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Norland Construction (Pty) Ltd v OR Tambo District Municipality

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:

  1. The General Conditions of Contract for Construction Works (Second Edition) 2010 (“the GCC”);
  2. SANS 1200 – Standardised Specification for Civil Engineering Construction;
  3. Tender documents consisting of tendering procedures, returnable documents, agreement and contract data, pricing data and scope of works; and
  4. Drawings.

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 meditation 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.

Aveng JV v Sanral

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:

  • failure by the contractor to extend the validity of the guarantees;
  • failure by the contractor to pay the employer an amount agreed upon or determined by the Engineer in terms of clause 2.5 or 20;
  • failure by the contractor to remedy a default within 42 days of agreement or determination; and 
  • circumstances that entitle the employer to terminate the contract in terms of clause 15.2. 

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

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 –

  • (aa) is to be erected in such manner or will be of such nature or appearance that –
  • (aaa) the area in which it is to be erected will probably or in fact be disfigured thereby;
  • (bbb) it will probably or in fact be unsightly or objectionable;
  • (ccc) it will probably or in fact derogate from the value of adjoining or neighbouring properties

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

University of Warwick v Balfour Beatty Group Ltd [2018] EWHC 3230 (TCC)

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:

  • in the case of the Works, the Employer shall forthwith issue a statement to that effect (‘the Practical Completion Statement’) and the Employer shall from such date be entitled to enter and take possession of the completed Works with effect from such date;
  • in the case of a Section, he shall forthwith issue a statement of Practical Completion of that Section (a ‘Section Completion Statement’);

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.

Fast Track Contracting (Pty) Ltd v Constantia Insurance Company and others

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

Tees Esk & Wear Valleys NHS Foundation Trust v Three Valleys Healthcare Ltd & Anor [2018] EWHC 1659 (TCC) (29 June 2018)

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:

  1. The purpose for which the Claimant is required to serve on the Second Defendant, prior written notice of its intention to terminate the Project Agreement, and written details of amounts owed and other liabilities and obligations on the part of Project, is to enable the funders to decide whether or not to exercise their step-in rights under the FDA;
  2. Paragraph 3.2.2 provides that: “The Trust shall not terminate … the Project Agreement … without giving … a notice …”. This functions as a condition precedent to the Claimant’s entitlement to terminate the Project Agreement;
  3. Therefore, as a condition precedent to termination under the Project Agreement, the Claimant must provide details in its paragraph 3.2.2 notice of:
    1. amounts owed, of which the Claimant is aware: which are accrued and outstanding at the time of the termination notice (para.3.2.2(a));
    2. amounts owed, of which the Claimant is aware, which will fall due on or prior to the end of the Required Period (para.3.2.2(b));
    3. other liabilities and obligations, of which the Claimant is aware, which are accrued and outstanding at the time of the Termination Notice (para.3.2.2(a)); and
    4. other liabilities and obligations, of which the Claimant is aware, which will fall due on or prior to the end of the Required Period (para.3.2.2(b)).
  4. Paragraph 3.2.2 does not impose an obligation on the Claimant to notify the Second Defendant of sums owed of which it is not aware. Furthermore, it is not required to provide quantum details of claims that do not give rise to an obligation to make payment or where the quantum has not yet been ascertained.
  5. The obligation on the Claimant to notify details of claims under paragraph 3.2.2 is limited to claims of which it is aware “having made proper enquiry”. This requires the Claimant to make proper enquiry but does not require it to provide evidence of such enquiry to the Second Defendant. There is no express provision imposing such an obligation and no room for the implication of such term.
  6. The paragraph 3.3.2 notice contains sufficient details to comply with the requirements of the FDA. The descriptions are sufficiently clear and unambiguous to enable the funders to understand the nature and basis of the claims.
  7. The Second Defendant’s case is rejected as the FDA draws a distinction between amounts owed, which must be quantified, and other liabilities and obligations, which do not have to be quantified.

In conclusion, the court granted the order as sought by the Claimant.

Michael Wilson & Partners Ltd v Emmott [2018] EWCA Civ 51

 

Judges: Sir Terence Etherton MR, Jackson and Underhill LJJ

As per the approved judgement of Sir Terence Etherton MR

BACKGROUND

  1. The dispute in this case is based on an agreement dated 7 December 2001 (“the MWP Agreement”) between Mr Emmott (“the Respondent”) and Michael Wilson & Partners, MWP acting by its ultimate beneficial owner and controller, Michael Wilson (“the Appellant”).
  2. The Appellant was incorporated in the British Virgin Islands and has a legal practice in Kazakhstan. The purpose of the MWP Agreement was to establish a “quasi partnership” under which the Respondent became a director of the Appellant and the shares were to be divided as to 33% to the Respondent and as to 67% to the Appellant.
  3. Clause 5.2 of the MWP Agreement contained the following arbitration provisions:
    This Agreement shall be governed by and interpreted in accordance with the laws of England and Wales and all and any disputes shall be referred to and are subject to arbitration in London before a tribunal of three arbitrators with one arbitrator to be appointed by each party and the chairman of the tribunal to be appointed by the President of the Law Society.”
  4. On 20 December 2005, the Respondent entered into a co-operation agreement with David Ross Slater, Robert Nicholls and Armen Shaikenov, [“the Co-operation Agreement”]. Mr Slater and Mr Nicholls were Australian lawyers who had joined the Appellant as employees and were subject to restrictive conditions. Mr Shaikenov was a Kazakh lawyer. The Co-operation Agreement directed that Mr Shaikenov and Mr Slater establish and operate a consultancy business. Mr Nicholls and the Respondent would thereafter be able to join the consultancy on the basis as set out in the Co-operation Agreement.
  5. The Co-operation Agreement would be owned and operated by Temujin (comprising of “Temujin International Ltd” and “Temujin Services Ltd”).
  6. Clause 7 of the Co-operation Agreement provided that “any and all differences, discrepancies, divergences or disputes arising out of or in connection with the Co-operation Agreement” were to be resolved by arbitration in English, in London or such other location, as the parties may agree under the rules of the London Court of International Arbitration.
  7. In December 2005 Mr Slater left the Appellant to work at Temujin and Mr Nicholls joined him in March 2006. The Appellant and the Respondent had a disagreement in the middle of 2006, each alleging to accept a repudiatory breach of the MWP Agreement by the other. The Respondent thereafter left the Appellant on 30 June 2006 and went to work for Temujin.
  8. In August 2006, the Appellant gave notice of arbitration to the Respondent under clause 5.2 of the MWP Agreement.
  9. The Appellant initiated numerous claims against the Respondent, including the claim that, while still a director of the Appellant, he diverted work, commercial opportunities, clients and potential clients to Temujin. The Respondent, claimed that he was entitled to 33% of the issued share capital of the Appellant up and until he left the employment of the Appellant in June 2006. His claim was denied by the Appellant on the grounds that the conditions under which he was to become entitled to the shares were not satisfied before his departure.
  10. The arbitrators concluded that the Respondent was entitled to have his 33% shareholding in the Appellant issued or transferred by the end of the calendar year 2004. The arbitrators considered that the fairest and most practical solution was to treat the Respondent’s liability to compensate the Appellant for his undercharging as satisfied by denying him the right to recover anything for the work he did for the Appellant during the period from August 2005 to 30 June 2006. They concluded that the Respondent had been guilty of deliberate, serious and dishonest breaches of his fiduciary obligations to the Appellant.

IN THE APPEAL UNDER JUSTICE O’FARRELL

  1. This application was an appeal by, the Appellant, against the Respondent, in respect of the judgement handed down by Justice O’Farrell.
  2. The appeal was granted by the court in its order directing, inter alia, that:
    1. The assigned claims for contribution and account in New South Wales (“NSW2”) fell within the scope of the arbitration clause in the MWP Agreement; and
    2. If she was incorrect in the above finding, the assigned claims in respect of Mr Nicholls and Mr Slater, would fall within the arbitration clause in the Co-operation Agreement.
  3. The Respondent issued the claim in which this appeal is based claiming, inter alia:
    1. An order prohibiting the Appellant from continuing its claims in NSW2; and
    2. Prohibiting the Appellant from commencing, or pursuing any other claim, or proceedings arising out of or in relation to the MWP Agreement, or the Co-operation Agreement, other than in accordance with clause 5.2 of the MWP Agreement or clause 7 of the Co-operation Agreement.
  4. Sir Terence Etherton MR dealt with Justice O’Farrell’s order and stated the following:
    1. The scope of clause 5.2 of the MWP Agreement – “all and any disputes”- is extremely wide;
    2. The Appellant and the Respondent were parties to the NSW2 and the MWP Agreement. The matters in NSW2 concern the alleged breaches of obligations the Respondent owed to the Appellant, in terms of conducting the Appellant’s business.
    3. He disagreed with Justice O’Farrell in that the claims fell within the scope of the arbitration clause in the MWP Agreement;
    4. The rights which the Appellant sought to enforce were rights of individuals who had not been parties to the MWP Agreement. The disputes mentioned in the clause were disputes between the Appellant and the Respondent in their capacity as quasi-partners (para 41, 42, 45). It could not be said that the arbitration provisions in the Co-operation Agreement incorporated the claims in New South Wales (para 50).
    5. The rights which the Appellant seeks to enforce in NSW2 are rights of those people that were not parties to the MWP Agreement or bound by the arbitration.
    6. Justice O’Farrell referred to Lord Hoffmann’s comments in Fili Shipping Co Ltd v Premium Nafta Products Ltd [2007] Bus LR 1719, at [5] – [8] and [13] regarding the interpretation of arbitration agreement. Lord Hoffmann emphasised the need for the court to give effect to the commercial purpose of the arbitration clause. He also stated that the interpretation of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.
    7. It is highly unlikely that, at the time they entered into the MWP Agreement, the Respondent and the Appellant had any intention to include such claims within clause 5.2 of the MWP Agreement.
    8. He disagreed with Justice O’Farrell that the claims in NSW2, fell within the scope of clause 7, in terms of Mr Nicholls and Mr Slater. He held that in terms of Temujin, it is not in dispute that the claims in NSW2, do not fall within clause 7, as neither of the entities forming Temujin were a party to the Co-operation Agreement.
  5. In conclusion, Sir Terence Etherton MR granted an order prohibiting the Appellant from pursuing any NSW2 claims which it had lost in the arbitration; matters contrary to findings in the arbitration which were adverse to the Appellant; and claims for fraud or conspiracy.

THE INTERPRETATION OF CLAUSE 20.4

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 v Shanghai Zhenhua Heavy Industry Co Ltd

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]

  • The GGOWL project amounted to 57% of Fluor’s overall activity for the year.
  • Fluor’s total overheads for the year were £ 22 million
  • 57% of £ 22 million is £ 12.645 million
  • £ 1.3 million was added to this £ 12.645 million for certain infrastructure project-specific overheads
  • The total for overheads on the GGOWL project was thus £ 13.986 million which amounted to 4% of the total GGOWL project cost.

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.

  1. [2018] EWHC 490 (TCC), para 20.
  2. Para 20.
  3. Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 1773 (TCC) (11 July 2012), 543.
  4. [2018] EWHC 490 (TCC), para 20.
  5. Para 30.
  6. Para 31.

By Kelly Stannard

Jacobs UK Ltd v Skanska Construction UK Ltd [2017] EWHC 2395 (TCC)

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

  1. In February 2011, Skanska entered into a formal agreement with Jacobs for the design and replacement of street lighting in Lewisham and Croydon (“the Design Agreement”) for a PFI project.
  2. A dispute arose between the parties as to the adequacy of the design services provided by Jacobs to Skanska.
  3. Skanska argued that Jacobs provided the design and advice in which Skanska relied on, when submitting its bid for the PFI project, which was successful. The design prepared by Jacobs following commencement of the PFI project differed materially from the design provided for the purposes of the bid. Skanska claimed that as a result of that difference, together with delays in the production of the design and the poor quality of the design, it had suffered loss and damage.

  4. The Design Agreement is a construction contract for the purposes of section 108 of the Housing Grants Construction and Regeneration Act 1996 (“the 1996 Act”) and Clause 21 of the Design Agreement contains an adjudication provision.

  5. On 8 February 2017 Skanska gave notice of its intention to refer the dispute to adjudication. Thereafter, the parties agreed the procedural rules and timetable for the adjudication. Furthermore, that the statutory scheme for adjudication (“the scheme”) would apply subject to the agreed timetable.

  6. The adjudication proceeded, an adjudicator was appointed, and the parties subsequently served their referral and response documents in accordance with the agreed timetable. However, Skanska’s counsel became unavailable and Skanska was unable to serve its reply as agreed.

  7. Skanska requested an extension of time from Jacobs and the adjudicator, but the request was denied from both parties. As a result, Skanska withdrew its reference to adjudication and invited the adjudicator to resign.

 

  1. On 21 June 2017 Skanska issued a new notice of intention to refer the same dispute to a second adjudication.

THE CLAIM


  1. On 4 July 2017 Jacobs commenced these proceedings, seeking the following relief:

    1. a declaration that in proceeding with Adjudication No.2 Skanska are acting unlawfully;
    2. an order restraining Skanska from taking any further steps in furtherance of Adjudication No.2;
    3. an order requiring Skanska to withdraw from Adjudication No.2;
    4. a declaration that Jacobs are entitled to be paid their costs of Adjudication No.1; and
    5. further or other relief.

  2. Jacobs argued that the parties agreed that the reference of this dispute should be to an adjudicator appointed under the Scheme and that the adjudication should be conducted in accordance with an agreed timetable. Jacobs argued further that the court should grant appropriate relief to protect their right to a procedurally fair process of the dispute which is not unreasonable and oppressive.

  3. Skanska argued that there is no concept of abuse of process in adjudication and a referring party is free to obtain whatever tactical advantage it can. A party has the right to start adjudication in relation to a dispute at any time. Therefore, a party has an unrestricted right to start, abandon and pursue consecutive adjudications in respect of the same dispute.

  4. The issues for the court to decide were:

    1. whether a party to an adjudication is entitled to unilaterally withdraw a dispute referred to adjudication and commence a second adjudication in respect of the same, or substantially the same, dispute;
    2. whether, in such circumstances, the court has power to grant an order to restrain the pursuit of the second adjudication;
    3. if so, whether the court should exercise its discretion on the facts of this case; and
    4. whether Jacobs is entitled to its wasted costs in respect of the first adjudication.

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


  1. The court stated the following:

    1. In terms of the adjudication procedure under the 1996 Act and the Scheme, the referring party has an advantage in selecting the timing and scope of the dispute. Adjudicators have wide powers to determine the procedure and evidence considered to reach their decisions.
    2. There is no express or implied restriction in the 1996 Act or the Scheme that prevents a party from withdrawing a disputed claim which has been referred to adjudication: Midland Expressway Ltd v Carillion Construction Ltd [2006] EWHC 1505 per Jackson J at para [100] and [101]: The entitlement of a party to withdraw its claim continues even after the referral and does not prevent that party from pursuing the claim in a later adjudication: Lanes Group plc v Galliford Try Infrastructure Ltd [2012] EWCA Civ 1617 per Jackson LJ at para [38] – [40].
    3. The principle of abuse of process does not apply to adjudication: Connex South Eastern Ltd v MJ Building Services Group plc [2005] EWCA Civ 193 per Dyson LJ at para.[40].
  2. Justice O’Farrell held the following:
    1. There can be instances in which the courts will intervene and prevent a party from pursuing a claim in adjudication.
    2. Subjecting a party to serial adjudications in respect of the same claim and requiring it to incur irrecoverable costs could amount to unreasonable and oppressive behaviour. This is a question of fact, which is dealt with on a case by case basis, as to whether the behaviour of the party initiating the adjudication is found, on an objective basis, to be unreasonable and oppressive.
    3. The court has the power to grant an order preventing the second adjudication if it is established that it is unreasonable and oppressive.
    4. Skanska’s withdrawal of the claim was unreasonable. However, initiating a second adjudication two months later was not oppressive as the substance of Skanska’s claims remained the same. Therefore, Jacobs would be entitled to rely on its prepared response. The court will not intervene unless it is both unreasonable and oppressive to allow the second adjudication.
    5. Jacobs is entitled to any wasted or additional costs caused by Skanska’s failure to comply with the procedure and timetable as agreed between the parties.
  3. Conclusively, a party to an adjudication is entitled to withdraw a dispute referred to adjudication and commence a further adjudication in respect of the same, or substantially the same, dispute. The court has power to grant an order restraining the pursuit of the further adjudication if it is unreasonable and oppressive. In terms of this case, the second adjudication is not unreasonable and oppressive.

Wierda Road West Properties (Pty) Ltd v Sizwentsabulagobodoinc 2017 JDR 1936 (SCA)

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:

  1. whether the agreement is void ab initio due to the contraventions of section 4(1), read with 4(4), or section 14(1), read with section 14(4) of the Act;
  2. whether the failure to obtain an occupancy certificate rendered the property not suitable for the purposes for which it was let; and
  3. in respect of the cross-appeal, whether the high court erred in its finding that the agreement was not invalid, but merely unenforceable.

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 –

  1. Issue such certificate of occupancy if it is of the opinion that such building has been erected in accordance with provisions of this Act and the conditions on which approval was granted in terms of section 7…”

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-

  1. Unless a certificate of occupancy has been issued in terms of subsection (1)(a) in respect of such building;

Shall be guilty of an offence.”

The SCA held the following:

  • Non-compliance with section 4(1) and 14(1) of the Act does not render the parties’ lease agreement void and unenforceable as there is no basis to justify reading an implied meaning into section 4(1) that the use or occupancy of a building which has no approved plans is prohibited.
  • Sizwe was fully aware of the lack of the occupancy certificate and had consented to the use and occupation under the circumstances. Therefore, Sizwe had received exactly what it had bargained for, which was office accommodation refurbished to its needs, in a building with an outstanding occupancy certificate which, to its knowledge, the owner (Wierda) was in the process of obtaining. Sizwe never complained of this alleged unfitness for letting, and only did so after it had vacated the property and to avoid the consequences of being held to a contract it had freely entered into.
  • The appeal was upheld with costs and the cross-appeal was dismissed with costs.

Bryte Insurance Company (Pty) Ltd / Raubex Construction (Pty) Ltd (Appeal case no. A5067/2016 – 8 December 2017)

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:

  1. That the signatory is the Main Contractor authorised representative
  2. That the Subcontractor is in breach of his obligations under the Subcontract and that the Main Contractor is entitled to be paid amounts for which the Subcontractor is liable under the Subcontract; and
  3. That the amount demanded, which amount the certificate shall specify:
    1. Does not exceed the amount of Retention monies which, but for this Guarantee, would have been retained by the Main Contractor as Retention monies in terms of the Subcontract at the date of the certificates, less the aggregate of the amounts, if any, of retention money and other securities actually retained or held by the Main Contractor in terms hereof; and
    2. Does not exceed a good faith estimate of the costs to the Main Contractor of having the breach referred to in paragraph (b) remedied less the aggregate of any amounts withheld by the Main Contractor by reason of the breach referred to, and any amount of Retention money actually held by the Main Contractor save to the extent that same had been deducted from any previous demand in terms hereof’

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”.

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.

Transnet SOC Limited v Group Five Construction (Pty) Ltd and others [2015] Case no 7848 (9th February 2016)

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:

  • Whether or not it was permissible for the applicant to approach the Court for the declaratory order sought when the Contract provided for an arbitration process in respect of all disputes between the parties;
  • On a proper interpretation of the Contract, did the parties contemplate the appointment of multiple adjudicators or ad hoc adjudicators for each dispute that may arise during the execution of the Contract; and
  • Was the applicant estopped from contending that the Contract provided for the appointment of only one adjudicator because of its post-contractual conduct in actively participating in the appointment of different adjudicators.

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:

  • Where the parties have expressly agreed to an arbitration process our Courts are generally not entitled to determine the issues that fall within the province of an arbitrator in terms of that process unless an order has been granted in terms of s 3(2)(b) of the Arbitration Act No. 42 of 1965;
  • Although the principle referred to in Zhongji Development Construction Engineering Co Ltd v Kamoto Copper Co[2] is confined to an arbitration process, in his view, this applied equally to the dispute resolution process that encompasses an arbitration in its second tier;
  • The courts have consistently respected the provisions of arbitration agreement and will give effect thereto;
  • He was not entitled to depart from this principle; and
  • The applicant’s application must fail.

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:

  • Interpretation is the process of attributing meaning to the words used in a document having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence;
  • The apparent purpose of the provision and the context in which it occurs will be important guides to the correct interpretation. An interpretation will not be given that leads to impractical, un-businesslike or oppressive consequences or that will stultify the broader operation of the legislation or contract under consideration.

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”

 

RMP Construction Services Ltd v Chalcroft Ltd [2015] EWHC 3737 (21 December 2015)

Facts:

  • RMP Construction Services Ltd (hereinafter referred to as “the Claimant”) is a ground works subcontractor which carried out works for the Charlcroft Ltd (hereinafter referred to as “the Defendant”) in late 2014 and 2015.
  • A dispute arose as to payment, which the Claimant referred to adjudication. The adjudicator found in favour of the Claimant, declaring that the Claimant was entitled to £258 760.67 plus VAT as well as the adjudicator’s fee.
  • The Defendant did not pay the awarded sum and the Claimant issued proceedings on 17 November 2015 and brought an application for summary judgment to enforce the award.
  • The parties disagreed as to the manner in which the contract came about. The Claimant alleged it was formed by an email dated 5 December sent by the Defendant to the Claimant, which accepted an offer made by the Claimant. The Defendant, however, stated that it had been formed either (a) by a Letter of Intent on 8 December 2014, or (b) by the Letter of Intent read with a subsequent exchange of emails on 18 December 2014, or (c) by the placing and subsequent acceptance of a sub-contract order on 13 April 2015.
  • It was the Defendant’s case that if the contract was formed by the Letter of Intent or by the sub-contract order, the contract incorporated standard JCT Contract wording.

Issue:

  • The issues in this matter were three-fold:
  1. How was the contract formed, and what contractual documents formed the contract?
  2. Once the contract formation and contract documentation had been established, did the adjudicator have the jurisdiction to give a decision?
  3. Considering that the adjudicator did have jurisdiction, must his decision be enforced if it could be argued that the adjudicator erred in his application of the law.

Law:

  • Mr Justice Stuart Smith noted that there were two features of the contractual case that are central to the arguments on the application. Firstly, no matter what contractual route applies, the Scheme for Construction Contracts as laid down in the Scheme for Construction Contracts (England and Wales) Regulations 1998 (hereinafter referred to as “the Scheme”) applies and no adjudicator nomination body was specified by the parties. The adjudicator was appointed in accordance with the Scheme.
  • Secondly, if the Claimant’s interpretation of the contractual formation is correct, the Defendant did not serve a pay less notice timeously, and thus the Adjudicator’s conclusion on the Claimant’s entitlement would have been correct. However, if the one of the Defendant’s interpretations of the substantive obligations was correct it was at least reasonable to argue that a pay less notice sent on 26 August 2015 was valid and in time, and the Adjudicator’s conclusion on the RMP entitlement would have been incorrect.
  • The Claimant submitted that if it is acknowledged that the Adjudicator has jurisdiction, and that the adjudicator had jurisdiction regardless of the whichever contractual interpretation is correct, and further if the different interpretations lead to different substantive outcomes is irrelevant.  The Claimant submitted that the Adjudicator was validly appointed, and if he misinterpreted the contractual provisions, that is no bar to the enforcement of the Adjudicator’s decision.
  • Mr Justice Stuart Smith held that during adjudication’s infancy, the Courts have, when considering whether to enforce adjudicators’ decisions, drawn a clear distinction between the questions going to the jurisdiction of the adjudicator and the questions about whether the adjudicator (if it is deemed that they do have jurisdiction) has reached the correct substantive answer.  The legal policy on this issue, as derived from statute, has been that reasonable challenges to the jurisdiction of the Adjudicator may be reason enough to not enforce the decision, but the simple submission that the adjudicator has misunderstood the factual or legal basis is not.
  • This position is described in Sherwood and Casson v Mackenzie [2000] 2 TCLR 418 HHJ as follows:
    • “1. A decision of an adjudicator whose validity is challenged as to its factual or legal conclusions or as to procedural error remains a decision that is both enforceable and should be enforced.
    •  2. A decision that is erroneous, even if the error is disclosed by the reasons, will still not ordinarily be capable of being challenged and should, ordinarily still be enforced.
    • A decision may be challenged on the ground that the adjudicator was not empowered by the HGCRA to make the decision because there was no underlying construction contract between the parties or because he had gone outside the terms of his reference.”
  • Similarly, in Carillon Construction v Devonport Royal Dockyard Ltd [2005] BLR 310 Jackson J stated principles that were endorsed by the Court of Appeal and have been repeated and relied upon many times since:
    • “1. The adjudication procedure does not involve the final determination of anybody’s rights (unless all parties so wish).
    • 2. The Court of Appeal has repeatedly emphasised that the adjudicator’s decisions must be enforced, even if they result from errors of procedure, fact or law;
    • 3. Where an adjudicator has acted in excess of his jurisdiction or in breach of the rules of natural justices, the court will not enforce the decision:
    • 4. Judges must be astute to examine technical defences with a degree of scepticism consonant with the policy of the 1996 Act. Errors of law, fact or procedure by an adjudicator must be examined critically before the court accepts that such errors constitute excessive jurisdiction or serious breaches of the rules of natural justice”
  • Jurisdictional challenges regarding enforcement of the adjudicator’s decision as well as challenges to the substantive law provided in the decision had to be dealt with. As to the adjudicator’s jurisdiction, the court held that the adjudicator did have jurisdiction on either contractual formation as suggested by the parties, due to being appointed under the Scheme.
  • The court held further that even though it may be correct to describe the Defendant’s various alternative formulations as different contracts from the contract alleged by the Claimant, that difference should not be the determining factor when it is remembered that the Court was concerned with one contracting process, with the only question being which party has correctly identified the manner in which the contract was formed. The court had already decided that the adjudicator had the requisite jurisdiction under the scheme, regardless of the manner in which the contract came into being (and from what documents the contract took reference).
  • To bar the Claimant from court on the grounds that it may have misidentified the contractual provisions that would provide the adjudicator with jurisdiction under the Scheme is an unnecessarily formalistic barrier, bearing in mind that  adjudication is meant to provide speedy and effective remedies to parties, equally accessible to those who are legally represented as well as to those that are not, also bearing in mind that the system now covers not only written contracts but also oral contracts which increases the likelihood that they may be incorrectly described.
  • Thus, the adjudicator has jurisdiction as no matter how the contractual arrangements between the parties are correctly described, they mandated the use of the Scheme and he was appointed correctly in terms of the Scheme’s procedure.
  • In coming to this determination, the court did not ignore the potential difference in substantive outcome that could arise from identifying the contract correctly. So long as the adjudicator addressed the correct question without bias, breach of natural justice or any other vice that would justify overturning the decision, it must at this stage be upheld.
  • If he made an error in law (which cannot be resolved by the court at this stage) in referring to wrong contractual provisions when deciding the substantive question that was referred to him, that falls to be considered within the category of errors of procedure, fact or law which the Court of Appeal has repeatedly emphasised should not prevent the enforcement of the adjudicator’s decision.

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.

 

St Austell Printing Company Limited v Dawnus Construction Holdings Limited [2015] EWHC 96 (TCC) (21 January 2015)

Facts:

  • On or during 20 November 2011, St Austell Printing Company Limited (“St. A”) entered into a contract agreement with Dawnus Construction Holdings Limited (“Dawnus”) for the design and construction of two warehouse/industrial units.
  • The contract incorporated the JCT design and build contract form, 2005 edition.
  • Dawnus issued a comprehensive application for interim payment on 10 December 2013 to AECOM. This interim payment application included a claim in respect of changes and variations of which certain amounts reflected the measured work element of the changes and variations.
  • AECOM delivered payment notice to Dawnus on 19 December 2013, which recorded that the sums so far paid to Dawnus (by way of valuations and payment made to Dawnus in April) remained the correct valuation and that no further sum was due to Dawnus.
  • This payment notice was accompanied by a “letter of clarification”, which stated that AECOM was reviewing Dawnus’ revised final account and AECOM will send their final version of the account, early in the New Year.
  • Neither AECOM nor St A responded further to Dawnus in the New Year, thus no defects were identified, no version of the final account was submitted and no response to the loss and expense claim.
  • Only on or during 26 August 2014, Dawnus issued a notice of dispute and instituted and commenced with adjudication proceedings and expressly sought payment by St A of sums claimed in respect of 115 changes. Dawnus limited their claim to a declaration as to their entitlement and expressly sought an order for payment.
  • The adjudicator made a ruling that payment was due to Dawnus and St A lost the adjudication.
  • St A did not want to pay and, although this matter is essentially an adjudication enforcement dispute, in which Dawnus seek enforcement of the sums found due by the Adjudicator, St A issued pre-emptive proceedings, seeking a declaration that the adjudicator did not have the jurisdiction to decide that the said claimed amount was due to Dawnus.
  • St A relied on two grounds: Firstly, that the adjudicator did not have the necessary jurisdiction, due to fact that St A suggested that the dispute had not crystallised between the parties at the time of the notice of adjudication. Secondly, St A argued that the claim referred to adjudication, related only to a part of Dawnus’ original interim application, and expressly excluded other elements. Thus the adjudicator was not empowered to order the payment of any sums which he found due.

Issue:

  • The court was required to decide on two objections. Firstly, had the dispute crystallised in August 2014 and secondly, was the adjudicator empowered to order payment for part only of the interim application.

Adjudication ruling

  • The adjudicator’s conclusion in his ruling was that St A’s jurisdictional challenge was “entirely without merit”.

The TCC [High Court of Justice, Queen’s Bench Division, Technology and Construction Court]:

  • Law – Objection 1 – Had the dispute crystallised in August 2014-
    • The TCC referred to the judgment in AMEC Civil Engineering Limited v Secretary of State for Transport [2004] EWHC 2339 (TCC) and explained “the general view that crystallisation may require no more than the service of a claim by the claiming party and subsequent inactivity for a further short period by the responding party. In practice, in the overwhelming majority of cases dealing with this point, the court has found that the dispute had crystallised by the time of the notice of adjudication”.
    • A more recent case on crystallization, Ringway Infrastructure Services Ltd v Vauxhall Motors Ltd,” summarized the relevant principles…(1) The existence of a dispute or difference may be inferred from what is said or not said by the party in receipt of what may be termed “a claim”. (2) There does not have to be an express rejection of a “claim” by the recipient.
    • The TCC found that there can be no doubt that “the dispute about what, if any, sums were due to Dawnus on the basis of interim application…had crystallised long before the notice of adjudication”.
    • In view of the amount of time, considering the application of 10 December 2013 and the response of 19 December 2013, AECOM considered the detailed claim on behalf of St A, and rejected it on its merits. A claim had been asserted and then expressly rejected and nothing more is required for a dispute to have crystallised.
    • After rejection of Dawnus’ claim, a period of eight months passed before notice of adjudication was issued, a period of eight months in which AECOM had promised to respond on a whole raft of matters, but had failed to do so. Such long period of inactivity, obviously amounted to a rejection of Dawnus’ claim.
    • The first jurisdictional challenge, that the dispute had not crystallised, failed.
  • Law – Objection 2 – No power to order payment for part only of interim application-
    • The TCC referred to the relevant authorities, which was Fastrack Contractors Ltd v Morrision Construction Ltd [2000] BLR 168, David Mclean Housing Ltd v Swansea Housing Association Ltd [2002] BLR 125 and Pylon Ltd v Breyer Group PLC [2010] EWHC 837 (TCC).
    • If a claimant’s interim application for payment is for measured work and loss and expense, a claimant may decide, because the loss and expense claim could be difficult to present in an adjudication, and rather instead focus on those proceedings on just the straightforward claim for measured work.
    • Claims advanced in adjudication should be those claims which the referring party is confident of presenting properly within the confines of that particular jurisdiction.
    • St A were liable to make an interim payment to Dawnus under the contract. The adjudicator’s decision is a decision reflecting St A’s existing liability to pay.
    • The mere fact that Dawnus’ limited their own claim to the measured work value of the 115 changes, did not in any way limit or prevent St A from defending that claim, and raising their own cross-claim by way of set-off.
    • The second ground of jurisdictional objection failed.
  • In consequence Dawnus were entitled to summary judgment in relation to the sums ordered by the adjudicator.

Shakawa Hunting & Game Lodge (Pty) Ltd v Askari Adventures CC (44/2014) [2015] ZASCA 62 (17 April 2015)

Facts

  • A written agreement was concluded between Shakawa Hunting Lodge and Askari Adventures in terms of which:

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.

  • Shakawa owned 5 adjoining farms which operated as a game and hunting lodge. In January 2011 all 5 farms and the entire business was sold as a going concern for an amount of R32 500 000.
  • Askari accordingly claimed a sum of R3 230 000, being 10% of R32 500 000 less costs.
  • Shakawa in turn argued that before calculating the 10% share due to Askari the amount of a loan account held in Askari by a third party must first be deducted. The sale price of 32 500 000 less the loan account of R28 270 000 left a remaining R4 230 000. Askari would then be entitled to 10% of R4 230 000 less costs, equalling an amount of R403 600.

 

Issue

  • The Court was required to interpret the meaning of the contract and specifically the meaning of the ‘value’ of the assets. Such value differing depending on whether the loan amount is deducted.

 

The Court a quo

  • Held that the only issue for determination was the proper interpretation of clause 2 and the meaning of the word ‘costs’.
  • It applied the eiusdem generis rule and held that costs did not include the loan account.
  • It accordingly found in favour of Askari and awarded them the amount of R3 230 000 as claimed.

 

The SCA – Statements on the Law

  • The Court had the following to say in respect of the law of interpretation:
    • ‘What the parties and their witnesses ex post facto think or believe regarding the meaning to be attached to the clauses of the agreement, and thus what their intention was is of no assistance in the exercise.’
    • The court cited with approval Worman v Hughes 1948 (3) SA 495 (A) which held that It must be borne in mind that in an action on a contract, the rule of interpretation is to ascertain, not what the parties’ intention was, but what the language used in the contract means…’
    • The court further cited with approval Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 which held that ‘Interpretation is the process of attributing meaning to the words used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production.’

 

The SCA – Application & Ruling

  • The SCA held that the High Court had erred in ignoring clause 1 when interpreting and giving meaning to clause 2.
  • The SCA held that attributing meaning to the words in a contract must be undertaken ‘…having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence.’
  • The SCA accordingly considered the agreement as a whole and considered the circumstances relevant to the agreement coming into existence.
  • The SCA held that the value of Shakawa in terms of clause 1 must first be ascertained before effect is given to the deductions
    in terms of clause 2.
  • The SCA held that the court a quo had misinterpreted a witnesses evidence and that the value of the property in the sense of its selling price (being R32 500 000) and the value of the company, Shakawa, which owned the property are two different concepts.
  • The SCA accepted the evidence of a testifying accountant that set out that the value of a company is calculated as its assets less its liabilities.
  • The SCA accordingly found that on a proper construction of the contract that the ‘value’ of the company in terms of clause 1 is the sale price less the loan account amount.
  • From this net amount, Askari was entitled to 10% less costs.
  • The accordingly SCA found in favour of Shakawa and awarded Askari (the smaller) amount of R403 600.

 

Zongji Development Construction Engineering Company Limited v Kamoto Copper Company SARL (421/13) [2014] ZASCA 160 (1 October 2014) SCA

Facts

  • Zongji Construction, a Chinese company, won the tender, issued by the DRC Copper and Cobalt Project SARL (DCP), a Congolese company, to supply and construct certain piling and civil works at a mining site in the DRC.
  • Two written agreements were concluded between Zongji and DCP, an interim agreement and a main agreement.
  • The interim agreement was very bare and did not contain any clauses relating to dispute resolution.
  • The main agreement contained an arbitration clause which provided for disputes to be resolved by arbitration in Sandton, Gauteng. It provided that arbitration would be governed by the Arbitration Act, 1965 and would be subject to the Rules for the Conduct of Arbitrations as published by the Association of Arbitrators.
  • Zongji began the works, however DCP then entered into merger negotiations with a company by the name of Kamoto Copper, and DCP instructed Zongji to suspend the works for 3 to 6 months. DCP then instructed Zongji to proceed with the works again which Zongji did, but then once again DCP instructed Zongji to suspend the works and ultimately DCP terminated the main agreement with Zongji. Such termination was not occasioned by Zongji’s fault, but appears to be a commercial decision related to the merger.
  • Zongji rendered four invoices to DCP for work done under the interim agreement, one of which was paid and the other three were not. Zongji also delivered two invoices under the main agreement for work done. Neither of which were paid. Zongji also rendered an invoice in respect of the suspension and termination, this too was not paid.
  • Negotiations then ensured between Zongji and DCP for the claimed amounts to be referred as disputes to arbitration.
  • In November 2010 the attorneys who had then been negotiating on behalf of DCP wrote to Zongji and informed Zongji that a merger agreement has been concluded between DCP and Kamoto Copper. As a result DCP had now been dissolved, and it presumed that Zongji would now pursue its claims against Kamoto Copper.
  • Correspondence then ensued between Zongji and Kamoto Copper, however they could not reach agreement on arbitration proceedings.

 

Relief Sought in the Johannesburg High Court:

  • Zongji then brought an application for a declaratory order from the High Court.
  • The purpose of the declaratory order was to establish that Kamoto Copper was obliged to arbitrate disputes between Zongji and DCP in Sandton in terms of the arbitration clause in the main agreement.
  • Specifically Zongji requested a declaratory order that the following disputes be deemed arbitrable:
    • Payment in respect of three invoices issued under the interim agreement
    • Payment in respect of two invoices issued under the main agreement
    • Payment in respect of suspension and thereafter termination of the main agreement.
  • The High Court held that it did not have jurisdiction to grant the relief requested and accordingly Zongji’s application was dismissed.

 

Issue

  • The issue for the SCA to decide was whether the High Court was entitled or obliged to grant the declaratory relief sought by Zongji.

 

Defences raised

  • The defences raised by Kamoto copper were as follows:
    • Firstly, that the court had no jurisdiction over it,
    • Secondly, that Kamoto was not bound by the arbitral regime agreed between Zongji and DCP in the main agreement, and
    • Thirdly, if it was so bound, this arbitral regime did not apply to disputes under the interim agreement

 

The Majority Judgment

  • The first question the court said it must deal with is whether it has jurisdiction, as without jurisdiction, it may not consider the merits.
  • Kamoto Copper argued there was no jurisdiction, relying on the fact that both parties are peregrine of South Africa, and both the main and interim agreements were concluded outside South Africa.
  • It was common cause that the lex arbitri is the Arbitration Act, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the Recognition and Enforcement of Foreign Arbitral Awards Act.
  • Zongji argued that the High Court has jurisdiction as it is the only court or at least the best placed court to pronounce on the arbitration agreement in terms of the lex arbitri.
  • The SCA held that both parties had overlooked the most important point – that the arbitration clause embodies an agreement that is distinct from the terms and agreement of which it forms a part.
  • The arbitration agreement must be given effect in accordance with its terms.
  • The terms of this arbitration agreement required that the parties submit disputes to arbitration in Sandton.
  • The arbitration agreement fell to be performed within the area of jurisdiction of the Johannesburg High Court, because the seat of the arbitration was within that area of jurisdiction.
  • It was common cause that a court must have jurisdiction to deal with certain matters concerning the arbitration, and it is obvious that the court that will have this jurisdiction is the Johannesburg High Court.
  • The arbitration clause also indicated that the arbitration would be subject to the Rules for the Conduct of Arbitrations as published by the Association of Arbitrators (the rules).
  • In accordance with clause 12 of the rules, the arbitrator has the power to decide any dispute regarding the existence, validity or interpretation of the arbitration agreement and may rule on his own jurisdiction to act. Further, where an arbitrator has made a jurisdictional ruling, a party who wishes to contest such ruling may do so in a court, only after the ruling has been given.
  • Accordingly the very issue on which Zongji sought a declaratory order fell to be dealt with by an arbitration tribunal first.
  • Accordingly if the High Court were to have pronounced on the issues requested in the declaratory order it would have acted contrary to the provisions of the arbitration clause.
  • The court then emphasises that appropriate deference must be shown for the autonomy of the parties to decide on the forum in which to resolve their disputes. The court quotes O’Reagan J in saying that “the decision to refer a dispute to private arbitration is a choice which, as long as it is voluntarily made, should be respected by the courts”
  • The court accordingly holds that the forum selected by Zongji and DCP is that of a private arbitration.
  • The court also points out that if the arbitration tribunal gives effect to the arbitration clause, and makes an award in Zongji’s favour then Zongji can apply to have the award made an order of court, and it will then become enforceable under the New York Convention. If it makes an award against Zongji, then this is the forum which Zongji has chosen to deal with disputes.
  • Kamoto is in turn entitled to raise the question of jurisdiction with the arbitration tribunal. Further, if Kamoto feels that the arbitration tribunal exceeds its powers when making an award, then Kamoto may apply to have such award set aside in terms of Section 33 of the Arbitration Act.
  • The court concludes by noting that “if courts arrogate themselves the right to decide matters which parties have agreed should be dealt by arbitration, the likelihood of this country being chosen as an international arbitration venue in future is remote and extreme. Persons wishing to have their disputes resolved by arbitration do not wish the process to be retarded by constant recourse to courts.
  • The court accordingly dismisses the appeal.

 

Supreme Court of Appeal confirms role of expert witness Jacobs v Transnet 2015 (1) SA 139 (SCA)

 

  1. The role of an expert witness, particularly in construction arbitrations and adjudications is often misunderstood. Lawyers often see experts as “hired guns”, arriving to save the day and secure a positive result for their client.  On the other hand, arbitrators, particularly when such arbitrators possess technical skills and experience similar to that of the experts, tend to either feel threatened by such experts or simply tend to ignore their evidence in favour of their own personal experience.

 

  1. Experts are required to act independently and with a degree of objectivity. Their purpose is to assist the arbitrator or adjudicator in dealing with areas of specialist knowledge.

 

  1. Unfortunately sometimes experts act as if they are the advocates of their client’s case. In the English case of London Underground v Kenchington Ford Plc (1998) 63 Con LR 1 (TCC) the court criticised the lack of independence of one expert and stated that he “ignored his duty to both the court and his fellow experts” and “continued to assume the role of advocate of his client’s cause” – in so doing the court discounted his evidence.

 

  1. In the recent case of Jacobs v Transnet 2015 (1) SA 139 (SCA) the Supreme Court of Appeal has reinforced the role of experts. This case involved a delictual action following a collision between a truck carrying seasonal farm workers and a train at the Croydon intersection near Cape Town.  Various expert witnesses testified, including one Roodt.

 

  1. The trial court had been faced with conflicting expert opinions regarding the speed limit leading up to the crossing and whether such speed limit was excessive. Unfortunately the trial court failed to reach a decision as to which expert opinion to accept and there was no finding on the reliability of the various expert opinions.

 

  1. At paragraph 15 the Supreme Court of Appeal reiterated the role of experts.

 

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.’”

 

  1. The Supreme Court of Appeal found that Roodt’s testimony was of poor quality and lacked impartiality and objectivity. The court also held that his opinion lacked proper motivation and was accordingly discarded.

 

  1. The Supreme Court of Appeal’s judgment sends a timely reminder to all construction law practitioners, adjudicators and arbitrators that expert witnesses should be carefully chosen and selected. Employing partial experts could be fatal to a party’s case.  Similarly arbitrators and adjudicators who choose to ignore the evidence of expert witnesses in preference for their own experience could find their awards (in the case of arbitrators) being reviewed or appealed or their decisions (in the case of adjudicators) being found unenforceable.

SASOL Chemical Industries Ltd v Peter Odell & E-Hel Civil Services (Pty) Ltd Case no 401/2014, Free State Division. Not yet reported.

Facts

  • SASOL and E-Hel entered into a NEC 3 contract with Main Option W1 as the dispute resolution mechanism.
  • A dispute arose between SASOL and E-Hel and E-Hel referred the dispute to the adjudicator, Odell.
  • E-Hel submitted its information to the adjudicator on 17 December 2013 and the four-week period for further information to be submitted expired on 16 January 2014.
  • On 14 January 2014 SASOL requested a postponement from E-Hel and E-Hel refused the request.
  • On 30 January 2014 SASOL launched an urgent application to prevent the adjudicator from making his decision. The matter was set down on 10 February 2014 but the adjudicator issued his decision on 3 February 2014 thus destroying the purpose for the application.
  • The adjudicator found in favour of E-Hel and ordered SASOL to pay certain monies.
  • Undeterred, SASOL amended its notice of motion to set the award aside, alternatively restrain E-Hel from enforcing the award pending final determination in arbitration.
  • SASOL kept its third prayer forcing the adjudicator to consider its application for an extension of time.
  • SASOL was allowed in urgency grounds, with the urgency permitting the amendment of SASOL’s notice of motion.

Arguments

  • SASOL argued that:
    • That clause W1.3(3) states that the period may be extended if the adjudicator and parties agree does not exclude other ways of getting an extension. That clause W1.3(2) contains a time bar and the parties could not have intended to shut the door on a party who has not applied for an extension of time as this would amount to an abandonment of the adjudication process.
    • Without an extension the adjudicator takes a decision without all the information. The adjudicator is the master of the process and must ensure he has all the information required to come to a fair decision. It is because it is the adjudicator’s responsibility to ensure he has all the information that he must ensure he has SASOL’s version. If he refuses to consider a request for additional time by SASOL he abdicates his responsibility to come to a fair decision.
    • The adjudicator has a legal duty to ensure SASOL has an opportunity to place its case before him. If he does not do so, he violates the rules of natural justice because the proceedings are quasi-judicial and the audi alteram partem rule applies.
  • Odell stated that he had no power to extend the proceedings because E-Hel did not agree to the extension.
  • Odell stated in his award that although he did not have SASOL’s version, he closed his eyes to that and found on E-Hel’s submission.
  • E-Hel stated simply that SASOL has a remedy in clause W1.4(4) to refer the matter to the tribunal. As the tribunal is not limited to the information put before the adjudicator SASOL could place its full case before the tribunal.

Judgment

  • The judge found that adjudication is not subject to the common law. Even if the adjudicator made a mistake in not allowing the extension of time (which the judge did not think was a mistake) the adjudication still stands.
  • The judge held further that the strict time frames of clause W1 meant that the speed of the adjudication process meant the rules of natural justice did not apply.
  • SASOL needed to show a clear right to succeed in interdict proceedings, which it failed to do. It failed to show Odell had to consider its request.

Commentary

  • This case is interesting as it is one of the first direct cases which deals with resisting enforcement (previous adjudication cases have dealt with the holder of an adjudicator’s decision approaching the court to enforce a decision and those cases have dealt primarily with the nature of such decision).
  • The judge’s finding that the rules of natural justice do not apply at all is perhaps taking it a bit far. It is submitted a proper analysis would be that the violation must not be material to the dispute.
  • Importantly, because of the existence of the tribunal proceedings and that the parties are not limited to the information placed before the adjudicator, it meant that SASOL could not show it had or will suffer irreparable harm or the absence of another remedy if its interdict was denied.
  • An interesting question that was not really explored was the duty of the adjudicator to pursue information and not simply remain passive.

Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited [2014] NICA 27

Facts:

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.

  • The contract contained a detailed specification setting out how the asbestos survey should be carried out by the consultant, permitting (subject to the meeting of certain requirements) the consultant to make presumptions regarding the presence of asbestos.
  • At a meeting at the outset of the contract the employer instructed the consultant that the survey should not be based on presumptions and that all properties should be properly surveyed and tested.
  • The consultant issued a notice of compensation event some four months later claiming that the instruction given at the meeting and appearing in the minutes amounted to an instruction to change the scope / services which required increased surveying and testing resources when compared to what had been originally allowed for.
  • There was no dispute that the instruction as appearing in the minutes of meeting was a valid instruction under the contract. Rather the dispute (insofar as the first issue was concerned) centered around whether or not the instruction gave rise to additional services or whether it was an instruction envisaged under the scope of services attached to the contract.

Argument:

  • With regards to the first issue the consultant argued that it had priced the services based on it being able to make presumptions in relation to the surveyed properties. The employer’s position was simply that the instruction did not change the scope of services and could be interpreted as having been given in relation to the specification.  The consultant alleged that compliance with the instruction would require approximately twice the resources than tendered for.
  • In relation to the second issue the dispute centered on the interpretation of the provisions of clause 61.3 which make provision as follows: “If the Consultant does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date unless the Employer should have notified the event to the Consultant but did not.”
  • The employer’s argument was premised on the “clear commercial purposes behind the contractual provisions” requiring early notification of compensation events requiring that events be dealt with as they arise. The employer stated that the contractor should not be allowed to keep compensation events “on his back pocket” and, as it was clear that the employer did not see the instruction as one giving rise to a compensation event, should still have notified such event within the original eight week period.

Judgment:

  • The court of appeal found that the instruction given to the consultant at the meeting amounted to an instruction changing the scope of services and therefore gave rise to a compensation event under the contract.
  • With regards to the notification of the compensation event, the court found that the language was clear and unambiguous and that the employer should have notified a compensation event but did not. This being the case the compensation event could not be time barred.

RBG Limited v SGL Carbon Fibers Limited [2012] CSOH 19 [payment provisions]

The Facts

  • RBG was engaged by SGL to perform certain works, more particularly the construction of an additional production line, the construction of civil and structural elements, and the installation of equipment, piping and ducts at SGL’s premises at Muir of Ord Industrial Estate in Easter Ross.
  • The parties entered into an NEC3 Option C contract.
  • During the course of the contract, the parties departed from the payment mechanism under the contract to the extent that the employer’s quantity surveyor would approve the amounts the contractor intended to claim before a application for interim payment was made.
  • Two disputes were referred to adjudication and the resulting decisions challenged in court. The parties then agreed to arbitrate their disputes.
  • The arbitrator found that:
    • The contractor bore the onus of proof when claiming additional payments above what it had already received. Likewise, the employer bore the onus when attempting to recover amounts allegedly overpaid to the contractor.
    • Any agreement reached or assessment made as to the amounts to be paid on each assessment date was “on an interim basis only” and was not a final assessment of the Price for Work Done to Date (PWDD). Under clause 50.5 interim payment certificates can be corrected at a later date however, the onus at that stage, rests with the party pursuing the correction.
  • SGL appealed the award of the arbitrator on the basis there had been an error of law in finding that the employer bore the onus when attempting to recover any overpayment.
  • In the appeal SGL argued that the arbitrator made two separate errors:
    • Firstly the contract required the contractor to show in respect of each interim payment that the sums claimed by it are justified by its “accounts and records” and therefore fall to be included within defined cost (and therefore PWDD) rather than disallowed cost. The onus therefore lay on the contractor to justify the accumulated PWDD throughout.
    • Secondly the arbitrator wrongly attached significance to the parties’ departure from the contractual payment mechanism to the extent that the agreement or assessment of interim payments overrode the provisions placing the burden of proof on the contractor.

Judgment

  • The court upheld the appeal and confirmed that the party challenging a certificate bears the burden of proof. In doing so, Lord Glennie considered the following:
    • Any assessment made by the project manager, and any certificate issued by him, is capable of being corrected by a subsequent assessment and certificate.
    • It does not follow from the non-binding nature of the project manager’s assessment and payment certificate that they should simply be ignored when calculating the final account, or when a party either seeks additional payment or recovery of overpayment.
    • The sum assessed and certified by the project manager becomes due on the assessment date.
    • Unless corrected at a later date by the project manager, or by an adjudicator or arbitrator, that sum remains for the purpose of future calculations the sum which is to be regarded as having been due at the assessment date.
    • Therefore, any party seeking correction of a prior assessment “must at least bear the burden of persuasion”.
    • The arbitrator (and under Option W1, an adjudicator) has the power to review and revise any actions or inactions by the project manager but a payment certificate would still stand until and unless corrected. In such circumstances, the onus must be on the party seeking to persuade the arbitrator (or adjudicator) to depart from the assessment of PWDD as made by the project manager.

Wales and West Utilities Ltd v PPS Pipeline Systems GmbH [2014] EWHC 54 (TCC) [Jurisdiction of Adjudicator]

Facts

  • A dispute (option W2) arose between the parties as to whether an early warning identifying the existence of adverse ground conditions (rock) gave rise to a valid compensation event.
  • The parties had agreed to exclude clause 60.1(12) from the contract.
  • In the adjudication PPS argued that the project manager should have issued an instruction changing the works information and their failure to do so constituted an inaction of the project manager and hence a dispute under the contract.
  • Wales disagreed and challenged the jurisdiction of the adjudicator.
  • The adjudicator found in favour of PPS.

 

Judgment

  • The courts have sought to discourage losing parties in adjudications from “scrabbling around to find some argument, however tenuous”.
  • When the jurisdiction of a person appointed to make a decision under a contract, such as an adjudicator, was called into question, it was always necessary to ascertain with precision what the decision maker was authorised to do.
  • A vital and necessary question, when a jurisdictional challenge was mounted, was to ask what had actually been referred. That required a careful characterisation of the dispute. To determine the scope and ambit of any given dispute, the court needed to analyse the relevant exchanges between the parties. It was open to a party which wished to proceed to adjudication to refer only part of the crystallised dispute.
  • Primarily, one had to construe the notice of adjudication to determine the extent to which all or part of the crystallised dispute was being referred to adjudication. It was open to the defending party to adjudication to run any factual or legal defence to the disputed claim.
  • However, none of the post-notice of adjudication documentation generated in an adjudication would alter the scope or ambit of the dispute referred, save by agreement or by operation of waiver or estoppel.
  • Decisions of adjudicators were binding and were to be complied with until the dispute was finally resolved.
  • Judgment was found in favour of PPS

RWS Npower Renewables Ltd v J N Bentley Ltd [2014] EWCA Civ 1679 (CA) [Interpretation]

Facts

  • Bentley was contracted during 2010 to RWS to execute civil engineering works on the Black Rock hydro-electricity generating plant in Scotland.
  • The contract (unusually for an NEC3 contract) contained an interpretation clause stating that the various documents forming the contract should be read and construed in a prescribed order of precedence.
  • It was agreed that the penstock pipeline (a sectional completion date defined by secondary option X5) was not completed until 25 October 2012.
  • In a dispute concerning completion of the section, the adjudicator decided that such section had been completed on 21 February 2012. His reasoning was that there was an inconsistency between the contract data (which contained a general description of the section) and clause 6.2 of the works information (which contained a more detailed description) and that the contract data took precedence. On his interpretation the provisions of option X5 were to be interpreted as requiring completion of the penstock pipeline only to the extent necessary to enable the hydro plant
  • RWS, dissatisfied with the decision, sought a declaratory order that Bentley’s obligation was defined by clause 6.2 of the works information, and that all work described therein as forming part of the section had to be completed before that section could be deemed complete. On this version, the intake, penstock pipeline and tailrace all had to have been completed and tested before the section could be viewed as complete.
  • The TCC held that the contract should be read as a whole and construed as far as possible to avoid inconsistencies between the different parts on the assumption that the parties had intended to express their intentions in a consistent and coherent way. The court’s view was that there was no significant inconsistency between option X5 and the works information and that they were capable of being read together without undue difficulty.

 

Judgment

  • The court of appeal started from the same position as the TCC, namely that the contract documents should as mutually explanatory of one another.
  • Option X5 was worded in more general terms than clause 6.2, which identified in greater detail the work comprised in each section.
  • Despite differences in detail, the court held that one would expect the two provisions to complement each other and that only in the case of a clear and irreconcilable discrepancy would it be necessary to resort to the contractual order of precedence to resolve it.
  • Both clauses referred to the completion and testing of the penstock pipeline, which suggested completion of the entire pipeline.
  • Moore-Bick LJ stated that it did not matter for the purposes of the agreement whether the reference was to “installing” the hydro plant (X5) or to “testing and commissioning” it (works information), because none of that formed part of Bentley’s work. Moore-Bick LJ continued: “Moreover, insofar as there is any uncertainty in Option X5 about the scope of section 2, the right way to resolve it, in my view, is by obtaining such assistance as one can from other parts of the contract. For that purpose clause 6.2 with its more detailed provisions is the obvious place at which to start. I agree with the judge, therefore, that the two clauses can and should be read in harmony with each other. The result is that Bentley’s obligation was to complete the pipelines by 27th May 2011.”
  • Moore-Bick LJ therefore held that the judge was correct to hold that section 2 of the works had not been completed until the whole of the penstock pipeline had been completed and tested.
  • The appeal was dismissed.
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