Construction Law – Certain instances where the NHBRC could be held liable by a home owner for the rectification of major structural defects in a new home

INTRODUCTION:

1. In the unreported matter of Stergianos v National Home Builders Registration Council 2012 JDR 1982, the Plaintiff, Mr Stergianos, issued summons against the National Home Builders Registration Council (“NHBRC”), alleging that the NHBRC is obliged to remedy the defects evident in his home.

2. In our law the Housing Consumers Protection Measures Act 95 of 1998 (“the Act”) protects home owners in certain circumstances from the effects of poor workmanship on the part of home builders who are registered with the NHBRC.

3. Before we delve into the facts of the aforesaid matter, the following relevant Sections of the Act should be taken into consideration where a home owner wishes to hold the NHBRC liable for defects evident in a home resulting from defective workmanship on the part of a home builder:

3.1. Section 3 of the Act specifies the objectives of the NHBRC which include, inter alia, the following:
3.1.1. Representing the interests of housing consumers by providing warranty protection against defects in new homes;
3.1.2. Regulating the home building industry;
3.1.3. Providing protection to home owners where home builders fail to comply with their obligations in terms of the Act; and
3.1.4. To establish and promote ethical and technical standards in the home building industry.

3.2. In terms of Section 10(1) of the Act, a “home builder” is required to be registered with the NHBRC prior to the commencement of construction and if not, no payment may be received from a housing consumer in respect of the sale or construction of a home.  Section 10(2) determines that where a “home builder” is not registered with the NHBRC, he is prohibited from constructing a home.

3.3. The NHBRC is required, in terms of Section 12, to publish a Home Building Manual (“HBM”) which contains technical standards with which home builders must comply.

3.4. Further, Section 14(1) of the Act determines that a home builder is not allowed to commence building a home before:
3.4.1. the prescribed documentation, information and fee have been submitted to the NHBRC;
3.4.2. the NHBRC has accepted the aforesaid and entered same into its records; and
3.4.3. a certificate of proof of enrolment has been issued.

3.5. Section 15(2) states that the NHBRC is allowed to disburse any amount contemplated by Section 17(1) of the Act.  In terms of Section 17(1) the NHBRC shall pay an amount for rectification from the fund established for that purpose in terms of Section 15(4), where:
3.5.1. within:
3.5.1.1. five years of the date of occupation, a major structural defect has emerged in a home as a result of non-compliance with the NHBRC Technical Requirements and the home builder has been notified accordingly within that period;
3.5.1.2. twelve months of the date of occupation, a roof leak attributable to workmanship, design or materials has manifested itself in respect of a home and the home builder has been notified accordingly within that period;
3.5.2. the home builder is in breach of the home builder’s obligations in terms of Section 13(2)(b)(i) regarding the rectification of such defect;
3.5.3. the relevant home was constructed by a registered home builder, had been enrolled with the Council and, at the occupation date, the home was enrolled with the Council subject to Section 14(4), (5) and (6);
3.5.4. the home builder no longer exists or is unable to meet his obligations; and
3.5.5. in the case of a home that has been enrolled with the Council on a project basis in terms of Section 14(2), the application has been made by the MEC pursuant to an agreement in terms of Section 15(4)(c).

3.6. In terms of Section 17(2) the NHBRC is empowered to either reduce any amount that may be expended in terms of Section 17(1), in exceptional circumstances, make a payment to a home owner in full and final settlement instead of rectifying the defect, or refuse any claim.

BACKGROUND FACTS:

4. In the aforesaid matter, the Plaintiff concluded a contract with the Contractor, Herrington Construction CC, for the building of a home for the Plaintiff.  The home was constructed with a number of difficulties along the way, where after the Plaintiff took occupation thereof.

5. During the first year of occupation, cracks began to develop in the concrete floor slab which worsened progressively.  Attempts to fill the cracks failed as they continued to open.  The Plaintiff appointed a structural engineering expert, Mr Kleinhans, to determine the cause of the cracks.  Mr Kleinhans was of the view that the cause was structural.

6. The Plaintiff then issued summons against the NHBRC in terms of Section 17 of the Act, seeking orders that the NHBRC was responsible for the rectification of the structural defects in the home, and to rectify the defects within 180 days and to pay its costs.

7. The NHBRC refused the Plaintiff’s claim.  All the elements of the cause of action set out in Section 17(1) of the Act have either been admitted by the NHBRC or were not in dispute.  The only element in dispute, which had to be determined by the Court, is the cause of the defect.  If it were to be found that the cracks in the floor slab were caused by a major structural defect, the Plaintiff would be entitled to the relief contemplated by Section 17(1), otherwise the action will fail.

8. Section 1 of the Act defines the term “major structural defect” as:
“a defect which gives rise or which is likely to give rise to damage of such severity that it affects or is likely to affect the structural integrity of a home and which requires complete or partial rebuilding of the home or extensive repair work to it, subject to limitations, qualifications or exclusions that may be prescribed by the Minister.”

9. According to Kleinhans, the site on which the home was built had, right from the start, presented certain technical challenges as the home was built on a primary dune and the characteristics of the site signalled that special precautions had to be taken when building on a dune as same is mobile.

10. Kleinhans required to assess the relevant documentation in order to determine whether the home complies with technical requirements and prescribed standards, however, very little documentation could be found in this regard.  Kleinhans regarded a record of three Dynamic Cone Penetrometer (“DCP”) tests conducted before building commenced as most likely to classify the soil type in order to designate a class to the site as required in terms of the Home Building Manual.  According to Kleinhans, the said results raised concern, as well as a need to take remedial measures.

11. He then conducted a DCP test to determine the density of the fill below the slab and also evaluated the “health of the structure” by taking relevant photographs of the cracks, recording them on a plan and examining same for a pattern.  Most cracks were in the floor slab, while some were in the ceiling and walls.

12. Mr Kleinhans came to the conclusion that the defects in the concrete floor slab of the home were indeed caused by major structural defects in the substructure of the home and consequent settling of the slab.  The test results also confirmed that the fill beneath the slab was not sufficiently compacted to bear the weight of the slab.

13. The NHBRC also appointed an expert, Mr Mathibeli, who was of the view that the cracks were caused by shrinkage as a result of poor workmanship when the concrete slab was poured and secondly, the builder’s failure to place expansion joints in the slab where required.  Mr Mathibeli, who has not conducted any tests, came to the conclusion that the defects in the slab were not structural in nature.

CONCLUSION:

14. After assessing both experts’ views, the Court ordered the NHBRC to rectify the structural defects in the Plaintiff’s home in terms of Section 17 of the Act, subject to the maximum amount prescribed by regulation 13(1), read with regulation 13(2), of the regulations promulgated in terms of the Act.  The Court also ordered the NHBRC to pay the Plaintiff’s costs.

Medical Law – Recognition of “wrongful life” claims and its impact on Medical Malpractice in South Africa

The Constitutional Court in H v Fetal Assessment Centre 2014 JDR 2720 (CC) set the framework within which the High Court is to consider the recognition of a child’s claim against a medical practitioner who misdiagnosed a congenital disability or some serious medical condition pre-natally, resulting in the child being born with a disability.  Such a claim has until now not been recognised in our law and is more commonly referred to as a “wrongful life” claim.

The applicant is a boy born with Down Syndrome in 2008.  His mother instituted a claim on his behalf in the High Court for damages against the Respondent for their alleged wrongful and negligent failure to warn her of the high risk that the child may be born with Down Syndrome.  It is alleged that, had the mother been advised, she would have chosen to terminate the pregnancy.  The child’s claim is for special damages for past and future medical expenses, as well as for general damages for disability and loss of amenities of life.

The child’s claim was couched on the basis of a duty of care and a breach of said duty owed to the child’s mother in her representative capacity as mother and natural guardian of the child.  The Defendant brought an Exception to the Particulars of Claim on the basis the claim is bad in law in that it did not disclose a cause of action recognised by our law.  The High Court, seemingly in relying on the decision of the Supreme Court of Appeal in the matter of Stewart and Another v Botha and Another 2008 (6) SA 310 (SCA), upheld the Exception and dismissed the Plaintiff’s claim with costs.  The child consequently appealed to the Constitutional Court against this judgement.

Even though our law recognises a parental claim for patrimonial damages (actual costs and expenses) suffered by the parents following the misdiagnosis of a congenital disability pre-natally in circumstances where the parents would have chosen to terminate the pregnancy, a similar claim is not recognised for the child after being born with the disability.  In the Stewart matter, the SCA described the core question to be answered when determining the viability of the child’s claim as whether it would have been preferable from the child’s perspective to not have been born at all, a question which it held goes so deeply to the heart of what it means to be human that it should not be asked of our law.  The SCA held further that for such a claim to succeed, the court would be required to evaluate the existence of the child against his or her non-existence.  Consequently, the SCA held that the child’s claim cannot be recognised by our law.

The Constitutional Court in its judgement is critical of the Stewart decision, inter alia, for not taking the values and rights enshrined in our Constitution, including the right of children to have their best interests considered of paramount importance in every matter concerning them, into account when considering the viability of the child’s claim. Section 39(2) of the Constitution requires that our courts must, when developing the common law, promote the “spirit, purport and objects of the Bill of Rights”.  Thus, our common law must conform to the values and rights enshrined in our Constitution and the Bill of Rights. 

The Constitutional Court was further critical of the term “wrongful life” as being inaccurate in that the legal issue to be determined is not the wrongful life of the child, but rather whether he or she should be allowed by our law to claim compensation for a life with disability.

The Constitutional Court defined its purpose with regard to its assessment of the case not to determine finally whether the child has a claim, but to decide whether our common law may possibly be developed to recognise it.  In this assessment, the Constitutional Court examined the potential for recognition of the child’s claim against the elements of a delict.  It found that, by using the principles of the “but for” test, factual causation can be established.  It left a determination on legal causation, and thus whether the wrongdoing is sufficiently closely linked to the loss for legal liability to ensue, for determination by the trial court after all the facts have been led in evidence. 

The Constitutional Court further held that negligence would have to be proved by the applicant in accordance with the general principles of our law and applied to the specific facts of the case.  With regard to the element of damages, the Constitutional Court opined that a child’s claim for patrimonial damages is conceivable.  However, a determination with regard to a claim for intangible losses (pain and suffering, and loss of amenities of life) was left to the High Court to consider.

The Constitutional Court’s approach to the elements of “harm causing conduct” and wrongfulness is of interest.  With regard to the requirement of harm causing conduct, the Constitutional Court stated that the paradox is that the medical condition or congenital disability was not caused by the practitioner’s negligence.  However, if the negligent conduct in the form of the misdiagnosis had not occurred and the mother was told of the risk of disability, there would never have been a birth, and consequently a disabled child and the addition financial burden it entails.

As mentioned, our law recognises the parents’ claim for patrimonial loss in the form of an unwanted financial burden in these instances on the basis that it deprived the parents of an informed choice to terminate the pregnancy.  Unlike the parents, the child suffers no constitutionally protected loss of personal choice.  

In terms of the legal position as it currently stands, the financial loss will befall the child instead of the medical practitioner should the parents fail to institute action.  As such, the Constitutional Court opined that the misdiagnosis could arguably cause harm to the child in the sense of a burden on the child in circumstances where the parents fail to pursue their own claim, i.e. the harm causing event. 

The Constitutional Court was further of the view that recognising the child’s claim for patrimonial damages will not result in a claim in excess of the medical practitioner’s liability to the parents on the basis that the two claims are seen as a single claim and not cumulative.  The Constitutional Court thus opined that it is conceivable that a court may, after all the facts are known at the trial, conclude that the practitioner is liable to the child for the same loss he would have been liable for apropos the parents. 

The question of wrongfulness (whether society requires that liability be imposed on a wrongdoer) is determined by public policy, which is to be found in the values enshrined in our Constitution.  Part of the wrongfulness inquiry is to determine whether a breach of a legal duty not to harm the claimant has taken place, or determine whether there has been a breach of a claimant’s rights / interests. 

In terms of the Constitution, children have the right to have their best interests given paramount importance to in every matter concerning them.  Should the parents not pursue a claim against the medical practitioner in respect of the child’s disability, it will result in the loss lying with the child in terms of our current legal position.  This outcome is conceivably not in the best interests of the child.  As such, the Constitutional Court opined that there may be a legal duty not to cause this loss to the child, a breach of which will infringe the child’s rights in terms of section 28(2) of the Constitution.

The court felt that there could be no argument that recognising this claim will result in a claim against the parents by the child for choosing not to abort in circumstances where the parents were aware of the disability as the child would have to show that the mother was wrongful and negligent in her choice not to abort.  The Constitutional Court opined that this might prove difficult when regard is had to the mother’s right to a free and informed choice regarding reproduction and her body.

The Constitutional Court was thus of the view that wrongfulness as element of a delict could conceivably be found with regard to the viability of the child’s claim.

The Constitutional Court opined that the Exception procedure was an inappropriate process on which to determine the viability of the child’s claim.  It referred to prior case law wherein it was held that, where the factual situation is complex and the legal position uncertain, the interests of justice will not be served unless all facts on which the determination is to be made are led in evidence.  The court further held that the issue at hand, namely the development of the common law of delict to allow a child’s claim of this nature, is too complex to be determined on Exception and, as such, requires that all the facts be lead in evidence.

The Constitutional Court held that a child’s claim may potentially be found to exist, however, left it up to the High Court to determine finally whether it in fact does and in what form.  It however, cautioned that the decision must accord with the Constitutional rights and values, which include that the best interests of the child be of paramount importance in all matters concerning him or her.

The Constitutional Court commented that, even if the High Court reaches the conclusion that the limits of our law of delict will be stretched beyond recognition in order to acknowledge the child’s claim, our Constitution gives our courts the liberty to develop motivated exceptions to the common law rules or recognise new remedies for infringement of rights.

Although the Constitutional Court does not make a final determination in respect of the viability of the child’s claim, one gains the impression from reading the judgement that the court leans towards recognising the child’s claim.  It continuously refers to the Constitution requiring that a child’s best interests be of paramount importance.  It further emphasises that the High Court is the upper guardian of children, which obliges our courts to act in the best interest of children in all matters involving them.  The Constitutional Court confirmed that said powers to determine what those interests are, are extremely wide. 

IMPACT OF RECOGNITION OF CHILD’S CLAIM ON MEDICAL MALPRACTICE IN SOUTH AFRICA

As pointed out by the Constitutional Court, should the High Court, after hearing all the evidence, recognise the child’s claim against the medical practitioner who negligently misdiagnosed the cognitive disability pre-natally in circumstances where the mother would have terminated the pregnancy, the practitioner will not be held liable to the child in excess of his liability to the parents insofar as patrimonial damages are concerned.  However, should the High Court also acknowledge the child’s claim for non-patrimonial damages (pain and suffering, loss of amenities of life, etc.), the claim against the medical practitioner by the child will exceed his liability to the parents.  The degree to which the child is aware of his or her situation will play a role in the determination of the quantum of certain heads of the non-patrimonial damages.

A further implication of the recognition of the child’s claim pertains to prescription.  Whereas the prescription period in respect of the parents’ claim is three years, prescription in respect of the child’s claim will occur much later when regard is had to the Prescription Act 68 of 19.  Prescription insofar as the child’s claim is concerned will depend on the degree and type of the disability, however, on the basis that the child is a minor, without taking the disability into account, the claim will only become prescribed one year after the child reaches the age of majority (18 years).  It is thus conceivable that, upon recognition of the child’s claim by the High Court, actions may be instituted against medical practitioners in respect of matters where the parents’ claim has long since become prescribed but not that of the child.    

As a consequence, medical malpractice and particularly insurance in respect thereof, will be placed under even further strain should the High Court recognise the child’s claim against the medical practitioner responsible for the misdiagnosis.

Medical Law – Recognition of “wrongful life” claims and its impact on medical malpractice in South Africa

The Constitutional Court in H v Fetal Assessment Centre 2014 JDR 2720 (CC) set the framework within which the High Court is to consider the recognition of a child’s claim against a medical practitioner who misdiagnosed a congenital disability or some serious medical condition pre-natally, resulting in the child being born with a disability.  Such a claim has until now not been recognised in our law and is more commonly referred to as a “wrongful life” claim.

The applicant is a boy born with Down Syndrome in 2008.  His mother instituted a claim on his behalf in the High Court for damages against the Respondent for their alleged wrongful and negligent failure to warn her of the high risk that the child may be born with Down Syndrome.  It is alleged that, had the mother been advised, she would have chosen to terminate the pregnancy.  The child’s claim is for special damages for past and future medical expenses, as well as for general damages for disability and loss of amenities of life.

The child’s claim was couched on the basis of a duty of care and a breach of said duty owed to the child’s mother in her representative capacity as mother and natural guardian of the child.  The Defendant brought an Exception to the Particulars of Claim on the basis the claim is bad in law in that it did not disclose a cause of action recognised by our law.  The High Court, seemingly in relying on the decision of the Supreme Court of Appeal in the matter of Stewart and Another v Botha and Another 2008 (6) SA 310 (SCA), upheld the Exception and dismissed the Plaintiff’s claim with costs.  The child consequently appealed to the Constitutional Court against this judgement.

Even though our law recognises a parental claim for patrimonial damages (actual costs and expenses) suffered by the parents following the misdiagnosis of a congenital disability pre-natally in circumstances where the parents would have chosen to terminate the pregnancy, a similar claim is not recognised for the child after being born with the disability.  In the Stewart matter, the SCA described the core question to be answered when determining the viability of the child’s claim as whether it would have been preferable from the child’s perspective to not have been born at all, a question which it held goes so deeply to the heart of what it means to be human that it should not be asked of our law.  The SCA held further that for such a claim to succeed, the court would be required to evaluate the existence of the child against his or her non-existence.  Consequently, the SCA held that the child’s claim cannot be recognised by our law.

The Constitutional Court in its judgement is critical of the Stewart decision, inter alia, for not taking the values and rights enshrined in our Constitution, including the right of children to have their best interests considered of paramount importance in every matter concerning them, into account when considering the viability of the child’s claim. Section 39(2) of the Constitution requires that our courts must, when developing the common law, promote the “spirit, purport and objects of the Bill of Rights”.  Thus, our common law must conform to the values and rights enshrined in our Constitution and the Bill of Rights. 

The Constitutional Court was further critical of the term “wrongful life” as being inaccurate in that the legal issue to be determined is not the wrongful life of the child, but rather whether he or she should be allowed by our law to claim compensation for a life with disability.

The Constitutional Court defined its purpose with regard to its assessment of the case not to determine finally whether the child has a claim, but to decide whether our common law may possibly be developed to recognise it.  In this assessment, the Constitutional Court examined the potential for recognition of the child’s claim against the elements of a delict.  It found that, by using the principles of the “but for” test, factual causation can be established.  It left a determination on legal causation, and thus whether the wrongdoing is sufficiently closely linked to the loss for legal liability to ensue, for determination by the trial court after all the facts have been led in evidence. 

The Constitutional Court further held that negligence would have to be proved by the applicant in accordance with the general principles of our law and applied to the specific facts of the case.  With regard to the element of damages, the Constitutional Court opined that a child’s claim for patrimonial damages is conceivable.  However, a determination with regard to a claim for intangible losses (pain and suffering, and loss of amenities of life) was left to the High Court to consider.

The Constitutional Court’s approach to the elements of “harm causing conduct” and wrongfulness is of interest.  With regard to the requirement of harm causing conduct, the Constitutional Court stated that the paradox is that the medical condition or congenital disability was not caused by the practitioner’s negligence.  However, if the negligent conduct in the form of the misdiagnosis had not occurred and the mother was told of the risk of disability, there would never have been a birth, and consequently a disabled child and the addition financial burden it entails.

As mentioned, our law recognises the parents’ claim for patrimonial loss in the form of an unwanted financial burden in these instances on the basis that it deprived the parents of an informed choice to terminate the pregnancy.  Unlike the parents, the child suffers no constitutionally protected loss of personal choice.  

In terms of the legal position as it currently stands, the financial loss will befall the child instead of the medical practitioner should the parents fail to institute action.  As such, the Constitutional Court opined that the misdiagnosis could arguably cause harm to the child in the sense of a burden on the child in circumstances where the parents fail to pursue their own claim, i.e. the harm causing event. 

The Constitutional Court was further of the view that recognising the child’s claim for patrimonial damages will not result in a claim in excess of the medical practitioner’s liability to the parents on the basis that the two claims are seen as a single claim and not cumulative.  The Constitutional Court thus opined that it is conceivable that a court may, after all the facts are known at the trial, conclude that the practitioner is liable to the child for the same loss he would have been liable for apropos the parents. 

The question of wrongfulness (whether society requires that liability be imposed on a wrongdoer) is determined by public policy, which is to be found in the values enshrined in our Constitution.  Part of the wrongfulness inquiry is to determine whether a breach of a legal duty not to harm the claimant has taken place, or determine whether there has been a breach of a claimant’s rights / interests. 

In terms of the Constitution, children have the right to have their best interests given paramount importance to in every matter concerning them.  Should the parents not pursue a claim against the medical practitioner in respect of the child’s disability, it will result in the loss lying with the child in terms of our current legal position.  This outcome is conceivably not in the best interests of the child.  As such, the Constitutional Court opined that there may be a legal duty not to cause this loss to the child, a breach of which will infringe the child’s rights in terms of section 28(2) of the Constitution.

The court felt that there could be no argument that recognising this claim will result in a claim against the parents by the child for choosing not to abort in circumstances where the parents were aware of the disability as the child would have to show that the mother was wrongful and negligent in her choice not to abort.  The Constitutional Court opined that this might prove difficult when regard is had to the mother’s right to a free and informed choice regarding reproduction and her body.

The Constitutional Court was thus of the view that wrongfulness as element of a delict could conceivably be found with regard to the viability of the child’s claim.

The Constitutional Court opined that the Exception procedure was an inappropriate process on which to determine the viability of the child’s claim.  It referred to prior case law wherein it was held that, where the factual situation is complex and the legal position uncertain, the interests of justice will not be served unless all facts on which the determination is to be made are led in evidence.  The court further held that the issue at hand, namely the development of the common law of delict to allow a child’s claim of this nature, is too complex to be determined on Exception and, as such, requires that all the facts be lead in evidence.

The Constitutional Court held that a child’s claim may potentially be found to exist, however, left it up to the High Court to determine finally whether it in fact does and in what form.  It however, cautioned that the decision must accord with the Constitutional rights and values, which include that the best interests of the child be of paramount importance in all matters concerning him or her.

The Constitutional Court commented that, even if the High Court reaches the conclusion that the limits of our law of delict will be stretched beyond recognition in order to acknowledge the child’s claim, our Constitution gives our courts the liberty to develop motivated exceptions to the common law rules or recognise new remedies for infringement of rights.

Although the Constitutional Court does not make a final determination in respect of the viability of the child’s claim, one gains the impression from reading the judgement that the court leans towards recognising the child’s claim.  It continuously refers to the Constitution requiring that a child’s best interests be of paramount importance.  It further emphasises that the High Court is the upper guardian of children, which obliges our courts to act in the best interest of children in all matters involving them.  The Constitutional Court confirmed that said powers to determine what those interests are, are extremely wide. 

IMPACT OF RECOGNITION OF CHILD’S CLAIM ON MEDICAL MALPRACTICE IN SOUTH AFRICA

As pointed out by the Constitutional Court, should the High Court, after hearing all the evidence, recognise the child’s claim against the medical practitioner who negligently misdiagnosed the cognitive disability pre-natally in circumstances where the mother would have terminated the pregnancy, the practitioner will not be held liable to the child in excess of his liability to the parents insofar as patrimonial damages are concerned.  However, should the High Court also acknowledge the child’s claim for non-patrimonial damages (pain and suffering, loss of amenities of life, etc.), the claim against the medical practitioner by the child will exceed his liability to the parents.  The degree to which the child is aware of his or her situation will play a role in the determination of the quantum of certain heads of the non-patrimonial damages.

A further implication of the recognition of the child’s claim pertains to prescription.  Whereas the prescription period in respect of the parents’ claim is three years, prescription in respect of the child’s claim will occur much later when regard is had to the Prescription Act 68 of 19.  Prescription insofar as the child’s claim is concerned will depend on the degree and type of the disability, however, on the basis that the child is a minor, without taking the disability into account, the claim will only become prescribed one year after the child reaches the age of majority (18 years).  It is thus conceivable that, upon recognition of the child’s claim by the High Court, actions may be instituted against medical practitioners in respect of matters where the parents’ claim has long since become prescribed but not that of the child.    

As a consequence, medical malpractice and particularly insurance in respect thereof, will be placed under even further strain should the High Court recognise the child’s claim against the medical practitioner responsible for the misdiagnosis.

 

Construction Law – The nature of on-demand guarantees

1.  In construction contracts, on-demand guarantees or unconditional performance bonds are a means of guaranteeing the performance of the contractor to its employer. 

2.  On-demand guarantees are similar to letters of credit or promissory notes payable on demand.

3.  In Lombard v Landmark & Others  the following was held:

“… The guarantee creates an obligation to pay upon the happening of an event. …The guarantee was to protect the Academy in the event of default by Landmark and it is to the guarantee that one should look to determine the rights and obligations of the Academy and Lombard.”

4.  Lord Denning in Edward Owen Engineering Ltd v Barclays Bank International Ltd stated the principle as follows:

“A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions.  The only exception is where there is a clear fraud of which the bank has notice.”

5.  Similarly, Donaldson LJ held in  Intraco Ltd v Notis Shipping Corporation (The Bhoja Trader) that:

Irrevocable letters of credit and bank guarantees given in circumstances such as that they are the equivalent to an irrevocable letter of credit have been said to be the lifeblood of commerce. Thrombosis will occur if, unless fraud is involved, the Courts intervene and thereby disturb the mercantile practice of treating rights thereunder as being the equivalent of ‘cash in hand”.

6.  In Compass Insurance Company Ltd v Hospitality Hotel Developments (Pty) Ltd  this ratio was taken further when it was held that:

the reason for requiring strict compliance with a letter of credit is that it is an instrument that compels a bank to pay on demand irrespective of the status of the underlying debt” .

7.  This allows for international commerce to take place.

ON-DEMAND BONDS AND CONDITIONAL BONDS (SURETYSHIPS)

8.  The distinction between an on-demand bond and a conditional bond was dealt with by Brand JA in Minister of Transport & Public Works, Western Cape & Another v Zanbuild Construction (Pty) Ltd & Another as follows:

“In the parlance of the English authorities the dispute can be usefully paraphrased as being whether the guarantees are ‘conditional bonds’ (as suggested by Zanbuild) or ‘on demand bonds’ (as suggested by the department). The essential difference between the two, as appears from these authorities, is that a claimant under a conditional bond is required at least to allege and – depending on the terms of the bond – sometimes also establish liability on the part of the contractor for the same amount.  An ‘on demand’ bond, also referred to as a ‘call bond’, on the other hand, requires no allegation of liability on the part of the contractor under the construction contracts. All that is required for payment is a demand by the claimant, stated to be on the basis of the event specified in the bond.”

9.  In the absence of fraud, or the demand somehow being deficient as measured against the terms of the bond, the Guarantor is obliged to pay the Applicant irrespective of any disputes between the Second Respondent and the Applicant. The Court does not look behind the demand.

THE FRAUD EXCEPTION

10.  What would constitute a fraud has been dealt with in a number of cases, the most recent of which is the Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd where Theron JA held:

“It would be useful to briefly consider the legal position in relation to the fraud exception. It is trite that where a beneficiary who makes a call on a guarantee does so with knowledge that it is not entitled to payment, our courts will step in to protect the bank and decline enforcement of the guarantee in question. This fraud exception falls within a narrow compass and applies where:

‘… the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his (the seller’s) knowledge are untrue.’

Insofar as the fraud exception is concerned, the party alleging and relying on such exception bears the onus of proving it.  That onus is an ordinary civil one which has to be discharged on a balance of probabilities, but will not lightly be inferred.  In Loomcraft Fabrics CC v Nedbank Ltd and another, it was pointed out that in order to succeed in respect of the fraud exception, a party had to prove that the beneficiary presented the bills (documents) to the bank knowing that they contained material misrepresentations of fact upon which the bank would rely and which they knew were untrue. Mere error, misunderstanding or oversight, however unreasonable, would not amount to fraud.  Nor was it enough to show that the beneficiary’s contentions were incorrect. A party had to go further and show that the beneficiary knew it to be incorrect and that the contention was advanced in bad faith. …

Guardrisk contended that the demands under the guarantees were fraudulent as Kentz had not given Brokrew adequate notice within which to remedy the breaches alleged by it. It was argued that Kentz had elected not to rely on its right to summarily terminate the construction contract. Instead, and in terms of the letter dated 24 February 2010, it gave Brokrew seven days written notice to remedy its alleged breaches, when it was, in terms of clause 15.2(d) of the contract, obliged to provide 28 days written notice to Brokrew.  Furthermore, so the argument went, Kentz had failed to comply with the provisions of clause 2.5 of the construction contract in that it had not given notice to Brokrew of the clause it intended to rely upon and the amount that was to be paid to it in terms of clause 2.5. For these reasons, it was contended that the termination of the contract by Kentz was premature and unlawful.”

11.  These allegations proved to be insufficient and/or irrelevant with the result that payment under the guarantee was enforced by the Court.

12.  In Balfour Beatty Civil Engineering v Technical General Guarantee Co Ltd the Court held that:

“In this assessment one is entitled to remind oneself that the question is not whether Leadrail or its liquidator might be able to show that the sum claimed under the bond was in fact due. Nor is the question whether the beneficiary in the light of the evidence might not have some anxiety as to whether the sum was due and have some anxiety about whether Leadrail might not have a good claim to the return of the money if it is paid by the surety. The question is whether when the demand was made the persons acting on behalf of the plaintiffs knew that the sum claimed was not due from Leadrail, and dishonestly made a demand despite that knowledge.”

13.  The SCA’s finding in Coface South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven Housing Association is also significant in this context:

“[15] … At paragraph 63 Cloete JA said the following:

‘The appellant complied with the provisions of clause 5. It was not necessary for the appellant to allege that it had validly cancelled the building contract due to the second respondent’s default. Whatever disputes there were or might have been between the appellant and the second respondent were irrelevant to the first respondent’s obligation to perform in terms of the construction guarantee.’

[16] Cloete JA recorded that there was no suggestion of fraud on the part of the employer at paragraphs 64 and 65 he said:

‘[64]   Once the appellant [the beneficiary] had comply with clause 5 of the guarantee, the first respondent [the guarantor] had no defence to a claim under the guarantee. It still has no defence. The fact that an arbitrator has determined that the appellant was not entitled to cancel the contract, binds the appellant – but only vis-à-vis the second respondent [the employer]. It is res inter alios acta so far as the first respondent is concerned. As the cases to which I have referred above make abundantly clear, the appellant did not have to prove that it was entitled to cancel the building contract with the second respondent as a precondition to enforcement of the guaranteed given to it by the first respondent. Nor does it have to do so now.

[65]    For these reasons, it is not in my view bad faith for an employer, who has made a proper demand in terms of a construction guarantee, to continue to insist on payment of the proceeds of the guarantee, when the basis upon which the guarantee was called up has subsequently been found in arbitration proceedings between the building owner and the contractor to have bene unjustified. I would add that the fact that the arbitrator’s award is final as between the appellant and the second respondent does not mean that it is correct, or that the appellant would have to set it aside before calling up the guarantee, much less that the appellant is acting in bad faith in seeking to enforce payment under the guarantee against the first respondent.’

[17] At this stage it is necessary to consider cases that have come before this Court after Dormell dealing with letters of credit and construction guarantees.

[18]  In Casey v First Rand Bank Ltd (608/2012) [2013] ZASCA 131 this court, in relation to a letter of credit, had to deal with an assertion that the principal debt had prescribed. The guaranteeing bank’s client sought a declarator to that effect, submitting that the claim that the client had made upon the bank knowing that the claim had prescribed was fraudulent. It was contended that the effect of a declarator that the debt had prescribed was to extend the ambit of legitimate challenges to a letter of credit beyond the narrow confines of the fraud exception. In Casey, Swain AJA noted that:

‘(12)   … An irrevocable letter of credit is not accessory to the underlying contract and is distinguishable in law from a suretyship which is accessory to the principal obligation. See ABSA Bank Bpk v De Villiers 2001 (1) SA 481 (HHA).’

Later, he confirmed:

‘(14)   The distinction sought to be drawn on behalf of Casey and Kimberley is without merit. The issue of the irrevocable letter of credit by the Bank of America in favour of Firstrand, established a contractual obligation on the Bank of America to pay Firstrand as beneficiary, provided that the conditions specified in the credit were met. Reciprocal obligations in these terms were created by the letter of credit between the Bank of America and Firstrand. An order declaring that Firstrand had no right to draw-down on the letter of credit, must inevitably have as a consequence that the Bank of America was not obliged to honour this draw-down claim. Such an order would infringe upon the autonomy of the irrevocable letter of credit. The argument was advanced simply to circumvent the autonomy of the letter of credit.’

[19] In First Rand Bank Limited v Brera investments CC (385/2012 [2013] ZASCA 25, this court was faced with a situation where the guaranteeing bank sought to rely on events that occurred after demand had been made in terms of the guarantee. In that regard the decision in Dormell was relied upon. Malan JA, preferred the minority view in Dormell. At paragraph 11 of Brera, the autonomy of letters of credit, demand guarantees, performance bonds and similar documents was restated. The dictum in Lombard referred to above was reaffirmed.”

14.  In Turkey IS Banhasi v Bank of China it was found that even the likelihood that it would be found that the creditor had no right to claim on the bond was insufficient to establish fraud.

15.  The aforementioned cases have now clarified the current legal position in our jurisdiction in relation the onus of proof of the available defences to on-demand guarantees.

Construction Law – The nature of on-demand guarantees

1.  In construction contracts, on-demand guarantees or unconditional performance bonds are a means of guaranteeing the performance of the contractor to its employer. 

2.  On-demand guarantees are similar to letters of credit or promissory notes payable on demand.

3.  In Lombard v Landmark & Others  the following was held:

“… The guarantee creates an obligation to pay upon the happening of an event. …The guarantee was to protect the Academy in the event of default by Landmark and it is to the guarantee that one should look to determine the rights and obligations of the Academy and Lombard.”

4.  Lord Denning in Edward Owen Engineering Ltd v Barclays Bank International Ltd stated the principle as follows:

“A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions.  The only exception is where there is a clear fraud of which the bank has notice.”

5.  Similarly, Donaldson LJ held in  Intraco Ltd v Notis Shipping Corporation (The Bhoja Trader) that:

Irrevocable letters of credit and bank guarantees given in circumstances such as that they are the equivalent to an irrevocable letter of credit have been said to be the lifeblood of commerce. Thrombosis will occur if, unless fraud is involved, the Courts intervene and thereby disturb the mercantile practice of treating rights thereunder as being the equivalent of ‘cash in hand”.

6.  In Compass Insurance Company Ltd v Hospitality Hotel Developments (Pty) Ltd  this ratio was taken further when it was held that:

the reason for requiring strict compliance with a letter of credit is that it is an instrument that compels a bank to pay on demand irrespective of the status of the underlying debt” .

7.  This allows for international commerce to take place.

ON-DEMAND BONDS AND CONDITIONAL BONDS (SURETYSHIPS)

8.  The distinction between an on-demand bond and a conditional bond was dealt with by Brand JA in Minister of Transport & Public Works, Western Cape & Another v Zanbuild Construction (Pty) Ltd & Another as follows:

“In the parlance of the English authorities the dispute can be usefully paraphrased as being whether the guarantees are ‘conditional bonds’ (as suggested by Zanbuild) or ‘on demand bonds’ (as suggested by the department). The essential difference between the two, as appears from these authorities, is that a claimant under a conditional bond is required at least to allege and – depending on the terms of the bond – sometimes also establish liability on the part of the contractor for the same amount.  An ‘on demand’ bond, also referred to as a ‘call bond’, on the other hand, requires no allegation of liability on the part of the contractor under the construction contracts. All that is required for payment is a demand by the claimant, stated to be on the basis of the event specified in the bond.”

9.  In the absence of fraud, or the demand somehow being deficient as measured against the terms of the bond, the Guarantor is obliged to pay the Applicant irrespective of any disputes between the Second Respondent and the Applicant. The Court does not look behind the demand.

THE FRAUD EXCEPTION

10.  What would constitute a fraud has been dealt with in a number of cases, the most recent of which is the Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd where Theron JA held:

“It would be useful to briefly consider the legal position in relation to the fraud exception. It is trite that where a beneficiary who makes a call on a guarantee does so with knowledge that it is not entitled to payment, our courts will step in to protect the bank and decline enforcement of the guarantee in question. This fraud exception falls within a narrow compass and applies where:

‘… the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his (the seller’s) knowledge are untrue.’

Insofar as the fraud exception is concerned, the party alleging and relying on such exception bears the onus of proving it.  That onus is an ordinary civil one which has to be discharged on a balance of probabilities, but will not lightly be inferred.  In Loomcraft Fabrics CC v Nedbank Ltd and another, it was pointed out that in order to succeed in respect of the fraud exception, a party had to prove that the beneficiary presented the bills (documents) to the bank knowing that they contained material misrepresentations of fact upon which the bank would rely and which they knew were untrue. Mere error, misunderstanding or oversight, however unreasonable, would not amount to fraud.  Nor was it enough to show that the beneficiary’s contentions were incorrect. A party had to go further and show that the beneficiary knew it to be incorrect and that the contention was advanced in bad faith. …

Guardrisk contended that the demands under the guarantees were fraudulent as Kentz had not given Brokrew adequate notice within which to remedy the breaches alleged by it. It was argued that Kentz had elected not to rely on its right to summarily terminate the construction contract. Instead, and in terms of the letter dated 24 February 2010, it gave Brokrew seven days written notice to remedy its alleged breaches, when it was, in terms of clause 15.2(d) of the contract, obliged to provide 28 days written notice to Brokrew.  Furthermore, so the argument went, Kentz had failed to comply with the provisions of clause 2.5 of the construction contract in that it had not given notice to Brokrew of the clause it intended to rely upon and the amount that was to be paid to it in terms of clause 2.5. For these reasons, it was contended that the termination of the contract by Kentz was premature and unlawful.”

11.  These allegations proved to be insufficient and/or irrelevant with the result that payment under the guarantee was enforced by the Court.

12.  In Balfour Beatty Civil Engineering v Technical General Guarantee Co Ltd the Court held that:

“In this assessment one is entitled to remind oneself that the question is not whether Leadrail or its liquidator might be able to show that the sum claimed under the bond was in fact due. Nor is the question whether the beneficiary in the light of the evidence might not have some anxiety as to whether the sum was due and have some anxiety about whether Leadrail might not have a good claim to the return of the money if it is paid by the surety. The question is whether when the demand was made the persons acting on behalf of the plaintiffs knew that the sum claimed was not due from Leadrail, and dishonestly made a demand despite that knowledge.”

13.  The SCA’s finding in Coface South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven Housing Association is also significant in this context:

“[15] … At paragraph 63 Cloete JA said the following:

‘The appellant complied with the provisions of clause 5. It was not necessary for the appellant to allege that it had validly cancelled the building contract due to the second respondent’s default. Whatever disputes there were or might have been between the appellant and the second respondent were irrelevant to the first respondent’s obligation to perform in terms of the construction guarantee.’

[16] Cloete JA recorded that there was no suggestion of fraud on the part of the employer at paragraphs 64 and 65 he said:

‘[64]   Once the appellant [the beneficiary] had comply with clause 5 of the guarantee, the first respondent [the guarantor] had no defence to a claim under the guarantee. It still has no defence. The fact that an arbitrator has determined that the appellant was not entitled to cancel the contract, binds the appellant – but only vis-à-vis the second respondent [the employer]. It is res inter alios acta so far as the first respondent is concerned. As the cases to which I have referred above make abundantly clear, the appellant did not have to prove that it was entitled to cancel the building contract with the second respondent as a precondition to enforcement of the guaranteed given to it by the first respondent. Nor does it have to do so now.

[65]    For these reasons, it is not in my view bad faith for an employer, who has made a proper demand in terms of a construction guarantee, to continue to insist on payment of the proceeds of the guarantee, when the basis upon which the guarantee was called up has subsequently been found in arbitration proceedings between the building owner and the contractor to have bene unjustified. I would add that the fact that the arbitrator’s award is final as between the appellant and the second respondent does not mean that it is correct, or that the appellant would have to set it aside before calling up the guarantee, much less that the appellant is acting in bad faith in seeking to enforce payment under the guarantee against the first respondent.’

[17] At this stage it is necessary to consider cases that have come before this Court after Dormell dealing with letters of credit and construction guarantees.

[18]  In Casey v First Rand Bank Ltd (608/2012) [2013] ZASCA 131 this court, in relation to a letter of credit, had to deal with an assertion that the principal debt had prescribed. The guaranteeing bank’s client sought a declarator to that effect, submitting that the claim that the client had made upon the bank knowing that the claim had prescribed was fraudulent. It was contended that the effect of a declarator that the debt had prescribed was to extend the ambit of legitimate challenges to a letter of credit beyond the narrow confines of the fraud exception. In Casey, Swain AJA noted that:

‘(12)   … An irrevocable letter of credit is not accessory to the underlying contract and is distinguishable in law from a suretyship which is accessory to the principal obligation. See ABSA Bank Bpk v De Villiers 2001 (1) SA 481 (HHA).’

Later, he confirmed:

‘(14)   The distinction sought to be drawn on behalf of Casey and Kimberley is without merit. The issue of the irrevocable letter of credit by the Bank of America in favour of Firstrand, established a contractual obligation on the Bank of America to pay Firstrand as beneficiary, provided that the conditions specified in the credit were met. Reciprocal obligations in these terms were created by the letter of credit between the Bank of America and Firstrand. An order declaring that Firstrand had no right to draw-down on the letter of credit, must inevitably have as a consequence that the Bank of America was not obliged to honour this draw-down claim. Such an order would infringe upon the autonomy of the irrevocable letter of credit. The argument was advanced simply to circumvent the autonomy of the letter of credit.’

[19] In First Rand Bank Limited v Brera investments CC (385/2012 [2013] ZASCA 25, this court was faced with a situation where the guaranteeing bank sought to rely on events that occurred after demand had been made in terms of the guarantee. In that regard the decision in Dormell was relied upon. Malan JA, preferred the minority view in Dormell. At paragraph 11 of Brera, the autonomy of letters of credit, demand guarantees, performance bonds and similar documents was restated. The dictum in Lombard referred to above was reaffirmed.”

14.  In Turkey IS Banhasi v Bank of China it was found that even the likelihood that it would be found that the creditor had no right to claim on the bond was insufficient to establish fraud.

15.  The aforementioned cases have now clarified the current legal position in our jurisdiction in relation the onus of proof of the available defences to on-demand guarantees.

Insurance Law – The consequences of non-fulfilment of a condition precedent contained in an insurance policy: a recent decision

In Screening and Earthworks (Pty) Ltd v Hollard Insurance Company Limited the South Gauteng High Court recently considered whether a ‘condition precedent’ in an insurance policy placed a positive contractual obligation on an insured. The judgement is noteworthy to players in the machinery-breakdown-insurance field, but also to liability and indemnity Insurers.

The Plaintiff claimed the cost of repairing its cone crusher which became damaged as a result of the failure of the crusher’s main bearing from Insurers. The failure occurred during late October of 2007. Insurers refused indemnity under the Machinery Breakdown and Loss of Profit policy, raising a number of defences (certain of which fell away during the course of the trial). The most important remaining defence put up by Insurers was that the Plaintiff failed to preserve the damaged parts of the crusher and failed to make the parts available to it for inspection.

Kathree-Setiloane J considered first the following general condition of the policy:

“The due observance and fulfilment of the terms of this Policy … shall insofar as they relate to anything to be done or complied with by the insured be a condition precedent to any liability of the company [Insurers] to make any payment under this Policy.”

The particular term on which Insurers relied stipulated that:

“… on the happening of any event which may result in a claim under this Policy the insured shall as soon as possible and at its own expense … iii) preserve any damaged parts and make them available for inspection by a representative or surveyor of the company.” (hereinafter referred to as “the preservation condition”).

The Judge pointed out that the defence on which Insurers sought to rely was a ‘special defence’ founded on exceptions contained in the policy, and thus stood to be proved by Insurers. He considered the dictionary definitions of “preservation” (“preserving, being preserved, from injury or destruction”), “preserve” (“to keep safe”, “to keep safe from change or extinction” and “to protect from decay and damage”).

Insurers’ arguments

Insurers argued that the preservation condition was a condition precedent to a successful claim and that the Plaintiff had to comply with it, failing which Insurers were at liberty to deny liability under the policy.

Insurers also argued that the inclusion of a preservation clause in a policy of this nature was essential, as in its absence, Insurers would “be left to the mercy of the insured’s unilateral decision-making, leaving the insurers with no checks or balances” and that ‘strict observance’ was a condition precedent to liability on its part.

Plaintiff’s evidence

The Plaintiff led evidence by its own representatives as well as a number of experts.

Evidence made it clear that the Plaintiff started stripping the failed crusher shortly after the failure: parts were separated; some components were left in situ while others were freighted away to the Plaintiff’s workshop where certain parts were undressed further; some critical parts were even torch cut.

Expert evidence confirmed that the torch cutting may have caused the “killing of” evidence (not only of the parts which were cut, but also possibly the surrounding parts).

Under cross-examination, the Plaintiff’s representative conceded that these actions “killed evidence” but he attempted to soften this by offering that he had not intended to obscure or destroy evidence. He contended that he was simply driven by practical considerations and expediency when he instructed and oversaw the dismantling, hauling and cutting of the parts.

Insurers’ appointed loss adjuster apparently visited the site during November 2007 and his letter to the Plaintiff was accepted into record as an aid memoire or memorandum of sorts. The loss adjuster took some photographs of certain parts which were made available to him for inspection. It was contended by the Plaintiff that the loss adjuster failed to make a demand or request to see further evidence.

In response to these arguments, Kathree-Setiloane J observed that it was apparent from the evidence that the Plaintiff had become aware at a very early stage (mere days after the failure) of the “event which may result in a claim” and that the Plaintiff would have appreciated the ‘serious nature of the event’ almost immediately. It would thus have been apparent to the Plaintiff at such an early stage that an insurable event had occurred. The Plaintiff should have then complied with the obligation placed on it by the policy to preserve the failed component parts in order to make it available to Insurers.

The learned Judge observed further that the contractual obligation to preserve evidence is ‘absolute’ and that the test was thus not whether the Plaintiff’s failure to comply was intentional or negligent. The test was simply this: “was it preserved or not?” He agreed with Insurers’ contention that the Plaintiff’s failure to preserve the damaged parts was patent and fatal to the plaintiff’s claim and commented:

“What is absolutely certain at this time, is a complete and utter failure to preserve inter alia the damaged parts in the form of the component bearing. The bearing had for all intents and purposes been completely “destructed” by this stage in complete disregard of the plaintiff’s contractual and absolute obligations to preserve.”

The Judge commented on the mind-set of the Plaintiff as being apparent from its conduct and referred to the Plaintiff’s reliance of its broker’s advice to: “… carry on, do what you must as if you were uninsured …. The Plaintiff acknowledged to have interpreted the broker’s advice as “… do not waste time, do not wait, carry on because your income is standing, we will do whatever to get you going.”

The Court also commented pointedly that it was not for Insurers to demand to see the preserved damaged parts but for the Plaintiff to preserve same and “make them available” to Insurers for inspection.

Further expert evidence

By the time the Plaintiff’s experts became involved in the study of the occurrence, the failure to preserve and the consequences of such failure had become manifest and its consequences had been apparent.

One expert reported the he was only able to consider “the possible cause of failure having only inspected the inner ring, cage and two rollers” and he expressed grave misgivings on the fact that the cage had been cut at the point where the damage occurred, stating that the fact of the cutting made it “impossible to determine if there was a fracture, crack or distortion.” His report and his verbal evidence was littered with qualification and similar observations, concluding unsatisfactorily that on the sparse evidence available to him, he could merely conclude that the fracture of a cage pocket would usually be the sudden result of severe shock. His report made it clear that other possibilities could not be excluded.

One other expert reported plainly that the Plaintiff had killed evidence.

All the experts agreed that the only reliable mechanism for determining the cause of the failure with absolute certainty would be to examine the bearing as a full component.

The Court’s observations

Given the experts’ common view that there was a dire need to inspect a whole component, the learned Judge considered the practicality of preservation clauses as conditions precedent that place an ‘absolute obligation’ on the Plaintiff. He went on to say that preservation clauses were not merely inserted into policies so that Insurers would be allowed to avoid liability on vague and unreasonable technicalities. Preservation clauses, he stated, were essential for the proper assessment of the facts of a matter since such terms (that oblige a party to take on a positive duty) were designed to minimise the incidence of risk and to determine the extent of a loss.

The Judge referred, with approval, to similar clauses that have found application in our law –

First, the ‘timeous notice clauses’ which were found to be conditions precedent in Norris v Legal and General Assurance Society Limited : Watermeyer J in casu found (after considering various precedents) that a condition which imposes an obligation on an insured which was clearly intended to have some legal effect, in terms of which

“[t]he insured shall on the happening of any loss or damage to the property insured give immediate notice thereof in writing to the Company and shall at his own expense within 30 days after the happening of such loss or damage deliver to the Company a claim in writing with such detailed particulars and proofs as may be reasonably required …”

was indeed a condition precedent and the Plaintiff, having failed to comply with either of the conditions, was consequently not entitled to indemnity.

The Judge stated that Insurers would “obviously want to know immediately of the happening of a fire so that it could investigate the cause and effect thereof under the most favourable circumstances … Delay in notifying the Company … might well result in serious prejudice to the Company.”

Second, in Russel, N.O. and Loveday, N.O. v Collins Submarine Pipelines Africa (Pty) Ltd the Court found that a positive obligation in the form of assistance and co-operation was deemed to be a suspensive condition for the positive election by Insurers “to exercise their right to associate.”

Conclusion

Kathree-Setiloane J concluded that the uncontroverted evidence led on behalf of the Plaintiff (through its experts and representatives) equated to an admission that there had been a breach of its obligation to preserve. In law such a breach of an express term of the contract allowed Insurers to avoid liability and to reject the claim. It was found that Insurers had discharged its onus to prove on a balance of probabilities that the Plaintiff had failed to comply with its obligation and that Insurers were entitled to reject the Plaintiff’s claim.

The judgement is sound for many reasons. Where circumstances present an Insured with the opportunity to tamper with or destroy evidence, whether intentionally or not, it is crucial that Insurers are allowed reliance on a condition precedent to allow it a fair opportunity to investigate a claim.

Such conditions should be regarded as designed to ensure the preservation of evidence in order that Insurers may perform their own assessment but also to assist the Insured in the technical and commercial management of its plant and business.

Insurance Law – The consequences of non-fulfilment of a condition precedent contained in an insurance policy: a recent decision

In Screening and Earthworks (Pty) Ltd v Hollard Insurance Company Limited the South Gauteng High Court recently considered whether a ‘condition precedent’ in an insurance policy placed a positive contractual obligation on an insured. The judgement is noteworthy to players in the machinery-breakdown-insurance field, but also to liability and indemnity Insurers.

The Plaintiff claimed the cost of repairing its cone crusher which became damaged as a result of the failure of the crusher’s main bearing from Insurers. The failure occurred during late October of 2007. Insurers refused indemnity under the Machinery Breakdown and Loss of Profit policy, raising a number of defences (certain of which fell away during the course of the trial). The most important remaining defence put up by Insurers was that the Plaintiff failed to preserve the damaged parts of the crusher and failed to make the parts available to it for inspection.

Kathree-Setiloane J considered first the following general condition of the policy:

“The due observance and fulfilment of the terms of this Policy … shall insofar as they relate to anything to be done or complied with by the insured be a condition precedent to any liability of the company [Insurers] to make any payment under this Policy.”

The particular term on which Insurers relied stipulated that:

“… on the happening of any event which may result in a claim under this Policy the insured shall as soon as possible and at its own expense … iii) preserve any damaged parts and make them available for inspection by a representative or surveyor of the company.” (hereinafter referred to as “the preservation condition”).

The Judge pointed out that the defence on which Insurers sought to rely was a ‘special defence’ founded on exceptions contained in the policy, and thus stood to be proved by Insurers. He considered the dictionary definitions of “preservation” (“preserving, being preserved, from injury or destruction”), “preserve” (“to keep safe”, “to keep safe from change or extinction” and “to protect from decay and damage”).

Insurers’ arguments

Insurers argued that the preservation condition was a condition precedent to a successful claim and that the Plaintiff had to comply with it, failing which Insurers were at liberty to deny liability under the policy.

Insurers also argued that the inclusion of a preservation clause in a policy of this nature was essential, as in its absence, Insurers would “be left to the mercy of the insured’s unilateral decision-making, leaving the insurers with no checks or balances” and that ‘strict observance’ was a condition precedent to liability on its part.

Plaintiff’s evidence

The Plaintiff led evidence by its own representatives as well as a number of experts.

Evidence made it clear that the Plaintiff started stripping the failed crusher shortly after the failure: parts were separated; some components were left in situ while others were freighted away to the Plaintiff’s workshop where certain parts were undressed further; some critical parts were even torch cut.

Expert evidence confirmed that the torch cutting may have caused the “killing of” evidence (not only of the parts which were cut, but also possibly the surrounding parts).

Under cross-examination, the Plaintiff’s representative conceded that these actions “killed evidence” but he attempted to soften this by offering that he had not intended to obscure or destroy evidence. He contended that he was simply driven by practical considerations and expediency when he instructed and oversaw the dismantling, hauling and cutting of the parts.

Insurers’ appointed loss adjuster apparently visited the site during November 2007 and his letter to the Plaintiff was accepted into record as an aid memoire or memorandum of sorts. The loss adjuster took some photographs of certain parts which were made available to him for inspection. It was contended by the Plaintiff that the loss adjuster failed to make a demand or request to see further evidence.

In response to these arguments, Kathree-Setiloane J observed that it was apparent from the evidence that the Plaintiff had become aware at a very early stage (mere days after the failure) of the “event which may result in a claim” and that the Plaintiff would have appreciated the ‘serious nature of the event’ almost immediately. It would thus have been apparent to the Plaintiff at such an early stage that an insurable event had occurred. The Plaintiff should have then complied with the obligation placed on it by the policy to preserve the failed component parts in order to make it available to Insurers.

The learned Judge observed further that the contractual obligation to preserve evidence is ‘absolute’ and that the test was thus not whether the Plaintiff’s failure to comply was intentional or negligent. The test was simply this: “was it preserved or not?” He agreed with Insurers’ contention that the Plaintiff’s failure to preserve the damaged parts was patent and fatal to the plaintiff’s claim and commented:

“What is absolutely certain at this time, is a complete and utter failure to preserve inter alia the damaged parts in the form of the component bearing. The bearing had for all intents and purposes been completely “destructed” by this stage in complete disregard of the plaintiff’s contractual and absolute obligations to preserve.”

The Judge commented on the mind-set of the Plaintiff as being apparent from its conduct and referred to the Plaintiff’s reliance of its broker’s advice to: “… carry on, do what you must as if you were uninsured …. The Plaintiff acknowledged to have interpreted the broker’s advice as “… do not waste time, do not wait, carry on because your income is standing, we will do whatever to get you going.”

The Court also commented pointedly that it was not for Insurers to demand to see the preserved damaged parts but for the Plaintiff to preserve same and “make them available” to Insurers for inspection.

Further expert evidence

By the time the Plaintiff’s experts became involved in the study of the occurrence, the failure to preserve and the consequences of such failure had become manifest and its consequences had been apparent.

One expert reported the he was only able to consider “the possible cause of failure having only inspected the inner ring, cage and two rollers” and he expressed grave misgivings on the fact that the cage had been cut at the point where the damage occurred, stating that the fact of the cutting made it “impossible to determine if there was a fracture, crack or distortion.” His report and his verbal evidence was littered with qualification and similar observations, concluding unsatisfactorily that on the sparse evidence available to him, he could merely conclude that the fracture of a cage pocket would usually be the sudden result of severe shock. His report made it clear that other possibilities could not be excluded.

One other expert reported plainly that the Plaintiff had killed evidence.

All the experts agreed that the only reliable mechanism for determining the cause of the failure with absolute certainty would be to examine the bearing as a full component.

The Court’s observations

Given the experts’ common view that there was a dire need to inspect a whole component, the learned Judge considered the practicality of preservation clauses as conditions precedent that place an ‘absolute obligation’ on the Plaintiff. He went on to say that preservation clauses were not merely inserted into policies so that Insurers would be allowed to avoid liability on vague and unreasonable technicalities. Preservation clauses, he stated, were essential for the proper assessment of the facts of a matter since such terms (that oblige a party to take on a positive duty) were designed to minimise the incidence of risk and to determine the extent of a loss.

The Judge referred, with approval, to similar clauses that have found application in our law –

First, the ‘timeous notice clauses’ which were found to be conditions precedent in Norris v Legal and General Assurance Society Limited : Watermeyer J in casu found (after considering various precedents) that a condition which imposes an obligation on an insured which was clearly intended to have some legal effect, in terms of which

“[t]he insured shall on the happening of any loss or damage to the property insured give immediate notice thereof in writing to the Company and shall at his own expense within 30 days after the happening of such loss or damage deliver to the Company a claim in writing with such detailed particulars and proofs as may be reasonably required …”

was indeed a condition precedent and the Plaintiff, having failed to comply with either of the conditions, was consequently not entitled to indemnity.

The Judge stated that Insurers would “obviously want to know immediately of the happening of a fire so that it could investigate the cause and effect thereof under the most favourable circumstances … Delay in notifying the Company … might well result in serious prejudice to the Company.”

Second, in Russel, N.O. and Loveday, N.O. v Collins Submarine Pipelines Africa (Pty) Ltd the Court found that a positive obligation in the form of assistance and co-operation was deemed to be a suspensive condition for the positive election by Insurers “to exercise their right to associate.”

Conclusion

Kathree-Setiloane J concluded that the uncontroverted evidence led on behalf of the Plaintiff (through its experts and representatives) equated to an admission that there had been a breach of its obligation to preserve. In law such a breach of an express term of the contract allowed Insurers to avoid liability and to reject the claim. It was found that Insurers had discharged its onus to prove on a balance of probabilities that the Plaintiff had failed to comply with its obligation and that Insurers were entitled to reject the Plaintiff’s claim.

The judgement is sound for many reasons. Where circumstances present an Insured with the opportunity to tamper with or destroy evidence, whether intentionally or not, it is crucial that Insurers are allowed reliance on a condition precedent to allow it a fair opportunity to investigate a claim.

Such conditions should be regarded as designed to ensure the preservation of evidence in order that Insurers may perform their own assessment but also to assist the Insured in the technical and commercial management of its plant and business.

Medical Law – To turn or not to turn a critically ill patient – that is the question

The Supreme Court of Appeal handed down judgement on 26 September 2014 in the matter of Medi-Clinic Limited v George Vermeulen (unreported).  The issue before the court was the avoidability of bedsores in critically ill patients.  In coming to a decision, the court reaffirmed the principles involved when critically assessing directly opposing expert evidence.

Mr Vermeulen was hospitalised on 17 May 2007 at the Medi-Clinic Hospital in Nelspruit (“the hospital”) with a diagnosis of cerebral malaria.  He was gravely ill on admission with a depressed level of consciousness and having difficulty breathing.  His pulse rate was 130 beats per minute and he was already showing signs of respiratory failure.   He had a history of hypertension, weighed 150kg and was assessed to be at risk of developing pressure sores in accordance with the Waterlow scale.

Mr Vermeulen was treated in the ICU from 17 May 2007 to 24 July 2007, whereafter he was transferred to a general ward until his discharge on 21 October 2007.  The experts for both Mr Vermeulen and the hospital were ad idem that Mr Vermeulen’s condition was critical during the period 20 May 2007 to 24 May 2007 (“the critical period”).  His blood pressure levels were very low (at one stage life threateningly so), he developed renal failure, was hyperglycaemic, and had poor peripheral infusion with cold extremities and weak pedal pulses.  He was, inter alia, intubated, catheterised, receiving inotropic support to sustain his blood pressure, and on insulin and dialysis. 

It was accepted that Mr Vermeulen was incapable of turning himself during the critical period and that he developed a significant sacral bedsore, the severity of which caused bilateral sciatic nerve injuries.  As a result, Mr Vermeulen became paralysed and wheelchair bound. 

Mr Vermeulen instituted action against the hospital alleging that the nursing staff was negligent by not employing sufficient measures (such as turning him regularly) to avoid the onset of the bedsore.  The hospital in turn denied negligence on its part and contended that the bedsore was unavoidable in Mr Vermeulen’s case as turning him whilst critically ill would have been life threatening. 

The parties were ad idem that the bedsore developed during the critical period and that turning Mr Vermeulen regularly would have prevented the onset of the bedsore.  The dispute centred around whether it would have been safe to turn Mr Vermeulen during the critical period and thus the avoidability of bedsore.  The experts seemed to be in agreement that, generally speaking, it is unsafe to turn a critically ill patient if that patient’s mean blood pressure is too low.  They, however, were at odds as to what would constitute a life threateningly low mean blood pressure in Mr Vermeulen’s case. 

The court a quo rejected the evidence of the hospital’s expert that Mr Vermeulen’s blood pressure was too low during the critical period to turn him as being illogical and unfounded when regard is had to the ICU charts indicating instances where Mr Vermeulen was turned despite having a low blood pressure, and yet did not succumb.  It found in favour of Mr Vermeulen and the hospital appealed to the Supreme Court of Appeal (“the SCA”).

The SCA referred with approval to the approach taken in the matter of Michael & another v Linksfield Park Clinic (Pty) Ltd & another 2001 (3) SA 1188 (SCA) when assessing conflicting medical evidence as to what constitutes proper treatment of a patient.  In order to determine which evidence is to be accepted, the court has to critically evaluate the conflicting expert testimony to determine whether it is founded on logical reasoning, and whether the expert had applied his mind to the question of comparative risks and benefits in reaching a conclusion.  Expert evidence not founded on logical reasoning should be rejected.  In instances where, after such a critical evaluation, it is found that both diametrically opposing views are based on logical reasoning, “it is not open to a court simply to express a preference for the one rather than the other and on that basis to hold the medical practitioner to have been negligent.  Provided a medical practitioner acts in accordance with a reasonable and respectable body of medical opinions his conduct cannot be condemned as negligent merely because another equally reasonable and respectable body of medical opinion would have acted differently”. 

Mr Vermeulen called a specialist surgeon as expert who testified that not every patient would become haemodynamically unstable when being moved.  As such, he argued that the nursing staff should turn a patient and report any change in the patient’s haemodynamic stability to the treating doctor, who would then be responsible for deciding whether said change is significant enough to be life threatening, in which event he should order the nursing staff not to turn the patient.  His approach was thus one of preventing the development of a pressure sore at all cost, even at the risk of the patient’s life.   

The hospital’s expert (an anaesthesiologist and critical care specialist) criticised Mr Vermeulen’s expert’s approach as being too risky.  He indicated that once a patient has a mean blood pressure low enough to result in cardiac muscle injury, any further lowering would cause greater damage with the risk of acute severe myocardial injury and even ventricular fibrillation.  Thus, if a patient’s blood pressure is theoretically too low, which was in his view the case with Mr Vermeulen, he should not be turned as doing so could have dire consequences. 

The SCA held that the court a quo should have determined whether the reasons provided by Mr Vermeulen’s expert for the contention that he could have been turned during this period, were valid in light of the hospital’s expert evidence as the assessment of medical risks and benefits is a matter involving clinical judgement. 

The SCA rejected Mr Vermeulen’s expert’s evidence on the basis that he did not direct his mind to the question of comparative risks and benefits.  It held that the approach taken by the said expert to determine whether it is safe to turn a critically ill patient by first having evidence that doing so would affect the patient’s haemodynamic stability is too risky.  It further held that in reaching the conclusion that Mr Vermeulen could be turned, his expert did not take into account his blood pressure levels, which according to the hospital’s expert’s evidence was a relevant factor to consider whether or not a critically ill patient should be turned. 

The court thus accepted the hospital’s expert’s evidence as it was found to be based on logical reasoning. It held that, in coming to the conclusion that Mr Vermeulen’s injuries were unavoidable, the said expert weighed the relative risks and benefits of the suggested nursing care aimed at avoiding the pressure sores and concluded that such care was medically inadvisable due to the risk posed to the patient’s life. 

The SCA accordingly held that the court a quo’s findings that the nursing staff was negligent cannot be sustained and upheld the appeal.  It mentioned that although one has sympathy for Mr Vermeulen:

“. . . we should be doing a disservice to the community at large if we were to impose liability on hospitals and doctors for everything that happens to go wrong.  Doctors would be led to think more of their own safety than of the good of their patients.  Initiative would be stifled and confidence shaken.  A proper sense of proportion requires us to have regard to the conditions in which hospitals and doctors have to work.  We must insist on due care for the patient at every point, but we must not condemn as negligence that which is only a misadventure” (Roe v Ministry of Health & others; Woolley v Same [1954] 2 All ER 131 (CA)).

The judgement does not deal with whether the implementation of measures other than turning Mr Vermeulen regularly could have avoided or delayed the formation, alternatively minimised the severity of the bedsore.  A nursing expert called on Mr Vermeulen’s behalf testified that even though it is not advisable to turn an extremely unstable patient, other measured can be implemented to prevent pressure sores, such as treating a patient on a nimbus mattress, or placing a soft pillow underneath the patient’s buttocks for half an hour at a time.  Mr Vermeulen’s treating doctor testified that he recommended that Mr Vermeulen be treated on a nimbus mattress when purple coloured lesions were noted on his buttocks on 25 May 2007, but that the said mattress was only applied late that evening after the skin had already turned black.  It would have been interesting to know whether the court considered the implementation of these alternative measures as being capable of preventing the bedsore.

Medical Law – To turn or not to turn a critically ill patient – that is the question

The Supreme Court of Appeal handed down judgement on 26 September 2014 in the matter of Medi-Clinic Limited v George Vermeulen (unreported).  The issue before the court was the avoidability of bedsores in critically ill patients.  In coming to a decision, the court reaffirmed the principles involved when critically assessing directly opposing expert evidence.

Mr Vermeulen was hospitalised on 17 May 2007 at the Medi-Clinic Hospital in Nelspruit (“the hospital”) with a diagnosis of cerebral malaria.  He was gravely ill on admission with a depressed level of consciousness and having difficulty breathing.  His pulse rate was 130 beats per minute and he was already showing signs of respiratory failure.   He had a history of hypertension, weighed 150kg and was assessed to be at risk of developing pressure sores in accordance with the Waterlow scale.

Mr Vermeulen was treated in the ICU from 17 May 2007 to 24 July 2007, whereafter he was transferred to a general ward until his discharge on 21 October 2007.  The experts for both Mr Vermeulen and the hospital were ad idem that Mr Vermeulen’s condition was critical during the period 20 May 2007 to 24 May 2007 (“the critical period”).  His blood pressure levels were very low (at one stage life threateningly so), he developed renal failure, was hyperglycaemic, and had poor peripheral infusion with cold extremities and weak pedal pulses.  He was, inter alia, intubated, catheterised, receiving inotropic support to sustain his blood pressure, and on insulin and dialysis. 

It was accepted that Mr Vermeulen was incapable of turning himself during the critical period and that he developed a significant sacral bedsore, the severity of which caused bilateral sciatic nerve injuries.  As a result, Mr Vermeulen became paralysed and wheelchair bound. 

Mr Vermeulen instituted action against the hospital alleging that the nursing staff was negligent by not employing sufficient measures (such as turning him regularly) to avoid the onset of the bedsore.  The hospital in turn denied negligence on its part and contended that the bedsore was unavoidable in Mr Vermeulen’s case as turning him whilst critically ill would have been life threatening. 

The parties were ad idem that the bedsore developed during the critical period and that turning Mr Vermeulen regularly would have prevented the onset of the bedsore.  The dispute centred around whether it would have been safe to turn Mr Vermeulen during the critical period and thus the avoidability of bedsore.  The experts seemed to be in agreement that, generally speaking, it is unsafe to turn a critically ill patient if that patient’s mean blood pressure is too low.  They, however, were at odds as to what would constitute a life threateningly low mean blood pressure in Mr Vermeulen’s case. 

The court a quo rejected the evidence of the hospital’s expert that Mr Vermeulen’s blood pressure was too low during the critical period to turn him as being illogical and unfounded when regard is had to the ICU charts indicating instances where Mr Vermeulen was turned despite having a low blood pressure, and yet did not succumb.  It found in favour of Mr Vermeulen and the hospital appealed to the Supreme Court of Appeal (“the SCA”).

The SCA referred with approval to the approach taken in the matter of Michael & another v Linksfield Park Clinic (Pty) Ltd & another 2001 (3) SA 1188 (SCA) when assessing conflicting medical evidence as to what constitutes proper treatment of a patient.  In order to determine which evidence is to be accepted, the court has to critically evaluate the conflicting expert testimony to determine whether it is founded on logical reasoning, and whether the expert had applied his mind to the question of comparative risks and benefits in reaching a conclusion.  Expert evidence not founded on logical reasoning should be rejected.  In instances where, after such a critical evaluation, it is found that both diametrically opposing views are based on logical reasoning, “it is not open to a court simply to express a preference for the one rather than the other and on that basis to hold the medical practitioner to have been negligent.  Provided a medical practitioner acts in accordance with a reasonable and respectable body of medical opinions his conduct cannot be condemned as negligent merely because another equally reasonable and respectable body of medical opinion would have acted differently”. 

Mr Vermeulen called a specialist surgeon as expert who testified that not every patient would become haemodynamically unstable when being moved.  As such, he argued that the nursing staff should turn a patient and report any change in the patient’s haemodynamic stability to the treating doctor, who would then be responsible for deciding whether said change is significant enough to be life threatening, in which event he should order the nursing staff not to turn the patient.  His approach was thus one of preventing the development of a pressure sore at all cost, even at the risk of the patient’s life.   

The hospital’s expert (an anaesthesiologist and critical care specialist) criticised Mr Vermeulen’s expert’s approach as being too risky.  He indicated that once a patient has a mean blood pressure low enough to result in cardiac muscle injury, any further lowering would cause greater damage with the risk of acute severe myocardial injury and even ventricular fibrillation.  Thus, if a patient’s blood pressure is theoretically too low, which was in his view the case with Mr Vermeulen, he should not be turned as doing so could have dire consequences. 

The SCA held that the court a quo should have determined whether the reasons provided by Mr Vermeulen’s expert for the contention that he could have been turned during this period, were valid in light of the hospital’s expert evidence as the assessment of medical risks and benefits is a matter involving clinical judgement. 

The SCA rejected Mr Vermeulen’s expert’s evidence on the basis that he did not direct his mind to the question of comparative risks and benefits.  It held that the approach taken by the said expert to determine whether it is safe to turn a critically ill patient by first having evidence that doing so would affect the patient’s haemodynamic stability is too risky.  It further held that in reaching the conclusion that Mr Vermeulen could be turned, his expert did not take into account his blood pressure levels, which according to the hospital’s expert’s evidence was a relevant factor to consider whether or not a critically ill patient should be turned. 

The court thus accepted the hospital’s expert’s evidence as it was found to be based on logical reasoning. It held that, in coming to the conclusion that Mr Vermeulen’s injuries were unavoidable, the said expert weighed the relative risks and benefits of the suggested nursing care aimed at avoiding the pressure sores and concluded that such care was medically inadvisable due to the risk posed to the patient’s life. 

The SCA accordingly held that the court a quo’s findings that the nursing staff was negligent cannot be sustained and upheld the appeal.  It mentioned that although one has sympathy for Mr Vermeulen:

“. . . we should be doing a disservice to the community at large if we were to impose liability on hospitals and doctors for everything that happens to go wrong.  Doctors would be led to think more of their own safety than of the good of their patients.  Initiative would be stifled and confidence shaken.  A proper sense of proportion requires us to have regard to the conditions in which hospitals and doctors have to work.  We must insist on due care for the patient at every point, but we must not condemn as negligence that which is only a misadventure” (Roe v Ministry of Health & others; Woolley v Same [1954] 2 All ER 131 (CA)).

The judgement does not deal with whether the implementation of measures other than turning Mr Vermeulen regularly could have avoided or delayed the formation, alternatively minimised the severity of the bedsore.  A nursing expert called on Mr Vermeulen’s behalf testified that even though it is not advisable to turn an extremely unstable patient, other measured can be implemented to prevent pressure sores, such as treating a patient on a nimbus mattress, or placing a soft pillow underneath the patient’s buttocks for half an hour at a time.  Mr Vermeulen’s treating doctor testified that he recommended that Mr Vermeulen be treated on a nimbus mattress when purple coloured lesions were noted on his buttocks on 25 May 2007, but that the said mattress was only applied late that evening after the skin had already turned black.  It would have been interesting to know whether the court considered the implementation of these alternative measures as being capable of preventing the bedsore.

Medical Law – HPCSA Professional Board Nominations – CHOOSE YOUR PEERS WISELY!

The Health Professions Council of South Africa (“HPCSA”) are inviting medical practitioners to submit nominations for members of their respective Professional Boards, which members will be appointed by the Minister of Health to serve on the respective boards for a new term of office effective 1 July 2015 to 30 June 2020 (5 years).

THE PROFESSIONAL BOARDS:

The Professional Boards are co-ordinating bodies for healthcare practitioners registered with the HPCSA. Each Professional Board deals with matters relating to its specific profession, including maintaining and applying fair standards of professional conduct and practice in order to effectively protect the interests of the public, as well as investigating complaints made against practitioners.

The members of the Professional Boards, inter alia, have the authority to institute disciplinary proceedings with regard to a complaint, charge or allegation of unprofessional conduct made against a practitioner, in which event the practitioner will be subjected to a disciplinary process in terms of the HPCSA regulations. The committee responsible for adjudicating the matter will consist of, inter alia, members of such practitioner’s particular Professional Board.

A board member is required, inter alia, to be a South African Citizen registered with the HPCSA, not previously sequestrated and/or disqualified from practicing his or her profession under the Health Professions Act, and not previously found guilty of improper or disgraceful conduct at a disciplinary inquiry. Furthermore, a person shall not be considered for appointment should he or she have served two consecutive terms of office on a Professional Board.

 NOMINATIONS:

Nominations have to be made on a nomination form signed by the nominator and must reach the HPCSA by no later than 16:30 on 30 October 2014.

Each nomination form must propose only one person as a nominee. The nominee must accept the nomination by way of signature on the nomination form or by letter or facsimile received by the HPCSA not later than the closing date for nominations.

The nomination forms and further information regarding the nomination process can be found on the HPCSA’s website, the links of which are provided below for ease of reference:

http://www.hpcsa.co.za/About/ProfBoardsNominations

http://www.hpcsa.co.za/Content/Docs/regulation_gnr979_99.pdf

http://www.hpcsa.co.za/Content/Docs/regulation_gnr1257_2008.pdf

IN CONCLUSION:

It is important that the members of the respective Professional Boards are competent, fair, experienced and well respected medical practitioners as they will determine the standards of the profession. The nomination process provides practitioners with an opportunity to be involved in the selection of these members, thereby allowing them input in the future development of the ethical standards of their respective profession.

Medical Law – HPCSA Professional Board Nominations – CHOOSE YOUR PEERS WISELY!

The Health Professions Council of South Africa (“HPCSA”) are inviting medical practitioners to submit nominations for members of their respective Professional Boards, which members will be appointed by the Minister of Health to serve on the respective boards for a new term of office effective 1 July 2015 to 30 June 2020 (5 years).

THE PROFESSIONAL BOARDS:

The Professional Boards are co-ordinating bodies for healthcare practitioners registered with the HPCSA. Each Professional Board deals with matters relating to its specific profession, including maintaining and applying fair standards of professional conduct and practice in order to effectively protect the interests of the public, as well as investigating complaints made against practitioners.

The members of the Professional Boards, inter alia, have the authority to institute disciplinary proceedings with regard to a complaint, charge or allegation of unprofessional conduct made against a practitioner, in which event the practitioner will be subjected to a disciplinary process in terms of the HPCSA regulations. The committee responsible for adjudicating the matter will consist of, inter alia, members of such practitioner’s particular Professional Board.

A board member is required, inter alia, to be a South African Citizen registered with the HPCSA, not previously sequestrated and/or disqualified from practicing his or her profession under the Health Professions Act, and not previously found guilty of improper or disgraceful conduct at a disciplinary inquiry. Furthermore, a person shall not be considered for appointment should he or she have served two consecutive terms of office on a Professional Board.

 NOMINATIONS:

Nominations have to be made on a nomination form signed by the nominator and must reach the HPCSA by no later than 16:30 on 30 October 2014.

Each nomination form must propose only one person as a nominee. The nominee must accept the nomination by way of signature on the nomination form or by letter or facsimile received by the HPCSA not later than the closing date for nominations.

The nomination forms and further information regarding the nomination process can be found on the HPCSA’s website, the links of which are provided below for ease of reference:

http://www.hpcsa.co.za/About/ProfBoardsNominations

http://www.hpcsa.co.za/Content/Docs/regulation_gnr979_99.pdf

http://www.hpcsa.co.za/Content/Docs/regulation_gnr1257_2008.pdf

IN CONCLUSION:

It is important that the members of the respective Professional Boards are competent, fair, experienced and well respected medical practitioners as they will determine the standards of the profession. The nomination process provides practitioners with an opportunity to be involved in the selection of these members, thereby allowing them input in the future development of the ethical standards of their respective profession.

Construction Law – Homebuilders must register with the NHBRC before commencement of building works to claim payment

1. The judgment in the matter of Cool Ideas 1186 CC (Cool Ideas) v Anne Christine Hubbard (“Hubbard”) & Minister of Justice and Constitutional Development confirms finally that an homebuilder is not entitled to receive compensation for a house constructed for a housing consumer unless registered in terms of the Housing Consumer Protection Measures Act. 

BACKGROUND

2. Cool Ideas and Hubbard entered into a building contract on 13 February 2006 in terms of which Cool Ideas undertook to construct a residence for Hubbard for consideration of R2 695 600.00. The building project was however executed by Velvori Construction CC (Velvori) in terms of its appointment by Cool Ideas.

3. The building project was enrolled by Velvori, as required in terms of the Act.  Velvori was duly registered as a home builder as required by section 10 the Act.  Cool Ideas was not.

4. The building works were completed in October 2008, but Hubbard took issue with the quality of the works and refused to make payment to Cool Ideas. Hubbard instituted arbitration proceedings in terms of the building contract, claiming the costs of the remedial works. Cool Ideas accordingly instituted a counter-claim for the balance of the contract price. The arbitrator found in favour of Cool Ideas i.e. that Hubbard had to make payment to Cool Ideas. Hubbard failed to comply with the arbitral award.

5. Cool Ideas approached the High Court for an order enforcing the arbitral award, which application Hubbard opposed on the basis that Cool Ideas was not registered as a home builder in terms of the Act. Cool Ideas argued that it, in fact, registered as a home builder during the litigation proceedings and that construction was done by Velvori, a registered home builder. The High Court granted the order and made the arbitral award an order of court.

6. Hubbard appealed to the Supreme Court of Appeal. The majority upheld the appeal submitting that the purpose of the Act is to protect consumers and therefore Cool Ideas was required to register before commencing with construction. The Court further submitted that enforcement of the arbitral award would disregard a prohibition in law. The dissenting judgment of the Supreme Court of Appeal submitted that Cool Ideas did not intentionally fail to register and that refusing to enforce the award would be unjust.

7. Cool Ideas applied to the Constitutional Court for leave to appeal the judgment by the Supreme Court of Appeal, which application was granted. The appeal was, however, dismissed in terms the majority judgment handed down by Majiedt AJ (Moseneke ACJ, Skweyiya ADCJ, Khampepe J and Madlanga J).

MAJORITY JUDGMENT

8. The majority judgment held that the interpretation given by the Supreme Court of Appeal in terms of section 10(1)(b) of the Act, namely that registration is a prerequisite for building works to be undertaken by a homebuilder, must be upheld. It further held that the failure to register would result in the home builder being ineligible to seek consideration for the work done in terms of the building agreement.

9. It held that the underlying building agreement remains valid, notwithstanding that Cool Ideas was not entitled to consideration as a result of its failure to register as required in terms of section 10(1)(b) of the Act. It held that the legislative scheme does not suggest that the building contract be invalidated by statutory prohibitions.

10. According to the judgment it is difficult to conceive how the entire agreement must be invalidated as a result of the conclusion that an unregistered home builder is not entitled consideration for work done in terms of section 10(1)(b) of the Act. It further held that it is inconceivable that the Legislature would enact provisions incorporating various protective measures for the benefit of consumers but then render their contract invalid. Therefore, the parties are entitled to retain what has been done or rendered in terms of the agreement. i.e. In these circumstances, restitution is not legally sound, as would have been the case with an invalid agreement. Therefore Cool Ideas would also not be entitled to file a suit against Hubbard based on unjust enrichment. 

11. In light of the aforementioned the Court dismissed the appeal with costs.

DISSENTING JUDGMENT

12. The judgment written by Froneman J (Cameron J, Dambuza AJ, and Van der Westhuizen J) opposed the conclusion of the majority judgment dismissing the appeal.

13. The fundamental difference in this judgment as opposed to the majority judgment lies in the constitutional principle. It held that public policy in the interpretation, application and enforcement of contracts embrace the principle of fairness. This judgment therefore disagrees that with the finding that a private arbitration award may not be enforced conflicting to a statutory provision. It held that the inevitable result of the reasoning of the main judgment is that Cool Ideas will be deprived of its right to payment for work fairly and properly done. The provisions of the Act should be interpreted in a manner that embrace the principle of fairness and avoids an unjust and unfair result.

14. The majority judgment found that the building contract between the parties remain valid, but that Cool Ideas are however disentitled to claim or enforce payment for any work done in terms of such agreement. This result, is in terms of the dissenting judgment on any standard, prejudicial and unfair to Cool Ideas. If the building contract was held to be invalid, Cool Ideas, could in terms of the common law, enforced an enrichment claim. By clothing the contract with validity, an enrichment claim is avoided.

15. The Court raised the following question: How can it be that Cool Ideas’ contract with Hubbard is valid, but its claim is unenforceable?  The Court argued that the Act employed various measures to protect housing consumers and therefore it would be reasonable to interpret the provisions of the Act in a manner that is fair and does not deprive Cool Ideas of its right to reasonable consideration.

16. According to the judgment, Hubbard did not sought the Act’s protection to attain proper building or correction of building works by Cool Ideas, but to escape payment of what she had been fairly found to owe to Cool Ideas.

17. The dissenting judgement further argued that there were various ways of achieving the purpose of the Act (i.e. enforcement of proper performance by home builders for housing consumers) and striking the correct balance between the interest of housing consumers and those who have performed construction work. In other words, the Act can be read to protect consumers without barring Cool Ideas’ claim for performance.

Construction Law – Homebuilders must register with the NHBRC before commencement of building works to claim payment

1. The judgment in the matter of Cool Ideas 1186 CC (Cool Ideas) v Anne Christine Hubbard (“Hubbard”) & Minister of Justice and Constitutional Development confirms finally that an homebuilder is not entitled to receive compensation for a house constructed for a housing consumer unless registered in terms of the Housing Consumer Protection Measures Act. 

BACKGROUND

2. Cool Ideas and Hubbard entered into a building contract on 13 February 2006 in terms of which Cool Ideas undertook to construct a residence for Hubbard for consideration of R2 695 600.00. The building project was however executed by Velvori Construction CC (Velvori) in terms of its appointment by Cool Ideas.

3. The building project was enrolled by Velvori, as required in terms of the Act.  Velvori was duly registered as a home builder as required by section 10 the Act.  Cool Ideas was not.

4. The building works were completed in October 2008, but Hubbard took issue with the quality of the works and refused to make payment to Cool Ideas. Hubbard instituted arbitration proceedings in terms of the building contract, claiming the costs of the remedial works. Cool Ideas accordingly instituted a counter-claim for the balance of the contract price. The arbitrator found in favour of Cool Ideas i.e. that Hubbard had to make payment to Cool Ideas. Hubbard failed to comply with the arbitral award.

5. Cool Ideas approached the High Court for an order enforcing the arbitral award, which application Hubbard opposed on the basis that Cool Ideas was not registered as a home builder in terms of the Act. Cool Ideas argued that it, in fact, registered as a home builder during the litigation proceedings and that construction was done by Velvori, a registered home builder. The High Court granted the order and made the arbitral award an order of court.

6. Hubbard appealed to the Supreme Court of Appeal. The majority upheld the appeal submitting that the purpose of the Act is to protect consumers and therefore Cool Ideas was required to register before commencing with construction. The Court further submitted that enforcement of the arbitral award would disregard a prohibition in law. The dissenting judgment of the Supreme Court of Appeal submitted that Cool Ideas did not intentionally fail to register and that refusing to enforce the award would be unjust.

7. Cool Ideas applied to the Constitutional Court for leave to appeal the judgment by the Supreme Court of Appeal, which application was granted. The appeal was, however, dismissed in terms the majority judgment handed down by Majiedt AJ (Moseneke ACJ, Skweyiya ADCJ, Khampepe J and Madlanga J).

MAJORITY JUDGMENT

8. The majority judgment held that the interpretation given by the Supreme Court of Appeal in terms of section 10(1)(b) of the Act, namely that registration is a prerequisite for building works to be undertaken by a homebuilder, must be upheld. It further held that the failure to register would result in the home builder being ineligible to seek consideration for the work done in terms of the building agreement.

9. It held that the underlying building agreement remains valid, notwithstanding that Cool Ideas was not entitled to consideration as a result of its failure to register as required in terms of section 10(1)(b) of the Act. It held that the legislative scheme does not suggest that the building contract be invalidated by statutory prohibitions.

10. According to the judgment it is difficult to conceive how the entire agreement must be invalidated as a result of the conclusion that an unregistered home builder is not entitled consideration for work done in terms of section 10(1)(b) of the Act. It further held that it is inconceivable that the Legislature would enact provisions incorporating various protective measures for the benefit of consumers but then render their contract invalid. Therefore, the parties are entitled to retain what has been done or rendered in terms of the agreement. i.e. In these circumstances, restitution is not legally sound, as would have been the case with an invalid agreement. Therefore Cool Ideas would also not be entitled to file a suit against Hubbard based on unjust enrichment. 

11. In light of the aforementioned the Court dismissed the appeal with costs.

DISSENTING JUDGMENT

12. The judgment written by Froneman J (Cameron J, Dambuza AJ, and Van der Westhuizen J) opposed the conclusion of the majority judgment dismissing the appeal.

13. The fundamental difference in this judgment as opposed to the majority judgment lies in the constitutional principle. It held that public policy in the interpretation, application and enforcement of contracts embrace the principle of fairness. This judgment therefore disagrees that with the finding that a private arbitration award may not be enforced conflicting to a statutory provision. It held that the inevitable result of the reasoning of the main judgment is that Cool Ideas will be deprived of its right to payment for work fairly and properly done. The provisions of the Act should be interpreted in a manner that embrace the principle of fairness and avoids an unjust and unfair result.

14. The majority judgment found that the building contract between the parties remain valid, but that Cool Ideas are however disentitled to claim or enforce payment for any work done in terms of such agreement. This result, is in terms of the dissenting judgment on any standard, prejudicial and unfair to Cool Ideas. If the building contract was held to be invalid, Cool Ideas, could in terms of the common law, enforced an enrichment claim. By clothing the contract with validity, an enrichment claim is avoided.

15. The Court raised the following question: How can it be that Cool Ideas’ contract with Hubbard is valid, but its claim is unenforceable?  The Court argued that the Act employed various measures to protect housing consumers and therefore it would be reasonable to interpret the provisions of the Act in a manner that is fair and does not deprive Cool Ideas of its right to reasonable consideration.

16. According to the judgment, Hubbard did not sought the Act’s protection to attain proper building or correction of building works by Cool Ideas, but to escape payment of what she had been fairly found to owe to Cool Ideas.

17. The dissenting judgement further argued that there were various ways of achieving the purpose of the Act (i.e. enforcement of proper performance by home builders for housing consumers) and striking the correct balance between the interest of housing consumers and those who have performed construction work. In other words, the Act can be read to protect consumers without barring Cool Ideas’ claim for performance.

Medical Law – Loss of earnings / earning capacity and ” sympathetic employment “

In the recently decided matter of De Melin v Road Accident Fund 2013 JDR 2656 (GSJ) the South Gauteng High Court was faced with deciding whether loss of earnings / earning capacity can be claimed in instances where a plaintiff is still employed, out of sympathy, and being paid his former salary even though he can no longer perform his work and has effectively been replaced.

The plaintiff, a butchery manager at a large manufacturer of biltong products owned by his wife and her two brothers, was injured in a collision with a motor vehicle. Prior to the collision the plaintiff was healthy, fit and of average mental functioning and he was inter alia tasked with production and spice control, ordering stock and managing staff at the butchery. At the time of the collision the plaintiff was earning R20 000.00 per month.

The plaintiff sustained a significant head injury during the collision and suffered on-going neurocognitive and psychological sequelae as a result. The neurological damage was regarded as permanent and it was agreed between the parties that the plaintiff is no longer employable in the open labour market. The family business, however, kept him on after the accident and paid him the same salary, out of sympathy, despite the fact that he had essentially been replaced by a butcher / production manager and a floor supervisor.

The parties agreed, prior to the matter proceeding to trial, that the Road Accident Fund (hereinafter referred to as “the Fund”) would be liable for 50% of the plaintiff’s proven damages.

The Court accepted that, bearing in mind the fact that that the plaintiff lost his ability to smell and taste, as well as his memory and other cognitive functions, coupled with the fact that he had effectively been replaced by two new employees who were paid a total of R30 000.00 per month, the plaintiff’s employment was sympathetically tolerated within the family business rather than contributing meaningfully thereto.

The two issues in dispute between the parties were as follows:

1. Whether, having regard to the fact that the plaintiff is still receiving his salary, it can be said that he has suffered and will continue to suffer any loss of income or earning capacity.

2. If any calculation in respect of loss of earnings must take into account the contention of the Fund’s industrial psychologist that the plaintiff was being paid more than he was worth prior to the accident because he was employed in the family business.

In respect of the first point of dispute, the plaintiff’s counsel contended that the plaintiff has “sympathetic employment” and that this cannot affect his claim for future loss of earnings / loss of earnings capacity. The Court was referred to the matter of Santam Versekeringsmaatskappy BPK v Byleveldt 1973 (2) SA 146 (A) in which it was held that when an employee was paid purely on compassionate grounds at a time when he could contribute nothing to the business, such salary is not taken into account when dealing with the plaintiff’s claim for loss of earnings.

The Fund’s counsel relied on the Supreme Court of Appeal decision of Rudman v The Road Accident Fund 2003 (2) SA 234 (SCA). The Court, however, found that the facts of the Rudman matter are distinguishable from the facts of the present matter in that in the Rudman matter there was evidence that the company may have suffered a temporary loss but no evidence that this affected the plaintiff’s income. The plaintiff in the Rudman matter was a director, shareholder and trustee and received his income as of right. He was also still capable of performing his real function at the company and it was not shown that he had, personally, suffered any diminution of his patrimony.

The Court accordingly applied the principles set down in the Byleveldt matter bearing in mind the following:

1. The plaintiff in the present matter did not receive his income as of right;

2. His loss had a direct impact on his patrimony;

3. He has, in effect, been replaced and is being paid purely on the basis of sympathetic employment;

4. The plaintiff ran the risk of suffering a loss of earnings in future as it was established during the trial that there might well come a time when the well-being of the business would require the termination of his employment.

In assessing the second point of dispute the Court relied on the factual scenario that, in replacing the plaintiff, the employer had to appoint two employees at a total cost of R30 000.00 per month. The Court accordingly dismissed the contention that the plaintiff was being overpaid.

The Court thus concluded that the plaintiff was sympathetically employed and that the amount that he is earning is not to be taken into account in assessing his loss of earnings / loss of earning capacity. A contingency of 60% was applied in respect of general contingencies such as savings in travelling to and from work and the possibility of loss of income due to illness or unemployment which the plaintiff might have suffered even if the accident had not taken place. The plaintiff was accordingly awarded an amount of R1 284 185.00 in respect of loss of income / earning capacity.

This matter illustrates the factual approach that the Court will take when considering the quantum of a claim in respect of loss of earnings / earning capacity and may well be usefully applied in matters with similar facts in order to establish a claim in respect of loss of earnings.

Medical Law – Loss of earnings / earning capacity and “sympathetic employment”

In the recently decided matter of De Melin v Road Accident Fund 2013 JDR 2656 (GSJ) the South Gauteng High Court was faced with deciding whether loss of earnings / earning capacity can be claimed in instances where a plaintiff is still employed, out of sympathy, and being paid his former salary even though he can no longer perform his work and has effectively been replaced.

The plaintiff, a butchery manager at a large manufacturer of biltong products owned by his wife and her two brothers, was injured in a collision with a motor vehicle. Prior to the collision the plaintiff was healthy, fit and of average mental functioning and he was inter alia tasked with production and spice control, ordering stock and managing staff at the butchery. At the time of the collision the plaintiff was earning R20 000.00 per month.

The plaintiff sustained a significant head injury during the collision and suffered on-going neurocognitive and psychological sequelae as a result. The neurological damage was regarded as permanent and it was agreed between the parties that the plaintiff is no longer employable in the open labour market. The family business, however, kept him on after the accident and paid him the same salary, out of sympathy, despite the fact that he had essentially been replaced by a butcher / production manager and a floor supervisor.

The parties agreed, prior to the matter proceeding to trial, that the Road Accident Fund (hereinafter referred to as “the Fund”) would be liable for 50% of the plaintiff’s proven damages.

The Court accepted that, bearing in mind the fact that that the plaintiff lost his ability to smell and taste, as well as his memory and other cognitive functions, coupled with the fact that he had effectively been replaced by two new employees who were paid a total of R30 000.00 per month, the plaintiff’s employment was sympathetically tolerated within the family business rather than contributing meaningfully thereto.

The two issues in dispute between the parties were as follows:

1. Whether, having regard to the fact that the plaintiff is still receiving his salary, it can be said that he has suffered and will continue to suffer any loss of income or earning capacity.

2. If any calculation in respect of loss of earnings must take into account the contention of the Fund’s industrial psychologist that the plaintiff was being paid more than he was worth prior to the accident because he was employed in the family business.

In respect of the first point of dispute, the plaintiff’s counsel contended that the plaintiff has “sympathetic employment” and that this cannot affect his claim for future loss of earnings / loss of earnings capacity. The Court was referred to the matter of Santam Versekeringsmaatskappy BPK v Byleveldt 1973 (2) SA 146 (A) in which it was held that when an employee was paid purely on compassionate grounds at a time when he could contribute nothing to the business, such salary is not taken into account when dealing with the plaintiff’s claim for loss of earnings.

The Fund’s counsel relied on the Supreme Court of Appeal decision of Rudman v The Road Accident Fund 2003 (2) SA 234 (SCA). The Court, however, found that the facts of the Rudman matter are distinguishable from the facts of the present matter in that in the Rudman matter there was evidence that the company may have suffered a temporary loss but no evidence that this affected the plaintiff’s income. The plaintiff in the Rudman matter was a director, shareholder and trustee and received his income as of right. He was also still capable of performing his real function at the company and it was not shown that he had, personally, suffered any diminution of his patrimony.

The Court accordingly applied the principles set down in the Byleveldt matter bearing in mind the following:

1. The plaintiff in the present matter did not receive his income as of right;

2. His loss had a direct impact on his patrimony;

3. He has, in effect, been replaced and is being paid purely on the basis of sympathetic employment;

4. The plaintiff ran the risk of suffering a loss of earnings in future as it was established during the trial that there might well come a time when the well-being of the business would require the termination of his employment.

In assessing the second point of dispute the Court relied on the factual scenario that, in replacing the plaintiff, the employer had to appoint two employees at a total cost of R30 000.00 per month. The Court accordingly dismissed the contention that the plaintiff was being overpaid.

The Court thus concluded that the plaintiff was sympathetically employed and that the amount that he is earning is not to be taken into account in assessing his loss of earnings / loss of earning capacity. A contingency of 60% was applied in respect of general contingencies such as savings in travelling to and from work and the possibility of loss of income due to illness or unemployment which the plaintiff might have suffered even if the accident had not taken place. The plaintiff was accordingly awarded an amount of R1 284 185.00 in respect of loss of income / earning capacity.

This matter illustrates the factual approach that the Court will take when considering the quantum of a claim in respect of loss of earnings / earning capacity and may well be usefully applied in matters with similar facts in order to establish a claim in respect of loss of earnings.

Medical Law: Compensation for the loss of love and affection from a parent

Whether a child can claim compensation for the loss of love and affection from a parent was just one of the questions that the court had to consider in the matter of M and Another v Minister of Police 2013 (5) SA 622 (GNP).

The deceased, the biological father of the Plaintiffs’ two minor children, was detained by the South African Police Service for suspected theft.  He was viciously attacked by 19 other inmates and subsequently died as a result of his injuries.

The Plaintiffs instituted action on behalf of the deceased’s biological children for loss of support as provided for in the common law, as well as constitutional damages on the basis that the children have been deprived of their right to parental and family care as enshrined in section 28 of the Constitution.  The claim for loss of support had become settled between the parties and the only issue to be decided was the children’s’ right to constitutional damages based on the unlawful death of their father.  The defendant contended that there is no scope for the recognition of constitutional damages with regard to the unlawful death of a parent as ample compensation is provided for in terms of the common law.

Section 28(1)(b) of the Constitution provides that every child has the right to family or parental care.  It does not, however, contain a definition of the said right.  As such, the court referred to the wide definition of “care” in the Children’s Act 38 of 2005 (“the Act”), which includes both the financial aspects involved in caring for a child (such as education, medical treatment, food, accommodation and clothes), as well as the non-pecuniary aspects thereof.  The court held that a child’s right to parental or family care is thus no longer restricted to the financial aspect of maintenance or support (as was the case in the common law) but now also includes the non-pecuniary  aspects of “. . . parental guidance, advice, assistance, responsibility, or simply parenting or child nurturing”.

The court opined that although the common law remedy for loss of support adequately compensates a child with regard to the financial aspects of his / her maintenance, it does not allow for compensation payable in respect of the non-pecuniary aspects of parenting.  Both section 38 of the Constitution and section 15 of the Act provide that a court may grant “appropriate relief” in the event that a right enshrined in the Constitution (such as the right to family or parental care) is infringed, which relief may include an award for constitutional damages in respect of losses suffered by the affected party as a result of the unlawful infringement.

The court therefore acknowledged a child’s right to claim constitutional damages but it held that a child cannot claim for loss of parental care separate from loss of support (as the latter forms part of the former and such separate action would lead to a duplication of actions and undue enrichment).  The court further held that, although parental care generally includes a show of love and affection, the definition of “care” in the Act does not refer thereto and therefore does not create a duty on a parent to show love and affection to a child.  The court concluded that a claim for constitutional damages can therefore not include losses suffered as a result of the deprivation of a parent’s love and affection.

With regard to the manner in which constitutional damages should be quantified, the court referred to the approach taken in foreign jurisdictions.  In Canada, for example, courts have calculated these damages based on the cost of substitutes, such as a housekeeper or a nanny.  The US courts, however, measure the value of parental nurture by considering the impact a parent’s nurturing would have had on the future monetary success of a child.

The court shied away from making any definitive findings as to the basis of calculation of a claim for the non-pecuniary aspects of parenting and held that each case should be considered on its own merits.  Factors to be taken into account include the child’s age at the time of the parent’s demise, the nature of their relationship, the role the parent played in the child’s development, time spent together and the general contribution of the deceased in the child’s upbringing.  The court referred the matter of quantification of damages to trial for further adjudication.

This matter was decided in the North Gauteng Division of the High Court and, as according to the principle of stare decisis, only has persuasive power with regard to other jurisdictions.  It has opened the door to change the basis of a child’s claim, for losses suffered due to the unlawful death of a parent, to no longer be found in the common law, but rather on statute.  Said claim would have to be pleaded on the provisions of the Constitution and the Act.

The scope of damages that a child could claim may have been increased to include non-precuniary losses.  As such, an increase in the quantum of damages claimed and awarded may be anticipated.  Claims for constitutional damages may not be restricted to the death of biological parents and may extend to the death of any person on whom a duty to provide parental care falls.  Such persons, it was held in Heystek v Heystek 2002 (2) SA 754 (T), may include step parents, adoptive parents and foster parents.

 

Quantification of these claims will not be without difficulty, particularly with regard to the child’s non-pecuniary losses, and it is yet to be seen what approach our courts will take to calculate these damages.

Medical Law: Compensation for the loss of love and affection from a parent

Whether a child can claim compensation for the loss of love and affection from a parent was just one of the questions that the court had to consider in the matter of M and Another v Minister of Police 2013 (5) SA 622 (GNP).

The deceased, the biological father of the Plaintiffs’ two minor children, was detained by the South African Police Service for suspected theft.  He was viciously attacked by 19 other inmates and subsequently died as a result of his injuries. 

The Plaintiffs instituted action on behalf of the deceased’s biological children for loss of support as provided for in the common law, as well as constitutional damages on the basis that the children have been deprived of their right to parental and family care as enshrined in section 28 of the Constitution.  The claim for loss of support had become settled between the parties and the only issue to be decided was the children’s’ right to constitutional damages based on the unlawful death of their father.  The defendant contended that there is no scope for the recognition of constitutional damages with regard to the unlawful death of a parent as ample compensation is provided for in terms of the common law. 

Section 28(1)(b) of the Constitution provides that every child has the right to family or parental care.  It does not, however, contain a definition of the said right.  As such, the court referred to the wide definition of “care” in the Children’s Act 38 of 2005 (“the Act”), which includes both the financial aspects involved in caring for a child (such as education, medical treatment, food, accommodation and clothes), as well as the non-pecuniary aspects thereof.  The court held that a child’s right to parental or family care is thus no longer restricted to the financial aspect of maintenance or support (as was the case in the common law) but now also includes the non-pecuniary  aspects of “. . . parental guidance, advice, assistance, responsibility, or simply parenting or child nurturing”.

The court opined that although the common law remedy for loss of support adequately compensates a child with regard to the financial aspects of his / her maintenance, it does not allow for compensation payable in respect of the non-pecuniary aspects of parenting.  Both section 38 of the Constitution and section 15 of the Act provide that a court may grant “appropriate relief” in the event that a right enshrined in the Constitution (such as the right to family or parental care) is infringed, which relief may include an award for constitutional damages in respect of losses suffered by the affected party as a result of the unlawful infringement. 

The court therefore acknowledged a child’s right to claim constitutional damages but it held that a child cannot claim for loss of parental care separate from loss of support (as the latter forms part of the former and such separate action would lead to a duplication of actions and undue enrichment).  The court further held that, although parental care generally includes a show of love and affection, the definition of “care” in the Act does not refer thereto and therefore does not create a duty on a parent to show love and affection to a child.  The court concluded that a claim for constitutional damages can therefore not include losses suffered as a result of the deprivation of a parent’s love and affection.

With regard to the manner in which constitutional damages should be quantified, the court referred to the approach taken in foreign jurisdictions.  In Canada, for example, courts have calculated these damages based on the cost of substitutes, such as a housekeeper or a nanny.  The US courts, however, measure the value of parental nurture by considering the impact a parent’s nurturing would have had on the future monetary success of a child. 

The court shied away from making any definitive findings as to the basis of calculation of a claim for the non-pecuniary aspects of parenting and held that each case should be considered on its own merits.  Factors to be taken into account include the child’s age at the time of the parent’s demise, the nature of their relationship, the role the parent played in the child’s development, time spent together and the general contribution of the deceased in the child’s upbringing.  The court referred the matter of quantification of damages to trial for further adjudication.

This matter was decided in the North Gauteng Division of the High Court and, as according to the principle of stare decisis, only has persuasive power with regard to other jurisdictions.  It has opened the door to change the basis of a child’s claim, for losses suffered due to the unlawful death of a parent, to no longer be found in the common law, but rather on statute.  Said claim would have to be pleaded on the provisions of the Constitution and the Act.

The scope of damages that a child could claim may have been increased to include non-precuniary losses.  As such, an increase in the quantum of damages claimed and awarded may be anticipated.  Claims for constitutional damages may not be restricted to the death of biological parents and may extend to the death of any person on whom a duty to provide parental care falls.  Such persons, it was held in Heystek v Heystek 2002 (2) SA 754 (T), may include step parents, adoptive parents and foster parents.

Quantification of these claims will not be without difficulty, particularly with regard to the child’s non-pecuniary losses, and it is yet to be seen what approach our courts will take to calculate these damages. 

Construction Law – The Binding Nature of Interim Adjudication Awards

In the matter of Stefannuti Stocks vs S8 Property the Court reconfirmed the enforceability of an adjudicator’s decision by court prior to final arbitration.  It also confirmed that an agreement between the parties that a decision is binding and shall be given effect to without delay, unless and until it is revised, requires immediate implementation.

Stefannuti Stocks sought an order compelling S8 Property to comply with its obligations in terms of a building agreement, more specifically for specific performance under the terms of the agreement by S8 Property by paying amounts determined by an adjudicator to be due and payable to Stefannuti Stocks.

The agreement between the parties was a standard written Joint Building Contracts Committee (‘JBCC’) Services 2000 Principal Building Agreement.

Clause 40 of the agreement provides that:

40.0 DISPUTE SETTLEMENT

40.1 Should any disagreement arise between the employer or his principal agent or agents and the contractor as to any matter arising out of or concerning this agreement either party may give notice to the other to resolve such disagreement.

40.2 Where such disagreement is not resolved within ten (10) working days of receipt of such notice it shall be deemed to be a dispute and shall be submitted to:

40.2.1 Adjudication in terms of the edition of the JBCC Rules for Adjudication current at the time when the dispute is declared. The adjudicator shall be appointed in terms of such Rules. …

40.3 The adjudicator’s decision shall be binding on the parties who shall give effect to it without delay unless and until it is subsequently revised by an arbitrator in terms of 40.5. Should notice of dissatisfaction not be given within the period in terms of 40.4, the adjudicator’s decision shall become final and binding on the parties.

40.4 Should either party be dissatisfied with the decision given by the adjudicator, or should no decision be given within the period set out in the Rules, such party may give notice of dissatisfaction to the other party and to the adjudicator within ten (10) working days of receipt of the decision or, should no decision be given, within ten (10) working days of expiry of the date by which the decision was required to be given.

40.5 A dispute which is the subject of a notice of dissatisfaction shall be finally resolved by the arbitrator as stated in the schedule. Where such person is unwilling or unable to act, or where no person has been stated, the arbitrator shall be chosen and appointed by mutual agreement within ten (10) working days of such notice, the arbitrator shall be the person appointed at the request of either party by the chairman, or his nominee, of the Association of Arbitrators (Southern Africa). The adjudicator appointed in terms of 40.2.1 shall not be eligible for appointment as the arbitrator.”

Stefannuti Stocks, being the building contractor, referred a dispute between the parties to an adjudicator. The adjudicator issued his decision in terms of which he determined, inter alia that “the Contractor is entitled to be paid the full original preliminaries value of R2,439,677.98.

S8 Property contended that it is not obliged to give effect to the adjudicator’s decision as it had given notice of its dissatisfaction therewith pursuant to clauses 40.3 to 40.5 of the agreement.

In a recent judgment of Tubular Holdings (Pty) Ltd v DBT Technologies (Pty) Ltd handed down on 03 May 2013, the Court interpreted the following contractual provision:

“The decision shall be binding on both parties who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitrated award as described below.”

The Court stated that “the effect of these provisions is that the decision shall be binding unless and until it has been revised as provided. There can be no doubt that the binding effect of the decision endures, at least, until it has been so revised. …

The scheme of these provisions is as follows: the parties must give prompt effect to a decision. If a party is dissatisfied he must nonetheless live with it but must deliver his notice of dissatisfaction within 28 days failing which it will become final and binding. If he has given his notice of dissatisfaction he can have the decision reviewed in arbitration. If he is successful the decision will be set aside. But until that has happened the decision stands and he has to comply with it.”

In the unreported decision of Esor Africa (Pty) Ltd/Franki Africa (Pty) Ltd JV and Bombela Civils JV (Pty) Ltd, the parties had referred a dispute to the DAB in terms of clause 20.4 of the FIDIC Conditions of Contract. The DAB gave its decision in favour of the contractor.  The employer refused to make payment in terms of the decision relying, inter alia, on the fact that it had given a notice of dissatisfaction and the contractor approached the Court for an order compelling compliance with the decision.  The Court commented that it regarded the wording of the relevant contractual provisions to be clear and that the effect thereof is, that, whilst the DAB decision is not final, the parties are bound by it.  It held that the key to comprehending the intention and purpose of the DAB process is the fact that neither payment nor performance could be withheld when the parties are in dispute:

“the DAB process ensures that the quid pro quo for continued performance of the contractor’s obligations even if dissatisfied with the DAB decision which it is required to give effect to is the employer’s obligation to make payment in terms of a DAB decision and that there will be a final reconciliation should either party be dissatisfied with the DAB decision…”

The Court further held that the employer was not entitled to withhold payment of the amount determined by the adjudicator and that he “is precluded by the terms of the provisions of clause 20 (and in particular clauses 20.4 and 20.6) from doing so pending the outcome of the Arbitration.”

In the case of Stocks and Stocks (Cape) v Gordon the Court could find no objection to giving effect to an agreement in terms of which interim payments are to be made which may later be followed by an adjustment of account and a claim for repayment of what has been paid should the opinion of the mediator be set aside in arbitration.  The contract referred to mediation as opposed to adjudication. It provided that the parties could obtain the opinion of a mediator but if dissatisfied, it could refer it to arbitration. The wording of the agreement read:

“The opinion of the mediator shall be binding upon the parties and shall be given effect to by them until the said opinion is overruled in any subsequent arbitration or litigation.”

In Freeman NO and another v Eskom Holdings Limited the Court considered the NEC form of contract, which provides for adjudication and for notification by the dissatisfied party to a tribunal who has the power to settle the dispute referred to it. The contract also provides that the adjudicator’s decision is binding upon the parties “unless and until” revised by the tribunal as enforceable as a matter of contractual obligation between the parties and not as an arbitral award.

In Basil Read (Pty) Ltd v Regent Devco (Pty) Ltd, Clause 40 of the JBCC Principal Building Agreement deals with dispute resolution and allows a referral of a dispute to an adjudicator. Any party dissatisfied with the adjudicator’s decision was entitled to give notice of dissatisfaction within a stipulated time and may then refer the dispute to arbitration. It stipulates, however, that “the adjudicator’s decision shall be binding upon the parties who shall give effect to it without delay unless and until it is subsequently revised by an arbitrator”. The Court construed these provisions as imposing an obligation on the dissatisfied party to give effect to the decision without delay unless and until it is subsequently set aside by the arbitrator. The dissatisfied party’s remedy is to procure set-off or adjustment in the following payment certificates should he succeed in having the decision set aside after he had performed.

In the United Kingdom the matter is dealt with by statute which gives the same effect as the clauses referred to above. The Court of Appeal remarked in the Carillion matter that:

In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator’s decision as correct (whether on the facts or in law), he can take legal or arbitration proceedings in order to establish the true position. To seek to challenge the adjudicator’s decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense – as, we suspect, the costs incurred in the present case will demonstrate only too clearly.”

The Court also referred to the United Kingdom case of Bouygues (UK) Limited v Dahl-Jensen (UK) Limited which concerned a dispute arising from a sub-contract, which provided for dispute resolution by adjudication pursuant to the Rules of the CIC Model Adjudication Procedure (2nd edition) which provided that:

“The object of adjudication is to reach a fair, rapid and inexpensive decision upon a dispute arising under the contract and this procedure shall be interpreted accordingly. … The Adjudicator’s decision shall be binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement. The parties shall implement the Adjudicator’s decision without delay whether or not the dispute is to be referred to legal proceedings or arbitration. …”

Having regard to these Rules, Justice Dyson held as follows:

the purpose of the scheme is to provide a speedy mechanism for settling disputes in construction contracts on a provisional interim basis, and requiring the decisions of adjudicators to be enforced pending final determination of disputes by arbitration, litigation or agreement, whether those decisions are wrong in point of law and fact. It is inherent in the scheme that injustices will occur, because from time to time, adjudicators will make mistakes. Sometimes these mistakes will be glaringly obvious and disastrous in their consequences for the losing party. The victims of mistakes will usually be able to recoup their losses by subsequent arbitration or litigation, and possibly even by a subsequent arbitration.”

In the present case, the terms of the relevant contractual provisions are perfectly clear: the parties are obliged to promptly give effect to a decision by the DAB. The issue of a notice of dissatisfaction does not in any way detract from this obligation; whilst such a notice is necessary where the dissatisfied party wishes to have the decision revised it does not affect that decision; it simply sets in motion the procedure in which the decision may be revised. But until revised, the decision binds the parties and they must give prompt effect thereto.

Having regard to the purpose of the provisions of the agreement by introducing a speedy settling of disputes in construction agreements on a provisional, interim basis, the Court could find no reason not to follow the judgment in Tubular Holdings, which is in harmony with the decisions of Bombela and Basil Read referred to above. The purpose of the policy to implement the adjudicator’s decision is also to obviate the tactical creation of disputes with a view to the postponement of liability. For these reasons Stafannuti Stocks was successful and the order was granted in its favour.

 

Construction Law – The Binding Nature of Interim Adjudication Awards

In the matter of Stefannuti Stocks vs S8 Property the Court reconfirmed the enforceability of an adjudicator’s decision by court prior to final arbitration.  It also confirmed that an agreement between the parties that a decision is binding and shall be given effect to without delay, unless and until it is revised, requires immediate implementation.

Stefannuti Stocks sought an order compelling S8 Property to comply with its obligations in terms of a building agreement, more specifically for specific performance under the terms of the agreement by S8 Property by paying amounts determined by an adjudicator to be due and payable to Stefannuti Stocks.

The agreement between the parties was a standard written Joint Building Contracts Committee (‘JBCC’) Services 2000 Principal Building Agreement.

Clause 40 of the agreement provides that:

40.0 DISPUTE SETTLEMENT

40.1 Should any disagreement arise between the employer or his principal agent or agents and the contractor as to any matter arising out of or concerning this agreement either party may give notice to the other to resolve such disagreement.

40.2 Where such disagreement is not resolved within ten (10) working days of receipt of such notice it shall be deemed to be a dispute and shall be submitted to:

40.2.1 Adjudication in terms of the edition of the JBCC Rules for Adjudication current at the time when the dispute is declared. The adjudicator shall be appointed in terms of such Rules. …

40.3 The adjudicator’s decision shall be binding on the parties who shall give effect to it without delay unless and until it is subsequently revised by an arbitrator in terms of 40.5. Should notice of dissatisfaction not be given within the period in terms of 40.4, the adjudicator’s decision shall become final and binding on the parties.

40.4 Should either party be dissatisfied with the decision given by the adjudicator, or should no decision be given within the period set out in the Rules, such party may give notice of dissatisfaction to the other party and to the adjudicator within ten (10) working days of receipt of the decision or, should no decision be given, within ten (10) working days of expiry of the date by which the decision was required to be given.

40.5 A dispute which is the subject of a notice of dissatisfaction shall be finally resolved by the arbitrator as stated in the schedule. Where such person is unwilling or unable to act, or where no person has been stated, the arbitrator shall be chosen and appointed by mutual agreement within ten (10) working days of such notice, the arbitrator shall be the person appointed at the request of either party by the chairman, or his nominee, of the Association of Arbitrators (Southern Africa). The adjudicator appointed in terms of 40.2.1 shall not be eligible for appointment as the arbitrator.”

Stefannuti Stocks, being the building contractor, referred a dispute between the parties to an adjudicator. The adjudicator issued his decision in terms of which he determined, inter alia that “the Contractor is entitled to be paid the full original preliminaries value of R2,439,677.98.

S8 Property contended that it is not obliged to give effect to the adjudicator’s decision as it had given notice of its dissatisfaction therewith pursuant to clauses 40.3 to 40.5 of the agreement.

In a recent judgment of Tubular Holdings (Pty) Ltd v DBT Technologies (Pty) Ltd handed down on 03 May 2013, the Court interpreted the following contractual provision:

“The decision shall be binding on both parties who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitrated award as described below.”

The Court stated that “the effect of these provisions is that the decision shall be binding unless and until it has been revised as provided. There can be no doubt that the binding effect of the decision endures, at least, until it has been so revised. …

The scheme of these provisions is as follows: the parties must give prompt effect to a decision. If a party is dissatisfied he must nonetheless live with it but must deliver his notice of dissatisfaction within 28 days failing which it will become final and binding. If he has given his notice of dissatisfaction he can have the decision reviewed in arbitration. If he is successful the decision will be set aside. But until that has happened the decision stands and he has to comply with it.”

In the unreported decision of Esor Africa (Pty) Ltd/Franki Africa (Pty) Ltd JV and Bombela Civils JV (Pty) Ltd, the parties had referred a dispute to the DAB in terms of clause 20.4 of the FIDIC Conditions of Contract. The DAB gave its decision in favour of the contractor.  The employer refused to make payment in terms of the decision relying, inter alia, on the fact that it had given a notice of dissatisfaction and the contractor approached the Court for an order compelling compliance with the decision.  The Court commented that it regarded the wording of the relevant contractual provisions to be clear and that the effect thereof is, that, whilst the DAB decision is not final, the parties are bound by it.  It held that the key to comprehending the intention and purpose of the DAB process is the fact that neither payment nor performance could be withheld when the parties are in dispute:

“the DAB process ensures that the quid pro quo for continued performance of the contractor’s obligations even if dissatisfied with the DAB decision which it is required to give effect to is the employer’s obligation to make payment in terms of a DAB decision and that there will be a final reconciliation should either party be dissatisfied with the DAB decision…”

The Court further held that the employer was not entitled to withhold payment of the amount determined by the adjudicator and that he “is precluded by the terms of the provisions of clause 20 (and in particular clauses 20.4 and 20.6) from doing so pending the outcome of the Arbitration.”

In the case of Stocks and Stocks (Cape) v Gordon the Court could find no objection to giving effect to an agreement in terms of which interim payments are to be made which may later be followed by an adjustment of account and a claim for repayment of what has been paid should the opinion of the mediator be set aside in arbitration.  The contract referred to mediation as opposed to adjudication. It provided that the parties could obtain the opinion of a mediator but if dissatisfied, it could refer it to arbitration. The wording of the agreement read:

“The opinion of the mediator shall be binding upon the parties and shall be given effect to by them until the said opinion is overruled in any subsequent arbitration or litigation.”

In Freeman NO and another v Eskom Holdings Limited the Court considered the NEC form of contract, which provides for adjudication and for notification by the dissatisfied party to a tribunal who has the power to settle the dispute referred to it. The contract also provides that the adjudicator’s decision is binding upon the parties “unless and until” revised by the tribunal as enforceable as a matter of contractual obligation between the parties and not as an arbitral award.

In Basil Read (Pty) Ltd v Regent Devco (Pty) Ltd, Clause 40 of the JBCC Principal Building Agreement deals with dispute resolution and allows a referral of a dispute to an adjudicator. Any party dissatisfied with the adjudicator’s decision was entitled to give notice of dissatisfaction within a stipulated time and may then refer the dispute to arbitration. It stipulates, however, that “the adjudicator’s decision shall be binding upon the parties who shall give effect to it without delay unless and until it is subsequently revised by an arbitrator”. The Court construed these provisions as imposing an obligation on the dissatisfied party to give effect to the decision without delay unless and until it is subsequently set aside by the arbitrator. The dissatisfied party’s remedy is to procure set-off or adjustment in the following payment certificates should he succeed in having the decision set aside after he had performed.

In the United Kingdom the matter is dealt with by statute which gives the same effect as the clauses referred to above. The Court of Appeal remarked in the Carillion matter that:

In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator’s decision as correct (whether on the facts or in law), he can take legal or arbitration proceedings in order to establish the true position. To seek to challenge the adjudicator’s decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense – as, we suspect, the costs incurred in the present case will demonstrate only too clearly.” 

The Court also referred to the United Kingdom case of Bouygues (UK) Limited v Dahl-Jensen (UK) Limited which concerned a dispute arising from a sub-contract, which provided for dispute resolution by adjudication pursuant to the Rules of the CIC Model Adjudication Procedure (2nd edition) which provided that:

“The object of adjudication is to reach a fair, rapid and inexpensive decision upon a dispute arising under the contract and this procedure shall be interpreted accordingly. … The Adjudicator’s decision shall be binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement. The parties shall implement the Adjudicator’s decision without delay whether or not the dispute is to be referred to legal proceedings or arbitration. …”

Having regard to these Rules, Justice Dyson held as follows:

the purpose of the scheme is to provide a speedy mechanism for settling disputes in construction contracts on a provisional interim basis, and requiring the decisions of adjudicators to be enforced pending final determination of disputes by arbitration, litigation or agreement, whether those decisions are wrong in point of law and fact. It is inherent in the scheme that injustices will occur, because from time to time, adjudicators will make mistakes. Sometimes these mistakes will be glaringly obvious and disastrous in their consequences for the losing party. The victims of mistakes will usually be able to recoup their losses by subsequent arbitration or litigation, and possibly even by a subsequent arbitration.”

In the present case, the terms of the relevant contractual provisions are perfectly clear: the parties are obliged to promptly give effect to a decision by the DAB. The issue of a notice of dissatisfaction does not in any way detract from this obligation; whilst such a notice is necessary where the dissatisfied party wishes to have the decision revised it does not affect that decision; it simply sets in motion the procedure in which the decision may be revised. But until revised, the decision binds the parties and they must give prompt effect thereto.

Having regard to the purpose of the provisions of the agreement by introducing a speedy settling of disputes in construction agreements on a provisional, interim basis, the Court could find no reason not to follow the judgment in Tubular Holdings, which is in harmony with the decisions of Bombela and Basil Read referred to above. The purpose of the policy to implement the adjudicator’s decision is also to obviate the tactical creation of disputes with a view to the postponement of liability. For these reasons Stafannuti Stocks was successful and the order was granted in its favour.

Construction Law – Demand Guarantees and the Fraud Defence

Guardrisk Insurance Company Ltd v Kentz (Pty) Ltd

The law underlying the avoidance by a Guarantor of its obligations to make payment to a beneficiary under a demand guarantee is clarified and reaffirmed by the most recent ruling by the Supreme Court of Appeal in the case of Guardrisk Insurance Company Ltd vz Kentz (Pty) Ltd.

Two construction guarantees (on demand guarantees) were issued by Guardrisk in favour of Kentz, at the behest of Brokrew Industrial (Pty) Ltd (Brokrew) Kentz was one of the contractors involved in the construction of a new power generation plant, the Medupi Power Station, for Eskom.

During September 2008, Kentz entered into a construction contract with Brokrew relating to the supply of ducting at Medupi. Brokrew was obliged to secure “an irrevocable, on demand bank guarantee or a demand guarantee from a recognised financial institution” for proper performance. This guarantee was referred to as the performance guarantee.

Kentz had paid Brokrew an amount of R17 million after an advance payment guarantee had been issued by Guardrisk and submitted to Kentz to facilitate commencement of the works by Brokrew, under the contract.

Brokrew experienced severe financial difficulties which impacted on its ability to perform its obligations under the construction contract. By 31 January 2010, Brokrew’s liabilities exceeded its assets by more than R44 million. On 5 March 2010, Brokrew advised Kentz that unless the terms of the contract were renegotiated, it would not be in a position to perform its obligations in terms thereof.

On 24 February 2010 Kentz addressed a letter to Brokrew, confirming that Brokrew clearly had the intention not to continue with performance of its obligations under the Contract, had the intention to abandon the Contract and admitted to have become insolvent. In the alternative, that Brokrew had, by its conduct, repudiated the contract which entitled Kentz to accept same and cancel the Contract. Brokrew was placed on terms to perform its obligations under the Contract. Later, on 9 March 2010, Kentz addressed a further letter to Brokrew cancelling the Contract with immediate effect.

On 11 March 2010 Brokrew’s attorneys addressed a letter to Kentz, in which it disputed Kentz’s entitlement to cancel the contract, recorded its contention that Kentz thereby repudiated the contract and accepted Kentz’s repudiation of the contract whereupon it purported to cancel the contract. It also alleged that Kentz’s call on the guarantees was fraudulent given the latter’s knowledge that it was not entitled to cancel the contract.

Prior to the hearing of the matter in the High Court, Brokrew was finally liquidated. The High Court found that the evidence had failed to establish that Kentz, in making demand for payment under the guarantees, had acted fraudulently. It further found that Guardrisk was obliged to make payment in terms of the guarantees and accordingly granted judgment in favour of Kentz.

The essential difference between the two types of bonds namely “on demand” or “call” bonds on the one hand and “conditional” bonds on the other was described by Brand JA in Minister of Transport and Public Works, Western Cape & another v Zanbuild Construction (Pty) Ltd & another as follows:

“… [A] claimant under a conditional bond is required at least to allege and – depending on the terms of the bond – sometimes also to establish liability on the part of the contractor for the same amount. An “on demand” bond, also referred to as a “call bond”, on the other hand, requires no allegation of liability on the part of the contractor under the construction contracts. All that is required for payment is a demand by the claimant, stated to be on the basis of the event specified in the bond.”

The Court found that the terms of the guarantees are clear and unambiguous. They create an obligation on the part of Guardrisk to pay Kentz on the happening of a specified event. It was recorded in the guarantees that, notwithstanding the reference in its wording to the construction contract, the liability of Guardrisk as principal is absolute and unconditional, and should not be construed to create an accessory or collateral obligation. The guarantees go further and specifically state that Guardrisk may not delay payment in terms of the guarantees by reason of a dispute between the contractor and the employer. The purpose of the guarantees was to protect Kentz in the event that Brokrew could not perform its obligations in terms of the construction contract.

In Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd & others, the Court described a guarantee very similar to the performance guarantee in this matter as:

“… not unlike irrevocable letters of credit issued by banks and used in international trade, the essential feature of which is the establishment of a contractual obligation on the part of a bank to pay the beneficiary (seller). This obligation is wholly independent of the underlying contract of sale and assures the seller of payment of the purchase price before he or she parts with the goods being sold. Whatever disputes may subsequently arise between buyer and seller is of no moment insofar as the bank’s obligation is concerned. The bank’s liability to the seller is to honour the credit. The bank undertakes to pay provided only that the conditions specified in the credit are met.”

The court found that the guarantees in this matter were unconditional and must be paid according to their terms. It confirmed our legal position that the only basis upon which Guardrisk can escape liability is to show proof of fraud on the part of Kentz.

Guardrisk also argued that each of the guarantees relied upon by Kentz requires that Kentz state that the amount claimed was payable to it in terms of the contract and that the Brokrew was in breach of its obligations under the contract. Guardrisk argued that the statements by Kentz in each of its demands to Guardrisk, to the effect that the amount claimed was payable to Kentz in terms of the construction contract with Brokrew, were material, knowingly false and constituted a fraud on both Kentz and Brokrew.

The legal position regarding the fraud exception is that where a beneficiary who makes a call on a guarantee does so with knowledge that it is not entitled to payment, our courts will step in to protect a guarantor and decline enforcement of the guarantee in question. This fraud exception only applies where:

“ … the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his (the seller’s) knowledge are untrue.”

Furthermore, the party alleging and relying on such exception bears the onus of proving it. That onus is to be discharged on a balance of probabilities, and will not lightly be inferred. In the matter of Loomcraft Fabrics CC v Nedbank Ltd & another it was pointed out that in order to succeed in respect of the fraud exception, a party had to prove that the beneficiary presented the bills (documents) to the bank knowing that they contained material misrepresentations of fact upon which the bank would rely and which they knew were untrue. Mere error, misunderstanding or oversight, however unreasonable, would not amount to fraud. Nor was it enough to show that the beneficiary’s contentions were incorrect. A party had to go further and show that the beneficiary knew it to be incorrect and that the contention was advanced in bad faith.

The remarks made by Lord Denning MR in Edward Owen Engineering Ltd v Barclays Bank International Ltd to the effect that performance guarantees are virtually promissory notes payable on demand and very similar to letters of credit was relevant. In that case, Lord Denning added:

A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice.”

Guardrisk contended that the demands under the guarantees were fraudulent as Kentz had not given Brokrew adequate notice within which to remedy the breaches alleged by it. It was argued that Kentz had terminated the Contract prematurely and unlawfully.

It was common cause that during March 2010, Brokrew had informed Kentz that unless the terms of the building contract were renegotiated, it could not perform its obligations in terms of the building contract. The Contract included a clause which states that the employer shall be entitled to terminate the contract if Brokrew:

abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract . . . the Employer may, on notice to the Contractor, terminate the contract immediately.”

The Court found that Brokrew had clearly demonstrated its intention not to continue performing its contractual obligations and Kentz was entitled to cancel the building contract immediately, having reserved its rights in that regard previously.

The Court found that Guardrisk did not establish the fraud exception. In fact, what it sought to do is to have this Court determine the rights and obligations of the parties in relation to the construction agreement, which on the authorities, the Court was precluded from doing. The finding by the High Court that the appellants had not discharged the onus resting on them to establish fraud on the part of Kentz cannot be faulted. I agree with the reasoning of the high court that:

The evidence before court clearly demonstrates that Kentz held the view that it was entitled to lawfully pursue its claims under the guarantees. The mere fact that it pressed its claims knowing that Brokrew held a contrary view about the cancellation with which it disagreed is not fraudulent.”

As already pointed out, a valid demand on an unconditional performance guarantee creates an obligation on Guardrisk to make payment in accordance with the terms of the guarantee. Mindful of that principle, the guarantor nevertheless urged the Court to have regard to the decision of the majority in Dormell Properties 282 CC v Renasa Insurance Co Ltd & others NNO. It was submitted that the principles of practicality enunciated by the majority in that decision ought to be applied to the present matter and the issues concerning the rights and obligations of the parties to the construction contract should be determined as all the parties are before the Court and the disputes between Kentz and Brokrew have been crystallised and are capable of determination.

Our Courts, in a long line of cases, have strictly applied the principle that a bank faced with a valid demand in respect of a performance guarantee, is obliged to pay the beneficiary without investigation of the contractual position between the beneficiary and the principal debtor. One of the main reasons why Courts are ordinarily reluctant to entertain the underlying contractual disputes between an employer and a contractor when faced with a demand based on an on demand or unconditional performance guarantee, is because of the principle that to do so would undermine the efficacy of such guarantees. The Supreme Court of Appeal in Loomcraft referred to the fact that the autonomous nature of the obligation owed by the bank to the beneficiary under a letter of credit “has been stressed by courts both in South Africa and overseas”. The learned Judge referred to a number of authorities, both local and English to illustrate this point. Similarly, the Supreme Court of Appeal in Lombard Insurance, confirmed that the obligation on the part of the bank to make payment on a performance guarantee is independent of the underlying contract and whatever disputes may arise between the buyer and the seller are irrelevant as far as the bank’s obligation is concerned.

This principle is based on sound reason. The very purpose of the guarantee is so that the beneficiary can call up the guarantee without having to wait for the final determination of its rights in terms of accessory obligations. To find otherwise, would involve an unjustified paradigm shift and defeat the commercial purpose of performance guarantees.

For these reasons, the appeal was dismissed with costs.

Hendrik Markram – B.(Eng) Civil; LLB
Director – Markram Inc Attorneys
012 346 1278
083 675 3458

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Medical Law – A Surgical Complication does not Per Se amount to negligence

In the recent case of Buthelezi v Ndaba 2013 ZASCA 72 the Supreme Court of Appeal confirmed the principles involved when drawing inferences as to negligence on the part of a surgeon where a known complication arises.

Dr Buthelezi, the appellant, performed a total abdominal hysterectomy on Ms Ndaba. She developed a vesico-vaginal fistula, which she alleged was due to the doctor’s negligence during performance of the surgery. The Court a quo agreed with Ms Ndaba and found that Dr Buthelezi was negligent.

On appeal, the Court referred to the locus classicus on medical malpractice, Van Wyk v Lewis 1924 AD 438, wherein it was held that the maxim res ipsa loquitur (the facts speaks for themselves) cannot find application in cases based on alleged medical negligence “because the human body and its reaction to surgical intervention is far too complex for it to be said that because there was a complication, the surgeon must have been negligent in some respect.”

In essence, the Supreme Court of Appeal held that where a known complication of a surgical procedure presents itself, the Court cannot solely on the presence of such complication assume negligence on the part of the surgeon. The mere fact that a surgical complication occurred does not in itself justify an inference that the surgeon was negligent in some way.

The Supreme Court of Appeal referred to Hucks v Cole 1986 LJ 118 and Castell v De Greef 1993 (3) SA 501 (C) and affirmed the test for negligence in the case of a medical practitioner, being whether the practitioner exercised reasonable skill and care and whether his conduct fell short of the standard expected of a reasonably competent practitioner in his field of expertise. The aforementioned cases held that a practitioner is not to be held negligent “simply because something went wrong”.

The Supreme Court of Appeal further held that a court has to consider the opinions of expert witnesses regarding a surgeon’s negligence, but ultimately the decision as to the negligence of the surgeon’s conduct falls within the Court’s discretion. Where the experts’ opinions are in conflict, the determination of negligence must depend on an “analysis of the cogency of the underlying reasoning which led the experts to their conflicting opinions”. In effect, the Court will favour the expert’s opinion that is founded on sound principles and is well supported.

The expert witness for Dr Buthelezi testified that a fistula is a widely recognised complication of hysterectomy procedures and cannot always be avoided. Based on the principles set out above, the Court was unable to draw an inference of negligence on the part of Dr Buthelezi. The Supreme Court of Appeal consequently upheld the appeal and Ms Ndaba’s claim was dismissed.

Medical Law – A surgical complication does not per se amount to negligence

In the recent case of Buthelezi v Ndaba 2013 ZASCA 72 the Supreme Court of Appeal confirmed the principles involved when drawing inferences as to negligence on the part of a surgeon where a known complication arises.

Dr Buthelezi, the appellant, performed a total abdominal hysterectomy on Ms Ndaba. She developed a vesico-vaginal fistula, which she alleged was due to the doctor’s negligence during performance of the surgery. The Court a quo agreed with Ms Ndaba and found that Dr Buthelezi was negligent.

On appeal, the Court referred to the locus classicus on medical malpractice, Van Wyk v Lewis 1924 AD 438, wherein it was held that the maxim res ipsa loquitur (the facts speaks for themselves) cannot find application in cases based on alleged medical negligence “because the human body and its reaction to surgical intervention is far too complex for it to be said that because there was a complication, the surgeon must have been negligent in some respect.”

In essence, the Supreme Court of Appeal held that where a known complication of a surgical procedure presents itself, the Court cannot solely on the presence of such complication assume negligence on the part of the surgeon. The mere fact that a surgical complication occurred does not in itself justify an inference that the surgeon was negligent in some way.

The Supreme Court of Appeal referred to Hucks v Cole 1986 LJ 118 and Castell v De Greef 1993 (3) SA 501 (C) and affirmed the test for negligence in the case of a medical practitioner, being whether the practitioner exercised reasonable skill and care and whether his conduct fell short of the standard expected of a reasonably competent practitioner in his field of expertise. The aforementioned cases held that a practitioner is not to be held negligent “simply because something went wrong”.

The Supreme Court of Appeal further held that a court has to consider the opinions of expert witnesses regarding a surgeon’s negligence, but ultimately the decision as to the negligence of the surgeon’s conduct falls within the Court’s discretion. Where the experts’ opinions are in conflict, the determination of negligence must depend on an “analysis of the cogency of the underlying reasoning which led the experts to their conflicting opinions”. In effect, the Court will favour the expert’s opinion that is founded on sound principles and is well supported.

The expert witness for Dr Buthelezi testified that a fistula is a widely recognised complication of hysterectomy procedures and cannot always be avoided. Based on the principles set out above, the Court was unable to draw an inference of negligence on the part of Dr Buthelezi. The Supreme Court of Appeal consequently upheld the appeal and Ms Ndaba’s claim was dismissed.

Medical Law – Medical Practitioners and Fees charged for services rendered: The HPCSA has set the deadline for Practitioners’ comments on its proposed Guideline Tariffs for 18 November 2013

The period for commentary on the HPCSA’s Guideline Tariffs lapses on 18 November 2013.  As these tariffs will be used by the HPCSA to adjudicate complaints pertaining to overcharging, we recommend that practitioners partake in this process.  The proposed process for commentary can be found on the HPCSA’s website.

The Health Professions Act 56 of 1974 stipulates that a medical practitioner registered as such under the Act shall, unless it is impossible for him to do so “…before rendering any professional services inform the person to whom the services are to be rendered or any person responsible for the maintenance of such person of the fee which he or she intends to charge for such services when so requested by the person concerned”. The Act further obliges practitioners to inform patients when a fee is going to exceed the usual fee charged for such services, and what the usual fee for such services would be.

In addition to this, the Consumer Protection Act 68 of 2008, which came into effect in 2011, stipulates that a supplier (or in this case a practitioner) may not offer to supply, supply or enter into an agreement to supply any goods or services at a price that is “unfair, unreasonable or unjust”. The Act further provides that practitioners have to inform their patients of the costs of services before said services are rendered. The latter provision is also a requirement of the National Health Act 61 of 2003.

It is clear from the above that there are strict provisions in place relating to the manner in which practitioners are to deal with the fees charged for specific services. However, none of the above-mentioned Acts set out legally determined tariffs which may be applied by practitioners in relation to specific services rendered. Attempts have been made to determine such tariffs but the Health Professions Council of South Africa (“the HPCSA”) scrapped its ethical tariffs during 2008 and the Department of Health’s reference price list was declared invalid by the North Gauteng High Court during July 2010. This lacuna as to pricing has caused much uncertainty in the medical community as a whole regarding what fees would be considered fair, reasonable and just.

In a press release dated 07 August 2012, the HPCSA attempted to clarify this uncertainty by announcing its publication of fees to be used as a norm in the determination of complaints relating to overcharging by healthcare practitioners. These fees, known as the Guideline Tariffs, were aimed at providing practitioners with clarity and criteria for determining fair and reasonable fees for the services that they render and were intended to serve as a guide to practitioners on what they can expect to charge for their professional services. 

In deciding these fees, the HPCSA used the 2006 National Health Reference Price List as a baseline and added an inflator of 46.66% until 2012. The HPCSA stipulated that practitioners could charge above the Guideline Tariffs provided that they obtained an informed consent from the patient or the patient’s next of kin.

The publication of these Guideline Tariffs was, however, met with strong opposition from the medical community as a whole as it was felt that the HPCSA disregarded the input of the relevant role players in the medical community in determining these fees.  The HPCSA has, accordingly, postponed the publication of these Guideline Tariffs in order that interested persons may make presentations to Council regarding what they considered appropriate fees for specific services rendered.

Practitioners should take note that interested persons may only comment on the proposed fees until close of business on Monday 18 November 2013. Having regard to the fact that these guideline fees, once published, will be used in determining complaints relating to overcharging we suggest that practitioners partake in the presentations made to Council. We further suggest that all practitioners familiarise themselves with the Guideline Tariffs once they are published on the HPCSA’s website.

Medical Law – Medical Practitioners and fees charged for services rendered: The HPCSA has set the deadline for Practitioners’ comments on its proposed Guideline Tariffs for 18 November 2013

The period for commentary on the HPCSA’s Guideline Tariffs lapses on 18 November 2013.  As these tariffs will be used by the HPCSA to adjudicate complaints pertaining to overcharging, we recommend that practitioners partake in this process.  The proposed process for commentary can be found on the HPCSA’s website.

The Health Professions Act 56 of 1974 stipulates that a medical practitioner registered as such under the Act shall, unless it is impossible for him to do so “…before rendering any professional services inform the person to whom the services are to be rendered or any person responsible for the maintenance of such person of the fee which he or she intends to charge for such services when so requested by the person concerned”. The Act further obliges practitioners to inform patients when a fee is going to exceed the usual fee charged for such services, and what the usual fee for such services would be.

In addition to this, the Consumer Protection Act 68 of 2008, which came into effect in 2011, stipulates that a supplier (or in this case a practitioner) may not offer to supply, supply or enter into an agreement to supply any goods or services at a price that is “unfair, unreasonable or unjust”. The Act further provides that practitioners have to inform their patients of the costs of services before said services are rendered. The latter provision is also a requirement of the National Health Act 61 of 2003.

It is clear from the above that there are strict provisions in place relating to the manner in which practitioners are to deal with the fees charged for specific services. However, none of the above-mentioned Acts set out legally determined tariffs which may be applied by practitioners in relation to specific services rendered. Attempts have been made to determine such tariffs but the Health Professions Council of South Africa (“the HPCSA”) scrapped its ethical tariffs during 2008 and the Department of Health’s reference price list was declared invalid by the North Gauteng High Court during July 2010. This lacuna as to pricing has caused much uncertainty in the medical community as a whole regarding what fees would be considered fair, reasonable and just.

In a press release dated 07 August 2012, the HPCSA attempted to clarify this uncertainty by announcing its publication of fees to be used as a norm in the determination of complaints relating to overcharging by healthcare practitioners. These fees, known as the Guideline Tariffs, were aimed at providing practitioners with clarity and criteria for determining fair and reasonable fees for the services that they render and were intended to serve as a guide to practitioners on what they can expect to charge for their professional services. 

In deciding these fees, the HPCSA used the 2006 National Health Reference Price List as a baseline and added an inflator of 46.66% until 2012. The HPCSA stipulated that practitioners could charge above the Guideline Tariffs provided that they obtained an informed consent from the patient or the patient’s next of kin.

The publication of these Guideline Tariffs was, however, met with strong opposition from the medical community as a whole as it was felt that the HPCSA disregarded the input of the relevant role players in the medical community in determining these fees.  The HPCSA has, accordingly, postponed the publication of these Guideline Tariffs in order that interested persons may make presentations to Council regarding what they considered appropriate fees for specific services rendered.

Practitioners should take note that interested persons may only comment on the proposed fees until close of business on Monday 18 November 2013. Having regard to the fact that these guideline fees, once published, will be used in determining complaints relating to overcharging we suggest that practitioners partake in the presentations made to Council. We further suggest that all practitioners familiarise themselves with the Guideline Tariffs once they are published on the HPCSA’s website.