ALERT DISPUTE RESOLUTION - Cliffe Dekker Hofmeyr
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13 MAY 2020 DISPUTE RESOLUTION ALERT Your JBCC Contract: COVID-19 and other IN THIS ISSUE > curse words What can parties to a JBCC (Joint Building Contracts Committee) Construction Contract do to prevent the COVID-19 The setting aside pandemic infecting your contract? We look at a situation where of an adjudicator’s washing your hands and sterilising surfaces may not be enough. determination: Is the court hamstrung? The rise of alternative dispute resolution Is the ban on tobacco and liquor unlawful (ADR) in the last decade or so cannot and irrational? be overstated. The plethora of ADR institutions and a quick survey of Is the continued ban on the sale of liquor and tobacco general commercial and service level products really justifiable? And, if so, is there a less-restrictive agreements prove this to be the case. means for government to achieve the same objective, while Stripped to its bare bones, ADR refers to ensuring sectors in the entire value chain remain going any means of settling disputes without concerns that provide secure jobs and contribute to much reference to litigation i.e. the courtroom. needed tax revenue? FOR MORE INSIGHT INTO OUR EXPERTISE AND SERVICES CLICK HERE
DISPUTE RESOLUTION The setting aside of an adjudicator’s determination: Is the court hamstrung? The rise of alternative dispute With more and more parties resorting resolution (ADR) in the last decade or to ADR as a means to settle their disputes, A question that has so cannot be overstated. The plethora the courts are often inundated with of ADR institutions and a quick survey applications to either enforce or review troubled legal practitioners of general commercial and service and set aside awards and/or determinations for some time is whether level agreements prove this to be the arising from ADR proceedings. It is trite that a party unsatisfied with case. Stripped to its bare bones, ADR parties to an agreement are bound by the the outcome of an ADR refers to any means of settling disputes provisions contained therein including the without reference to litigation i.e. the dispute resolution clause. As a result and in process can and should courtroom. This typically takes the relation to dispute resolution clause/s, the challenge that outcome form of negotiation, conciliation, parties often waive their rights to approach and what form that mediation, adjudication, arbitration the courts until the dispute resolution challenge should take. (or a combination of any of these). In mechanisms provided for in the agreement most cases it’s voluntarily and in some have been exhausted and even then they instances it is obligatory. With ever- can only approach the courts on a limited rising costs of litigation and the time basis. A question that has troubled legal delays occasioned by litigation, ADR practitioners for some time is whether offers an attractive offering in that it a party unsatisfied with the outcome of is suitable for multi-party disputes; an ADR process can and should challenge the costs are lower (and in many that outcome and what form that challenge cases free when involving consumers should take. Even though it only was in the or employees); it produces relatively context of an adjudication, the Supreme speedy settlement of disputes; there Court of Appeal (SCA) recently grappled is flexibility in the process; the parties with some of these issues in Ekurhuleni are generally in control; the parties West College v Segal and Another chose a forum; it can offer practical (1287/2018) [2020] ZASCA 32 (2 April 2020). solutions; a wide range of issues can In Segal, the SCA was called upon to be considered; shared future interests adjudicate an appeal on two interrelated may be protected; it is generally issues. Firstly, whether an adjudicator’s private and confidential; and it is a determination in unterminated proceedings less confrontational alternative to the was reviewable. Secondly, whether court system. the rules of natural justices applied to adjudication proceedings. CDH is a Level 1 BEE contributor – our clients will benefit by virtue of the recognition of 135% of their legal services spend with our firm for purposes of their own BEE scorecards. 2 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION The setting aside of an adjudicator’s determination: Is the court hamstrung?...continued First the facts: Ekurhuleni West College for the summary and interim resolution of (College) entered into an agreement disputes expeditiously and inexpensively The court therefore for the construction of a conference as possible. However, the adjudicator’s centre on its premises with Trencon determination was not exhaustive of the concluded that the Construction (Pty) Ltd (Trencon). Various disputes, as it may be overturned during College’s review application disputes arose between the parties upon the final stage of the dispute resolution was premature as the completion of the project. As per the process. This meant that the determination ADR proceedings had not provisions of the agreement, Trencon could be revisited during a further step referred these disputes to adjudication. in the agreed procedure. The court terminated and there were Having considered the submissions by the therefore concluded that the College’s no grounds warranting parties and without requiring appearance, review application was premature as judicial interference, at the adjudicator made a determination the ADR proceedings had not terminated least at that stage. in favour of Trencon. Aggrieved by it, and there were no grounds warranting the College exercised its right in terms judicial interference, at least at that stage. of the agreement and gave a notice of Were the rules of natural justice dissatisfaction and thus referred the applicable to the adjudication dispute to arbitration. In addition, the proceedings? College launched an application to review and set aside the determination, In deciding this issue, the court referred which application was dismissed by the to the generally accepted ratio that in the High Court. case of a statutory tribunal its obligation to observe the elementary principles of Did the notice of dissatisfaction and justice derives from the expressed or the pending arbitration, on their own, implied terms of the relevant enactment, preclude the review application? while in the case of a tribunal created The construction agreement contained a by contract, the obligation derives from provision stating that should either party the expressed or implied terms of the be dissatisfied with the decision given by agreement between the persons affected. the adjudicator, such party may deliver A statutory tribunal would for example notice of dissatisfaction to the other party be the housing tribunal established terms and to the adjudicator within a specified of the Rental Housing Act 1999; the period and refer the dispute to arbitration. Commission for Conciliation, Mediation The arbitrator would then have the power and Arbitration established in terms to revise the adjudicator’s determination as of the Labour Relations Act, 1995; the if it had not been issued or given. Competition Tribunal established in terms of the Competition Act, 1998; the National The SCA held that the central issue in Consumer Tribunal established in terms this question was the nature and purpose of the National Credit Act, 2005; the of the adjudication in terms of the Water Tribunal established in terms of the agreement. Adjudication was designed National Water Act, 1998 etc. 3 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION The setting aside of an adjudicator’s determination: Is the court hamstrung?...continued In this instance, the matter concerned a contrary to public policy and nor show that tribunal created by greement (i.e. adjudication) the express contractual provisions were With the growing and the court readily accepted that courts breached. As a result, the SCA dismissed should be very slow to import a tacit term the appeal with costs and upheld the popularity of ADR as into an agreement particularly where the decision of the High Court. a means of resolving parties have concluded a comprehensive With the growing popularity of ADR as a disputes, this decision written agreement that deals in great detail means of resolving disputes, this decision adds to the rising with the subject matter of the agreement adds to the rising body of jurisprudence and it is not necessary to give the agreement body of jurisprudence business efficacy. This is of course subject demonstrating the judiciary’s deference demonstrating the to the express terms of the agreement by to the ADR process. The matter is also important in that it demonstrates that judiciary’s deference to the which any or all of the fundamental principles parties should always be aware that ADR process. of justice may be excluded or modified. provisions agreed upon in an agreement Consequently, the court found no merit in the will trump any rules of natural justice College’s reliance on procedural unfairness unless such rules are expressly included. and the rules of natural justice and held that Lastly, parties should seek guidance, not the adjudicator conducted the proceedings only in the enforcement of obligations as per the agreement. This was so because by means of an ADR process but at the the adjudicator operated as a tribunal created contracting stage to ensure that their by contract and the express contractual rights are sufficiently protected. provisions regulated the procedure that he had to follow. The College did not Vincent Manko and Mayson Petla challenge any of these provisions as being CDH’S COVID-19 RESOURCE HUB Click here for more information 4 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION Your JBCC Contract: COVID-19 and other curse words What can parties to a JBCC (Joint on 25 April 2020, commercial building Building Contracts Committee) projects will only be permitted to resume As a “hands-on” Construction Contract do to prevent operations once the country reaches the COVID-19 pandemic infecting your Alert Level 3 and private residential industry for which contract? We look at a situation where projects only when Alert Level 2 is reached. working from home is washing your hands and sterilising This would mean that activity would, in a generally impossible, surfaces may not be enough. large portion of the construction sector, the construction sector COVID-19 and the consequential still be suspended until, at the earliest, the transition to Alert Level 3. No date has, at is one of many which lockdown period in South Africa are the time of publishing this article, been has had to grapple with unprecedented circumstances which forecast for the transition to Alert Level 3. no party to any construction contract the COVID-19 induced has ever had to deal with, until now. As However, while works have been contractual mayhem. a “hands-on” industry for which working suspended at most construction sites until from home is generally impossible, the Alert Level 3 is reached, what is not yet construction sector is one of many which clear is how Contractors and Employers has had to grapple with the COVID-19 are going to deal with the contractual induced contractual mayhem. aftermath once operations resume. Although one cannot provide definitive, The construction sector and the work broad stroke answers that cater to all performed, in general, was not regarded construction projects, there are several key as an essential service, being the only provisions that parties to the 2018 editions types of services capable of being of the JBCC Principal Building Agreement rendered during the initial and extended and the JBCC Nominated/Selected Alert Level 5 national lockdown. This Subcontract Agreement (cumulatively led to the suspension of the works for JBCC Agreements) should consider, most construction projects throughout particularly relating to the revision of the the country, invariably causing delay to practical completion date and termination. completion of projects. Revised Practical Completion Date: How Under the current Alert Level 4 conditions, long can the extension be and will I need most construction projects except for to pay for the delay? public works projects, road and bridge projects, and critical maintenance and It is inevitable that the suspension of repairs, are still not permitted to resume. the works will result in the need for According to the Schedule of Services: parties to revise the date for the practical Draft Framework for Sectors published completion of a project. Clause 23.1 5 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION Your JBCC Contract: COVID-19 and other curse words...continued entitles a Contractor to “a revision of It is accordingly imperative that all parties the date for practical completion by the comply with the JBCC Agreements in Clause 23.1 of the JBCC principal agent without an adjustment of submitting and analysing claims relating the contract value for a delay to practical to the extension of time. Clause 23.1 of Agreements only provides completion caused by one or more of the the JBCC Agreements only provides for for the award of time and following events: the award of time and not the adjustment not the adjustment of the of the contract value, and does not deal … contract value, and does with who should bear the ancillary costs 23.1.5 Exercise of statutory power by a incurred as a result of COVID-19, a prime not deal with who should body of state or public or local authority example being the security services bear the ancillary costs that directly affects the execution of the provided to secure the site, which, for the incurred as a result of works purposes of the lockdown, is an essential COVID-19. service and can accordingly operate 23.1.6 Force majeure” (our emphasis) during this period. In an advisory note, In order to claim for the revision of the the JBCC suggests that parties ought to practical completion date, a Contractor consider sharing these costs amicably would need to comply with the notification between them as fault would seemingly and claim provisions set out in clauses 23.4 not be attributed to either party in to 23.6 of the JBCC Agreements. In short, the circumstances. the Contractor must: Termination: Is this a ground to cut ties? ∞ Within 20 working days of becoming aware of such delay, give notice to On the other end of the spectrum, the Principal Agent of the intention to construction projects may need to be submit a claim, failing which the claim suspended again in the future should for a revised practical completion date the Alert Levels fluctuate and/or other will be forfeited; circumstances occur which may lead to the impossibility of the completion of ∞ Within 40 working days from when the the project for either party. Clause 29.20 Contractor is able to quantify the delay provides that “either party may give caused to the programme submit a notice of intention to terminate this fully substantiated claim; and agreement where: ∞ The claim should reference the clause the Contractor relies on, identify the 29.20.2 Progress of the works has ceased cause and effect of the delay on the for a continuous period of ninety (90) practical completion date and identify calendar days, or an intermittent period the working day period claimed. totalling one hundred and twenty (120) calendar days as a result of a force majeure Once the claim is submitted the Principal event or the exercise of statutory power by Agent has 20 working days to respond a body of state or public or local authority either granting, in full or in part, or refusing that directly affects the execution of the the claim. works” (our emphasis) 6 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION Your JBCC Contract: COVID-19 and other curse words...continued Termination under clause 29.20.2 will not, overcome except for, ironically, ceasing to aside from other contributory fact specific work and self-isolating. The facts of each The clauses considering circumstances, be available to either party case will invariably have to inform whether unless the required time period for the it would indeed be a force majeure for termination and the suspension of the works is satisfied. The the purposes of the JBCC Agreements. revision of the practical applicability of this clause is thus largely However, it would seem that very few completion date in these dependent on regulatory time periods contracting parties could have predicted circumstances would be which have yet to be determined. the far-reaching effects of the disease which emanated on the other side of academic, if the relevant However, the clauses considering the world. This would in itself be both party cannot establish termination and the revision of the indicative and persuasive. practical completion date in these whether the disease, or the circumstances would be academic, if the The “S-word”: Statute effects thereof, is a force relevant party cannot establish whether The JBCC Agreements include another majeure or an exercise of the disease, or the effects thereof, is a provision which would apply to the present force majeure or an exercise of statutory statutory power. So, is it? circumstances. This is the “exercise of power. So, is it? statutory power by a body of state or The “F-word”: Force majeure public or local authority that directly affects the execution of the works.” While The JBCC Agreements define a force there may be room for debate as to majeure as “an exceptional event or whether the national lockdown qualifies as circumstance that: a force majeure, there can be little doubt ∞ could not have been reasonably that the lockdown implemented under foreseen the Disaster Management Act 57 of 2002 ∞ is beyond the control of the parties, (Act) and the myriad of accompanying and regulations would constitute an exercise ∞ could not reasonably have been of statutory power as envisaged in the avoided or overcome”. JBCC Agreements. Parties may argue that it is not necessarily Does the Principal Agent need to issue a the COVID-19 disease itself that is stopping Contract Instruction? activities on site, for example due to a The Contractor, in terms of clause 2 of the large number of infected workers, but JBCC Agreements, is under an obligation rather that it is the lockdown which would to comply with the law specified in the be the main cause of the temporary JBCC Agreement. suspension of the works. However, it can be further argued that the disease, and In terms of clause 17 of the JBCC the possible effects on the construction Agreements the Principal Agent may issue sector generally, fits into this definition contract instructions to the Contractor as it could not have been foreseen at the regarding the compliance with the laws time of contracting, it would be beyond and regulations. The Principal Agent the control of the parties to the JBCC therefore has a discretion in this regard. Agreements and could not reasonably be 7 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION Your JBCC Contract: COVID-19 and other curse words...continued The JBCC, in its advisory note, is of able to operate during various Alert Levels. the opinion that the Contractor has an This should be seen as an opportunity for During these uncertain overarching statutory and contractual parties to JBCC Agreements to innovate, obligation to comply with the law. It is contribute to the market and add value to times, Contractors and accordingly unnecessary for the Principal society during these unprecedented times. Employers alike should Agent to issue a contract instruction To ensure clarity going forward, parties to strive for more innovative regarding compliance with any extension future JBCC Agreements should consider methods to conduct to the lockdown, the Act and its the effects that future pandemics and accompanying Regulations. their business. government interventions may have Once the fever stops? on a project and tailor their contracts accordingly. This will ultimately ensure During these uncertain times, Contractors certainty, and minimise risks and and Employers alike should strive for costs associated with future disputes more innovative methods to conduct and litigation. their business. For current projects, communication For instance, WinSun3D – a Shanghai between the Employer, Contractor, based 3D printing company – Sub-Contractors and the Principal Agent is manufacturing and selling will be vital to establish clear milestones “Print-While-You-Wait Isolation Pods”. post lockdown, reach reasonable In South Africa, the current Regulations compromises and ensure that this under the Act permit businesses to operate contractual fever doesn’t turn into a if they are supplying an essential service. full-blown infection. Moreover, construction firms who are able to undertake projects which meet the Joe Whittle, Reece May and definition of an essential service will be Lauren Loxton 8 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION Is the ban on tobacco and liquor unlawful and irrational? Is the continued ban on the sale of (3) the transportation of liquor for liquor and tobacco products really export purposes is permitted. In order to fully appreciate justifiable? And, if so, is there a (4) no special or events liquor less-restrictive means for government and discuss the licenses may be considered for to achieve the same objective, while Regulations, the starting ensuring sectors in the entire value approval during the duration of the national state of disaster. point is to understand chain remain going concerns that the levels of legislative provide secure jobs and contribute to 27 Tobacco products, e-cigarettes much needed tax revenue? We unpack and related products hierarchy in South Africa. the lawfulness of the respective ban on The sale of tobacco, tobacco liquor and tobacco, including whether products, e-cigarettes and the ban is unlawful but rationale and related products is prohibited.” if that is enough for government to continue to enforce it. The singling out of these products is unique in that they appear as provisions On the eve of Thursday, 29 April 2020, and not just as items listed (or excluded) the Minister of Cooperative Governance in the Regulations’ annexure dealing with and Traditional Affairs, Dr Dlamini-Zuma essential items. published the Alert Level 4 Regulations (Regulations). The more-detailed In order to fully appreciate and discuss Regulations replaced all previous the Regulations, the starting point is iterations. Of relevance to this article to understand the levels of legislative are Regulations 26 and 27 which hierarchy in South Africa. The hierarchy state respectively: applicable to legislation is as follows: “26 Sale, dispensing or ∞ The Constitution, which is the supreme transportation of liquor law of the Republic and any law of conduct inconsistent with it is invalid. (1) the sale, dispensing and ∞ Original legislation, which includes distribution of liquor is Acts of Parliament such as the Disaster prohibited. Management Act 57 of 2002 (DMA). (2) the transportation of liquor ∞ Subordinate or delegated legislation is prohibited, except where such as the promulgation of alcohol is required for industries regulations or directives. This producing hand sanitizers, law-making power is usually delegated disinfectants, soap, alcohol for to certain persons, for instance under industrial use and household the DMA the power is given to the cleaning products. Minister of Cooperative Governance and Traditional Affairs. The power may also be granted to bodies established under a particular piece of legislation. 9 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION Is the ban on tobacco and liquor unlawful and irrational?...continued In terms of the relationship between That being said, the DMA does not original legislation and subordinate empower the Minister to prevent the actual Considering the nature of legislation, subordinate legislation may sale of tobacco and any other goods. not be in conflict with original legislation, The only way that transactions may be the pandemic, it appears otherwise it would be ultra vires. However, regulated is in respect of transportation, that the Minister is within if apparently contradictory provisions and separately by preventing people her powers to regulate are capable of a sensible interpretation from physically attending at a premises the sale of alcohol, even which would reconcile the apparent where tobacco is being sold. It is contradiction, that interpretation should arguable then that where a retailer or though it amounts to a be preferred. wholesaler/distributer has been granted complete ban. permission to trade, it must be granted Dealing with the liquor ban first, permission to trade in its entire line section 27(2)(i) of the DMA is clear in that of stock at least until it is depleted. the Minister may issue regulations or Regulation 27 is aimed only at the sale of directions concerning “the suspension tobacco products and does not at all refer or limiting of the sale, dispensing or to the transportation or control of such transportation of alcoholic beverages in products nor to access of premises where the disaster-stricken or threatened area”. tobacco may be sold. This casts serious Considering the nature of the pandemic, concerns over the blanket prohibition it appears that the Minister is within her against the sale of tobacco products powers to regulate the sale of alcohol, (and indeed against the sale of other even though it amounts to a complete ban. products that an authorised retailer or With respect to tobacco products, the wholesaler/distributer has in stock). It must DMA does not expressly empower the always be remembered that as a state Minister with any specific powers relating functionary, the Minister is only entitled to the regulation of the supply chain to act within the limits of the empowering and ultimate sale of tobacco products. legislation and any acts outside of those However, what the DMA does allow the parameters will be unlawful. Minister to do is to publish regulations Furthermore, even if the Regulations did or directions concerning “the regulation control the transportation and access to of the movement of persons and goods premises where tobacco products are to, from or within the disaster-stricken sold, under the DMA and in relation to the or threatened area” and “the control specific list of powers, the Minister is only and occupancy of premises in the empowered to publish regulations and disaster-stricken or threatened area”. Again, directions to the extent that they: considering the nature of the pandemic, this could mean that transportation of ∞ assist and protect the public; tobacco products (and any other products) ∞ provide relief to the public; could be subject to regulation as well ∞ protect property; as compelling the closure of a premises ∞ prevent or combating disruption; or where tobacco may be sold. ∞ deal with the destructive and other effects of the disaster. 10 | DISPUTE RESOLUTION ALERT 13 May 2020
DISPUTE RESOLUTION Is the ban on tobacco and liquor unlawful and irrational?...continued These are broad objectives and the amongst others, set a side Regulation 27. Regulations or Directions published (in We understand that pursuant to Part A In the case of banning the respect of all aspects thereof including of the court application Government has the sale of liquor and tobacco) must serve decided to provide reasons to FITA for the sale of tobacco, the power these purposes. ban. At the date of writing this article we just does not seem to be have not had sight of the reasons from The ban on tobacco sales appears to be present and no amount Government. The reasons, to the extent more of a general public health issue than of rational behaviour can something directly related to flattening disclosed, may assist FITA to supplement Part B of its application to refine its justify acting outside of the the curve of infections; and in the absence argument and grounds that the ban confines of the law. of proper reasons from the Minister, the is unlawful. decision also reeks of irrationality. As mentioned above, arbitrary conduct Relatedly, and on that score, South Africa is impermissible. The reasons by is founded on the Rule of Law. This means government, to the extent disclosed, may that the government and its institutions end up revealing such arbitrary/irrational (including the President and members of conduct or they could reveal that the national executive when they make government considered the matter high-level decisions) must, at all times, thoroughly and acted rationally. But act in accordance with the “principle even if the latter proves true, rationality of legality”: they must act lawfully, in is not the only standard with which to good faith, for a proper purpose and judge state conduct. State functionaries rationally – no arbitrary public conduct is like the Minister may only act within the permissible in a constitutional democracy. confines of the empowering legislation Where the decisions have failed to meet or law. In the case of banning the sale of this standard, they have been set aside by tobacco, the power just does not seem the courts. to be present and no amount of rational As it currently stands, government has behaviour can justify acting outside of the been threatened with legal action by confines of the law. tobacco manufacturers for the ban, Ultimately, if FITA does not withdraw its with Fair Trade Independent Tobacco application, it is hoped that the judgment Association (FITA) representing some of will clearly delineate the powers of the the countries tobacco manufacturers Minister under the DMA. proceeding with a court application to, Jackwell Feris, Imraan Abdulla and Mukelwe Mthembu 11 | DISPUTE RESOLUTION ALERT 13 May 2020
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