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Risks unaccounted for? The loss lies where it falls

Construction is a risky business. Not all risks can be predicted prior to the commencement of a project. Not all risks can be prevented or curbed during the execution of a project. Millions of Rands could be lost should a risk materialize on a project. It is crucial for parties to construction contracts to be aware of which risks they are responsible for and for which they will ultimately bear the loss.

The CIDB endorsed standard forms of contract provide for who bears the risk in relation to specific events and thus who will be liable for the loss associated therewith. However, these contracts do not assign risk in respect of each and every possible event and a badly drafted bespoke contract might not assign risk at all, leaving the parties thereto in a very uncertain position.

While there are some risks that are clearly the risk of the contractor, such as substandard workmanship, or clearly the risk of the employer, such as a delay due to an instruction to carry out additional work, there are other events that are not obviously the fault of the contractor or the employer. Where it is not entirely apparent who should bear the risk, and in turn the loss, for an event, to whom should each party’s fingers be pointed?

Judge Edgar Fay QC in Henry Boot Construction Ltd v Central Lancashire New Town Development Corp[1] provided some clarity on this issue by stating as follows:

There are cases where the loss should be shared, and there are cases where it should be wholly borne by the employer. There are also cases which do not fall within either of these conditions and which are the fault of the contractor. But in cases where the fault is not that of the contractor the scheme clearly is that in certain cases the loss is to be shared: the loss lies where it falls. But in other cases the employer has to compensate the contractor in respect of the delay, and that category, where the employer has to compensate the contractor, should, one would think, clearly be composed of cases where there is fault upon the employer or fault for which the employer can be said to bear some responsibility.”[2]

The words of Judge Fay QC are not entirely clear in that he refers to the loss being shared in cases where the fault is not that of the contractor and then summarises that statement with a seemingly contradictory phrase – “the loss lies where it falls”.

Our understanding of Judge Fay QC’s words is that where an event is neither an employer’s risk event nor a contractor’s risk event, the loss must lie where it falls, unless the party at which the loss has fallen can establish a breach of contract or fault on the other party’s part.

To illustrate this dictum; where an event causes delay, it is the contractor’s risk as that is where the loss has fallen. This is provided, of course, that the event was not caused (in whole or part) by a breach of contract by the employer.

As mentioned above, the standard forms of contract provide for who bears the risk for specific events and provides mechanisms for dealing therewith. For example, in FIDIC:

in respect of the risk of delay – several clauses specify when the contractor will be entitled to an extension of time and additional payment (i.e. where the contractor is not at risk) such as clause 4.12 (unforeseeable physical conditions) and 4.24 (fossils);

in respect of damage to the works – clause 17.3 specifies the causes of damage which constitute risks of the employer (eg: war, riots and design by the employer)

Although the standard forms of contract assign many of the risks parties to construction contracts are faced with, there are still a few that have not been accounted for. Some of the examples we have come across include – flooding due to ground conditions (rather than due to weather), flooding due to municipal drains being blocked, civil unrest in the local community and shortages of materials.

If one puts the legal dictum “the loss lies where it falls” into practice, where events such as these (and importantly, events that have not been caused by either party) cause a delay to the works, the contractor is at risk as it is the contractor that will face a loss in such circumstances.

It is therefore important to review the assignment of risk within a construction contract and to keep in mind that not all risks can be predicted and where they haven’t, the loss may lie with the party at which it falls.

Author: Kelly Stannard, Associate


An issue we are all aware off and which has affected and unfortunately still affects the construction industry to this day (not only in South Africa, but worldwide), is the issue turning on corruption. This can include unethical practices and conduct, and it can take place during pre-tender or pre-contract stages, further after contract award and even during the contract period of project execution.

NEC4 has included a new clause, clause 18, which deals with corrupt acts, and further defines a corrupt act under clause 11.2(5) as follows:

  • the offering, promising, giving, accepting or soliciting of an advantage as an inducement for an action which is illegal, unethical or a breach of trust or
  • abusing any entrusted power for private gain

in connection with this contract or any other contract with the Client. This includes any commission paid as an inducement which was not declared to the Client before Contract Date.

The CIDB Code of Conduct also deals with “corrupt acts”. It states that “This Code of Conduct represents an important step in management of integrity and the creation of an environment within which business can be conducted in a fair and transparent manner. It also forms an essential first line of defence in combating the scourge of corruption.

All parties engaged with construction procurement in South Africa (and further within the construction world in general), should always be reminded of the provisions set out in the CIDB Code of Conduct.

It inter alia requires that the “Contractor or his employees should:

  • Undertake the contract with the objective of satisfying the requirements of the employer
    by observing the spirit, as well as complying with the letter of the contract, and, in pursuit
    of this objective, co-operate with all other parties in the procurement process.
  • Aim to meet all statutory and contractual obligations fully and timeously in regard to
    conditions of employment, occupational health and safety, training, fiscal matters, etc.
  • Employ subcontractors only on the basis of fair, unbiased, written subcontracts.
  • Not engage in unfair or unethical practices in dealings with subcontractors.
  •  Not make spurious claims for additional payment or time.
  • Not approach any representative directly in connection with a contract, save for a legitimate purpose.
  • Not undermine the development objectives of the employer through tokenism or fronting.
  •  Not engage in collusive practices that have direct or indirect adverse impacts on the cost of the project to the employer.

It further requires that the “employer, his employees, or agent should:

  • Not invite tenders without having a firm intention to proceed with the procurement.
  • Ensure that the basis on which tenders will be evaluated is clearly set out in the
    tender documents and that tenders are evaluated and awarded accordingly.
  • Employ contractors only on the basis of fair and equitable written contracts.
  • Not accept gifts, favours or other considerations, of anything more than token
    value, from any other party to the procurement process.
  • Ensure that the procurement documents are clear and comprehensive and set out
  • the rights and obligations of all parties.
  • Not breach the confidentiality of information, particularly intellectual property,
    provided by tenderers in support of their tender submissions.
  • Not engage in unfair or unethical practices in dealings with subcontractors, including
    the practice of trading one subcontractor off against another in an attempt to
    obtain lower prices.
  • Ensure that all tenderers are fairly treated and that tender offers are evaluated without bias.
  • Ensure that transparency is maintained in the tendering process. This implies, under
    normal circumstance, inviting tenders as widely and publicly as possible, stating
    clearly any prequalification criteria and considering only those who qualify, opening
    tenders in public and reading out/making available key information, such as tender
    prices, basic award criteria and times required for completion, and, in due course,
    making known to unsuccessful tenderers the outcome of the evaluation process.
  • Ensure that his obligations in terms of contracts with contractors and agents are
    scrupulously and timeously met, particularly in regard to making payments and
    giving decisions.
  • Ensure that legal requirements and principles are upheld in relation to safety,
    health, the environment and sustainable delivery management.


The above is only limited extracts applicable to the contractor and the employer and a full copy of the CIDB Code of Conduct can be obtained and downloaded from the CIDB website or at the link below:


This Code of Conduct can be enforced in terms of Section 29 of the CIDB Act (2000). In the event of a breach of the code, the Board may convene and conduct an enquiry. If any misconduct exists and is established, the CIDB Board can sanction the guilty party (or parties) by either issuing a warning or a fine, or refer the matter to the South African Police Services for further investigation, or worse, deregister a contractor for a period of time, which will mean that it cannot take part in any tendering process during that period, or maybe at all depending on the misconduct. This will not be an ideal position to find yourself, especially when you seek to grow your company within the Construction Industry.

Author Barry Herholdt, Senior Associate

A case of one step forward and two steps back?

During the course of 2015, the then Minister of Public Works published for comment regulations (“the Regulations”) to the Construction Industry Development Board Act 38 of 2000 (“the Act”).

The Regulations proposed, among other things, prohibiting ‘pay-when-paid’ provisions, creating a statutory right to interim payments and providing for the speedy resolution of disputes between contracting parties, by way of statutory adjudication.

For adjudication to have the required impact, as a dispute resolution mechanism, it has to be compulsory, preventing employers and main contractors, who hold the greater bargaining power, from simply removing adjudication clauses from the sub/contracts concluded. The proposed Regulations were a clear recognition of the importance of adjudication as a mechanism to resolve disputes in an efficient and cost-effective manner. The obligation to make interim payments and prohibition of ‘pay when paid’ provisions would have ensured that the interests of parties in unequal contract relationships were protected and sub/contractors would be paid what was lawfully due to them.

Although criticism can be levelled at the Regulations, in that that they encroached on the ‘right to freedom of contract’, they were generally welcomed. As regulations to the Act, the Regulations would be applicable to all construction projects (barring certain exclusions) and also compulsory.

Two years later, however, following extensive public comment, the Regulations have still not come into force, and it appears that they may fall by the wayside altogether. In terms of Section 33 of the Act the Minister is empowered to publish draft regulations for public comment and thereafter gazette them in terms of this section. A protracted period has passed since the publishing of the Regulations for comment, however, and to date, the minster has not gazetted them into law.

While the uncertainty relating to the Regulations persists in the industry, the Construction Industry Development Board (“CIDB”) recently circulated draft standards dealing with prompt payments and adjudication (“the Standards”) for construction contracts. The provisions appear to be the same or similar to those of the proposed Regulations.

The difficulty with the Standards, however, is, firstly, that they will not have the force and effect and binding nature that the Regulations would have had on contracting parties. Secondly, the application of the standard relating to prompt payments will be largely confined to parties who voluntarily elect to contract on this basis. For the standard on prompt payment it is proposed that the provisions, if agreed, would be incorporated into the tender data and contract. For the standard dealing with adjudication, it is intended that these would apply to contracts which do not provide for adjudication procedures similar to those of the adjudication standard.

Although the Standards appear to largely reflect the objectives of the Regulations insofar as proposing prompt payment mechanism and an efficient and cost-effective dispute process, they fail to achieve the main aim of the Regulations, which is to be of legal force and effect and settle the issues plaguing the construction industry and emerging contractors once and for all. They are not of compulsory application and as such do not sufficiently deal with the unequal power dynamics between contracting parties in the construction industry.

Since the end of apartheid, the South African government has focused on providing adequate infrastructure for the previously disadvantaged majority, and the inclusion of this group of people and enterprises into the formal construction sector. [1] These objectives formed part of South Africa’s Reconstruction and Development Plan Policy Framework also commonly referred to as the RDP. Broadly speaking, the RDP is an integrated, coherent socio-economic policy framework which seeks to mobilise all people and the country’s resources toward the final eradication of Apartheid and the building of a democratic, non-racial and non-sexist future [2]. Within the context of the construction industry, the purpose of the RDP was to address the basic human need for infrastructure by providing adequate housing and leveraging this need to develop and sustain small to medium sized enterprises.

In pursuit of this objective, South Africa’s Department of Public Works (“the Department”), published a Green Paper in 1998, titled ‘Creating an Enabling Environment for Reconstruction, Growth and Development in the Construction Industry’. This was followed by a White Paper of the same name in 1999. The Green Paper was the government’s defining document in its attempt to understand the construction industry. Among its objectives was to create an enabling environment in which the objectives of the RDP were achieved, enhance industry performance and achieve growth of small and medium enterprises. The White Paper reaffirmed the proposals put forward in the Green paper and the actions needed to address the issues. These documents in part propose that this can be achieved by the promotion of alternative dispute resolution (“ADR”) mechanisms by the public sector, which are efficient and cost effective, streamlining payment processes to support emerging contractors and the establishment of the CIDB.[3]

Both these papers, firstly, identified that traditional dispute resolution processes are costly and time consuming, which can be prejudicial to contractors with limited resources. As such, proposals including fair and effective ADR mechanisms are called for, to strike a balance with the competing interests of producing quality goods and equitable treatment of contractors. Secondly, the papers identified that contractors were susceptible to cash-flow constraints, which would be limited by the introduction of uniform and streamlined payment processes.

In 2004 and 2005 the CIDB, now established, published best practice guidelines dealing inter alia with payment procedures and ADR in construction contracts. [4] For the former the guideline proposed at the outset was that conditions of subcontract should be regulated by fair terms and conditions, as an example to mitigate the risk of non-payment due to pay-when-paid and/or right of set off provisions.[5] For the latter, the CIDB released a guideline focusing on adjudication and the need to ensure this option remains available to disputing parties, and not to have contracts only advocating arbitration and litigation which are time consuming and costly.

It is accepted that the principles of the Standards are similar to those of the Regulations, and are consistent with solutions proposed by industry stakeholders when it comes to payment procedures and adjudication for construction contracts. If the draft Standards are published in their present form, however, they will only be binding in limited circumstances, and may not fully advance the proposals of the Green and White Papers.

It is clear that over the last 10-15 years the construction industry has had an opportunity to understand the issues faced by sub/contractors, especially small and medium sized enterprises, mainly due to the unequal contractual arrangements. The CIDB may view the Standards as a way to deal with the above issues while the Regulations are in limbo. If true, such a decision may be open to criticism, as engaging with the minister to understand the limited action regarding the Regulations would have been more proactive. To deal with the issues facing the industry one needs measures that are firstly binding on all.

It is not clear why the Regulations have not yet been gazetted, but the draft Standards are little progress on matters which have been at the centre of the construction industry for a while. A case of ‘one step forward and two steps back’, I wonder!. We shall have to wait and see where this leads.

  1. Reconstruction and Development Programme (RDP) A Policy Framework, Paragraphs 1.3.6, 1.4.3 and
  2. Reconstruction and Development Programme (RDP) A Policy Framework, Paragraph 1.1.1
  3. Green Paper and White `Paper: Creating an Enabling Environment for `Reconstruction, Growth and Development in the Construction Industry, Chapter 7, January 1998, Paragraphs, 5.5.7 and 7.2.1 and 4,15.2, 6,5.7
  4. Michelle Kerr, Statutory Adjudication: A necessary Transfusion for the South African Construction Industry? Dissertation submitted in part fulfilment of an MSc degree in Construction Law & Dispute Resolution, King’s College London, September 2017, as yet unpublished
  5. CIDB Construction Procurement – Best Practice Guideline #D1, Adjudication; March 2004

Author: Tsele Moloi, Associate

NEC4 Alliance Contract

The NEC has released a draft of a new NEC4 Alliance Contract, for consultation, allowing users to shape the final contract. This consultation process is now open and is expected to close on 30th November 2017. Formal publication is expected in January 2018.
It will be a single standalone contract, one of the NEC suite, consistent with all other NEC4 documents. It is designed for use on major projects or programmes of work, where longer-term collaborative ways of working are to be created. Due to the time investment needed, pre-contract, to create an alliance, it is not envisaged for use on low risk or low complexity projects.

The NEC contracts have always encouraged collaboration (although some disagree with its effectiveness in this regard[1]), with the NEC3 offering an additional partnering option under Clause X12. This option has, however, been criticised for its failure to create a multi-party set of relationships, to provide a basis for early contractor involvement or to provide adequate enforcement mechanisms[2].

These are issues which have been addressed in the PPC (Project Partnering Contract) 2000, which is a suite of standard form contracts developed, in the United Kingdom, for use on construction projects. It is one of a number of tools recommended by Constructing Excellence (a construction industry membership organisation based in the United Kingdom) as a means of helping to implement collaborative working.

Under the PPC2000 Employers (referred to as Clients), their agents such as the Engineer/Project Manager/Principal Agent (referred to as Consultants) and Contractors (referred to as Constructors) all sign a single multi-party contract, which can also accommodate early contractor involvement. The PPC200 has been used to good effect on projects such as the Cookham Wood Young Offenders Institution and North Wales Prison Trial Project in the United Kingdom.

A similar alliance agreement has also been shown to be effective through its use by the Stronger Christchurch Infrastructure Rebuild Team, established to repair roads and underground services damaged by earthquake.

The NEC4 Option X12 is now titled multi-party collaboration, however, the substance of this clause remains similar to Option X12 in the NEC3. NEC contracts allow all members of the supply chain to be engaged on similar terms and conditions, however, these are still two party rather than multi-party contracts.

The NEC4 Alliance Contract, on the other hand, is a single contract form, with a single set of terms and conditions which make provision for shared risks and rewards, that all members of the supply chain sign. It also makes provision for early contractor involvement, which allows budget, time and performance targets to be agreed with more accuracy.

What is envisaged is a cost reimbursable contract (defined cost-plus fee) similar to Main Option E in the other NEC suite contracts.

The members of the alliance then work together as an integrated team, work being allocated on a ‘best for project basis’, with an alliance board managing the alliance on behalf of the members, for the achievement of the alliance objectives, as determined by the Employer. Integrated systems and processes such as an early warning register and information modelling are used to assist the alliance members in achieving their objectives.

Decisions of the alliance board must be unanimous and will bind all members of the alliance. All liabilities are shared and manged by the alliance, except wilful default by one of the partners and third-party claims, which are the client’s risk.

Disputes are resolved by senior representatives or the alliance board, with third party support, if required. There is no provision for traditional dispute resolution provisions such as adjudication or arbitration, and a failure to resolve a dispute brings the alliance, or a partner’s involvement, to an end. It must, however, be born in mind that recourse to adjudication at any time is a statutory right afforded to all those engaged in construction operations in the United Kingdom, per the Housing Grants, Construction Regeneration Act 1996.

  1. Although similar regulations have been published for comment in South Africa, there is no such automatic right in this country yet.
  2. “A perception has emerged that NEC is a partnering or collaborative style of contract. That is an error unless the express Partnering Option X12 is adopted” Phillip Capper, King’s College London and White and Case 
  3. David Mosey “Module C – Collaborative Contracting under Partnering Contracts” King’s College London 2017, page 22 

Author: Michelle Kerr, Senior Associate

“The purpose of using subcontracting arrangements is usually to distance parties from each other rather than to bring them into a direct legal relationship” [Laurence McIntosh Ltd v Balfour Beatty Group Ltd [2006] CSOH 197]

It is a generally accepted principle that a main contractor is fully liable to an employer, for the works and cannot rely upon the default of his/her subcontractor to excuse poor workmanship or delay. [Loots Construction Law and Related Issues Juta & Co Ltd 1995, page 511] This is often re-stated in standard form contracts, such as the GCC 2010, which provides at Clause 4.4.2 that “[t]he Contractor shall be liable for the acts, defaults and negligence of any subcontractor, his agents or employees as fully as if they were the acts, defaults or negligence of the Contractor”.

This principle is applicable to all subcontractors, whether they are domestic, selected or nominated. A distinction must, however, be drawn between delays in nominating or re-nominating a subcontractor and delays caused by a subcontractor’s poor performance.

“It would be a clear breach of contract by the employers if their failure to nominate a subcontractor impeded the contractor in the execution of its work” [Reilly (RM) Ltd v Belfast Corporation [1970] NI 68] and while an employer does not warrant that a nominated subcontractor will not default in the execution of the subcontract, s/he will be liable for a delay in nominating a further subcontractor [Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd 69 LGR 1, (1976) 1 BLR 114 CA].

Delays caused by a subcontractor’s poor performance are subject to the general principle stated above. There are, however, in certain circumstances, arguments available to assist the main contractor, which may be extracted from the English cases.

Firstly, there is the matter of Holland Hannen and Cubitts (Northern) Ltd v Welsh Health Technical Services Organisation & Others (1981) 18 BLR 80, where it was held that the failure of the employer’s agent to issue a variation order, when they discovered that works designed by the nominated subcontractor were defective, breached the employer’s implied duty to ensure that he and his architect do all things necessary to enable the contractor to carry out the works and refrain from hindering or preventing the contractor from carrying out and completing the works.

Secondly, it has been proposed by Loots (at pages 513 and 514) that it may be implied, in exceptional cases, that an employer has entered into a direct contract with a subcontractor. Such exceptional circumstances could arise, as in Wallis v Robinson (1862) 130 RR 841, where the employer’s agent, with the express approval of the employer, requested the subcontractor to perform certain work for which he would be paid extra. It was held that this created a direct contract between the employer and the subcontractor.

As pointed out by Loots (at page 514), a contractor will be entitled to an extension of time for delays caused by another direct contractor employed by the employer.

Water for thought

Water is a resource that affects all and without it, the reality we face is that businesses and industries will eventually collapse. There will ultimately be very little or no economic growth. The lack of water has a fundamental impact on the construction industry whether we would like to believe it or not.

South Africa has recently been experiencing severe water shortages. The water scarcity has deteriorated to a critical level that requires urgent attention. To prevent long term damage, we urgently need solutions.

We are not alone in South Africa. The global increase in water scarcity has initiated the creation of a panel of high level global leaders by the United Nations. Convened to address global water crises, the panel met for the first time in September 2016 in South Africa to discuss water management and sustainability. The High Level Panel on Water concluded that water governance is inherently complex, with many shareholders or stakeholders across multiple sectors. It is characterised by incomplete data as well as hydrological and administrative boundaries that often conflict. In addition, it requires a “whole society approach”.

To address the water deficit, we need to accept the responsibility of managing our water resources as members of society and private stakeholders in the construction industry. We cannot attribute the responsibility of managing resources solely to the government.

The problems we face are the following:

  1. Investments in water infrastructure and waste management systems are lacking. People are reluctant to invest due to the lack of confidence in the return of the investment and water infrastructure is inherently costly. Private entities need supplement government funding by investing in water infrastructure and developments.
  2. South Africa does not have the infrastructure to manage water usage by industry. Water-intensive sectors include construction, mining, manufacturing, chemical, energy and agriculture. In addition, the waste water produced by these industries needs to be managed. The lack of water management and waste management systems in the construction industry means that we need to implement proper and better waste management systems to treat waste water and eradicate further harm being caused and compromising the quality of water being consumed further downstream.
  3. Ground water and surface water is being affected by acid mine drainage. The water/sludge pumped out by mining companies into local dams, streams and river (water supplies) has a long term impact on the quality of water and may be causing a greater impact than understood – drainage of dams, drying of dams – all of which have a knock on effect in the longer term. We need to prioritise our waste management systems.
  4. There is a lack of desalinisation plants to enable us to utilise sea water in coastal areas to supplement municipal water supplies. The solution is to invest in such plants or test desalination in coastal regions as case studies.
  5. We need to monitor the usage of clean drinking water by major plants and substitute this with grey water for all other uses.

I believe that the lack of suitable infrastructure is the largest contributing factor to the water crises we face today. We need technical solutions that are both functional and sustainable. If we do not develop the infrastructure to properly manage our resources, we will certainly not be able to provide water services that are necessary for future economic development.

I believe that South Africa has ignored this issue over a prolonged period of time and adopted a passive approach to the water crisis which has caused the diminished resources. We need to become aggressively reactive to ensure that the problems we face are effectively dealt with.

In order to ensure that we have an efficient and fully functioning water management system, we need to invest our time and efforts to discover new ways or technologies, in order to progress and become sustainable, so that we do not aggravate the water crises in South Africa. The solutions need to be designed essentially to work collectively with nature and the environment.

Author: Trenelle Moodley, Candidate Attorney

The builder and the lien

A lien is the right of X to retain possession of Y’s property, either movable or immovable. This right arises when X spends money or incurs costs with respect to this property, and comes to an end when the money or cost is reimbursed to X.

Liens may be divided into two general categories:

  1. Enrichment liens; and
  2. Debtor and creditor liens.

An enrichment lien arises when X spends money or incurs cost in preserving or improving the property, in order to maintain or enhance its market value. Y, as the owner of the property, is enriched by X’s actions. An example of this would be repairing a damaged water pipe or upgrading the external facade of an old building.

A debtor and creditor lien arises when X spends money or incurs cost that neither preserves nor improves the property. Y is not enriched by X’s actions and the only way in which X can claim reimbursement is if there is a contractual agreement in terms of which Y agrees to reimburse X for such expenditure. An example would be where a builder incurs expense in mobilising its resources to site, but the contract is terminated before any work can commence.

The main difference between the two types of lien, is that when X has an enrichment lien, the right to retain possession of Y’s property is enforceable against the whole world. An example would be where Y bought property off-plan from a developer, who, in turn, contracted with X to build a house on the property. In building the house, X enhanced the market value of the property. If the developer doesn’t pay X for the cost of building the house, X can hold an enrichment lien over the property, regardless of the fact that Y didn’t actually contract with X.

On the other hand, when X has a debtor and creditor lien, the right to retain possession of the property is only enforceable where Y, as owner of the property, contracted with X for the expenditure. In combining the two examples given above, this would mean that X could not hold a lien over Y’s property, for the cost of mobilisation alone, where X had contracted with the developer and not Y.

When considering holding a lien over Y’s property, X must, therefore, consider:

  1. Whether there is a contract between X and Y? and
  2. If not, whether Y has been enriched at X’s expense?

If the answer to both questions is “no”, then X has no right to retain possession of Y’s property.

If X does have a right to retain possession of Y’s property, then s/he must perfect his/her lien. This means that X must take some special step to show the world that s/he is holding a lien over the property. In the case of a construction site, this would require evidencing possession of the site. For example, this could be done by stationing a representative, in charge, on the site, securing it, putting up signage and generally making it clear that X is in physical control of the site.

If X gives up possession of the site, the lien will fall away. If Y takes back possession of the site by force, X can make application to the courts for a spoliation order, returning possession to him/her.

Y can offer security for the sum claimed by X, pending resolution of any dispute over the matter, in exchange for the return of possession of the site. If X refuses to accept such security, the courts have a discretion, upon application by Y, to order return of possession of the site to Y, in exchange for such security.

The situation is more complicated where public property is concerned as, although it has not definitively been decided, there is some authority for the proposition that a lien cannot be held over public property. [See Loots, Construction Law and Related Issues, 1995, pages 422 – 426]

A wavier is the voluntary giving up of a right. X may waive his/her lien. Certain construction contracts may, in fact, include a clause expressly agreeing to such waiver [See Clause 3.3 of the JBCC Principal Building Agreement, 5th edition and Clause of the GCC 2010].

The waiver of X’s lien does not, however, have to be express. It could also be tacit, meaning that it is conveyed by X’s actions. These actions would have to show a clear and unambiguous intention not to hold a lien over Y’s property. An example would be where X, as a contractor, removes his/her labour, equipment and materials from the site and returns possession of the property to Y.

Author: Michelle Kerr, Senior Associate.

Natural Justice in Adjudication – How is it determined?

When involved with construction adjudication, you often hear and come across the use of the term ‘natural justice’, i.e. the adjudicator is obliged and should always ensure that natural justice prevail. But what exactly does this entail and when is natural justice breached?

A recent UK judgment “Dawnus Construction Holdings Limited v Marsh Life Limited [2017] EWHC 1066 (TCC) (11 May 2017)” (“Dawnus case”), dealt with an application brought by the claimant (Dawnus Construction Holdings Limited) for summary judgment for the enforcement of an adjudication decision and in defending the application, the defendant (Marsh Life Limited) argued that the adjudicator failed to apply the rules of natural justice by failing to consider and deal with certain of the defendant’s defences that was put forward. This article is not intended to deal with the facts of this particular case, but mainly to clarify principles of ‘natural justice’ as was determined by the courts (most of which are from the UK, but can be cited and referred to when dealing with similar issues and disputes in South Africa).

In the Dawnus case, dealing with natural justice, the court referred to a matter, “Hutton Construction v Wilson Properties [2017] EWHC 517 (TCC)” (“Hutton case”). In this case the judge inter alia stated that “the starting point… is that, if the adjudicator has decided the issue that was referred to him, and he has broadly acted in accordance with the rules of natural justice, his decision will be enforced” (Macob Civil Engineering Limited v Morrison Construction Limited [1999] BLR 93), and it was further said that “Adjudication decisions have been upheld on that basis, even where the adjudicator has been shown to have made an error” (Bouyques (UK) Limited v Dahl-Jensen (UK) Limited [2000] BLR 522.). In “Carillion Construction Limited v Devonport Royal Dockyard Limited [2006] BLR 15), the judge stated that “the need to have the ‘right’ answer has been subordinated to the need to have an answer quickly.”

As you note from the above, few matters have dealt with this issue regarding the principles of natural justice.

The Dawnus case further confirmed that the authorities have consistently emphasised that, for a breach of natural justice to be a bar to enforcement, the breach must be “plain“, “significant“, “causative of prejudice” or “material“.

In considering earlier authorities, in “Cantillon v Urvasco [2008] BLR 250” (“Cantillon case”), the applicable principles related to breaches of natural justice in adjudication were summarised to be the following:

a) It must first be established that the adjudicator failed to apply the rules of natural justice;

b) Any breach of the rules must be more than peripheral; they must be material breaches;

c) Breaches of the rules will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to have given the opportunity to comment upon which it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is not peripheral or irrelevant.

d) Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves the question of degree which must be assessed by any judge in any case such as this.

e) It is only if the adjudicator goes off on a frolic of his own, that is wishing to decide a case upon a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment on or, where relevant put in further evidence, that the type of breach of the rules of natural justice with which the case of Balfour Beatty Construction Company Ltd v The Camden Borough of Lambeth was concerned comes into play. It follows that, if neither party has argued a particular point and the other party does not come back on the point, there is no breach of the rules of natural justice in relation thereto.”

Based on the above, it does seem straight forward. If you are an adjudicator or looking to become one, stay updated with most recent cases on these type of topics, whether to be found under our own South African law, UK or otherwise. It is important to keep ahead with the game to prevent that you fall subject to a possible review of your adjudication decision/ruling.

Author: Barry Herholdt – Associate

BBB-BEE and the construction sector

An entity’s Black Economic Empowerment (“BEE”) score and recognition status is measured either in terms of the Broad Based Black Economic Empowerment Generic Codes of Good Practice (“BB-BEE Codes”), or in terms of a specific sector code. The main difference between the two is that the BB-BEE Codes address empowerment and transformation for all sectors where there is no sector code. At the same time, the BB-BEE Codes provide guidance regarding the measurement principles to be applied, and incorporated into sector codes. A sector codes addresses empowerment and transformation within a defined sector and is more alive to a sector’s challenges and requirements.

During October 2013, the amended generic BB-BEE Codes of 2013 (“Amended Codes of 2013”) were gazetted, providing for revised principles of measuring transformation and empowerment. In the circumstances, all sector charter councils were required to amend their respective sector codes and submit these to the minister. The construction sector was no different and was required to prepare a draft construction sector code and submit it to the minister, however, failed to do so timeously. As a result, in February 2016, the Construction Sector Codes of 2009 (“Construction Codes”) were repealed.

The consequence of the minister’s decision to repeal the Construction Codes was that all entities previous falling within the scope and application of the Construction Codes would now to be measured in terms of the amended Codes of 2013. As mentioned, in some instances a generic code fails to adequately address sector specific challenges and consider whether it may become onerous to apply it measurement principles in a specific sector.

A draft of the revised construction sector codes (“Revised Codes”), gazetted in terms of Section 9 (5) of the Broad Based Black Economic Empowerment Act 53 of 2003 as amended by B-BBEE Act 46 of 2013 (“the Act”), was issued for public commentary. For a sector code to become applicable to a specific sector, in place of the prevailing BB-BBE Codes, it must be gazetted in terms Section 9(1) of the Act. Until this happens entities falling within construction sector continue to be measured against the Amended Codes of 2013.

The period within which to submit comments to the Revised Code has elapsed, yet the minister has not provided indication of his intention to gazette the Revised Codes under Section 9(1) of the Act. Furthermore, unlike the previous Construction Codes that had a transitional period when they were first published, the Revised Codes propose no transitional period. A transitional period would provide the sector with an opportunity to plan and adjust to the revised requirements prior to being compelled to apply the revised measurement principles. On publication, in terms of Section 9(1) of the Act, all entities falling within their scope of application may be forced to undertaken their measurement of BEE in terms of the Revised Codes. Such a provision has the potential to further stall the progress made by the sector.

The industry remains in an uncertain position, addressing transformation and empowerment in terms of the Amended Codes of 2013 which do not necessarily appreciate the sector’s challenges, similarly, aware that the Revised Codes await the minister’s gazetting whereafter application may be an immediate requirement.

Author: Tsele Moloi, Associate

Transparent and Accountable Public Procurement under the Constitution

The importance of a transparent and accountable public procurement process cannot be understated. It impacts the public, in general, in terms of service delivery and a failure to comply therewith can result in the wasting of tax payer’s funds.

What happens where it is obvious that public officials involved in a public procurement process have been corrupt, grossly negligent or otherwise did not apply their minds during the tender adjudication and arbitration process?

This issue is regularly raised, resulting in frequent referrals to Tender Appeal Tribunals and the various courts for a decision and evaluation of the process followed.

One such case is Westwood Insurance Brokers (Pty) Ltd v eThekwini Municipality (8221/2016) [2017] ZAKDHC 15 (5 April 2017). In short, a company by the name of NC South West Brokers CC (South West) was awarded a tender, by eThekwini Municipality, in the sum of approximately R 81 000 000.00, for the provision of insurance for water loss through underground leaks for individual dwelling units. The Conditions of Tender required that a letter of undertaking from an insurance company licensed to operate in South Africa, accompany the tender, and that the underwriter must be registered with the Financial Services Board (FSB). South West, however, submitted a quotation for professional indemnity insurance from Marsh (Pty) Ltd whose registration with the FSB, as an insurer, had not been established.

The tender award was challenged on this basis. The court found that

“whatever [eThekwini’s] motives were the irrationality of their choice of South West is so obvious and egregious that it ineluctably leads me to conclude that the officials knowingly acted unlawfully, unconstitutionally and unethically”.

When the court considered the far-reaching effects of the decision of awarding the tender to South West (i.e. vulnerable people occupying, for instance, municipal and other sub-economic housing schemes having no insurance for water leaks), the court came to the conclusion that it was not advisable for South West to retain the contract.

The court, however, did not stop there. It considered whether the eThekwini officials, involved in the procurement process, had failed to uphold the values of the Constitution and the guidelines provided to them when considering offers from tenderers. The court also considered the obligation of all persons performing public services, to be accountable and transparent.

The court found that both South West and the officials in question must be held accountable for their actions, by way of being held liable for the costs of the proceedings. As such, the court ordered as follows:

  1. South West was held liable for 50% of the legal costs:
  2. The 16 public officials ranging from the City Manager, Members of the Bid Adjudication Committee, Bid Evaluation Committee, the Head of eThekwini Water and Sanitation, Deputy Head Supply Chain Operations, Divisional Manager for Regional Customer Services Water and Sanitation, and the Contracts Administrator were held liable for the remaining 50% of the legal costs, to be paid out of their own pockets.

This case sounds a warning to all public officials who act unlawfully and unethically to the disadvantage of the general public and other suitably qualified tenderers who would have benefited from the process.

Author:  Nombuso Shange, Associate.

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