The compulsory effect of an adjudicator in construction disputes

In Transnet Soc. Ltd v Group Five Construction (Pty) Ltd and others (9 February 2016), the court dealt with the interpretation of the provisions of a NEC Building and Construction Contract, particularly the clause dealing with dispute resolution.

This contract governed the design, supply, erection and testing of accumulators by Group Five Construction Company at a specific terminal of a pipeline that formed part of the so–called New Multi Products Pipeline Project (NMPP) project.

At the center of the dispute was the Transnet that contended the proper interpretation of the contract. This contract provided that the adjudicator was appointed as the adjudicator for all disputes arising under, or in connection with the contract, in terms of the contract. Transnet accordingly sought an order declaring (legally confirming) this provision.

Group Five Construction, on the other hand, contended that it was impermissible for Transnet to approach the court for the said declaration order because the contract provided for an arbitration process of all disputes between the parties, and that on proper interpretation of the contract, the parties contemplated the appointment of multiple adjudicators or ad hoc adjudicators for each dispute that may arise during the course of the project.

Group Five Construction further applied for an order to estopp Transnet from contending that the contract provided for the appointment of only one adjudicator because of its post–contractual conduct in actively participating in the appointment of different adjudicators. Group Five Construction opined that this was consistent with the interpretation that multiple ad hoc adjudicators were contemplated by the parties.

Contract

Within the optional provisions of a general NEC contract, parties select option W1, which comprises a form relating to dispute resolution procedures, including the appointment of an adjudicator and an arbitration process in the event of a party being dissatisfied with a decision of the adjudicator.

The Adjudicator

The adjudicator played a mediation role and if any party was dissatisfied with the decision of the adjudicator, it will then invoke an arbitration process.

The adjudicator is chosen by the parties and if parties have not selected an adjudicator, either party may ask the Association of Arbitrators of South Africa (AASA) to allocate one.

The adjudicator’s decision is binding on the parties unless, and until revised by the tribunal and is enforceable as a matter of contractual obligation between the parties and not as an arbitration award.

A party that is dissatisfied with the decision of the adjudicator may refer the dispute to the tribunal:

  • within 4 (four) weeks of being notified of the adjudicator’s decision; or
  • within 4 (four) weeks of the date by which the adjudicator should have given notice of his decision, provided that the aggrieved party also notified the other party of its intention to refer the dispute to the tribunal.

Tribunal

The Chairman of the AASA chooses the arbitrator if parties cannot agree on the choice of an arbitrator.

Jurisdiction – Point in limine

Group Five Construction raised a point in limine that the court should decline to determine the issue at hand, and refuse the application because the Transnet has not complied with the agreed dispute resolution process by following the arbitration process.

Group Five Construction argued that the question was whether or not Transnet should be permitted to bypass the arbitration process to which it had agreed to in the contract and referred to Zhongi development Construction Engineering Co. Ltd v kamota Copper Co.SARL 2005 (10 SA 345 SCA where the applicant in the cited case was not permitted to do so and this court should similarly refuse the application.

The Court held that our courts are generally not entitled to determine issues that fall within the province of an arbitrator in terms of that process unless an order has been granted in terms of section 3(2)(b) of the Arbitration Act No. 42 of 1965.

The Court subsequently refused the above application

Interpretation of the contract relating to the appointment of an adjudicator

The court applied the principles of interpretation to the disputed provisions of the contract, in particular clauses 11 and 12.

The Court found that clause 11 W1.1 of the contract provided that “The adjudicator is to be appointed….. if and when a dispute arises”. Clause 11 W1.2 provided that “A dispute arising under or in connection with this contract it is to be referred to and decided by the Adjudicator”.

The Court held that although these clauses refer to the Adjudicator in the singular, clause 12.1 contemplated the plural as well. This clause provided that “In this contract, except where the context shows otherwise, words in the singular also mean in the plural and the other way around.”

The Court further held that the words “…if and when a dispute arises” may be ambiguous. The words could mean that an adjudicator is appointed initially “if and when a dispute arises” and then retains such appointment throughout the period of the project, as the applicant contended in this matter.

The words could equally mean that an ad hoc  adjudicator is appointed “if and when a dispute arises” for that dispute only and another ad hoc adjudicator may be appointed “if and when”‘ each subsequent dispute arises.

Construed in the context of the contract as a whole that provided for the design, supply, erection and testing of accumulators, the parties, as rational businessmen are likely to have intended that multiple disputes could have arisen during the course of the project and that the determination of these disputes would have required  the expertise of ad hoc adjudicators from different disciplines or experience or, depending upon the number of disputes at any given time, more than one ad hoc adjudicator. This intention would be sensible, practical and businesslike and would have ensured that the dispute is resolved as expeditiously as possible so that the project is not held back by the existence of the dispute.

In addition, the subsequent conduct of the parties underscores the parties’ intention that ad hoc adjudicators could be appointed. Advocate Lane SC was appointed to adjudicate the “tank dispute” only and not to adjudicate every dispute that subsequently arose. Transnet’s Project Manager also suggested that an alternative adjudicator be chosen for the “radii dispute”.

The Court dismissed the application with costs and found it unnecessary to decide the third point on estoppel raised by Group Five Construction.

The adjudicator is therefore a third-party intermediary appointed to resolve a dispute between the disputants. The decision of the adjudicator is binding and final, unless it is later reviewed by either arbitration or court proceedings, whichever the parties selected at the time of formalising the contract.

Adjudication is intended to be a condition precedent to either arbitration or litigation. Where the contract explicitly requires this, the parties cannot directly approach a court of law for any relief. This is a fundamental rule in construction disputes where the parties have expressly subjected all their disputes to adjudication.

A Defendant/Respondent will most likely be successful with a point in limine where an applicant who approached a court of law has not complied with the agreed dispute resolution.

by John Letsoalo
johnl@dyason.co.za

Product liability not restricted to “consumers” only

In the case of Halstead-Cleak, Derek Anthony vs Eskom Holdings Limited (26360/2014) [2015] VAT ZAGPPHC, Eskom was held liable for the damages suffered by Mr Halstead-Cleak as a result of the injuries he sustained after coming into contact with a with a low hanging live power line. Halstead- Cleak was riding his bicycle on a footpath when he inadvertently came into contact with a low hanging live power line and sustained severe full thickness electrical burns on his forehead, chest, arms and thighs.

The issue that had to be determined was whether or not Eskom Holdings could be held strictly liable in terms of section 61 of the Consumer Protection Act 68 of 2008 (CPA).

Section 61 of the CPA holds the producer, distributor or retailer liable of any harm caused wholly or partially as a consequence of:

  • the supplying of unsafe goods;
  • a product failure, defect or hazards in any goods; or
  • inadequate instructions or warnings provided to the consumer pertaining to any hazards arising from or associated with the use of any goods.

The producer, importer, distributor, or retailer will be held liable in irrespective of whether the harm resulted from any negligence on their part.

Eskom Holdings argued that the “…CPA is about consumerism and the protection of the consumers and that had the Plaintiff suffered the electrical burns in the course of utilizing the supply of the electricity to his home or otherwise in the course of his use of electricity then the CPA might have applied.”  In other words since the Plaintiff was not the user (or consumer in the strict sense of the word) the CPA cannot apply to him in this case.

The court held that the CPA was applicable in this instance because the CPA provides protection to, and redress for any person in a number of its provisions, with other words, the CPA provisions are not only restricted to consumers. Section 60 and 61 are even applicable to transactions that are exempted from the provisions of the CPA, which is inductive of its wider application, thus affording redress to persons that would not have enjoyed the advantage of other provisions of the CPA and rendering liable those producers, suppliers, promoters and the like who would otherwise not be liable in terms of any other provisions of the CPA.

The court further referred to section 61(5) and stated that this section makes it clear that liability arises not only in respect of consumers as defined in the CPA or consumers in the general sense but to any natural person as well. Thus Halstead-Cleak need not be a consumer in the contractual sense of the word, as contended by Eskom Holdings, in order for Eskom Holdings to be liable to him.

When looking at the definition of a consumer as provided for in section 1 of the CPA it could be viewed that the application of this act does not extend to a bystander who is not a consumer as defined, such as Halstead-Cleak who suffered electrical burns as a result of coming into contact with a low hanging live power line while riding his bicycle, and not as a consumer of goods, the electricity supplied by Eskom Holdings in the sense of utilizing the supply of electricity to his home or otherwise in the course of his use of the electricity. One may question the correctness of the judgement.

However, if the definition of a consumer in the CPA is carefully examined, more specifically subsection (c) which states that a consumer can be “…if the context so requires or permits, a user of those particular goods or receipt or beneficiary of those particular services irrespective of whether that user, receipt or beneficiary was a party to a transaction concerning the supply of those particular goods or services.”,  it can be said the situation such as the one in the Halstead-Cleak-case, may be covered by the CPA.

In addition section 61 (5) indicates the harm which a person may be held liable for, which includes the death of, or injury to any natural person and any illness of any natural person. Thus liability can also arise not only in respect of a consumer, but also to any natural person as confirmed by the court.

The judgement as it stands has far reaching implications: a producer, importer, distributor or retailer, as case may be, may now be held liable, not only for harm suffered by consumers of goods or services supplied by them, but also to bystanders. This drastically increases the liability of roll players in the supply chain and makes product liability insurers very nervous.

by Kgolofelo Makhuthudisa
kgolofelo@dyason.co.za

BioLAWgic – Snippets about Gene Editing

“Clustered regulatory interspaced short palindromic repeats”, better known as CRISPR-Cas9 (pronounced as “crisper”) is one of the biggest biotech inventions that has the potential to change the human race, as we know it, forever. The function of CRISPR-Cas9 as gene editing tool is described by the Nuffield Council on Bioethics (UK) as “…the alteration of a selected DNA sequence in a living cell by cutting the DNA molecule at a chosen point and either removing existing elements of the genome or deliberately introducing a new sequence.” The editing of genes through this method offers the possibility of treatment for debilitating genetic disorders, the improvement of fertility treatments and the successful treatment of haemophilia, sickle-cell anaemia and muscular dystrophy, to name a view.

In addition to CRISPR’s significant therapeutic possibilities, its further significance lies in the fact that any alterations to “germ cells” (sperm and egg cells) will be inherited by future generations. Although the alteration of defective genes to prevent or cure genetic diseases is a definite benefit of CRISPR technology, the Centre for Genetics and Society (USA) has warned that this technology may give rise to so-called “designer babies” which will further divide populations into “haves” and “have-nots” depending on their connections and financial means. Sex selection for “non-medical” reasons to avoid having a child with a sex-linked diseases is already allowed in countries such as Belgium, Canada, China, Germany, India, Netherlands, Russia and the United Kingdom (amongst other), whilst strictly prohibited in Austria, New Zealand, South Korea, Switzerland and Vietnam. Section 57(1)(a) of the South African National Health Act 61 of 2003 strictly prohibits the manipulation of any genetic material of human gametes, thereby prohibiting not only sex selection, but also gene editing in general in respect of reproductive cloning of human beings.

Although CRISPR technology is not yet available as medical treatment, and will not be for a number of years until its safety and efficacy has been sufficiently proven in clinical trials, thorough consideration of the legal-ethical issues involving this technology became pressing when China published research in April 2015, announcing that they have created the first genetically modified human embryos. In reaction the National Institutes of Health (NIH) confirmed their long standing concerns about the safety of the technique and the ethical implications of altering genes that will be passed to future generations of humans and reaffirmed their ban on research that involves gene editing of human embryos on 29 April 2015.

In September 2015 these issues became critical when Dr Kathy Niakan of the Francis Crick Institute (London) submitted the first application to the UK Human Fertilisation and Embryology Authority (HFEA) to pursue genome editing research in viable human embryos. A research proposal the Executive Director of the Centre for Genetics and Society (USA), Dr Marcy Darnovsky, called “…a troubling and provocative move.” Contrary to prohibiting legislation in other countries, no similar legal protection exists in the USA which raises his fear that by allowing this kind of research it will “…open the door to a world of genetically modified humans.”

Subsequently an International Summit on Human Gene Editing, hosted by the National Academy of Science, National Academy of Medicine, Chinese Academy of Science and The Royal Society was held in December 2015 to discuss future and implications of human gene editing and address the need for universal guidance in view of the different sets of rules governing this technology in different countries. This summit resulted in multi perspective and organised debate which concluded in the following consensus statements:

  1. It was agreed that basic and pre-clinical research on genome editing should continue to further study this technology and to investigate its potential benefits and risks, especially in view of science’s current limited knowledge of human embryology. It was also agreed that researchers that do use editing on human embryos to modify early embryos of germlines should not allow these to be used to establish a pregnancy;
  2. Although changes to somatic cell genomes, such as the editing of genes for sickle-cell anaemia in blood cells, are not passed on from one generation to the next, the risks of possible off-target effects of inaccurate editing must still be assessed in clinical trials;
  3. The clinical uses of gene editing in germline cells which will allow the prevention of genetic disease or potentially enhance human capabilities are ultimately passed on to subsequent generations. The summit acknowledged their obligation towards generations which will ultimately carry these genetic alterations and the idea that once these alterations have been made, it will be near impossible to remove those changes which can lead to social inequalities and associated moral and ethical considerations;
  4. The need for an ongoing forum, inclusive across all nations to include a broad range of perspectives to discuss future research and clinical uses was also established.

Substantive and clear answers to all the legal and ethical questions arising from human gene editing will not be available as long as this technology keeps on developing and research results keep on evolving.

On 1 February 2016, the UK HFEA approved Dr Niakan’s above application to edit the genomes of human embryos for research purposes with view of eventually developing treatments for infertility, although genome editing will not form the basis of such therapy.

Active debate regarding human genome editing is thus ongoing, important and exciting! Please contact writer hereof at the below e-mail address with your questions and comments in this regard.

by Marietjie Botes
marietjie@dyason.co.za