Dispute Resolution in South African Construction PDF

THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION Established in terms of the Quantity Surveying Profession Act 2000 (Act 49 of 2000) PROFESSIONAL SKILLS MODULE NO. 11 DISPUTE RESOLUTION IN THE SOUTH AF...

THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION Established in terms of the Quantity Surveying Profession Act 2000 (Act 49 of 2000) PROFESSIONAL SKILLS MODULE NO. 11 DISPUTE RESOLUTION IN THE SOUTH AFRICAN CONSTRUCTION INDUSTRY 1st EDITION – January 2020 Unit C27, Block C, Lone Creek, Waterfall Park Bekker Road, Vorna Valley Ext 21 MIDRAND, 1686 P O Box 654 HALFWAY HOUSE 1685 Tel: (011) 312 2560 E-mail: [email protected]  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP ORGANISATIONAL COMPONENT GENERAL PREMISE AND EDUCATIONAL APPROACH The general objective with this module is to emphasise understanding rather than memorising and to develop the candidate’s skill to apply the principles in a practical way. A problem-driven approach to learning is followed. Candidate-centred and co-operative learning is encouraged to optimally develop the skills outlined in the study component. The module comprises two main parts, each one contributing to an understanding of the aspects of the dispute resolution processes for Built Environment projects in the South African construction industry. The breakdown of this module is as follows: Part 1 – Basic principles of Construction Law in the Built Environment. Part 2 – Dispute Resolution in the South African Construction Industry. Each of these parts has specific learning outcomes which are separately identified in the module outline. LEARNING ACTIVITIES The relevant study material is available through the office of the South African Council for the Quantity Surveying Profession (SACQSP). Candidates may have the choice of mastering the content of this module solely through self-study and/or attending workshops offered by SACQSP accredited professional institutions. The interaction between candidates and the SACQSP and/or accredited professional institutions will therefore depend on the choice of offering. ASSESSMENT CRITERIA AND FEEDBACK  The minimum pass mark for a module is 50%.  Exam entrance will be determined by either the submission and satisfactory evaluation of an assignment / or alternatively, through satisfactory completion of a multiple-choice test on the subject area. The process to be adopted will be decided upon by the SACQSP.  The final assessment will be a hand-written examination. The duration of the examination will be a maximum of 180 minutes (3 hours).  No supplementary assessment is granted.  The results for the assignment / test exam entrance marks will be communicated to candidates within 4 weeks from the date that the agreed process is undertaken. The results of the final assessment will be inputted into the candidate’s personal profile on the SACQSP website within 1 week after announcement of the results. SACQSP Professional Skills Modules 2 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP LEARNING ASSUMED TO BE IN PLACE NQF level 6 (360 credits) qualification or equivalent. Although 360 credits are the minimum level for learning assumed to be in place, it is recommended that candidates develop actual project experience and discuss issues with appropriately qualified professionals at every available opportunity before undertaking this module. The implementation of the module content is dependent on a sound knowledge of the different Alternative Dispute Resolution (ADR) processes that are generally in use in South Africa. CREDITS The credit weighting of this module is 10 which equates to 100 notional hours, inclusive of all readings, assignments and examinations. Studying the content of this module alone is not enough to master the required skill. Candidates will have the choice of mastering the content of this module solely through self- study and/or attending workshops offered by the SACQSP or its accredited professional institutions. However, although theoretical content within the primary reader is comprehensive, candidates are required to rather work through a series of linked learning sources, predominantly extending their theoretical knowledge base through focussed readings, as well as being supported by experience gained in the work environment. It is therefore recommended that candidates develop actual project experience and discuss issues with appropriately qualified professionals at every available opportunity. ABBREVIATIONS CIDB Construction Industry Development Board FIDIC FIDIC International Conditions of Contract GCC General Conditions of Contract of Construction Works JBCC Joint Building Contracts Committee NEC New Engineering Contract LIST OF DIAGRAMS Diagram 1: Main Divisions of the South African Law (p. 12) Diagram 4.1: Dispute Resolution: JBCC Edition 6.2 (p. 60) Diagram 4.2: Ad-hoc adjudication procedure: GCC (p. 61) Diagram 4.3: Standing adjudication procedure: GCC (p. 62) Diagram 4.4: Resolution of Disputes: FIDIC (p. 63) Diagram 4.5: FIDIC Dispute Resolution Timeline (p. 64) Diagram 4.6: NEC/ECC Dispute Resolution Timeline (p. 65) LIST OF TABLES Table 1: Common Law inappropriate for Construction Contracts (p. 23) SACQSP Professional Skills Modules 3 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP STUDY COMPONENT: PART A The competencies, skills and range statement stated in this section are those as contained in the South African Qualifications Authority Unit Standard entitled: Apply legal principles to the contractual management of Built Environment projects. PART A: BASIC PRINCIPLES OF CONSTRUCTION LAW IN THE BUILT ENVIRONMENT CANDIDATES WHO SUCCESSFULLY COMPLETE THIS PART A OF THE MODULE WILL GAIN THE FOLLOWING COMPETENCIES: The ability to: a) understand Law and the Built Environment as concept b) understand why basic competence in law is an essential ingredient for success in professional careers in the construction industry c) communicate the core legal issues with counterparts in the legal profession d) understand the basic concepts of contracts and the rules of contract formation and termination e) understand the basic rules of both contract law and law of delict f) know the application of the various types of construction contracts endorsed by the CIDB g) understand the need for uniformity in construction procurement h) know the typical contract interpretation rules that apply to construction contracts i) effectively use construction contracts as a management tool j) identify the important role of the JBCC documents in the South African building industry k) understand what the duties are of the Principal Agent / Project Manager / Engineer arising from the various construction contracts l) understand mechanisms commonly encountered in construction contracts m) understand how risk is dealt with under construction contracts TO DEMONSTRATE TO SACQSP-ACCREDITED ASSESSORS THE SCOPE OF PROFESSIONAL COMPETENCE GAINED BY STUDYING THIS PART A, THE CANDIDATE WILL BE REQUIRED TO: Illustrate that he/she is capable of: a) describing the South African legal history b) knowing what the distinctions are between Roman law, Roman-Dutch law, and common law c) describing how the South African court structure is made up d) identifying the main divisions of South African law e) demonstrating basic understanding of the law of tort f) demonstrating basic understanding of the general principles of contract law SACQSP Professional Skills Modules 4 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP g) identifying the importance of standard forms of contract h) demonstrating basic understanding of the need for uniformity in construction procurement i) describing the development and application of the various types of building contracts in use in South Africa j) knowing selected construction definitions and terms k) demonstrating basic understanding of the important mechanisms commonly encountered in construction contracts PRESCRIBED SOURCES: PART A The sources below must be studied extensively, and it is therefore compulsory that each candidate obtain a copy or have unlimited access to each document whilst undertaking the module: a) Finsen, E. 2018. The Building Contract: A commentary on the JBCC Agreements. 3rd Ed. RSA. Juta & Co, Ltd. (revised and updated by Segal, S.H.) b) JBCC Guide on Completion and Payment (available as free download from the website jbcc.co.za) RECOMMENDED READING: PART A The reference sources listed below are intended to provide candidates with details of texts which can contribute to an extension of the basic knowledge base provided by the study material provided. Some of these may be cited in the study guide. Whilst you will not be examined directly on the detailed content of these sources, it is necessary to study their contents in order that your understanding of the principles involved in this study area is fully developed. a) Adriaanse, J. 2010. Construction contract law. 3rd Ed. UK. Palgrave and MacMilan b) Knowles, R. 2012. 200 Contractual problems and their solutions. 3rd Ed. UK. Wiley-Blackwell c) Mckenzie, H. S. 2014. The law of building and engineering contracts and arbitration. 7th Ed. RSA. Juta & Co, Ltd. (revised and updated by Ramsden, P.A.) d) Uff, J. 2009. Construction Law. 10th Ed. UK. Sweet and Maxwell e) Wood, D., Chynoweth, P., Adshead, J. & Mason, J. 2011. Law and the Built Environment. UK. Wiley- Blackwell MODULE CONTENT: PART A AIMS AND OBJECTIVES The primary objective of this Part A of the module is to provide candidates with an understanding of the theoretical concepts of construction law in the built environment, and to contextualize this within the framework of professional activities undertaken within the built environment. The term “construction law” is now universally understood to cover the whole field of law which directly affects the construction industry, and the legal requirements through which it operates. Construction law is, thus, an interactive subject in which both lawyers and construction professionals have an essential part to play. SACQSP Professional Skills Modules 5 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP 1. INTRODUCTION TO LEGAL THEORY 1.1 The South African legal system 1.2 The South African court structure and the doctrine of stare decisis 1.3 Divisions of South African law 1.4 The law of tort 2. THE LAW OF CONTRACT 2.1 General principles 2.2 Agreement 2.3 Offer and Acceptance 2.4 Legal and physical performance 2.5 Capacity to enter into contracts 2.6 Formalities and requirements for a valid contract 2.7 Terms and conditions in contracts: General principles 2.8 Standard forms of contract 2.9 Uniformity in construction procurement 2.10 Construction contracts a. The Joint Building Contracts Committee (JBCC May 2018)) b. The General Conditions of Contract of Construction Works 2015 (GCC 2015) c. NEC4 Engineering and Construction Contract (NEC4) d. FIDIC International Conditions of Contract (1999 / 2017) 3. SELECTED CONSTRUCTION DEFINITIONS AND TERMS 4. SELECTED TOPICS PARTICULAR TO BUILDING CONTRACTS 4.1 Assignment 4.2 Cession 4.3 Deeming provision 4.4 Defects liability obligations 4.5 Design obligations 4.6 Estoppel 4.7 Force majeure / vis major 4.8 Indemnities 4.9 Contract Instructions (variation orders) 4.10 Penalties 4.11 Performance security 4.12 Repudiation 5. SOURCES CONSULTED FOR PART A ADDENDUM A: SELF-ASSESSED QUESTIONS (PART A) SACQSP Professional Skills Modules 6 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP The term “construction law” is universally understood to cover the whole field of law which directly affects the construction industry and the legal instruments through which it operates. However, construction law extends well beyond the law as such. Efficient and workable construction contracts require that the needs of the construction process should be taken into account by applying the principles of management. Construction contracts must also take account of disputes and their resolution. Construction law is thus an interactive subject in which both lawyers and construction professionals, including managers, have an essential part to play (Uff, 2009: 1) On completion of this section you should be able to:  understand the legal history from a historical perspective, underpinning the structure of the South African legal system and of our courts  distinguish between Roman law, Roman-Dutch law, and Common law  explain the divisions of South African law  understand the law of delict (tort) 1. INTRODUCTION TO LEGAL THEORY The following section includes a short historical overview of the development of the South African legal system. The section also distinguishes between the law of contract and the law of delict and concludes with a discussion on standard forms of contract being used in the South African construction industry. 1.1 The South African legal system The South African legal system has undergone major changes in the past two decades. The constitution, which is based on the Canadian Charter of Rights and Freedoms, is dramatically different from the system of parliamentary sovereignty, which applied in the country for several years. However, despite these recent changes, the legal system remains squarely founded on Roman law, common law, and Roman-Dutch law. 1.1.1 What is Roman law and common law? Roman law evolved with the development of the Roman Empire and was ultimately codified into a legal system that applied throughout the Roman Empire. This codification took place initially in approximately 287 BC when the law was codified into twelve tablets which were placed in the forum of Rome. After the fall of the Roman Empire, the codified Roman legal system was side-lined and co-existed with the various customary legal systems which were applied by the various European tribes. In medieval times (from about the 11th century onward) there was a renewed academic interest in the codified Roman legal system1. Initially, Roman law was only studied by scholars and taught at universities. Inevitably Roman law came to be applied in legal practice, especially in the area of civil law. This process of adoption/reception of Roman law occurred over different periods and to various extents across all of Europe. 1 What is the difference between a common law system and a codified legal system? A common law system is based on tradition, precedent, and custom and usage, and the courts fulfill an important role in interpreting the law according to those characteristics. A codified legal system is based on a detailed set of laws that are organized into a code. The two legal systems differ primarily in that common law is based on the courts’ interpretation of events, whereas civil law is based on how the law is applied to the facts. SACQSP Professional Skills Modules 7 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP During the 16th century Roman law became the dominant legal system throughout Europe. Through the process of adoption/reception many Roman legal principles were amalgamated with, or amended to suit, the legal norms and requirements of the various European nations. The Roman legal system generally applied across Europe at this time and was (in consequence of the adoption/reception process) by no means identical to the codified Roman law of antiquity. Since the Roman legal system that had evolved through the adoption/reception process was applied in most European countries, it became known as the Ius Commune or common law. 1.1.2 What is Roman-Dutch law? In the form of the Ius Commune, Roman law applied in most European countries until a nationalisation drive among European countries during the 18th and 19th centuries replaced the Ius Commune with national legal systems. In many regions of the German Reich, Roman law remained the primary source for the national legal system until the German Civil Code was introduced. Similarly, the Ius Commune became the primary source for the Dutch legal system, which evolved into Roman-Dutch law, which in turn became the foundation of the South African legal system. The Roman-Dutch law consists of a hybrid of the Roman and Ius Commune legal processes and principles, interpretations of these legal processes and principles as commonly applied in the Netherlands and interpretations thereof by various Dutch academics. This hybrid legal system was introduced into South Africa particularly through the Dutch occupation and ultimately formed the foundations of the present day South African legal system. There were several prominent jurists from Holland during this time whose writings are still followed in present-day South Africa. Some of the more famous jurists are listed below: Hugo de Groot (Grotius) (1583-1645), Simon van Groenewegen (1613-1652), Simon van Leeuwen (1652-1682), and Johannes Voet (1647-1713). Roman-Dutch law is no longer the law to the Netherlands because that country’s law had been codified, as was the law in most other European countries. It is only in countries, which the Dutch colonised that Roman-Dutch law remains, for example Surinam, Sri Lanka (formerly Ceylon) and South Africa. 1.1.3 What is common law? Common law is that element of a legal system that does not originate from legislation. It is loosely defined as the traditions, principles, decisions, and processes that have been introduced and accepted by our Courts as being legally correct and binding on all citizens. Common law contains all the elementary, basic rules that govern the relationships between people. Communities developed the rules over centuries and continue to add new rules as they become necessary. Common law is determined through decisions made by our Courts on facts that are brought before them. Since many disputes and issues, which come before our Courts, cannot be determined by reference to an applicable Act our Courts necessarily exercise a judicial discretion tempered by reference to existing legal principles, rules of interpretation, relevant existing case authority and other authorities in making a determination. In the judicial discretion our Courts are often required to interpret existing legislation and apply its interpretation to the applicable facts. Our Higher Courts’ decisions are recorded in Law Reports and by operation of the doctrine of stare decisis are binding on Lower Courts and are known as judicial precedent (see 1.2 below). 1.1.4 South African legal history Roman-Dutch law was brought to the Cape by the Dutch settlers in 1652. The law here was the same as it was in Holland at the time, but after 1652, laws passed in Holland were applied in this country only if the government of the Netherlands intended them to be. The British occupied the Cape first in 1795 and later, more permanently, in 1806. The citizens of the Cape retained the rights and privileges, which they had prior to British occupation, and this included the continuation of the Roman-Dutch law as their legal system. It was inevitable, however, that there would be considerable English influence. It is perhaps surprising that the Roman-Dutch law did not die out altogether. One of the reasons it did not was due to the efforts of certain judges to apply it consistently, and this process was helped by the translation into English of certain of the Roman-Dutch writers’ works. SACQSP Professional Skills Modules 8 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP Union of South Africa came in 1910, with a constitution based on English constitutional norms, though Britain itself had no written constitution. Over the years, English influence on the law in South Africa has been considerable. Some legislation was adopted, and the law of negotiable instruments draws very heavily from the English law. In the common law, English influence was strong in areas like criminal law and delict, but weak in the law of property. In summary, the common law and legal system in South Africa today is basically Roman-Dutch but infused with many English law doctrines and principles. 1.2 The South African court structure and the doctrine of stare decisis The Supreme Court was created by the South Africa Act 1909 when the Union of South Africa was formed. The Supreme Courts of the four former colonies (the Cape Colony, the Transvaal Colony, the Orange River Colony, and the Natal Colony) became provincial divisions of the Supreme Court. In 1957 the Eastern Cape Local Division was elevated to provincial status, and in 1969 the Griqualand West Local Division was similarly elevated, becoming the Northern Cape Provincial Division. During the apartheid era the Supreme Court of South Africa lost jurisdiction over the quasi- independent Bantustans (Transkei, Bophuthatswana, Venda and Ciskei) which created their own Supreme Courts. The interim Constitution which came into force in 1994 kept the existing structure of the Supreme Court but absorbed the Supreme Courts of the Bantustans as provincial divisions. The final South African constitution transformed the Appellate Division into the Supreme Court of Appeal, and the provincial and local divisions into High Courts (see below) (http://en.wikipedia.org/wiki/Supreme_Court_of_South_Africa) In South Africa, the law is made up of:  Legislation (Acts of Parliament),  Previous court decisions (known as ‘judicial precedent’),  Roman and Roman-Dutch law, and  Influences from other jurisdictions, including the United Kingdom. The function of judges in our law is to “speak” law but not to create law. However, because our law is not yet codified (supra) the rule of precedents, or also called “the rule of stare decisis”, is applicable on the South African law system. The “rule of stare decisis” means literally to stand by previous decisions. In this manner new law is sometimes created by means of High Court judgments. This rule is not part of Roman-Dutch law but was rather derived from English law. Basically, under the doctrine of stare decisis, the decision of a Higher Court within the same jurisdiction is binding on a Lower Court within that same jurisdiction. The decision of a court of another jurisdiction only acts as persuasive authority. The degree of persuasiveness is dependent upon various factors, including, first, the nature of the other jurisdiction, and second, the level of Court which decided the precedent case in the other jurisdiction. The stare decisis principle means that the following two prerequisites must be present for the proper working of the system:  a hierarchy of courts, and  a proper system of court judgment reporting. A hierarchy of courts There are four categories of courts in South Africa and these are the superior courts, the specialist courts, the lower courts and the military courts. The South African court structure consists of two interrelated tiers:  Higher Courts, and  Lower Courts. The Higher Courts are all divisions of the Supreme Court, which are as follows:  Constitutional Court  Supreme Court of Appeal  Provincial High Courts  Labour Appeal Court  Labour Court SACQSP Professional Skills Modules 9 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP  Land Claims Court  Special Incomes Tax Court  Competition Appeal Court, and  Electoral Court. The Lower Courts are the Magistrates Courts, and the Small Claims Courts. Decisions of the Higher Courts take precedence over and are binding on the Lower Courts. In civil matters, the order of precedence is as follows:  Constitutional Court,  Supreme Court of Appeal,  Higher Courts,  Magistrates Courts, and  Small Claims Courts. Wille’s (1991, p. 31) confirms that the rule stare decisis implies that the decision is binding on the court which pronounced the judgment, and also on all the other courts which are subordinate to that court. A decision of the Supreme Court of Appeal is therefore binding on any other court, for one of its chief functions is to make the common law uniform throughout South Africa. South Africa is divided up into a number of magisterial districts in which magistrates’ courts have a limited jurisdiction on the amount in dispute, and a magistrate has no jurisdiction on matters such as granting sequestration orders, ordering of specific performance without an alternative of payment of damages, etc. In many districts of the Republic there are small claims courts for the cheap and expeditious hearing of minor civil matters. Any person, other than a juristic person, may institute a claim for an amount not exceeding a determined amount against any other person, including entities such as companies and municipalities, but excluding the state. The court’s jurisdiction is much more limited than that of a magistrate’s court and the proceedings are informal and inquisitorial. Legal representation is not allowed, and the court is not bound by the rules of the law of evidence. A proper system of court judgment reporting Juta, South Africa’s oldest legal publisher has published law reports since the mid-nineteenth century. In 1947, Juta began publishing the (amalgamated) South African Law Reports (SALR), which includes leading judgments from all the South African superior courts as well as selected judgments from Zimbabwe and Namibia. Specialised law reports series from Juta include the Industrial Law Journal (since 1980), and the South African Criminal Law Reports (since 1990). The other major South African legal publisher, Butterworths, launched several series of law reports in the 1990’s. These include Butterworths Constitutional Law Reports, Butterworths Labour Law Reports, and the All South African Law Reports (All SA), which are modelled on the All England Law Reports and include leading judgments from South African courts on all areas of law. 1.3 Divisions of South African law There exists no uniform division of South African law and different textbooks provide their own interpretation. It is also not possible to put law into individual boxes as the law will affect more than one division in most cases. Some basic divisions of law are provided below: International v. National law International law has to do with relations among the countries of the world and is normally expressed in treaties. It embraces the obligations one nation owes to another and the conduct of a nation’s citizens toward other nations and their citizens. National law is the law or legal system of a specific state. It is the set of legal rules that applies within a specific country and is interpreted and enforced by that country’s justice system. The South African law is divided into two main divisions, namely “public law” and “private law”. Public v. Private law Public law is that part of South African law which deals with the state and its powers. It includes the Constitution, the organisation of the state, the regulation of the different organs of government and the rules that deal with the relationship between the state and its subjects (citizens). It also regulates relationships that are concerned with public interests, in other words the interests of the community. If someone commits a crime, this act goes against the interests of the community and must be punished. Such an act becomes the concern of public law. Private law governs rights and obligations between individuals, which may include a business, company or other form of organisation. Sometimes the same events give rise to both public and private (civil) proceedings. A prosecution in a criminal court may well be brought against the driver of a vehicle under the Road Traffic Acts while the compensation SACQSP Professional Skills Modules 10 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP aspects will be determined in a separate action brought by the claimant in a civil court. Both public law and private law are divided into main divisions and further subdivisions as illustrated in Diagram 1 below. 1.3.1 Divisions of public law Constitutional law – is concerned with the institution of the state, in other words how it is formed, its organization and its functioning. It also governs the powers of the organs of state such as Parliament, the Courts and the Cabinet. The Constitution forms the basis of South Africa’s constitutional law Administrative law – controls the administration of the state in general. It determines the way in which state bodies such as ministers, state departments and various boards (e.g. the licensing board) should exercise its powers, particularly in relationships with citizens Criminal law – states which acts are crimes (criminal offences) and what penalties or punishments are imposed by the state for committing these crimes Law of procedure – provides the process or procedure according to which a case must be practically handled when a legal rule has allegedly been violated Law of evidence – determines how the facts in either a criminal or a civil case must be proved. It is concerned with how evidence is presented and regulates the way witnesses should present their evidence before court and determines what kinds of evidence may be used in court. 1.3.2 Divisions of private law Law of persons – is concerned with persons as subjects of the law. It covers such topics as the definition of natural persons and juristic persons, how they come into being, legal capacity and a person’s status or legal position, which is influenced by factors such as age (minority or majority), marital status or insanity Law of property – focuses on the relationships between persons and “things”. “Things” are divided into “movable property” or “immovable property” and it determines which rights persons can have with respect to such property. The best-known example of such right is ownership Law of obligations – regulates relationships that come into existence between two (or more) persons in terms of which one person has a right against the other for performance, and the latter person has a corresponding duty to perform. These relationships are called obligations, which are mainly created by contracts and delicts. Therefore, the law of contract and the law of delict are regarded as subdivisions of the law of obligations as illustrated in Diagram 1 below Law of succession – deals with how a person’s property is to be treated after that person’s death. This may be regulated by the rules of testate succession (the deceased left a will, or testament) or alternatively by the rules of intestate succession (the deceased left no will) Mercantile law – also known as commercial law or business law - is the body of rules that deal with commercial transactions and is a large and important field of law. It consists of several branches of law important for business, or trade and industry. It represents both public and private law and includes several specialised fields such as the law of insurance, special contracts of agency, suretyship and partnerships Other Divisions – such as Law of Family (marriage, marital property, divorce, etc.), Law of Intellectual Property (human intellect, e.g. inventions, designs, computer software, works of art, etc.) and Law of Personality (personal rights, e.g. reputation, dignity, honour, privacy, etc.). 1.3.3 Other disciplines of law There are various other disciplines of law not mentioned above because they are usually regarded as sub-divisions of larger disciplines or cut across more than one area of law. Examples are social welfare law, forensic medicine, environmental law, municipal law, media law and military law. New areas of law are also continuously emerging, such as cyber law for instance. SACQSP Professional Skills Modules 11 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP INTERNATIONAL LAW NATIONAL LAW OF SOUTH AFRICA CONSTITUTION OF SOUTH AFRICA PUBLIC LAW PRIVATE (CIVIL) LAW CONSTITUTIONAL CRIMINAL LAW LAW LAW OF LAW OF LAW OF LAW OF MERCANTILE PERSONS PROPERTY OBLIGATIONS* SUCCESSION LAW LAW OF LAW OF CONTRACT DELICT *e.g. Construction contracts Diagram 1: Main divisions of South African Law (Source: author created) 1.4 The law of delict (aka law of tort - UK) 1.4.1 Definition and Scope A brief overview of the law of delict is provided as this form of law is a complete legal study field on its own. Its application on the construction industry is limited, albeit important, especially in matters such as agency and public liability where no direct contractual nexus exists between the disputants. Giliker & Beckwith (2008: 1) state that tort (delict) takes many forms. It includes for example negligence, nuisance, libel, slander, trespass, assault and battery. A delict is a civil wrong. The law of delict is developed from common law principles. Delict can be defined as a civil wrong independent of contract; or as a breach of a legal duty owed to persons generally. The practical consequences of the law of delict are concerned with the adjustment of losses. Where the elements of fault and damage exist, the law determines who should bear the resulting financial loss. The term delict is similar in meaning to wrong; yet delict is not intended to include all wrongful acts done by one person to another. Delicts may be committed intentionally or unintentionally, and with or without force. It may be said that delictual acts consist of the commission (or omission, as the case may be) of acts whereby another individual receives an injury to his person, property, or reputation. A delict is distinguished from a crime in that a delict is a private injury upon which suit may be brought, while the latter is an offence against the public for which any retribution must be sought by the appropriate authority. It is entirely possible for a single act to constitute at once a delict and crime. Contract liability (which is confined to the parties in the agreement) can likewise be differentiated from delict liability. Contract actions afford the innocent party a means of protecting his legitimate interest in having whatever promises are made to him fulfilled. Delictual actions, on the other hand, seek to safeguard the individual from various kinds of harm. SACQSP Professional Skills Modules 12 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP 1.4.2 Negligence Negligence is by far the most important of delicts, for several reasons. It forms the cause of action in most cases brought in delict; its scope is very wide; and it may also be an element of liability for other delicts. Where the alleged delict is founded on negligence, the plaintiff may also be required to show that he is free from any contributory negligence. The term negligence is also found in the context of breach of contract, for example, where an architect is alleged to have carried out negligent design or supervision. Giliker & Beckwith (2008: 21) define the tort (delict) of negligence as: “… a breach of a legal duty to take care, which results in damage to the claimant”, and continue that to establish the tort (delict) of negligence; the claimant must prove three things:  the defendant owes the claimant a duty of care,  the defendant has acted in breach of that duty, and  as a result, the claimant has suffered damage which is not too remote a consequence of the defendant’s breach. 1.4.3 Vicarious liability The concept of vicarious liability, or imputed liability, is based upon “the general common law notion that one who is in a position to exercise some general control over the situation must exercise it or bear the loss”. Vicarious liability in this context means liability for the delicts of others. In the construction industry this may arise in two ways. First, the employer may be liable for the delict of the contractor (e.g. employing an incompetent contractor, or for failing to give adequate directions to avoid damage to another) or the contractor, for his subcontractors; secondly, any of the parties involved in the work may be liable for delicts of their own individual employees. 1.4.4 Aquilian liability Wille’s (1991: 646) states that the action legis Aquiliae is aimed at the recovery of damages for patrimonial loss and either negligence or intention may be established to satisfy the fault requirement. Aquilian liability contains the following essential elements, each highlighting a different aspect of the damage-producing occurrence: conduct; wrongfulness; factual causation; fault; remoteness; and patrimonial loss. 1.4.5 The distinction between delict and contract According to Giliker & Beckwith (2008: 12) contractual remedies seek to place the claimant in the position, so far as money can do it, that he or she would have been in had the contract been performed. By contrast, tort (delict) is concerned with compensating the victim who has suffered injury because of conduct classified as a civil wrong by law. They state that, in practice, the distinction between contract and tort (delict) is determined simply by asking the question: “Have the rules of contract law been complied with?” If the answer is “no”, the obligation or wrong in question cannot be classified as contractual but may be classified as tortuous (delictual). Hutchison, et al (2016: 8) describes a delict as a wrongful and blameworthy conduct that causes harm to a person (for example, defamation or negligent damage to property). Such conduct obliges the wrongdoer to compensate the third party. The essential difference between contractual and delictual obligations is that the former is, as a general rule, voluntarily assumed by the parties themselves, whereas the latter is imposed by law, irrespective of the will of the parties. 1.4.6 Remedies The remedy claimed in most delictual actions is damages. The successful claimant in an action for damages will generally be awarded a sum which is intended to compensate for the real loss suffered. The sum awarded must consider future loss since usually only one action may be brought. Injunction is an equitable remedy which prohibits a wrongful act or sometimes requires a defendant to take steps to put matters right. It is discretionary in nature and must be appropriate to the circumstances. Hutchison, et al (2016: 9) explains that a plaintiff who sues in delict must prove that all the elements of delictual liability are satisfied, including the wrongfulness of the conduct in question. The mere fact that the conduct constitutes a breach of contract does not necessarily mean that the conduct is wrongful for the purposes of imposing delictual liability – the conduct must infringe a right of the plaintiff that exists independently of the contract. For example, if a contract is for the supply of a machine to produce 5000 bricks per day but only produces 3000 bricks per day, there is a breach of contract, but no delict. But if a bolt from the machine dislodges and takes out a worker’s eye, there may well be a claim in delict because the right not to be injured in one’s person as the result of the negligence of another exists independently of any contract between the parties. SACQSP Professional Skills Modules 13 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP 2. THE LAW OF CONTRACT On completion of this section you should be able to:  understand the general principles of contract law  distinguish between the various standard forms of contract in use in South Africa  explain the Standard for Uniformity in construction procurement  understand the application of the JBCC, GCC, FIDIC and NEC forms of contract 2.1 General principles The law of contract is frequently the first ‘case law’ subject to which students are introduced when they commence their legal studies. The main reason for this is that contracts affect the public more than most other areas of law and arise daily in business and commercial life. The contract is the most important stage in the process when land or buildings are transferred and when building projects are undertaken. Steyn et al. (2012: 393) defines a contract as “… an agreement with the serious intention to be legally bound”. A contract is made up of a set of mutual promises stating the rights and obligations of the parties to that contract. These rights and obligations become enforceable by law and, therefore, parties rely on contracting and contracts in structuring their business relations. Although parties have significant flexibility in setting the terms of their contracts the enforceability of these terms are subject to limits imposed by relevant legislation and common law. Contracts are, therefore, private law created by the agreement between contracting parties within the parameters of well-established basic legal mechanisms. For a valid contract to come into existence, certain requirements must be satisfied. According to McKenzie (2014: 7) these requirements are:  The parties should be competent to contract  There should be agreement (consensus) between the parties  The contents or consequences of the contract should be ascertainable (certain)  The performance of the obligations should be possible at the time that the contract is entered into  The subject matter of the contract should be legal  The contract should not be contrary to public policy  The contract should be voluntarily, seriously and deliberately entered into for some reasonable cause, and  The formalities required by law should be observed. 2.2 Agreement The basis of a contract is agreement (consensus) between the parties. The common law has developed a series of tests to determine whether agreement has been reached. These tests have been crystallised into the test of offer and acceptance. In Conradie v Rossouw the Appellate Division (now the Supreme Court of Appeal) reaffirmed the traditionally accepted principle that: ‘According to our law if two or more persons, of sound mind and capable of contracting, entered into a lawful agreement, a valid contract arises between them which is enforceable by action’ 2.3 Offer and Acceptance Steyn et al. (2012: 394) defines an offer as “… a declaration of intent made by a prospective party to a contract (the offeror) that contains proposals regarding the propose contract, and that is of such a nature that mere acceptance thereof by the offeree (to whom the offer was made) creates a contract”. SACQSP Professional Skills Modules 14 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP When an offer has been made, no contract is formed until the offeree accepts the offer. Many offers (or counteroffers) may be made during contractual negotiations, yet there can always be only one acceptance. The point at which the offer is accepted has been described as the moment when consensus has been reached, a ‘meeting of the minds’, or whenthe parties are ‘ad idem’. Contractual liability is based on this consensus or ‘meeting of the minds.’ Steyn et al. defines an acceptance as “… an unqualified declaration of intent made by the offeree, approving the offer without reservation”. However, consent is not always as clear-cut as the express acceptance of an offer. It is sometimes necessary to make enquiries into surrounding circumstances to determine whether an offer has been accepted. Judge Blackburn in the English case of Smith v Hughes cited by Alusani (2009) stated: ‘If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that the other party upon that belief enters into a contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms’ This judgment became known as the doctrine of quasi-mutual assent and has been accepted by the South African Courts. The doctrine of quasi mutual assent is often used to prove a contract which has been formed by the actions of the parties. Accordingly, acceptance of an offer can be implied or tacit – i.e. it can be inferred from the circumstances that the offer has been accepted. However, acceptance (like an offer) must be clear and unequivocal to leave no doubt in the offeror’s mind that the offer has been accepted. A party to whom an offer has been made should not assume that the offer will remain open indefinitely. The party making the offer is free to revoke the offer at any time before acceptance by the other party (provided there is no express validity period). Once the offer is terminated, the party to whom the offer has been made can no longer accept that offer and form a valid contract. An offer is deemed to be open for a reasonable time when no time limit is stipulated. Example: Company A offers to excavate 5000m 3 of hard rock for Company B at a price of R150/m3 on the 5th of July. No validity period is expressed in the offer. Company A hears through the Kathu telegraph that its competitor is offering to excavate the rock for Company B at the price of R300/m3. On the 7th of July, Company A decides to revoke its offer and make a counteroffer to Company B to excavate the rock at a price of R230/m3 prior to acceptance of the original offer by Company B (adapted from Alusani, 2009). Company B will have no legal recourse against Company A for such action as Company A is legally entitled to revoke its offer at any time before acceptance thereof. Generally, construction contracts take some degree of clarification and negotiation to finalise. During such negotiations, various statements may be made by the parties, which may be interpreted by one party (and not the other) as a firm offer. Our courts have distinguished certain statements from true offers, some examples are:  Invitations to negotiate – these are statements made to induce another party to enter into a contract.  Requests for a quotation (RFQ, RFP or enquiry) – a request to submit an offer/an invitation to do business.  Statements of information – these usually relate to information made by one party in respect of the terms on which he is prepared to conduct business.  Statements of intention/letters of intent – there is an extremely fine line between stating an intent to contract and offering to do so. The fine line usually turns on whether the party making the offer indicated an intention to be bound by contract without further thought on his part. See comments below regarding letters of intent. All the above do not constitute true offers and cannot be relied upon to prove the existence of a valid contract. What about an invitation to tender? An invitation to tender is no more than a request to submit offers, and each tender is an offer that the employer may accept or reject. Can an offer be terminated? A party is free to revoke its offer at any time before acceptance of that offer (provided no validity period is expressed), however, there are several other ways in which an offer can be terminated. These include: SACQSP Professional Skills Modules 15 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP  Expiry of the stated validity period.  Lapse of a reasonable time – where no validity period is stated, the offer shall terminate after a reasonable time has lapsed.  Death – if the party making the offer is a natural person and that person dies, the offer is terminated.  Loss of contractual capacity – if the party making the offer loses its contractual capacity, the offer is terminated. Would a company placed in liquidation lose its contractual capacity?  Rejection of an offer – if the party to whom the offer has been made, rejects that offer, the offer is terminated.  Counteroffer – where a counteroffer is made in respect of an original offer, that original offer terminates. What is reasonable? The concept of “reasonableness” is used extensively on our law and a number of tests have been developed to determine what constitutes “reasonable”. Perhaps the widest use of the concept of reasonableness is found in our law of delict which allows persons to claim for civil wrongs brought against them. One of the cornerstones of the law of delict is the test applied to the diligens paterfamilias or reasonable man. This test aims to establish whether a person acted negligently and asks the following questions:  Would a reasonable person, in the same circumstances as the defendant, have foreseen the possibility of harm to the claimant?  Would a reasonable person have taken steps to guard against that possibility?  Did the defendant fail to take the steps which he or she should reasonably have taken to guard against it? If the above three questions are answered in the affirmative, then negligence is established. In the case of S v Burger 1975 (4) SA 877 (A) cited by Alusani (2009) the court described the reasonable person by stating the following: ‘One does not expect of a [reasonable person] any extremes such as Solomonic wisdom, prophetic foresight, chameleonic caution, headlong haste, nervous timidity, or the trained reflexes of a racing driver. In short a [reasonable person] treads life’s pathway with moderation and prudent common sense’ This same logic is applied when determining ‘reasonable notice’ or the elapsing of a ‘reasonable period’. 2.4 Legal and physical performance 2.4.1 Legality In principle, an agreement must be legal. Agreements are illegal if they conflict with legislation or common law. Examples of illegality occur where the performance or purpose of an agreement is illegal. An example of a contract which conflicts with the common law is when a contract is said to be contra bones mores, or against the morals of society. Examples of contracts contrary to legislation would include contracts related to the sale and distribution of drugs, dangerous weapons, pirated goods, etc. 2.4.2 Physical possibility of performance According to Steyn et al. (2012: 404) this requirement covers two aspects. The first is that the performance of a contract must be objectively possible at the time of entering the agreement, if not, then performance is physically impossible, and no enforceable agreement can come into existence. The second is that any performance must be at least determined or determinable (there must be certainty). Care must be taken to describe performances extensively, failing which the contract could be found to be void for vagueness. Contracts, which are physically impossible to perform at the time of contracting, are unenforceable. South African courts have adopted a four-point test to determine whether, at the time of contracting, performance is in fact objectively impossible. The party alleging that performance was impossible at the time of contracting will have to prove (on a balance of probabilities) that:  The impossibility of performance was absolute, not probable. The mere likelihood that performance will prove impossible is not enough to destroy the contract. Absolute impossibility in this sense refers to definite, unqualified impossibility SACQSP Professional Skills Modules 16 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP  The impossibility is absolute, as opposed to relative. If the party promises to do something which, in general, can be done, but which that party cannot for whatever reason do, that party will still be liable under the contract  The impossibility must not be the fault of either party. A party who has caused the impossibility cannot take advantage of it, and  The principle that a contract is nullified by the impossibility of performance must not be contrary to the common intention of the parties. 2.5 Capacity to enter into contracts According to Steyn et al. (2012: 399) our law distinguishes between natural persons (people) and legal persons (artificial persons with own legal personality such as companies).  Natural Persons: o Persons with no contractual capacity, e.g. infants under the age of seven years and persons under the influence of alcohol or drugs, o Persons with limited contractual capacity, e.g. minors between the ages 7 and 18 years and persons married in community of property, and o Persons with full contractual capacity. Minors and mentally incompetent natural persons do not have the legal capacity to enter into contracts. All others are generally assumed to have full legal capacity to enter into contracts. In South Africa, the legal age for entering into contracts is 18.  Legal persons: o Companies, o Close Corporations (being phased out), o Joint Ventures between corporations, and o Others such as the State, statutory entities and common law societies, clubs, etc. Companies, close corporations, joint ventures, the State and others have capacity to enter into contracts as separate, distinguishable legal entities (these entities are known as juristic persons – as opposed to natural persons). These entities contract through the acts of their agents, officers and employees. Whether an employee has the power to bind an entity to a contract is determined by an area of law called agency law. A company or corporate body has a separate legal existence and personality from its founders, shareholders, officers, and employees – called juristic personality. The founders, shareholders, officers and employees of a company enjoy protection against the company’s creditors by operation of the principle of limited legal liability, which means that the individuals associated with a company or corporate body are not themselves responsible for the company’s debts or liabilities, including the liability for breach of contract. Example: Joe Soap enters into negotiations with Sipho Ndlovu for the supply of a 500m3 of sand. After various negotiations, they settle on a price and Sipho provides Joe with a contract to sign. The contract states that the contracting parties are Joe Soap and Ndlovu Sand Quarry cc. The contract makes provision for an advance payment by Joe Soap of R 100 000.00, which he pays to Sipho Ndlovu. When the sand is not delivered Joe goes to see his attorney who advises Joe that he has no cause of action (in terms of the contract) against Sipho and that, after conducting a company search, he has found that there is no such entity as Ndlovu Sand Quarry cc (Alusani, 2009). 2.5.1 Privity of contract As a rule, only the parties to a contract may claim against each other in terms of that contract. This rule is referred to as the doctrine of privity of contract and is necessary to prevent third parties from drawing themselves into the parties’ peculiar contractual relationship. The doctrine of privity of contract in the context of construction contracts applies in subcontracting and professional services contracts. By operation of the doctrine a subcontractor, even a nominated or selected subcontractor, contracts with the main contractor and has no privity of contract with the employer. Therefore, the subcontractor has no recourse whatsoever against the employer as there is no contractual nexus between them. Likewise, the contractor has no recourse against an agent appointed by the employer in terms of a contract, as he is usually not party to the professional services contract between the agent and the employer. SACQSP Professional Skills Modules 17 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP 2.6 Formalities and requirements for a valid contract There are no special formalities (other than consensus and capacity) required to create and enforceable contract. A contract may be written or verbal. The written contract obviously has its advantages – those being firstly that a party has time to consider its position in respect of the contract before signature, and secondly that the terms are definite and there can be less scope for disagreement in future. The only formalities that exist in respect of contracts are:  Those decided on by the parties, and  Those required by law. The common-law principle that an oral contract is every bit as legally valid as a written contract has been altered by legislation in respect of various types of contracts. For example, unless recorded in writing a contract relating to the alienation of land, executory donations, contracts of suretyship and credit agreements are void and unenforceable. In terms of the Arbitration Act 42 of 1965 an agreement providing for the reference to arbitration of any existing or future dispute must be in writing, but according to the judgement in Kamstra & Holmes v Stallion Group 1992 (3) SA 825 (W) it is not necessary for the parties to sign it. There are certain essential terms required by law, which have been developed through the courts, for the creation of a valid contract. For example, if a price is not fixed or determinable in a contract for purchase and sale any agreement purporting to sell an item will be void and unenforceable. 2.7 Terms and conditions in contracts: General principles The parties to a contract often refer to the “terms and conditions” (or Ts & Cs – as often heard over the radio) of the contract but what are the “terms” and what are the “conditions” of a contract? Terms and conditions of contracts fall into various categories, as follows: 2.7.1 Conditions – General A condition qualifies a contractual obligation in such a manner as to make implementation of that contractual obligation dependant on the occurrence (or non-occurrence) of an uncertain future event. The most distinguishing characteristic of a condition is that it relates to an uncertain future event. In a contract, a condition operates to suspend, rescind, or modify the principal obligation under given circumstances. A further example of a condition is the condition common in most agreements of sale of an immovable property which stipulates that the agreement of sale is subject to the purchaser obtaining a bank loan of a certain amount. If the purchaser fails to obtain a loan as provided for in the agreement of sale, the obligations set out in the agreement fall away. This is known as a condition precedent, which is discussed further below. Conditions can be used in contracts, offers and, in some instances, acceptance. Conditions are classified into different categories that describe the different types of conditions: Suspensive conditions A suspensive condition suspends the operation of an obligation, in whole or in part, pending the occurrence or non- occurrence of a specified future event i.e. until certainty is reached in respect of that future event. An example of a suspensive condition is a standard clause relating to special risks. In the event of a special risk occurring, such as an outbreak of war, and damage taking place to the site and/or contractor’s equipment, the contractor shall be entitled to suspend the works and claim payment of the cost of rectifying the site and replacing his equipment. An example can be found in the JBCC PBA Edition 6.2, clause 13.2.4, which relates to “… articles of value … etc.”: ‘Immediately suspend affected work to an appropriate extent where encroachments of adjoining structures occur and where undocumented services, natural features, articles of value or relics are uncovered on site, and give notice to the principal agent who shall issue a contract instruction on how to proceed with the works.’ SACQSP Professional Skills Modules 18 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP Resolutive conditions A resolutive condition, on the other hand, does not postpone the operation of a contractual obligation – the obligation becomes effective immediately and operates in full, but the obligation may come to an end if certainty is reached in that the condition is fulfilled or in that it fails. Condition precedent A condition precedent is a condition that the parties agree must be fulfilled before any contractual obligations at all come into existence between them. Usually the securing of financing for a project is a condition precedent to either party incurring contractual obligations. Another example of a condition precedent is the obtaining of board approval before the project or contract can commence. Options An option is a right acquired under a contract and agreed to between the parties in terms whereof one party acquires a right to something that may be exercised and realised in specified circumstances. An option is a contract within a contract. Example: Some contracts contain an option for the employer to extend the scope of one contract, which relates to one phase of a project, into another phase of the same project if the employer is satisfied with the performance of the contractor. Once the option is exercised the contractor then becomes obliged to perform the required works, usually under and subject to the same conditions of contract. 2.7.2 Terms The terms of the contract are the undertakings agreed to by the parties, which in turn make up the contract. This can be explained as follows: Express terms When parties enter into a contract, they normally give expression to their common intention by some form of conduct. The conduct usually consists in expressing the terms of the contract in words, but may also take some other form, like the nod of the head or the wave of a hand; in short, the conduct may take any form in which one party can make his intention known to the other. The following is an example of an express term: ‘The price for excavation in hard rock shall be R800/m3’ Implied terms The parties generally determine the terms of any contract by agreement between them. Often, however, the legislation under the common law implies certain terms as a matter of course. These terms need not be stated in the contract. The following are examples of implied terms:  Under South African law, there is a statutory requirement that all agreements which relate to the alienation of the land must be reduced to writing. Most contracts of sale of land do not contain a specific clause stating that the contract must be in writing, it is naturally implied and dictated by legislation.  Legislation also dictates terms which should be implied into certain types of contracts – the Housing Consumers Protection Measures Act states that certain guarantees must be implied into all building contracts such as the 5- year guarantee against structural defects.  Section 2 of the Conventional Penalties Act 15 of 1962 states that a creditor shall not be entitled to recover in respect of an act or omission which is the subject of a penalty stipulation, both the penalty and damages, or except where the relevant contract expressly so provides, to recover damages in lieu of penalties. This provision will be implied into all contracts which are subject to the laws of South Africa and it is not necessary to include wording in the penalty clause which expressly excludes the employer’s ability to claim damages over and above penalties. SACQSP Professional Skills Modules 19 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP  In a contract of sale, the common law places an obligation on the seller to warrant that the goods sold shall not suffer from any latent defect. This is known as the implied warranty against latent defects. A tacit term of a contract can be described as a term implied from the facts and is based on an inference of what both parties must or would have agreed to, but which, for some reason or other, remain unexpressed. An implied term must be distinguished from a tacit term – an implied term is implied from law. There is no difference between express terms and tacit terms as far as their nature and effect in law is concerned. However, there is a difference in the way in which these terms are to be proved. Express terms require very little proof as they are generally written into the contract. Tacit terms require evidentiary proof in order to prove their existence. Exclusionary terms These are terms, which contain an express reference to a liability or risk and exclusion in respect of that liability or risk. Exclusionary terms must be distinguished from those which define the parties’ rights and duties, such as agreed damages clauses or defects liability clauses which confer additional rights/obligations, and which are construed like any other rights in the contract whereas exclusionary terms are construed against the party seeking to rely on them. 2.7.3 Content of a contract According to Steyn et al. (2012: 407) the contents (the provisions) of all valid contracts, irrespective of their nature or value, whether written or not, can be divided into the following three categories:  Essentialia: The essential minimum characteristics which have to be contained in a contract in order to be valid and to identify it as a certain type of contract (e.g. a sales agreement, where consensus has to be reached on firstly the intentions of the parties to buy and sell; secondly the object to be sold; and thirdly the price.  Naturalia: Terms that are automatically and by operation of law part of a contract without the parties having specially agreed thereto (e.g. a warranty against latent defects given by a seller to a buyer in a sales agreement).  Incidentalia: All other terms - that are neither essentialia nor naturalia. Naturalia can be excluded by incidentalia. Terms specially agreed upon by the parties (e.g. the contractor in his special conditions to subcontractors stating that payment is conditional on him having received payment from the employer first – the ‘pay when paid’ condition). 2.7.4 Interpretation of contracts Finsen (2014: 10) states that building contracts usually consist of numerous documents – a standard form agreement, bills of quantities, drawings, schedules and specifications – and that inconsistencies frequently arise between the provisions in one document and another. The courts follow basic rules to assist them in the interpretation of such contracts and the following list is a condensed version of the list provided by Finsen:  The first rule is to determine what the parties intended, and to give effect to it (the “Golden Rule”)  A word or phrase must be considered in context and not in isolation  Words should be given their common meaning  Where words may have more than one meaning, the meaning shall be chosen that will make the context sensible and practicable  Where a clause is ambiguous, it shall be interpreted so that it is in harmony with the contract as a whole  Where a general word or phrase follows a series of specific words or phrases, the meaning of the general word or phrase shall be restricted to the same category as the specific words or phrases (the eiusdem generis – or ‘same class’ rule)  Words written by hand take preference over typewritten words, which in turn take preference over printed words  Later written words take preference over earlier written words, and  Where none of these rules assist, the meaning of is to be adopted which is less favourable to the author of the words, because he had the opportunity to avoid the ambiguity (the contra proferentem rule). SACQSP Professional Skills Modules 20 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP 2.7.5 Breach of contracts Steyn et al. (2012: 411 - 412) state that there are only five forms of breach of contract, which are:  Default by debtor; this occurs when the debtor does not deliver his performance to the creditor on time. The requirements for default by debtor are that: o performance must still be possible o the debtor must fail to perform on time o performance must already be due and enforceable, and o the delay must be due to the debtor’s fault.  Default by creditor - this occurs when the creditor does not co-operate or accept delivery of the debtor’s performance. The requirements for default by creditor are: o the debtor’s performance is due and enforceable o performance by the debtor must still be possible o proper performance must be tender by the debtor o the creditor delays performance by the debtor, and o the delay must be due to the creditor’s fault.  Positive malperformance - this form of breach occurs where a party to the contract only performs partially or delivers a defective performance.  Repudiation - this occurs where a party to the contract communicates to the other contracting party that he rejects his contractual duties or will not be able to perform.  Prevention of performance - this occurs where any party prevents delivery of performance by destroying the performance or rendering it impossible to deliver the performance. 2.7.6 Remedies Steyn et al. (2012: 412) mention that the law automatically provides for three remedies. They are: Specific performance Specific performance is performance of that which has been agreed upon by the parties. A claim for specific performance will be successful only if the party who claims performance has himself performed or at least tendered to perform in terms of the contract unless under the terms of the contract, the other party is bound to perform first. In order to obtain specific performance, an innocent party is required to launch an application to obtain an interdict from the courts forcing the other party to perform in accordance with its contractual obligations. South African courts take the view that an order for specific performance is an exceptional remedy for breach of contract, which will only be granted where it is equitable to do so. Our courts have been reluctant to grant an order for specific performance in respect of obligations arising out of service agreements such as where a builder has undertaken to do alterations to a house. The courts’ discretion is subject to no rigid rules and is exercised upon consideration of all the relevant facts. Suspension and Cancellation The aggrieved party will be entitled to remedy of suspension or cancellation if there is either a forfeiture clause or alternatively if the breach of the contract is a material breach of the contract going to the heart of the contract. A forfeiture clause may be so worded as to apply only in the event of mora, or it may apply in the event of a specified breach or any breach. If any breach, however trivial, to which a forfeiture clause applies, is committed, the aggrieved party may rely on the forfeiture clause and suspend or cancel. See for example clauses 28.0 and 29.0 of the JBCC and clauses 15.2 and 16.2 in the FIDIC Red Book. Damages An aggrieved party who wishes to claim damages for breach of contract must prove on a balance of probabilities that:  The other party in fact committed a breach of contract, SACQSP Professional Skills Modules 21 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP  There are actual damages suffered,  There is a casual connection between the breach and damage, and  The damage suffered was reasonably foreseeable or agreed to by the parties at the time of contracting. 2.7.7 Termination of contracts According to Steyn et al. (2012: 417) contracts can terminate in the following ways: Proper performance - where both parties perform as agreed, the contract terminate naturally. Agreement to terminate - where the agreement may be in the form of a release, a settlement or a novation of debts. Statutory right to terminate - where the Consumer Protection Act (CPA) in its section 14 allows a consumer to terminate any fixed-term agreement without penalty or charge, provided that he gives at least 20 business days’ written notice of termination. Set-off debts - where the same parties owe each other different debts of the same nature which can then be set-off against each other and some or all debts may then terminate. Merger - where the identities of the parties involved in the contract merge, e.g. a lessee of property buys and becomes the owner, the contract of lease terminates. Subsequent impossibility of performance - where impossibility is not the fault of any of the parties, the contract terminates. This will be the case in the event of force majeure. Prescription - where contractual claims expire after three years, unless specifically changed by statute. 2.8 Standard forms of contract The purpose of standard forms of contract is to facilitate the contractual arrangements between parties in a construction project. Standard forms of contract are ready-made terms and conditions when making a contract. These standards are commonplace in construction transactions and generally accepted by the different contracting parties. It would, however, be practically impossible to devise a standard form of contract that would account of all eventualities that might occur in a construction project as there are several factors that affect what type of contract is suitable for a certain project, e.g. the amount of involvement from the client, technical complexity, the location, nature and size of the project. In the initial stage of the design phase, the client must adopt a suitable contractual arrangement for the project and a corresponding standard form of contract. 2.8.1 Advantages Some advantages are:  The standard form is usually negotiated between the different bodies that make up the industry (e.g. ten constituent bodies are represented on the JBCC’s Board of Management – see p.26) in the interests of standardisation and good practice. As a result, the contractual risks are spread equitably  Using a standard form avoids the cost and time of individually negotiated contracts  Changes made to the provisions of the standard form should be clearly identified and distinguishable in the procurement documents  Contracting parties should be familiar with the terms and conditions of the standard forms. Seminars and workshops are organised on a regular basis presented by experts with in-depth knowledge of the particular form of contract, and  Tender comparisons are made easier since the risk allocation is the same for each tenderer. Parties are assumed to understand that risk allocation and their pricing can be accurately compared. 2.8.2 Disadvantages Some disadvantages are:  The forms are cumbersome, complex and often difficult to understand, and  Because the resulting contract is often a compromise, they are resistant to change. Much-needed changes take a long time to bring into effect. SACQSP Professional Skills Modules 22 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP 2.9 Uniformity in construction procurement Some employer/contractor organisations develop their own “in house” set of terms and conditions for use on their projects. Such terms and conditions of contract are referred to as bespoke conditions of contract (bespoke – made to customer’s own specifications or requirements). Such terms and conditions of contract often cause problems for the other party since they are not familiar with the terms and conditions, which often contain conditions and terms favourable to the drafter thereof. To avoid the foregoing the CIDB published a STANDARD FOR UNIFORMITY IN CONSTRUCTION PROCUREMENT (SFU) in terms of the CIDB Act (Act No. 38 of 2000) designed to establish minimum requirements to:  provide cost efficiencies through the adoption of a uniform structure for procurement documents, standard component documents and generic solicitation procedures  provide transparent, fair and equitable procurement methods and procedures in the solicitation process  ensure that the forms of contract that are used are fair and equitable for all parties to a contract, and  enable risk, responsibilities and obligations to be clearly identified. The SFU establishes a uniform framework for procurement and minimum requirements for:  the solicitation of tenders  the way quality is to be incorporated in procurement documents  the formatting and compilation of procurement documents, and  the application of the register of contractors to public sector contracts. The SFU requires that specific standard forms of contracts be used, with minimal project specific variations and additions which do not change their intended usage and that procurement documentation be compiled and formatted in a uniform manner. 2.10 Construction contracts What is written endures; things spoken speed away (Peters & Pomeray, Commercial Law) The parties to a construction contract are bound to each other for a certain period by a unique and exclusive relationship they created for their mutual benefit. This unique relationship, called ‘privity of contract’ (see 2.5.1 above), gives them both obligations and rights which they have agreed to accept so that both may benefit. This contractual relationship persists until the contract is discharged or terminated, that is, until it is performed, or terminated because of impossibility, agreement (by the parties), bankruptcy (in some cases), or breach of contract. The common law rules discussed above are usually inappropriate for both the contractor and the client. It is therefore most common for construction contracts to introduce entitlement to money, time, instructions, suspension, etc. by way of agreements. The following table illustrate some of these shortcomings: Table 1: Common Law inappropriate for Construction Contracts (BCA Training, 2012) Common Law Most Construction Contracts Contractor gets all his money at the end of the Contractor is entitled to claim interim payments, construction period once the completed works are valued according to the method of valuation agreed handed over. in the contract. Allow the contractor to claim additional money Contractor is not entitled to additional money where where the works are damaged through acts of God, the works are damaged before hand over. If the acts of the employer and various other damage is attributed to an act of the client (or his circumstances. Entitlement to claim and the amount employees/agents) then the contractor would have that the contractor can claim is determined by the a direct action to recover the cost. terms of the contract. SACQSP Professional Skills Modules 23 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP Allow the contractor to claim additional time under No general entitlement to claim additional time. If certain circumstances (including those attributable the employer causes delay, then the agreed date to the employer). Circumstances when contractor for completion lapses and time becomes ‘at large’. can claim, and extent of claim, determined by the terms of contract. Allow employer (through his agent) to instruct Employer not entitled to instruct changes to the changes. Amount of compensation is determined by agreed work. the terms of contract. Construction projects are unique in nature and every situation and every problem in construction is different and contains unique facts that may require a different approach and solution from that of another apparently similar situation or problem. The structure may be a new building on virgin ground. It may involve the demolition of an existing building and its full reconstruction. It could involve partial demolition and rebuilding, or the refurbishment and extension of an existing building or structure. General principles alone are not enough to solve legal problems that may occur. Increasingly, common law is modified by statute, and the services of legal experts are often required to provide legal advice and guidance on specific issues. 2.10.1 What is a construction contract? In Modern Engineering (Bristol) Ltd v. Gilbert-Ash Northern (1974) AC 689, Lord Diplock described a building contract as: ‘an entire contract for the sale of goods and work and labour for a lump sum price payable by instalments as the goods are delivered and the work done. Decisions have to be made from time to time about such essential matters as the making of variation orders, the expenditure of provisional and prime cost sums and extension of time for the carrying out of the work under the contract’ Most statements made about construction contracts and practices should be preceded by the words usually, often, probably, sometimes, and similar qualifiers, because few things are absolute in construction, and almost always there are exceptions. This fact of exception applies not only to legal situations but also to matters of design and production of construction work. Diversity and difference are the norms. Construction is always unique. Standard forms of contract invariably require amendments and supplements. The need for standard forms of contract arises from the foregoing to provide written contracts that can be economically executed, usually without the need for extensive legal services, and from a desire to standardise certain relationships and practices according to the general agreement about contract fundamentals reached by the representatives of the parties involved. Amendments to standard contracts should be kept to a minimum. It is very true that an increase in the number of supplements to standard forms of contract can decrease the effectiveness of a standard form to the extent that the contracting parties have to read and understand more, and which can result in misinterpretation and disputes later during the execution of the contract works. The JBCC recognises this fact and from its inception has incorporated the principle that the documents are compiled in the interests of standardisation and has warned users of the dangers inherent in modifying any part of it (see Warning note in JBCC’s preface to their main documents), and in addition the JBCC makes it clear that when changes are made to the provisions of its documents such changes be clearly identified. (See Agreement on p.30 in the JBCC edition 6.2 where it states that [N]no agreement or addendum varying, adding to, deleting or terminating this agreement including this clause shall be effective unless reduced to writing and signed by the duly authorised representatives of the parties). The ASAQS and CIDB both adamantly support standardisation, as the large number of documents published by these bodies that specifically deal with standardisation and uniformity in the construction industry clearly indicate. One such example is the extract hereunder that is from a recent publication by the ASAQS regarding standardised Procurement Documentation Guidelines. These Guidelines are based on the CIDB SFU (supra), which engenders a culture of consistency and predictability within the procurement process, and which aims at bringing about standardisation and uniformity in construction procurement documentation, practices and procedures. ‘The Association is committed to and supportive of the CIDB regulations which are aimed at bringing about standardisation and uniformity in construction procurement documentation and appeals to members and practises to be supportive of the regulations and to refrain from making unnecessary amendments to the documents’ SACQSP Professional Skills Modules 24 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP The construction industry standard forms of contract differ in material respects from other standard form contracts in use in the commercial world, as the former seek to define the risk profiles of the parties to the contract, whilst the latter – such as supply agreements and credit agreements – are often extremely one-sided. Standard form construction contracts seek to regulate the relationships between the contracting parties, particularly in respect of risk, management and responsibility for design and execution. Most conditions of construction contracts incorporate a set of conditions whose primary purpose is to lay down procedures of general application to a variety of types of work. There is no rule to what should be included in conditions of contract, but according to Uff (2009: 277) most sets of conditions follow a standard pattern. Typically, conditions deal with:  General obligations to perform the works  Provisions for instructions, including variations  Valuation and payment  Liabilities and insurances  Provisions for quality and inspections  Completion, delay and extension of time  Role and powers of the certifier or project manager, and  Disputes. 2.10.2 What documents form part of the contract documents in construction contracts? Typically, a construction contract will contain a set of conditions of contract, a specification, bills of quantities, a set of drawings, and other documents of varying sorts. The question necessarily arises, how these documents fit together, which (if any) are to have precedence, and what happens if they are in conflict. There are two distinctly different approaches to the question. The first, and simplest, is to make all contract documents of equal weight and significance. Another solution sometimes found, is to provide that the contract documents shall have an order of precedence, i.e. a conflicting requirement in two documents is to be resolved in favour of that having the higher priority, e.g. as provided in the FIDIC conditions. 2.10.3 Standard form construction contracts in the South African construction industry The CIDB stipulates which standard forms of contract are to be used in the sphere of public procurement. The forms currently endorsed are the JBCC, FIDIC, NEC and GCC (see Best Practice Guideline #C2: Choosing an appropriate form of contract for engineering and construction works, CIDB, 2005, for a detailed comparison of these forms of contract). Hereunder follows a brief description of each of these construction contracts: a) The Joint Building Contracts Committee (JBCC May 2018) Development history of standard building agreements in South Africa Although standard conditions of contract were introduced in South Africa to a restricted extent in some regions, more notably Natal and the Western Province it was only during the late 1920s that serious attempts were initiated to prepare and enforce standard conditions of contract on a national basis in the private sector. Although available local records are by no means decisive on this point, it is a reasonable assumption that no concerted effort towards the achievement of national standard conditions was made prior to the UK’s 1909 Royal Institute of Architects (RIBA) form becoming available. The 1931 RIBA form was found acceptable and it was adopted in 1932 by all the interests concerned, subject to the introduction of such amendments as were necessary to satisfy the requirements of differing local conditions. Thus, this form became the basis of the first standard form of contract in South Africa. It carried the endorsement “Approved and Recommended by the Institute of South African Architects, the Chapter of South African Quantity Surveyors and the National Federation of Building Trade Employers in South Africa” and was entitled ‘Agreement and Schedule of Conditions of Building Contract”. This cumbersome name required a nickname. As the ‘with quantities” version was printed on white paper and the ‘without quantities’ on blue, the two versions became known as the ‘white form’ and the ‘blue form’ respectively. This agreement was amended from time to time as the South African building industry developed and became more sophisticated, and a permanent review committee was appointed for this purpose, known as the Joint Study Committee. In 1984 a new committee was established, the Joint Building Contracts Committee or JBCC for short. The JBCC first put its standard building contract documentation into the marketplace in 1991 (the First Edition) that used some unique SACQSP Professional Skills Modules 25 of 68 Module 11: Dispute Resolution in the South African Construction Industry (1 st Ed)  THE SOUTH AFRICAN COUNCIL for the QUANTITY SURVEYING PROFESSION SACQSP principles such as the Construction Guarantee in place of