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North Midland Building Ltd v Cyden Homes Ltd 2017 EWHC 2414 (TCC)

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.

An Interesting Decision from the TCC

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.

Primat Construction CC / Nelson Mandela Bay Metropolitan Municipality (1075/2016) [2017] ZASCA 73 (1 June 2017)

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:

  1. The parties had entered into a contract, pursuant to a tender, in terms of General Conditions of Contract for Construction Works (2004), for the upgrade of roads in Motherwell, Port Elizabeth and Primat was required to attend to the reconstruction of the road and supply materials;
  2. The works were scheduled to commence in April 2010 and end in November 2010, however, as a result of delays including severe storm damage, late payment of an insurance claim to Primat for the damage and non-payment by the Municipality against monthly payment certificates, the completion date was therefore extended to November 2011;
  3. As a result of the non-payment of their certificates, Primat suspended the work. The Employer was not happy with the suspension and wrote to Primat purporting to terminate the contract with immediate effect. It is common cause that the letter did not constitute a proper termination and Primat argued that the letter amounted to a repudiation of the contract by the Municipality and such repudiation was not accepted by Primat.
  4. The Municipality maintained that the contract was terminated and requiring Primat to vacate the site. Primat was adamant that they intend to remedy any alleged breaches by it but they were denied access to the site and despite their continued engagement with the municipality, the Municipality insisted that the contract had been terminated and that they will procure other contractors to finish off the works.
  5. As a result of the Municipality’s persistence that the contract had been terminated, Primat gave notice of its election to now accept such repudiation and cancelled the contract and that they intend to sue for damages in the sum of R22 million.
  6. The Municipality argued that once Primat elected not to accept the repudiation, it was precluded from changing its election and could not therefore cancel and claim damages.

The court found that:

  1. Generally, an aggrieved party must choose between the different remedies and is bound by his or her election. The remedies are inconsistent. The choice of one excludes the other, he cannot approbate and reprobate. Once he has elected to pursue one remedy, he is bound by his election and cannot resile from it without the consent of the other party (Bekazazu Properties (Pty) Ltd v pam Golding Properties (Pty) Ltd 1996 (2) SA 537 (C ) at 542E-F);
  2. However, the court held that the Municipality’s argument failed to take account of the fact that the doctrine of election is not inviolable. An aggrieved party is allowed to claim in the same action specific performance and in the event of non-compliance, cancellation and damages. The aggrieved party gives the defaulting party the opportunity to repent and if the defaulting party refuses or fails to perform, the aggrieved party should then be entitled to change its election, and cancel and claim damages. despite the opportunity to relent, the aggrieved party may elect to cancel;
  3. Where the defaulting party is clearly determined not to purge the breach, and shows an unequivocal intention not to be bound by the Contract, the aggrieved party may abandon his or her futile attempt to claim performance and change the election, claiming cancellation and damages.
  4. The Municipality argued that to allow a change of election would negate the fundamental principle that on breach, an aggrieved party must make an election and is then bound by it.

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.

Synthesis Projects CC v SBTJ Properties CC

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:

  1. Matters arising out of the conclusion of the agreement;
  2. Concerning the agreement;
  3. Or the termination of the agreement

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:

  1. The scope of clause 40.1 is not limited in any way and is wide enough to extend to the issues before the adjudicator;
  2. At no stage did SBJT contest the adjudicator’s decision during the adjudication process. It participated in the adjudication proceedings actively without any reservations. In its notice of dissatisfaction, the issue of jurisdiction is also not raised. The parties clearly accepted that the adjudicator had the required jurisdiction to decide the dispute.
  3. The issue of jurisdiction of an adjudicator or arbitrator is to be determined at the stage when they are appointed.
  4. Clause 40.1 does not determine the “jurisdiction” in respect of the disputes, it is the agreement appointing the adjudicator or arbitrator that determines the disputes formulated at that stage and determine the jurisdiction.
  5. Both the claims by Synthesis and SJBT arose from the provisions of the JBCC contract and those issues were the issues considered and determined by the Adjudicator.
  6. The court therefore found that there was no merit in SJBT’s submission relating to the issue of non-jurisdiction and the opposition stood to be dismissed.

Areva NP Incorporated in France v Eskom Holdings Soc Limited and Others

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.

Trencon Construction (Pty) Ltd v South African Airways (Pty) Ltd 2015 JDR 0090 (GJ)

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.

Herrie Windsor Construction (Pty) Ltd v Raubenheimers Inc 7533/2015 H245 2013 (22 April 2016)

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:

  1. There would have to concluded a sublease agreement between Parexel and Ibunti. In the event of the suggested sub-lease agreement being concluded between Parexel and the new entity, Parexel would guarantee rental payment for the duration of the remaining period of the lease.
  2. Dr Middle would acquire the equipment installed at the leased premises for no consideration at all but that, as a quid pro quo, Paraxel required to be released from its obligation arising from the restoration clause (estimated to be about R8m to restore the premises).

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:

  • In Hawkins v Clayton 1988 79 ACL 69 – a firm of solicitors was held liable for failing to draw a will timeously, causing would be beneficiaries to be disinherited;
  • In Midland Bank Trust Co Limited and Another v Hett, Stubs & Camp [1978] 3 All ER 571 – a firm of solicitors was held liable for failing to register an option to purchase land, causing the grantee of the option to be unable to purchase the land until it had already been sold;
  • In Penn v Bristol & West Building Society [1996] 2 FCR 729 – a firm of solicitors was held liable for failing to check with the wife of their client whether she wished her house to be transferred, in a case where the husband co-owner obtained the transfer by fraudulent means.

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.

Case Note - Group Five Construction (Pty) Limited v Minister of Water Affairs and Forestry (39161/05) [2010] ZAGPPHC 36 (5 May 2010)

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:

  1. a ruling by the engineer; if disputed
  2. a decision by the engineer; if disputed
  3. a referral to the DRB; if disputed
  4. court proceedings.

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.

Supreme Court of Appeal of South Africa matter, Mutual & Federal v KNS Construction (208/15) [2016] ZASCA 87 (31 May 2016)

Facts:

  • This appeal concerns the interpretation of a construction guarantee.
  • In 2011, South African National Roads Agency Limited (SANRAL) awarded to KNS Construction (Pty) Limited (“KNS” and further the 1st Respondent), a contract for the construction of road works at Ballito interchange, National Route 2, KwaZulu-Natal (the main contract).
  • On 22 March 2011, KNS appointed Aqua Transport & Plant Hire (Pty) Ltd (“Aqua”), as a sub-contractor and in terms of the sub-contract, Aqua was required to provide a performance guarantee (“the guarantee”) to the value of 15 per cent of the main contract, and the guarantee was not to have an expiry date.
  • The 1st Appellant, Mutual and Federal Insurance Company Limited (Mutual & Federal), as guarantor, issued the guarantee on behalf of Aqua for the due fulfilment of its obligation to KNS pursuant to the sub-contract.
  • The guarantee had the following terms:
    • Mutual & Federal would hold at their disposal the amount of R3 423 850.49 for the due fulfilment by Aqua of its obligations to KNS;
    • The Guarantor would undertake to pay KNS the said amount of R3 423 850.49 or such portion as may be demanded on receipt of a written demand from KNS which demand may be made by KNS if, (in your opinion and at your sole discretion) the said Contractor fails and/or neglects to commence the work as prescribed in the contract or if he fails and/or neglects to proceed therewith or if, for any reason, he fails and/or neglects to complete the services in accordance with the conditions of contract, or if he fails or neglects to refund to KNS any amount found to be due and payable to KNS or if his estate is sequestrated or if he surrenders his estate in terms of the Insolvency law in force within the Republic of South Africa‟
  • Pursuant to the issuing of the guarantee, KNS experienced financial problems and was not able to perform in terms of the main contract.
  • As a result, it could not continue with its obligations which it was required to perform before Aqua could render its services and its financial situation did not improve and it placed itself under voluntary winding-up in terms of a special resolution registered by the Master of the High Court on 13 December 2011.
  • By 14 December 2011 the site was closed. KNS’s insurers, who had issued a performance guarantee on its behalf to SANRAL, were informed of the dire financial situation. This led to SANRAL cancelling the main contract and issuing a new tender for the completion of the remaining earthworks.
  • On 24 January 2012, KNS was placed under provisional winding up at the instance of one of its creditors and the provisional order was made final on 5 March 2012.
  • On 14 December 2011, KNS placed itself under voluntary winding up, purported to cancel the sub-contract with Aqua, giving Aqua 14 days’ notice to rectify its performance, failing which it intended calling up the performance guarantee. The basis for the calling up of payment of the guarantee was alleged to be the failure to commence, proceed with or complete the project.
  • On 28 May 2012, Aqua launched an application in the South Gauteng High Court, Johannesburg interdicting Mutual & Federal from effecting payment in terms of the guarantee. By agreement between the parties, Mutual & Federal was interdicted from honoring the guarantee pending resolution of proceedings to be instituted within 30 days by KNS Construction. In due course, KNS Construction launched an application which came before the court a quo demanding payment of the guarantee on the basis that, as the guarantee was a “call or on demand guarantee‟ it had become payable.
  • Aqua on the other hand contended that the guarantee was a “conditional guarantee‟, inextricably linked to the sub-contract, and as Aqua was not in breach of the sub-contract, the guarantee was not due and payable.

Issue:

  • This appeal court dealt with concerns regarding the interpretation of the construction guarantee.
  • The main issue raised was that the guarantee was a “conditional guarantee‟ that is inextricably linked to the underlying contract, and therefore akin to suretyship and not an “on demand‟ or “call guarantee‟.

The court a quo:

  • The Gauteng Local Division of the High Court, Johannesburg held that the guarantee was a “call or on demand‟ guarantee, and that Mutual & Federal was on demand by KNS, obliged to pay.

The Supreme Court of Appeal concluded:

  • The language used in the guarantee and its purpose reveal the true intention of the parties. Clause 1 stated that it is issued for the “due fulfilment‟ by Aqua of its obligations to KNS in terms of the sub-contract.
  • Clause 3 of the guarantee stated that the guarantee amount is payable,… on receipt of a written demand from KNS, which demand may be made by KNS if (in your opinion and at your sole discretion) Aqua had failed and/or neglected to commence the work as prescribed in the contract or if Aqua had failed and/or neglected to proceed therewith or if, for any reason, Aqua failed and/or neglected to complete the services in accordance with the conditions of contract.
  • Although payment may be demanded “at any stage‟, the true purpose was to guarantee the due performance by Aqua. It was only payable if Aqua breached the sub-contract as expressly stated in the guarantee.
  • The court found further that on completion of the construction, the guarantee would be returned to Mutual & Federal (as in the case of suretyship) and once the principal debt was discharged, the surety would be released from its obligations.
  • KNS could not specify which breach Aqua is alleged to have committed. Thus it was not clear on what basis KNS alleged it was entitled to payment.
  • KNS did not and could not perform its own obligations in terms of the sub-contract and therefore it did not meet any of the conditions imposed, before payment can be held to be due and payable.
  • The fact that the guarantee depended on breach of the sub-contract by Aqua, lends credence to the fact that the guarantee is inextricably linked to the sub-contract and therefore akin to a suretyship.
  • The conclusion was therefore that the guarantee is akin to suretyship and thus a conditional guarantee and not a call or demand guarantee.
  • The court a quo erred in holding that the guarantee is a demand and not a conditional guarantee.

Gary Paice and Kim Springall v MJ Harding (trading as MJ Harding Contractors) [2015] EWHC 661 (TCC) (9 March 2015)

Facts:

  • Gary Paice and Kim Springhall (hereinafter referred to as “the Claimants”) engaged MJ Harding Contractors (hereinafter referred to as “the Defendant”) to construct and fit out two homes in Surrey.
  • The work only extended over a period of four months until work completely came to a halt in September 2013, raising arguments from both sides as to which party had rightfully terminated the contract.
  • The parties then took part in four adjudications, the result of which will be expanded upon below.
  • In the first adjudication, Mr Sliwinski (hereinafter referred to as “the First Adjudicator”) ordered the claimants to pay the Defendant £8, 252.72.
  • The second adjudication, still presided over by the First Adjudicator, rendered the result that the Claimants must pay the Defendant £249,769.59, as well as VAT and interest on that amount.
  • Neither the outcome of the first, nor the second adjudication was acted upon by the Claimants and the decisions of the adjudications had to be enforced.
  • On 12 and 13 August 2014, the Claimants had telephoned the First Adjudicator’s office on two occasions. On the first occasion, the call lasted for over an hour, and the second led to the appointment of a particular claims consultant, Peter English, to act on the Claimants’ behalf.
  • Just prior to the telephone conversations, the Defendant has sent a final account of £397, 912.48 with supporting material to the Claimants, for them to settle. It was Peter English (appointed ny virtue pf the First Adjudicator’s office manager’s suggestion), who rejected this account entirely and which lead to the third adjudication.
  • The third adjudication was presided over by Mr Linnet (hereinafter referred to as “the Second Adjudicator”). The Second Adjudicator found that the Claimants had not served their Pay Less Notice timeously, and thus the Claimants had to pay £397, 912.48.
  • A fourth and final adjudication, commenced by the Claimants was instituted to determine the true value of the works, presided over by the First Adjudicator once more.
  • The First Adjudicator in his first communication to the parties upon his appointment, made no mention of the telephonic conversations between his office and the Claimants on 12 and 13 August 2014.
  • The Defendant’s representative, Mr Nigel Davis, sent the First Adjudicator an email asking him to confirm what contact if any (whether oral or in writing) the First Adjudicator had had with the Claimants (or anyone acting on the Claimant’s behalf) during the period of 29 November 2013 and 16 October 2014, and to provide details of any contact had.
  • The First Adjudicator replied that he had had no contact with the Claimants at all, save in relation to the previous adjudications when he made contact with their representative for the purposes of those adjudications. No mention was made of the telephonic discussions of 12 and 13 August 2014.
  • The Defendant’s representative wrote to the Claimants requesting their phone records over the period of 8 August 2014 to 13 August 2014. The Claimant’s did not answer Mr Davis’s request.
  • The Defendant sought an injunction to restrain the fourth adjudication on the basis that, among others, the dispute referred to the fourth adjudication was substantially similar to what had been decided in the third adjudication. The court did not grant the injunction, and the Defendant subsequently obtained permission to overturn that ruling.
  • The fourth adjudication produced a result that, on the valuation of the final account, the Defendant had to pay back to the Claimant’s £325 484.00, as well as adjudicator’s fees of £15 487.50.

Issue:

  • The issues in this case were as follows:
  1. Whether, at the time of appointment, a fair-minded observer would have concluded that the First Adjudicator should have disclosed the existence of the telephone conversations, and whether his failure to do was indicative of apparent bias.
  2. Whether the Defendant waived his right to argue apparent bias because he known about the telephonic conversations from the outset of the fourth adjudication and had deliberately chosen not to mentioned it.
  3. Whether the First Adjudicator lacked jurisdiction because he had purported to decided something that had already been decided in the third adjudication. 

Law:

  • The test for apparent bias was set out by Lord Philips in In re Medicaments and Related classes of Goods (No 2) [2001] 1 WLR 700 at paragraph 85:

“… 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 addition to the court’s test for apparent bias, the RICS Guidance Publication was also relied upon by the judge. It dealt with, amongst other things, unilateral contact between the parties and the adjudicator.
  • In analysing the First Adjudicator’s submissions, namely that the discussions were only procedurally based, and that he had no duty to disclose same due to the conversations taking place with his office manager and not himself, the court dismissed both as being incorrect. The court found that the discussion were in fact more about the complaints from the Claimants as to the outcome of the adjudications (not as procedurally focused as the First Adjudicator had submitted)  and that the Adjudicator had been informed of the (and thus he had knowledge that could influence his decision).
  • The Court concluded that the First Adjudicator’s deliberate decision not to disclose the unilateral conversations with the Claimants did gave rise to the possibility that the adjudicator was biased.
  • Secondly, the Claimant argued that the Defendant had waived his right to contend for apparent bias by virtue of knowing about the telephonic conversations from the outset of the fourth adjudication and having said nothing. The judge dismissed this submission since it could not be realistically argued that the defendant knew about the content of the calls until the witness statements in these enforcement proceedings, the Defendant could not be said to have waived his right to apparent bias.
  • Waiver in adjudication proceedings was dealt with by Ramsey J in Farrelly (M&E) Building Services ltd v Byrne Brothers (Formwork) Ltd [2013] EWHC 1186 (TCC) at paragraphs 27 to 29: 

“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 applying those principals to this case, the court held that the Defendant did not know, and cannot be taken to have known, about the content of the conversations, so he did not know that the grounds for a natural justice challenge had arisen. In addition, there was no clear and unequivocal act on the part of the defendant which could amount in fact or law, to waiver.
  • Thirdly and finally, the court looked into whether the adjudicator had the jurisdiction because he had purported to decided something which was already decided in the third adjudication.
  • In relation to jurisdiction the leading case of Benfield Construction Ltd v Trudson (Hatton) Ltd [2008] EWHC (TCC) at paragraph 34 held as follows:

 “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:

  • The parties are bound by the decision of the adjudicator on a dispute or difference until it is finally determined by court of arbitration proceedings or by an agreement made subsequently by the parties.
  • The parties cannot seek a further decision by an adjudicator on a dispute or difference if that dispute or difference has already been the subject of a decision by an adjudicator.
  • The extent to which a decision or a dispute is binding will depend on an analysis of the terms, scope and extent of the decision made by the adjudicator. In order to do this the approach has to be to ask whether the dispute or difference is the same or substantially the same as the relevant dispute or difference and whether the adjudicator has decided a dispute or difference which is the same as the relevant dispute or difference.
  • The approach must involve not only the same but also substantially the same dispute or difference. This is because disputes or difference encompass a wide range of factual and legal issues. If there had to be complete identity of factual and legal issues, then the ability to re-adjudicate would deprive clause 39A.7.1 of its intended purpose.
  • Whether one dispute is substantially the same as another dispute is a question of fact and degree.”

 

  • The court held that the First Adjudicator did not have jurisdiction, because the court of appeal had given permission for the Defendant to challenge the court’s prior decision to refuse an injunction in respect of the fourth adjudication, the court was obliged to conclude that the Defendant had reasonable prospects of arguing that there was a substantial overlap between the third and fourth adjudications and therefore the adjudicator had lacked jurisdiction.

Conclusion:

  • The First Adjudicator’s decision in adjudication four was not enforced, and the application for summary judgment on this basis was refused.
  • The Court had considerable sympathy for the Claimants as they had not been served well by the adjudication process, and the court held that serial adjudications often bring with them considerable jurisdictional risks. The Claimants had been exposed to these risks, and these risks were amplified by a series of misjudgements by the First Adjudicator.
  • The chances were high that currently, the Claimant’s had overpaid the Defendant. The Defendant was paid the entirety of its final account claim because of the absence of a timeous pay less notice. Contractor’s claims are usually overstated as is well known in the Construction Industry.
  • The court suggested mediation would solve a relatively straight forward quantity surveying disputes rather than waiting for an appeal from the Court of Appeal, in determining what the Claimants should have paid.
  • This judgement on these facts was a case that is a long way away from the sort of dispute for which adjudication was intended.
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