Product Liability risks have seen significant changes as a result of the introduction of the final stage of the Consumer Protection Act, 68 of 2008, which came into operation on 31 March 2011.
The main objective of the above Act is to protect consumers from hazards and to provide effective remedies for consumers who buy defective or unsafe products.
The Act opens new avenues for consumers to institute product liability claims against producers, importers, distributors, retailers or installers of goods. Such claims may arise from the supply of unsafe goods, product failures, defects in goods, and failure to provide adequate instructions or warnings to consumers about hazards arising from or associated with the use of the product.
Product liability claims may now be instituted by a variety of persons, not only the person who has suffered direct harm as a result of the product, and there is no restriction on the kind of loss that may be recovered.
The wide application of the Act holds serious risks for all persons or businesses in the supply chain. These risks include limited opportunity to raise traditional defences as the Act contemplates “strict” liability. It is therefore no longer necessary for consumers to prove negligence or fault, and consumers may hold any person or business in the supply chain liable for any damage suffered.
Our client base includes local and international insurers and underwriters exposed to product liability risks carried by producers, importers, distributors and retailers in the chemical, construction, engineering, industrial, mining and quality assurance and certification sectors.
Some of our recent exposure includes:
We established a specialist medical law department and assist clients with legal advice in a wide range of medical malpractice matters as both prosecution and defence attorneys. These matters involve both civil claims where professional negligence is alleged, as well as complaints against professionals lodged with their medical or professional bodies.
These professional bodies include, amongst others, the HPCSA (Health Professionals Council of South Africa), the SACSSP (South African Council for Social Services Professionals) and SAASWIP (the South African Association of Social Workers in Private Practice).
We also act for professional indemnity insurers who carry the professional negligence risks of professionals in a wide range of medical fields.
We also advise medical professionals as direct clients in all fields of medical law directly, outside insurance arrangements.
We advise on all aspects of contracts in the construction, building and engineering industry and share our in depth knowledge of the standard form construction and building contracts (including FIDIC, NEC, GCC and JBCC Agreements) with our clients.
We assist clients with contractual interpretation, contract notification and cancellation procedures, as well as claim prosecution strategies. In doing so, we develop and implement appropriate claim preparation or defensive strategies. We assist clients with the assessment and formulation of delay and disruption claims.
We also offer advice on contractual aspects in Insurance Contracts, including Construction Guarantees.
Our client base includes property developers in need of advice in relation to the legal evaluation of contractual relationships required for successful developments. We assist with drafting and vetting of such contracts and advise clients on all aspects of implementation.
We act on behalf of home builders, property developers, contractors, project managers and housing consumers in disputes with the National Home Builders Registration Council.
We also act for property owners, potential property purchasers and developers offering a full range of property related services. Some of our services include drafting of all forms of property related agreements and strategic planning advice to property developers (in consultation with town planners and land surveyors).
· Alternative Dispute Resolution (including Arbitration, Mediation and Adjudication)
Construction and Engineering disputes are often complex. The complexity arises not only from intricate contractual terms and relationships, but also sophisticated technical facts, all of which must be analysed and understood.
Construction and Engineering matters often involve large volumes of documentation to be assessed in order to develop a comprehensive and accurate factual matrix for evaluation.
Construction and engineering disputes may be dealt with through the conventional litigation processes, but are often the subject of arbitration agreements. Parties to construction agreements usually anticipate that disputes arising from the construction contract would be significant and therefore provide for the use of alternative dispute resolution procedures. This allows a party to state its case to a presiding officer with suitable technical expertise.
We are uniquely placed to provide clients with professional services in this regard. Our skills are drawn upon by a significant client base. Some of our recent exposure includes:
· The successful resolution of a claim concerning the collapse of a tubular space-frame structure in the Saldanha harbour on behalf of a major International (German) manufacturer and its insurer (claim value of R 210 million)
· The successful resolution of a claim against a fire engineering consultant and its insurer concerning the total destruction of a MassMart building through fire (claim value of R 170 million)
· Acting for a prominent property developer in a payment dispute against a major contractor concerning a high end apartment development in Sandton, Johannesburg (claim value of R 30 million)
· Acting for a chemical manufacturer and supplier and its insurer in defence of a claim related to the alleged failure of a six hectare concrete warehouse floor (claim value of R 17 million)
· Acting for a chemical manufacturer and supplier in defence of a claim concerning alleged product deficiencies incorporated into catalyst products used in the motoring industry (claim value of R 18 million)
· Acting for a major construction company, more specifically its steel manufacturing division, concerning the supply of erection materials to be incorporated into two major power station projects
· Successful resolution of a claim against a major International Authorised Inspection and Certification Agent concerning the alleged failure of pressure vessel equipment used by a global brewery in Morocco, Benin and Burkina Faso (claim value of R 12 million)
We advise on all aspects of contract administration, contractual entitlements, contract variation and claim procedures, as well as claim preparation and enforcement (or defence) strategies. We assist clients with the assessment and formulation of delay and disruption claims. Our client base includes construction claim team members, main- and sub-contractors and employers.
Some of our recent construction law exposure includes:
We act for local and international insurers and underwriters concerning insured risks in the construction, engineering, industrial, mining, manufacturing, quality assurance and certification fields. Our client base includes professional indemnity insurers, product and public liability insurers, Guarantors as well as insurers carrying project specific liability.
We act as both defence and prosecution attorneys in professional indemnity claims against design, project management and quantification professionals. We also act for insurers of product liability risks carried by designers, manufacturers, contractors as well as suppliers and distributors of products and services in the construction, engineering, chemical and industrial sectors.
Our services to insurers range from policy response advice to recovery of paid amounts from third parties.
We also act for parties involved in the construction industry regarding disputes concerning various forms of Construction Guarantees.
Some of the recent insurance law claims in the Construction and Engineering field include:
As in all legal disputes, extinctive prescription is an important factor to be considered when evaluating the merits of a claim and formulating a defence. Construction law cases, in many instances, involve not only complex contractual relationships, but also difficult technical aspects. Determining the date on which prescription starts to run involves careful factual analysis and when the actions of the reasonable person are to be factored into the debate, things can get even more difficult.
The 1969 Prescription Act provides for four different basic prescription periods. The periods are 30, 15, 6 and 3 years respectively.
Most of the cases I will be referring to relate to debts which are subject to a 3 year prescription period. I will also refer briefly to a scenario towards the end of the presentation where the 30 year period finds application.
WHEN DOES PRECRIPTION BEGIN TO RUN?
Section 12 of the Act provides as follows:
(1) … prescription shall commence to run as soon as the debt is due…
(3) A debt shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and of the facts from which the debt arises:
… a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care.”
WHEN IS THE DEBT DUE?
The decision in Martin Harris & Seuns OFS (Pty) Ltd v Qwa-Qwa Regeringsdiens 2000 (3) SA 339 (A) provides an excellent illustration of when a debt becomes due for the purposes of Section 12(1) of the Act.
The facts of this matter are briefly as follows:
– The building contract provided that the appellant would be paid after a progress certificate was issued by an architect (the principal agent) in respect of work already performed. Such certificates were issued and the appellant was duly paid.
– Within three years after completion of the works as a whole, but more than three years after uncertified sections of work was done, the appellant instituted action for an outstanding balance in respect of “uncertified” work.
– The respondent alleged that the claim had prescribed because the entitlement/debt arose when each section of work had been completed.
The Court held in the contractor’s favour and I summarise the position as follows:
– The issuing of progress certificates was only a contractual mechanism to place the contractor in a position to finance the continuation of the completion of the works.
– The completion of each specific section of the work did not entitle the appellant to receive payment for the work.
– Only upon completion of the work as a whole would the appellant have such entitlement.
– The appellant’s claim would rest upon a certificate as a separate and self-supporting cause of action, where a certificate had already been issued.
– The would then be for payment of the percentage of the value of the works for which the architect had certified.
– Prescription of the appellant’s claim (for payment for all sections which had not appeared in any certificate) began to run at the earliest when the work as a whole was completed.
The debt had therefore not become due and respondent accordingly failed in its prescription argument.
In LTA Construction v The Minister of Public Works and Land Affairs 1992 (1) SA 837 (C) the court also shed more light on the same question.
The claimant claimed for losses sustained in consequence of the delay in the commencement of the works. The building contract provided for the completion of the works within 33 months from date of acceptance of the tender. A further term was that the employer would hand over the site within a certain period. The progress on site and completion of the project were adversely affected by:
The employer’s late handover of the site (7 working days delay).
Completion delayed due to causes beyond the contractor’s control (320 working days).
The defendant then raised a prescription argument and said that the plaintiff’s claim had become prescribed because the debt claimed for became due 33 months and 10 days (7 working days and 3 non-working days) after acceptance of the tender.
This argument resulted in 16 July 1986 being calculated as being the date on which the debt was to have become due.
Summons was served on 5 December 1989.
The defendant’s argument however did not take into proper consideration that a further term of the contract provided for the contract period to be extended in the event of delays due to causes beyond the contractor’s control.
This provision extended the date on which the debt became due with a further 320 working days. The defendant was unsuccessful.
KNOWLEDGE AND DEEMED KNOWLEDGE
As we have seen Section 12(3) of the Act provides that a debt is not deemed to be due until the creditor has knowledge or is deemed to have knowledge of the identity of the debtor, as well as of the facts from which the debt arises.
In Minister of Public Works and Land Affairs v Group Five Building Limited 1999 (4) SA 12 (SCA) counsel for the contractor contended that the employer’s claim had become prescribed in terms of Section 12(1) of the Prescription Act.
The employer had allegedly become aware of the relevant facts by 30 May 1991. The contract was terminated on 3 December 1991 and the employer’s counter-claim was delivered on 1 December 1994. The contractor had therefore to prove that prescription had begun to run.
In the instant case, the date on which the employer gained knowledge of the facts from which the debt arose (30 May 1991) was irrelevant as this particular contract contained a clause which entitled the employer’s engineer to require the contractor to remedy defective work. The very earliest stage when the employer’s damages could conceivably have become due was when the contractor, who had the duty to remedy the defective work, had the last chance to do so. This was the date on which the contract was cancelled (3 December 1991).
The employer’s counter-claim was delivered on 1 December 1994 and therefore fell within the three year prescriptive period. The contractor had accordingly failed to prove that prescription had run.
THE REASONABLE PERSON
In Drennan Maud & Partners v Pennington Town Board 1998 (3) SA 200 (SCA), the appellant was a civil engineering consultancy. It designed and recommended the construction of a reinforced concrete retaining wall as the Town Board wished to protect certain properties which became threatened by the Umzinto River in Kwa-Zulu Natal. The Town Board accepted design and proceeded to engage a contractor to build the wall.
During September and November 1989 heavy rains fell and the river came into flood. Sinkholes formed in the backfill material behind the wall during this period. These developed progressively and eventually became very substantial. By January 1990 the river was flowing freely under the whole length of the wall and the Town Board were back to where they had been before the appellant was consulted and claimed was for the wasted costs of building the wall.
It was alleged by the engineers that by no later than 13 November 1989 the Town Board had knowledge of the facts from which the alleged claim arose. It was later alleged that the Town Board acquired deemed knowledge in the light of the facts known to it by the above date. The Town Board should have exercised reasonable care.
In his judgement the Honourable Mr Justice Olivier made the following statement:
“… a creditor shall be deemed to have the required knowledge ‘if he could have acquired it by exercising reasonable care’. In my view, the requirement ‘exercising reasonable care’ required diligence not only in the facts underlying the debt, but also in relation to the evaluation and significance of those facts. This means that the creditor is deemed to have the requisite knowledge if a reasonable person in his position would have adduced … the facts from which the debt arises.”
It was clear from the subsidence of the backfill material behind the wall that the design had failed and could not withstand the scouring effect of the passing flood.
As the Town Board’s claim was for the wasted costs of building the wall, the loss claimed for had already occurred when the Town Board acquired deemed knowledge that the wall did not serve the purpose for which it was designed and built and that the related costs were wasted.
The consultant’s prescription argument was therefore well founded as the respondent’s summons was issued outside of the 3 year prescription period.
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The leading role in the execution of the contract as “Engineer” (under the GCC) or “Principle Agent” (under the JBCC) requires frequent decisions and rulings on the activities on site. This function is also often underestimated and can attract significant liabilities.
Professionals in the construction and engineering industry are often appointed as the Engineer or Principle Agent. It is required of the professional fulfilling this critical function to be au fait not only with the terms of the contract, but also the execution thereof.
What are the implications of poor decision making by the Engineer or Principle Agent under these construction contracts? One instance where the courts discussed the yardstick with which the Engineer or Principle Agent is to be measured is in the case of Hawkins Hawkins & Osborn (South) (Pty) Ltd V Enviroserve Waste Management. The decision not only sets the current benchmark in this regard, but also sounds a warning to Engineers and Principle Agents to act in a reasonable manner when conducting themselves as the Employer’s representative on site.
In this case, as in many other instances in the construction and engineering industry, the Employer (Enviroserve Waste Management) concluded an oral agreement with the Engineer. The Engineer was appointed to supervise and administer certain contract works.
The Employer then entered into a written agreement with a Contractor to do excavations on a particular site. The written agreement between the Employer and the Contractor incorporated the General Conditions of Contract for Works of Civil Engineering Construction – 6th edition.
The contractor raised a dispute in relation to a “notification” of potential claims communicated to the Engineer in a letter. The Engineer did however not regard the letter as proper notification. The result of the Engineer’s decision was a deadlock between the Employer and the Contractor which had to be resolved by an Arbitrator. The Arbitrator ruled that the letter was indeed proper notification and that the contractor was entitled to claim as notified therein.
Resulting from the Arbitrator’s ruling, the Employer had to pay the Contractor’s claim, but then claimed damages for breach of contract from the Engineer in the High Court. The Employer based its claim on an allegation that the Engineer breached the agreement by failing to construe the Contractor’s letter as an appropriate notice of the intention to claim payment for additional work as contemplated in clause 50(1) of the GCC.
The initial court determined that no breach of contract had occurred as the Contractor’s letter did not constitute proper notice as contemplated in clause 50(1) of the GCC.
However, it was held by the Supreme Court of Appeal that:
“…there was no reason why the notice contemplated in GCC 50(1) could not be in the form of a letter provided the letter was so framed as to communicate unequivocally to the addressee that the writer was invoking, or relying upon, the provisions of the contract which provided for the giving of notice. It could do so expressly or by implication. In the present case, the contents of the final paragraph of the Contractor’s letter were so closely related to the substance of clause 50(1) that it satisfied that standard. The letter furnished the information required by clause 50(1) (a) and (b).”
The Contractor’s letter therefore complied with the requirements of the the agreement in that it contained all the information that was needed to represent a notification as required by clause 50(1) of the GCC. The technical approach adopted by the Engineer in dealing with the “notification” by the Contractor was not regarded as reasonable by the Court on appeal. On the contrary, the Court found that the Engineer’s conduct in this regard was not acceptable as measured against the standard of the “reasonable engineer”.
The letter therefore constituted a notice which any reasonable engineer would have construed as such. The Engineer’s failure to do so therefore constituted a breach of the Engineer’s duty of care and, consequently the agreement with the Employer. The Engineer was found liable to the Employer in the amount due and payable to the Contractor under the award of the Arbitrator in the initial arbitration between the Employer and the Contractor.
In the government white paper on Creating an Environment for Reconstruction Growth and Development in the Construction Industry in 1999, it was argued that the conventional mechanisms and procedures for final dispute resolution (normally arbitration or litigation) are too costly and time consuming.
In March 2001 government published a draft code of practice, entitled “Adjudication in Engineering and Construction Contracts in South Africa”, proposing a movetowards rapid and inexpensive dispute resolution mechanisms in said contracts.
The Construction Industry Development Board (“CIDB”) issued a draft Practice Guide for public comment in August 2003. This practice guide, published on the back of the white paper, also advocates the use of adjudication as a cost and time efficient alternative dispute resolution mechanism to arbitration and litigation.
The World Bank also advocates that adjudication procedures be used on projects which it funds.
The Principal Building Agreement of the Joint Building Contracts Committee (“JBCC”) published in March 2004, incorporated adjudication into the local construction industry even further.
ADJUDICATION – THE GENERAL PRINCIPLES
While adjudication is presently being introduced locally, many members of the construction industry remain unclear as to what adjudication is and how it is applied. Although the terms of adjudication are contract specific, adjudication can, in broad terms, be defined as being:
“… an accelerated and cost effective form of dispute resolution. The outcome is a decision by a third party intermediary which is final and binding on the parties in dispute, unless the decision is reviewed by litigation and arbitration.”
The Process and Principles of Adjudication
Any dispute arising from, or in connection with the contract should be capable of being referred to adjudication provided that the necessary terms are incorporated in the contract at the appropriate time. While the procedural requirements for referral of disputes and conducting the adjudication will vary from contract to contract, one is able to distinguish certain underlying principles:
– A party referring a dispute to adjudication must do so in writing, must submit the dispute within the time period stated in the contract with all necessary information, failing which it forfeits the right to dispute the matter.
– The terms and procedures of adjudication are agreed and detailed in the contract, which results in an informed, transparent and speedy decision. If successfully referred, each party must be given a reasonable opportunity to state their case (without a hearing), to know what the case against it is and also to be placed in possession of all evidence obtained by the adjudicator.
– Adjudicated disputes must be resolved within the contract period as the contract itself forms the basis for enforcing the decision of the adjudicator. As a general rule, all disputes are to be resolved within a 42 day period of being referred to adjudication.
– The role of an adjudicator is not that of an arbitrator. The adjudicator is tasked with settlement of the dispute within the contractual rights and obligations between the parties.
– Adjudicators must base their decisions on the subject of the dispute at hand only and must avoid conducting hearings to resolve disputes. Adjudicators should avoid individual contact with either party and may not discuss matters with a party without informing the other party of the discussion and the outcome thereof.
– It is essential to successful adjudication that adjudicators achieve a balance between an inquisitorial approach and adherence to the rules of natural justice in order to treat the parties fairly. An adjudicator may not for instance prepare his own critical path analysis and draw any conclusions from it, without affording the parties an opportunity of making submissions on the accuracy thereof.
– Adjudicators must answer all questions put to them and are normally required to provide written reasons for their decisions.
– It goes without saying that adjudication can only succeed if the adjudicator is impartial and does not have (or appear to have) any relationship with any of the parties, nor have an interest in the outcome of the adjudication.
– The adjudicator should also have the right, after notifying the parties, to refer to legal and technical experts for assistance in areas where the adjudicator recognises that he may not be adequately equipped. This provision is aimed at ensuring that justice is served, despite the fact that the adjudicator may not personally possess all the skills necessary to resolve a matter.
– The decision of the adjudicator is final and binding on the parties, unless it is reviewed by either arbitration or litigation. The decision becomes enforceable immediately, whether the dispute is to be referred for final resolution or not.
– Final resolution of the dispute may, in some instances, only be referred to arbitration or litigation after a “cooling down” period has elapsed allowing the parties to make this decision after careful consideration of the merits of their case.
CAN ADJUDICATION WORK?
Can adjudication work? One can only form a view on this with due regard of other jurisdictions where adjudication had been introduced, tried and tested.
In the United Kingdom, adjudication became mandatory on all prime contracts and sub-contracts in 1998, through the introduction of the Housing Grants Construction Regeneration Act (1996). From the following statistics (based on approximately 4 850 adjudications up to September 2001) it is clear that adjudication can provide a quick summary procedure for resolving disputes:
74% of disputes referred resulted in a decision, the balance being settled or abandoned;
76% of referrals were completed in less than 40 hours;
73% of disputes concerned non-payment; other significant issues were variations, loss / expense and points of law;
81% of adjudications involved a referral by a party lower in the construction chain;
Almost 50 % of all referrals were by sub-contractors against main contractors; and
68% of decisions were in favour of the referring party.
There can thus be little doubt that adjudication has had a marked influence on the construction industry in the United Kingdom.
The high percentage of adjudications relating to “non-payment” issues does seem to indicate that where disputes are more complex, such as negligent design or construction, and are likely to affect further contracts (such as insurance policies), parties may be more reluctant to resolve matters through adjudication.
A further point of concern is the immediate enforceability of decisions. A party facing an adverse award may for instance be obliged to make payment to a party in severe financial difficulty. Should the decision of the adjudicator then be determined as incorrect by a later forum, the party at the wrong end of the adjudicator’s decision then runs the risk that the recovery of monies paid may no longer be possible.
ADJUDICATION IN THE FUTURE
It is clear that adjudication can, and probably will, play a major role in the local construction industry as an additional alternative dispute resolution mechanism. A good working knowledge of processes, procedures and pitfalls under the various standard forms of construction contracts will be a pre-requisite in future negotiations of contracts.
Adhering to the procedural requirements for declaring, conducting and settlement of disputes will require some level of skill and specialisation to effectively protect a party’s rights under the contract.
The procedural and specific requirements of a number of the standard construction agreements, such as FIDIC, BIFSA, JBCC and NEC will form the subject matter of a series of future publications.
The Construction and Engineering Law team at Markram Inc has the expertise to assist clients involved in disputes where adjudication is the selected dispute resolution mechanism.
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In an industry where specialisation is key, the right combination of expertise is essential.
The founding director, Hendrik Markram, is not only an attorney, but also a qualified civil engineer and is a construction and engineering law specialist. He draws on his technical knowledge to offer sound legal advice to the construction and engineering sectors.
Amelia Markram combines her masters degree in contract law with her experience in the field of property law to advise clients in the commercial property sector.
Our specialist practice areas include Construction Law, Construction and Engineering Disputes, including Alternative Dispute Resolution, Insurance Law, Construction Guarantees, Property Law, Industrial Law, Product Liability Law, Medical Law and Law of Contract.
The standard industry contract suites, including the Joint Building Contracts Committee (JBCC) series, Fédéderation Internatinnale des Ingénieurs-Conseils (FIDIC), New Engineering Contracts (NEC) and General Conditions of Contract (GCC) are specific to our areas of expertise.