FEATURE
INCORPORATING COLD CHAIN
of the various parties to the agreement
after termination and these remain in
force after termination by contractual
stipulation. In terms of clause 38.3, these
provisions are listed under sub-clauses
38.5.1 to 38.5.9 and are dealt with
individually under the bulleted headings
hereunder.
Neither party can force the other to
continue the N/S works after termination. It
is submitted that, unless the subcontractor
is adamantly opposed to completing the
N/S works, it is normally in the innocent
employer’s interests to try to negotiate a
continuation rather than a final parting.
Although not always practically accessible
(for example, with liquidity issues), the
employer who is not in default potentially
has a claim for damages to the extent
that extra costs are reasonably incurred.
Aside from the common law obligation
to mitigate damages, an employer also
normally has a very keen interest in avoiding
delays and excessive costs because of
practical limitations on funds available to
it and the need for the investment to be
financially active and viable. An astute
subcontractor is able to gauge through
negotiations with the employer, the tipping
point where the latter will find the benefits
of retaining the subcontractor’s services
are outweighed by the burden of the
subcontractor’s terms for completion of the
N/S works.
All parties have access to urgent
interdicts to enforce their immediate
rights and should use them without
procrastination in the event of any threat to
their rights.
POSSESSION, RESERVATION OF
OWNERSHIP AND LIENS
It is not uncommon for the employer
to issue notice of termination and then
to have its security personnel occupy
the site and evict all persons from the
site shortly after. It is this latter action
that may embarrass the employer. The
installation of its own security on site
is not necessarily an illegal action as,
on termination, the employer acquires
certain rights such as those in terms of
PBA clause 36.5.5 ‘The employer may
employ other parties to safeguard the
works, complete the outstanding work
…” and PBA clause 36.5.6 ‘The employer
may use the contractor’s materials…
plant… machinery’ which means that
the employer is contractually entitled to
secure the works on termination and to
take over and use materials, plant and
machinery that are on site to complete
the works.
The danger to the employer, if it takes
over the site aggressively and evicts the
contractor, is that it could be seen as
taking the law into its own hands 2 and a
spoliation order could be available to
the contractor in such cases. Per Gorven
J at paragraph 4 in Taddese and others
v Peer NO and others (5250/2016) [2016]
ZAKZDHC 26 (4 August 2016), quoting in
turn from Ivanov v North West Gambling
Board & others 2012 (6) SA 67 (SCA) para
19 and based on Voet 41.2.16:
‘There are only two requirements for
spoliatory relief; that the applicants were
in peaceful and undisturbed possession
of the disputed premises and that they
were deprived of that possession without
consent or recourse to law. The fact that
the applicants’ possession is wrongful or
illegal is irrelevant. The underlying rationale
is that persons should not take the law into
their own hands. If these two requirements
are proved, possession is restored without
any enquiry being made into the legal
rights of the parties to possession.’
It is submitted that the employer
should act decisively in accordance
with the terms on which it relies but take
great care to avoid any unreasonable
force in carrying out its actions so as not
to run afoul of these legal principles. If
there are potential liens it should ensure
they are noted by the principal agent
and respected and dealt with to avoid
conduct that could also constitute
dispossession. It should particularly not
prevent reasonable access for senior staff
who may need to be involved in assessing
the work status report and final account
matters and should also not be seen
to be taking over any goods of which
it is not entitled to take over control or
possession.
The subcontractor has similar rights
which are equally enforceable, but it
may have to found and enforce them
differently and should seek legal advice as
it would have difficulty proving peaceful
and undisturbed possession of a site 3 . The
right to the enforcement of a lien by a
subcontractor is only available through a
claim for compensation which it secures.
The subcontractor should distinguish
between its right to ownership of materials
not ‘delivered’ to the employer in terms
of the applicable common law and the
contract (which is, any reservation of
ownership it may be entitled to enforce)
and a debtor’s lien it may have over
goods. The latter requires that the lien
protects a sum which is already due and
payable. The need for the subcontractor
to have well-marked lockable stores
for its materials 4 and stickers on any
definable and detachable goods such
as plant, buildings and independent
structures, should be evident from these
considerations.
In the case of an employer with a
legitimate complaint and with honourable
intentions there is a degree of benefit
if it acts decisively in that all evidence
and work is protected. However, where
an employer is intent on protecting its
own patrimonial interests at all costs, it
may well result in the dispossession of
the subcontractors’ property and an
attempt to alienate its liens leaving it to
the subcontractor to attempt to recover
revenue from the contractor (see also the
Buzzard Electrical vs 158 Jan Smuts Avenue
Investments and other 1996 (4) SA 19 (A),
which found that the subcontractor has no
enrichment claims against the employer).
In such cases the establishment of liens
and rights of ownership on materials
delivered but not yet paid is important and
immediate employment of experienced
legal practitioners, preferably before the
termination is implemented, becomes very
important in addition to the enforcement
of the NSSA provisions.
GUARANTEES AND SECURITY
Although a discussion of the subcontractor’s
liability in terms of its guarantees falls outside
the scope of this article, a brief mention is
appropriate.
1. With regards to payment guarantee
by the contractor to the subcontractor
(which is an on-demand guarantee),
the existing guarantees, in terms of their
own provisions, remain in force until the
earlier of:
b. the settlement of the final payment
advice in terms of the Agreement; or
c. on payment in full of the Guaranteed
Sum; or
d. the Guarantee expiry date.
This last option is particularly important
because it is not uncommon for the
guarantor to seek to insert such a date on
the basis of the construction programme.
Whilst the contract is in process, there are
2.
3.
4.
When a principal building agreement is terminated, the effect cascades down to numerous
subcontractors and suppliers who are most often actually the ultimate risk bearers on behalf
of the contractor.
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5.
remedies available to enforce renewal of
the guarantee when it expires before the
issue of the final payment advice but, after
termination there is little a subcontractor
can do and for this reason the insertion of
an expiry date should be carefully weighed
against the effect of and possibility of
termination.
2. With regards to the subcontractor’s
construction guarantee which at
clause 11 specifically provides only for
expiry:
a. in terms of clauses 1.1.4 (issue of the
final payment advice for variable
guarantees); or
b. clause 2.1 (the last certificate of
practical completion for fixed
guarantees with cash retention until
final payment advice); or
c. in terms of clause 14.7.1 (cash retention
sum reducing after the issue of the final
payment advice).
Therefore, the construction guarantee or
cash retention remains in force until the
issue of the Final Payment Advice unless
a specific expiry date supervenes. It is
submitted that, where no call is made
on a construction guarantee, its value
would be as applicable at the date of
termination.
Payment by the guarantor is inter alia
dependent on the contractor’s bare
allegation of either:
a. a failure to make payment to the
contractor in terms of a payment
advice statement (which is issued by
the contractor); or
b. termination of the subcontract due to
the subcontractor’s default.
Both these averments are entirely in the
contractor’s control and the guarantor
is not able to contest the release of the
sum on the basis of any dispute as to the
correctness of the contractor’s averment
because such a dispute falls outside the
terms of the guarantee and only within
the provisions of the N/S agreement
which are not part of the guarantee. A
subcontractor terminating in terms of
clause 38.3 could find itself unable to
oppose the contractor’s collection of
the sum guaranteed and should ensure it
has considered this possibility, especially
where insolvency of the contractor has
supervened and the liquidator is trying to
augment the funds available to it 5 .
The advance payment guarantee,
which is a guarantee between the
subcontractor and the employer, is
dealt with in terms of clause 38.5.8 (to be
discussed in the next article).
*Note: this is not a legal opinion and no
liability for reliance on its contents attaches
to the writer or sender.
To be continued in an upcoming edition
of Cold Link Africa. CLA
‘It is a fundamental principle that no man is allowed to take the law into his own hands; no one is permitted to dispossess another
forcibly or wrongfully and against his consent of the possession of property, whether movable or immovable. If he does so, the
Court will summarily restore the status quo ante, and will do that as a preliminary to any inquiry or investigation into the merits of
the dispute.’ (Nino Bonino v De Lange 1906 TS 120 at 122)
The legal definition of this term falls outside the scope of this article.
Breaking a lock and entering a store as well as removing stickers are examples of taking the law into one’s hands and subject to
challenge.
There is a great need for the provisions of the JBCC construction guarantee to be reviewed but in the meantime subcontractors
need to consider making provision in the wording for a requirement for a reciprocal payment guarantee in the same amount as
the claim against the construction guarantee where dispute resolution procedures have been initiated to contest the validity of
the claim.
COLD LINK AFRICA •
OCTOBER 2019