the suspension of its previous demand and made demand of an amount of R22 165 055.66.
TDS later made an application to the High Court for an order interdicting Absa from making payment of any demand in terms of the guarantee pending the determination of Part B of the application wherein it sought an order declaring the demands by Exxaro invalid and a final order interdicting Absa from making payment of any amount under the guarantee.
In opposition, TDS alleged that the demands were fraudulently made and that it had a clear right to prevent Exxaro from unlawfully benefiting from the guarantee. Further, TDS alleged that the demands were not signed by a person warranting that they had authority to do so, they did not state the amount claimed as due and payable and they did not indicate the respects in which TDS was in breach of the Contract. Accordingly, TDS alleged that Absa was not legally obliged to honour the guarantee since the terms governing the demand had not been complied with.
TDS alleged that it would suffer severe financial prejudice should the demand be honoured by Absa and that its damages were not confined to the amount payable under the guarantee and honouring the guarantee would cripple or alternatively destroy its business.
The High Court Judgment
The judgment states that it is unnecessary to deal with allegations such that the demand guarantee was fraudulently made. The Court, relying on the decision in State Bank of India and Another v Denel SOC Limited and Others (hereafter “State Bank of India”), held that TDS was entitled to raise the issue of non-compliance with the demand on the basis of the banker-client relationship. The Court declared the demands invalid.
SCA Judgment
The SCA had to decide whether TDS was entitled to a final interdict against Exxaro on the basis of a non-compliance by Exxaro with the terms of the guarantee. It was common cause that the performance guarantee constitutes a demand guarantee.
The SCA reiterated the position on demand guarantees, citing Loomcraft Fabrics CC v Nedbank Ltd and Another wherein it was held that a demand guarantee is akin to an irrevocable letter of credit, in which a bank has a contractual obligation to pay the beneficiary on the occurrence of a specified event and is wholly independent of the underlying contractual agreement. The bank will only escape liability upon proof of fraud on the part of the beneficiary and the Court has cautioned against judicial interference restraining a bank from payment of a letter of credit except in the most exceptional of circumstances.
The Court applied the law applicable to obtaining a final interdict and found that TDS had failed to meet the requirements for obtaining a final interdict. The requirements were stated as being: a clear right, an injury actually committed or reasonably apprehended and the absence of another remedy.
The Court held that TDS failed to establish injury which is prejudicial to the applicant’s right. TDS alleged injury on the first fraudulent call on the guarantee which was not established and secondly on the alleged liability in counter-guarantees and default in respect of various facilities however this injury was not pleaded or demonstrated by TDS.
Had ABSA honoured the guarantee when presented with a non-compliant guarantee TDS would have had a complete defence to a claim by Absa for having honoured such. Accordingly, the only basis upon which TDS would be liable would be if Absa was lawfully obliged to honour a guarantee.
The Court held that should a party to a guarantee be in the same position as TDS, they have a complete contractual remedy against the guarantor. The contractual remedy envisioned is an application for specific performance against the guarantor. The Court stated that this was in accordance with the principle set out in State Bank of India that banks must be made to honour their obligations in respect of guarantees except in exceptional cases where fraud is involved.
The decision was such that the appeal was accordingly upheld and the application was dismissed.
Relevance to our current legal position
The long standing position of South African Courts has been the approach that in the absence of fraud, Banks must be made to honour their obligations in terms of honouring guarantees. The decision endorses such approach and further develops such to include that in the absence of fraud, a party is unlikely to obtain an interdict against the beneficiary of a guarantee making a demand as that party has an appropriate contractual remedy against the guarantor should they honour a non-compliant demand.
Recently there has been a decision with an alternative view. In September 2020, the same Court as in the above decision delivered the judgment in Joint Venture between Aveng (Africa) (Pty) Ltd and Strabag International GmbH v South African National Roads Agency Soc Ltd and Another (“the Aveng decision”). Importantly, both the guarantee in the decision and the Aveng decision were similar in nature in that they both held provisions that the guarantee can only be called upon should the guarantee be in breach of the underlying agreement.
The Aveng decision, relying on authority from foreign jurisdictions, found that there is a position in South African law for an exception such that a contractor may be entitled to restrain a beneficiary from making demand on a performance guarantee if the contractor can show the beneficiary would breach a term of the underlying agreement. This would mean that a party who offers a demand or performance guarantee may have two possible remedies available when a beneficiary attempts to call on the guarantee. The first being an interdict against the guarantor should they honour or wish to honour a non-compliant guarantee and the second against the beneficiary should they call on a guarantee when the underlying agreement clearly and expressly restrains the beneficiary from calling on the guarantee.
Importance
The law regarding guarantees is ever changing and includes numerous complexities. Guarantees also form part of the majority of construction and engineering projects. At MDA, we are experienced in drafting, advising on, and dealing with disputes stemming from all forms of guarantees found in a construction, mining and engineering context.
On the 8th of March 2012, the Kwazulu- Natal High Court handed down judgment in the matter between Umgeni Water (hereafter referred to as the “Applicant’) and Nigel Hollis (hereafter referred to as the “First Respondent’) and Siza Water (Pty) Limited (hereafter referred to as the “Second Respondent’). Although not a recent judicial development, the case provides important guidance on whether the court may grant an order to set aside the appointment of an arbitrator or remove him from office where a party to the arbitration proceedings refuses such removal or setting aside.
The facts
The application was aimed at securing the removal from office of the First Respondent as a arbitrator. The order sought by the Applicant was as follows:
The First Respondent opposed the order to the extent that the order that the Applicant sought affected his personal financial interests, the First Respondent will abide by the Court’s order with regard to the setting aside of his appointment as the arbitrator. The Second Respondent opposed the order on the merits.
The dispute between the Applicant and Second Respondent arose through a written agreement. This contractual agreement contained a dispute resolution clause which provided that should any dispute arise between the parties arising out the agreement, such dispute would be referred to and decided by arbitration.
Neither party objected to the dispute being referred to arbitration and initially the parties agreed to an arbitrator. However, this agreed arbitrator became unavailable to arbitrate the dispute shortly after his agreed appointment. The First Respondent was then appointed as arbitrator and was so until these application proceedings.
During the arbitration hearing the Applicant requested that the arbitrator voluntarily step down. The First Respondent agreed to step down should both parties agree to such. The Second Respondent resisted the Applicant’s request for the arbitrator to step down and as a result the arbitrator did not step down.
The Applicant sought to rely on s13(2)(a) of the Arbitration Act, 42 of 1965 (hereafter “the Act”) which states that “the court may at any time on the application of any party to the reference, on good cause shown, set aside the appointment of an arbitrator or umpire or remove him from office.”
The Judgment
The Judgment provides for an explanation of the position of the phrase ‘good cause’ within South African law and explains that the establishment of ‘good cause’ is required in setting aside a default judgment and in an application for rescission.
The Court relied on Interaccess (Pty) Ltd v Van Dorsten (1999) 2 ALL SA 561(C) which confirmed the approach adopted in Chetty v Law Society Transvaal 1985 (2) SA 756 (A) that ‘good cause’ defies precise or comprehensive definition as a variety of factors need to be considered.
The Court contends that the Act makes no attempt to define ‘good cause’ as a variety of factors and a wider context need to be examined in ascertaining ‘good cause’. An examination of grounds alleged by the Applicant demonstrated that ‘good cause’ exists for the Court to exercise its judicial discretion.
The examination of the perception of bias in the context of an arbitrator is a much sterner test than the test for the perception of bias required for the recusal of a judge as an arbitrator has a direct pecuniary interest in the arbitration proceedings before him.
The Court held that the intention of the parties and the nature of arbitration proceedings are to allow for fast and effective proceedings and that courts should be aware of these factors when ruling on arbitration procedure.
The Applicant relied on six grounds to justify the alleged perception of bias of the First Respondent. These will be examined individually below:
The judgment reasons that there is important merit to the fact that arbitrators are appointed by acceptance by both parties to a dispute and enter into a so called ‘tri-partite’ agreement between the arbitrator and two parties at dispute. An arbitrator is obliged to perform the duties which he assumes by his appointment.
Unless agreed by both parties, an arbitrator has an obligation to perform his duties despite the reservations of one party. Once an arbitrator has accepted his appointment he is morally and legally bound to fulfil his appointment to the best of his abilities. If an arbitrator fails to continue with his duties then he may be liable for damages for breach of his duties.
The Court reasoned that for the present matter what needs to be examined is whether the applicant has proven on a preponderance of probabilities that the proceedings gave rise to a perception of bias. Further, a so-called double requirement of reasonableness needs to be examined. This equates to the Applicant needing to demonstrate both a reasonable apprehension of bias and that such apprehension is bias.
On an examination of the grounds that the applicant relies upon, the tests as mentioned above are not satisfied and as such the application was dismissed with costs.
Relevance The case note importantly highlights that in terms of s13(2)(a) of the Act that an appointed arbitrator must comply with his obligations to the best of his ability unless both parties agree to his voluntary withdrawal.
On 29 September 2020 the Supreme Court of Appeal (hereinafter the “SCA”) handed down judgment in which an appeal by Mitsubishi Hitachi Power Systems Africa (Pty) Ltd (hereinafter “Mitsubishi”) from the Gauteng Division of the High Court, Johannesburg was dismissed with costs.
The Facts
The appellant, Mitsubishi, the contractor, entered into an agreement with the Second Respondent, Eskom Holdings Soc Ltd (hereinafter ‘Eskom’), the employer. Mitsubishi then subsequently entered into agreements with the First Respondent, Murray and Roberts Ltd (hereinafter “M&R”), the subcontractor.
M&R alleged that a further agreement, ancillary to the main contract, was entered into between Eskom and Mitsubishi. This was known as the incentive agreement. More importantly, M&R were not a party to this incentive agreement but sought the disclosure of relevant details and actual benefits accrued by Mitsubishi to Eskom under this agreement.
Proceedings before the SCA
When adjudicated upon, the adjudicator refused to order that Mitsubishi make disclosures to M&R despite finding that M&R had a contractual right to the disclosures but reasoned that Mitsubishi had a contractual obligation, under the main contract. This was to keep the incentive agreement confidential.
Application was then made to Gauteng Division of the High Court by M&R to secure disclosure. In this instance the Court found no reasons justifying Mitsubishi’s withholding both the disclosure of the incentive agreement as well as relevant details with regards to benefits received from Eskom. The Court further held that Mitsubishi should pay costs of such application in the High Court. The judgment for such application is available here.
The SCA Judgment
Unterhalter AJA highlighted three issues to be considered and addressed. These were addressed as follows:
Firstly, did M&R have a contractual right to require disclosure of Mitsubishi?
M&R contended that clause 11.3 of the subcontract agreement provided for its contractual right to disclosure by Mitsubishi. Clause 11.3 states that:
“The Contractor shall, upon receiving any contractual benefits from the Employer under the Contract, pass on to the Subcontractor such proportion thereof as may relate to the Subcontract Works.”
M&R also placed reliance on clause 2.4 of the variation agreement which states:
“Although nothing contained in this Variation Agreement is to be construed as creating a partnership in any legal sense between the Parties, it is nevertheless to be emphasised that the manner in which the parties will act in good faith vis-à-vis each other to completion of the amended subcontracts shall portray a “spirit of partnership”, cooperation and trust…”
M&R argued that its entitlement to its share of benefits from the main contract could only be adequately determined through a disclosure by Mitsubishi made in good faith as to satisfy its overarching obligation.
Mitsubishi made two arguments to the contrary. The first of which was that the contractual benefits derived from clause 11.3 of the subcontract agreement were derived from a contract to which M&R was not a party. The point also raised in this argument was that there was no existence of a so called “incentive” agreement and rather that there were a number of initiative agreements to which M&R was not a party. Secondly, Mitsubishi contended that the variation agreement revised the basis for renumeration to a “cost plus” formula and excluded additional compensation. In response to this, the Court held that neither argument could prevail.
A clear reading of language used in clause 11.3 of the subcontract agreement demonstrated a clear entitlement to contractual benefits. The denial of the existence of the incentive agreement and the terming of such agreement rather as an initiative agreement could only be accepted if Mitsubishi could demonstrate that what was received under such agreement was not a contractual benefit.
The argument that the variation agreement superseded clause 11.3 of the subcontract agreement and altered payment entitlement did not hold and if anything, the variation agreement merely altered the payment basis.
Secondly, now that it was established that M&R enjoyed such entitlement, did Mitsubishi owe a duty to Eskom to keep the incentive agreement and details of such agreement confidential?
Mitsubishi contended that should M&R have had such an entitlement under clause 11.3 of the subcontract agreement, M&R must have simply made a claim without being able to precisely determine the amount entitled to.
The judgment reasons that this could never have been the intention of the parties when concluding the subcontract agreement. Further to this is that contracts are to be interpreted in a manner that gives effect to both commercial efficacy and good faith.
M&R required disclosure of benefits accruing under the contract so that it can adequately enjoy and enforce its right.
Thirdly, what disclosure remedy should be available to M&R?
Mitsubishi submitted that should it make the requested disclosures, it would be in breach of its confidentiality undertakings, contained in clause 1.12 of the subcontract agreement. This clause states that information regarding the contract may not be made available to any third party, under the main contract with Eskom. Mitsubishi relied on the interpretation that third party means any party that is not a party to the contract.
This is in conflict with provisions in the main contract, which differentiate subcontractors from third parties. The contract allowed for making of relevant information available to subcontractors to complete the scope of the works. It was therefore not possible that a subcontractor could be considered a third party as then the subcontractor would not have access to relevant information to complete the scope of the works. Further, as part of the Conditions of Subcontract, disclosures made by contractors and subcontractors we required to be kept confidential from third parties. This again goes to demonstrate that there was no possibility that a subcontractor could be considered a third party.
It was thus held that Eskom, as a party to this appeal, had not attempted to prevent disclosure of such right and there was no reason why an order for such should be withheld.
Moreover, the remedy ordered by the Court was such that Mitsubishi must make disclosure of the portions of the various incentive agreements that are relevant to M&R and allow M&R to ascertain the contractual entitlements which have accrued to them under the incentive agreements.
On 23 September 2021 the SCA handed down judgment in which it dismissed an appeal by Traxys (formerly Metmar) and upheld the cross-appeal by Westbrook to a judgment of the full bench of the Gauteng Local Division of the High Court.
The facts of the case
During the period from August to November 2008, Traxys Africa Holdings (PTY) Ltd (Metmar) and Westbrook Resources Ltd (Westbrook) concluded agreements for the supply of three jigs for Westbrook’s mineral refining operation in Croatia. A dispute arose during the execution of the agreements in respect of the responsibility to commission the jigs. Westbrook instituted action proceedings against Metmar in the Gauteng Local Division of the High Court claiming for damages arising inter alia from Metmar’s failure to commission the jigs.
The issue of determination
The court had to determine the terms of the agreements between the parties and specifically, the party obliged to commission the jigs.
The arguments before the trial court
Westbrook claimed that the parties, duly represented, concluded a partly oral and partly written agreement whose material express, implied or tacit terms entailed that: Metmar undertook to sell and deliver to Westbrook three metal recovery plants, or jigs, as well ancillary equipment; (b) Metmar undertook to commission the jigs at the mining site (in Croatia) on delivery or within a reasonable time thereafter; (c) payments would be made by Westbrook to Metmar in accordance with the written part of the agreements, contained in three pro forma invoices; and (d) the purchase price of each jig was $450 000, totaling $1 350 000 for the three jigs.
Westbrooks pleaded that Metmar delivered the jigs but breached the agreements by failing to commission the jigs on delivery or within a reasonable time thereafter. Consequently, it paid all amounts due to Metmar in terms of the agreements except for the final payments payable on the commissioning of the jigs. It alleged that, as a consequence of the breach, the timeous completion of its operations was affected, and it suffered damages comprising loss of profit and incurred additional costs.
Metmar disputed Westbrook’s claim in respect of the material terms of the agreement. It pleaded that the written part of the agreement was that the equipment and its price were as reflected in the pro forma invoices. It argued that Westbrook and De Beer had agreed to attend to the commissioning of the equipment on site at their own cost and risk without its assistance or involvement. Metmar denied that the delivery of the equipment was a term of the agreement.
The trial court’s findings and the appeal to the full bench
The court found in favour of Westbrook. It held that the evidence before it proved the existence of a partly oral and partly written agreement that obliged Metmar to commission the jigs and issued a declaratory order that Metmar was liable for whatever damages Westbrooks could prove. Both parties were aggrieved by the court order’s failure to address the issues raised by them and the court’s misdirection in respect of the issues of determination. As a result, they applied for leave to appeal and to cross-appeal to the full bench.
The full court considered the separated issues [issues of determination]. It agreed with the court a quo’s decision that Metmar was obliged in terms of the agreement to commission the jigs. However, it merely dismissed the appeal with a cost order and did not issue a substantive order concerning its findings on the issues. Consequently, the parties applied for special leave to appeal to the SCA.
The SCA’s determination of the issues
The parties agreed to file on the same basis as the applications in the full bench to ensure that the separated issues are dealt with. The court clarified that there were in fact three agreements between the parties for the three jigs supplied. It stated that Westbrook could only successfully claim against Metmar if the questions posed for determination were responded to in its favour and set out in the order – which the courts below failed to do.
On the agreements, the SCA stated that the written part of the agreement was contained in the pro forma invoice thus not in dispute. The contention lay with the evidence of the oral agreements. Metmar argued that the evidence presented before the court on the oral agreement was contrary to the parol evidence rule.
In deciding the matter, the court agreed with the trial court’s findings on the terms of the oral agreements between the parties. It found that the probabilities favoured Westbrook’s argument that Metmar had undertaken the obligation to commission all three jigs.
In determining whether the evidence presented before the court on the oral agreements were contrary to the parol evidence rule, the court stated that there is a need to modify the rule in instances where agreements are partly written and partly oral. It further stated that the modification gives rise to the application of the partial integration rule which was set out in Affirmative Portfolios CC v Transnet Ltd t/a Metrorail as follows:
“The parol evidence rule applies only where the written agreement is or was intended to be the exclusive memorial of the agreement between the parties. Where the written agreement is intended merely to record a potion of the agreed transaction, leaving the remainder as an oral agreement, then the rule prevents the admission only of extrinsic evidence to contradict or vary the written portion without precluding proof of the additional or supplemental oral agreement.”
On the application of the rule, the court found that the written aspects of the agreements dealt with delivery, purchase price and payment whilst the oral aspect dealt with the commissioning of the jigs. It held that the evidence of the oral arguments was not contrary to the partial integration rule as it did not contradict or vary the terms of the written agreement but supplemented it.
The court dismissed the appeal and upheld the cross-appeal, both with costs. Additionally, it set aside the order of the full bench and made an order that responded to the separated issues.
Comments
This case reaffirms our courts’ position in respect of the application of the parol evidence rule. The court was correct in its application of the rule in this matter as it encapsulates an approach that is relevant to a partly oral and partly written agreement. The evidence pointed to agreements that were partly oral and partly written, thus Metmar’s reliance on the parol evidence rule which is applicable in cases where the parties intended the written agreement to be “an exclusive memorial of the transaction” was incorrect.
As an aside and probably of great importance, the case encourages the need for awareness in respect of agreements. Parties must be mindful of the terms they are agreeing to both on paper and orally as the undertakings given in an attempt to maintain a contractual relationship may result in binding obligations.
On 20 September 2021 the SCA handed down judgment in which it upheld an appeal by SANRAL to a judgment by the Gauteng Division of the High Court where the court granted an interdict restraining SANRAL from making a claim under a performance guarantee pending arbitration proceedings.
The facts of the case
On 30 September 2016, the South African National Roads Agency SOC Limited (SANRAL) and Fountain Civil Engineering (Pty) Ltd (FCE) entered into a written agreement for certain improvements to a section of the R23 Freeway near Standerton based on the FIDIC RED BOOK 1999 edition (the “Contract”). The Contract required FCE to obtain performance security to the value of 10% of the contract sum. Lombard Insurance Co Ltd issued the guarantee.
FCE did not complete the works and issued a notice of termination to SANRAL on 15 October 2018 due to community unrest, riot, commotion, lockout and disorder in the area; a misrepresentation of the site conditions; and a failure to assess multiple claims for extensions of time. FCE informed SANRAL that it would cease all work and remove its machines and personnel from the site.
The parties engaged in discussions concerning the resumption of the works following the notice of termination, but to no success. Consequently, FCE confirmed its election to terminate the Contract. In response, SANRAL alleged that it had given FCE a notice of termination on 15 May 2019 in terms of clause 15.2 on the basis that FCE and its subcontractor had, inter alia, abandoned the site and the conditions complained of were caused by FCE’s subcontractor. In addition, SANRAL informed FCE of its intention to claim under the guarantee. In June 2019, FCE applied to the Gauteng Division of the High Court Pretoria (the “High Court”) for an order interdicting SANRAL from making a claim.
The issue
The appeal court had to consider whether the court a quo was correct in granting an interdict restraining the beneficiary (of an unconditional performance guarantee) from making a claim under the guarantee pending arbitration proceedings.
The High Court
In the Court a quo, FCE argued that a claim by SANRAL under the performance guarantee would be unlawful as SANRAL was precluded from claiming any amount under the guarantee except in the circumstances provided for in Clause 4.2 of the Contract. FCE submitted that it had a clear negative right against a claim of security unless the claim complied with the Contract and SANRAL’s claim did not so comply. It alleged that it had established a prima facie right to enforce the dispute resolution provisions of the Contract to resolve pending disputes prior to any claim by SANRAL.
SANRAL opposed the application on the basis that it was entitled to submit a claim under the performance guarantee as contemplated in clause 4.2(b) of the Contract due to FCE’s admission of liability to SANRAL for delay damages prior to its purported termination. It further argued that the indemnification provided in clause 4.2 against all damages, losses and expenses resulting from invalid claims on the performance guarantee was an adequate alternative remedy to an interdict.
The court found that FCE demonstrated a prima facie right to terminate the Contract based on force majeure due to community unrest or at the very least to have the legality of the termination be heard under the dispute resolution mechanisms. In doing so, it decided that “FCE established an irreparable harm and that it was favoured by the balance of convenience”. It ordered that SANRAL was interdicted from making a claim under the guarantee pending the outcome of arbitration proceedings to be instituted by the FCE within 21 days of the order.
The Appeal Court
The appeal court reaffirmed its decision in Joint Venture between Aveng (Africa) Pty Ltd and Strabag International GmbH v SANRAL and Another (“Aveng”), in which it was held that a performance guarantee in the same terms was unconditional and the contractor’s failure to complete the works on account of force majeure did not prevent SANRAL from making a demand on the performance guarantee.
In response to FCE’s contention to amend and grant what it viewed as a ‘lesser’ form of relief to that which was ordered in the high court (that SANRAL was precluded from invoking the guarantee pending a determination by the engineer), the court found that FCE failed to establish a prima facie right and the order sought on appeal was not in conformity with the case that SANRAL was called to meet. It affirmed its position in Aveng that a claim on a guarantee is permissible regardless of any disputes under the Contract and that the Contract does not require that an entitlement to the guarantee be proven before a demand can be made.
The court upheld the appeal with costs and set aside the court a quo’s order ordering the dismissal of the application with costs.
Comments
Though not expressly mentioned, it seems that the court agreed with the appellant’s contention that Clause 4.2 provides an alternative remedy to an interdict. This is affirmed by both this judgment and Aveng which highlighted the purpose of the indemnity in the clause. The clause provides a safeguard for the Contractor in the event of resultant damages, losses and expenses if the employer was not entitled to make the claim under the performance guarantee. Contractors have to be aware of the risk that there are very limited instances that an employer can be interdicted from drawing down on a guarantee.
Recently, the Pietermaritzburg High Court was approached to render a decision regarding the enforcement of clause 10.6.1.2 of the General Conditions of Contract for Construction Works, third edition (2015) (“GCC2015”) in the circumstances specific to its case.
Clause 10.6.1.2 of the GCC2015 provides that where a party disagrees with the outcome an adjudication, it may notify the other party and the adjudicator and the other party of such disagreement and refer the matter to court or arbitration, depending on what is selected in terms of the contract data. Such notice must be given after 28 days from the date of decision but before 56 days after the date of the decision. The applicant sought to have the enforcement of this clause and the time period contained therein declared as contra bonos mores but only in relation to its specific case, as it affects the applicant’s ability to dispute the second respondent’s decision.
In this particular case, the first respondent initiated adjudication proceedings under the contract to resolve a dispute that had arisen around the levying of a management fee in terms of a certain portion of its contract with the applicant. In this regard, when tendering for the contract, the first respondent did not include a rate at item B13.06 of the project specification for management fee in respect of subcontract work and the applicant took the view that no management fee was to be charged for this portion of the contract. The first respondent disagreed with this and contended that this view was irrational. The first respondent contended that the overall purpose of the contract was for routine road maintenance to be performed by emerging contractors and that its primary function in terms of this contract was to manage the work of the emerging contractors. Further, it contended that contract provided for a management fee to compensate the successful tenderer for the supervision of the subcontractor’s work and that while it had not included a rand value it had tendered a rate of 20% for work completed by appointed subcontractors, its tender had been accepted and therefore the applicant had accepted the first respondent’s rate.
The second respondent, in his capacity as the only member of the adjudication board contemplated by the GCC2015 found in favour of the first respondent and issued his decision. This decision was received by the applicant on 24 March 2020. Either of the parties was therefore entitled to issue notice of its disagreement with the decision between 23 April 2020 and 22 May 2020, which was the period after the 28 day “cooling off” period prescribed by clause 10.6.1 but before the 56 day cut off. The applicant did not adhere to this time period and only gave its notice on 12 August 2020. The first applicant alleged the following reasons for this:
The first respondent’s argument relied heavily on the fact that the applicant had agreed to the terms of the contract and were therefore aware of the time bar provisions and had agreed to those too.
The Honourable Court, in reaching its decisions considered judicial precedence in the form of inter alia Barkhuizen v Napier (1) , Sasfin v Beukes (2) and Beudica 231 CC v Trustees, Oregon Trust and others (3).
The applicant’s attorneys argued that the test set out in Barkhuizen v Napier should be applied to clause 10.6.1.2, which is a two part test as follows:
However, the applicant did not contend that the clause itself was objectionable as a whole, and as such only the second part of the test was be applied. However, the Honourable Court set out in detail why the applicant’s reasoning did not support declaring the clause as unenforceable.
The essential question that the court had to answer in this regard was whether or not the factors proffered by the applicant prohibited it from complying with the time- bar clause.
The applicant’s claim that it could not issue a notice due to a lack of representation and the national lockdown was shown to be flawed as the deponent to the applicant’s affidavit admitted that she had a “general knowledge of the law” and the Honourable Court also expressed the view that the applicant did not need to be an expert to determine that the time period was running and that a notice needed to be issued.
Further, the Covid-19 argument offered by the applicant was also not accepted by the Honourable Court and was countered by the Honourable Court supporting the view that public policy requires that parties entering into a contract freely should be bound by the terms thereof.
The applicant also, in the Honourable Court’s view did not advance any facts which could lead to the clause being declared contra bones mores. The Honourable Court therefore dismissed the applicant’s case.
The Honourable Court therefore has followed the view of many courts before it that while there may be situations where a clause in a contract cannot be enforced due to being against public policy or unfair, in order for a court to deny enforcement, the person alleging the unfairness or clause being against public policy needs to show valid reasons for this which reasons trump the view that public policy in fact requires parties to freely contract and for said contract to be upheld.
On 28 June 2021, the SCA handed down judgment in which it dismissed an appeal by Sasol South Africa (Pty) Ltd to a judgment by the South Gauteng High Court where the court held that a party to a contract is not entitled to ignore the adjudicator’s decision on the ground that it considers it to be invalid.
The Facts
Murray & Roberts Limited (the “Respondent”) was contracted in terms of the NEC Engineering and Construction Contracts by Sasol South Africa (Pty) Ltd (the “Appellant”) to render certain engineering and construction services at its Secunda plant. The Contract provided for the appointment of a Project Manager (the “PM”) to perform certain functions and duties. In addition, it provided for a dispute resolution procedure in terms of Option W1 of the NEC ECC.
Various disputes arose during the execution of the contract relating to the correctness of the PM’s assessments on payment claims made by the Respondent in terms of the Contract. Ten disputes related to the application of PMC200: The PM’s instructions. Pursuant to the contract, two of the ten disputes were referred to adjudication and later arbitration. The eight others arose after the referral. The arbitrator decided in favour of the Respondent and requested the PM to implement the terms of the arbitral award by adjusting payments to all ten disputes. On the Appellant’s instructions, the PM selectively applied the terms of the award. Dissatisfied by this, the Respondent notified Dispute 16 (“D16”).
During the adjudication of Dispute 16, the appellant argued that the Respondent sought the adjudicator to revisit and reconsider a decision in respect of which he had
already issued an award, and the adjudicator lacked jurisdiction in this regard. This was rejected by the adjudicator, who then decided on D16. The Respondent applied to the High Court for an enforcement order to which the Appellant counter-applied for a review of the adjudicator’s decision. The High Court dismissed the counter-application with costs. The Appellant appealed the decision of the High Court.
The Appellant arguments
In the SCA, the Appellant made submissions regarding the procedural aspects and, in the alternative, the merits of the adjudicator’s decision. In respect of the procedural aspects, the Appellant made three submissions. It contended firstly that the adjudicator decided on the same matters twice which is something he was contractually prohibited from doing. Secondly, the adjudicator received information after the expiry of the period within which he was allowed to do so. And lastly, the Adjudicator’s decision was issued when his jurisdiction had ceased.
In the alternative, the Appellant contended that the adjudicator erred in deciding that the arbitral award applied to all payment assessments. It argued that the award was only applicable to disputes referred to arbitration and not all ten disputes due to the hierarchy in the dispute resolution process, which it asserted would have been rendered useless by the application of the award to all ten disputes.
The SCA’s decision
The court held that the Arbitration Tribunal determined certain principles which had to be applied by the PM in terms of the contract. On the contention that the adjudicator decided on the same dispute twice, the court stated that D16 related to whether the PM was incorrect in withholding payment in the face of the arbitrator’s findings as a
result of PMC200. In this regard, the court looked at Clause 50.5 of the contract which provided as follows:
“The Project Manager corrects any wrongly assessed amount due in a later payment certificate”
and 51.3 which provided as follows:
“If an amount due is corrected in a later certificate either
Interest on the correcting amount is paid. Interest is assessed from the date when the incorrect amount was certified until the date when the correcting amount is certified and is included in the assessment which includes the correcting amount.”
On this basis, the court held that the contract obliged the PM to consider and give regard to the contractual entitlements determined by the arbitrator. It further found that Clause W1.3(5) of the Contract empowered the Adjudicator to “review and revise any action or inaction of the PM”. It held that when acting under this clause, the adjudicator is not reconsidering a decision but simply performing a contractual function the adjudicator failed to perform and applying the award.
On the contention that the adjudicator’s jurisdiction had ceased when the decision was issued, the court found that the adjudicator’s contract and the construction contract allowed for the request and provision of “additional information” and place no limitation on the request and provision. The court held that the adjudicator acted pursuant to the contracts, which allowed and required him to gather sufficient facts to enable him to
make a decision, and within the framework provided. Consequently, the contention was rejected.
Regarding non-performance on the basis of invalidity, the court found that the contract required a party to notify its intention to refer a dispute to arbitration in the event that an adjudicator does not notify his decision within the prescribed period. The Court held that consequent the Appellant’s failure to comply with the procedural requirements to challenge the adjudicator’s decision, the decision remained binding and enforceable as a matter of contractual obligation between the parties.
In its order, the court dismissed the appeal and amended the High Court’s order to reflect the true position as per the draft order provided by the Respondent, in acknowledgement of payments that had already been made by the Appellant.
The Importance of the case
In the first instance, the case confirms the importance of challenging the validity of an adjudicator’s decision(s) due to the consequences that may emanate from failing to perform in its terms. It cautions parties who agree on adjudication to appreciate the binding nature of the decisions that stem from the proceedings and ensure compliance with procedural requirements should a question of validity arise. A party who has agreed to adjudication cannot unilaterally refuse to perform in terms of an adjudicator’s decision simply because they think it is invalid without following due process.
Further, the court clarified the position regarding the existence of a hierarchy between the contracts: the construction contract and the adjudicator’s contract. The court stated that the adjudicator’s contract prevails over the contract between the parties when determining questions relating to the performance of the adjudicator’s functions and duties, and such hierarchy also must be appreciated by the parties
On 19 January 2021, the Port Elizabeth High Court handed down judgment in which it reviewed and set aside an arbitration award in terms of Section 33(1) of the Arbitration Act 42 of 1965.
The Facts
The Applicant entered into subcontractor agreements with the Second and Third respondents in terms of the FIDIC’s “Red Book” (1999) for certain co-joined piping works. The Employer rejected the works due to defects and requested that remedial works be undertaken. The Second respondent represented to the Applicant that the Third respondent was the sole cause of the defective works. The Thirdrespondent refused to remedy the works, and accordingly, the Applicant appointed the Second respondent to do the remedial works. Upon completion, a dispute arose on the payment of the Second respondent due to the extension of the time for completion that resulted from the remedial works. The parties agreed on arbitration and the appointment of the First respondent (“The Arbitrator”).
During arbitration, the Applicant submitted a counterclaim upon receiving expert opinion and expressed an intention to lead evidence on it. The Arbitrator determined the matter based on the documents in his possession without hearing evidence on the counterclaim and issued an arbitration award. Aggrieved by this, the Applicant instituted proceedings for the review and setting aside of the arbitration award. The Second respondent opposed the application and filed a provisional counter-application for the arbitration award to be made an order of court.
The issue
The court had to consider whether the Arbitrator committed a gross irregularity as envisaged in s33(1) of the Arbitration Act 42 of 1965 in the conduct of the arbitration proceedings by not affording the applicant an opportunity to present evidence and argument on its counterclaim.
The application of the law
Section 33(1) of the Arbitration Act provides for the setting aside of an arbitration award in instances where an arbitrator (a) misconstrued himself in relation to his duties or (b) has committed gross irregularity in the conduct of the proceedings. The Arbitrator argued that the parties were afforded an opportunity to indicate whether they intend to file further submissions on the counterclaims and the applicant did not file any submissions. He argued further that there was sufficient evidence in his possession to determine the issue of the counterclaim and as such the procedural irregularity, if any, did not cause prejudice to the applicant.
The court stated that the Arbitrator’s argument was void of merit. It stated that the Arbitrator acknowledged that it was not competent for him to determine the issue without hearing further representations on the counter claim in an email sent to the parties on 13 July 2017 where he advised as follows:
“Whereas all proceedings in the arbitration had been concluded, apart from the matter of the Respondent’s counterclaim, and for which appeared that some further presentations to the Arbitrator by the parties would warrant consideration, the arbitration process between Strata Civils and Pro-Khaya Construction with particular regard to the matter of the Respondent’s counterclaim, would be suspended.”
The Court’s findings and order
Consequently, the court found that the issue of the counterclaim had not been ventilated and the Arbitrator’s failure to afford the applicant an opportunity to lead evidence and/or make submissions on the counterclaim caused severe prejudice to the applicant and prevented a fair trial of the issues. The court held that the Arbitrator committed a gross irregularity in the conduct of the arbitration proceedings and set aside the arbitration award. The case was remitted to the Arbitrator to allow the parties to present evidence and submit representations on the Applicant’s counterclaim. The Second respondent was ordered to pay the costs of the application.
Importance of the case
The case illustrates the importance of fairness in arbitration proceedings in view of the binding nature of arbitration awards in Construction Contracts. An Arbitrator must ensure that all the issues are ventilated, and evidentiary issues, if any, are dealt with before a determination is made. An Arbitrator cannot unilaterally decide that there is sufficient documentary evidence to determine a matter in an instance where a party or both parties have an intention to present evidence or submit representations on an issue to be determined. This decision is merely of persuasive value to other courts of equal status, and it will be interesting to see how another court will decide on a matter of similar facts.
The Companies Act, No 71 of 2008 (“the Act”) brought about a new dawn for Insolvency Law in South Africa. The Act now provides for business rescue proceedings with the hope of giving effect to one of the purposes of the Act, namely to “provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders”. Great uncertainty however still exists regarding the meaning of certain provisions of Chapter 6 of the Act and the impact of the introduction of business rescue proceedings into our law system.
Systematically our courts are providing clarity to the meaning of the provisions of Chapter 6. An example of where our courts have given some clarity was in the case of Richter v ABSA Bank Limited1. In this case the Supreme Court of Appeal (“SCA”) had to determine whether it was possible for an affected person to apply for a company to be placed under business rescue after an order for the final liquidation of that company has been made. The “affected person” the Act refers to is defined as any registered trade union representing employees of that company, any employee who is not represented by a registered trade union, as well as any shareholder or creditor of the company.
Section 131(1) & (6) of the Act states the following:
“(1) Unless a company has adopted a resolution contemplated in s129, an affected person may apply to a court at any time for an order placing the company under supervision and commencing business rescue proceedings.
(6) …if liquidation proceedings have already been commenced by or against the company at the time an application is made in terms of subsection (1), the application will suspend those liquidation proceedings until:
(a) the court has adjudicated upon the application; or
(b) the business rescue proceedings end, if the court makes the order applied for.”
In the past there have been conflicting judgements regarding what the phrase “liquidation proceedings” referred to in section 131(6) entails. In Richter v ABSA Bank Limited the SCA stated in their judgment that the crux of the matter was whether the interpretation of “liquidation proceedings” within the context of section 131(6) referred only to a pending application for liquidation, or that it meant to include the process of winding-up of a company after an order of final liquidation has been granted. In the end they concluded that section 131(6) has the effect of suspending the liquidation proceedings after an order of final liquidation has been granted. It was therefore confirmed by the SCA that it is indeed competent for an affected person to apply for business rescue proceedings after an order of final liquidation has been granted.
The fact that an affected person can apply for business rescue proceedings does not however mean that the application for business rescue proceedings cannot be opposed by the liquidators of the company in question. In Van Staden NO and Others v Pro-Wiz Group (Pty) Ltd2 (“the Van Staden NO case”) the SCA determined that the liquidators of a company, whether provisional or final, are entitled and have the necessary locus standi to oppose an application for business rescue if they do not believe that the business rescue proceedings are in the best interest of the company and its creditors.
The SCA in the Van Standen NO case also held that business rescue proceedings exist for the sake of rehabilitating companies that had fallen on hard times but were
capable of being restored to profitability or, if that was impossible, to be employed where it would lead to creditors receiving an enhanced dividend. The World Bank states, in regard to business rescue, that “the rescue of a business preserves jobs, provides creditors with a greater return based on higher going concern values of the enterprise, potentially produces a return for owners and obtains for the country the fruits of the rehabilitated enterprise”3.
The potential advantages of business rescue proceedings, whether the business rescue is successful or not, is therefore greater than that of liquidation, but it is inevitable that our courts are going to be confronted with cases where the purpose behind the business rescue applications was not to achieve either of these goals, and had a mala fide intention, like to delay the liquidations proceedings. The SCA in the Van Staden NO case held that in such an instance a punitive cost order is appropriate against the applicants for the business rescue application which should hopefully deter any mala fide business rescue applications.
With more and more companies struggling financially in this economic climate the judgement handed down in Richter v Absa Bank Limited will give affected persons viable options to consider, which they did not previously possess, with possible advantages for all stakeholders in that company as well as the South African economy
The Western Cape High Court handed down judgement in the matter of Confact Core Construction CC v JLK Construction (Pty) Ltd on 25 November 2020. Confact had applied for an order giving effect to an adjudication award. JLK alleged that the referral to adjudication was not competent. Failing such a finding, JLK counter applied for an order suspending the implementation of the adjudication award on the grounds that it would suffer substantial injustice should the award be given effect.
The agreement between Confact and JLK was governed by the JBCC Edition 5.0 N/S subcontract agreement. If a disagreement arises, Clause 40 thereof requires the aggrieved party to give notice to the other to resolve the disagreement. If the disagreement is not resolved within 10 working days of this notice it is deemed to be a dispute and the aggrieved party has the option to refer it to either adjudication or arbitration. The adjudication is governed by the JBCC Adjudication Rules which stipulate that the parties must appoint the adjudicator by mutual agreement within 5 days of the disagreement being deemed a dispute. Where an appointment is not made in that period, either party may request the nominating body to appoint an adjudicator. The adjudicator’s decision is binding on the parties who must give effect to it without delay unless and until it is subsequently revised by an arbitrator.
The Principal Building Agreement between the Employer and JLK was terminated in December 2018, which resulted in the termination of the subcontract agreement between JLK and Confact. In January 2020 Confact demanded payment of sums due in respect of work done and the return of retention. JLK did not respond and Confact gave notice to JLK to resolve the disagreement in February 2020. The disagreement was not resolved within 10 working days, was deemed to be a dispute and Confact elected to refer it to adjudication. JLK and Confact were not able to agree on an adjudicator and Confab requested the nominating body to appoint an adjudicator in March 2020. Confact made submissions to the adjudicator in May 2020, but JLK failed to respond. The adjudicator delivered a decision in favour of Confact in June 2020. Despite demand, JLK failed to make payment in terms of this award.
JLK also argued against the implementation of the award on the grounds that it still had the right to refer the dispute to arbitration and had, in fact, done so. The court rejected this argument on the grounds that there are numerous authorities that support the proposition that a party to a construction contract is obliged to give effect to the terms of an adjudication award, including payment, until it is set aside (See Esor Africa (Pty) Ltd/Franki Africa (Pty) Ltd joint Venture v Bombela Civils Joint Venture, Case 2012/7442, para13; Tubular Holding (Pty) Ltd v DBT Technologies (Pty) Ltd 2014 (1) SA 244 (GSJ) para 40; Basil Read (Pty) Ltd v Regent Devco (Pty) Ltd [2011] JOL 27946 (GSJ)). Regardless of whether JLK exercises its contractual right to refer the dispute to arbitration, it is bound by the adjudicator’s decision and must give effect to it without delay, unless and until the adjudicator’s decision is set aside by an arbitrator.
In its counter application JLK argued that the implementation of the adjudicator’s award should be suspended pending the outcome of the arbitration process because the adjudication process was unnecessary, JLK did not have an opportunity to challenge Confact’s claim, and JLK had been indicating since June 2020 that it intended to refer the adjudication award to arbitration. For these reasons JLK alleged that it would suffer substantial prejudice if the suspension was not granted and that it was in the interests of justice to suspend the implementation of the adjudicator’s award. The court found that it was Confact who would suffer real and substantial prejudice should the adjudicator’s award not be implemented. The court has a discretion to grant a suspension of an order where real and substantial injustice will otherwise be done, but JLK had wilfully refused to pay Confact for some 18 months, refused to agree on an adjudicator and refused to participate in the adjudication process. It was not, therefore, open for it to complain that it had not been afforded the opportunity to challenge Confact’s claim. The court also pointed out that despite JLK’s assertion that it required the dispute to be ventilated by arbitration, there was no evidence before the court that JLK had referred the matter to an arbitrator. JLK had, therefore, dismally failed to reach the threshold of exceptional circumstances required to satisfy the granting of a suspension order.
This case note deals with a very interesting judgment delivered on 26 January 2021, by the High Court of Ireland, in the matter between “Gravity Construction Limited (the applicant hereinafter referred as “Gravity”) v Total Highway Maintenance Limited (the respondent hereinafter referred as “Total Highway”) 2020 No. 153 MCA [2021] IEHC 19”.
This judgment turned around an application to enforce an adjudication award pursuant to the Construction Contracts Act 2013.
In brief overview, the Construction Contracts Act 2013 is broadly modelled on the UK’s Housing Grants, Construction and Regeneration Act 1996 and the Construction Contracts (Northern Ireland) Order 1997 and makes it possible and provides for the enforcement of adjudications in construction disputes on an expedited basis. Similar to many dispute resolution clauses found in standard form construction contracts known in South Africa, adjudications under this act are binding pending the resolution of further dispute between the parties by way of arbitration or legal proceedings.
Section 6(10) of the Construction Contracts Act, 2013, stipulates:
“The decision of the adjudicator shall be binding until the payment dispute is finally settled by the parties or a different decision is reached on the reference of the payment dispute to arbitration or in proceedings initiated in a court in relation to the adjudicator’s decision.”
Summary of facts
The adjudicator’s decided that a sum of €135,458.92 was payable by Total Highway to Gravity within fourteen days of the date of the decision, plus the adjudicator costs in the sum of €13,168.75, plus VAT as applicable. Total Highway did not comply with the decision, resulting in Gravity to proceed with an application to enforce the adjudicator’s decision.
During the application proceedings, Total Highway’s initial response to Gravity’s claim was that the matter should be referred to arbitration, and that payment of the award be stayed pending the outcome of the arbitration proceedings. Later in the proceedings, this changed, and Total Highway indicated that it was prepared to pay Gravity the costs of the award, together with the adjudicator’s costs and interest. Because of this change compared to Total Highway’s initial position, the court had to determine two issues:
· whether the court should make an order against Total Highway in circumstances where it has been indicated by Total Highway’s counsel that they were prepared to give a formal undertaking to the court that the monies will be paid within two weeks from the day of the hearing of application; and
· allocation of the costs of the proceedings.
Total Highway’s counsel submitted that, in circumstances where an undertaking can be provided to the court that the award would be paid within two weeks, the proceedings should be adjourned to allow this to happen and further submitted that it was unnecessary to enter judgment against Total Highway. In the alternative, if the court was against this, they suggested that the court make an “unless” order. Gravity’s counsel in response submitted that Gravity is entitled to judgment, and that the court should have regard to the legislative intent underlying the Construction Contracts Act 2013.
It was viewed that the framing of the order as an “unless” order, represented an appropriate compromise in that it respected the statutory entitlement of Gravity to relief in terms of the Construction Contracts Act 2013, while it afforded Total Highway a very short period of time within which to make the payment without a judgment being formally entered against it, which would further avoid the negative implications thereof.
Court’s order
The court decided that the appropriate form of order is an “unless” order. It still provides that Gravity has leave to enforce the adjudicator’s decision in the same manner as a judgment or order of the High Court, and that judgment is to be entered against Total Highway in favour of Gravity in the sum claimed, unless the said sum is paid to Gravity’s attorneys within seven days of 26 January 2021.
Conclusion
This case is very interesting, and it leaves uncertainty how this is going to impact any future applications for enforcement of adjudicator’s decisions (if at all) in the UK courts. The effect and result of the order that was given, resulted that the time for payment by Total Highway was pushed out a little further by extra few days, which avoided an immediate judgment against them for payment, and further negative consequences related thereto.
To date, our South African courts have continued to enforce adjudicator’s decisions, as it remains binding on the parties, pending finalisation of a dispute referred to arbitration or other proceedings
On 2 November 2020, the Supreme Court of Appeal handed down judgment in which it declared as invalid the Preferential Procurement Regulations of 2017 (2017 Regulations) and set same aside, as published by the Minister of Finance under section 5 of the Preferential Procurement Policy Framework Act 5 of 2000 (Framework Act) in the Government Gazette.
BACKGROUND
On 20 January 2017, the Minister (the respondent), in terms of section 5 of the Framework Act adopted the 2017 Regulations and caused them to be gazetted. On 19 May 2017, Afribusiness (the applicant) lodged an application in the Gauteng Division of the High Court, Pretoria against the Minister of Finance, the respondent, inter alia seeking the relief that:
1. the promulgation and adoption of the 2017 Regulations be reviewed and set aside;
2. it be declared invalid;
3. the respondent to pay the costs of the application.
On 28 November 2018, the Gauteng Division of the High Court, Pretoria upheld the respondent’s contentions with costs, including the costs of two counsel. Subsequently the applicant applied for leave to appeal in the same court, which was similarly dismissed.
Subsequent to the proceedings in the High Court, the South African Property Owners’ Association NPC (SAPOA), a non-profit company whose mission is to represent, protect and advance its members’ commercial property interests within the property industry, applied to this Court to be admitted as amicus curiae. SAPOA alleged that its interest in this appeal is ensuring a competitive bidding process in the property sector and, in particular, properties supplied to organs of state. SAPOA adopted the position that the appeal ought to succeed. The contentions advanced on behalf of SAPOA were clearly new and of assistance to the Court in dealing with the merits of the appeal. As the submissions from the amicus undoubtedly assisted the court in its deliberations, the application for admission had to succeed.
The applicant with SAPOA, brought the matter before the Supreme Court of Appeal (SCA).
The applicant’s application raised particular issue with regulations 3(b), 4, 9 and 10 of the 2017 Regulations.
The applicant submitted that the 2017 Regulations, in particular Regulations 4 and 9 provide respectively, for pre-qualification criteria, which must be applied before determining the award of a tender on the preference point system. It contended that the purpose of pre-qualifying and sub-contracting criteria is to prefer ‘designated groups’ above other tenderers. The result being, that the 2017 Regulations provides that the tenderers who qualify to tender, may first be determined according to, inter alia, race, gender and disability, and only thereafter in terms of the preference points system. It argued that section 2 of the Framework Act does not allow for qualifying criteria, which may disqualify a potential tenderer from tendering for State contracts. The applicant’s counsel referred to previous cases, Mosene Road Construction v King Civil Engineering Contractors and Grinaker LTA Ltd v Tender Board (Mpumalanga).
SAPOA submitted that the pre-qualification criteria provided for in regulation 4 of the 2017 Regulations are contrary to the objective of competitive bidding and inconsistent with section 217 of the Constitution. It argued that the blanket ‘permission’ to apply pre-qualification criteria, in terms of regulation 4, without creating a framework for that criteria, lends itself to abuse and the manipulation of tenders to the detriment of potential bidders. It further submitted that insofar as the respondent may be empowered to create an additional framework outside section 2 of the Framework Act, the respondent has failed to do so in a manner that is rational, lawful and fair.
The respondent submitted that section 2 of the Framework Act does not constrain the respondent. It constrains the organs of state. It argued, when the respondent makes regulations, it does not act as an organ of state and is not exercising powers under s 217(1) of the Constitution. The source of power lies in section 5 of the Framework Act. Section 5 of the Framework Act confers wide powers on the respondent to legislate what is considered to be “necessary or expedient”. Respondent’s counsel relied on cases Omar and Others v Minister of Law and Order and Another; Fani and Others v Minister of Law and Order and Others; State President and Others v Bill 1987(3) SA 859 (A),in which the phrase ‘necessary or expedient’ was interpreted as conferring on the respondent wide discretionary powers.
ISSUES DECIDED
The matter concerns the validity of the 2017 Regulations promulgated on 20 January 2017 under section 5 of the Framework Act. Whether this is a PAJA or legality review, and/or whether or not the respondent exceeded its powers in promulgating the regulations and that it was indeed subject to review.
THE LAW
Section 5 of the Framework Act empowers the respondent to make regulations, and provides that the respondent:
1. may make regulations regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects of this Act.
2. draft regulation must be published for public comment in the Government Gazette and every Provincial Gazette before promulgation.
According to its Preamble, the Framework Act was enacted to give effect to section 217(3) of the Constitution by providing a framework for the implementation of the procurement policy contemplated in section 217(2) of the Constitution and to provide for matters connected therewith.
In the Framework Act, “preferential procurement policy’ is defined to mean “a procurement policy contemplated in s 217(2) of the Constitution”. Section 1 further defines ‘acceptable tender’ to mean “any tender which, in all respects, complies with the specifications and conditions of tender as set out in the tender document”.
Section 217 of the Constitution reads:
“(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for─
(a) categories of preference in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.
(3) National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented.”
The relevant regulations raised in issue under the 2017 Regulations:
Regulation 4(1):
“(1) If an organ of state decides to apply pre-qualifying criteria to advance certain designated groups, that organ of state must advertise the tender with a specific tendering condition that only one or more of the following tenderers may respond-
(a) a tenderer having a stipulated minimum B-BBEE status level of contributor;
(b) an EME or QSE;
(c) a tenderer subcontracting a minimum of 30% to-
(i) an EME or QSE which is at least 51% owned by black people;
(ii) an EME or QSE which is at least 51% owned by black people who are youth;
(iii) an EME or QSE which is at least 51% owned by black people who are women;
(iv) an EME or QSE which is at least 51% owned by black people with disabilities;
(v) an EME or QSE which is 51% owned by black people living in rural or underdeveloped areas or townships;
(vi) a cooperative which is at least 51% owned by black people;
(vii) an EME or QSE which is at least 51% owned by black people who are military veterans;
(viii) and EME or QSE.”
Regulation 4(2): “…tender that fails to meet any pre-qualifying criteria stipulated in the tender documents is an unacceptable tender.”
Regulation 9:
“(1) If feasible to subcontract for a contract above R30 million, an organ of state must apply subcontracting to advance designated groups.
(2) If an organ of state applies subcontracting as contemplated in subregulation (1), the organ of state must advertise the tender with a specific tendering condition that the successful tenderer must subcontract a minimum of 30% of the value of the contract to-
(a) an EME or QSE;
(b) an EME or QSE which is at least 51% owned by black people;
(c) an EME or QSE which is at least 51% owned by black people who are youth;
(d) an EME or QSE which is at least 51% owned by black people who are women;
(e) an EME or QSE which is at least 51% owned by black people with disabilities;
(f) an EME or QSE which is at least 51% owned by black people living in rural or underdeveloped areas or townships;
(g) a cooperative which is at least 51% owned by black people;
(h) an EME or QSE which is at least 51% owned by black people who are military veterans; or
(i) more than one of the categories referred to in paragraphs (a) to (h).
(3) The organ of state must make available the list of all suppliers registered on a database approved by the National Treasury to provide the required goods or services in respect of the applicable designated groups mentioned in subregulation (2) from which the tenderer must select a supplier.”
SCA VIEW
With reference to the Framework Act, it held that the respondent may only make regulations “regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects of the Act”. Section 2 of the Framework Act is headed “Framework for the implementation of preferential procurement policy”. On a proper reading of the regulations, the respondent failed to create a framework as contemplated in section 2. It is correct that the application of the pre-qualification requirements is largely discretionary. But the regulations do not provide organs of state with a framework which will guide them in the exercise of their discretion should they decide to apply the pre-qualification requirements.
The discretionary pre-qualification criteria in regulation 4 of the 2017 Regulations constitutes a deviation from the provision of section 217(1) of the Constitution, which enjoins organs of state when contracting for goods or services, to do so in in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.
Any pre-qualification requirement which is sought to be imposed must have as its objective the advancement of the requirements of section 217(1) of the Constitution. The pre-qualification criteria stipulated in regulation 4 of the 2017 Regulations, and other related regulations, do not meet this requirement. Points are to be allocated to bidders based on the goals set out in section 2 of the Framework Act. The discretion which is conferred on organs of state under regulation 4 to apply pre-qualification criteria in certain tenders, without creating a framework for the application of the criteria, may lend itself to abuse and is contrary to section 2 of the Framework Act.
The procurement process must comply with five key principles: it must be equitable, transparent, fair, competitive and cost-effective. The court referred to the case of Airports Company South Africa SOC Ltd v Imperial Group Ltd and Others.
The respondent’s promulgation of regulations 3(b), 4 and 9 was unlawful. The respondent acted outside his powers under section 5 of the Framework Act. In exercising the powers to make the 2017 Regulations, it had to comply with the Constitution and the Framework Act, which is the national legislation that was enacted to give effect to section 217 of the Constitution. The framework providing for the evaluation of tenders provides firstly for the determination of the highest points scorer and thereafter for consideration of objective criteria which may justify the award of a tender to a lower scorer. The framework does not allow for the preliminary disqualification of tenderers, without any consideration of a tender as such. The respondent cannot create a framework which contradicts the mandated framework of the Framework Act.
The respondent’s decision is ultra vires the powers conferred upon him in terms of section 5 of the Framework Act. The Constitutional Court held in Minister of Constitutional Development and Another v South African Restructuring and Insolvency Practitioners Association and Others [2018] ZACC 20; 2018 (5) SA 349 (CC) para 27, that the rule ultra vires ‘forms part of the principle of legality which is an integral component of the rule of law’.
The respondent may not make regulations which permit organs of state to incorporate in their tender documents conditions which are inconsistent with section 217 of the Constitution and the Framework Act. In its application, the antecedent step may well disqualify certain tenderers who do not otherwise fall to be disqualified by the Framework Act. In that the respondent has exercised a power that is reserved for the legislature.
In terms of section 172(1) of the Constitution:
“(1) When deciding a constitutional matter within its power, a court─
(a) must declare that any law or conduct that is inconsistent with the Constitution is invalid to the extent of its inconsistency; and
(b) may make any order that is just and equitable, including─
(i) an order limiting the retrospective effect of the declaration of invalidity; and
(ii) an order suspending the declaration of invalidity for any period and on any conditions, to allow the competent authority to correct the defect.’
This may include suspending the order of invalidity to enable the respondent to take corrective action or set aside the regulations, whose provisions are inconsistent with the Framework Act and section 217 of the Constitution.
SCA ORDER:
(a) The application succeeds with costs.
(b) It declared that the 2017 Regulations are inconsistent with the Framework Act and are invalid. (c) The declaration of invalidity referred to in para (b) above, was suspended for a period of 12 months from the date of the order.
We have often seen our clients agree to additional terms in their contracts or changes to existing terms orally – a “let’s shake on it and get moving” arrangement to keep the job going without delay. If you are a party that has made an oral agreement alongside a written contract, beware that it may be immaterial due to a principle in our law known as the parol evidence rule.
The case of Mike Ness Agencies CC t/a Promech Boreholes v Lourensford Fruit Company (Pty) Ltd explains this principle and illustrates its effect.
Promech Boreholes is a borehole drilling contractor. At the request of Lourensford, Promech provided a written quotation to drill a borehole on Lourensford’s farm. In the quotation, Promech undertook to “guarantee water within 70 metres” and that “if no water was found at 70 metres we will drill from 70 metres to 100 metres free of charge”. The quotation also stated that a payment of 50% of the total amount due would be transferred to Promech as soon as “sufficient water supply” had been found.
The borehole ended up yielding approximately 4,000 litres of water per hour. Notwithstanding this, Lourensford refused to pay Promech. Promech contended that “sufficient water” had been struck and decided to sue Lorensford. Lourensford contended that the parties had agreed that the borehole would yield 10,000 litres per hour and that as it did not do so, Lorensford was not obliged to pay Promech.
The parol evidence rule prescribes that where the parties to a contract have reduced their agreement to writing, it becomes the exclusive memorial of the transaction, and no evidence may be led to prove its terms other than the document itself, nor may the contents of the document be contradicted, altered, added to or varied by oral evidence. In other words, all other utterances of the parties on the topic are legally immaterial for the purpose of determining the terms.
The parties led considerable evidence on what their negotiations were, and what the intention had been, but this evidence was all clearly inadmissible. If a document was intended to provide a complete memorial of a jural act, extrinsic evidence may not contradict, add to or modify its meaning. Furthermore, interpretation is a matter of law and not of fact – i.e. a matter for the court and not for witnesses.
The written terms of the parties’ agreement contain no guarantee of the yield of the borehole. Instead, they provided that Promech would not charge for drilling if the hole yielded no water (no water, no pay). Therefore, “sufficient water” clearly meant no more that enough water to avoid the borehole being regarded as a dry hole.
In an attempt to overcome the parol evidence rule, Lorensford tried to argue that the agreement between the parties was partly written, partly oral. Where an agreement is partly written, partly oral, the parol evidence rule prevents the admission of extrinsic evidence that contradicts or varies the written portion of the agreement. The agreement clearly did not provide a guarantee as to a yield quantity and was merely that there would be no charge if the borehole was dry. The oral portion contended for, would therefore vary or contradict the written agreement and be inadmissible.
Accordingly,
the Supreme Court of Appeal concluded that Lourensford’s defence that Promech
had guaranteed a yield of 10,000 litres per hour could safely be dismissed and
that Promech was entitled to be paid.
On 12 May 2020, the High Court in the Western Cape Division, Cape Town, heard an application that was lodged by the trustees of the Yes Please Trust (“the applicant”) for the provisional winding-up of JW Blue Construction Management Proprietary Limited (“the respondent”). This provisional winding-up order was based on a demand issued in terms of section 345(1)(a)(i) of the Companies Act 61 of 1973 (“the 1973 Act”). In the alternative, if an order for the provisional winding-up was not successful, the applicant sought an order directing the respondent to give effect to an adjudication determination dated 21 November 2019, that was part of an award issued by an adjudicator who was appointed and made his determination under the provisions of a JBCC Minor Works Agreement (“the agreement”), entered into by the parties. The applicant sought payment of the sum, together with interest thereon.
Background
The parties entered an agreement during 2018. The respondent was contracted to refurbish a property owned by the applicant. The Dispute resolution clause, provided for a two-tiered dispute process: 1) adjudication, and thereafter, should a party give a dissatisfaction notice against the adjudicator’s determination, 2) referral to arbitration.
In 2019, certain disputes arose between the parties. A first dispute was referred to adjudication (“dispute 1”). Pending the determination, the agreement was terminated on 23 April 2019, and the determination was issued on 1 July 2019. The applicant was found to owe the respondent an amount of R238 245.32 (“the Dispute 1 Determination”). Despite issuing a dissatisfaction notice against the Dispute 1 Determination, thereby initiating arbitration proceedings, the applicant settled the amount it owed to the respondent, as per the adjudication determination.
On 2 July 2019, the respondent issued a second Notice of Adjudication in respect of a different dispute (“dispute 2”), which it wanted to be dealt with by the same adjudicator from dispute 1. The applicant objected to the referral of the dispute 2, and on 4 July 2019, its attorneys responded to the new referral stating that “Given that the agreement has been terminated, the proper route should be one of arbitration rather than adjudication”. The Respondent rejected the applicant’s contention.
As a result, the parties could not reach agreement and the respondent referred the matter to the Association of Arbitrators, who on 3 September 2019 directed that “[T]he dispute resolution clause of the agreement between the parties (Clause 22) exists independently of the agreement. There is a dispute. In terms of the applicable Rules an Adjudicator must be appointed. The Association of Arbitrators is the appointing authority.” Dispute 2 proceeded before a newly appointed adjudicator and the applicant defended with a counterclaim. The determination for dispute 2 (“the Dispute 2 Determination”) was issued on 21 November 2019. In terms of this determination, which included a final account and a final certificate, the respondent now owed the applicant money. The respondent issued a Notice of Dissatisfaction the next day. The applicant’s attorneys demanded payment of the amount, to which the respondent responded, that it did not dispute the amount owing, but merely raised an issue with the time frame for payment. A second demand letter was issued by the applicant on 29
November 2019, in terms of section 345 of the Companies Act, 1973, placing the respondent on terms that if the amount was not settled within three weeks from the date of delivery of the letter, the respondent would be deemed to be unable to pay its debts in terms of section 345 of the 1973 Act. Despite this, the respondent failed to make payment as demanded, resulting in the applicant’s court application brought on an urgent basis.
At the time of this court hearing, both dispute 1 and dispute 2 were, as agreed between the parties, subject to a single combined arbitration.
Issues before the court to be decided
The respondent inter alia contended the application on two defences:
Court’s views and findings
1) Applicant’s application an abuse of process:
The application was brought on an urgent basis with a request that it be heard as such and that the court dispense with the forms and requirements of the Rules of court in terms of Rule 6(12)(a). The court held that it is not unusual for applications of this nature to be brought as one of urgency on a short form of notice of motion. Any party opposing such application is given opportunity to do so either by agreement between the parties or by the court at the first appearance. This was the case. The matter was enrolled on 7 January 2020. On this date an order was obtained by agreement for the parties to file further papers, and the matter was postponed for hearing on 12 May 2020. No prejudice was suffered by any party.
The court in support, referred to other cases, Commissioner for SARS v Hawker Aviation Services (Pty) Ltd [2006] 2 All SA 565 (SCA), wherein the Supreme Court of Appeal held at p 569:
“Urgency is a reason that may justify deviation from the times and forms the rules prescribe. It relates to form, not substance, and is not a prerequisite to a claim for substantive relief. Where an application is brought on the basis of urgency, the rules of court permit a court (or a judge in chambers) to dispense with the forms and service usually required, and to dispose of it ‘as to it seems meet’ (Rule 6(12)(a)). This in effect permits an urgent applicant, subject to the court’s control, to forge its own rules (which must ‘as far as practicable be in accordance with’ the rules). Where the application lacks the requisite element or degree of urgency, the court can for that reason decline to exercise its powers under Rule 6(12)(a). The matter is then not properly on the court’s roll, and it declines to hear it. The appropriate order is generally to strike the application from the roll. This enables the applicant to set the matter down again, on proper notice and compliance.”
Because liquidation proceedings are by their very nature urgent, the court was satisfied that the applicant used the correct procedure in bringing his application.
2) Adjudicator’s award cannot be enforced due to termination and/or the award is challenged and subject of pending Arbitration:
The court held that it was common cause that the agreement was terminated on 23 April 2020. The respondent was aware thereof when it instituted the adjudication proceedings on Dispute 2. It was the applicant who initially objected to the Dispute 2 process being instituted and the respondent who persisted therewith. Due to the Dispute 2 Determination being in the applicant’s favour, the respondent now raised an issue. The court agreed with the applicant’s argument, that the respondent’s conduct in this regard, was not only legally bad, but demonstrated a lack of good faith.
Both the Dispute 1 and Dispute 2 proceedings were concluded after the agreement was terminated. After the Dispute 1 award, the respondent insisted on immediate payment of the award in its favour, despite that the applicant issued a Notice of Dissatisfaction against the Dispute 1 Determination. The respondent relied on the terms of the agreement that the adjudicator’s award remains in force and must be complied with until the award gets overturned in arbitration.
The court referred to clause 22 of the agreement, which provided that “[T]his clause [22.0] shall, to the extent necessary to fulfil its purpose, exist independently of the agreement.”
The court will not review or hear an appeal against the Dispute 2 Determination. For these reasons, the termination of the agreement had no bearing on the proper referral to adjudication, and no bearing on its outcome.
The court referred to the position adopted in Stocks & Stocks v Gordon 1993 (1) SA 156 (T), the outcome of which, have become settled in our law and has been followed in various cases. In the Stocks & Stocks case, Van Dijkhorst J held:
“The scheme of clause 26 of the contract is conducive to finality and dispute resolution. The last provision of clause 26.3 is included to ensure continuation of the work pending arbitration which occurs generally speaking after the completion of the work and to obviate tactical creation of disputes with a view to postponement of liability. This cuts both ways. The contractor may be dissatisfied with the opinion of the mediator about the quality of his workmanship which may lead to that work having to be redone or the rejection of his claim for interim compensation which may cause a cash-flow problem. The employer may be dissatisfied with a mediator award of compensation to the contractor. Yet to ensure that the work does not become bogged down by a dispute about this, this, the contract provides that effect is to be given to the opinion. Should arbitration or litigation determine that the mediator’s opinion was wrong, the matter is rectified and the necessary credits and debits will have to be passed in the final accounts”
The court relied on other recent cases that adopted the Stocks and Stocks position. In a Supreme Court of Appeal case, Rodon Projects (Pty) Ltd v NV Properties (Pty) Ltd and another [2013] 3 All SA 615, Nugent JA in paragraph 4, held that:
“It has now become common internationally – in some countries by legislation – for disputes to be resolved provisionally by adjudication. In Macob Civil Engineering Ltd V Morrison Construction Ltd [BLR 93 at 97] adjudication was described as:
“…a speedy mechanism for settling disputes [under] construction contracts on a provisional interim basis, and requiring the decision of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement….But Parliament has not abolished arbitration and litigation of construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process.”
The dispute resolution clause of the agreement was correctly interpreted and understood by the respondent when it insisted on settlement of the Dispute 1 Determination and when it argued in favour of referral for adjudication of the Dispute 2.
The court referred to sub-clause 22.4.2 of the agreement, which provided that “[A] determination given by the adjudicator shall be immediately binding upon, and implemented by the Parties.” Where a dispute which had been adjudicated is referred to arbitration, sub-clause 22.5.1 states that “[T]he resolution of the dispute shall commence anew. The arbitration shall not be construed as a review or an appeal from any adjudicator’s determination, and that any such determination by the adjudicator shall remain in force and continue to be implemented until overturned by an arbitration award.” (the courts underlining)
The court further referred to the well-known Constitutional Court case of Barkhuizen v Napier 2007 (5) SA 323, which held that “…parties should comply with contractual obligations that have been freely and voluntary undertaken.” This is with reference to the pacta sunt servanda principle.
The court was of the view that the applicant was entitled to resort to section 345 of the 1973 Act by sending a letter of demand to the respondent in terms of these provisions. The respondent failed to pay the amount demanded. The Supreme Court of Appeal in, Lamprecht v Klipeiland (Pty) Ltd [2014] JOL 32350 (SCA), affirmed that a creditor under these circumstances has a right ex debito justitiae to a winding-up order against the company who has failed to discharge its debt. At paragraph 16, the court inter alia stated:
“…There is no dispute that although the section 345(1)(a) demand was served on the respondent, it has not paid any amount nor secured or compounded any amount to the reasonable satisfaction of the appellant. To my mind, the jurisdictional requirements set out in section 345(1)(a) have been met.” Further cases were referred to as well, the Supreme Court matter of Afgri Operations v Hamba Fleet (Pty) Ltd [2017] ZASCA (24 March 2017), wherein it was held that, “generally speaking, an unpaid creditor has a right, ex debito justitiae, to a winding-up order against the respondent company that has not discharged that debt”.
The court in exercising its discretion, stated that once the debt has been established to exist as in this matter, the applicant has a right ex debito justitiae to the winding-up order. Despite these factors, the court still needs to exercise its discretion judicially.
The respondent, by entering into the agreement, had undertaken to do so and the pacta sunt servanda principle is applicable to it. The court held that the respondent’s contentions that the enforceability of the Dispute 2 Determination was negated by its challenge to arbitration, was not advanced on reasonable grounds and is contrary to the respondent’s previous conduct with regards to Dispute 1.
The respondent’s papers lack any indication of its solvency nor that any of its employees would lose their livelihood in the event of its winding-up. The respondent’s failure to have responded to the section 345 notice, lends itself to a conclusion that it would not be in the interest of justice to refuse the provisional winding-up of the respondent.
The court was satisfied that a prima facie case has been established on a balance of probabilities that a provisional winding-up should be granted.
As a result, the respondent was placed under provisional liquidation, and a rule nisi was ordered, providing an opportunity for all interested parties, to show cause, if any, by a certain date why the provisional liquidation order should not be made a final order of court
This appeal considered the question of whether a dispute resolution clause in a contract survives the termination of that contract. The Supreme Court of Appeal (“SCA”) concluded that a dispute resolution clause in a contract does not survive the termination of that contract for fraud.
The Facts
During March 2014, the City of Cape Town (the “City”) awarded a tender to Namasthethu. A competitor in the tender process sought to appeal the award of the tender on the basis that Namasthethu’s directors had been convicted of fraud and corruption.
Namasthethu had completed a section on the tender document declaring that neither it nor its directors had been convicted of fraud in the past five years.
Shortly after receipt of the complaint, the City wrote to Namasthethu requiring a response on the allegation of fraud. Namasthethu responded that neither it nor its sole director had been convicted of fraud. Thereafter, the City received information from the CIDB which indicated that Namasthethu and its directors had been convicted. Accordingly, the City referred the matter to its forensics department for further investigation. The forensics department only reverted in February 2016 that there had been a number of false representations and fraudulent conduct by Namasthethu and recommended termination of the contract. In March 2016, the City terminated the Contract with immediate effect.
Namasthethu referred a dispute to adjudication per the dispute resolution clause of the contract claiming damages for an alleged repudiation by the City. The adjudicator found the city liable for damages.
Issue
Whether the adjudication clause in the contract survived termination thereof on the basis of fraud.
The parties’ submissions
Namasthethu contended that the parties had contemplated that disputes regarding cancellation of the contract, including based on allegations of fraud, were subject to the dispute resolution process agreed.
The City submitted that the contract was void, alternatively voidable, as a result of fraud and therefore the dispute resolution process agreed therein could not be applied.
The SCA’s analysis
It is trite in law that fraud is conduct which vitiates every transaction known to the law. An dispute resolution clause embedded in a fraud-tainted agreement cannot survive recission.
A circumstance in which a dispute resolution clause may survive is if the clause states that it applies even where there has been fraud so as to make the contract voidable. There needs to be, however, clear language to this effect. The court considered the dispute resolution clause (clause 40.1 of the JBCC) and determined that there is no suggestion that it covers fraud or that it includes an exception to the general rule.
Conclusion
The referral of the dispute to adjudication was invalid and unlawful and the court a quo was correct to set aside the determination following an unlawful adjudication process.
The SCA’s view on the applicability of “natural justice” to JBCC adjudication proceedings.
Ekurhuleni West College (“EWC”) and Trencon Construction (Pty) Ltd (“Trencon”) entered into a JBCC Principal Building Agreement in terms of which EWC was the employer and Trencon was the main contractor. Various disputes arose between the parties, which were referred to adjudication before Mr Segal (the “adjudicator”). Trencon submitted a statement of claim, to which EWC responded with a statement of defence, to which Trencon replicated. Notwithstanding the absence of any provision therefor in the adjudication rules, EWC submitted a rejoinder. Trencon objected to this further submission. The adjudicator informed the parties that the rejoinder would not be considered. In an email thereafter, the adjudicator directed questions to the parties to which Trencon responded. The adjudicator decided that a hearing would not be necessary and published his decision.
EWC filed a notice of dissatisfaction referring the matter to arbitration. EWC also sought an order from the High Court for the review and setting aside of the adjudicator’s decision. EWC contended that the adjudicator had exceeded his jurisdiction and had not acted impartially or independently when he rejected EWC’s rejoinder and failed to conduct a hearing. The High Court dismissed the application for review. In coming to this decision, the High Court considered whether the principles of natural justice had been breached and determined that they were not applicable to the matter.
The SCA agreed with the High Court’s decision and elaborated on why the principles of natural justice did not apply.
The SCA held that the legal position is as set out in the case of Turner Jockey Club of South Africa[1] which stated that the obligation of a tribunal created by contract to observe the principles of justice derives from the express or implied terms of the agreement. The test for determining whether the fundamental principles of justice are to be implied as tacitly included in the agreement between the parties is the usual test for implying a term into a contract.
In the circumstances of the parties, namely under JBCC adjudication proceedings, express contractual provisions regulate the procedure that the adjudicator had to follow. The JBCC adjudication rules provide for a statement of claim, statement of defence and a replication. The adjudicator is empowered to require a party to submit further information which he might reasonably require. The adjudicator is entitled to conduct a hearing but is not obliged to do so.
EWC never challenged any of these provisions as being contrary to public policy. Therefore, there is no room for the tacit importation of any rule of natural justice.
EWC thus had to show that the express contractual provisions had been breached. The SCA determined that the adjudicator had conducted the proceedings strictly in accordance with the contractual provisions and therefore, there was no merit in EWC’s reliance on procedural unfairness.
[1] 1974 (3) SA 633 (A).
The applicant, Kathu Solar Park (RF) (Pty) Ltd contracted with the second respondent, Liciastar (Pty) Ltd in terms of an Engineering Procurement and Construction contract (the contract) to construct a solar power plant. A dispute arose between the parties regarding the imposition of Delay Liquidated Damages (DLDs) by the applicant.
The second respondent relied on clause 21 of the contract to refer the dispute to fast track dispute resolution (FTDR) by an independent expert. The first respondent, Mr Mahon, was appointed as the independent expert.
A dispute arose between the parties on the jurisdiction of Mr Mahon which formed the basis of the urgent application and its subsequent certification as a commercial court case before Judge Unterhalter.
In its letter of reference of the dispute, the second respondent advised that the ‘dispute related to the intention of the Owner to charge Delay Liquidated Damages to the Contractor due to potential delays in achieving the Initial Acceptance Date of the Plant from the 18th December 2018 (the “Dispute”)’.
The contract provided for a scheduled initial acceptance date (SIAD), which may be extended or amended. Initial acceptance is when the facility is considered capable of commercial operation and ready for initial acceptance by the Owner. The contract differentiates between the SIAD and the IAD (initial acceptance date), being the date when the Owner delivers a certificate to the Contractor stating the date on which the facility complied with the initial acceptance requirements. The contract provided for the payment of DLDs in the event of IAD not occurring before SIAD.
Extension of time claims were submitted by the second respondent and SIAD was extended to 18 December 2019. The applicant however commenced the imposition of DLDs on 19 December 2018. This was the dispute that was referred by the second respondent in its letter aforementioned (referred to as “the imposition dispute” by the learned Judge to differentiate from the second dispute). The applicant contended that this was the only dispute referred to the independent expert, for his determination. The second respondent contended that the dispute referred to the first respondent was wider and also encompassed the second respondent’s liability for DLD’s (“the liability dispute” i.e. the second dispute). The first respondent believed that he was empowered under clause 21 of the contract to decide both disputes.
The judge held that the first respondent derived his jurisdiction from the contract, however before he can assume jurisdiction as an independent expert , two requirements must be met. The contract must permit resolution of the specific dispute under the fast track mechanism and secondly, the matter must be expressly referred to the independent expert under the fast track. Both disputes were permissible to be referred to FTDR, however the issue to be determined was whether both the imposition and the liability disputes were referred to the first respondent.
The second respondent contended that its referral placed in dispute the payment of DLDs as well as liability for DLDs. The learned judge found that the referral limited the dispute to only the imposition of DLDs. This was based on the fact that at the time of the second respondent’s referral i.e. 26 December 2018, the only issue that had crystalised was the applicant seeking to implement DLDs even though extension of SAID was simultaneously being sought by the second respondent. Even though the second respondent submitted that its referral letter placed in dispute any payment of DLDs and that covered the liability dispute, the learned judge found that the liability dispute had not yet crystalised and any anticipation by the second respondent of further disputes, was irrelevant.
The learned judge also referred to the first respondent’s interpretation of clause 21.2 of the contract to permit him to “take the initiative” and thereby entertain the liability dispute and held that this was not a competence enjoyed by the first respondent. It was held that the first respondent was limited to ascertaining the facts and the law applicable to the dispute before him and was not empowered to expand the scope of the dispute before him, hence he could not determine his own jurisdiction.
The learned Judge also held that the applicant was within its rights to approach the Courts for appropriate relief as there had been non-compliance with the contract. It relied on the case of Inter-Continental Finance[1] which decided between two lines of authority and found that the court should grant a remedy that interferes with a dispute resolution process that is already underway.
The learned
judge accordingly found in favour of the applicant and held that the first
respondent did not have the requisite jurisdiction to hear the liability
dispute.
[1] Inter-Continental Finance and Leasing Corporation (Pty) Ltd v Stands 56 and 57 Industrial Ltd 1979 (3) SA 740 (W)
Section 217 of the Constitution of the Republic of South Africa of 1996 provides that a Municipality is an organ of state. In this regard, a Municipality’s expenditure is regulated by a litany of legislation, the purpose of which is to secure sound and sustainable management of the financial affairs of local government. It is no surprise that the standard form construction contracts applied by Municipalities often include amendments limiting the authority of the principal agent or engineer, as the case may be, to certify monthly interim payments. The earlier iterations of the Joint Building Contracts Committee, Principal Building Agreement (JBCC) incorporated specific clauses which are applicable where organ of states are a contracting party. These clauses included a limitation on principal agent’s power and authority to certify variations, without the approval of the employer. In the case of the General Conditions of Contract (GCC), the NEC 3 and FIDIC suite of contracts the limitation will ordinarily be incorporated in the particular conditions.
This article reviews an application in the High Court for the division of the Free State Province, brought by the applicant being Lohan Civils (Pty) Ltd (the “Applicant”) against the Tokologo Local Municipality (the “Respondent”). In the premise the Applicant launched the application seeking payment of the sum of R4,364,322.94 based on it being certified by the engineer in the course of the Applicant carrying out the works. The certified amount included a sum for variation work executed by the Applicant.
The Applicant was appointed by the Respondent for the project known as the ‘Construction of a River Inlet Structure, Abstraction Works and Booster Pump Stations with associated work, near Riverton’. The applicable contract was the GCC 2010, Second Edition. Incorporated in the particular conditions was a limitation on the engineer’s power and authority to certify variations without the prior approval of the employer (the Respondent).
In considering the application, the court dealt with points of law, which also formed part of the Respondent’s defence against the Applicant’s allegation that is was liable to make payment of the certified amount. Based on this the court dismissed the Applicant’s application. The issues, inter alia, concerned:
Ancillary to the issue of validity of the certificate were further issues the court dealt with in its decision. These were whether the:
Settled law provides, inter alia, that if a court is unable to decide an application on the pleadings before it, it may dismiss the application or refer the dispute for oral evidence to be provided or to trial. This decision must never be taken lightly, as application proceedings are pursued where there are no disputes of fact. Motion proceedings are intended to be expeditious and cost effective if compared to action proceedings. However, an applicant must not elect application proceedings to deprive his opponent of the procedural advantage available in action proceedings. In the present application there was no dispute of fact. Monies were due to the Applicant for works completed.
As mentioned above, the Respondent’s rejection of liability rested, inert alia, on the process undertaken to certify such sums. It was because of this that it contended that the payment certificate was unenforceable. Similarly, our law dictates that a party with direct and substantial interest in the outcome of litigation must be joined. If the application was granted, there was a risk the DWS would be liable to pay the Applicant. As such, it had sufficient interest to be joined in the application.
This article is not intended to interrogate the court’s position on the ancillary issues, as its decision to dismiss the application is founded on the engineer’s failure to seek approval from the Respondent prior to certifying the sum due for variation work completed. . A party’s rights and obligations are found in the contract. The right to enforce payment is premised on a valid payment certificate issued by the engineer. The issuing of a payment certificate presupposes that parties involved in the certification process have complied with the provisions of the contract. In the present application the engineer, failed to do so. The right to approve variations expressly stated in the contract for the engineer to gain approval from the Respondent. This departure rendered the certificate invalid and unenforceable. It was this procedural blemish that was the undoing of the Applicant’s application.
It has become common practice for organs of state to incorporate limitation on the power and authority of their agents to approve and certify payments. Versions of the JBCC suite of contracts are explicit in this area. However, the remaining standard form contracts are now no different with the amendments these bodies now include in their amendments of the general conditions of contract. In our law a certificate embodies an obligation on the part of the employer to pay. It is regarded as the equivalence of cash. Recovering such amount normally by application proceedings. However, contractors must be cautious in the weight they place on certificates issued by the engineer, particularly when contracting with organs of state. Appreciation must be had for the process of certification, and not the issued certificate itself. There may not be a dispute of monies due for work completed, but the process followed in order to determine such monies may throw a spanner in the works.
What would our first Linked In article of the decade be without including Eskom?
You may have heard of Eskom’s numerous public notices informing of its decision to interrupt and eventually discontinue the electricity supply to certain municipalities due to their indebtedness to it. Municipalities all over the country are indebted to Eskom for billions of Rands. It seems that after allowing this debt to escalate out of control, Eskom is now deciding to act. The action of interrupting supply, however, means that rate-paying members within such municipalities’ jurisdictions are denied electricity for no fault of their own. This is extremely unfair and has catastrophic consequences to businesses and communities.
Towards the end of last year, Eskom distributed one of the abovementioned public notices to members of the Rand West Municipality. Two major food manufacturing and distributing facilities (the “applicants”) promptly launched an urgent application against Eskom to interdict (prevent) it from interrupting the supply of electricity to the municipality.
In 2018 in Cape Gate (Pty) Ltd and Others v Eskom Holdings SOC Ltd and Others, a full bench of the Johannesburg High Court ordered that Eskom was interdicted from interrupting electricity supply in very similar circumstances to those of the applicants. In line with this decision, acting Judge Gerry Nel granted an order in the applicants’ favour.
The Electricity Regulation Act, 4 of 2006, contemplates that Eskom may terminate the supply of electricity to a customer (e.g. a municipality). Having considered the previous judgments concerning similar issues, Nel AJ summarised the legal principles that have developed in respect of Eskom’s powers to do so, namely, any decision taken by Eskom to interrupt or disconnect electricity supply is an administrative action and accordingly must be just, responsible, respectful and fair, having regard to the end-consumer of the electricity.
The applicants’ interim relief was granted for reasons including the following:
In conclusion, Nel AJ ordered that the municipality is to separately specify the Eskom tariff portion in respect of electricity supply in future municipal accounts to the applicants so that the applicants can pay this amount directly to Eskom.
This decision reaffirmed previous decisions made by the courts in respect of Eskom’s attempt to interrupt electricity supply due to the indebtedness of municipalities. Such a decision is a just one in that innocent rate-paying consumers should not be punished for Eskom’s failure to properly handle the rising debt of municipalities. Having lost on this course of action more than once, we hope that Eskom will change its strategy and determine an equitable solution for dealing with the debt of a myriad of municipalities.
Introduction
This case relates to a claim for damages by a property developer White Constructions (Pty) Ltd against PBS Holdings (Pty) Ltd (first defendant) (hereinafter referred to as “SWC”) and Illawarra Water and Sewer Design (Pty) Ltd (second defendant) (hereinafter referred to as “IWS”), a water servicing coordinator and sewer designer respectively, in connection with a 100 lot subdivision, known as Cedar Grove, located in Kiama, New South Wales. The damages claim is based on a breach of contract where White contends that IWS failed to prepare a satisfactory sewer design within a reasonable time and SWC failed to ensure that IWS timeously discharged its obligations to do so.
Factual Background
The plaintiff is an experienced property developer in New South Wales. The first and second defendants were engaged by the plaintiff to attend to the design and installation of sewer infrastructure, in compliance with Sydney Water’s requirements, before a Section 73 certificate would be issued by Sydney Water. The issue of the Section 73 Certificate is a precondition to the registration by the Lands Title Office (Deeds Office) of the subdivision.
The plaintiff contends that IWS proposed to Sydney Water an installation system which involved pumping stations, rather than a gravity-based solution which involved deep underbore. It was a gravity-based system which was eventually accepted by Sydney Water. This, the plaintiff alleges, delayed the completion of the project from 15 July 2016 to 1 March 2017, and on this basis, it founds its claim for damages.
Issues for determination
The plaintiff who bore the onus of proving that the delay was caused by the actions of the first and second defendants utilised the services of an expert civil engineer programmer to conduct an appropriate delay analysis. The second defendant IWS, likewise engaged an expert civil engineer programmer for the same purpose. Each expert utilised a different delay analysis method and arrived at profoundly different conclusions.
Plaintiff’s expert used the “as planned v as built window analysis” which is an observational analysis which entails the works being broken down into separate windows against revised contemporaneous programmes, contemporaneously updated programmes, milestones and significant events. The analyst identifies key critical points on the path. Changes to the critical path, delays and causes of delays between the windows are examined to determine the causes of the delays.
The second defendant’s expert relied on the “collapsed as-built (but-for) analysis” which involves extracting delay events from the as-built programme to provide a hypothesis of what might have happened if the delay events had not occurred. This method requires a selection of ‘logic links’ which link various components of the works to establish dependencies to determine a critical path.
Law and application
Each expert’s evidence contradicted the others and was found to be complex and difficult to understand by a novice in the field. His honour Mr Justice Hammerschlag relied on Rule 31.54 – Assistance to other parties, of the Uniform Civil Procedure Rules 2005 (NSW), which provides at 31.54(1):
“In any proceedings, the Court may obtain the assistance of any person specially qualified to advise on any matter arising in the proceedings and may act on the advisor’s opinion”.
A Mr McIntyre of the Institute of Engineers Australia, who has a wealth of planning and delay analysis experience in major projects, assisted the Court in understanding the methods of delay analysis adopted by both parties’ experts. It is to be noted that both methods adopted are derived from the United Kingdom Society of Construction Law, the Delay and Disruption Protocol (the Protocol). The Protocol includes six different methods of delay analysis which includes the two referred to above.
Mr McIntyre however held and upon which the learned Judge acted, that merely because a method is part of the Protocol does not give it standing and likewise a logical, methodical and rational method, which does not appear in the Protocol, does not deny its standing.
Plaintiff’s expert Shahady attacked the defendant’s expert approach stating, inter alia, this method did not accord with common sense, logic links were not sustainable, and it obscured the inefficient performance of the defendant.
Defendant’s expert Senogles, likewise attacked Shahady’s report stating, inter alia, no consideration was given to additional time to complete additional non-sewer works and further that the method contained unjustifiable critical as-built logical relationships – hence this method was flawed both factually and analytically.
His honour Mr Justice Hammerschlag relied on McIntyre’s finding that neither method was appropriate and instead turned to actual evidence of what was happening on site to properly consider and ascertain the impact of the delays in obtaining approval of the sewer design. The Court, using McIntyre’s guidance, applied the common sense approach to causation referred to in March v E and M H Stramare (Pty) Ltd (1991) 171 CLR 506.
Whilst the Court had repeatedly emphasized the necessity of ‘raw data’, the plaintiff failed to show any concrete records attributing the delays to the defendants. The Court held that only by referring to the facts a determination could be made as to whether the approval of the under-boring solution delayed the project as a whole, and if so, to what extent.
The primary source of evidence to show what was actually happening on site was the contractor’s daily diaries.
The Court thus turned to a thorough examination of the daily diaries and found that whilst there was repeated reference to “awaiting sewer design, sewer re-design; sewer design approval” it was found that the diaries did not identify any specific activities which were affected by these “waits”.
The diaries also revealed extensive excavation through rock as a significant aspect of the sewerage installation, which work continued pending the approvals. The daily diaries were found to be comprehensive and well-kept which contributed to its evidentiary value.
The Court went into extensive detail in examining the various ‘as-built’ dates which revealed that delays were attributable to other factors such as inclement weather and in certain instances, for other reasons, the work was in any event incapable of earlier completion.
Conclusion
Accordingly, the Court discarded the complex delay analysis reports advanced by both parties and instead relied on the true position as evidenced from the daily diaries and found that the plaintiff had not proven breach of contract by the defendants. The Court’s position was that a common-sense approach be applied in determining the true cause of the delay.
The above judgement reinforces that opinion evidence can be subverted by reliance on the actual facts on hand – here accurate record keeping on the project served to dispose of an otherwise complex matter in a simple and straightforward manner.
The Applicant, Murray & Roberts (“M&R”) sought to enforce the decision of an adjudicator. The Respondent, Alstom S&E Africa (Pty) Ltd (“Alstom”) resisted the enforcement on the basis that the decision was impossible to perform.
A dispute had arisen between the parties in respect of the materials supplied by Alstom to M&R for the erection of absorbers. Each of the steel plates supplied was to have a marking corresponding to a material certificate specifying the composition of the steel so as to establish that the steel complied with the required specifications. Certain of the steel plates did not have the required markings and/or were not accompanied by material certificates. M&R contended that absent the certificates, it was not obliged to proceed with the erection.
The dispute was referred to an adjudicator. He decided that:
An adjudicator’s decision is binding and shall promptly be given effect to unless and until the decision is revised by amicable settlement or arbitral award.
Alstom failed to carry out the adjudicator’s decision and accordingly, M&R applied to the High Court to enforce the decision.
M&R contended that the adjudicator’s decision is binding and must be complied with and that it is possible to perform.
It is well settled in our law that courts enjoy a general equitable discretion to refuse an order for specific performance upon consideration of all the relevant facts, one being impossibility of performance. However, in the scenario where the performance being requested is enforcement of an adjudicator’s decision, the considerations relevant to the exercise of the court’s discretion are different. For example, usually a refusal to order specific performance simply required the wronged party to seek damages or some other appropriate remedy. In the case of enforcement of an adjudicator’s decision however, the adjudicator has already decided the appropriate remedy and the decision of the court is binary – to enforce or not to enforce. If the decision is not enforced, M&R secures nothing from the decision and enjoys no alternative remedy; a harsh outcome.
Alstom’s claims of impossibility must be considered. It was Alstom’s position that the obligations prescribed by the adjudicator could not be performed and thus they could not be enforced. Alstom submitted that no testing method would positively identify the particular grade of steel and that only the original manufacturer could issue the certificates and it could only do so when the material was under its control.
M&R submitted that what was required in respect of testing was to determine whether the specifications had been complied with. This is a lesser burden than what Alstom submitted, namely, determining the grade of steel. M&R’s interpretation of the testing required was possible to perform. Accordingly, the court held that Alstom must have the materials subjected to such testing.
M&R submitted that what was required in respect of certification was testing records in compliance with the EN certification and that such need not be done by the original manufacturer. This is a lesser burden that what Alstom submitted, namely that the EN certificates themselves must be provided. M&R’s interpretation of the certification was possible to perform. Accordingly, the court held that Alstom must carry out such certification.
On a side, the court reiterated that its role is supervisory and that it must be careful not to act as a court of appeal by determining the correctness of an adjudicator’s decision.
The court concluded that Alstom should have raised the issue of impossibility before the adjudicator but that in any event, the impossibility rested on an interpretation of the decision that was not necessary and was unwarranted. The effect of Alstom’s interpretation and contentions would have left M&R without any remedy which is not equitable. Furthermore, the benefit of the decision is important as it allows M&R to prove that its performance conformed with the specifications.
Accordingly, the court issued an order to enforce the adjudicator’s decision.
Case no: 45879/2018
Unreported – Handed down in the High Court of South Africa, Gauteng Local Division, Johannesburg on 25 June 2019
Short summary
The Applicant (Group Five) and the Respondent (Transnet SOC Limited) entered into agreement based on the NEC Engineering and Construction Contract (third edition, June 2005) for the provision of works. A dispute had arisen in terms of the Respondents’ issuance of a final payment certificate. The Applicant notified the Respondent of the dispute and sought to enforce the provisions of the dispute resolution clauses in resolving the matter.
During the dispute resolution process, the appointed Adjudicator requested an extension of time (based on his request for further information) for the handing down of his decision. The Respondent had refused as the Adjudicator has all the requested information in his possession already; and did not partake further in the dispute resolution process. After its refusal to agree to an extension of time, the Respondent referred the matter to Arbitration, while the Applicant agreed to the Adjudicator’s request for an extension of time. The Adjudicator proceeded, even though there was an absence of consensus, and handed down his decision in favour of the Applicant. The Applicant thereafter sought to enforce the Adjudicator’s decision and pursued an order of court directing the Respondent to comply with the decision of the Adjudicator who had determined that the Respondent make payment to the applicant in the sum of R74 940 872.82, as well as interest on said amount from date of the Adjudicator’s decision to date of payment.
Issue
The court had to determine if the decision of the Adjudicator was valid, binding and enforceable against the Respondent.
Determination
The Court considered the provisions of the agreement concluded between the parties and noted that these clauses should be interpreted in a subjective manner, taking into account the purpose of the agreement itself as well as the intention of the parties.
The Court then moved to the crucial issue for determination, that is, if the Adjudicator’s decision is binding on the Respondent. Here the Court considered the timeline of events leading to the Adjudicator’s decision. The Parties had made submissions to the Adjudicator, who then requested further documents (which were already submitted to him). The Adjudicator had four weeks (from the date of the end of the period for receiving information) to make a decision and provide reasons for same. The Respondent had argued that since the Adjudicator had requested documentation which was already in his possession (thus negating his initial request), this meant that the four-week period had already commenced, as all documentation was submitted.
The agreement between the parties provided that the issue may be referred to Arbitration- if the Adjudicator fails to make his decision within the prescribed period. The Respondent, once it had rejected the Adjudicator’s request for an extension of time for him to make an award, advised the parties of its intention to refer the matter to Arbitration; and thereafter served a notice in this regard. The agreement between the parties had catered for this, as long as the matter was referred to Arbitration within four weeks of the date by which the Adjudicator should have made his award.
The Applicant argued that the Court could not preside over matters which fell within the domain of an Adjudicator or Arbitrator. In response, the Court pointed out that is cautious in making a determination on a matter where the issue/s fall into the domain of the Arbitrator or Adjudicator as the purpose of dispute resolution clauses is to ensure that the parties follow the mechanism agreed to at inception; to ensure expeditious resolution of issues. In this instance, the Parties were entitled to rely on the dispute resolution mechanism in their agreement and refer the matter to the Adjudicator. However, this was not the issue for determination as the Court had to consider the validity of the award made by the Adjudicator and not the question of payment of the amount claimed by the Applicant.
The Court then reviewed the events leading up to the award made by the Adjudicator. The Respondent submitted that the Adjudicator had failed to publish his award within the four-week period provided for in the agreement, but that the agreement entered into between the parties did not provide that an award that was not made within the agreed timeframes was invalid. The agreement did not however, provide for the circumstance where the Parties did not reach consensus on the issue of the extension required by the Adjudicator. The Court interpreted this to mean that in the absence of consensus regarding an extension of time, the Adjudicator should have published his award on due date (being four weeks after submissions by both parties); failing which, his mandate would be terminated automatically.
The crux of the Respondent’s argument was not regarding the time period involved for the Adjudicator to make his decision, but rather the argument that once the notice to refer the matter to Arbitration was served on the parties, the mandate of the Adjudicator was extinguished immediately. In addressing this issue, the Court found that the Adjudicator had acted without a mandate as this was terminated by the Respondent providing a notice to refer the matter to Arbitration. Thus his decision was not binding as he was not entitled to make an award in the first place.
Costs and the order
The Court held that the Adjudicator’s mandate was terminated on the date that the Respondent had delivered a notice to refer the matter to Arbitration; and that the Adjudicator was thus not competent to proceed with the Adjudication nor make an order in favour of the Applicant. The application was dismissed with costs.
This case related to a contract entered into between the above mentioned parties in relation to the Construction of the Cengane Dam and other ancillary work. Construction of the dam was delayed. The contract makes provision, in certain circumstances for extension of time claims, in the event of delays to practical completion. Norland Construction submitted various extension of time claims. The OR Tambo Municipality denied that it was entitled to these claims and opposed them.
The contract entered into between the parties was based on the following documents:
Determination of the issues
Claim 1
Norland alleged that it was entitled to a claim of 55 days which amounted to R 1 054 500.52 (VAT inclusive),in terms of clause 5.12.2.4 of the GCC, due to a disruption in its works caused by the local work force in which it either “remained absent from site, or for the few days that they were on site, did not perform work of any significance.”
It pleaded that this particular disruption by the labour was out of its control, that it had given notice to the Engineer in terms of clause 10.1 and had complied with the relevant provisions of the contract but was not granted an extension of time or paid the amount which it claimed.
The Defendant made the admission that a notice was submitted, but pleaded that it did not grant the extension or pay the claim because the Engineer had rejected the claim and when the Plaintiff disputed this and referred the matter to adjudication, the adjudicator had also refused the claim. The Engineer had dismissed the claim as it was of the opinion that the disruption of the work was not completely out of the Plaintiff’s control as envisaged by clause 5.12.1.4 if the GCC.
In this regard, it is common cause that work on site stopped on 6 February 2013 and only resumed at the beginning of May 2013. The specific problems related to the local community, the project steering committee (“PSC”) and an unhappiness relating to the rate of pay. There had been a lack of cooperation, insubordination and insolence from the staff as well as threats on the wellbeing on certain high-level staff of the Plaintiff. For this reason, site was closed, and meetings were held in order to remedy the situation. Without any solutions, the Plaintiff was ordered back not Site and it refused citing the safety of its staff being a concern. The Defendant noted this concern but said that the Plaintiff was in breach of its obligations and should therefore return to site. After a significant number of back and forths, as well as a bounty on a particular manager’s head, and only after the Defendant agreed to pay the minimum wage to the local workforce.
The learned Judge found that fact that the labour problems could only be resolved by the Defendant agreeing to pay the local workforce the minimum wage, a new and effective chairperson had to be appointed to the PSC and weeding out so-called trouble-makers in the local work force meant that on a balance of probabilities the delay of 55 days which was caused by the unrest was entirely beyond control as envisaged by clause 5.12.2.4 of the GCC and that the Plaintiff had proven its entitlement.
Claim 2
The Plantiff alleged in its second claim that it was entitled to claim of 187 days which amounted to R 2 624 716.44 (excluding VAT), in terms of clause 2.2.1 of the GCC, which allows a claim by the Contractor in the event that it encounters “adverse physical conditions which could not have been reasonably foreseen by an experienced contractor at the time of submitting its tender”.
It was argued by the Plaintiff that the tender documents that it was supplied with did not indicate there would be any problems with the erection of the dam and rather that it would be straight forward. The learned Judge found that even the Engineer had not foreseen any significant difficulties lying ahead but that the Contractor did encounter vastly different sub-surface conditions than expected when considering the tender documents. The learned Judge therefore found that the adverse physical condition encountered by the Plaintiff were not reasonably foreseeable by an experienced contractor at the time of tendering.
Contractual Compliance
Claim 1
Clause 10.1.1 of the GCC requires the contractor to make its claim within 28 days of the circumstances giving rise to it occurring. The contractor notified the engineer of its intention to claim for an extension of time, it also notified the engineer when it was in a position to submit a claim and requested a further seven days to do so. The Defendant never challenged the Plaintiff on its allegation that it submitted the claim to the Engineer as soon as was practicable.
Claim 2
The full extent of the Plaintiff’s claim was only established over an extended period of time. The Engineer had also instructed the Plaintiff to keep a record of all extra work undertaken and to report monthly. This was done by the Plaintiff. The Plaintiff was therefore not in a position to lodge a claim within 28 days as us required by clause 10.1.1.1 of f the GCC but it did give notice of same as required by 10.1.1.2 and complied with its obligations in terms of 10.1.1.2.2.
The learned Judge therefore found that both claims complied with the procedures stipulated in the contract.
The Time Bar Issue
The previously mentioned adjudicator decided, of its own accord, that the Plaintiff was out of time in making the above claims. He erred in two ways. The first being that he was not entitled to adjudicate on it as the Engineer never took the point and secondly being that the claims were lodged timeously. The learned Judge referred to Fischer & another v Ramahlele and others [2014] 3 All SA 395 (SCA) where Theron and Wallis JJA held that “it is not for the court to raise new issues not traversed in the pleadings or affidavits, however interesting or important they may seem to it, and to insist that the parties deal with them. The parties may have their own reasons for not raising those issues. A court may sometimes suggest a line of argument or approach to a case that has not occurred to the parties. However, it is then for the parties to decide whether they wish to adopt the new issues” The learned Judge therefore found that the claims could not have been dismissed for any lateness of filing.
Costs and the Order
The Plaintiff argued that the Defendant’s refusal to attempt to resolve the issues through mediation should result in the Defendant paying the Plaintiff’s costs on an attorney-client scale but the Defendant argued that it defences to the Plaintiff’s claims that it relied on which nullified the usefulness of mediation.
Despite the learned Judge finding that the defences were not good in law, it was held that the Defendant was still entitled to rely on them and that it had made a number of concessions which shortened proceedings and the Defendant therefore could not be accused of acting unreasonably.
The learned Judge therefore granted the extensions of time, payment of the Plaintiff’s claims plus VAT as well as interest at the prescribed rate from date of demand to date of payment and costs of the suit on a party and party scale.
Joint Venture between Aveng (Africa) Pty Ltd and Strabag International GmbH v South African National Roads Agency Soc Ltd and Another (8331/19) [2019] ZAGPPHC 97 (22 March 2019)
This case concerned whether a contractor was entitled to challenge the payment of construction guarantees where there were contractual disputes in terms of the underlying contract between the employer and the contractor.
The generally accepted position in South African law is that absent the allegations of fraud, a contractor is not entitled to challenge the payment of construction guarantees.
Makhuvele J considered this position and decided that the facts of this matter did not require him to make a pronouncement thereon but if they did he would determine that a contractor is entitled to interfere in the right of the employer to present guarantees for payment based on the underlying contract.
Factual Background
South African and German registered companies, Aveng (Africa) Pty Ltd and Strabag International GmbH, as a joint venture (the “ASJV”), were awarded a contract by the South African National Roads Agency Soc Ltd (“Sanral”) for the construction of the Mtentu River Bridge on the N2 Wild Coast Toll Road for a value of over R1.5 billion. The contract entered into was based on the FIDIC Red Book (1999 edition).
As is usual practice with construction contracts, the ASJV was required to provide Sanral with guarantees for proper performance of the works as well as for rectifying any defects in the works. The ASJV provided such guarantees to a joint value of approximately R327 million.
During October 2018, the parties agreed to suspend the works due to numerous violent protests and disruptions by a group of individuals calling themselves “Practical Radical Economic Transformation”. This event went on for a substantial period and accordingly, the ASJV delivered a notice of termination during January 2019 for having been prevented from executing the works for a continuous period of 84 days by reason of Force Majeure. The ASJV also requested Sanral to undertake not to make a demand on the guarantees without giving 14 days’ notice thereof as it was the ASJV’s view that Sanral was not entitled to make a claim against the guarantees.
Sanral disputed the ASJV’s right to terminate the contract as it believed there was no state of Force Majeure. Sanral also disputed that it may not make a lawful demand on the guarantees.
Accordingly, the ASJV instituted an urgent application to interdict Sanral from making a claim under the guarantees.
Issues for determination
The ASJV contended that it validly cancelled the contract due to a state of Force Majeure that persisted for 84 days and that Sanral would be committing a breach of the contract if it were allowed to present the guarantees for payment without first following the procedures of the contract, namely the consequences for termination of a contract as a result of Force Majeure.
The ASJV also contended that Sanral was only entitled to present the guarantees for payment under the circumstances specified in clause 4.2 of the contract, namely:
Sanral contended that the underlying contract dispute is not part of South African law and as such, it was not prohibited from presenting the guarantees for payment whilst the parties are resolving whatever contractual disputes may exist between them.
Sanral also contended that the only clause of the contract that can potentially prohibit demand of payment of the guarantees is clause 4.2, however, the law is that the guarantees must be paid and the parties can fight about the entitlement at a later stage.
Law
The generally accepted legal position in South Africa is that in the absence of allegations of fraud, a contractor is not entitled to challenge payment of construction guarantees, even where there are contractual disputes in terms of the underlying contract.
The ASJV, however, sought to interdict payment on the basis that Sanral must first comply with the terms of the contract before the guarantees could be presented for payment. This is known as the “underlying contractual dispute” argument, which, according to South African courts, is not part of our law.
In the case of Kwikspace Modular Buildings Ltd v Sabodala Mining Co SARL and Another, Cloete JA considered the law in Australia which is that a building contractor may, without alleging fraud, restrain a person from presenting a performance guarantee, unconditional in its terms and issued pursuant to a building contract, if the contractor can show that the other party to the building contract would breach a term of the building contract by doing so. However, Cloete JA stated that he would refrain from considering whether such a position should be adopted in South Africa. Resultingly, a lacuna was left in our law.
Application
Our courts are not oblivious to the relevance of the underlying agreement and the effects it may have on the employer should it seek to make a claim against a guarantee.
Makhuvele J located authorities which seem to suggest that the lacuna left by Cloete JA may no longer pose a difficulty.
One of the arguments raised as to why the “underlying contract exclusion” is not part of South African law was that a contractor is not part of the agreement between the employer and the insurance company. A contractor, however, has an interest in the manner in which, and the reasons for which, the guarantee is presented. The fact that a party may obtain justice later does not mean that an injustice must be allowed to happen when on the face of the facts it should not.
Makhuvele J held that the facts of this matter did not require him to make a pronouncement on the issue of the underlying contract but that if he had to determine the issue, he would make a finding that the ASJV had locus standi to interfere in the right of Sanral to present the guarantees for payment and that based on clause 4.2 of the contract, Sanral would have had to meet the jurisdictional factors therein before presenting the guarantees for payment.
Next, Makhuvele J considered whether there was a state of Force Majeure entitling the ASJV to cancel the contract. A final answer to this question belongs to the dispute resolution forum created under the contract so the ASJV only had to prove a prima facie case.
Makhuvele J held that based on the correspondence before him, the events giving rise to the unrests could not objectively assessed, be deemed as Force Majeure. He did not give detailed reasoning as to why he made this decision other than to state that Sanral gave undertakings regarding provision of materials and employment opportunities to the local community, such undertakings often lead to dissatisfaction resulting in the nature of the protests the ASJV has described, Sanral repeatedly asked the ASJV to attend community meetings and the ASJV made no effort to attend such meetings, adopting a stance from day one that the events constituted a Force majeure.
Conclusion
Makhuvele J concluded that Sanral was justified to regard the ASJV’s actions as repudiation and that it will be justified to terminate the contract and amongst other consequences, present the guarantees for payment. The application was dismissed.
By Kelly Stannard
Trustees of the Simcha Trust v Da Cruz and Others[1]
This Constitutional Court judgment concerns the interpretation of section 7(1)(b)(ii)(aa)(aaa)-(bbb) of the National Building Regulations and Building Standards Act[2] (the “Act”) and whether the legitimate expectations test applies to the disqualifying factors found in this section.
Facts
The applicant in this case (the “Trust”) owns a property in Cape Town. The first respondent is Mr Da Cruz who is the owner of the Four Seasons sectional title scheme which neighbours the Trust’s property.
In June 2014, the Trust submitted development plans to the City of Cape Town Municipality (the “Municipality”). The Trust was required to publish their plans and invite comment on the impact on the heritage of the area. The Municipality invited owners of surrounding properties (including Four Seasons) to comment. The Municipality received a number of submissions who opposed the Trust’s application. Despite this, the building control officer recommended that the plans be approved and the head of the Municipality’s Building Development Section (Mr Henshall-Howard) approved the plans on the same day.
Four Seasons instituted review proceedings in the High Court. The court set aside the decision of the Municipality on the grounds that inter alia Mr Henshall-Howard failed to consider whether the proposed development gave rise to any of the disqualifying factors in section 7(1) of the Act.
The Trust and the Municipality appealed to the full court, which dismissed the appeal. A petition was made to the Supreme Court of Appeal which was unsuccessful and thus the Trust and Municipality applied to the Constitutional Court for leave to appeal.
Law
Section 7(1)(b)(ii)(aa) of the Act states that a local authority must refuse to approve an application if the local authority:
“is satisfied that the building to which the application in question relates –
The legitimate expectations test is the means by which a decision maker determines whether there will be a derogation in value, enough to disqualify a building application under the Act. The decision maker must be positively satisfied that a hypothetical purchaser of a neighbouring property would not harbour legitimate expectations that the proposed development application would be denied because it was so unattractive or intrusive.
Parties’ Arguments
The Municipality and Trust argued that the legitimate expectations test is suited to derogation of value rather than disfigurement of an area.
Mr Da Cruz and the Four Seasons submitted that the test is not limited to derogation of value and concerns the legitimate expectations of neighbours and the community in general.
Application
Section 7(1)(b)(ii)(aa) affords a local authority a broad discretion to consider a range of factors. This discretion is not unrestricted. The legitimate expectations test requires the decision maker to consider the impact of the proposed development on neighbouring properties from the perspective of a hypothetical neighbour. The legitimate expectations test is consistent with the objects of the Act and the constitutional requirement of just administrative action.
Conclusion
The legitimate expectations test is the appropriate means through which to establish the existence of the disqualifying factors in section 7(1)(b)(ii)(aa)(aaa)-(ccc) of the Act.
[1] (CCT125/18; CCT128/18) [2019] ZACC 8 (19 February 2019).
[2] Act 103 of 1977.
By Kelly Stannard
On 11 December 2018, at the High Court of Justice, Technology and Construction Court, the honourable Judge McKenna handed down judgement, in the matter between University of Warwick (“the Claimant”) and Balfour Beatty Group Limited (“the Defendant”).
The Claimant employed the Defendant under an amended Joint Contracts Tribunal (“JCT”) Design and Build Contract 2011 form of contract (“the Contract”). Under the contract, the Defendant was employed to design and build the National Automotive Innovation Centre (“NAIC”) at the Claimant’s campus. The bespoke amendments of the contract formed the subject matter of this case.
The court was faced with the contractual interpretation of a clause, which concerned the definition of Practical Completion within the contract, and whether entire Works were to be completed before a single Section could be certified as complete, and whether as a consequence of the meaning of Practical Completion, the liquidated damages provisions were inoperable.
The contract
The contract provided for the Works to be divided into Sections as follows:
“Section of works identified in the Employer’s Requirements”:
Section 1 – Main Equipment Room’s and Sub Equipment Room’s as defined on Cullinan Studio drawings NAIC-L800 series;
Section 2 – Dynamometer build and test area as defined on Cullinan Studio drawings NAIC-L800 series;
Section 3 – Café area as defined on Cullinan Studio drawings NAIC-L800 series; and
Section 4 – all other works.”
The date for possession for each section was 20th April 2015 whilst the date for Completion for Sections 1-3 was 10 April 2017 and for Section 4 was 5 July 2017.
The contract further provided a provision for liquidated damages for each Section as follows:
“Sections, range of liquidated damages for each Section:
Section 1: £5,000 per week or pro-rata for any part thereof;
Section 2: £15,000 per week or pro-rata for any part thereof;
Section 3: £10,000 per week or pro-rata for any part thereof; and
Section 4: £65,000 per week or pro-rata for any part thereof.”
Clause 1.1 defined Practical Completion as:
“…a stage of completeness of the Works or a Section which allows the Property to be occupied or used…”
Property was defined as: “…comprised of the completed Works.”
Works was defined as: “the works briefly described in the First Recital, as more particularly shown, described or referred to in the Contract Documents, including any changes made to those works in accordance with this contract.”
Clause 2.27.1 as amended, stated the following:
“When Practical Completion of the Works or a Section is achieved and the Contractor has sufficiently complied with clause 2.37 and 3.16.5, then:
and Practical Completion of the Works of the Section shall be deemed for all the purposes of this Contract to have taken place on the date stated in that statement.”
Clause 2.29 provided a mechanism whereby the Claimant could claim liquidated damages from the Defendant in the event that the Works or a Section of the Works did not achieve Practical Completion by the relevant completion date.
The adjudication
The Defendant’s position at the adjudication was that it was not possible to achieve completion of one Section of the Works prior to completion of the whole of the Works, as a result, the liquidated damages provisions were inoperable as it could not separately achieve Practical Completion of each of the Sections of the Works.
The adjudicator accepted the Defendant’s view that the relevant provisions of the Contract “the ordinary and natural meaning of the words used in the definition of Practical Completion means that it is not possible to achieve Practical Completion of any Section in isolation from the other Sections…”. The only time that Practical Completion could be achieved was when the whole of the Works (all four Sections of the Works) achieved Practical Completion. It was not possible to achieve Practical Completion in isolation.
The Applicable law
Judge McKenna looked at several factors and in conclusion stated the following: “the court is concerned to identify the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the language in the Contract to mean, and it does so by focussing on the meaning of the relevant words, that is to say, what the parties are taken to mean by using the words in question.
It is important to bear in mind, however, as was submitted on the Defendant’s behalf, that the purpose of interpretation is to identify what the parties have agreed and not what the Court thinks that they should have agreed. Where the parties have used unambiguous language, the Court must apply it and not ignore the words used or import words not used so as to achieve what the Court divined to be the parties’ real intention.”
Conclusion
Judge McKenna disagreed with the findings of the adjudicator and made an order in favour of the Claimant. He held that the defendant’s construction of Practical Completion did not accord with the ordinary meaning of the words used in the contract. He stated the meaning of ‘Property’ carried too much focus without due regard to the wider context of the other provisions of the Contract, as well as the background known to both parties at the inception of the contract.
Judge McKenna further explained that the ordinary meaning of the words used in clause 2.27 both when considered in isolation and in the context of the Contract as a whole is that a Section attains Practical Completion if it is sufficiently complete that it would permit or allow the use and occupation of the Property. He concluded that the Contract reflected the ordinary meaning of the language used in clause 2.27 and the definition of Practical Completion reflected the parties’ clear intention, by introducing a sectional completion regime.
On demand bonds consist of an undertaking by a guarantor to make payment of an amount of money on the happening of a specified event. A guarantee is an agreement independent of a construction contract between the parties and must be performed according to its terms. It is only in the most exceptional circumstances that a court will interfere with the guarantor’s obligations to pay.
In this case, the applicant, Fast Track Contracting (Pty) Ltd (“Fast Track”) sought an interdict preventing Constantia Insurance Company Limited (“Constantia”) from paying out a construction guarantee in favour of Group Five Coastal (Pty) Ltd, acting as agent for Group Five Construction (Pty) Ltd (collectively referred to as “Group Five”).
During April 2018, Group Five Coastal sent an e-mail to Fast Track, attaching a payment certificate which showed an amount due to Group Five KZN. Fast Track was to effect payment within 21 days. Fast Track failed to make payment of the certified amount.
Resultantly, Group Five called upon Constantia (the guarantor) to make payment to it in the sum of approximately R2.2 million. Fast Track disputed the entitlement of Group Five to call up the guarantee and launched an application in the Johannesburg High Court.
Fast Track did not allege any fraud on behalf of Group Five but rather argued that Group Five had failed to comply with clause 4 of the guarantee in that no binding payment advice was issued in favour of the contractor specified in the guarantee. In the building contract and the guarantee, the contractor was described as Group Five Coastal, acting as agents for Group Five Construction. Group Five Coastal had, however, subsequently changed its name to Group Five KZN.
The court considered that companies are entitled to change their registration names and that such company exists continuously, unless it is removed from the register. The court held that Group Five KZN is therefore Group Five Coastal and thus the call on the guarantee was proper and compliant with clause 4 of the guarantee.
Author: Kelly Stannard
Judge: Mrs Justice O’Farrell DBE
This case involved a dispute regarding a Project at Roseberry Park Hospital in Middlesbrough. The NHS Foundation Trust (“the Claimant”) sought an order as to the validity of notices, which it served pursuant to a Funders Direct Agreement (“FDA”), with the intention of terminating the Project Agreement.
On 12 December 2007, the Claimant entered into a special purpose vehicle agreement (“TVHL Agreement”) with Three Valleys Healthcare Limited (“First Defendant”), for the design and construction of the hospital and provision of operational services (“the Project Agreement”).
On 12 December 2007 the Claimant, the First Defendant and the Second Defendant entered into the FDA, in respect of the financing of the project. The FDA was attached as a schedule to the Project Agreement.
Disputes arose between the Claimant and the First Defendant in respect of the services provided by the First Defendant. In 2016, the Claimant obtained adjudication awards in its favour, allowing it to terminate the Project Agreement.
The FDA contained provisions that require the Claimant to give notice to the Second Defendant as a condition precedent in order to exercise its termination rights under the Project Agreement. On 1 June 2017, the Claimant served the termination notice on the Second Defendant under the FDA. The validity of the termination notice was not in dispute.
On 29 June 2017, the Claimant served its notice as per paragraph 3.2.2 on the Second Defendant, which included details of amounts allegedly owed to the Claimant by the First Defendant under the Project Agreement and other accrued liabilities or obligations on the part of the First Defendant.
Paragraph 3.2.2 of the FDA states:
”…containing details of any amount owed by Project Co to the Trust, and any other liabilities or obligations of Project Co of which the Trust is aware (having made proper enquiry) which are: (a) accrued and outstanding at the time of the Termination Notice; and/or (b) which will fall due on or prior to the end of the Required Period, under the Project Agreement.”
The Claimant’s case is that the notices served under the FDA were valid and therefore entitled it to terminate the Project Agreement. The Second Defendant argued the following: (a) the Claimant had failed to comply with its obligation under the paragraph 3.2.2 notice of the FDA; (b) that the notice was not sufficiently clear and unambiguous to constitute a valid notice; and (c) that there was no evidence that the Claimant made a proper enquiry as stipulated by the FDA.
Justice O’Farrell held the following:
In conclusion, the court granted the order as sought by the Claimant.
Judges: Sir Terence Etherton MR, Jackson and Underhill LJJ
As per the approved judgement of Sir Terence Etherton MR
Background
In the appeal under justice O’Farrell
In Salz-Gossow (Pty) Ltd v Zillion Investment Holdings (Pty) Ltd, a matter heard in the Namibian High Court in 2016. The court was called upon to consider the interpretation of clause 20.4 of the Standard FIDIC Conditions of Contract (“Clause 20.4”). This Clause provides that, inter alia, a decision by a Dispute Adjudication Board (“DAB”), pursuant to a dispute referred to the DAB by a party, is binding on both parties and must be given effect to, unless and until revised by agreement or an arbitration award.
The facts in this case were that a dispute had been referred to the DAB by the Applicant. In the dispute, the Applicant claimed payment in the sum of N$3,246,792.71 (“Debt”) for work completed. In its decision the DAB had upheld the Applicant’s claim, directing the Respondent to pay the Debt. The Respondent delivered its notice of dissatisfaction to the DAB’s decision and refused to comply with the DAB’s decision that it must pay the Debt, alleging that, the notice suspended the operation of clause 20.4 and as such, it was not obliged to pay the Debt. In addition, the Respondent alleged that paying the Debt would be unreasonable as it would impact it financially, which a later arbitration could reverse. In this regard, the court should exercise its discretion and suspend the operation of Clause 20.4. The Applicant had approached the court to make the DAB’s award an order of court, and force payment from the Respondent.
The interpretation of clause 20.4 has previously come before a South African court in the Tubular Holdings case (“Tubular”). The facts of the Namibian case were similar to those of the Tubular case, except for the additional legal point of exceptional circumstances raised by the Respondent, as a ground on which the court could exercise its discretion and refuse to enforce clause 20.4 – setting aside the DAB’s decision pending the arbitrator decision. In the Tubular matter the court accepted the interpretation of Clause 20.4, which directed the Respondent in that matter to pay the amount owed to the Applicant, following a DAB decision directing it to do so.
In the Namibian case the court confirmed this approach and interpretation adopted in the Tubular case, that Clause 20.4 is binding on both parties. In the circumstances, both parties must comply with the decision by the DAB, irrespective of whether a party delivers a notice of dissatisfaction against the decision. When considering the circumstances on which it could exercise a discretion not to enforce Clause 20.4, the court confirmed, the court’s discretion not to enforce an award of specific performance. This discretion was to be exercised in light of the prevailing circumstances of each case. In the Court’s view, an uncertain, future event which may or may not have a financial impact on the Respondent, did not demonstrate exceptional circumstances to exercise this discretion.
The South African high courts too, are empowered to exercise their inherent discretion when determining a matter. It is unclear from this judgement, what constitutes exceptional circumstances. However, each allegation of an exceptional circumstance is decided on its own merits. What is clear from this judgment is that the accepted view on the interpretation of Clause 20.4 remains.
Contractors and employers alike, can rest assured that courts in multiple jurisdictions accept the interpretation that Clause 20.4 is binding on both parties. These decisions provide certainty on the dispute resolution procedure and to not leave the successful party vulnerable to the other party delaying payment of monies due, by litigating for no bona fide reason other than to frustrate him.
Fluor entered into a contract with Greater Gabbard Offshore Winds Ltd (“GGOWL”) to engineer, procure and construct the foundations and infrastructure to support 140 wind turbine generators to be installed in the North Sea.
Each foundation comprised of a massive steel structure consisting of rolled steel plates which were welded together to form a cylindrical column. Fluor’s plan was to fabricate the columns in Shanghai and then ship them to the Netherlands to be installed.
Fluor contracted Shanghai Zhenhua Heavy Industry Co Ltd (“Shanghai Zhenhua”) to carry out the welding. The welding carried out by Shanghai Zhenhua contained a significant and unacceptable amount of cracking. The cracks in the welds ultimately put the project into complete disarray.
A dispute arose between Fluor and Shanghai Zhenhua about the quality of Shanghai Zhenhua’s fabrication of steel, which was heard before the Technology and Construction Court (the “TCC”). In its judgment on liability, the TCC held that Shanghai Zhenhua had breached the contract due to its shortcomings in the welding procedure.
In the TCC’s judgment on quantum, Sir Anthony Edwards-Stuart made some interesting points on claims for overheads.
Office overheads are the costs of running the contractor’s operation as a whole, such as the rental of buildings and costs of office staff.[1] If a project is delayed, the contractor’s overheads will continue while its turnover will reduce. In certain circumstances, the contractor may be able to claim the loss and expense associated with its overheads.[2] Importantly, a contractor must show that if the delay had not occurred, it would have secured work or projects which would have produced return which would have contributed towards head office overheads.[3] If a contractor cannot prove this, it will face the argument that the costs would have been incurred in any event and that they are therefore not “losses”.[4]
Fluor sought to claim overheads at a rate of 4%. The figure of 4% was calculated as follows:[5]
Sir Anthony Edwards-Stuart was not prepared to accept such a calculation. He held that the 4% is simply a ratio of one set of costs against another and tells one nothing about how the costs were increased as a result of the breaches of contract by Shanghai Zhenhua.[6]
Consequently, Sir Anthony Edwards-Stuart concluded that, while Fluor may well have incurred increased overhead costs, Fluor had failed to establish the facts necessary to support its claim therefor and remarked that he was “not prepared to pluck a figure out of the air”.
This case highlights how the courts may not accept simple calculations or estimates when it comes to a claim for office overheads and that doing so may lead to a dismissal of the claim altogether.
By Kelly Stannard
Judge: Mrs Justice O’Farrell DBE
This case involved an application by the claimant (“Jacobs”) against the defendant (“Skanska”) for a court order restraining Skanska from proceeding with an adjudication, following Skanska’s withdrawal from an earlier adjudication in respect of the dispute between the parties. The material question raised by the dispute is whether a party to an adjudication is entitled to withdraw a dispute from adjudication and refer the same, or substantially the same, dispute to a second adjudication.
Background
The claim
The 1996 act and the scheme
Section 108(1) of the 1996 Act provides:
“A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.”
Section 108(2) of the 1996 Act provides:
“The contract shall-
(a) enable a party to give notice at any time of his intention to refer a dispute to adjudication;
(b) provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice;
(c) require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred;
(d) allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred;
(e) impose a duty on the adjudicator to act impartially; and
(f) enable the adjudicator to take the initiative in ascertaining the facts and the law.”
Section 108(3) of the 1996 Act provides:
“The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement. The parties may agree to accept the decision of the adjudicator as finally determining the dispute.”
The Scheme contains the following material provisions:
Paragraph 1(1):
“Any party to a construction contract (the “referring party”) may give written notice (the “notice of adjudication”) of his intention to refer any dispute arising under the contract, to adjudication.”
Paragraph 7(1):
“Where an adjudicator has been selected in accordance with paragraphs 2, 5 or 6, the referring party shall, not later than seven days from the date of the notice of adjudication, refer the dispute in writing (the “referral notice”) to the adjudicator.”
Paragraph 9(1):
“An adjudicator may resign at any time on giving notice in writing to the parties to the dispute.”
Paragraph 9(3):
“Where an adjudicator ceases to act under paragraph 9(1) –
(a) the referring party may serve a fresh notice under paragraph 1 and shall request an adjudicator to act in accordance with paragraphs 2 to 7; and
(b) if requested by the new adjudicator and insofar as it is reasonably practicable, the parties shall supply him with copies of all documents which they had made available to the previous adjudicator.”
Paragraph 11(1):
“The parties to a dispute may at any time agree to revoke the appointment of the adjudicator…”
Paragraph 13:
“The adjudicator may take the initiative in ascertaining the facts and the law necessary to determine the dispute, and shall decide on the procedure to be followed in the adjudication …”
Paragraph 14:
“The parties shall comply with any request or direction of the adjudicator in relation to the adjudication.”
The decision
Invalidity of a lease agreement –does the absence of an occupation certificate invalidate a lease agreement?
Wierda Road West Properties (Pty) Ltd (“Wierda”), the appellant, instituted action against the respondent, SizweNtsabulaGobodo Inc (“Sizwe”) for the amount of R 7 867 548.78, in respect of rentals and municipal charges for the lease of its property at 41 West Street, Houghton, Johannesburg (“the property”).
The claim was based on a written lease agreement concluded between the parties on 3 August 2012 for a period of 5 years. The claim was based on the period July 2014 to March 2016, as Wierda had sold and transferred the property in March 2016. Sizwe raised various defences and instituted a counterclaim for an order declaring the lease agreement to be void ab initio.
Sizwe is a merged entity, comprising of Gobodo Incorporated (“Gobodo”) and SizweNtsaluba VSP. Wierda is a property-owning company entirely owned by the shareholders of the erstwhile Gobodo, whose premises at the time had become too small.
Wierda undertook to refurbish the property at Gobodo’s instance to meet its requirements and Gobodo moved in on 1 August 2010. In the course of the refurbishment it was discovered that there were no building plans in respect of the new wing added to the property by the previous owner. Wierda was unable to get building plans from the seller and it instructed its architects to draw plans for the new additions and submit them to the City Council of Johannesburg for approval.
On 1 June 2011 Gobodo merged with Sizwe to form the respondent, which concluded a new lease agreement in respect of the property with Wierda on 3 August 2012 for a period of 5 years.
Wierda got the building plans approved during mid-2015, without the approved plans, Wierda could not obtain an occupancy certificate. This was as a result of section 14(1)(a) of the National Building Regulations and Building Standards Act (“the Act”) rendered the granting of an occupancy certificate subject to the requirement, amongst others, that the building concerned was erected in accordance with the approved building plans.
All the shareholders in Gobodo were shareholders of Wierda, and five of them, were appointed as its directors. All the shareholders were aware of the absence of the occupancy certificate, as well as the City Council, as their inspectors conducted an assessment of the property and there was no objection to the occupation.
In June 2014, Sizwe vacated the premises without notice to Wierda. On 25 September 2014, after Sizwe vacated the property, Sizwe sent a letter to Wierda stating that the reason for vacating the property was due to the absence of the occupancy certificate, and therefore the lease agreement was invalid.
The high court found that the lease agreement was valid but unenforceable, as a result of the contravention of section 4(1) of the Act (lack of approved building plans for the leased property) and section 14(1) of the Act (the lack of the occupancy certificate for the leased property). Wierda appealed the decision.
The issues in the appeal were the following:
The relevant sections from the Act are as follows:
Section 14(1)(a):
“(1) A local authority shall within 14 days after the owner of a building of which the erection has been completed, or any person having an interest therein, has requested it in writing to issue a certificate of occupancy in respect of such building –
Section 4(1):
“(1) No person shall without the prior approval in writing of the local authority in question erect any building in respect of which plans, and specifications are to be drawn and submitted in terms of this Act”.
Section 4(4):
“Any person erecting any building in contravention of the provisions of subsection (1) shall be guilty of an offence and liable on conviction to a fine not exceeding R100 for each day on which he was engaged in so erecting such building”.
Section 14(4)(a):
“The owner of any building, or any person having an interest therein, erected or being erected with the approval of a local authority, who occupies or uses such building or permits the occupation or use of such building-
Shall be guilty of an offence.”
The SCA held the following:
The case involved an appeal by Bryte Insurance Company Limited against Raubex Construction (Pty) Limited’s claim for payment under a retention guarantee given in terms of the subcontract.
Raubex entered into a contract with Eskom to carry out construction works. A portion of the works were subcontracted by Raubex to Peakstar 133 (Pty) Ltd t/a Dolphin Construction (Dolphin).
The relevant part of the guarantee reads as follows:
‘2. Each demand by the Main Contractor shall certify:
Raubex sought payment under the guarantee of an amount of R1 409 726.11 and interest. The issue in the case was whether Bryte Insurance Company Limited (“Bryte”) was obliged to make payment to Raubex under the guarantee.
In the estimate provided in the certificate by Raubex, it was clear that many alleged defects which formed the basis of the estimate, were discovered and dealt with before the practical completion envisaged in the subcontract and were thus not costs covered by the guarantee. A very large proportion of the costs claimed are alleged to have been incurred by a third-party electrician remedying defects, but on closer inspection, were revealed to be in relation to costs already incurred in respect of Raubex itself, in the form of past expenses such as salaries, cellphone charges, diesel costs, accommodation and travel costs. Raubex conceded that the estimate could not be said to be a proper estimate of the costs to remedy the alleged breaches.
Bryte’s contention is that when Raubex made the claim against the guarantee it had knowledge that it was not entitled to the payment inter alia because Raubex’s estimation of the costs of having Dolphin’s alleged breaches remedied was not bona fide. Bryte argues that the lack of bona fides constituted fraud and Bryte had no obligation to comply with the demand.
Bryte argued that the demand did not comply with the requirements of clause 2(C )(ii) above requiring a certificate that the amount demanded did not exceed a good faith estimate of the costs of having the breach rectified.
This was denied by Raubex who argued that the lack of veracity in relation to the estimate was irrelevant because the guarantee only requires that the demand be made in the terms specified. They contend that they complied with the requirements of the guarantee and the payment obligation was triggered.
The court held that the parties, by inserting in the guarantee the element of good faith, clearly intended to eliminate and avoid a false or mala fide estimate. It was thus not enough for Raubex to show that there had been a formal certification of good faith: it also had to show that the certification was, in fact, made in the honest belief that it was a correct estimate of what it was entitled to be paid under the guarantee and Raubex failed to do so.
With regard to the fraud element, the court found that there can be no inference other than the claim and certification was made with knowledge that there was no entitlement thereto and none was suggested by on behalf of Raubex.
The appeal was upheld and the decision of the court a quo set aside and substituted with “The application is dismissed with costs”.
On 2 October 2017, at the High Court of Justice, Queen’s Bench Division, Technology and Construction Court, the honourable Justice Fraser handed down judgement, in the matter between North Midland Building Limited (“North Midland”) and Cyden homes Limited (“Cyden”). North Midland (contractor) and Cyden (employer) agreed to certain bespoke amendments to the Joint Contracts Tribunal (“JCT”) Design and Building Contract 2005 standard form contract. The court was faced with the contractual interpretation of one of the clauses, which concerned the way in which extensions of time would be dealt with in certain circumstances. The contract was for the construction of a sizeable house in the Midlands.
Clause 2.25.1.3(b) as amended by the parties on 21 September 2009, read as follows:
“2.25.
1. any of the events which are stated to be a cause of delay is a Relevant Event; and
2. completion of the Works or of any Section has been or is likely to be delayed thereby beyond the relevant Completion Date,
3. and provided that
(a) the Contractor has made reasonable and proper efforts to mitigate such delay; and
(b) any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account then, save where these Conditions expressly provide otherwise, the Employer shall give an extension of time by fixing such later date as the Completion Date for the Works or Section as he then estimates to be fair and reasonable.”
Sub-clause (3) was the part added by the parties to the standard clause. The clause as amended added into the extension of time machinery the proviso that, in assessing an extension of time, “any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account”.
The works were delayed, and the claimant applied for an extension of time for a variety of reasons. In the application, they included various other notices of delay, which relied upon different causes, or Relevant Events. Cyden’s response stated:
“Whilst no consideration has been made with regards to ‘reasonable and proper efforts to mitigate such delay’, the delays resulting from Delay Events 1 and 9 have been consumed by culpable delays attributable to North Midland Building, this reducing entitlement to an award of an Extension of Time”.
Cyden maintained that, if there were two delaying events, Event X and Event Y, occurring at the same time and causing concurrent delay to completion of the works, with Event X otherwise allowing the claimant to an extension of time, and Event Y being “another delay for which the Contractor is responsible”, then the contractor, North Midland, would not be entitled to an extension of time in respect of those two delaying events. North Midland disagreed with this interpretation.
North Midland relied upon the doctrine of prevention. Fraser J noted that in Multiplex Construction (UK) v Honeywell Control Systems Ltd [2007] BLR 195, Jackson J (as he then was) considered the relationship between the prevention principle and time at large, and explained that:
“Essentially the prevention principle is something that arises where something occurs, for which it is said the employer is responsible, that prevents the contractor from complying with his obligations, usually the obligation to complete the works by the completion date.”
It was further stated that the failure to complete the Works by the completion date or the extended completion date, will usually entitle the employer to deduct liquidated and ascertained damages (“LADs”).
Fraser J noted that, North Midland had relied on the principle of concurrent delays as well the prevention principle, in order to justify the granting of the declarations sought. North Midland argued that as a consequence of the first two propositions time was at large.
“…the concept of ‘time at large’ does not mean that the contractor has an indefinite time to complete the works. If the completion date in the contract, and the mechanism for having that extended by means of awarding so many weeks to an originally agreed completion date, are inoperable or for some other reason no longer applicable, in general terms the contractor’s obligation becomes one to complete the works within a reasonable time. That is what the shorthand expression ‘time at large’ is usually understood to mean.”
Fraser J referred to Multiplex and stated that Jackson J had considered the relationship between the prevention principle and time at large and stated:
(i) Actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention, if those actions cause delay beyond the contractual completion date;
(ii) Acts of prevention by an employer do not set time at large, if the contract provides for extension of time in respect of those events;
(iii) Insofar as the extension of time clause is ambiguous, it should be construed in favour of the contractor.
North Midland argued that the employer’s response in respect to the application for extension of time was unfair, and not in accordance with the contract. North Midland reasoned that an extension of time ought to be granted without taking account of concurrent delays for which the claimant is responsible, and disallowing those latter periods. Nevertheless, Fraser J maintained that the prevention principle did not simply arise in this case.
Fraser J agreed with the defendant, and confirmed that the amendments and the meaning of the words used were “crystal clear” and agreed to by the parties. He further confirmed that, where the clause (or contract) specifically provides that, if the contractor was responsible for a concurrent delay at the same time as that caused by a Relevant Event, then the delay caused by the Relevant Event would not be taken into account when assessing the extension of time, and the contractor would ultimately be excluded from claiming an extension of time in respect of that Relevant Event.
Fraser J held that, both parties were free to agree to any terms they wished, in respect of the manner in which concurrent delays would be dealt with, and that there was no rule of law which prevented the parties from agreeing that concurrent delay be dealt with in any particular way.
It was further held that, there was no authority, statutory or otherwise to accept that the LADs would not be applicable in this case. Fraser J conclusively referred to the case of Jerram Falkus Construction Ltd v Fenice Investments Inc (No.4) [2011] EWHC 1935 (TCC), which Coulsen J stated that:
“Accordingly, I conclude that, for the prevention principle to apply, the contractor must be able to demonstrate that the employer’s acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor’s own default, the prevention principle will not apply.”
Fraser J held that, where the parties have agreed to variations to the standard form contract, there is little room for interpretation later on, as parties will have to enforce what was contractually agreed upon. Therefore, parties can exclude the contractor’s entitlement to extension of time in respect to concurrent delays.
The Technology and Construction Court (TCC) is a specialized group of UK courts which handle disputes about building, engineering and surveying. Of interest is the recent decision of the TCC in the matter of Jacobs UK Limited v Skanska Construction Ltd [2017] EWHC 2395 (TCC), handed down in September 2017.
The parties in this matter had entered into an agreement for the provision of design services, in respect of a project for the design and replacement of street lighting in Lewisham and Croydon, England.
A dispute arose as to the adequacy of the design services provided by Jacobs, which was referred to adjudication by Skansa. Agreement was reached regarding the procedural rules and the timetable for the adjudication, the adjudicator was appointed and the initial submissions made. Skansa’s counsel, however, was unavailable and Skansa was, therefore, unable to timeously file its reply to these submissions. Both Jacobs and the adjudicator refused it an extension to do so. Skansa, therefore, withdrew its reference to adjudication and invited the adjudicator to resign, which he did.
Two months later Skansa submitted substantially the same dispute to a second adjudication. Jacobs then made application to the TCC for an injunction (similar to an interdict in South African law) restraining Skansa from proceeding.
The court found that although there is no principle of abuse of process in adjudication, subjecting a party to serial adjudications in respect of the same claim and requiring them to incur irrecoverable costs could amount to unreasonable and oppressive behavior.
In this case, however, the terms under which the adjudication was conducted made allowance for the reference of a dispute to a second adjudication, should the adjudicator resign. While it was unreasonable for Skansa to withdraw and reinstate its claim due to the unavailability of its counsel, this did not deprive the new adjudicator of jurisdiction.
As the dispute referred to the second adjudication was substantially similar to the first dispute, Jacobs would be able to make use of it previously drafted submission. The changes to Skansa’s version would most likely have been raised in its reply in the first adjudication, thus, in any event, entitling Jacobs to seek an opportunity to file a rejoinder. The inconvenience and additional costs suffered by Jacobs as a result of the second adjudication were not, therefore, considered to be so severe or exceptional so as to warrant intervention by the courts by way of injunctive relief.
The outcome may well have been different, however, had the parties been operating under an adjudication procedure which places a time bar upon the referral of a dispute to adjudication, such as that contained in Option W1 of the NEC3.
The case dealt with the issue of whether a party to a contract, who has elected not to accept a repudiation of the Contract by the other party, may, in the face of persistent and unequivocal intention of the other not to be bound, change its stance and cancel and sue for damages for breach of contract.
The facts of the matter were as follows:
The court found that:
The court found that, the Municipality persisted in its repudiation and showed in no uncertain terms that it would not comply with its obligations and would not allow Primat to continue to perform. The court confirmed that Primat was therefore entitled to change its election and proceed to cancel the contract and claim damages.
This case highlights a very important point. Had the court confirmed the Municipality’s stance, Primat would be stuck with a contract where they are not able to perform and remedy the alleged breach and sustaining damages that they cannot recover which would not make any sense at all.
In July 2013, Synthesis and SBTJ concluded a written JBCC Series 2000, Edition 5.0, Code 2101 building agreement as amended by the contract data agreed between the parties for the construction of a project named Nina Apartments Project.
A dispute arose in respect of the issue of payment by SJBT and Synthesis terminated the agreement. Negotiations ensued and a “second” agreement came into being and Synthesis withdrew its letter of cancellation.
There was a dispute regarding the “second” agreement with Synthesis arguing that the “second” agreement was conditional but SBTJ argued that it had the effect that it “revived” the JBCC contract, in any case, the court held that the JBCC contract would remain in place.
A further dispute arose regarding breaches of the JBCC contract, inter alia, relating to payments and ultimately a termination of the contract. The disputes were referred to adjudication and the parties agreed that the JBCC Adjudication Rules (October 2014) would dictate the procedure.
The Adjudicator was appointed and the Adjudicator’s decision was subsequently handed down.
In the adjudication proceedings, Synthesis sought inter alia payment of the unpaid certified payment certificates, payment for monies not certified and not paid as well as payment for loss of profit.
SBJT did not oppose the relief sought by Synthesis and also submitted a counterclaim premised upon the JBCC contract.
The Adjudicator found in favour of Synthesis and in accordance with the Adjudicator’s decision, Synthesis issued an invoice to the Respondent. Despite demand, the SBJT failed to comply. Instead, SBJT gave notice of dissatisfaction with the Adjudicator’s decision but failed to take the required steps to pursue the arbitration proceedings,
Synthesis then applied to court in terms of Clause 6.2.2 of the JBCC contract for the enforcement of the Adjudicator’s decision. SJBT opposes the application on the ground that the Adjudicator lacked jurisdiction to adjudicate the dispute.
SBJT’s opposition was premised on the provisions of Clause 40.1 and argued that the jurisdiction afforded to the adjudicator was to be determined by the parameters of clause 40.1 and was limited to:
SJBT argued that the provisions of Clause 40.1 did not extend to or include the disputes placed before the adjudicator.
Therefore, SJBT sought, inter alia, dismissal of the claims and to be discharged of all liability in connection with Synthesis’ claims.
The court held as follows:
Dissatisfaction with the outcome of a tender process can result in an award, made in terms thereof, being taken on review. This was the case in Areva NP Incorporated in France v Eskom Holdings Soc Limited and Others (CCT20/16, CCT24/16) [2016] ZACC 51 (21 December 2016), which concerned four applications to the Constitutional Court.
Eskom had awarded the contract for the replacement and installation of six steam generators, at the Koeberg Nuclear Power Station, to Areva. Westinghouse Electric Belgium Société Anonyme (WEBSA), the second respondent in this action, contested the award. The High Court found in favour of Eskom and Areva. The SCA found in favour of WEBSA, overturning the High Court decision, but did not award it the tender, opting instead, to remit the tender to Eskom for fresh adjudication. Eskom and Areva both sought leave to appeal this decision. WEBSA sought leave to cross-appeal the SCA’s decision not to award it the tender and adduce new evidence with respect thereto.
Eskom and Areva’s applications for leave to appeal were granted. WEBSA’s applications were dismissed because it had no locus standi to institute the review proceedings in its own right. On this basis, Areva’s appeal was upheld.
Locus standi relates to the right or capacity to bring an action.
During the tender process WEBSA had submitted a tender with a covering letter stating that the offer was submitted on behalf of Westinghouse Electric Company (WEC). WEBSA and WEC were separate legal entities, one located in Belgium, the other in the USA, but both members of the Westinghouse Group. The Court found that WEBSA had acted as WEC’s agent in the submission of the tender.
It was held (the minority dissenting) that, just because WEBSA belonged to the same group of companies as WEC, did not give it the locus standi to institute court proceedings in its own right in a matter that only directly affected only WEC.
A stark warning to all those acting within a group umbrella to keep track of which entity, in fact, engaged in a particular transaction.
In September 2009, Trencon and SAA concluded a written agreement for the construction of a departure lounge at the OR Tambo International Airport. The general conditions of contract were the JBCC Principal Building Agreement, (PBA), and Focus Project Management was appointed as the Principal Agent.
Trencon duly executed the works, however, SAA and Focus refused to issue a final certificate due to certain defects in the works. It was common cause between the parties, however, that these defects were caused by a previous contractor hired to execute the works, who had been liquidated prior to completion thereof.
Trencon, therefore, made application for payment from SAA in the sum of R 552 040.38 or that Focus be ordered to issue a final payment certificate in this amount.
SAA relied on Clause 8.2 of the PBA to argue that Trencon was not entitled to payment as it had not complied with its obligations.
Clause 8.2 of the PBA states:
“The contractor shall make good any physical loss and repair damage to the works, including clearing away and removing from site, all debris resulting therefrom, which occurs after the date on which the possession of the site is given and up to the issue or deemed issue of the certificate of final completion and resulting from…”
SAA also argued that the clear intention of SAA was to have the works completed and thus it could not have been intended by the parties that Trencon, despite its appointment to complete the works, could receive payment without the works having been completed.
In response, Trencon relied upon Clause 8.5 of the PBA which states:
“The contractor shall not be liable for the cost of making good physical loss and repairing damage to the works where this results from…
8.5.9 Design of the works where the contractor is not responsible in terms of 4.0”
It was common cause that Trencon was not responsible for the design of the defective works.
Trencon also relied on Clause 26.4 of the PBA, which states:
“Should the principal agent not issue a defects list, in terms of 26.2.2 or 26.3.2, within seven (7) calendar days from the end of the defects liability period, the contractor shall notify the employer and principal agent. Should the principal agent not issue such defects list within seven (7) calendar days of receipt of such a notice, the certificate of final completion shall be deemed to have been issued on the date of expiry of the initial notice period and final completion shall be deemed to have been achieved on such date…”
In light of this clause, Trencon argued that, as no defects list had been issued, the certificate of final completion was deemed to have been issued.
The court found that:
1. Clause 8.2 of the PBA relates to loss or damage which occurs after the date on which possession is given to the contractor and, as such, was irrelevant to these proceedings;
2. There is no other provision of the agreement which renders Trencon liable to repair the defects, as such, it was not obliged to make good the loss or repair the damage and it did not matter whether it was aware of these defects or not;
3. SAA’s argument regarding the intention of the parties does not accord with the written terms of the agreement and the clause in question is ambiguous;
4. Final completion had been achieved as a consequence of the deeming provision contained in Clause 26.4 of the PBA.
SAA was ordered to pay Trencon the R 552 040.38 claimed, within 10 days of the date of the order, and pay Trencon’s costs of the application.
On 29 January 2010, at George, the Plaintiff concluded a lease agreement with Parexel International South Africa (“Parexel”).
It was a material term of the lease agreement that the lessee would have an option to renew the lease for a further period of five years commencing from 1 July 2010. In terms of clause 13 of the lease agreement the lessee would, if so required in writing by the lessor, return the premises to a state prior to any alternators affected thereon. Parexel exercised its option to renew the lease so that same was valid and binding until 30 June 2015.
Paraexel utilised the leased premises for a specific purpose of testing medicine. Although a South African company with leased premises in George, Western Cape, Paraexel was an international company with its parent company based in the USA. Dr Michelle Middle (“Dr Middle”) was one of its directors.
Later in 2010 Paralexel decided that it would withdraw from South Africa. Dr Middle (a director of both Parexel, the plaintiff and a co-owner of the leased premises) seized the opportunity and decided to set up and start off the same business for her own account under the name of Ubuntu utilising an entity Ibunti Trade 56 (Pty) Ltd (“Ibunti”) as a vehicle to procure the business from Paraexel as a going concern.
Dr Middle wished to procure Paraexel as a going concern. Paraxel agreed, subject to two conditions:
The above two conditions were agreed upon in principle, but Ibunti, being a start-up company, did not have R8m to meet the estimated restoration costs. The Plaintiff’s board of directors, after further negotiations with Dr Middle, agreed the plaintiff would waive its rights arising from the restoration clause (thereby also releasing Paralexel of its obligation to restore), but that Ibunti would assume the restoration clause subject thereto that Ibunti, for the duration of the sub-lease agreement, transfer ownership to the plaintiff of all movable goods in the leased premises and that these conditions be incorporated and/or included in the proposed sub-lease agreement.
Dr Middle instructed her attorneys to draw the sub-lease agreement, which would need a clause in terms of which ownership of all improvements, equipment and movable assets in the leased premises transferred from Parexel to Ibunti. The sub lease would also need a clause in terms of which ownership of the movable assets would be transferred to the plaintiff, such transfer to endure to the duration of the remaining period of the lease. The transfer of ownership of movable assets would be in exchange of the plaintiff waiving its right against Parexel arising from the restoration clause.
Dr Van Breda, of the defendant, who acted for Dr Middle, was to attend to the drafting of the sub-lease agreement. The sub-lease agreement was signed and Ibunti took over Parexel’s Business of testing medicine for its own account. However, business did not got as anticipated and Ibunti went into voluntary liquidation. Ibunti, which subsequently changed its name to Q Dot Pharma (Pty) Ltd, was provisionally liquidated on 7 June 2012.
Upon liquidation, the liquidators took ownership of all movable goods in the leased premises. The Plaintiff’s endeavour to claim the movable goods from the liquidators did not succeed.
The plaintiff complained that it suffered loss as a consequence of failure by the defendant, in drafting a sublease agreement between Parexel and Ibunti, omitted to provide the security the plaintiff required in the sub-lease agreement in terms of which plaintiff would secure ownership of the movable assets in the leased premises in the event Ibunti ceased business operation before the expiry of the lease and that such omission constituted negligence which attracts liability.
Issue:
As the plaintiff did not instruct the defendant to draw the agreement (such instruction being given to Dr Middle to Dr Van Breda on behalf of Ibunti) the issues that arose were whether the defendant, in the circumstances of this matter, owed the plaintiff a legal obligation to act reasonably in preparing the sub-lease agreement.
Law:
Various jurisdictions such as the USA; Germany and the Commonwealth have held liable legal advisors in delict in respect of their actions which affect parties other than their own formal clients in a wide variety of situations. South African courts have not as yet had much opportunity to consider the specific issues relating to attorney’s liability to non-clients.
The court held that it was justified considering foreign law, so as to give some guidance, and summarised as follows:
Jr Midgley, in his work Lawyer’s Professional Liability cites the authority of Biankanja v Irving 49 Cal 2D 647 where the California Supreme Court, in the determination of a liability to a non-client said the following:
“The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff would suffer injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct and the policy of preventing future harm.”
In terms of Delictual Liability (Legal Duty) in the matter of Lucas v Hamm, the California Supreme Court held that a third party could take a third party action founded in either contract or delict.
Midgley in his work Lawyers Professional 1992 navigates many authorities in the USA, and concludes that in Anglo American Law two tests have been used to determine whether contracting parties owe third parties any delictual duties, these being: foreseeability tests and the multi-criteria balancing test. Midgley states that the foreseeability test has lost much of its influence and the multi-criteria balancing test, along with policy considerations, is preferred. The policy considerations are foreseeability of harm, knowledge of the extent to which the transaction was intended to affect non-client; reliance on the opinion given and potential excessive burden on the profession, amongst other factors.
In as far as misrepresentation is concerned, Midley at pg 109 notes that where a lawyer makes representations which are relied upon by a third party, there is no need to deviate much from the usual criteria of delictuall liability (general rule: lawyer who intentionally or negligently makes a misrepresentation acts unlawfully).
Result:
The Defendant attorneys, due to no inventory of movable goods being available, suggested the creation of a sub-lease agreement clause in which Ibunti would transfer ownership of the movable assets to the plaintiff in the event that Ibunti ceased business operations before the expiry of the sub-lease agreement. This form of security did not materialise and the movable goods were seized by the liquidators on the granting of the final order of liquidation. The plaintiff’s claim to the liquidators for the release of the goods to it was unsuccessful.
The Defendant attorneys did not have formal instructions from the Plaintiff to protect its interests. Dr Van Breda knew at the time of the drafting of the lease agreement the interest that the plaintiff sought to protect and the incorporation thereof in the sub-lease agreement. As pointed out by Sir Robery Megarry VC in Ross v Caunters (a firm), “a solicitor who [is] instructed by his client to carry out a transaction to confer a benefit on an identified third party owed a duty to that third party to use proper care in carrying out the instructions”. Dr Van Breda clearly had a duty to use proper care in favour of the plaintiff in carrying out its instructions.
In conclusion the court held that the defendant WAS liable to the plaintiff for such damages the plaintiff may have suffered by reason of the fact that ownership of the equipment and the other movable goods in the then leased premises had not been transferred to the plaintiff.
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.
Facts:
Issue:
The court a quo:
The Supreme Court of Appeal concluded:
Facts:
Issue:
Law:
“… The court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased. It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased.”
“In principle a party may waive a failure by an Adjudicator to comply with the rules of natural justice, although the nature of a natural justice challenge differs in important respects from a challenge to the jurisdiction of an adjudicator. For there to be a waiver it is evident that a party must be aware of or be taken to be aware of the right of challenge to the adjudicator’s decision. The second step requires a clear and unequivocal act which, with the required knowledge, amounts to a waiver of the right.
In the case of jurisdiction, a party must know or be taken to know that the ground for challenging the jurisdiction has arisen. If, with that knowledge a party then continues with the adjudication process without raising the challenge then it may waive its rights to challenge jurisdiction at a later date. In the case of jurisdictional challenges, it is therefore by continuing with the adjudication in the knowledge that there are grounds for jurisdictional challenge that gives rise to a waiver.
In the case of a natural justice challenge the party has to know or be taken to know that the grounds for natural justice challenge have arisen. However, there has then to be some clear and unequivocal act by that party to show that it does not intend to rely on that natural justice challenge before there can be waiver”
“In my view the relevant principles that apply in cases of this sort are those set out in paragraph 38 of the judgment of Ramsey J where he expressly considered the effect of clause 39A.7.1. I summarize those principles as follows:
Conclusion:
Transnet SOC Limited (the applicant) entered into an NEC3 Building and Construction Contract with Group Five Construction (Pty) Ltd and Trotech Engineering Africa (Pty) Ltd (in joint venture, being the first and second respondents) for the design, supply, erection and testing of accumulators at a specific terminal of a pipeline that form part of the so-called New Multi Products Pipeline Project (“the Contract”).
During the execution of the Contract, a dispute arose between the parties concerning the interpretation of the Contract insofar as the appointment of an adjudicator is concerned. An adjudicator had been appointed on a previous dispute under the Contract and the applicant was of the view that such appointed adjudicator remained the appointed adjudicator for the duration of the Contract. On this point, the first and second respondents differed from the applicant’s view. The applicant launched an application in the High Court of South Africa (KZN Local Division) in respect of the dispute, seeking a declaratory order from the Court that the adjudicator appointed under the Contract had been appointed for all disputes arising under or in connection with the Contract.
The main issues addressed by the Court were:
The honourable Justice Jeffrey AJ commenced his judgement by setting out the relevant clauses of the Contract. The Parties selected Option W1, a Form relating to dispute resolution procedures, including the appointment of an adjudicator and an arbitration process in the event of a party being dissatisfied with the decision of the adjudicator.
With regards to the first issue to be determined, the point raised in limine by the first and second respondents – namely that the Court should decline to determine and should refuse the application because the applicant had not complied with the agreed arbitration process / dispute resolution process – Jeffrey AJ found in favour of the first and second respondents.
He referred to the matter of Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co[1] and, in summary, he found:
Jeffrey AJ went on to provide a ruling on the further issues presented by the parties, in the event that it was found that his ruling on the point in limine was wrong.
He found that on a proper interpretation of the Contract, the Contract contemplates and the parties intended that several ad hoc adjudicators may be appointed to resolve disputes that may arise. Jeffrey AJ referred to numerous decisions of the Supreme Court of Appeal[3] with regards to the modern approach to the interpretation of written documents. A summary of the points referred to in these numerous decisions are:
Applying these principles, Jeffrey AJ referred to Clause 11.W1.1 which provides that:
“The Adjudicator is – To be appointed under the NEC3 Adjudicator’s Contract (June 2005) if and when a dispute arises”
He also referred to Clause W1.1 and W1.2(1) of Option W1 that respectively provide:
“A dispute arising under or in connection with this contract is referred to and decided by the Adjudicator”
and
“The Parties appoint the Adjudicator under the NEC Adjudicator’s Contract current at the starting date”.
Jeffrey AJ held that although these clauses refer to the adjudicator in the singular, that the provisions of Core Clause 12.1[4] applied and that words in the singular expressly contemplate the plural as well. He also held that the words “If and when a dispute arises” may be ambiguous, but that in the context of the Contract as a whole, and given the fact that multiple disputes could arise during the execution of the Contract which may require various degrees of expertise in relation to varying disciplines, that the applicant’s interpretation of the Contract was wrong.
In reaching this decision, he further held that:
“The intention would be sensible, practical, expeditious and businesslike and would not stultify the broader operation of the contract because it is axiomatic that the purpose of appointing an adjudicator to determine a dispute with the tight time-lines set out in the contract is to ensure as far as possible that the dispute is resolved as expeditiously as possible so that the project is not stultified by delays caused by the existence of the dispute. It is likely that the expeditious progress of a large project like this one would be jeopardised if ad hoc adjudicators were not appointed.”
Jeffrey AJ did not consider the third point raised by the first and second respondents with regards to estoppel and was left open.
The applicant’s application was dismissed with costs.
[1] SARL 2015 (1) SA 345 (SCA)
[2] Supra
[3] Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) at paragraph 18; Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 at paragraph 11; Dexgroup (Pty) Ltd v Trustco Group International (Pty) Ltd and Others 2013 (6) SA 520 (SCA) at paragraph 16; Commissioner, South African Revenue Service v Bosch and Another 2015 (2) SA 174 (SCA) at paragraph 9
[4] “In this contract, except where the context shows otherwise, words in the singular also mean in the plural and the other way round and words in the masculine also mean in the feminine and neuter”
Facts:
Issue:
Law:
Conclusion:
The Claimant, for the reasons given above was entitled to enforce the award and is entitled to summary judgment in the sum of £318 529.30 (including the Adjudicator’s fee and VAT) plus interest of £7 231.15 as of the date of judgment and continuing at a daily rate of £60.26 awarded by the adjudicator until further order.
Facts:
Issue:
Adjudication ruling
The TCC [High Court of Justice, Queen’s Bench Division, Technology and Construction Court]:
Facts
1. Askari would receive 10% of the value of Shakawa if the company was sold; and
2. This 10% share would be calculated after costs such as legal fees, agents commission etc.
Issue
The Court a quo
The SCA – Statements on the Law
The SCA – Application & Ruling
Facts
Relief Sought in the Johannesburg High Court:
Issue
Defences raised
The Majority Judgment
“It is well established that an expert is required to assist the court, not the party for whom he or she testified. Objectivity is the central prerequisite for his or her opinions. In assessing an expert’s credibility an appellate court can test his or her underlying reasoning and is in no worse a position than a trial court in that respect. Diemont JA put it thus in Stock v Stock:
‘An expert . . . must be made to understand that he is there to assist the Court. If he is to be helpful he must be neutral. The evidence of such a witness is of little value where he, or she, is partisan and consistently asserts the cause of the party who calls him. I may add that when it comes to assessing the credibility of such a witness, this court can test his reasoning and is accordingly to that extent in as good a position as the trial court was.’”
This case involved an appeal by the employer against the decision of a lower court and an adjudicator in relation to an NEC3 professional services contract for the surveying of properties in Belfast and the north east region for asbestos. Two issues were addressed by the court. Firstly whether the employer issued an instruction under the contract increasing the scope, and secondly, if such an instruction was issued, was the consultant time barred from pursuing a compensation event.